VOLVO GROUP

ANNUAL AND SUSTAINABILIT Y REPORT

2020

SHAPING THE FUTURE

OF TRANS­PORTATION
AND INFRASTRUCTURE
 A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP

OUR CUSTOMERS
MAKE SOCIETIES
WORK
The Volvo Group’s mission is to drive prosperity through transport and infra-
structure solutions. We continuously develop our products and services to
increase the value for our customers, to support sustainable societies and to
promote the well-being and safety of people.
­Driving prosperity ­socially, environmentally and financially means ­striving
for transport and infrastructure s­ olutions that are 100% safe, 100% f­ ossil-free
and 100% more productive.

The Volvo Group’s products and services contribute to much of what we all expect of a well-­
functioning and prosperous society, since our trucks, buses, construction equipment, power
solutions for marine and industrial applications, financing and services are involved in many
activities that most of us rely on every day. The majority of the Volvo Group’s customers are
companies within the transportation or infrastructure industries. The reliability and productivity
of our products and services are important, and in many cases crucial, to their success and
profitability.

ON THE ROAD
Our products and services help ensure that people have food
on the table, can travel to their destination and have roads to
drive on. They also deliver industrial goods to keep production
plants running.

OFF ROAD
Engines, machines and vehicles from the Volvo Group are used
to mine iron ore, transport timber or haul stone and rock. They
also power vital irrigation installations all over the world, so
that farmers can grow their crops.

IN THE CITY
Our buses take people to work or school, trucks collect rubbish
and gensets are used as backup power. Our products are also
used to build housing as well as industrial and sports facilities.

AT SEA
Our products and services are there, regardless of whether
someone is at work on a ship, traveling to work on a ferry, on
holiday in a pleasure boat or needs urgent help from the sea
rescue services.
A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP

1
 A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP

A GLOBAL GROUP
WITH STRONG
POSITIONS
The Volvo Group offers transport- and infrastructure solutions with trucks,
buses, construction equipment, power solutions for marine and industrial
applications, financing and services that increase our customers’ uptime
and productivity. Founded in 1927, the Volvo Group is committed to shaping
the future landscape of sustainable transport and infrastructure solutions.
The Volvo Group is headquartered in Gothenburg, Sweden, employs almost
100,000 people and serves customers in more than 190 markets.

Competitive products
The Volvo Group’s products contribute to efficient transport and infrastructure solutions
and provide our customers with uptime. We drive the development of electrified vehicles
and machines as well as automated solutions for the benefit of customers, society and the
environment. Sales of vehicles and machines build a population of products that drive
spare parts sales and service revenue.

World-class services
In addition to vehicles and machines, our offering includes various types of services such
as financing, insurance, rentals, spare parts, repairs, preventive maintenance, service agree-
ments and assistance services. The range and flexibility of the offering means that solutions
can be tailor-made for each customer to maximize uptime and productivity. The service busi-
ness contributes to balancing the fluctuations in the sales of new products and improving
profitability over the business cycle. Growing the service business is an area of priority.

Strong positions globally

Thanks to competitive product programs, strong dealers with extensive service networks
and increasingly more complete offerings, the Volvo Group has established leading positions
globally. We are one of the world’s largest manufacturers of heavy-duty trucks, construction
equipment, buses and heavy-duty combustion engines as well as a leading supplier of marine
and industrial engines. These positions provide for economies of scale in product develop-
ment, production, purchasing and financial services.

Strong brands
The Volvo Group’s brand portfolio consists of Volvo, Volvo Penta, UD Trucks, Terex Trucks,
Renault Trucks, Prevost, Nova Bus, Mack and Arquus. We partner in alliances and joint
ventures with the SDLG, Eicher and Dongfeng brands. By offering products and services
under different brands, we address many different customer and market segments in
mature as well as growth markets.

Partnerships and collaborations with leading companies

New technologies are developing at a faster pace than ever before. Staying at the forefront
is vital to be successful, and that is why we work in collaborations and partnerships with
other leading companies. We have partnered with Samsung SDI regarding the development
of battery packs for our trucks. We are in the process of establishing a joint venture with
Daimler Truck with the intention to develop, produce and commercialize fuel cell systems
for heavy-duty vehicle applications and other use cases. And we have an agreement with
NVIDIA to jointly develop the decision-making system of autonomous commercial vehi-
cles and machines.

2
 A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP

VOLVO GROUP MARKET SHARES IN HEAVY-DUTY TRUCKS

North America Europe

16.3% 25.0%
Brazil Japan

22.2% 18.9%
SHARE OF NET SALES BY MARKET

Europe

North America
40%
24% Asia

24%

South America Africa and Oceania

6% 6%

SHARE OF NET SALES BY SEGMENT SHARE OF NET SALES BY REVENUE TYPE

Trucks, 61%

Group Functions & Other, 2% Vehicles, 73%

Financial Services, 4% Financial Services, 4%
Volvo Penta, 3% Services, 23%
Buses, 6%

Construction Equipment, 24%

3
 CONTENT .

A GLOBAL GROUP
OVERVIEW
This is the Volvo Group . . . . . . . . . . . . . . . . . 1
2020 in brief . . . . . . . . . . . . . . . . . . . . . . . . . 5
CEO comments . . . . . . . . . . . . . . . . . . . . . 6

STRATEGY
The future of transportation
and infrastructure . . . . . . . . . . . . . . . . . . . . . 8
Driving prosperity . . . . . . . . . . . . . . . . . . 10
Perform and transform . . . . . . . . . . . . . . 12
Seven strategic priorities . . . . . . . . . . . . . . 15
Financial targets . . . . . . . . . . . . . . . . . . . . . 16

BUSINESS MODEL
Value chain . . . . . . . . . . . . . . . . . . . . . . . . 18
Customers . . . . . . . . . . . . . . . . . . . . . . . 20
Climate . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Resources . . . . . . . . . . . . . . . . . . . . . . . 30
People . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

GROUP PERFORMANCE
BOARD OF DIRECTORS’ REPORT 2020
Significant events . . . . . . . . . . . . . . . . . 40
Financial performance . . . . . . . . . . . . . . 42
Financial position . . . . . . . . . . . . . . . . . . 45
Cash flow statement . . . . . . . . . . . . . . . 50
Business Areas . . . . . . . . . . . . . . . . . . . . 52
Financial management . . . . . . . . . . . . . 64
Changes in consolidated equity . . . . . . 65
The share . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Risks and uncertainties . . . . . . . . . . . . 68
Statutory sustainability report . . . . . . . 76

NOTES
Notes to the financial statements . . . . 77
Parent Company AB Volvo . . . . . . . . . 138

SUSTAINABILIT Y NOTES
Group sustainability disclosures . . . . . 150
Climate and environment . . . . . . . . . . . 152
Employees and development . . . . . . . 159
Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Human rights . . . . . . . . . . . . . . . . . . . . . 165
Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 167
Business ethics and compliance . . . . 169

CORPORATE GOVERNANCE
 he Volvo Group’s formal financial reports are presented on pages 40–149,
T
Corporate Governance Report . . . . . . 172
188–190 and 194–196 and have been audited by the c ­ ompany’s auditors.
Board of Directors . . . . . . . . . . . . . . . . . . . 178
For information on which pages constitute the Volvo Group’s Statutory
Group Executive Board . . . . . . . . . . . . . . 184 ­Sustainability Report, please see page 76.
 ustainability information can be found integrated in the Group overview
S
OTHER INFORMATION on pages 6–39, in the Sustainability Notes on pages 150–171 and on page
Proposed remuneration policy . . . . . . 188 175 and 182 in the Corporate Governance Report.
Proposed disposition of
unappropriated earnings . . . . . . . . . . . . . 190
Audit report for AB Volvo (publ) . . . . . . . 191 On the cover: After the successful introduction of serial produced electric trucks for
Key Ratios . . . . . . . . . . . . . . . . . . . . . . . . 194 urban transport and refuse collection, Volvo Trucks has deployed fully electric heavy-
Eleven-year summary . . . . . . . . . . . . . . . . 197 duty con­s truction trucks along with charging solutions for test in real operations with
Annual General Meeting . . . . . . . . . . . . 206 customer Swerock.
Preliminary financial calendar . . . . . . . . 206

4
 A GLOBAL GROUP 2020 OVERVIEW 2020 IN BRIEF

2 0 2 0 I N B R I E F

GOOD PROFITABILITY DESPITE

IMPACT FROM COVID-19

 Net sales decreased by 22% to SEK 338 billion K E Y R AT I O S 2020 2019

(432). Currency-­adjusted net sales decreased Net sales, SEK M 338,446 431,980
by 18%. Adjusted operating income¹, SEK M 28,564 47,910
Adjusted operating margin, % 8.4 11.1
 Adjusted operating income1 amounted to Operating income, SEK M 27,484 49,531
SEK 28,564 M (47,910), c ­ orresponding to Operating margin, % 8.1 11.5
an ­adjusted operating margin of 8.4% (11.1). Income after financial items, SEK M 25,917 46,832
Income for the period, SEK M 20,074 36,495
 Operating cash flow of SEK 18.5 billion (38.3) Diluted earnings per share, SEK 9.50 17.64
in the ­Industrial Operations. Dividend per share, SEK 15.002 0
Operating cash flow, ­Industrial
 Strong financial position with net financial assets ­Operations, SEK M 18,545 38,309

of SEK 74.7 ­billion in the Industrial Operations, Net financial position excl. provisions for
post-employment benefits and lease
excluding provisions for post-­employment ­liabilities, Industrial Operations, SEK bn 74.7 62.6
­benefits and lease liabilities. Return on capital employed in Industrial
Operations, % 14.7 28.4
 The Board of Directors proposes an ordinary Return on shareholders’ equity, % 13.8 27.0
Total number of employees 96,194 103,985
­dividend of SEK 6.00 per share and an
Share of women, % 19 19
extra ­dividend of SEK 9.00 per share. Share of women, presidents and
other senior executives, % 26 26
 Agreement with Isuzu Motors regarding the Energy use per net sales, Industrial
f­ ormation of a ­strategic alliance, which includes ­Operations, MWh/SEK M 5.6 5.1
the divestment of UD Trucks to Isuzu Motors. Total CO2 emissions per net sales,
Industrial Operations, tons/SEK M
(scope 1 & 2) 0.8 0.8
 Agreement with Daimler Truck AG for fuel-cell Share of direct material purchasing
joint venture. spend from suppliers having made a
CSR self-­assessment, % 95 92

Net sales  djusted operating

A Operating income Operating cash flow ­ Net financial position
SEK bn income1 SEK bn  SEK bn Industrial ­Operations excl. post-employment
A djusted operating Operating
 margin SEK bn benefits and lease liabilities
­margin %  % Industrial Operations
SEK bn
74.7
338

47,9
28.6

27.5

18.5

62.6
43.9
26.3
38.3
28.4

–1.2
26.6
47.9
29.3

3.5
20.8
40.7

34.5

49.5
29.7
333
302

432

21.1
391

16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20
7.0 8.8 10.4 11.1 8.4 6.9 8.9 8.8 11.5 8.1

1 For more information on adjusted operating income, please see Key Ratios on page 194.
2 Proposed by the Board of Directors. SEK 6.00 per share in ordinary dividend and SEK 9.00 per share in extra dividend.
Unless otherwise stated, all comparisons refer to the same period or the same date of the preceding year.

5
 A GLOBAL GROUP 2020 OVERVIEW CEO COMMENTS

We demonstrated that we have significantly improved our volume

and cost flexibility, which were crucial factors behind our earnings

CEO COMMENTS resilience in 2020. Despite a loss of almost SEK 100 billion in
­revenues, we were able to deliver an adjusted operating income of
SEK 28.6 billion with a margin of 8.4%. I would like to thank all my
colleagues and our business partners for their fantastic efforts in
very difficult circumstances.

A YEAR WITH After several years of high activity levels, we entered 2020 well
­prepared to handle lower demand, but no one could have foreseen a
situation where, within a few days, we stopped large parts of our global

MANY
production system and were forced to temporarily lay off tens of thou-
sands of employees for several weeks due to the global Covid-19
pandemic.
With health and safety as the highest priority, we focused on our

CHALLENGES colleagues and customers, on our cash flow and our costs. Thanks
to the great commitment of our employees and business partners,
we were able to help our customers keep their businesses running,
which in many cases are so crucial for society to function, such as
securing food and medical supplies and other socially critical activities.
In 2020, the global pandemic presented us with At the same time, we reduced other activities to a minimum to cre-
challenges unprecedented in modern times. ate flexibility and room to maneuver.
When it then became possible to restart production, we worked
Together with business partners and suppliers,
closely with our suppliers to keep pace with the recovery in demand.
we supported our customers through all stages The way we have handled – and continue to handle – this crisis has
of the crisis. We handled dramatic fluctuations made me even more convinced of the power that exists in the Volvo
in demand while taking decisive steps forward Group to both cope with and drive change. We have shown great
volume flexibility, which has been possible thanks to the great
towards tomorrow's fossil-free transport
­competence and the fantastic commitment of colleagues all over
system. the world and a good collaboration with our business partners. The
crisis has also shown the importance of being able to act quickly,
dare to make decisions and take responsibility locally and regionally.
We will continue our path of decentralization, so that those closest
to our customers and other partners in the value chain also have a
mandate to take the right initiatives and decisions.
In our truck business, we could see that our customers’ activity
levels recovered gradually during the summer when the first wave of
restrictions was eased to later in the year return to about the same
level as in 2019 in most markets. We first noted a recovery in the
service business when the utilization of customer fleets returned,
which contributed to increased optimism among customers and
was then followed by an increase in demand for new trucks. In total,
this meant that net sales in the truck business amounted to SEK
208 billion (277) with an adjusted operating margin of 8.3% (11.4).
Construction activity also gradually improved in most markets
after the closures in the spring. During the year we continued to
strengthen our position with increased market shares in China, the
largest market in the world that had very good growth during the
year. Volvo CE's net sales ended at SEK 81 billion (89). The adjusted
operating margin was 12.4% (13.4).
Volvo Buses was hit hard by the effects of the pandemic. Restric-
tions meant that the coach business basically stopped completely in
all major markets. City bus operations held up better, but net sales
for 2020 decreased to SEK 20 billion (31) with an adjusted operat-
ing margin of –2.2% (4.3).
Volvo Penta continued to be successful thanks to its innovative
power and ability to take advantage of the Group's technology.
Volvo Penta reached net sales of SEK 12 billion (13) and an adjusted
operating margin of 12.2% (14.1).
The importance of our customer financing operations in Volvo
Financial Services is particularly clear in difficult times. Proactive work
to support customers meant that the vast majority were able to get

6
 A GLOBAL GROUP 2020 OVERVIEW CEO COMMENTS

through the most difficult months during the pandemic and that we and can enter the market faster with new offers. In addition, we can
were able to keep credit losses down. When activity in the economies manufacture different variants on the same assembly line, which
increased again, our customers' ability to pay gradually improved. again reduces costs and enables us to scale up volumes quickly
Despite a challenging year, VFS generated an adjusted operating when conditions are right. Last but not least, we have very strong
income of SEK 1,606 M (2,766) and a return on equity of 8.3% (15.0). relationships with many of our customers who want to make this
Throughout the year, we worked to adjust our activity level, and exciting journey with us and our partners. It is the power and trust in
during the second half of the year in particular, we also focused on these collaborations that will make the shift take off.
converting temporary cost savings into structural measures, to We have a leading position and in 2020 we took further steps in
ensure that we have good room for maneuver in a time that is still several segments. Customers in both Europe and the US took electric
characterized by great uncertainty. This has meant difficult deci- distribution trucks from both Volvo Trucks and Renault Trucks into
sions and that colleagues unfortunately had to leave the Group. operation in their daily operations. Volvo Trucks is taking the next
I would like to thank our labor representatives for a constructive dia- step this year and is also launching heavy-duty electric trucks in
logue in this work. Europe. This way, customers are offered a complete program of
In total, the Volvo Group made an operating income of SEK 27.5 electric trucks. Volume production is planned for 2022. Mack
billion and the operating cash flow in the Industrial Operations Trucks introduced electric refuse trucks, Volvo Buses began deliveries
amounted to 18.5 billion. We have a strong financial position, which of the largest order for electric buses in the Nordic region – 145 fully
makes it possible for us to both invest in our future and return capital to electric articulated buses to Gothenburg, Sweden, Volvo Penta
our shareholders. The Board of Directors proposes an ordinary dividend developed a driveline for firefighting vehicles and Volvo Construction
of SEK 6.00 per share and an extra dividend of SEK 9.00 per share. Equipment began delivering electric compact excavators and compact
Although uncertainty is still considerable in the short term, there wheel loaders. This is just to name a few examples.
is no doubt that demand for both transport and infrastructure will The introduction of connected, electric and in some segments also
continue to grow in the long term. It is a development driven by fac- autonomous solutions, calls for a holistic approach, where we take
tors such as population growth, urbanization, a growing affluent even greater responsibility for vehicles, battery and energy systems,
middle class and increasing e-commerce. It is also clear that we uptime services, maintenance and repairs, financing and more. This
need to meet that demand with sustainable solutions. Our long- opens up for new discussions with our customers about how we can
term ambition is to offer transport and infrastructure solutions that work together to make the logistics chain even more efficient. Already
are 100% safe, 100% fossil-free and 100% more efficient than today, we offer our customers production equipment – vehicles and
today. Safer because we always put people at the center, and we machines with associated service – as a service at a fixed cost per
cannot accept a situation where more than one million people die month. Tomorrow, there will be a wider range of business models,
every year in traffic accidents. Fossil-free because climate change is from one-time transactions to situations where we offer our custom-
the biggest challenge of our time. More efficient because we can ers transport as a service. In this landscape, partnerships with other
both help our customers save money and at the same time reduce leading companies are an important component. During the past year,
the environmental impact by improving the efficiency of our trans- we signed agreements with Daimler Truck AG to form a joint venture
port and logistics systems. It is by delivering on this clear direction for the development and large-scale production of fuel cells for elec-
that the Volvo Group will continue to be successful. tric vehicles and other applications, as well as with Isuzu Motors for
Sustainability in a broad perspective is an integral part of our the formation of a strategic alliance and the divestment of UD Trucks.
business. This applies to what business we do and in what way we The past year really highlighted the need to be able to both perform
conduct our business. During the year, we further strengthened our here and now and at the same time transform and build for the future.
work with the principles of the UN Global Compact regarding busi- I am proud of what we have achieved and also of the drive in the
ness ethics, human rights, labor law and the environment. We have ­organization to constantly make things better. It is thanks to fantastic
once again emphasized our commitment to the climate agreement people that we will continue the journey of both improving profitability
adopted in Paris, and in order to be transparent about develop- over the business cycle and developing tomorrow's climate-smart
ments, we are joining the Science Based Targets initiative. To further and competitive transport and infrastructure solutions.
improve the reporting of climate-related risks and opportunities, the
Volvo Group supports the Task Force on Climate-Related Financial
Disclosures (TCFD) and will continue to develop the company's
reporting in accordance with its recommendations.
A key part of achieving our ambitions in the climate area is about
developing and offering electric trucks, buses, construction equip-
ment and drivelines. The change takes place here and now. The
interest from our customers is great, and they see the benefits of Martin Lundstedt
working with vehicles and machines that drastically reduce emis- President and CEO
sions and offer a quieter and better working environment for both
drivers and the environment. Our roadmap is clear. We now also
electrify our heavy-duty truck offers and take it step by step in all
business areas. In the next few years, we will see electrification take
off segment by segment, market by market and region by region.
This is an opportunity for us to advance our positions further. An
important key is our modular vehicle architecture that allows us to
put either an internal combustion engine or an electric driveline in
the same chassis. In this way, we reduce development time, costs

7
 A GLOBAL GROUP 2020 STRATEGY THE FUTURE OF TRANSPORTATION AND INFRASTRUCTURE

S T R AT E G Y

THE FUTURE OF
TRANS­­POR­­TATION AND
INFRA­STRUCTURE
The world is changing. In many aspects it is becoming a better
place to live in with a global decrease in poverty, increase in life
expectancy and declining cost for renewable energy. But there are
also challenges. The need to drive sustainable development and to
grow within the planetary boundaries is greater than ever.

AN INCREASINGLY URBAN AND CONNECTED PLANET

The world's population is growing quickly and the world is becoming more urbanized. By 2030, it is expected that two thirds of the global
­population will be living in cities. Urbanization is a global megatrend – with many different faces and implications for transportation and infra-
structure. Projections show that urbanization combined with the overall growth of the world population could add another 2.5 billion people
to the urban community by 2050, equivalent to today’s combined population of China and India. This development will have both environmental
and social implications. Looking ten years into the future, we believe that sustainability is a pre-requisite for doing business. People shop online
and more and more people prefer using services rather than owning products. More power has shifted from producers to consumers and
­expectations on user experience are extremely high. Companies use data to provide seamless and individualized services and products.

Factors expected to What will this mean for business?

drive change • Increased demand for transport and infrastructure
In 2030: ­solutions.
• 8.6 billion people share the planet, • Being sustainable is a must.
with 70% living in cities.
• An increasing number of consumers prefer utilizing
• 4 out of 5 economic superpowers ­services as opposed to owning products.
are found in Asia.
• Companies owning customer interfaces and relevant
• 90% of all people have access to the internet. data thrive as they can provide seamless and individualized
• Effects from climate change are clearly visible. ­services and products.
• Consumer power is increasing and ­consumers • More power resides with the buyer. B2B (business-to-­
are getting used to seamless and customized business) and B2C (business-to-consumer) have m­ erged
solutions in digital channels. into B2P (­ business-to-people).

8
 A GLOBAL GROUP 2020 STRATEGY THE FUTURE OF TRANSPORTATION AND INFRASTRUCTURE

ONE GLOBAL AGENDA FOR 2030

The Sustainable Development Goals (SDGs) were set in 2015 by the

United Nations General Assembly and signed by all member states – for
which reason they are referred to as one global agenda for 2030. Our
commitment to achieving development without exceeding the planetary
boundaries includes all 17 SDGs. Several topics, such as equality and
fighting corruption are universal for all enterprises. Beyond these universal
responsibilities, we identify closer connections and impacts from our
business and operations in a number of goals.
In the Volvo Group, we describe our sustainability work in the areas:
• Climate – reducing emissions from our own operations and value
chain as well as from the use of our products. We focus on increased
fuel and energy efficiency, electrification and alternative fuels.
• Resources – utilizing transports and material in the most resource-­
efficient ways possible. We create value for our customers by providing
them with higher uptime and utilization.
• People – because safety and human rights make up the foundation
for ­prosperity.
We highlight some of our activities and their main connections to the
SDGs in this report. In addition, in the Sustainability Notes on pages
150–171, we further connect our detailed disclosures to specific targets
in the UN’s sustainability agenda.

MOVING INTO THE GOLDEN AGE OF LOGISTICS

An increasing global population, booming e-commerce and a growing, connected middle class contribute to rising demand for construction and trans-
portation in the future. Climate change, congested cities, hazardous road and working conditions call for future transportation technology and systems
solutions that are safer, cleaner and more efficient. The increased need for transport and new infrastructure combined with the rapid development of
new technologies provide great opportunities for our industry, which we believe is moving into a golden age of logistics. Looking ahead, we foresee
that a new transport landscape will emerge. New technologies and new business models will result in safer, more sustainable and more efficient ways
to move goods, material and people.

Factors expected to What will this mean

drive change for our industry?
• Customer structure changes, Polarized customer structure
• Electromobility requires total increased importance of large
­solutions. ­customers.
• Autonomous solutions give­ • From standardized ­products to
radical efficiency potential. sustain­able and tailor-made
Tailor made end-to-end solutions
• Digitalization and connectivity end-to-end solutions.
­enable optimization. • Different eco-systems d
­ elivering
• Sustainability equals profitability. customer value.

Eco-systems delivering customer value

9
 A GLOBAL GROUP 2020 STRATEGY DRIVING PROSPERIT Y

DRIVING PROSPERITY V O LV O
GROUP

M I SS I O N
Driving prosperity through
Our mission is to drive prosperity through transport transport and infrastructure solutions

and infrastructure solutions. Our vision is our guiding VISION

star. The work we do every day should ultimately

Be the most desired and successful transport
and infrastructure solution provider in the world

contribute to us becoming the most desired and AS P I R AT I O N S

successful transport and infrastructure solution Have leading customer satisfaction

for all brands in their segments
Be the most admired
employer in our industry
Have industry
leading profitability

provider in the world. VA LU E S

Customer success Trust Passion Change Performance

CODE OF CONDUCT
We respect We earn business We separate personal interests We safeguard company We communicate
one another fairly and lawfully from business activities information and assets transparently and responsibly

Shaping the world we want to live in Our aspirations guide us on our journey and we lead by example.
We are driving prosperity through transport and infrastructure solu- We are a trusted partner to our customers – their needs drive
tions – to shape the world we want to live in. Volvo springs from a everything we do. Our culture is built around care for people. We are
genuine humanistic approach and builds upon a history of innova- purpose-driven and build engagement through inclusiveness and
tion. Our solutions improve the everyday life of our customers and diversity. An increasing part of our revenues comes from services
for society at large. The health, safety and wellbeing of people is our and solutions.
main priority. A growing population creates a need for more trans- Our values guide our leadership, our behavior and our actions. We
ports of people and goods. Our ambition is to contribute by offering create a high performing culture by focusing on results, helping each
leading transport and infrastructure solutions enabling societies to other succeed and providing opportunities for growth and develop-
prosper in a sustainable way. ment. We have a business mindset. Everything we do starts with our
customers and their needs and quality is the starting point for our
Creating value performance. We drive continuous improvement and encourage each
Our vision is about creating value. We deliver sustain­able transport and other to try, learn and develop. By consistently doing business with
infrastructure services and solutions tailored toward specific customer integrity and following our Code of Conduct we build trust.
needs. We offer both total solutions and easy to integrate products and We drive a significant transformation and to succeed, our strategy
services through multiple sales channels. is more relevant than ever.

THE VOLVO GROUP JOURNEY CONTINUES

1999–2011
1999 to 2011 the Volvo Group’s strategy decentralized organization and a regional-
was primarily targeted at growth, not least ized value-chain approach. The improved ACQUISITION-DRIVEN GROWTH
through acquisitions, while at the same performance, with increased profitability
Scale, synergies and geographical
time focusing the business on commercial and further customer focus developed into
expansion.
vehicles. the current focus – Perform and Transform.
In 2012 to 2015 the Volvo Group under- Perform and Transform are not sequen- MAJOR ACQUISITIONS
went a transformation program aimed at tial events, they need to be run in parallel.
reorganizing the company to take out over- To stay relevant and profitable, driving 2001
laps, reduce structural costs and increase both current business performance and Renault Trucks and Mack Trucks
efficiency and profitability after the period the transformation to meet future 2007
of acquisition-driven growth. During this demands is our key focus going forward. Nissan Diesel (now UD Trucks)
period, there was one major acquisition The continuous streamlining of the 2007
– 45% of Dongfeng Commercial Vehicles Group's business portfolio has also inclu­ded 70% of Lingong (SDLG)
(DFCV) in China in 2015. the divestment of Volvo Cars (1999), Volvo
2007
The period between 2016 and 2018 Aero (2012), Volvo Rents (2014) and Ingersoll Rand Road ­Development
was characterized by reinforcement of the 75.1% of Wireless Car (2019).
performance culture evidenced by a more 2008
VECV (joint venture with Eicher)

10
 A GLOBAL GROUP 2020 STRATEGY DRIVING PROSPERIT Y

100%
Our ambition is clear.
­Driving prosperity ­socially,
environmentally and finan-
safe
The health, safety and wellbeing of
cially means ­striving for people is our main priority.

transport and infrastructure

100%
­solutions that are:

fossil-free
Climate change is the challenge of our
­generation. Our ambition is to enable our
customers to go fossil free and we strive
towards net zero emissions from our

100%
­operations and supply chain.

more productive
By drastically increasing productivity and
efficiency in logistics systems it is possible
to meet a growing need for transports while
staying within the boundaries of what our
planet can sustain.

2012–2015 2016–2018 2019–

CLOSING THE GAP IMPROVED ­ PERFORM AND TRANSFORM

Product renewal, restructuring PERFORMANCE Customer-centricity, continuous
and cost efficiency. Customer focus, simplicity, speed, performance improvement, accel-
continuous improvement and erate solutions and partnerships
organic growth. for sustainability.

11
 A GLOBAL GROUP 2020 STRATEGY PERFORM AND TRANSFORM

PERFORM – STRENGTHENING
THE RESILIENCE OVER THE CYCLE
During the last couple of years, the performance of the Volvo Group
has improved substantially. Our focus has been on a gradual and Adjusted operating income SEK bn
consistent earnings improvement, reduced volatility in earnings and Adjusted operating margin % 
cash flow as well as allocating capital in a disciplined way. We have
great assets in our people, products and services as well as produc-
tion sites and well-established dealer networks. We are in a good
position to support our customers. To keep this position and to be
13 14 15 16 17 18 19 20
able to invest further in new technologies, our focus is on excelling 7 8 20 22 30 41 48 29
on the basics as well as building resilience. 3 3 5 7 9 10 11 8
Our current business will be the base for the Volvo Group in many
years to come. The attention is on being agile and flexible in terms Net financial position excl.
of production volumes, to use our common architecture and shared post-employment benefits
and lease liabilities Industrial
technology (CAST – see page 26) wherever possible and to have
Operations SEK bn
continuous introductions instead of major launch projects. Our
quality work is crucial to achieve customer satisfaction and the work
of regionalizing our value chain is necessary to give our people the
15 16 17 18 19 20
right prerequi­sites to serve our customers. 14 1 –2 28 43 62 75
Building resilience is key to our long-term profitability. There are 13 –10
–20
more than 2.8 million trucks, buses and machines, produced by the
Volvo Group, operating on or off-road. Of those, more than 1.1 million
Profitability has improved in recent years. In 2020, the adjusted
are connected. With this as a base we can extend our service offer
operating margin amounted to 8.4% (11.1), despite the impact
and defend or capture market share. Increasing uptime benefits our from the ongoing Covid-19 pandemic. In 2016-2020 the aver-
customers, and a larger service business also improves our ­resilience age adjusted operating margin was 9.1%. The Group’s financial
across the business cycle. position has also been strengthened with a net cash position in
the Industrial Operations of SEK 74.7 billion excluding post-­
employment benefits and lease liabilities at year-end 2020.

IMPROVE PERFORMANCE AND INVEST FOR THE FUTURE

Continuous
Gradual and Reduced Discipline
investments in new
consistent volatility in capital
business models by
earnings in earnings and allocation/
innovation and new
improvement cash flow investments
technologies

Net financial position excl. post-employment benefits and

lease liabilities Industrial Operations, SEK bn.

12
 A GLOBAL GROUP 2020 STRATEGY PERFORM AND TRANSFORM

TRANSFORM – IMPLEMENTING
A CLEAR DIRECTION

“
We are well positioned to drive the transformation of our industry to
shape the world we want to live in. We have made great progress in
improving performance in recent years. Going forward, the speed of
transformation will increase. Our ambitions are clear:
Battery-electric vehicles are a good solution for city
• More than 50% of Group revenues should come from services
­distribution, city buses, regional haulage and similar
and solutions by 2030
­applications. For use cases with heavier loads or longer
• More than 35% of our vehicle sales should be electric by 2030 distances, hydrogen fuel cells will be an important tech-
• We will lead by example with a world-class, sustainable in-house nology. The two technologies complement each other,
logistics system by 2025 and both will be needed in order for us to build the
• We will implement at least 100 transport and infrastructure ­sustainable transport system of tomorrow.
­solutions together with our customers by 2025. Martin Lundstedt, President and CEO

Transform to provide value

We transform our business to provide even greater value to our cus-
tomers and respond to the need for sustainable transport solutions pattern and non-optimized infrastructure and logistics models
that are safe, fossil free and more productive. The drivers of trans- result both in temporary congestions and at other times heavily
formation within our industry are clear. Today’s trucks are not used unutilized road networks. The last couple of years we have continu-
to their full capacity due to congestion, resting time regulations, and ously invested in new business models and new technologies to be
low fill rates. A fully-loaded truck operating on diesel is one of the able to offer safer, more sustainable and more productive solutions
most energy-efficient ways of transporting goods on our roads with to our customers. Another advantage is that our industrial footprint
current infrastructure, but there is no doubt that electromobility and is easily adapted to manufacture vehicles with different drivelines on
alternative fuels will be crucial going forward, as we aim to provide existing assembly lines.
even more sustainable transport solutions and meet future more There are huge opportunities for the Volvo Group and to get real
stringent CO2 regulations. traction and impact, the focus is on accelerating the commercialization
When it comes to safety aspects, it is a fact that people die in of new technologies and business models. This is when the real
traffic and human error is by far the main reason. It is also a fact that change happens.
people and goods spend too much time in congestion. Our daily life

FAST-PACED INTRODUCTION OF ELECTRIC VEHICLES

Our fast-paced introduction of electric trucks and buses

Demanding long-haul FCEV has started. We are building on the experience from the city
bus applications, where we have more than 10 years of
Regional-haul BEV experience from electrification – starting with hybrid-­
Heavy construction BEV electric solutions and building that into battery-electric
buses. On the truck side, Volvo Trucks, Renault Trucks and
Drayage-haul BEV Mack Trucks started series production of medium-duty
Urban construction BEV trucks for important segments such as distribution, waste
and recycling as well as urban construction in 2020. The
Waste and recycling BEV Group will continue its step-by-step roll-out of products
Distribution BEV and solutions for all relevant truck segments: container
haulage, heavy construction, regional haul and eventually
City buses HYBRID BEV also the really heavy-duty long haul segment, which will be
Energy services a combination of battery-electric (BEV) and fuel cell-electric
vehicles (FCEV). We are also reinforcing our capabilities
and offerings when it comes to energy services.
Year 10 15 19 20 21 22 25 30

13
 A GLOBAL GROUP 2020 STRATEGY PERFORM AND TRANSFORM

VOLVO CONSTRUCTION EQUIPMENT ELECTRIFICATION ROADMAP

This is the introduction plan when it comes to the electrification of construction equipment. The production of the first two electric models has started
for selected markets in Europe and further countries will follow from 2021 onwards.

Energy recuperation
Heavy
Electrification

Energy recuperation
Large
Electrification

Energy recuperation
Medium
Electrification

HYBRID BEV
Compact Electrification

Year 2020 2025

ADDRESSING A BROAD SPECTRUM OF CUSTOMER SEGMENTS

The transformation to electric vehicles is expected to happen segment by segment, market by market and region by region. It has already started in
public transport, distribution, waste and recycling and certain construction segments in some markets. When total cost of ownership is outweighed
by the opportunity to provide fossil-free transportation and necessary conditions such as charging infrastructure is in place, we believe that the shift to
electric vehicles and machines will be quick. The Volvo Group has deep customer knowledge and application expertise within many segments and this
will remain a d
­ ecisive factor in providing customer value.

14
 A GLOBAL GROUP 2020 STRATEGY STRATEGIC PRIORITIES

OUR
7 STRATEGIC PRIORITIES
HAVE BEEN UPDATED
To be successful the key is to create value for our customers by
impacting their profitability. By understanding our customer’s prior-
ities and challenges, we are able to provide products and services
that grow our customers’ revenues and decrease their costs. This is
the basis for our strategic direction. In addition to the mission,
opportunities and improve underlying performance. The strategic
priorities were updated during 2020 with the intention of strength-
ening the areas where we already perform well and adding new
areas of importance for the future. The strategic priorities guide our
decision-making and result in action but should not be seen as a
vision, aspirations, values and Code of Conduct we have decided on detailed action plan in itself. The order in which the priorities are
seven strategic priorities for the Volvo Group to capture growth presented does not reflect relative importance.

13 14 15 16 17 18 19 20
7 8 20 22 30 41 48 29
3 3 5 7 9 10 11 8

1. T
 RANSFORM THE 5. D
 EVELOP ROBUST ­P ROFITABILITY
Tailor made end-to-end solutions
VOLVO GROUP throughout the decentralized regional
to become a leading end-to-end integrator as well as value chains by leveraging global scale, digitalization, a
offering easy to integrate products and services through purpose-fit footprint and continuous improvement using
strong brands. Volvo Production System.

2. G ROW THE SERVICE 6. S

 ELECTIVELY CAPTURE,
­B USINESS and target selected ACCELERATE AND SCALE-UP
industry verticals offering a port- NEW BUSINESSES and develop
folio of tailor-made solutions. competencies and capabilities
needed.

3. S ECURE A DESIRABLE SUSTAINABLE PRODUCT 7. R

 EINFORCE VALUE-BASED LEADERSHIP AND
AND SERVICE PORTFOLIO ­with the right quality, WAYS OF WORKING where all colleagues are empow-
­leveraging new and well-known technologies, CAST, ered to take action and are accountable for the results.
partnerships and digital innovation – accelerating
­electromobility solutions.

4. G ROW IN ASIA AND THE US: In Asia through JVs,

alliances and by strengthening the Volvo Group footprint
in China. In the US by significantly improving the Group’s
market position.

15
 A GLOBAL GROUP 2020 STRATEGY FINANCIAL TARGETS

STRENGTHENED
FINANCIAL POSITION
The Volvo Group has in recent years gone through a substantial the business cycle. The target also aligns with the way the Group
restructuring process in order to reduce structural costs and and its business areas are challenged and measured internally.
increase efficiency and is currently in a phase where focus is on The Board’s target is for the Group’s operating margin to exceed
organic growth and improved profita­ bility through continuous 10% measured over a business cycle.
improvement and innovation. A debt-free industrial balance sheet, excluding pension and lease
Current financial targets were decided on by the Board of Direc- liabilities, enables the Volvo Group to better manage cyclicality in a
tors in 2017. A clear and straightforward operating margin target capital-intensive industry and to secure competitive cost of funds
supports the efforts to drive performance across the Group through for the Financial Services’ operation.

Operating margin for the Net financial position excl. post-­ Return on equity in
Volvo Group, % employment benefits and lease liabilities Financial Services, %
Industrial Operations, SEK bn

15 80 20

60 16
10

40 12

5
20 8

0 0 4

16 17 18 19 20 16 17 18 19 20 16 17 18 19 20
6.9 8.9 8.8 11.5 8.1 –1.2 26.3 43.9 62.6 74.7 13.7 14.3 15.1 15.0 8.3

The Volvo Group’s operating margin The Industrial Operations shall under Financial Services’ target is a return
shall exceed 10% measured over a ­normal conditions have no net financial on equity of 12–15% at an equity ratio
­business cycle. indebtedness excluding provisions for above 8%.
In 2020, the operating margin amounted to post-employment benefits and lease In 2020, return on equity amounted to 8.3%
8.1% (11.5). The adjusted operating margin ­liabilities. at an equity ratio of 8.0%.
amounted to 8.4% (11.1). For more informa- At the end of 2020, the Industrial Operations
tion on adjusted operating margin, please had a net financial asset position of SEK 74.7
see Key Ratios on page 194. billion.

16
Our strong financial
position gives us the
ability to continue to
invest in our future in
order to secure an
even more competitive
customer offering.

17
 A GLOBAL GROUP 2020 BUSINESS MODEL VALUE CHAIN

VA L U E C H A I N

DRIVING PERFORMANCE
TO CREATE VALUE
The Volvo Group generates long-term competitiveness by maximizing value creation in
every part of the value chain through increased efficiency, quality and performance and
by acting responsibly towards business partners, employees and the world around us.

CUSTOMERS
The customer is at the center of everything we do, and the
customer’s voice is present in every part of the value
chain. By delivering customer value we deliver value for
ourselves and our stakeholders. Our customers contribute PRODUCT DEVELOPMENT
to prosperity by transporting people and goods as well Fulfilling our customers’ needs and improving their profitability
as providing societies with infrastructure that advance and environmental performance forms the basis of our product and
development. Our aim is to support our customers by service development. Product development is also influenced by
­providing offers that increase their productivity, secure legislation, changes in society and new technologies. There are
uptime and increase fuel efficiency, which drive their financial strong trends such as automation, electromobility and connectivity
performance and reduce their impact on the environment. that need to be balanced with investments in development of current
technologies. Examples of customer solutions that are improv­ing
safety, efficiency and environmental performance are found on
pages 24–36. Additional information about environmental and
safety performance are found in the Sustainability Notes on pages
156 and 164.

REUSE PURCHASING
We strive to increase material efficiency and reduce energy Long-term cooperation with suppliers drives efficiency, quality and
use. In this work, we incorporate more recycled materials, responsible behavior throughout the value chain. The Volvo Group is
recover heat and recycle waste. Our waste management is ­aiming for purchasing excellence, placing high demands on ourselves
further described on page 158. Extending service life and and our supply chain partners. We have both global and local supply
operational uptime of assets is an important element of chains to deliver components, parts and complete services and systems.
increased circularity and resource efficiency. Here, the main When developing a robust supplier base, we look at a wide range of
elements are to service, maintain and repair to increase the opportunities and risks. During 2020, we continued to prepare supply
utilization rate of all materials in the products. As we increase chain partners for new needs in the transformation towards carbon neu-
our service-based business, the main output is uptime and tral products and ­operations. We have also invited suppliers to collabo-
availability of machines and vehicles. This is a prerequisite to rate for securing sustain­able minerals. Read about social and environ-
focus even more on recyclability and remanufacturing. See mental supplier assessments on page 167.
examples on page 32.

PRODUCTION AND ­L OGISTICS

Our global industrial and logistics ­system efficiently uses
continuous improvement to meet internal targets and deliver
on customer expectations. The industrial system consists of
capital-intensive component factories as well as labor inten-
RETAIL AND S
­ ERVICE sive assembly plants. The component factories supply the
Our global network of dealers and service ­centers staffed by competent and Group’s needs on a global basis, whereas assembly plants,
service-­oriented personnel are key factors for customer satisfaction and in most cases, are located close to end-markets to cater for
success. The brand organizations within the Volvo Group support customers local needs and specifications and shorter delivery time.
via efficient dealer workshops, and through service and maintenance agree- Read more about environmental metrics, targets and per­
ments. With our service contracts and connected solutions, customers formance in production and logistics on page 155–157.
know when their vehicle or machine is due for service and what the cost will
be for maintenance and repairs. Customers can bundle their vehicle, financing
and other service purchases for a total solution. We work together with our
retail organization through continuous improvement and dealer development
programs to ensure our customers get the best possible service.

18
 A GLOBAL GROUP 2020 BUSINESS MODEL VALUE CHAIN

DRIVING PROSPERITY FOR MANY STAKEHOLDERS

FOR CUSTOMERS
Almost 2 million trucks and 100,000 buses, which the Group manufactured in the past
ten years, perform transport work worldwide. Construction equipment operate at sites all
around the world, us having delivered about 650,000 machines in the last ten years. For
Uptime and
our customers, uptime is everything. Regardless if it is a customer that owns one single
truck or a fleet of trucks, if they are a public transport provider or a coach owner, a con-
struction entrepreneur or a quarry owner; their performance depends on reliable products
­profitability
and services that meet the needs of their business. The Volvo Group has a long heritage
of developing smart solutions to boost their performance.

FOR EMPLOYEES

40.9
The Group’s almost 100,000 employees are our most important asset. Employee engage-
ment and a performance culture based on customer success, trust and passion are critical
for the Group to fulfill its mission. The Group strives to offer competitive employment terms
and benefits as well as a stimulating, safe and healthy work environment. In 2020 we paid
SEK 40,887 M in salaries and remuneration. SEK billion
FOR SOCIETY
Our products and services make societies function. Our customers operate bus lines so

17.8
that people can get to work, they transport food and industrial goods and they build infra-
structure such as roads and hospitals. Furthermore, road transport directly creates millions
of jobs around the world. We also contribute to the local economy by being a major
employer in many communities, providing both direct and indirect employment. In 2020
the Group paid SEK 9,270 M in social costs, SEK 3,631 M in pension costs and SEK SEK billion
4,927 M in income taxes, in total SEK 17, 828 M. We also pay customs duties as well as
property and energy taxes.

FOR SUPPLIERS
A solid supplier base and professional partnerships are essential for customer success.

232.9
The Volvo Group provides both income and employment for a large number of companies
and in many societies around the world. Purchased goods and services is the Volvo
Group’s single largest expense and in 2020 we bought goods and services for SEK
232,861 M.
SEK billion

FOR CREDITORS

1.1
A long-term competitive business requires access to capital to be able to invest. The Volvo
Group strives to ensure that the capital is used in the best possible way and to assure debt
providers with the financial strength to secure proceeds and repayment. In 2020 the Volvo
Group paid its creditors in the Industrial Operations SEK 1,102 M in interest. SEK billion
FOR SHARE­H OLDERS
The Volvo Group strives to generate value for its shareholders. This is achieved through a

30.5
positive share price development and payout of dividends. From 2015–2020 the price for
the Volvo B share increased by 127%. Shareholders normally receive a certain portion of
the retained earnings in the form of a dividend, after consideration has been given to the
Group’s need for capital for continued development according to its strategies. For 2020
the Board of Directors proposes an ordinary dividend of SEK 6.00 per share and an extra SEK billion
dividend of SEK 9.00 per share, in total SEK 30,502 M.

FOR THE VOLVO GROUP

22.5
A significant portion of generated capital is normally transferred back into the business.
The capital is used for investments that will strengthen competitiveness and create long-
term value for the Group and its stakeholders. In 2020, the Volvo Group invested SEK
16.8 billion in R&D and another SEK 5.7 billion in properties, plants and equipment, in
total SEK 22.5 billion.
SEK billion

19
 A GLOBAL GROUP 2020 BUSINESS MODEL CUSTOMERS

C U S T O M E R S

INCREASED UPTIME
AND IMPROVED
PROFITABILITY
We strive to be the most desired and successful
transport solution provider in the world. There­
fore, the customer is integrated in every part
of our value chain. Our customers contribute
to prosperity by transporting people and goods
as well as providing societies with infrastructure
that advance devel­op­ment. We work to support
our customers by providing offers that aim to
increase their productivity, secure uptime and
increase fuel efficiency, which drive their financial
performance and reduce their impact on the
environment.

20
 A GLOBAL GROUP 2020 BUSINESS MODEL CUSTOMERS

Customer focus since this has a major impact on both the environment and our custom-
Throughout our value chain our customer focus is central. For prod- ers’ profitability. For instance, we offer vehicles that can run on lique-
uct development this means developing productive and fuel-­ fied natural gas (LNG) or biogas as well as battery-electric vehicles.
efficient solutions for our customers. In production we strive to We also continue to drive the performance of the internal com-
have the highest quality, which also requires a high standard from bustion engine. In 2020, Volvo Trucks launched a new Volvo FH
our suppliers. Our distribution and service network secures avail­ with the second generation of the fuel-saving I-Save package,
ability and uptime for the customers. We use a circular mindset and which can cut fuel costs by up to 10% compared to the older model
adopt responsible business behavior to build trust and make sure without I-Save. Read more about Volvo FH with I-Save on page 26.
our products contribute to prosperity. The truck was part of an extensive renewal from Volvo Trucks, which
We analyze the segments and applications our customers oper- introduced four new heavy-duty trucks with a strong focus on the
ate in to find the best current solutions, capture future opportunities driver environment, safety and productivity. The four truck models,
and prepare for market changes. Our research projects, in collabo- Volvo FH, FH16, FM and FMX, represent about two thirds of Volvo
ration with our customers and other partners, are a vital part of Trucks’ deliveries.
product development when we prepare for meeting future demands. “We are really proud of this forward-looking investment. Our aim
is to be our customers’ best business partner by making them even
Create value for our customers more competitive and help them attract the best drivers in an
From our day-to-day work with customers and through interviews, increasingly tough market,” says Roger Alm, President Volvo Trucks.
customer satisfaction surveys and materiality analysis, we know
that our customers put the highest value on productivity, uptime and Measure success
fuel efficiency. Future technologies provide great potential for Customer satisfaction is the true measure of success. Our aspiration
increased productivity for our customers. To secure uptime, new is to have leading customer satisfaction for all brands in their seg-
vehicles developed within the Volvo Group are equipped with con- ments. Through world-wide surveys, each brand organization within
nected devices to be able to download updates, schedule services the Volvo Group tracks customer satisfaction and brand image per-
and prevent unplanned stops. More than 1,1 million vehicles and ception. The data is an important part of understanding our custom-
machines are connected, which is important for us to be able to ers’ needs and continuous improvement. Research and studies are
achieve the goals of increasing efficiency and minimizing environ- performed by leading market research companies and carried out
mental impact, as well as making our roads safer. with decision makers among customers and non­customers.
Increased fuel efficiency and adaption to renewable fuels and elec-
trified vehicles and machines are central in our product development

SUPPORTING CUSTOMERS WITH DIFFERENT NEEDS

“Provide
“Help me “Keep my “Maximize “Maximize me with the “Optimize
maintain my vehicle the use of the use of right transport my supply
vehicle” available” my vehicle” my fleet” capacity when chain”
I need it”

1 Vehicle
parts
services
2 Vehicle
uptime
services
3 Vehicle
­productivity
­services
4 Fleet
productivity
services
5 Mobility
­services 6 Platform
­solutions

FINANCING AND INSURANCE, INCLUDING USAGE-BASED MODELS

CONNECTED PLATFORM

VEHICLES AND EQUIPMENT

There are different business models for different customers. The range goes from selling a vehicle or machine and get paid by unit, to solving the
customer’s mission and get paid by result. We will have different offerings along the entire range for different customers depending on preferences,
segments and geographies.

21
 A GLOBAL GROUP 2020 BUSINESS MODEL CUSTOMERS

DIFFERENT TRUCKS FOR DIFFERENT APPLICATIONS

DISTRIBUTION MINING
FRANCE INDONESIA

CONSTRUCTION LONG-HAULAGE
USA EUROPE

COSTS
Customers have different cost structures and therefore want dif-
ferent offers depending on their location and the type of transport
Fuel Repair & maintenance
work they carry out. Creating customer value by improving our
customers’ profitability t­ herefore means offering products devel- Driver Administration
oped for each market and application.
Vehicle

VALUE CO-CREATION nsp

ort a
nd infrastructur
e so
lut
Tra ion
s
To be successful the key is to create value for our customers by
contributing to improving their profitability. By understanding Value for customer Value for Volvo Group
our c
­ ustomers’ priorities and challenges, we are able to provide
• Productivity • Excellent products and services
products and services that grow customers’ revenues and
• Asset uptime • Closeness to customers
decrease ­customers’ cost. Key areas to create value for our • Fuel efficiency • Efficient way of operating
customers are offers that increase our ­customers’ productiv-
ity, secure uptime and increase fuel efficiency. By delivering • Increased revenue • Increased revenue
­customer value efficiently, we will also deliver value for our- • Decreased costs • Decreased costs
selves, our owners and society.
• Profitability growth • Profitability growth
In
sig
hts n
for tio
additi rea
onal value c

22
 A GLOBAL GROUP 2020 BUSINESS MODEL CUSTOMERS

RESPONSIBLE BUSINESS

A prerequisite for building trust with customers, business partners and

society is to conduct business with integrity and in compliance with
The Volvo Group Code of Conduct
applicable law. Our Code of Conduct sets the frames for our business Our Code outlines the requirements for how we act and do
ethics and our expectations on everyone involved in our business. business in the Volvo Group. It includes respect for people
At the Volvo Group, we condemn all forms of bribery and corrup- and the environment, doing business in fair and lawful ways,
tion and we are committed to work actively against it wherever we do acting in a responsible way and speak up when we see
something that doesn’t seem right.
business, and we are committed to respect human rights. In this
• We respect one another.
work, we are guided by international frameworks such as the UN
• We earn business fairly and lawfully.
Global Compact and the UN Guiding Principles on Business and
• We separate personal interests from business activities.
Human Rights. The overall purpose in this work is for our colleagues
• We safeguard company information and assets.
and business partners across the value chain to act ethically. See • We communicate transparently and responsibly.
detailed information about human rights and business ethics on
pages 165–169.
Adherence to the Code of Conduct is monitored through man-
agement control systems and internal controls. A whistle-blower
policy encourages all employees to report suspected violations to
their managers or other management representatives. If reporting
to superiors is not feasible, or is not taken seriously, employees have
the possibility of escalating suspected violations to Corporate Com-
pliance and the opportunity to remain anonymous were permitted
by law. The Volvo Group does not tolerate retaliation against a per-
son for making complaints in good faith of violations or suspected
violations against the Code of Conduct.
Volvo Group whistle is open to employees as well as external stake-
holders. It is made and available in local languages and hosted by a neu-
tral third party. A summary of reported cases is available on page 169.

Trust is one of
our core values
alongside customer
success, passion,
change and
performance.

23
 A GLOBAL GROUP 2020 BUSINESS MODEL CLIMATE

C L I M AT E

TOWARDS FOSSIL-FREE
TRANSPORTS
We are committed to the Paris Agreement and to
decarbonizing our industries. Our focus is to bring
innovative and competitive solutions to the market
in areas where we can make the greatest impact.

TOWARDS CARBON-NEUTRALIT Y

CONTRIBUTING TO THE PARIS AGREEMENT

It takes about ten years for customers to renew their entire fleets. In order to have a
rolling fleet that is completely fossil free by 2050, it is our ambition that all Volvo Group
products delivered from 2040 should enable our customers to go fossil free. Even when
the majority of vehicles are electric, we foresee use cases for internal com­bustion
engines (ICE) running on sustainable biofuels or other fossil-free fuels. As illustrated
below, we expect a gradual shift into electric vehicles, both battery-electric and fuel cell-
electric. Our ambition is that by 2030, electric vehicles should account for at least 35%
of our vehicle sales. On the way towards decarbonized transport, there will be legislative
milestones when it comes to CO2 across the globe. We continue to invest in combustion
engines and aftertreatment systems in order to increase efficiency, meet the legislative
milestones and stay competitive. In addition to focusing on tailpipe emissions, we are
working with and encouraging our suppliers and partners to introduce fossil-free
materials (CO2-free steel, plastics and rubber) for the development of our products
and solutions. We are also continuing the work to reduce emissions from our manu­
facturing operations by increasing the share of renewable energy and improving energy
efficiency. This scenario also requires other stakeholders to contribute with e.g. the
expansion of infrastructure. Read more about this scenario and climate-related risks
and opportunities on page 152–153.

Carbon fuel Carbon neutral

100%

Battery electric
Carbon neutral electricity

IC
E
liq FC share?
ue
Running fleet

Share fie
of new d
m Fuel cell electric
trucks et
ha Carbon neutral hydrogen Main connections
ne
Internal Combustion to UN Sustainable ­
ICE share? Development Goals
Engine (ICE)
BioLNG
7.3 – Double the rate of energy efficiency
HVO, electrofuels, hydrogen etc. 11.3 – Sustainable transport systems
0%
13.3 – Awareness and capacity on climate
2020 2030 2040 2050 change mitigation and impact reduction

24
 A GLOBAL GROUP 2020 BUSINESS MODEL CLIMATE

Currently, the vast majority of emissions from the Group's products occur Electric solutions in all business areas
during the use phase of their life cycle. Therefore, our focus is on the devel- Electrification will be key in the transition towards a fossil-free future. The
opment of products and solutions that reduce the CO2 footprint for our cus- Volvo Group aims for a fast-paced introduction of fully electric solutions
tomers. We also make significant efforts to increase energy efficiency and in all its product areas. Electric propulsion allows for zero exhaust emis-
reduce emissions from our own operations. sions in use but is dependent on the CO2 footprint of the used electricity.
Powered by alternative fuels such as sustainable biofuels and hydro-
gen, the combustion engine will continue to play a significant role for our
customers’ ability to reduce CO2 emissions. We will continue to improve
H2ACCELERATE the efficiency of existing technology and we have high expectations for
the use of alternative fuels where sustainable supply can be provided.
NEW COLLABORATION FOR Today, the transport system and infrastructure industry are to a great
ZERO EXHAUST EMISSION extent powered by fossil energy. We are in the beginning of a transition and
Volvo Group’s product portfolio is broad. We deliver products powered by
HYDROGEN TRUCKING conventional diesel, fossil-free alternative fuels, or a combination. We are
working on electrifying transport and infrastructure solutions and we are
In December, the Volvo Group, Daimler Truck AG, IVECO, investing in new technology development such as hydrogen fuel cells.
OMV and Shell committed to work together to help create
the conditions for the mass-market roll-out of hydrogen
trucks in Europe. As a growing number of governments and
businesses align on a common vision of a net-zero emissions
energy system, the H2Accelerate participants believe that
hydrogen is an essential fuel for the complete decarboniza-
tion of the truck sector.

VOLVO GROUP AND DAIMLER TRUCK

FORMATION OF A JOINT VENTURE FOR

LARGE-SCALE PRODUCTION OF FUEL CELLS
The Volvo Group and Daimler Truck AG have signed a binding agree- “In the future, the world will be powered by a combination of
ment for a joint venture to develop, produce and commercialize battery-­electric and fuel-cell electric vehicles, along with other
fuel-cell systems for use in heavy-duty trucks as the primary focus, renewable fuels to some extent. The formation of our fuel-cell joint
as well as other applications. The ambition of both partners is to venture is an important step in shaping a world we want to live in,”
make the new company a leading global manufacturer of fuel cells, says Martin Lundstedt, President and CEO of the Volvo Group.
and thus help the world take a major step towards climate-neutral The Volvo Group will acquire 50% of the partnership interests
and sustainable transportation by 2050. The joint venture will take in the joint venture for approximately EUR 0.6 billion on a cash and
advantage of the expertise and extensive experience from several debt-free basis. Closing of the transaction is expected during the
decades of development work on fuel cells at Daimler. first half of 2021.

VOLVO TRUCKS

LAUNCH OF A COMPLETE RANGE OF ELECTRIC TRUCKS

In 2021, hauliers in Europe will be able to order all-electric versions solutions that include route planning, correctly specified vehicles,
of Volvo's heavy-duty trucks. Volvo Trucks' massive drive towards charging equipment, financing and services. Furthermore, in
electrification marks a major step forwards on the road to fossil-free December 2020 sales of the Volvo VNR Electric, a truck for
transport. regional transport, started in North America.
Volvo Trucks is adding the electric heavy-duty Volvo FH, Volvo "By rapidly increasing the number of heavy-duty electric
FM and Volvo FMX trucks, which will be used for regional trans- trucks, we want to help our customers and transport buyers to
port and urban construction operations in Europe, to the electric achieve their ambitious sustainability goals. We're determined to
line-up. These trucks will have a gross combination weight of up continue driving our industry toward a sustainable future," says
to 44 tons. Depending on the battery configuration the range Roger Alm, President Volvo Trucks.
could be up to 300 km. Sales will begin in 2021 year and volume
production will start in 2022.
Volvo Trucks started manufacturing the Volvo FL Electric and
Volvo FE Electric in 2019. This means that from 2021 onwards
Volvo Trucks will sell a complete range of battery-electric trucks
in Europe for distribution, refuse, regional transport and urban
construction operations. Volvo Trucks will be offering holistic

25
 A GLOBAL GROUP 2020 BUSINESS MODEL CLIMATE

VOLVO BUSES VOLVO FH LNG

SPEARHEAD IN Sustainable biofuels will play an

THE GROUP'S
ELECTRIFI­CATION important role in the transition
JOURNEY towards fossil-free transportation
Volvo Buses has been spearhead- The role of sustainable biofuels is important in the transition towards fossil-free
ing the Volvo Group's drive tow­ards ­transportation. Most importantly, both natural gas and biogas can be scaled up today
electrified solutions, ­having sold to reduce fossil emissions. When the Volvo FH LNG is powered by liquefied natural
more than 5,000 electrified buses gas (LNG), CO2 emissions can be reduced by up to 20% tank to wheel compared to
under the Volvo brand since 2010. conventional diesel. With liquefied biogas (LBG), the fossil emissions from the tank to
In 2020, Volvo Buses sold 306 wheel can be reduced to virtually zero. For our customers, the gas solution also helps
electrified buses. Over the past to reduce total cost of ownership as the cost of LNG and LBG is usually lower per mile
year cities such as Gothen­burg, than diesel. The Volvo FH LNG has a range of up to 1,000 kilometers.
Malmö, Jönköping and Västerås,
­Sweden, Bodö, Drammen and

-20%
Ålesund, Norway, Århus, Denmark,
Vannes, France, Lodz and Gliwice,
Poland, Kilmarnock, the UK and
Luxembourg started to transform
bus operations towards fully elec-
tric buses in partnership with
Volvo Buses.

COMMON ARCHITECTURE AND SHARED TECHNOLOGY

Volvo Renault
Trucks Trucks
MODULAR SYSTEM APPROACH
AU TO M AT I O N
Backing the Volvo Group’s offers is an accumulated expertise in electrified E L E CTROMOBI LIT Y
Volvo Mack
transport solutions. The solutions are based on the Volvo Group’s modular N N EC T I V I T Y
Penta CO Trucks

system made possible by applying CAST (Common Architecture and Shared C H A SS I S

T R A N S M I SS
Technology). The Volvo Group develops complete driveline solutions as well I
ELECTRO
as systems and components for the business areas and adapts them to their
O
NS

NGINE
NI

market and application needs. By utilizing CAST, the Volvo Group can secure
E

CS
S

CAST
economies of scale and reduce the time to market. When developing a new Construction
Equipment
product, we do not have to start from scratch. The Volvo Group was among UD
the first in the world to offer electric buses. Thanks to CAST, we have been Trucks

able to use these components and systems and ensure that we are now also
among the first in the world to offer electrical solutions also for trucks, con-
struction equipment and Volvo Penta. The Volvo Group has a global product
development system with engineering resources in different parts of the
world, close to customers, to ensure that every product delivers the unique Joint
ventures Buses
brand value that customers expect.

26
 A GLOBAL GROUP 2020 BUSINESS MODEL CLIMATE

VOLVO TRUCKS

I-SAVE – IMPROVING FUEL EFFICIENCY

The Volvo Group continues to help customers reduce their fuel consumption. The CO2 emis-
sions of a typical long-distance diesel Volvo truck have been reduced by more than 20% since
the 1990s. The I-Save solution is the next step in fuel efficiency. By combining the highly effi-
cient Volvo 13-liter Turbo Compound engine and fuel-­saving features, such as the map-based
I-See, Volvo FH with I-Save cuts fuel costs by up to 10% in long haul operations compared
with the older model without I-Save. The powerful engine produces 300 Nm higher torque
at low revs. So, less acceleration and fuel is needed to keep a steady speed in highway traffic.
Working in combination with I-See, the engine makes it possible to tackle hills and gradients
in a higher gear – saving fuel without losing speed. The extra torque also enables a higher
average speed, especially notable in hill climbing. The completely self-learning I-See system
uses cloud-based map data to analyze the topography and select the optimal gear and speed.
The difference in fuel consumption is computed by comparing the costs of diesel and
AdBlue for I-Save: D13TC Euro 6 step D with the long-haul fuel package, with D13 eSCR
Euro 6 step D without the long-haul fuel package. The actual fuel economy varies according
to many factors, such as the driver’s level of experience, use of cruise control, the vehicle
specifications, vehicle load, actual topography and current weather conditions.

COMMERCIALIZATION IN NORTH AMERICA

Volvo VNR Electric

Volvo Trucks started piloting the electric regional haul truck Volvo VNR Electric with
customers in Southern California in the second half of 2020. In October, Volvo Trucks
North America was awarded USD 21.7 M in grants to deploy 70 Volvo VNR Electric
trucks in Southern California for regional freight distribution and drayage. This award
enables the largest commercial deployment of heavy-duty battery-electric trucks in
RENAULT TRUCKS
the US. The U.S. Environmental Protection Agency’s (EPA) Targeted Air Shed Grant
Program is providing USD 20 M in funding, supplemented by USD 1.7 M from the
South Coast Air Quality Management District for charging infrastructure, to improve
ELECTRIC
air quality in the region. Volvo Trucks will deliver the EPA-funded Volvo VNR Electric TRUCKS IN DAILY
trucks to Southern California fleet operators starting in 2021 through the third quarter OPERATION
of 2022, allowing for at least a full year of operation by the end of the project period
in 2023. Serial production of the Volvo VNR Electric will begin in 2021. The Volvo VNR In November, Renault Trucks deliv-
Electric is offered with a range of operational solutions such as Volvo Gold Contract ered three D Wide Z.E. electric
which covers all preventive maintenance and repairs, batteries included, as well as trucks to the Carlsberg Group,
­f lexible financing and insurance solutions from Volvo Financial Services. which will be operated by its Swiss
subsidiary, the Feldschlösschen
Brewery. Carlsberg aims to achieve
carbon neutrality by 2030, in par-
ticular by using electric trucks.
These Renault Trucks D Wide Z.E.
are the first of an order from Carls-
berg for 20 fully-­electric trucks.
The 26-tonne Renault Trucks D
Wide Z.E. trucks are not concept
nor test trucks, but series-pro-
duced trucks that will run in daily
operations. Renault Trucks has
received a number of orders for
electric trucks from Swiss custom-
ers. In total, Renault Trucks will
have delivered over 50 electric
vehicles to Switzerland by the end
of the first quarter of 2021.

27
 A GLOBAL GROUP 2020 BUSINESS MODEL CLIMATE

ELECTRIC REFUSE TRUCK

Mack LR Electric
to begin production
in 2021
During the year, Mack Trucks began commer-
cializing the Mack LR Electric, its refuse model
equipped with a fully electric integrated Mack
drivetrain. Keys to test vehicles were handed
over to both New York City Department of
­Sanitation and to Republic Services. Orders
for the Mack LR Electric opened in Q4 2020,
with deliveries beginning in 2021. The Mack LR
­Electric model is suitable for refuse customers,
whether commercial or municipal, seeking a
zero-emissions truck that aligns with their own
environmental goals and local emissions regu-
lations. With its quiet operation, the Mack LR
Electric meets the needs of customers working
in an urban setting who are seeking to cut
noise pollution and operate quietly at night.

VOLVO PENTA

FIRE TRUCKS WITH ELECTRIC

DRIVELINE FROM VOLVO PENTA
Three pioneering fire trucks featuring Volvo Penta electric drivelines were in the autumn VOLVO CE
of 2020 sent for real-world testing with fire departments in Berlin, Amsterdam and
Dubai. Volvo Penta has developed the electric driveline for leading fire service vehicle ELECTRIC
manufacturer Rosenbauer’s fire truck, named “Revolutionary Technology” (RT). As part
of the Volvo Group, Volvo Penta leveraged proven technology and competence from
­COMPACT
Volvo Trucks and Volvo Buses and adapted it to meet the performance requirements of ­MACHINES
a fire service application. The result is a proven Volvo Group technological solution that
is tailored to meet Rosenbauer’s specific needs. The launch of Volvo Construction
Equipment’s electric range began
in 2020, stopping new diesel
engine-based development of
the compact excavators (EC15
to EC27) and wheel loaders (L20
to L28). Signaling the future for
construction, the new ECR25
Electric compact excavator and
L25 Electric compact wheel
loader, which were the first ones
out, benefit from zero exhaust
emissions and low noise levels
and vibrations, making them suit-
able for inner city jobsites – in fact
any sensitive work environment.
The first series-produced machines
reached customers towards the
end of the year.

28
 A GLOBAL GROUP 2020 BUSINESS MODEL CLIMATE

WWF CLIMATE SAVERS

2015-2020 climate targets exceeded

Volvo Group has been part of the WWF Climate Savers since partners with ambitious strategies to develop net zero business
2010 and was the first automotive company to join. Climate Savers models and demonstrate that reductions in greenhouse gas emis-
is WWF’s leadership program with the objective to recognize sions can go hand in hand with ­economic growth. Read more on
corporate leadership on climate solutions. It includes WWF's [Link]

The Volvo Group's main commitments and targets for climate

and energy efficiency in the WWF Climate Savers program:

PRODUCTION TRANSPORTS PRODUCTS

Implement energy savings that from Reduce freight CO2 emissions per Achieve life cycle CO2 emissions
Target 2020 save 150 GWh per year. ­produced unit by 20%. savings from products of at least
40 million tons cumulative.

2015 2016 2017 2018 2019 2020 2013 // 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Achieved
45 85 115 130 170 207 100 90 91 85 82 76 3 9 5 8 9 9
3 12 17 25 34 43
Annual saving Accumulated

Target achieved Target achieved Target achieved

Since 2015, 1,260 activities have Freight emissions per produced unit An estimated 43 million tons of
been implemented, that together were 24% lower in 2020 compared CO2 emissions have been saved
save 207 GWh per year from 2020. to the baseline 2013. 2015 to 2020.

Implement energy savings Reduce CO2 emissions from freight During 2021, set intermediate
of 150 GWh 2021-2025. transports per produced unit by 30% ­Science Based Targets on the
Next step
by 2025, with 2018 as base year. way to reach net zero by
2050 at the latest.

Our latest targets have stretched from 2015-2020. During this • Developed electric public transportation routes and solutions
period, we have made extensive progress on climate awareness. in ­several cities.
In summary we have: • Demonstrated that electrification is viable in city traffic,
• Co-chaired the Advisory Group on Sustainable Transport on ­construction sites and even for heavy-duty transports.
together with United Nations Secretary-General. • Helped to reduce 43 million tons of customers' CO2 emission.
• Significantly increased the use of renewable energy in our Over the last five years, the key to emission reductions for our
­production and reduced scope 1 and 2 emissions by 35% customers has been increased fuel efficiency.
in five years.
• Commercialized several fuel- and energy-saving solutions
for customers.
Details on ­
metrics and targets are
on page 155–157. Read
more about SBT and our
Next step – Setting science-based targets for net zero emissions by 2050 Climate Savers magnifiers
The Volvo Group has committed to the Science-Based Targets initiative (SBT) and on [Link]/
the Business Ambition for 1.5°C. In this process, interim targets will be set to reach climate
the ambition of net zero value chain emissions by 2050 at the latest.

29
 A GLOBAL GROUP 2020 BUSINESS MODEL RESOURCES

R E S O U R C E S

TOWARDS CIRCULARITY
AND RESOURCE EFFICIENCY
The world’s natural resources are limited
and economic activity is rapidly increasing.
This means that there are large incentives
for rethinking existing production and
transportation patterns.

Main connections to
UN ­Sustainable
Development Goals

7.3 – Double the rate of energy ­efficiency

9.4 – R esource-use efficiency and reduced CO2
per value added
12.2 – E
 fficient use of natural resources

30
 A GLOBAL GROUP 2020 BUSINESS MODEL RESOURCES

In order to use resources efficiently, waste and pollution need to be offer our customers to contribute to significantly increase efficiency
designed out and products and materials kept in the use phase for a in their transport systems. This means taking advantage of a wide
longer period of time. At the same time, the transport industry as a range of opportunities that will result in reduced logistics costs,
whole can make significant improvements in productivity. Today, emissions and wasted resources.
some estimates show that the average truck in the industry is only As we focus even more on services, our aim is to increase the
using 40–50% of total load capacity. Sharing economy business sales of total transport solutions. While the traditional transactional
models, artificial intelligence and machine learning will optimize sales will remain, we offer different business model setups for dif-
goods flow and lead to a reduction in transport needs and save valua- ferent customers depending on their needs. More information on
ble natural resources. different business models is available on page 21.
The Volvo Group wants to lead by example. We are aiming for our
own transport system to be world class. What we learn, we will also

VOLVO AUTONOMOUS SOLUTIONS

AUTOMATED INDUSTRIAL
TRANSPORT-AS-A-SERVICE
Volvo Autonomous Solutions (VAS) was established as a business Creating solutions capable of maximizing transport efficiency
area on January 1, 2020. VAS adopts a new business model for the through advanced automation is the goal of an entire industry.
Group that promotes Transport-as-a-Service. To do this VAS devel- For VAS, it is likely to happen first in confined areas. One solution
ops and commercializes holistic industrial autonomous transport is called TARA – a complete transport system designed to operate
solutions that improve productivity, reduce emissions and improve autonomously within a confined area, like a quarry or a mine. With
safety. Thanks to their autonomous nature, these solutions also the TARA solutions a complete software and hardware stack,
offer process efficiency benefits and improved site efficiency. including the autonomous driving capabilities has been developed.
The Volvo Group aims to reduce its environmental footprint by TARA consists initially of the TA15 electric hauler (more variants will
continuous improvements and disruptive innovation – and VAS follow) and all the charging and supporting infrastructure needed
plays an important part in that work. We believe that electrified and to ensure operations are safe and efficient.
automated commercial vehicles and machines are one part of the The TARA solution, including the ecosystem for electric and
solution to create sustainable societies that are also safer and more autonomous driving, brings substantial CO2 reductions. When
productive. compared to today’s operations it can cut CO2 by 100% in the
VAS is targeting specific industry segments: hauling part with the TA15 (if using CO2-neutral electricity) and
• Mines and quarries, industrial materials handling facilities up to 85% for the complete site.
• Ports and logistics centers
• Hub-to-hub highway transportation.

5–10%5–10% 5–10%
<30%<30% <30% 40–50% 40–50%
40–50%

Assets used ~30% of Up to 50% of total payload theoretically 5–10% of total fuel
their life cycles available for more cargo ­consumed is used to move
goods and materials

Increase efficiency in transport systems

Increasing transport efficiency offers opportunities to add is available for more cargo. With this in mind, and the fact that
­sustainable value beyond fuel consumption and electrification. 5–10% of the world’s total fuel is consumed to move goods
According to some estimates, assets such as trucks, buses and materials the climate and cost efficiency potential for
and construction equipment are on average used 30% of their transports is significant, which can lead to a rapid transforma-
life cycles, and the average truck on the road carries 40–50% tion of the business.
of its total capacity. Theoretically up to 50% of the transport

31
 A GLOBAL GROUP 2020 BUSINESS MODEL RESOURCES

INCREASING PRODUCTIVIT Y

Focus on uptime
Volvo Group has a broad customer offering of connectivity solutions for trucks, buses
and construction equipment. With more than 1,1 million connected customer assets,
we have the largest number of connected commercial vehicles and machines in the
industry. Connectivity is essential to our goals of increasing efficiency and minimizing
environmental impact, as well as making our roads safer.
Connectivity is one of the key technology areas for Volvo Group. Leveraging vehicle
data, our solutions enable our customers to lower their costs and to increase their
­efficiency. Connectivity is also an enabler for Automation and Electromobility – both
when it comes to technology and when it comes to services and solutions for these
applications. Our solutions will increase transport and resource-efficiency through
optimized traffic flows and a higher utilization of existing infrastructure.

RESOURCE EFFICIENCY our reman business by 60% by 2025

STEPS TO INCREASE CIRCULARITY from a baseline in 2018.
At the end of the useful service life
Volvo Group has identified several business setups to increase of components or vehicles, we can
­circularity. The design phase is critical. We look at five main crite- recover certain materials which
ria in the design of new solutions – materials and production, fuel, directly become new raw material.
exhaust emissions, maintenance and end-of-life treatment. For One example is the recovery of palla-
example, avoiding certain materials and substances already in the dium and platinum from scrapped
design phase helps to increase recycling rates of both compo- diesel particulate filters. For trucks,
nents and complete vehicles. A typical truck from Volvo can be we also buy back complete vehicles to dismantle and use parts in
recycled at around 85% and an excavator to around 95–99% by our network of service workshops. Parts that can be refurbished
weight. or remanufactured are kept and used and the rest is sent for mate-
In the production phase, we strive to minimize our CO2 foot- rials recycling.
print by increasing energy efficiency and source more renewable Volvo Buses collaborates with Stena Recycling's Battery Loop
energy. In 2020, the Volvo Bus plant in Borås achieved its 100% to reuse batteries for a second life storing renewable energy.
renewable energy status. Renewable energy accounted for 52% When the batteries have served its second life, there is still value
of the Group's total energy consumption in 2020 and the next left in the battery components and they are recycled by Stena.
milestone is to reach 65% by 2025. We also strive to reduce As electrification accelerates, circularity becomes even more
waste and continuously reduce our environmental footprint from important. In January 2021, the creation of a new business area
our production – read more on page 158. was announced, Volvo Energy, with the purpose of strengthening
In the customer use phase, uptime and utilization of products, business flow of batteries over the life cycle.
components and materials are in focus. Service, maintenance, The ambition of the Volvo Group is to use the above and addi-
repairs and remanufacturing are key elements in this phase. Volvo tional elements of circularity and reduce environmental footprint
Group’s products are made to be durable, and components are of both products and operations. Today, almost 90% of the CO2
made to be remanufactured. One example is gearboxes. A remanu- footprint from raw materials comes from steel, iron, aluminum,
factured gearbox can save 50%, and sometimes up to 80%, of rubber and plastics, which makes these the focus areas to collab-
resources used compared to a new one. The saving comes from orate around. Our ambition is to include more recycled materials
avoiding processing and refining new materials and the associated also in the production of new parts. While a significant share of
energy, water and emissions footprint. Our ambition is to increase iron and aluminum are already from recycled material, we also
­collaborate with suppliers to increase the use of recycled plastics.

32
 A GLOBAL GROUP 2020 BUSINESS MODEL RESOURCES

EFFICIENT LOAD OUT

NEW LOADING SERVICE INCREASES

13% FEWER
TRANSPORTS

­PRODUCTIVITY AND REDUCES EMISSIONS

Volvo Trucks and Volvo Construction Equipment have launched a new digital service,
called “Efficient Load Out”. It enables the connection of trucks and excavators, which
increase efficiency and reduces transport emissions. After running successful field
tests, a commercial contract was signed with the construction company NCC – a first
for this type of service.
Efficient Load Out was tested in a major infrastructure project in Gothenburg, S­ weden
in collaboration with NCC. With the digital service, it is possible to secure between 96%
VOLVO GROUP VENTURE CAPITAL and 100% load utilization for each transport, compared to typically 87%. Data shows
that 350,000 tons have been excavated and transported in 11,000 trips during the pilot
INVESTMENTS run. The connected process helped reduce the number of trips by 1,600 – and it is
TO DRIVE TRANS- expected to save around 8,000 transports once the whole project is completed.
FORMATION When utilizing the system, the excavator operators and truck drivers start by logging
in, and then the system gives the excavator operator a notification when there is a truck
In 2020, Volvo Group Venture Capital available for loading nearby. The truck driver is given a signal to drive to the excavator
made minority investments in and start the loading – all whilst the excavator measures the weight of the load. When
Adnavem and Flock Freight. Adnavem the weight goal is reached, a signal is sent that loading is complete and the truck can
is an online marketplace for freight drive to its specific destination. The truck driver gets information about how much
services. Adnavem offers unbundled ­tonnage has been loaded, what kind of masses it is and what deposit to unload at.
door-to-door transport with a present
focus on Asia and Northern Europe.
Flock Freight, a technology company
based in Solana Beach, California,
pools shipments to fill unused trailer
space. The company uses algorithms
to match multiple LTL (less than a
truckload) shipments into one shared
truckload that eliminates all terminals
and hubs, improving quality and effi-
ciency. The role of Volvo Group Ven-
ture Capital is to make investments
that drive transformation in our indus-
try by facilitating the creation of new
services and solutions and to support
collaborations between start-ups and
the Volvo Group.

VOLVO BUSES

Efficient, safe and

sustainable public transport
Volvo Buses' Zero City concept includes visions and opportunities to reduce emissions,
noise, congestion and accidents. The benefits for local communities are obvious and in
addition, Volvo Buses reduces total costs for public transport operators. By using con-
nected solutions, we introduce safety zones with automatic speed limits, we provide
valuable insights on planning of routes, when to charge vehicles and when to service
and maintain. The effects for the operators are significant, moving towards zero down-
time and reduced cost of operations. With this business model, Volvo Buses offers
complete solutions to public transportation in cities around the world. Read more on
­[Link]/zerocity

33
 A GLOBAL
A GLOBAL
GROUP
GROUP
2020
2020BUSINESS
STRATEGY
MODELPEOPLE
PEOPLE

P E O P L E

STRIVING FOR SAFE ROADS

AND WORKPLACES
Safety is a priority in every­thing
we do. We have a vision for zero
accidents with Volvo Group
products and in our workplaces.

Every year there are more than 1.35 million lives lost and 50 million With safety, as well as with the environment, we believe in
people injured in road traffic accidents around the world. We work t­ aking a full value chain approach. We work to improve health and
proactively to develop intelligent solutions that not only mitigate the safety in our own operations, and we set high standards for our
consequences of accidents but strive to avoid them altogether. Our partners in the supply chain. Collaboration, being innovative, life-
vision is zero fatalities, zero injuries and ultimately zero accidents. long learning, challenging the status quo and being curious drives
According to the World Health Organization, the cost of road engagement and improvement work. We strive to increase safety
traffic accidents can be up to 3% of global GDP. Therefore, there in our operations and have targeted to reduce the accident rate on
is a strong focus on safety in the transport and infrastructure an aggregated level by at least 50% by 2030, compared to 2019.
industry, as well as from governments around the world. Safety Safety mindset is also the foundation for health, non-discrimi-
features for vehicles and machine are key, but our work also nation and other human rights aspects, which there are more
includes a range of engagements with customers and regulatory details about in the Sustainability Notes on page 150–171.
bodies, as well as road traffic safety and driver training. Visit
­[Link]/safety for more information.

34
 A GLOBAL
A GLOBAL
GROUP
GROUP
2020
2020BUSINESS
STRATEGY
MODELPEOPLE
PEOPLE

SAFET Y AT CUSTOMERS' SITES

SAFER CONSTRUCTION SITES

WITH HAUL ASSIST
Increased automation and connectivity enable improved
safety at construction sites. Volvo Haul Assist allows articu-
lated haulers to communicate real-time positions to each
other, improving hauler traffic flow on jobsites. In early
2020, Volvo Construction Equipment rolled out a new map
feature on the Haul Assist application that allows operators
to monitor hauler traffic around a jobsite and proactively
adjust their driving according to traffic conditions. This
update improves productivity and safety thanks to better
communication and monitoring between machines.

SAFET Y AT VOLVO GROUP

HEALTH AND SAFETY

DURING LOCKDOWNS
Volvo Group were quick to adapt production and make
remote work available when the magnitude of the Covid-19
pandemic became evident. The site in Motherwell, UK had
already prepared a team of 30 trained mental health first
aiders who were able to promptly provide support. Isolation
during the pandemic and especially lockdowns can lead to
colleagues feeling isolated, reduce engagement and increase
anxiety so the site team used social media, text messaging
and a telephone line to provide support.

SAFETY FOCUS IN­OPERATIONS

For those needing to work on site, significant efforts to
Main connections maintain safe operations have been put in place around the
to UN ­Sustainable world. The plant in Vénissieux, near Lyon in France, was one
Development Goals of the first plants to close when the Covid-19 pandemic hit in
early 2020 and also one of the first to restart. As part of
3.6 – Halving global deaths and injuries from road traffic re-starting operations, strict safety routines were deployed
­accidents for all personnel with clear instructional videos on protective
4.3 – Access to quality technical and vocational training equipment, hand washing and steps to take if infected. Read
8.8 – Safe and secure work environments more about health and safety management in the Sustain­
11.2 – Safe and sustainable transport systems ability Notes on page 162–164.

35
 A GLOBAL GROUP 2020 BUSINESS MODEL PEOPLE

VOLVO BUSES ZERO CIT Y

Focus on vulnerable
road users
In urban traffic, driver assistance applications are key to improve road traffic safety.
Volvo city buses can be equipped with a high dynamic range camera detecting pedes-
trians and bicyclists. The driver receives an early warning to be able to take the pre-
cautions needed. Zero accidents is one of the pillars of Volvo Buses Zero City c ­ oncept
alongside emissions, noise, congestion, maintenance and other zero visions.
Create your own Zero City in Volvo Buses' simulator at [Link]

VOLVO FM AND VOLVO FMX

10% MORE DIRECT VISIBILITY

WITH THE NEW VOLVO FM
AND FMX
Continuous improvements through vehicle design and techni-
cal features are key to reach zero accidents. The new Volvo
FM and Volvo FMX trucks, launched in 2020, feature a lower
door line, larger windows, slimmer A-pillars, and improved
mirrors, to increase visibility in all directions. In addition, the
passenger corner camera monitors the area on the passenger
side of the truck. The camera is integrated in the side mirror
and activated by the turn indicator or manually using a button
under the side display.

10% VOLVO FH AND VOLVO FH 16

ADAPTIVE HIGH BEAMS

INCREASE SAFETY FOR ALL
ROAD USERS
Adaptive high beam lights, available for the Volvo FH and
Volvo FH 16, improve safety for all road users. When the
camera and radar detect that the truck approaches oncom-
ing traffic or another vehicle from behind the segments of
the LED high beam directed towards the other vehicles are
automatically disabled. The high beam light remains on in all
other areas. Read more about our holistic work with road
safety on [Link]/safety

36
 A GLOBAL GROUP 2020 BUSINESS MODEL PEOPLE

GLOBAL MINISTERIAL CONFERENCE ON ROAD SAFET Y

Achieving the global goals

In February 2020, the third Global Ministerial Conference on Road #ClaimingOurSpace – Volvo Group Youth Ambassadors
Safety was held in Stockholm. Among other Volvo Group contribu- The day before the Global Ministerial Conference room was made
tions, President and CEO Martin Lundstedt held the closing speech for the World Youth Assembly for Road Safety. 200 young leaders
on the vision of zero accidents. He pointed out that safe and effi- from around the world came together with the common purpose
cient transports are key in creating prosperity and that the next of safety by mobilizing and inspiring global youth to take action.
decade will be about accelerating the sustainable transformation Volvo Group was a main partner for this event and were repre-
of transports. The Volvo Group will use innovation and business sented by five safety ambassadors who were chosen for their skills
to drive safety developments. and engagement in safety issues. After the event, they continue as
Read more at [Link] advocates for new ways to spread knowledge and take actions to
increase road safety.

ZERO
ACCIDENTS

MISALE

Driver training to increase

road safety and employ-
ment in Ethiopia
Volvo Group, the Swedish International Development Coopera-
tion Agency (Sida) and United Nations Industrial Development
Organization UNIDO have partnered to establish the first voca-
tional training school for the training of trainers and commercial
vehicle drivers (CVDs) in Ethiopia to meet the growing demand
from private transport companies. The vocational training school
will train 40 trainees and 20 trainers each year, in addition to
480 employees from other transport companies who will benefit
from short-term skill upgrading training on an annual basis. The
project strives to introduce mandatory road safety training, such
as defensive driving and awareness campaigns in schools in
order to reduce the fatality rates from 65 to 32 per 10,000 reg-
istered vehicles in five years’ time according to the target of the
government. Furthermore, and in collaboration with the Ethio-
pian Federal Transport Authority, the project will establish stand-
ards for the teachers and students' certification and assist other
schools to adopt a new curriculum for CVD training based on the
success of this new institute.

37
 A GLOBAL GROUP 2020 BUSINESS MODEL EMPLOYEES

W E A R E T H E V O LV O G R O U P

EMPLOYEES
We spend a large part of our life at work. In the Volvo Group, we better shape for the next generation. They relate to a culture of care,
believe that time should matter. We asked our employees what inclusiveness and empowerment where everyone regardless of
matters to them and their thoughts can be summarized in one word gender, race, age, abilities or background, can give their very best.
– purpose. A clear purpose to come back and deliver everyday They also tell stories about growth opportunities in many dimen-
together with some of the sharpest and most creative brains in their sions – between entities, geographies and professions. In Volvo
field of work, using the latest technology to leave our society in a Group they not only find a job, but rather a career.

THE VOICES OF FOUR OF OUR PEOPLE

JIE QIU
Rebuild and Repair Workshop Engineer, Volvo Construction Equipment, China

I work for Volvo Construction Equipment China as an engineer in the remanufactur-

ing center. At the remanufacturing center, my colleagues and I conduct rigorous
testing of each remanufactured part to ensure it meets the standards of the new
part, and the old part will be revitalized after a series of remanufacturing processes.
It is important work and I am thrilled when every little screw and nut can be reused,
every reusable part turned into a remanufactured item that customers will need.
During the seven years working at Volvo, I have really enjoyed the sense of accom-
plishment brought by my job, and sharing those cheerful moments with my col-
leagues each time we reach a new target.

RONETTE STONER
Chief Financial Officer, Volvo Autonomous Solutions, Sweden

In 1995 I saw a job advertisement in a local paper for an entry-level position as a

financial analyst at Mack Trucks, United States. I applied and got the job. This is how
I joined the Volvo Group. Back then, I thought I would need to change companies
every two to five years, in order to develop my career. 25 years later, I am still here!
The opportunities in Volvo Group are many and varied. Over the years I’ve always
taken the chance to make a difference and my efforts were recognized. My latest
career move was earlier this year in Sweden taking up the position of Chief Financial
Officer for Volvo Autonomous Solutions, a new Volvo Group company launched in
January 2020. It is thrilling to be part of a company that will transform our society
with efficient, sustainable and safe autonomous solutions.
At times it felt lonely when I was the only woman in the room, but I never felt that
I counted less. It is very important for me to pay it forward, so I am an active coach
and mentor to both women and men, helping them to grow into leadership positions.
Making a difference is what gives me meaning and purpose every day.

38
 A GLOBAL GROUP 2020 BUSINESS MODEL EMPLOYEES

Volvo Group employs almost 100,000 people across the In October the Great Place to Work®
world and several additional thousands are connected to the Institute and Fortune revealed their
Group via partnerships, such as sales channels and supply annual list of the 25 World’s Best Work- 2020
chains. A positive working environment builds on mutual places that stand out for creating globally
­respect, free from all forms of discrimination and harassment exceptional employee experiences, high-trust relationships,
among colleagues and between company representatives and workplaces that are fair and equal for all. Volvo Group was
and business partners. We continue our work to develop selected out of over 10,000 organizations that participated
safe and attractive working conditions, good relations be- in the survey process, representing the voices of 10.2 million
tween management and employee representatives, equal employees in 92 countries. Its winning culture thrives on
opportunities and lifelong career development and training. ­fostering strong connections and meaningful work.
See detailed reporting on the topics above in the Sustain­
ability Notes on pages 159–166.

Read more at [Link]/career

CHRISTIAN DE JESUS CAMILO

Factory Operator, Volvo Buses, Brazil

I started working at Volvo as an apprentice. The work environment, the relationships

we establish with people, the opportunities for development that I have are things
that makes me come to work and want to develop more every day.
Our work culture contributes a lot to our development and inspires us to carry on
with our activities with dedication and passion. On top of that, we have several leisure
and entertainment programs that are essential for our health and well-being.
If I were to describe my working environment, I would say that we all have a clear
definition of what we should perform on a daily basis, but we are also free to express
our opinion and suggest improvements. We feel our individual and collective impor­
tance for the Volvo Group, which means that the teams are engaged in p ­ roducing
with quality and safety in favor of the same objectives, that being the ­success of
customers.

MARIA KALIMANJIRA
Competence Sourcing Manager, Group Trucks Operations, Sweden

The best thing about working at Volvo Group is the diversity, which I think is bene-
ficial to our business and increases the commitment of employees. Here at the
Volvo Group plant in Tuve, we have colleagues with different backgrounds and
skills – you can be yourself and everyone is equally welcome. There are many career
paths within the company, and I think the importance of inclusion is becoming
more and more clear. It is a prerequisite in order for us to move forward together,
and strengthens both passion and loyalty.
My work is challenging, varied and the collaboration with colleagues is good.
My main task is to work with competence flexibility and build bridges by allowing
employees to develop and increase their competence, for instance by working in
other departments, internally as well as externally. The goal is also to inspire people
to develop further within the company.

39
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 SIGNIFICANT EVENTS

S I G N I F I C A N T E V E N T S

SIGNIFICANT EVENTS
PUBLISHED IN QUARTERLY
REPORTS IN 2020

Important truck launches in the first quarter In light of the above, the Board of Directors of AB Volvo has decided
In January, Mack Trucks launched new, medium-duty models for to postpone the Annual General Meeting in order to give the company
the North American market. These new products will meet the and the Board a better opportunity to further evaluate the situation.”
needs of trucking applications requiring dry van/refrigerated, stake/ Subsequently it was decided that the Annual General Meeting
flatbed, dump and tank truck vocations. was to be held on June 18, 2020 in Gothenburg, Sweden.
In February, Volvo Trucks launched four new trucks, with a strong
focus on the driver environment, safety and productivity. The four The Volvo Group and Daimler Truck AG to lead the
heavy-duty trucks; Volvo FH, FH16, FM and FMX, normally repre- development of sustainable transportation by forming joint
sent about two thirds of Volvo Trucks’ deliveries. As a result of the venture for large-scale production of fuel cells
Covid-19 pandemic, the launch was subsequently postponed until Sharing the Green Deal vision of sustainable transport and a carbon
the autumn of 2020. neutral Europe by 2050, two leading companies in the commercial
vehicle industry, Daimler Truck AG and the Volvo Group, on April 21,
Update on the impact from Covid-19 on the Volvo Group signed a preliminary non-binding agreement to establish a new joint
On March 16, the Volvo Group issued a press release stating that venture. The intention is to develop, produce and commercialize fuel
the consequences of the Covid-19 outbreak were affecting the cell systems for heavy-duty vehicle applications and other use
Volvo Group and that there was a considerable risk of a material cases. Daimler will consolidate all its current fuel cell activities in the
financial impact on the Group as from mid-March. joint venture. The Volvo Group will acquire 50% in the joint venture
for the sum of approximately EUR 0.6 billion on a cash and debt free
AB Volvo’s Board of Directors withdrew proposal of extra basis. A final agreement was signed in November and closing of the
dividend, maintained ordinary dividend transaction is expected during the first half of 2021. The transaction
On March 19, the Volvo Group announced that in light of the general is subject to merger control review by relevant authorities, as well as
uncertainty and the measures taken to slow down the spread of other approvals.
Covid-19 and their effects on the Volvo Group, the Board of Direc-
tors of AB Volvo had decided to maintain the proposal to the Annual AB Volvo’s Election Committee revised its proposal
General Meeting on April 8, 2020 of an ordinary dividend of SEK to the AGM on remuneration to the Board
5.50 per share, but to withdraw the proposal of an extra dividend of On May 12, the Election Committee of AB Volvo proposed that the
SEK 7.50 per share. remuneration to the Board members of AB Volvo for the coming
year should be the same as decided in 2019.
Volvo provided an update on the situation in respect of
Covid-19 and postponed the Annual General Meeting AB Volvo’s Board of Directors withdrew
On March 25, it was announced that the Board of Directors of AB proposal for ordinary dividend
Volvo had decided to postpone the Annual General Meeting given the On May 12, the Board of Directors of AB Volvo decided to withdraw
uncertain and accelerating developments in the wake of Covid-19. the proposal to the Annual General Meeting for an ordinary dividend
The press release stated that “In recent days, a number of govern- of SEK 5.50 per share and instead proposed that no dividend for
ment authorities around the world have continued to introduce meas- 2019 would be paid. The Volvo Group has a strong financial posi-
ures that directly impact the Volvo Group’s operations and custom- tion. However, there was a general uncertainty created by Covid-19
ers. These decisions include closing borders, minimizing freedom of and the effects on the Volvo Group from the measures taken in var-
movement for citizens and closing businesses. Most of the Group’s ious countries to slow down the spread of the virus. As an effect the
manufacturing plants are currently closed and employees in several Board believed that it was appropriate, as a precautionary measure,
countries have been temporarily laid off. Recent developments have to withdraw the dividend proposal.
a direct effect on economies important for the Volvo Group and the
assessment is that the prevailing situation will lead to weaker demand Heléne Mellquist new President Volvo Penta
for the Group’s products and services. As already indicated, this will On June 9, Heléne Mellquist was appointed President of Volvo Penta
have a material negative effect on the Group’s financial development. and new member of Volvo Group Management. On September 1,

40
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 SIGNIFICANT EVENTS

she replaced Björn Ingemanson, who after a long and successful accordance with the Memorandum of Understanding signed in
career retired. Heléne Mellquist, born in 1964, previously held the December 2019. The agreements include Isuzu Motor’s acquisition
position of ­President of the European Division at Volvo Trucks. of UD Trucks from the Volvo Group for an enterprise value of JPY
243 billion (approx. SEK 20 billion). Closing is expected during the
The Volvo Group took measures to reduce first half of 2021. The transaction is subject to certain conditions,
cost and accelerate transformation including approval from regulatory authorities.
On June 16, it was announced that the Covid-19 crisis was expected
to have a negative effect on economic activity in many of the Volvo Binding agreement with Daimler Truck AG
Group’s major markets in the short and medium term. Volvo contin- for new fuel-cell joint venture
uously adjusted its operations to lower demand from record levels in In November, the Volvo Group and Daimler Truck AG signed a bind-
the first half of 2019 by utilizing the installed flexibility, while at the ing agreement for a joint venture to develop, produce and commer-
same time accelerating the transformation towards sustainable cialize fuel-cell systems for use in heavy-duty trucks as the primary
transport solutions. As the next step, the Volvo Group announced a focus, as well as other applications. The Volvo Group will acquire
reduction of the white-collar workforce globally by approximately 50% of the partnership interests in Daimler Truck Fuel Cell GmbH
4,100 positions starting in the second half of 2020. & Co. KG for approximately EUR 0.6 billion on a cash and debt-free
basis. Closing of the transaction is expected during the first half of
Annual General Meeting of AB Volvo 2021. The transaction is still subject to merger control review by
AB Volvo held its Annual General Meeting on June 18, 2020. Due to relevant authorities, as well as other approvals.
the extraordinary situation as a result of the Covid-19 pandemic, the
Meeting was carried out through postal voting, without any physical A complete range of electric trucks from Volvo Trucks
attendance. Among other things, the Annual General Meeting adopted In November, Volvo Trucks announced that in 2021 hauliers in
the income statement and balance sheet as well as the consolidated Europe will be able to order all-electric versions of Volvo’s heavy-
income statement and the consolidated balance sheet. The Meeting duty trucks. This means that Volvo Trucks will offer a complete
resolved that no payment of dividend will be made and that the entire heavy-duty range with electric drivelines starting in Europe.
amount available will be carried forward. The Board Members, Board
Deputies and the President were discharged from liability for their Green Finance Framework and Science Based Targets
administration during the 2019 fiscal year. Matti Alahuhta, Eckhard In November, Volvo Group launched a Green Finance Framework for
Cordes, Eric Elzvik, James W. Griffith, Martin Lundstedt, Kathryn V. the financing of investments and projects in the area of clean trans-
Marinello, Martina Merz, Hanne de Mora, Helena Stjernholm and portation. The framework is classified as Dark Green by the Center
Carl-Henric Svanberg were reelected as members of the Board. Kurt for International Climate and Environmental Research (CICERO
Jofs was elected as new member of the Board. Carl-Henric Svanberg Shades of Green). The Volvo Group also took the next step in adjust-
was reelected as Chairman of the Board. A remuneration policy for ing and future-proofing the company in line with the ambitions of
senior executives was adopted in accordance with the Board of Direc- the Paris Climate Agreement. In order to be transparent on its pro-
tors’ motion. The Annual General Meeting adopted a proposal from gress towards becoming a net-zero emissions company by 2050 at
the Board of Directors concerning amendments to the Articles of the very latest, the Volvo Group committed to the Science Based
Association, whereby a new section is inserted in the Articles of Asso- Targets initiative.
ciation allowing the Board to collect powers of attorney in accordance
with the procedure described in Chapter 7, section 4 of the Companies Anna Westerberg new President of Volvo Buses
Act and allowing the Board to decide that shareholders shall have the In January 2021, Anna Westerberg, head of Volvo Group Connected
right to provide their votes before a General Meeting. The Meeting Solutions, was appointed President of Volvo Buses and member of
further resolved to adopt the Board of Directors’ proposal to reduce Volvo Group Management. She assumed her new position on
the share capital by way of cancellation of the company’s approxi- ­February 1.
mately 95 million own shares and an increase of the share capital by
way of a bonus issue in order to restore the share capital. The Volvo Group creates business area dedicated
to accelerating electrification
Jens Holtinger new head of Volvo Group’s On January 28, 2021 the Volvo Group announced that it creates a
global truck production new business area dedicated to accelerating electrification. The
On September 10, Jens Holtinger was appointed head of Volvo business area, Volvo Energy, will strengthen the Volvo Group’s busi-
Group’s global truck production organization and member of the ness flow of batteries over the life cycle as well as the customer
Volvo Executive Board. On October 1, he replaced Jan Ohlsson, offer for charging infrastructure. Starting in February 2021, J
­ oachim
who after a long and successful career retired. Rosenberg, member of the Volvo Group Executive Board and
­Chairman of UD Trucks, heads the new business area.
Final agreements to form strategic alliance with Isuzu Motors
In October, the Volvo Group and Isuzu Motors signed binding agree-
ments to form a strategic alliance within commercial vehicles in

41
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial performance

F I N A N C I A L P E R F O R M A N C E

LOWER SALES IMPACTED

PROFITABILITY
For the Volvo Group, 2020 was a year with lower sales volumes and operating income than the preceding year.

INCOME STATEMENTS VOLVO GROUP

Industrial Operations Financial Services Eliminations Volvo Group

SEK M 2020 2019 2020 2019 2020 2019 2020 2019

Net sales Note 6, 7 326,472 418,361 13,960 14,870 –1,987 –1,252 338,446 431,980
Cost of sales1 –252,933 –317,763 –8,375 –9,091 1,989 1,252 –259,319 –325,603
Gross income 73,539 100,598 5,586 5,779 2 – 79,127 106,377

Research and development expenses –16,798 –18,539 – – – – –16,798 –18,539

Selling expenses1 –24,284 –31,775 –2,226 –2,554 – – –26,510 –34,329
Administrative expenses –4,611 –5,887 –9 –13 – – –4,621 –5,901
Other operating income and expenses Note 8 –3,673 230 –1,786 –445 – –6 –5,459 –221
Income/loss from investments in joint
­ventures and associated companies Note 5, 6 1,749 1,859 – – – – 1,749 1,859
Income/loss from other investments –4 285 0 0 – – –3 285
Operating income 25,919 46,771 1,564 2,766 2 –6 27,484 49,531

Interest income and similar credits 372 600 – – –73 –280 299 320
Interest expenses and similar charges –1,422 –1,953 0 0 73 280 –1,349 –1,674
Other financial income and expenses Note 9 –518 –1,346 – – – – –518 –1,345
Income after financial items 24,351 44,071 1,564 2,767 2 –6 25,917 46,832

Income taxes Note 10 –5,439 –9,650 –404 –688 0 1 –5,843 –10,337

Income for the period 18,912 34,422 1,160 2,079 2 –5 20,074 36,495

Attributable to:
Owners of AB Volvo 19,318 35,861
Non-controlling interest 755 635
20,074 36,495

Basic earnings per share, SEK Note 19 9.50 17.64

Diluted earnings per share, SEK Note 19 9.50 17.64

1 The comparative financial information is restated between Cost of sales and Selling expenses. For more information, please see note 31.

OTHER COMPREHENSIVE INCOME

SEK M 2020 2019

Income for the period 20,074 36,495

Items that will not be reclassified to income statement:
Remeasurement of defined benefit pension plans Note 20 –1,901 –2,969
Remeasurement of holding of shares at fair value Note 19 –6 10
Items that may be reclassified subsequently to income statement:
Exchange differences on translation of foreign operations –9,741 2,616
Share of Other comprehensive income related to joint ventures and associated companies –939 252
Accumulated translation difference reversed to income –50 –
Other comprehensive income, net of income taxes –12,637 –91
Total comprehensive income for the period 7,437 36,403

Attributable to:
Owners of AB Volvo 6,895 35,738
Non-controlling interest 542 665
7,437 36,403

42
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial performance

Net sales and lower capacity utilization in the industrial system as well as a
During 2020, net sales decreased by 22% to SEK 338 billion negative product and market mix, residual value write-downs and
(432). Adjusted for currency movements the decrease was 18%. higher credit provision expenses. This was partly offset by lower
Vehicle sales decreased by 23% adjusted for currency movements. selling and administrative expenses as well as lower research and
Sales were lower in all business areas as a consequence of the meas- development expenses. Adjusted operating income included vari-
ures to mitigate the Covid-19 pandemic affecting customer demand, ous governmental short-terms layoff programs amounting to SEK
primarily in the spring. Service sales decreased by 4% adjusted for 2.2 billion and a positive effect of SEK 604 M from a correction of
currency as a sharp drop in the utilization of vehicles and machines actuarial calculations of the Group’s pension liabilities.
during the first half of the year. This was followed by a strong rebound Adjusted operating income excludes restructuring charges related
when measures such as lockdowns were eased in many markets. to headcount reductions of SEK 2.2 billion and a positive effect
Net sales in Trucks decreased by 21% adjusted for currency move- from ceased depreciation and amortization on assets held for sale of
ments, as a consequence of lower deliveries in all main markets. For SEK 1.1 billion. In 2019 adjusted operating income excluded a capital
Construction Equipment currency-adjusted net sales decreased by gain of SEK 1.6 billion from the sale of shares in WirelessCar.
5% as an increase in volumes was offset by a negative product and Reported operating income amounted to SEK 27.5 billion (49.5).
market mix. Buses’ net sales decreased by 33% adjusted for currency
movements, primarily because of a steep drop in demand for coaches
and related service sales. Net sales for Volvo Penta went down by 8%
currency adjusted as increased service sales could not fully compen- Net sales SEK bn Operating income SEK M
sate for a drop in the sales of engines.
The Volvo Group’s sales of defense material, as defined in the Swed-
ish Military Equipment Ordinance (1992:1303) section A, amounted in
2020 to 0.93% (0.51) of net sales.

Operating income
In 2020, the global Covid-19 pandemic presented the Volvo Group
with challenges that was unprecedented in modern times. The 16 17 18 19 20 16 17 18 19 20
adjusted operating income amounted to SEK 28.6 billion (47.9), 302 333 391 432 338 20,826 29,678 34,478 49,531 27,484
corresponding to an adjusted operating margin of 8.4% (11.1). The
decrease in earnings was primarily an effect of lower vehicle volumes

Net sales by operating segment, Adjusted operating income by

SEK M 2020 2019 % operating ­segment, SEK M 2020 2019

Trucks 208,262 276,647 –25 Trucks 17,251 31,552

Construction Equipment 81,453 88,606 –8 Construction Equipment 10,071 11,910
Buses 19,791 31,019 –36 Buses –445 1,337
Volvo Penta 11,891 13,287 –11 Volvo Penta 1,448 1,876
Group Functions & Other 7,870 12,287 –36 Group Functions & Other –1,382 –1,510
Eliminations –2,796 –3,484 – Eliminations 12 –14
Industrial Operations 326,472 418,361 –22 Industrial Operations 26,955 45,150

Financial Services 13,960 14,870 –6 Financial Services 1,606 2,766

Reclassifications and eliminations –1,987 –1,252 –
Reclassifications and eliminations 2 –6
Volvo Group1 338,446 431,980 –22
Volvo Group adjusted operating income 28,564 47,910
1 Adjusted for changes in currency rates and acquired and divested operations,
net sales decreased by 18%. Adjustments¹ –1,081 1,621
Volvo Group operating income 27,484 49,531
Net sales by market area, SEK M 2020 2019 %
1  For more information on adjusted operating income, please see section for
Europe 130,457 158,985 –18 Key ratios.
North America 76,501 125,855 –39
South America 20,133 29,739 –32 Adjusted operating margin, % 2020 2019
Asia 80,088 78,914 1
Africa and Oceania 19,293 24,869 –22 Trucks 8.3 11.4
Total Industrial Operations 326,472 418,361 –22 Construction Equipment 12.4 13.4
Buses –2.2 4.3
Of which: Volvo Penta 12.2 14.1
Vehicles 247,397 332,558 –26 Industrial Operations 8.3 10.8
Services 79,075 85,804 –8 Volvo Group adjusted operating margin 8.4 11.1
Volvo Group operating margin 8.1 11.5

43
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial performance

Change in operating income, Change Key operating ratios, Industrial Operations, % 2020 2019
Volvo Group (excluding Currency Gross margin 22.5 24.0
SEK bn currency) impact Total
Research and development expenses
Operating income 2019 49.5 as percentage of net sales 5.1 4.4
Change in gross income Industrial Selling expenses as percentage of net sales 7.4 7.6
operations –23.1 –4.0 –27.1 Administrative expenses as percentage of net sales 1.4 1.4
Change in gross income Financial Operating margin 7.9 11.2
Services 0.2 –0.4 –0.2
Higher credit losses –0.9 0.1 –0.8
Expenses by nature, SEK M 2020 2019
Gain on sale of in-/tangible assets –0.7 0.0 –0.7
Material cost (freight, distribution, warranty)
Lower capitalization of development cost –1.4 0.0 –1.4 and purchased services 209,444 271,021
Lower research and development Personnel 53,788 64,191
expenses 3.0 0.2 3.2
Amortization/depreciation 20,599 20,585
Lower selling and administrative
expenses 6.9 0.9 7.8 Other 23,417 28,574
Sale of WirelessCar 2019 –1.6 0.0 –1.6 Total 307,247 384,371
Depreciation of Assets held for sale 1.1 0.0 1.1
Income from investments in joint
ventures and associated companies –0.1 0.0 –0.1
Volvo profit sharing program 0.6 0.0 0.6 Research and development expenses
Restructuring costs¹ –2.5 0.0 –2.5
Research and
Other –0.3 0.0 –0.3 development
Operating income 2020 –18.8 –3.2 27.5 expenses, SEK bn

1 Including costs of SEK 2.2 bn related to headcount reductions. Research and

development
expenses,
% of Industrial
Impact of exchange rates on operating income,
Operations’
Volvo Group, Compared with preceding year, SEK M net sales
Net sales1 –14,768 16 17 18 19 20
Cost of sales 10,396 14.6 16.1 15.9 18.5 16.8
Research and development expenses 170 5.0 5.0 4.2 4.4 5.1
Selling and administrative expenses 899
Other 115
Total effect of changes in exchange rates
on operating income –3,188
1 The Volvo Group sales are reported at monthly average rates.

Impact of exchange rates on operating income amounted to SEK 1.3 billion (1.7). The decrease primarily relates to the
Operating income for 2020 in the Volvo Group was negatively effect from the repayment of the first tranche of the hybrid bond in
impacted by approximately SEK –3.2 billion from changes in June 2020. Other financial income and expenses amounted to SEK
exchange rates. The negative impact was related to net flows in for- –0.5 billion (–1.3). The change compared to 2019 was primarily
eign currency by SEK –1.5 billion, revaluation of receivables and related to unrealized revaluation and realized result on derivatives.
liabilities by SEK 0.3 billion and translation of operating income in Read more in Note 9 Other financial income and expenses.
foreign subsidiaries by SEK –2.0 billion.
The net flows in foreign currency were negatively impacted by the Income taxes
depreciation of USD, ZAR and NOK, partly offset by a positive The tax expense for the year amounted to SEK 5.8 billion (10.3)
impact from the depreciation of KRW. ­corresponding to an effective tax rate of 23% (22).
 ead more in Note 4 Goals and policies in financial risk management
R
regarding Industrial Operations transaction exposure from operating net Income for the period and earnings per share
flows, graph 4:5, as well as currency impact on sales and operating income.
In 2020 the income for the period amounted to SEK 20,074 M
(36,495). Earnings per share amounted to SEK 9.50 (17.64) and
Net financial items
diluted earnings per share to SEK 9.50 (17.64). Return on total equity
In 2020 interest income was on par with the previous year and
was 13.8% (27.0).
amounted to SEK 0.3 billion. Interest expenses decreased and

44
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial POSITION

F I N A N C I A L P O S I T I O N

CONTINUED STRENGTHENED FINANCIAL POSITION

Balance sheet Net financial position

Total assets in the Volvo Group amounted to SEK 510.8 billion as of In 2020, net financial assets in the Volvo Group’s Industrial Opera-
December 31, 2020, a decrease of SEK 14.0 billion compared to tions, excluding provisions for post-employment benefits and lease
year-end 2019. Currency effects from revaluation of assets in liabilities, increased by SEK 12.1 billion resulting in a net financial
foreign subsidiaries decreased total assets by SEK 41.9 billion.
­ asset position of SEK 74.7 billion on December 31, 2020. The
Adjusted for currency effects total assets increased by SEK 27.9 change was mainly an effect of a positive operating cash flow of
billion. The increase was mainly in cash and cash equivalents due to SEK 18.5 billion, which was partly offset by a dividend to sharehold-
the positive operating cash flow and amounted to SEK 23.7 billion. ers with non-controlling interest of SEK 0.8 billion and negative
currency movements of SEK 2.2 billion.
Read more in Note 15 Customer-financing receivables.
Including provisions for post-employment benefits and lease lia-
Read more in Note 17 Inventories.
Read more in Note 18 Cash and cash equivalents.
bilities the Industrial Operations had net financial assets of SEK 51.0
billion. Provisions for post-employment benefits and lease liabilities
The net value of assets and liabilities held for sale increased by SEK decreased by SEK 1.6 billion. This was mainly due to pension pay-
0.7 billion during the year and amounted to SEK 23.0 billion, mainly ments of SEK 3.6 billion and positive currency movements of SEK
related to the intention to transfer ownership of the complete UD 1.3 billion, offset by an increase in remeasurements of defined benefit
Trucks business globally to Isuzu Motors. pension plans of SEK 0.1 billion. The increase in remeasurements
was primarily an effect of significantly lower interest rates, which
Read more in Note 3 Acquisitions and divestments of shares and opera- were partly offset by higher return on assets. A correction of actuarial
tions, regarding assets and liabilities held for sale.
calculations has increased pension liabilities by SEK 1.1 billion.

Investments in joint ventures and associated companies increased Read more in Note 20 Provisions for post-­employment benefits.
by SEK 0.2 billion during the year, mainly driven by the profits in
Dongfeng Commercial Vehicle Co. Ltd. The Volvo Group’s cash and cash equivalents amounted to SEK
85.2 billion on December 31, 2020, an increase of SEK 23.7 billion

Read more in Note 5 Investments in joint ventures, associated
­companies and other shares and participations. as an effect of the positive operating cash flow. In addition to this,
granted but unutilized credit facilities amounted to SEK 41.6 billion
The net value of assets and liabilities related to pensions and similar (43.0), whereof SEK 5.5 billion will expire in 2022, SEK 1.0 billion
obligations amounted to a liability of SEK 16.7 billion as of December in 2023, SEK 15.0 billion in 2024 and SEK 20.1 billion in 2025.
31, 2020, a decrease of SEK 1.6 billion compared to year-end 2019. Cash and cash equivalents include SEK 2.5 billion (2.4) that is not
Read more in Note 20 Provisions for post-­employment benefits. available to use by the Volvo Group and SEK 11.0 billion (9.1) where
other limitations exist, mainly in countries where exchange controls
On December 31, 2020 the total equity for the Volvo Group or other legal restrictions apply.
amounted to SEK 148.1 billion compared to SEK 141.7 billion at Read more in Note 18 Cash and cash equivalents.
year-end 2019. The equity ratio was 29.0% (27.0). On the same Read more in Note 22 Liabilities, regarding the maturity structure on
date the equity ratio in the Industrial Operations amounted to credit facilities.

35.8% (33.1).

Net financial position, incl. provisions for post-employment

benefits and lease liabilities, Industrial O
­ perations SEK bn

16 17 18 19 20
–15.7 12.2 29.1 37.3 51.0

45
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial POSITION

BALANCE SHEET VOLVO GROUP – ASSETS

Industrial Operations Financial Services Eliminations Volvo Group

Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
SEK M 2020 2019 2020 2019 2020 2019 2020 2019

Assets
Non-current assets
Intangible assets Note 12 34,423 36,467 154 202 – – 34,577 36,668
Tangible assets Note 13
Property, plant and equipment 48,985 53,348 68 86 – – 49,053 53,433
Investment property 60 63 – – – – 60 63
Assets under operating leases 29,460 33,794 19,155 22,602 –10,653 –13,070 37,962 43,326
Financial assets
Investments in joint ventures
and ­associated companies Note 5 13,160 12,955 – – – – 13,160 12,955
Other shares and participations Note 5 262 139 15 19 – – 276 158
Non-current customer-financing
receivables Note 15 1,061 896 70,773 72,115 –1,287 –1,127 70,547 71,883
Net pension assets Note 20 1,712 1,663 – – – – 1,712 1,663
Non-current interest-bearing
­receivables Note 16 4,603 815 – 120 –410 –120 4,193 815
Other non-current receivables Note 16 9,228 8,927 157 220 –815 –703 8,569 8,444
Deferred tax assets Note 10 9,505 12,261 1,089 979 1 1 10,595 13,242
Total non-current assets 152,458 161,327 91,411 96,342 –13,164 –15,019 230,705 242,650
Current assets
Inventories Note 17 47,273 56,080 352 564 – – 47,625 56,644
Current receivables
Customer-financing receivables Note 15 635 675 58,096 71,299 –746 –875 57,985 71,099
Tax assets 1,659 1,287 528 511 – – 2,187 1,797
Interest-bearing receivables Note 16 1,698 4,102 4 345 –15 –2,518 1,686 1,929
Internal funding1 10,925 21,283 – – –10,925 –21,283 – –
Accounts receivables Note 16 34,278 35,827 1,383 1,896 – – 35,660 37,723
Other receivables Note 16 17,105 17,835 1,361 1,616 –3,208 –889 15,258 18,562
Marketable securities Note 18 213 200 – 0 – – 213 200
Cash and cash equivalents Note 18 81,973 57,475 4,680 4,999 –1,448 –1,014 85,206 61,461
Assets held for sale Note 3 29,362 28,427 4,934 4,345 – – 34,296 32,773
Total current assets 225,121 223,190 71,337 85,576 –16,342 –26,578 280,116 282,187
Total assets 377,579 384,517 162,748 181,917 –29,506 –41,597 510,821 524,837

1 Internal funding is internal lending from Industrial Operations to Financial Services.

46
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial POSITION

BALANCE SHEET VOLVO GROUP – EQUITY AND LIABILITIES

Industrial Operations Financial Services Eliminations Volvo Group

Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
SEK M 2020 2019 2020 2019 2020 2019 2020 2019

Equity and liabilities

Equity attributable to
owners of AB Volvo Note 19 132,280 124,067 13,018 14,533 –3 –5 145,295 138,595
Non-controlling interest Note 11 2,847 3,083 – – – – 2,847 3,083
Total equity 135,127 127,150 13,018 14,533 –3 –5 148,142 141,678
Non-current provisions
Provisions for post-­
employment benefits Note 20 18,282 19,850 148 138 – – 18,430 19,988
Provisions for deferred taxes Note 10 1,166 1,667 2,099 2,676 – – 3,265 4,343
Other provisions Note 21 10,217 13,965 238 220 464 401 10,918 14,585
Total non-current provisions 29,664 35,482 2,484 3,034 464 401 32,612 38,916
Non-current liabilities
Bond loans Note 22 66,391 65,754 – – – – 66,391 65,754
Other loans Note 22 18,053 19,871 11,905 16,956 –1,182 –965 28,775 35,862
Internal funding1 –58,839 –60,635 59,412 61,660 –573 –1,025 – –
Other liabilities Note 22 38,094 43,602 1,371 1,850 –8,041 –9,141 31,424 36,311
Total non-current liabilities 63,699 68,592 72,687 80,466 –9,796 –11,131 126,590 137,927
Current provisions Note 21 12,411 11,424 225 172 517 312 13,153 11,907
Current liabilities
Bond loans Note 22 30,904 31,759 – – – – 30,904 31,759
Other loans Note 22 17,055 12,675 10,968 14,567 –669 –2,866 27,354 24,377
Internal funding1 –38,547 –37,098 51,050 59,266 –12,503 –22,169 – –
Trade payables 59,013 66,590 598 276 – – 59,611 66,866
Tax liabilities 3,885 2,920 714 573 – – 4,599 3,493
Other liabilities Note 22 57,730 59,097 6,354 4,543 –7,515 –6,139 56,569 57,502
Liabilities held for sale Note 3 6,638 5,927 4,649 4,486 – – 11,286 10,413
Total current liabilities 136,678 141,870 74,333 83,712 –20,688 –31,174 190,324 194,410
Total equity and liabilities 377,579 384,517 162,748 181,917 –29,506 –41,597 510,821 524,837

1 Internal funding is internal lending from Industrial Operations to Financial Services.

47
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial POSITION

Net financial position excl. post-employment benefits and lease

liabilities Industrial Operations Volvo Group

SEK M Dec 31 2020 Dec 31 2019 Dec 31 2020 Dec 31 2019

Non-current interest-bearing assets

Non-current customer-financing receivables – – 70,547 71,883
Non-current interest-bearing receivables 4,603 815 4,193 815
Current interest-bearing assets
Customer-financing receivables – – 57,985 71,099
Interest-bearing receivables 1,698 4,102 1,686 1,929
Internal funding 10,925 21,283 – –
Marketable securities 213 200 213 200
Cash and cash equivalents 81,973 57,475 85,206 61,461
Assets held for sale 1 – 4,671 4,146
Total interest-bearing financial assets 99,414 83,874 224,501 211,533
Non-current interest-bearing liabilities
Bond loans –66,391 –65,754 –66,391 –65,754
Other loans –13,575 –14,504 –24,341 –30,528
Internal funding 58,839 60,635 – –
Current interest-bearing liabilities
Bond loans –30,904 –31,759 –30,904 –31,759
Other loans –15,489 –10,899 –25,802 –22,621
Internal funding 38,547 37,098 – –
Liabilities held for sale 4,255 3,906 –45 –
Total interest-bearing financial liabilities excl. lease liabilities –24,718 –21,278 –147,483 –150,662
Net financial position excl. post-employment benefits and
lease liabilities 74,696 62,596 77,018 60,871

Provisions for post-employment benefits and lease liabilities, net Industrial Operations Volvo Group

SEK M Dec 31 2020 Dec 31 2019 Dec 31 2020 Dec 31 2019

Non-current lease liabilities –4,477 –5,366 –4,434 –5,334

Current lease liabilities –1,567 –1,776 –1,552 –1,755
Provisions for post-employment benefits, net –16,570 –18,187 –16,717 –18,325
Liabilities held for sale –1,123 – –1,127 –
Provisions for post-employment benefits and lease liabilities, net –23,737 –25,329 –23,830 –25,414

Net financial position incl. post-employment benefits and lease

liabilities Industrial Operations Volvo Group
SEK M Dec 31 2020 Dec 31 2019 Dec 31 2020 Dec 31 2019

Net financial position excl. post-employment benefits and lease liabilities 74,696 62,596 77,018 60,871
Provisions for post-employment benefits and lease liabilities, net –23,737 –25,329 –23,830 –25,414
Net financial position incl. post-employment benefits and
lease liabilities 50,959 37,267 53,188 35,457

48
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Financial POSITION

Changes in net financial position, Industrial Operations

SEK bn 2020 2019

Net financial position excl. post-employment benefits and lease liabilities at the end of previous period 62.6 43.9
Operating cash flow 18.5 38.3
Investments and divestments of shares, net –0.5 0.1
Acquired and divested operations, net 0.4 1.3
Capital injections to/from Financial Services 0.0 1.3
Currency effect –2.2 –0.6
Dividend to owners of AB Volvo – –20.3
Dividend to non-controlling interest –0.8 0.0
Other changes –3.3 –1.4
Net financial position excl. post-employment benefits and lease liabilities at the end of period 74.7 62.6
Provisions for post-employment benefits and lease liabilities at the end of previous period –25.3 –14.8
Transition effect IFRS 16 – –6.1
Provisions for post-employment benefits and lease liabilities after transition effect IFRS 16
at the beginning of period –25.3 –20.9
Pension payments, included in operating cash flow 3.6 2.6
Remeasurements of defined benefit pension plans1 –1.8 –3.6
Service costs and other pension costs2 –1.6 –2.3
Investments and amortizations of lease contracts 0.4 0.0
Currency effect 1.3 –0.3
Other changes –0.2 –0.9
Provisions for post-employment benefits and lease liabilities at the end of period –23.7 –25.3
Net financial position incl. post-employment benefits and lease liabilities at the end of period 51.0 37.3

1 Including corrections of actuarial calculations of negative SEK 1.7 billion. Read more in Note 20 Provisions for post-employment benefits.
2 Including corrections of actuarial calculations of positive SEK 0.6 billion. 
Read more in Note 20 Provisions for post-employment benefits.

49
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Cash flow statement

C A S H F L O W S TAT E M E N T

SOLID OPERATING CASH FLOW

In 2020 operating cash flow in the Industrial Operations amounted Investments and divestments of shares
to SEK 18.5 billion (38.3). The lower operating cash flow compared In total, investments and divestments of shares in 2020 had a negative
to 2019 is primarily an effect of a reduction in operating income of impact on cash flow of SEK 0.5 billion compared with a positive
SEK 20.9 billion as well as an increase in working capital of SEK 11.0 impact of SEK 0.1 billion in 2019.
billion in 2020 compared to an increase of SEK 0.5 billion in 2019.
Read more in Note 3 Acquisitions and divestments of shares and operations.
This was partly offset by a reduction in income taxes paid of SEK 4.6
billion and lower investments of SEK 3.3 billion compared to 2019. Acquired and divested operations
Operating cash flow in Financial Services was positive in an In total, acquired and divested operations in 2020 had a positive
amount of SEK 0.8 billion (–14.0). The change compared to 2019 impact on cash flow of SEK 0.4 billion (1,3).
was mainly due to a lower increase of new business volume in the
Read more in Note 3 Acquisitions and divestments of shares and operations.
credit portfolio.
Read more in Note 10 Income taxes. Financing and dividend
Read more in Note 21 Other provisions.
Net borrowings increased by SEK 7.3 billion during 2020 to safeguard
liquidity in the Volvo Group. In 2019 net borrowings increased by SEK
Investments and disposals
9.3 billion due to a growing credit portfolio in Financial Services. No
The Industrial Operations’ investments in tangible and intangible
dividend was paid to the shareholders of AB Volvo during 2020.
assets during 2020 amounted to SEK 8.7 billion (11.9).
Trucks investments in tangible and intangible assets amounted to Read more in Note 29 Cash flow regarding change in loans during 2020.
SEK 6.8 billion (9.3). The major investments were related to indus-
trial efficiency measures such as replacements and upgrades in our Change in cash and cash equivalents
USA plants as well as the ongoing replacement of casting process The Volvo Group’s cash and cash equivalents increased by SEK
equipment in Skövde, Sweden. Capital expenditures were also 23.7 billion in 2020 due to the positive operating cash flow and
related to product renewals such as the Renault Trucks Master and amounted to SEK 85.2 billion at December 31, 2020.
the development of electrical trucks with both product develop- Read more in Note 18 Cash and cash equivalents ­regarding the
ment activities and required adaptations in the plants. Investments ­accounting policy.
in dealer networks and workshops were mainly made in Europe, Read more in Note 29 Cash flow regarding principles for preparing the
cash flow statement.
­primarily for upgrade and replacements.
Investments in Construction Equipment amounted to SEK 0.9 bil-
lion (1.1). The major investments in the plants were related to industrial
efficiency measures and renewals mainly in Asia. The product related
investments during the year were mainly continued investments in
tooling and required adaptations in the plants for excavators.
The investments in Buses were SEK 0.3 billion (0.3), and in Volvo
Penta SEK 0.5 billion (0.5).
The investment level for property, plant and equipment during
2020 was below last year as an effect of lower activity levels due to
the Covid-19 pandemic. Investments in property, plant and equipment
is expected to increase during 2021. Investments in optimization of the
industrial footprint, product related tooling, replacements as well as
dealer investments will continue to be the main areas.

50
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Cash flow statement

CONSOLIDATED CASH FLOW STATEMENTS

Industrial Operations Financial Services Eliminations Volvo Group

SEK M 2020 2019 2020 2019 2020 2019 2020 2019

Operating activities
Operating income 25,919 46,771 1,564 2,766 2 –6 27,484 49,531
Amortization intangible assets Note 12 3,067 2,911 76 51 – 0 3,143 2,963
Depreciation tangible assets Note 13 7,569 8,372 27 30 – 0 7,596 8,402
Depreciation leasing vehicles Note 13 5,292 4,514 4,569 4,707 0 0 9,860 9,221
Other non-cash items1 Note 29 –818 –3,599 2,019 1,033 16 –203 1,217 –2,769
Total change in working capital whereof –10,961 –486 –3,051 –18,039 330 290 –13,682 –18,235
Change in accounts receivables –1,970 65 –60 –363 – 0 –2,030 –298
Change in customer-financing receivables –332 36 –4,068 –16,951 289 355 –4,112 –16,560
Change in inventories 2,351 4,964 114 30 – 0 2,465 4,994
Change in trade payables –4,397 –2,643 372 –678 – 0 –4,025 –3,322
Other changes in working capital –6,612 –2,907 592 –78 41 –65 –5,979 –3,050
Dividends received from joint ventures and
associated companies 1,070 473 – – – – 1,070 473
Interest and similar items received 2 382 601 0 2 –96 –262 286 341
Interest and similar items paid 2 –1,191 –1,457 0 –8 88 362 –1,102 –1,104
Other financial items –336 –371 – – – –3 –336 –374
Income taxes paid –4,132 –8,734 –796 –668 – 0 –4,927 –9,401
Cash flow from operating activities 25,862 48,996 4,408 –10,127 340 178 30,610 39,047
Investing activities
Investments in intangible assets –2,972 –3,876 –51 –77 – – –3,023 –3,954
Investments in tangible assets –5,730 –8,059 –3 –4 – 0 –5,733 –8,064
Investment in leasing vehicles –23 –102 –9,425 –9,890 885 – –8,564 –9,991
Disposals of in-/tangible assets and leasing vehicles 1,409 1,350 5,833 6,074 –895 –6 6,346 7,418
Operating cash flow 18,545 38,309 761 –14,024 330 172 19,636 24,455

Investments of shares Note 3 –475 –195

Divestments of shares Note 3 13 287
Acquired operations Note 3 –10 0
Divested operations Note 3 435 1,343
Interest-bearing receivables
incl marketable securities 1,070 –1,033
Cash flow after net investments 20,669 24,857
Financing activities
New borrowings 3 Note 29 128,453 77,553
Repayment of borrowings 3 Note 29 –121,132 –68,211
Dividend to owners of AB Volvo – –20,335
Dividend to non-controlling interest –778 –12
Other –99 188
Change in cash and cash equivalents
excl. translation differences 27,113 14,040
Translation difference on cash and cash equivalents –3,368 487
Change in cash and cash equivalents 23,745 14,528
Cash and cash equivalents, beginning of year Note 18 61,461 46,933
Cash and cash equivalents, end of year Note 18 85,206 61,461

1 In 2019, the gain on sale of WirelessCar of SEK

1.6 billion was reclassified from Other non-cash
items to Divested operations. The total cash flow Operating cash flow, ­ Investments in property, plant and
impact from the sale amounted to SEK 1.3 billion.
Industrial Operations SEK bn ­equipment, Industrial Operations
2 A s from January 1, 2020 interest income related
to Internal Funding from cash is presented as
interest income instead of reduction of interest
expenses on loans in Industrial Operations. 2019
has been restated.
3 Non-cash items from unrealized currency effects
and currency translation is adjusted on new bor- Property, plant
rowings and repayments of borrowings. and equipment,
SEK Bn
Property, plant
and equipment,
% of net sales
16 17 18 19 20 16 17 18 19 20
3.5 28.4 26.6 38.3 18.5 6.6 5.7 7.0 8.1 5.7
2.3 1.8 1.8 1.9 1.8

51
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

T R U C K S

SALES AND PROFITABILITY

AFFECTED BY LOWER VOLUMES
Net sales in the truck business decreased by 25% to SEK 208.3 IN BRIEF
billion on as the consequences of combatting Covid-19 weighed on
many markets. However, demand improved during the course of the
The truck operation’s p ­ roduct Share of Share of
year. The adjusted operating income amounted to SEK 17,251 M Group sales net sales
offer stretches from heavy-
(31,552) corresponding to a margin of 8.3% (11.4). duty trucks for long-haulage
and construc­­tion work to
Markets affected by Covid-19 light-duty trucks for distri­ 61%
bution. The offering also
After a couple of years of good demand, the European and North
includes maintenance and
American truck market started to slow down in the second half repair s­ ervices, financing Vehicles, 72%
of 2019, and this continued into 2020. In Q2, all major regions and ­leasing. Services, 28%

­followed the same pattern due to the Covid-19 outbreak. Initial

­disruptions to the supply chains were followed by dropping fleet Position on Share of net sales by market, %
world market
­utilization and a significant drop in demand. During the course of the
Volvo Group is the world’s
quarter there was a gradual return on all these parameters. The sup- second largest manufac­turer 44
25
ply chain, including the Volvo Group’s plants, was re-started in May of heavy-duty trucks. 17
after about a month of complete standstill. As Covid-19 restrictions
Number of 8
were eased in many countries, transport activity improved, with the 6
regular ­employees
recovery seen towards the end of Q2 continuing in Q3 and Q4. At 56,483 (59,142).
the end of 2020, utilization of truck fleets in the major markets was
back on par with the level of the preceding year. The increased
freight activity was positive for customer profitability and many
­customers returned to their previously planned replacement cycles. Net sales Adjusted operating income1
Despite the gradual improvement seen over the course of the SEK bn and adjusted operating margin
year, most markets declined during 2020. The European market for
heavy-duty trucks decreased by 28% to 231,200 trucks while the
North American market went down by 30% to 234,900 heavy-
duty trucks. In Brazil, the market declined by 10% to 67,400 heavy-
16 17 18 19 20 16 17 18 19 20
duty trucks. A general economic recovery, increased demand from 200,7 214,1 250,4 276,6 208,3 8.7 9.2 10.5 11.4 8.3 %
the agriculture sector after a good harvest and an underlying need 17,472 19,785 26,351 31,552 17,251 SEK M

to replace old trucks almost weighed up the effect from Covid-19.

TRUCK BRANDS
The Indian truck market continued to be negatively impacted by a
weak economic development and effects from measures to combat
Covid-19. The Chinese market, on the other hand, continued to be
strong, supported by governmental initiatives to stimulate the econ-
omy. Compared to the other major markets, demand for trucks in
Japan remained relatively stable through the pandemic.

Orders and deliveries

Order intake to the Group’s wholly-owned truck operations increased
by 14% to 208.505 (182,746) trucks. Order intake increased in
Europe, North America, South America and Africa & Oceania. There
was a particularly big increase in North America, which had weak
order intake in 2019.
1 For information on adjusted operating income,
please see Key Ratios on page 194.

52
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

STRONG POSITIONS GLOBALLY

Market shares, heavy-duty trucks %

2019 2020

EU301
China
North America Japan
16.2
15.5

8.8
8.8

13.0
14.5
6.9
9.4
9.2

11.1
7.0

7.1
Volvo Renault
Volvo Mack Trucks Heavy Medium

18.9
18.5
Dongfeng2
UD

Brazil

India
Australia

28.8
31.6
22.2
22.5

6.7
4.7
South Africa
Volvo Heavy Medium
1 The EU, Norway, S­ witzerland Eicher2
and the UK.

16.6
17.6

8.2

6.6

3.5

4.4
2 Volvo Group holds 45.6% in
21.8

17.2

9.9
9.3

VECV, which produces Eicher Volvo Mack UD

trucks, and 45% in DFCV, which
produces Dongfeng trucks. Volvo UD

Net sales and operating income Deliveries by market

SEK M 2020 2019 Number of trucks 2020 2019

Europe 92,127 112,125 Europe 79,814 104,145

North America 52,038 85,731 North America 32,056 62,308
South America 15,830 23,753 South America 17,684 23,729
Asia 35,441 37,610 Asia 27,009 29,435
Africa and Oceania 12,826 17,427 Africa and Oceania 10,278 13,152
Total net sales 208,262 276,647 Total deliveries 166,841 232,769

Of which Heavy duty (>16 tons) 140,652 201,092

Vehicles 149,902 213,071 Medium duty (7–16 tons) 10,736 12,700
Services 58,360 63,575 Light duty (<7 tons) 15,453 18,977
Total deliveries 166,841 232,769
Adjusted operating income1 17,251 31,552
Adjustments1 –1,486 – Volvo 93,846 131,254
Operating income 15,764 31,552 UD 15,458 19,911
Renault Trucks 41,117 54,098
Adjusted operating margin, % 8.3 11.4
Mack 16,420 27,506
Operating margin, % 7.6 11.4
Total deliveries 166,841 232,769
1 For information on adjusted operating income, please see Key Ratios
on page 194. Non-consolidated operations
VE Commercial Vehicles (Eicher) 30,192 47,083
Dongfeng Commercial Vehicle
Company (Dongfeng Trucks) 221,217 186,039

53
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

In 2020, a total of 166.481 trucks where delivered from the

Group’s wholly-owned operations, a decrease of 28% compared Market development, heavy-duty trucks
with 232,769 trucks in 2019. Deliveries decreased in all markets as a Thousands
consequence of a general slowdown in many markets at the begin-
2,560
ning of the year. This was aggravated by the outbreak of the Covid-19
1,280
pandemic, which initially affected supply chains and subsequently
demand. As the strong measures to combat the spread of the disease 640
were eased, deliveries improved during the latter part of the year. 320
160
Lower volumes impacted profitability 80
In 2020, net sales in the truck operations decreased by 25% to 40
SEK 208,262 M (276,647). Adjusted for currency movements, net
20
sales decreased by 21%, of which vehicle sales decreased by 26% 2016 2017 2018 2019 2020
and service sales by 4%. 300 307 322 321 231 Europe 30
Adjusted operating income amounted to SEK 17,251 M (31,552) 243 244 311 336 235 North America
corresponding to a margin of 8.3% (11.4), excluding adjustments of 30 32 53 75 67 Brazil
47 47 48 50 47 Japan
SEK –1,486 M. For information on adjustments, please see Key
220 251 306 194 87 India
Ratios on page 194. The decreased earnings were mainly a result of 733 1,117 1,148 1,174 1,619 China
lower vehicle and service volumes as well as decreased capacity
utilization in the industrial system, while lower selling and adminis-
trative expenses, material costs and R&D expenses had a positive
impact. Adjusted operating income for 2020 includes a positive Also in Q3, Mack Trucks delivered pre-production Mack LR Electric
effect of SEK 322 M from a correction of actuarial calculations of refuse trucks to New York Department of Sanitation and to Republic
the Group’s pension liabilities and SEK 362 M from a favorable tax Services for in-service trials. Mack Trucks will start to take orders for
ruling in Brazil. Adjusted operating income in 2019 included a posi- the electric refuse truck in Q4 2020. Serial production will start 2021.
tive impact of SEK 707 M from the sale of properties. Reported The new Volvo Trucks range – Volvo FH, Volvo FH16, Volvo FM
operating income amounted to SEK 15,764 M (31,552). Currency and Volvo FMX – was successfully relaunched in Q3. Among the
movements had a negative impact of SEK 1,707 M compared with news was a new generation of the fuel-efficiency package I-Save
2019. for Volvo FH. The latest release of I-Save can cut fuel costs by up to
10% compared with the older version without I-Save. More infor-
Important events mation is available on page 27.
In Q1, Volvo Trucks launched a completely new generation of heavy- In July, it was decided to initiate a project to create a separate busi-
duty trucks, with a strong focus on the driver environment, safety ness unit for medium-duty trucks in Europe. Having a cross-functional
and productivity. The four trucks; Volvo FH, FH16, FM and FMX, team dedicated solely to medium-duty trucks will create the focus
normally represent about two thirds of Volvo Trucks’ deliveries. needed to improve the performance of this important business.
Because of the Covid-19 pandemic the launch was subsequently In October, the Volvo Group and Isuzu Motors signed binding
postponed until the autumn. agreements to form a strategic alliance within commercial vehicles.
Also in Q1, Mack Trucks launched medium-duty models for the More information is available on the next page.
North American market. These new products will meet the needs of In November, the Volvo Group and Daimler Truck AG signed binding
trucking applications requiring dry van/refrigerated, stake/flatbed, agreement for a joint venture to develop, produce and commercialize
dump and tank truck vocations. fuel-cell systems for use in heavy-duty trucks as the primary focus, as
In Q2, UD Trucks expanded its heavy-duty truck range with the well as other applications. More information is available on page 25.
launch of a new, short-cab Quon, enabling more cargo to be carried In November, Volvo Trucks announced that from 2021 onwards a
and thereby higher customer productivity. The model was available complete range of battery-electric Volvo trucks will be offered in Europe
in Japan on June 1. for distribution, refuse, regional transport and urban construction oper-
In Q3, Volvo Trucks started piloting the electric regional haul ations. Volvo Trucks will be offering holistic solutions that include route
truck Volvo VNR Electric with customers in Southern California. planning, correctly specified vehicles, charging equipment, financing
Sales started in Q4 and serial production of the Volvo VNR Electric and services. Volvo Trucks’ massive drive towards electrification marks
will begin in 2021. a major step forwards on the road to fossil-free transport.

54
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

UD TRUCKS

Divestment of UD Trucks and

formation of strategic alliance
with Isuzu Motors
In October 2020, the Volvo Group and Isuzu Motors signed to Isuzu Motors from 2022 onwards. To secure smooth
binding agreements to form a strategic alliance within com- business continuation, the Volvo Group will provide transi-
mercial vehicles in order to capture the opportunities in the tional services to UD Trucks and also supply components
ongoing industry transformation, in accordance with a Memo- to UD Trucks.
randum of Understanding signed in December 2019. • Exploring further opportunities for even broader and deeper
The agreements include Isuzu Motor’s acquisition of UD collaboration within the commercial vehicle businesses
Trucks from the Volvo Group for an enterprise value of JPY across geographical areas and product lines for future urban
243 billion (approx. SEK 20 billion). The transaction is subject logistics solutions. Isuzu Motors is one of the world-leaders
to certain conditions, including approval from regulatory in the segment of 3.5 to 15 ton light and medium-duty
authorities. The alliance between the Volvo Group and Isuzu trucks with volumes of 252,000 units in 2019.
Motors is set to a build long-term and robust relationship that
will encompass but not be limited to: • Exploring cooperation in the areas of purchasing and logistics,
leveraging common technology, as well as the geographical
• Forming a technology partnership, intended to leverage the footprint complementarity and volume expansion.
parties’ complementary areas of expertise within both well-
known and new technologies and creating a larger volume “I have high expectations on this strategic alliance, which will
base to support investments for world-class technology. make Volvo and Isuzu Motors even more competitive within
The technology partnership encompasses joint develop- their respective markets and segments. This is an opportunity
ment by Isuzu Motors and UD Trucks of common platforms to share technology investments and also to help each other
for medium heavy-duty truck models for the Japanese mar- grow. I am confident that UD Trucks will become a bridge
ket and other Asian markets, utilizing amongst others Volvo between the Volvo Group and Isuzu Motors and that the strategic
Group technology as well as the intended cooperation alliance will create the conditions to continue to develop UD
regarding new technologies such as autonomous driving, Trucks to a new level within Isuzu Motors. I also want to express
connectivity and medium- and heavy-duty electric vehicles. my pride at how the UD Trucks team has been able to serve
• Creating the best long-term conditions for a stronger heavy- customers and continue to improve financial performance also
duty truck business for UD Trucks and Isuzu Motors in during this unprecedented period, characterized by the Covid-19
Japan and across international markets by transferring own- pandemic. The Volvo Group will continue to support UD Trucks,
ership of the complete UD Trucks business from the Volvo and participate in the Asian markets through this alliances” says
Group to Isuzu Motors. This will accelerate growth by lever- Martin Lundstedt, President and CEO of the Volvo Group.
aging greater volumes and complementary capabil-
ities, creating significant synergies for Isuzu
Motors. As a first step, Isuzu Motors and UD
Trucks are discussing the conditions for sup-
ply of certain truck variants from UD Trucks

55
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

C O N S T R U C T I O N E Q U I P M E N T

GOOD PROFITABILITY
A steep drop in demand, factory closures and supply chain disrup- IN BRIEF
tions all contributed to a weak first half of 2020. But a strong
rebound, particularly in the world’s biggest market, China, saw
Volvo CE is one of the lead- Share of Share of
Volvo Construction Equipment (Volvo CE) recover much of the lost Group sales net sales
ers in the development of
ground. For the full year 2020, net sales decreased by 8% to SEK products and services for
81.5 billion. The adjusted operating income amounted to SEK the construction, extraction,
10,071 M (11,910) corresponding to a margin of 12.4% (13.4). waste processing, forestry 24%
and materials handling
In line with its Building Tomorrow Together strategy, Volvo CE
­sectors.
introduced new working practices and organizational changes Construction
equipment, 86%
designed to move closer to its customers and allow the business to Position on world market Services, 14%
self-manage day-to-day operations in a more efficient way. New One of the world’s leading
Centers of Expertise for Uptime, Productivity and Parts Services & manufacturers of haulers, Share of net sales by market %
wheel loaders and excava-
Logistics were introduced with the aim to expand revenues from ser-
tors. Also produces road
vices. Success in China is central to future growth and a line of new construction machines and 28
16
China-customer-focused excavators were rolled out by both Volvo compact equipment. The 48
and SDLG brands. Dealers remain the backbone of the company’s offering also includes ser-
vices such as customer 3
5
route to market, but ecommerce options are also being explored as 2

­support agreements,
part of the transformation agenda. Volvo CE also continues along the machine control systems,
path towards new technologies that offer more sustainable solutions. attachments, financing Number of regular e
­ mployees
These include hybrid, battery-electric and fuel cell-electric solutions, and leasing. 13,404 (13,756).
while the combustion engine technology still has more to offer as it
gets cleaner and more efficient.
Net sales Adjusted operating income1
China led recovery in demand SEK bn and adjusted operating margin
The impact of the Covid-19 pandemic made its presence felt in
sharply lower demand in China from early in 2020, an impact that
then swept through all global markets to varying degrees during the
first half of the year. Lockdowns, factory closures and other meas-
16 17 18 19 20 16 17 18 19 20
ures designed to limit the spread of the pandemic, along with exter- 50.7 66.3 84.2 88.6 81.5 4.4 11.9 13.4 13.4 12.4 %
2,246 7,917 11,306 11,910 10,071 SEK M
nal supply chain issues, also hampered deliveries. This was coun-
tered by a gradual improvement in customer sentiment and a strong,
BRANDS
stimulus-driven recovery in China. The other markets also recovered
in the second half of the year as construction activity rebounded.
However, until November, both the European and North American
markets were down by 14% while South America rose by 12% from
low levels. Asia (excluding China) was down by 6% while China
increased by 28%. EXAMPLES OF MACHINES
In 2020, Volvo CE had an increase in order intake of 17% to
97,987 machines (83,953). Order intake increased in all markets
except North America, with increased demand for both Volvo and
SDLG branded equipment. Total deliveries increased by 8% and
amounted to 93,760 machines (86,885).

Bounce back after an initial fall

A sharp drop in sales during the first half of the year was softened by
a strong rebound as the year progressed, culminating in a relatively
stable year overall despite the effects of the Covid-19 pandemic.
Net sales in 2020 decreased by 8% to SEK 81,543 M (88,606 M).
Adjusted for currency movements, net sales decreased by 5%, of
1 For information on adjusted operating
which machine sales declined by 5% and service sales by 2%. income, please see Key Ratios on page 194.

56
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

Net sales and operating income Deliveries by market

SEK M 2020 2019 Number of machines 2020 2019

Europe 23,191 30,300 Europe 15,762 21,420

North America 13,020 17,404 North America 5,025 7,278
South America 2,245 2,532 South America 2,335 2,004
Asia 39,095 33,932 Asia 68,232 53,664
Africa and Oceania 3,902 4,437 Africa and Oceania 2,406 2,519
Total net sales 81,453 88,606 Total deliveries 93,760 86,885

Of which: Large and medium construction

Construction Equipment 70,146 76,506 equipment1 65,959 64,558
Services 11,306 12,099 Compact construction equipment 2 27,802 22,327
Total deliveries 93,760 86,885
Adjusted operating income¹ 10,071 11,910
Adjustments¹ –488 – Of which:
Operating income 9,583 11,910 Volvo 38,112 41,057
SDLG 55,504 45,682
Adjusted operating margin, % 12.4 13.4
Of which in China 50,901 40,202
Operating margin, % 11.8 13.4
1 Excavators >10 tons, wheel loaders engine power >120 hp, articulated
1 For information on adjusted operating income, please see Key Ratios haulers, rigid haulers and road machinery products.
on page 194.
2 E xcavators <10 tons, wheel loaders engine power <120 hp, skid steer
­loaders and backhoe loaders.

Adjusted operating income amounted to SEK 10,071 M (11,910 M),

corresponding to a margin of 12.4% (13.4), excluding adjustments Market development in Volvo CE product ranges,
of SEK –488 M. For information on adjustments, please see Key construction equipment Thousands
Ratios on page 194. Earnings were negatively impacted by an un­­
320
favorable product and market mix primarily related to growth in
China, while lower selling, R&D and administrative expenses as well 160
as increased machine volumes had a positive impact. Adjusted
operating income includes a negative effect of SEK 316 M from a 80

write-down of VAT credits in Brazil and positive effect of SEK 96 M 40

from a correction of actuarial calculations of the Group’s pension
liabilities. Reported operating income amounted to SEK 9,583 M 20
(11,910). Currency movements had a negative impact of SEK 989
2016 2017 2018 2019 2020*
M compared with 2019.
126 148 167 177 155 Europe
106 117 134 142 125 N. America
Important events 15 17 21 25 28 S. America
To support the launch of the company’s first fully electric compact 178 200 219 194 184 Asia (excl. China)
machines, Volvo CE introduced the industry’s first online pre-­ 127 220 292 317 400 China
28 34 35 30 30 Africa & Oceania
booking sales platform, which allows customers in selected mar-
kets to pre-book the L25 Electric compact wheel loader and the *Rollling 12 months per November
ECR25 Electric compact excavator and reserve their places in the
production queue. Deliveries of the machines began in Q4 with cus-
tomer starts in several European markets. technology has passed its initial proof-of-concept phase and durabil-
The Volvo CE-developed battery-electric autonomous load car- ity tests and is now moving to a field test period, where prototypes
rier TA15 won a Red Dot Award for product design. With a 15 ton are used in real world applications by selected customer partners. It
hauling capacity, the autonomous and cabless load carrier forms is forecast that the revolutionary system will be offered on the com-
part of Volvo Autonomous Solutions’ wider TARA transport solution pany’s excavators by 2024 at the latest.
concept, so that a series of them can be connected together to form During Q4, Volvo and SDLG participated in the important Bauma
a ’train’ of machines, for maximum loading and hauling efficiency. China trade show in Shanghai where two new ranges of Volvo exca-
Volvo CE and Finnish company Norrhydro have developed a digi- vators were launched in this growing product segment.
tal hydraulic actuator that increases productivity while radically cut- In line with the company’s policy of concentrating on core prod-
ting fuel bills and CO2 emissions in construction applications. With a uct groups, Volvo CE divested its North American Blaw-Knox paver
Volvo EC300E 30 ton excavator as a test bed, the revolutionary range.
57
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

B U S E S

GLOBAL BUS MARKET SEVERELY

AFFECTED BY COVID-19
The global bus market was severely affected by the Covid-19 pan- IN BRIEF
demic. A steep decline in market demand and lockdowns disrupting
supply chains, particularly affected Volvo Buses’ coach business,
Volvo Buses is a leader in the Share of Share of
whereas the transit bus market remained at relatively higher activity development of sustainable Group sales net sales
levels. The lower deliveries resulted in net sales declining by 36% to public transport solutions
SEK 19.8 billion in 2020. The adjusted operating income amounted and one of the world’s largest
to SEK –445 M (1,337), as the low volumes could not be fully counter- manufacturers of premium 6%
buses, coaches and bus
acted by significant cost reductions.
chassis. Volvo Buses has
Volvo Buses’ strategic priorities are to enhance competitiveness sales in 85 countries and a
Vehicles, 81%
Services, 19%
and increase profitability by making both operational improvements global service network with
and transformational changes that strengthen the commercial more than 1,500 dealerships
Share of net sales by market %
offering, improve quality and reduce cost. In 2020, transforma- and workshops. Production
facilities are found in Europe,
tional changes included extending the electromobility offering and North America and South
further decentralizing decision-making in end-to-end business unit America. 29
42
value chains. In line with this strategy, a dedicated global chassis 12
organization was implemented. In Q4, Volvo Buses’ business in India Position on world market
Volvo Buses is one of the 9
8
was divested to the Volvo Group’s joint-venture VECV.
world’s largest producers
of buses and coaches in
Increased demand for electric buses the premium segment. Number of regular e
­ mployees
The decline in demand affected all parts of the business, with a par- 6,608 (8,324)
ticularly severe impact on the coach business. The European market
decreased with lower volumes in all areas. In North America,
demand also declined, and almost stopped in the coach market. Net sales Adjusted operating income1
SEK bn and adjusted operating margin
Brazil started to pick up again in the second half of the year, similar
to certain Asian markets.
However, demand for end-to-end solutions for electrified buses
continued to be strong. The product offering includes a range of
electrified buses for Europe (Volvo) and North America (Nova Bus). 20
16 17 18 19 20 16 17 18 19
This was extended with the new S-Charge hybrid model range 25.4 25.9 25.8 31.0 19.8 3.4 3.4 3.0 4.3 %
including chassis for the global market. The offering also includes 870 876 765 1,337
–2.2
SEK M

battery and charging infrastructure options as well as services. –445

BRANDS
Charging solutions are developed together with external providers,
including fast-charging (OppCharge), now also with a panto-
graph-up solution, and depot charging.
At the end of the year, Volvo Buses started delivering the order for
157 electric articulated buses to Gothenburg, Sweden. In total, orders
for 287 (315) Volvo branded fully electric buses were received from BUSES
customers in countries such as Sweden, Norway, Denmark and
Poland. 306 (438) electrified buses were delivered to cities across
The offering includes city buses,
Europe, confirming electric buses as a sustainable and financially via- intercity buses and coaches as well
ble solution for high-capacity public transport. More than 5,000 Volvo as associated transport systems,
branded electrified buses have been sold since the start in 2010. financial services and services for
vehicle and traffic information.

Important orders
The New York State Metropolitan Transportation Authority extended
orders from the previous year with another order for 307 Prevost
1 For information on adjusted operating income,
commuter buses and 500 Nova Bus transit buses. please see Key Ratios on page 194.

58
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

Chile’s capital city Santiago ordered 200 Volvo articulated buses,

leading to a total of 2,850 Volvo buses operating in Santiago after
Net sales and operating income
the latest delivery. SEK M 2020 2019
An important order was 128 hybrid buses to Brussels, Belgium,
where Volvo continues to support the electromobility journey. Europe 5,765 7,369
North America 8,302 15,543
Declining volumes and earnings South America 1,793 3,281
Asia 2,397 2,617
Buses’ net sales decreased by 36% to SEK 19,791 M compared
Africa and Oceania 1,535 2,209
with SEK 31,019 M in 2019. Adjusted for currency movements, net
Total net sales 19,791 31,019
sales decreased by 33%, of which vehicle sales decreased by 35%.
Currency-adjusted service sales were down 22%, following a stand- Of which:
still in operations for many coach operators during the pandemic. Vehicles1 16,072 26,110
Adjusted operating income amounted to SEK –445 M (1,337), cor- Services1 3,720 4,909
responding to a margin of –2.2% (4.3) excluding adjustments of SEK Adjusted operating income2 –445 1,337
–77 M. For information on adjustments, please see Key Ratios on Adjustments2 –77 –
page 194. Earnings were negatively impacted by decreased vehicle Operating income –522 1,337
and service volumes as well as lower capacity utilization. Reduced sell-
Adjusted operating margin, % –2.2 4.3
ing, R&D and administration expenses contributed to mitigate some
Operating margin, % –2.6 4.3
of the volume shortfall. Adjusted operating income includes a positive
effect of SEK 52 M from a correction of actuarial calculations of the 1 Restate of 2019 between Vehicles and Services of SEK 510 M.

Group’s pension liabilities. Reported operating income amounted to 2 For information on adjusted operating income,
please see Key Ratios on page 194.
SEK –522 M (1,337). Currency movements had a negative impact in
an amount of SEK 347 M compared with 2019.

Product and service introductions

Volvo Buses introduced the new Volvo S-Charge model range includ- Deliveries by market
ing chassis, where electric propulsion drives the hybrid buses at Number of buses 2020 2019

speeds up to 50 km/h. The buses can run in electric mode up to 1 km Europe 1,565 2,350
at a time. The upgrade also includes improved connectivity and Volvo’s North America 1,644 3,084
system for geo-fencing, Volvo Zone Management. South America 1,152 1,917
Volvo Buses launched the new Volvo 9700 DD double-decker, Asia 1,097 1,465
aimed at the Nordic market for high capacity vehicles with premium Africa and Oceania 797 915
comfort and safety features in the express segment. Total deliveries 6,215 9,731
Volvo Buses together with Stena Recycling and Batteryloop
signed a global agreement on reuse of bus batteries, creating a new
circular business. After the batteries are removed from Volvo’s
buses, they are reused as energy storage units in buildings and
charging stations for a number of years.

VOLVO 7900 ELECTRIC

ROLLOUT OF VOLVO 7900 ELECTRIC ARTICULATED IN GOTHENBURG, SWEDEN

On December 13, 145 Volvo 7900 Electric Articulated buses began to operate 34 different routes on
the streets in and around Gothenburg, Sweden – a significant milestone for both the city and Volvo
Buses. With this 35% of the total bus fleet is electrified. The complete system solution includes a total
of 157 electric buses, charging infrastructure, maintenance services and driver training. Making this
one of the largest electric bus fleets in Europe, Gothenburg takes a big step to large-scale electrified
public transport, moving towards a more sustainable city – a Zero City with zero emissions and zero
noise. On a yearly basis, this will reduce CO2 emissions by 14,500 tons and nitrogen oxide emissions
by approximately 8,000 kg, and passengers will enjoy silent buses. The noise level of each bus is
reduced by 7dB, halving its noise emissions. The goal set for the city of Gothenburg is for all city buses
to be electric by 2030.

59
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

V O LV O P E N TA

LOWER SALES AND GOOD

PROFITABILITY
In 2020, Volvo Penta’s net sales decreased to SEK 11.9 billion (13.3). IN BRIEF
Adjusted operating income amounted to SEK 1,448 M (1,876).
Volvo Penta operates in two businesses: Marine, consisting of the
Volvo Penta aims to be the Share of Share of
leisure and commercial segments and Industrial, which includes the Group sales net sales
most forward thinking and
off-road and power generation segments. Within marine, Volvo Penta customer focused supplier of
aims to lead the industry, continuing to develop innovative products sustainable power
and solutions. For the industrial segments, Volvo Penta’s goal is to be solutions. Volvo Penta pro- 3%
vides engines and power
a key player, continuing to expand its strong footprint, seeking maxi-
solutions for leisure and com-
mum leverage of Volvo Group assets in its offer, and adding value for mercial boats, as well as for
Engines, 70%
Services, 30%
customers in its application and integration expertise. power generation and indus-
Volvo Penta’s strategy is focused on delivering customer success trial, off-road applications.
Share of net sales by market %
and continuously improving satisfaction. Volvo Penta’s ambition is
Position on world market
to deliver sustainable power solutions for both customers and soci-
Volvo Penta is the world’s
ety at large. This includes focus on full electric, hybrid and fuel cell 51
largest producer of power 22
solutions and also improved engine technologies. Volvo Penta aims systems for leisure boats and 19

to continue to perform with the current offer and to accelerate the a leading, provider of power
3
systems for industrial off- 5
transformation within electromobility, autonomous solutions and
road and power generation
new services. segments.
Number of regular ­employees
Market development 1,798 (1,800).
The marine leisure market weakened due to Covid-19 in the spring,
but rebounded during Q3 and the development continued in Q4.
The market for larger yachts showed a strong recovery. In the Net sales Adjusted operating income1
marine commercial market, many investments in new vessels were SEK bn and adjusted operating margin
postponed to 2021. However, demand for vessels serving the off-
shore wind industry continued to show a positive development.
The market for industrial off-road engines slowed down due to a
decline in the construction and agriculture machinery segments in
most regions except China. However, markets started to rebound 16 17 18 19 20 16 17 18 19 20
9.8 11.1 13.7 13.3 11.9 12.8 12.9 17.0 14.1 12.2 %
towards the end of the year. The industrial power generation market 1,269 1,439 2,341 1,876 1,448 SEK M
decreased globally in the spring but recovered thereafter.
BRANDS
Lower volumes impacted profitability
Volvo Penta’s net sales decreased by 11% to SEK 11,891 M compared
with SEK 13,287 M in 2019. Adjusted for currency movements, net
sales decreased by 8%, of which engine sales decreased by 11%,
ENGINES
while service sales increased by 2%. Adjusted operating income
amounted to SEK 1,448 M (1,876), corresponding to a margin of
12.2% (14.1), excluding adjustments of SEK –46 M. For information
on adjustments, please see Key Ratios on page 194. Earnings were
negatively impacted by lower engine volumes and restructuring
costs of SEK 177 M related to the outboard business, which were
Marine engines Industrial engines
partly offset by lower selling, administrative and R&D expenses.
Adjusted operating income includes a positive effect of SEK 48 M
1 For information on adjusted operating
from a correction of actuarial calculations of the Group’s pension income, please see Key Ratios on page 194.

60
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

Net sales and operating income Deliveries by segment

SEK M 2020 2019 Number of units 2020 2019

Europe 6,064 6,671 Marine engines1 14,842 18,135

North America 2,562 3,180 Industrial engines 20,444 21,324
South America 345 319 Total deliveries 35,286 39,459
Asia 2,228 2,439
Africa and Oceania 691 679
Total net sales 11,891 13,287

Of which: engine meets Stage II and Stage IIIA/Tier 3 emissions legislations and
Engines 8,365 9,698 can be used for both mobile and stationary power generation applica-
Services 3,526 3,588 tions. Additionally, Volvo Penta started delivery of its new D8 power
Adjusted operating income1 1,448 1,876 generation engine to meet EU Stage V emissions, bringing the benefits
Adjustments¹ –46 – of ease of installation, operation and maintenance, as well as reduced
Operating income 1,402 1,876 fuel consumption and improved total cost of ownership to a wide range
of customers.
Adjusted operating margin, % 12.2 14.1
Volvo Penta revealed an upgraded D16 engine designed for com-
Operating margin, % 11.8 14.1
mercial marine use, including packages for marine gensets as well as
1 For information on adjusted operating income, IMO Tier III compliance. New D8 and D13 solutions were also
please see Key Ratios on page 194.
revealed to meet EU Stage V marine emissions for Inland Water-
ways. The company announced updates to its D13 engine range for
commercial marine use with increased performance and durability,
liabilities. Reported operating income amounted to SEK 1.402 M for lower cost of ownership.
(1.876). Currency movements had a negative impact of SEK 130 M Additionally, Volvo Penta expanded its yacht offer with a new
compared with 2019. 13-liter IPS propulsion package designed for lower speed, semi-­
displacement yachts. A new 33-meter Mangusta yacht was one of
Moving towards electrified solutions on land and at sea the new superyachts revealed during 2020 with this propulsion
Volvo Penta continued to take strides forward in its journey to offer package. Volvo Penta celebrated a key milestone with more than
electrified power solutions to both industrial and marine segments. 30,000 Volvo Penta Inboard Performance System (IPS) installations
A major milestone was realized with the delivery of a 600V electric across the marine sector. Volvo Penta IPS delivers a unique user
driveline for Rosenbauer’s ‘Revolutionary Technology’ fire truck, experience with up to 30% reduced fuel consumption and 30% less
which was revealed to the market in Q3 (see page 28). The Volvo CO2 emissions compared to traditional inboard shafts.
Penta electric driveline delivers zero exhaust emissions and signifi- Volvo Penta also continued the evolution of its Easy Connect app,
cantly reduced noise levels. During Q4, Volvo Penta announced col- which provides users with data related to the engine, boat, and routes
laboration with Danfoss Editron on powering two hybrid crew transfer taken – directly to their smartphone or tablet. The app is being expanded
vessels with new pilot technology (see below). with new features designed for commercial marine professionals.
Volvo Penta decided to reprioritize its investments into areas such as
Further strengthened customer offer electrification and other transformational technologies and has there-
A number of product enhancements and reveals were made during fore decided not to further invest in the outboard segment at this time.
2020 with the aim to significantly reduce emissions and enhance In January 2021, Volvo Penta announced the commercial availability
the user experience. Volvo Penta revealed its new D8 industrial power of the industry’s first fully integrated Assisted Docking. The system
generation engine, which offers industry-leading power density, com- gives better control when docking a boat by automating the captain’s
pact size, as well as low fuel consumption and noise levels. This new intentions, helping the vessel stay on its intended course.

COLLABORATION WITH DANFOSS EDITRON

HYBRID CREW TRANSFER VESSELS

Volvo Penta collaborates with Danfoss Editron on powering two hybrid crew transfer
­vessels with new pilot technology. Set to be launched in summer 2021 these vessels are
an innovative combination of integrated electric Volvo Penta Inboard Performance System
(IPS), state-of-the-art marine gensets, and advanced vessel management systems.

61
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

F I N A N C I A L S E R V I C E S

INCREASED CREDIT PROVISIONS

IMPACTED EARNINGS
Volvo Financial Services (VFS) finished 2020 with an increased IN BRIEF
penetration of 30% (25), new business volume of SEK 74.1 billion
(81.0) and an adjusted operating income of 1,606 (2,766). Return
VFS offers innovative financial services to dealers and customers
on equity was 8.3% (15.0).
that simplify their purchase and ownership experience and drive
VFS works closely with its brand partners to enable the sale of their business success. As the financial services provider for the
Volvo Group services and solutions through tailor-made financial Volvo Group, VFS provides flexible financing, insurance and other
services such as financing, insurance, and repair and maintenance services tailored to a customer’s current and future needs, and
enables a long-term relationship, which increases loyalty to the
contracts, delivering a convenient customer experience.
Volvo Group brands.

Continued to perform and take action Distribution of credit portfolio % Number of regular
VFS aims to create value and drive customer loyalty through the ­employees
Volvo Trucks, 51 (50)
delivery of innovative financial services and a best-in-class customer 1,511 (1,538).
Volvo CE, 22 (22)
experience. VFS focuses on balancing investments in the perfor- Renault Trucks, 10 (9)
mance of its traditional business models with investments in inno- Mack Trucks, 11 (12)
Buses, 3 (4)
vative technologies and business solutions, and ensuring success in UD Trucks, 3 (3)
four areas: customer support, cash flow management, expense
control, and colleague safety and well-being. Through this approach, Position on world market
VFS performed well with its existing offering in 2020 and continue VFS’ footprint covers more than 90% of Volvo Group sales, with
customer financing available in 50 countries worldwide. VFS
its transformation journey for 2021 and beyond. ­manages a credit portfolio of SEK 152 billion with more than
260,000 vehicles and equipment.
Profitability and resilience during pandemic
Despite the challenging business environment in 2020, VFS
remained profitable, improved efficiency and continued to increase Adjusted operating income1 Return on shareholders’ equity2
its commercial relevance in markets through close integration with its SEK M %

brand partners, resulting in a significant increase in overall penetra-

tion of 30% (25) and stable pricing. More than 16,000 customers
utilized payment assistance programs offered by VFS, as it modified
approximately 25% of its retail portfolio in order to provide cash flow 16 17 18 19 20 16 17 18 19 20
relief to customers. While a small portion of customers requested a 2,086 2,192 2,411 2,766 1,606 13.7 14.3 15.1 15.0 8.3

second modification, payment performance was good overall, and 1 F

 or information on adjusted operating income, please see Key Ratios
the support helped many customers remain in business. At the same on page 194.
time, preparations were made for expected increases in collection 2 E xcluding a positive impact of SEK 897 M during 2017 from the
­revaluation of deferred tax liabilities related to a tax reform in the US.­
and repossession activities, and remarketing strategies were
enhanced in anticipation of a slow recovery. While the majority of
employees worked from home amidst the pandemic, service levels payment platform and subscription management capabilities, and
for dealers and customers remained stable, demonstrating VFS connected insurance. As the Volvo Group expands the offer of elec-
employees’ steadfast commitment to dealers and customers. VFS tric products, VFS is developing financing and insurance in order to
employee safety and well-being continued to remain a priority. play a key role in the delivery of vehicles-as-a-service, to customers.
These capabilities will help drive the further development of digital
Transformation progress and new market entries services offered by the Volvo Group by bundling solutions and offer-
VFS sharpened its strategy to support the Volvo Group’s vision and ing a seamless customer experience. Geographic expansion also
priorities, and continued to develop its services transformation occurred for VFS with the opening of operations in Peru and Croatia.
agenda designed to support the Volvo Group’s focus on increasing VFS completed a reorganization to further accelerate VFS’ transfor-
its services revenue and enabling new services development. VFS mation, get closer to customers, increase profitability and speed to
focus areas are to expand its parts and services financing platform, market.

62
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 BUSINESS AREAS

Penetration rate1 % Key ratios, Financial S

­ ervices 2020 2019

Number of financed units 61,047 62,209

Total penetration rate1, % 30 25
New financing volume, SEK billion 74.1 81.0
Credit portfolio net, SEK billion 152 170
Credit provision expenses, SEK M 1,892 729
Adjusted operating income2 1,606 2,766
Volvo Renault Mack UD Eicher Volvo Buses Adjustments2 –43 –
Trucks Trucks Trucks Trucks CE Operating income, SEK M 1,564 2,766
30 35 17 20 21 26 13 18 3 14 34 38 19 25
Credit reserves, % of credit
portfolio 2.07 1.51
2019 2020
Return on shareholders’ equity, % 8.3 15.0
1 Share of unit sales financed by Volvo Financial Services in relation
to total ­number of units sold by the Volvo Group in markets where 1 Share of unit sales financed by Volvo Financial Services in relation to
­f inancial services are offered. the total number of units sold by the Volvo Group in markets where
financial services are offered.
2 For information on adjusted operating income, please see Key Ratios
on page 194.

Reduced profitability due to increased credit provisions

During 2020, VFS increased its penetration rate. In the markets
where financing is offered, the average penetration was 30%, which
was an increase from 25% in 2019. As a result, new business vol- Income statement F
­ inancial
Services SEK M 2020 2019
ume remained stable despite reduced deliveries of Group products
and services. Total new financing volume in 2020 amounted to SEK Finance and lease income 13,960 14,870
74.1 billion (81.0), a decrease of 3% adjusted for currency. In total, Finance and lease expenses –8,375 –9,091
61,047 (62,209) new Volvo Group vehicles and machines were Gross income 5,586 5,779
financed during the year. The net credit portfolio of SEK 152,335 M
Selling and administrative
(169,893) increased by 1% on a currency-adjusted basis compared expenses –2,236 –2,568
to 2019. The funding of the credit portfolio is matched in terms of Credit provision expenses –1,892 –729
maturity, interest rates and currencies in accordance with Group pol- Other operating income and
icy. For further information, see Note 4. expenses 106 284
Adjusted operating income amounted to SEK 1,606 M (2,766), Operating income 1,564 2,766
excluding adjustments of SEK –43 M. For information on adjust- Income taxes –404 –688
ments, please see Key Ratios on page 194. The return on sharehold- Income for the period 1,160 2,079
ers’ equity was 8.3% (15.0). The equity ratio at the end of the year
was 8.0% (8.0). The lower results were primarily a result of higher
credit provisions and negative currency impacts, which were par-
tially offset by lower expenses and portfolio growth. During the year, 2020 was 0.49% (0.35). Reported operating income amounted to
credit provision expenses amounted to SEK 1,892 M (729) while SEK 1.564 M (2.766). At the end of December 31, 2020, credit
write-offs of SEK 821 M (574) were recorded. The write-off ratio for reserves were 2.07% (1.51) of the credit portfolio.

NEW TECHNOLOGY

ROLLOUT OF CONNECTED INSURANCE FOR CUSTOMERS IN THE US

To meet the increased demands of the always-connected customer, VFS partnered with REIN®, a
leading insurtech start-up company, to rollout a digital insurance solution to select US markets in 2020.
The connected insurance offering uses customized data-driven solutions that simplify and increase
the speed of the customer’s insurance experience. This digital platform makes it easy for customers
to handle their insurance-related needs, including quotes, from a mobile phone, tablet or computer.
­Insurance companies will have access to live data about an insured customer’s vehicle and their driving
behavior for faster claims support, while using telematics data to potentially reduce a customer’s insurance
premium based on truck usage and responsible driving history. The offering will expand nationwide in the
US, with future global expansion planned for the commercial transport industry.

63
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 FINANCIAL MANAGEMENT

F I N A N C I A L M A N A G E M E N T

STRONG FINANCIAL POSITION

The objectives of the financial management in the Volvo Group is to
assure shareholders long-term attractive total return and debt pro-
Volvo Group liquidity position, December 31, 2020
viders the financial strength and flexibility to secure proceeds and
repayment. A long-term competitive business requires access to cap- SEK bn
ital to be able to invest. Financial management ensures that the cap- 140
126.7
120
ital is used in the best possible way through well-defined ratios and
100 41.5
objectives for the Industrial Operations as well as for the customer
80
finance operations in Financial Services. The objective on Group
60
operating margin and return on equity for Financial Services are
40 85.2
intended to secure the return requirements from shareholders. The 20
target on no net financial indebtedness under normal circumstances 0
in the Industrial Operations and the equity ratio for Financial Cash and cash Revolving credit
equivalents facilities
­Services are there to secure fi­­nancial stability.

Steering principles to ensure financial flexibility

To ensure financial stability and flexibility throughout the business
Geographically diversified market programs
cycle the Volvo Group holds a strong liquidity position. Besides cash
and marketable securities, the liquidity position is built up of revolv-
ing committed credit facilities. Funding and lending in Financial CAD SEK

Services are in local currency and the portfolio is matched both CNY
USD EUR JPY
from an interest and a liquidity risk perspective, in accordance with
INR
the Volvo Group policy. For further information, please see Note 4 to CNH

the C
­ onsolidated financial statements.

BRL AUD
Diversified funding sources
The Volvo Group has centralized the portfolio man­­agement of all
financial assets and liabilities, funding operations and cash manage­
ment through the internal bank, Volvo Treasury. The liability port­
folio is separated into two portfolios, one for Industrial Operations
Credit rating, February 25, 2021
and one for Financial Services, to correspond to the needs of the
different operations. Volvo Treasury assures the possibility to Short-term Long-term

access capital markets at all times through diversified funding Moody’s (Corporate Rating) P-2 A3, stable
sources. Furthermore, the Group’s global presence is supported by S&P (Corporate Rating) A2 A–, stable
bond programs on major debt capital markets in the world. Besides R&I (Japan) a-1 A+, stable
the access to capital markets around the world, the Group uses dif-
ferent instruments, such as bilateral bank funding, corpor­ate bonds
and certificates, hybrid bonds, agency funding as well as securitiza- been subject to an independent external assessment by CICERO
tion of assets in Financial Services’ credit portfolio. An increasingly Shades of Green, which has classified it as Dark Green – their highest
import­ant part of the treasury work is to manage increased funding level.
needs in new growth markets.
A strong and stable credit rating is important
Green Finance Framework Being a large issuer of bonds, it is critical to have a strong and stable
In November, Volvo Group launched a Green Finance Framework for credit rating. The level of the credit rating is not only important for
the financing of investments and projects in the area of clean trans- debt investors but also for a number of other stakeholders when it
portation. The framework enables the Volvo Group to issue green comes to creating long-term relationships. A strong credit rating has
bonds and other green financial instruments and allows the com- a positive effect on the a
­ bility to attract and finance customers’ pur-
pany to identify, select, manage and report on eligible projects and chases of the Group’s products and on the trust from suppliers. It
assets in line with International Capital Market Association Green also gives access to more funding sources and lower cost of funds.
Bond Principles. The funds will be earmarked to projects in areas The Volvo Group has contractual relations with two global Credit
such as R&D and manufacturing of electric vehicles, machines and Rating Agencies for solicited credit ratings: Moody’s Investors
engines with zero tailpipe emissions. Funds will also be used by ­Service (Moody’s) and Standard & Poors’ ­Rating Services (S&P).
Volvo Financial Services to offer green loans to customers who buy During 2020, neither Moody’s nor S&P made any rating changes.
the Group’s electric products. The Green Finance Framework has

64
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 CHANGES IN CONSOLIDATED TOTAL EQUIT Y

C H A N G E S I N C O N S O L I D AT E D E Q U I T Y

Equity attributable to owners of AB Volvo

Non-
Share Other Translation Retained controlling Total
SEK M capital reserves 1 reserve earnings Total interest equity

Balance as of December 31, 2018 2,554 254 4,214 116,356 123,379 2,452 125,831
Income for the period – – – 35,861 35,861 635 36,495
Other comprehensive income
Remeasurements of defined benefit plans Note 20 – – – –2,969 –2,969 – –2,969
Remeasurements of holding of shares at fair
value Note 5, 19 – 10 – – 10 – 10
Exchange differences on translation of foreign
­operations – – 2,586 – 2,586 30 2,616
Share of Other comprehensive income related to
joint ventures and associated companies – – – 252 252 – 252
Accumulated translation differences
reversed to income – – – – – – –
Other comprehensive income for the period – 10 2,586 –2,717 –121 30 –91
Total comprehensive income for the period – 10 2,586 33,143 35,738 665 36,403
Transactions with shareholders
Dividends to AB Volvo’s shareholders – – – –20,335 –20,335 –12 –20,347
Share based payments Note 27 – – – –46 –46 – –46
Changes in non-controlling interests – – – – – – –
Other changes – –28 – –114 –142 –21 –163
Transactions with shareholders – –28 – –20,495 –20,523 –33 –20,556

Balance as of December 31, 2019 2,554 236 6,800 129,004 138,595 3,083 141,678
Income for the period – – – 19,318 19,318 755 20,074

Other comprehensive income

Remeasurements of defined benefit plans Note 20 – – – –1,901 –1,901 – –1,901
Remeasurements of holding of shares at fair
value Note 5, 19 – –6 – – –6 – –6
Exchange differences on translation of foreign
­operations – – –9,528 – –9,528 –213 –9,741
Share of Other comprehensive income related
to joint ventures and associated companies – – – –939 –939 – –939
Accumulated translation differences
reversed to income – – –50 – –50 – –50
Other comprehensive income for the period – –6 –9,578 –2,840 –12,424 –213 –12,637
Total comprehensive income for the period – –6 –9,578 16,478 6,895 542 7,437

Transactions with shareholders

Dividends to AB Volvo’s shareholders – – – – – –778 –778
Share based payments Note 27 – – – – – – –
Changes in non-controlling interests – – – – – – –
Other changes 8 – – –201 –193 – –193
Transactions with shareholders 8 – – –201 –193 –778 –972
Balance as of December 31, 2020 2,562 230 –2,778 145,281 145,295 2,847 148,142

1  Read more in Note 19 Equity and number of shares regarding specification of other reserves.

65
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 THE SHARE

T H E S H A R E

SHARE PRICE INCREASE IN 2020

Most of the world’s leading stock markets had a positive develop-
ment during 2020. The price of the Volvo B share increased by 24% Why invest in the Volvo share?
after having increased by 35% in 2019.
• Competitive products and services
The Volvo share is listed on the stock exchange ­Nasdaq Stockholm,
• Ambition to lead the transformation of our industry
Sweden. One A share carries one vote at General Meetings and one B
to sustainable solutions
share carries one tenth of a vote. Dividends are the same for both
• Strong market positions globally
classes of shares. The Volvo share is included in many indices compiled
by Dow Jones, FTSE, S&P and Nasdaq Nordic. • Improved profitability and cash flow in recent years
• Strong financial position
The Volvo share price increased • Good cash returns to shareholders
In general, the leading stock exchanges rose during 2020. On
­Nasdaq Stockholm the broad OMXSPI index rose by 11% after hav-
ing risen by 30% in 2019. On Nasdaq Stockholm the share price for
the Volvo A share rose by 24%, and at year-end the price was SEK
Earnings and dividend per share, dividend yield
195.40 (158.20). The lowest closing price was SEK 99.00 on March
18 and the highest was SEK 203.00 on November 24. The share 1 Ordinary dividend
SEK 5.00 and extra
price for the Volvo B share rose by 24% and at year-end the price was dividend SEK 5.00.
SEK 193.80 (156.90). The lowest closing price was SEK 97.46 on 2 P roposed by the
March 18 and the highest was SEK 203.30 on November 24. In Board of Directors.
Ordinary dividend
2020, a total of 1.5 billion (1.2) Volvo shares at a value of SEK 224 16 17 18 19 20 of SEK 6.00 and
billion (167) were traded on Nasdaq Stockholm, with a daily average an extra dividend
6.47 10.07 12.24 17.64 9.50 of SEK 9.00.
of 5.9 million shares (4.8). In terms of value, the Volvo shares were 3.25 4.25 10.001 0 15.002
the most traded on Nasdaq Stockholm in 2020. At year-end, Volvo’s 3.1 2.8 8.7 0 7.7
market capitalization was SEK 395 billion (335).
Diluted earnings Dividend Dividend
per share, SEK per share, SEK yield, %
Share conversion option
In accordance with a resolution at the Annual General Meeting
2011, the Articles of Association have been amended to include a
conversion clause, stipulating that series A shares may be converted at professional investors, private shareholders and stock market ana-
into series B shares, on the request of the shareholder. During lysts, the relationship between Volvo and the stock market is main-
2020, a total of 8,070,990 A shares were converted to B shares, tained through such events as press and telephone conferences in
representing 1.69% of the A shares that were outstanding at the conjunction with the publication of interim reports, meetings with
end of 2019. Further information on the procedure is available on retail shareholders’ associations, investor meetings and visits, as
the Volvo Group’s web site: www.­
­­ [Link] well as roadshows in Europe and North America. On volvogroup.
com it is possible to access financial reports and search for informa-
Dividend tion concerning the share and statistics for truck deliveries. It is also
The Board proposes an ordinary dividend of SEK 6.00 per share for the possible to access information concerning the Group’s governance,
financial year 2020 and an extra dividend of SEK 9.00 per share, including information about the Annual ­General Meeting, the Board
which would mean that a total of SEK 30,502 M would be transferred of Directors, Group Management and other areas that are regulated
to AB Volvo’s shareholders. For the preceding year a d­ ividend of SEK in the “Swedish Code of Corporate Governance.” The website also
5.50 per share and an extra dividend of SEK 7.50 per share were pro- offers the possibility to subscribe to information from the company.
posed, in total SEK 26,435 M. However, due to the uncertainty cre- Volvo has decided to present its Corporate Governance Report as
ated by Covid-19 and the effects on the Volvo Group from the meas- a separate document to the Annual Report in accordance with
ures taken in various countries to slow down the spread of the virus, the Chapter 6 § 8 of the Swedish Annual Accounts Act and it is available
Board believed that it was appropriate, as a precautionary measure, to on pages 172–187 of this Annual and Sustainability Report.
withdraw the dividend proposals. Subsequently, the Annual General
Meeting on June 18 resolved that no payment of dividend would be Contractual conditions related to takeover bids
made and that the entire amount available would be carried forward. Provisions stipulating that an agreement can be changed or termi-
nated if the control of the company is changed, so called change of
Cancellation of own shares control clauses, are included in some of the agreements whereby
The Annual General Meeting further resolved to adopt the Board’s Renault Trucks has been given the right to sell Renault s.a.s. and
proposal to reduce the share capital by way of cancellation of the Nissan Motor Co. Ltd’s light-duty trucks as well as in some of the
company’s approximately 95 million own shares (treasury shares) Group’s purchasing agreements.
and an increase of the share capital by way of a bonus issue in order Some of Volvo Group’s long-term loan agreements contain condi-
to restore the share capital. tions stipulating the right for a bondholder to request repayment in
advance under certain conditions following a change of the control of
Communication with shareholders the company. These clauses are not unusual in loan agreements. In
Dialogue with the shareholders is important for Volvo. In addition to AB Volvo’s opinion it has been necessary to accept those conditions
the Annual General Meeting and a number of larger activities aimed in order to receive financing on otherwise acceptable terms.
66
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 THE SHARE

Price trend, Volvo B share, 2016–2020 SEK The shareholders with the
largest voting rights in AB Volvo,
December 31, 2020
200 Voting Capital,
rights, % %

175
Industrivärden 27.5 8.4
Geely Holding 15.9 8.2
150
AMF Insurance &
Funds 5.6 3.4
120
Alecta 4.7 3.9
Norges Bank Invest-
100 ment Management 4.2 2.4

75
Source:
Investis Digital Share capital, December 31, 2020
50 2016 2017 2018 2019 2020

Volvo B OMX Stockholm PI Index OMX Stockholm Industrial Goods & Services Number of shares 2,033,452,084
of which,
Series A shares1 448,113,346
of which,
Series B shares2 1,585,338,738
Accumulated total return of the Volvo B share Share capital, SEK M 2,554
Number of shareholders 283,731
%
6,500
Private persons 269,845
+5,753% Legal entities 13,886
5,200 For further details on the Volvo share, see Note 19.
1 Series A shares carry one vote each.
3,900 2 Series B shares carry one tenth of a vote each.

2,600

1,300

0
1987 1990 1995 2000 2005 2010 2015 2020
Volvo B Total return (including reinvested dividends)
SIX Return Index (including reinvested dividends) Source: Investis Digital

The graph shows that SEK 1,000 invested in the Volvo B share on
­January 2, 1987 had grown to SEK 58,530 at the end of 2020, under
the condition that all dividends have been reinvested in Volvo B shares.

Ownership by country 1
Ownership by categories1 Ownership by country

Non-Swedish owners 41%  ore details on the Volvo

M Sweden 59%
Other Swedish institutions 34% share shares are p­ rovided The US 16%
Swedish mutual funds 14%
in Note 19 to the financial The UK 13%
statements and in the Luxembourg 3%
Swedish private shareholders 11%
­Eleven-year summary. Belgium 3%
Switzerland 1%
Others 5%

Employees’ ownership of shares in Volvo through pension foundations is insignificant. Source: Euroclear
Source: Euroclear 1 Share of capital
1 Share of capital

67
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

R I S K S A N D U N C E R TA I N T I E S

MANAGED RISK-TAKING
Each of the Volvo Group’s Business Areas and Truck Divisions mon- reporting process, which is a systematic and structured framework
itors and manages risks in its operations. In addition, the Volvo for reporting and reviewing risk assessments and mitigations as
Group utilizes a centralized Enterprise Risk Management (ERM) well as for following up on identified risks.

Enterprise Risk Management Governance

For the governance
model of the Volvo
Group, please see
page 173.
The Board of Directors monitors risks and mitiga-
Board of Directors
tion activities annually and the Audit Committee
Audit Committee
biannually through the consolidated ERM report.

The Executive Board analyzes accuracy of reported risks

Executive Board and mitigation activities and ensures alignment to strate-
gic and operational agenda.

The ERM Committee reviews, analyzes and challenges

­ ompiled risks and mitigation activities three times per year.
c
Enterprise Risk The committee consists of the Executive Vice President
Management Committee Group Finance, Executive Vice President Legal & Compliance,
Senior Vice President Group Treasury & Corporate Finance
and Senior Vice President Group Reporting, Tax and Control.

Each Business Area and Group Truck Division reports its

Enterprise Risk largest risks and mitigation activities three times per year
Management Function to the ERM function, which reviews and compiles
reported risks into the Group ERM report.

Business review meetings in each Business Area and

Group Truck Division identifies, mitigates, monitors and
Business Review Meeting
analyzes its largest risks. This forms the basis for the
ERM reporting.

Executive Management Teams in each Business Area and

Group Truck Division are fully responsible for risk and miti­
Executive Management Teams gation management in their respective area. Risks are identi-
fied, mitigation activities are established, and monitoring and
reporting of progress is part of daily operations.

Risk categories Principal risks

The ERM process classifies Volvo Group risks into five categories: The following pages present principal risks and uncertainties the
• Macro and market related risks Volvo Group are facing within each risk category. These risks can,
• Operational risks separately or in combination, have a material adverse effect on the
• Climate and society risks Group’s business, strategy, financial performance, cash flow, share-
• Compliance risks holder value or reputation.
• Financial risks.

68
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

MACRO AND MARKET RELATED RISKS

Cyclical commercial vehicles industry Group has, and expects to continue to have , significant expenditures
The Volvo Group’s customers operate all over the world, some in research and compliance to meet all applicable regulations. The
within a single country and others across borders. A multitude of Group also endeavors to collaborate and be transparent with all gov-
global and regional economic, regulatory, digital, technological, erning bodies in certification and compliance processes, during
­climate and energy resource efficiency factors create strategic as development and throughout the lifecycle of Group products as well
well as operational challenges for the industry. as in investments in production plants. It is of strategic importance
Like many capital goods industries, the commercial vehicle indus- to the Group to be able to comply with current and future emission
try generally has been cyclical, with a strong correlation to GDP and standards and other applicable rules, and in the future the Group
corresponding changes in transport demand, the need to replace expects to spend even more in R&D investments to safeguard com-
aging vehicles and machines, as well as changing laws and regula- pliance with these regulations. Risks for the Group in this area
tions. Although there is a continued shift in focus in the commercial include noncompliance with applicable regulations, which may
vehicle industry from product to service, the cyclicality in sales and result in reputational damage and significant penalties and costs of
profitability remains. The fluctuating demand for the Group’s prod- recalls and other remediation, and also failure to assure an updated
ucts and services makes the financial result of the operations and compliant product range in time to meet regulations.
dependent on the Group’s ability to react quickly to market changes. Safety regulations are also becoming increasingly important with
Inability to adapt to a fluctuating demand could lead to capacity autonomous vehicles in commercial applications. If regulations are
constraints or underutilization of resources, which could have a not set, or clear enough, there is risk of not being able to scale up the
negative effect on earnings and financial position. autonomous offer, or not complying with regulations. A safety inci-
dent could have a detrimental effect on the Group’s brand image
Comment and possibly earnings. An incident in the industry could also lead to
The Volvo Group strives to continuously balance production levels quickly adjusted or new regulations.
and operating expenses, as well as enhance business agility in ful- Local protectionism leading to changes in local content require-
filling demands for new services. ments can put the Volvo Group at a disadvantage compared to local
competitors, cause increased sourcing costs or require Volvo to
make significant investments.
Intense competition
The Volvo Group operates in markets which are highly competitive, Comment
and we face intense competition from global and local industry The product development capacities within the Volvo Group are
incumbents. We may also encounter increased competition from coordinated, enabling a focus of resources for research and devel-
new market entrants, e.g. within the areas of sustainable transporta- opment to meet emission regulations.
tion and increased logistics efficiency, new technologies and new
business models, where current or new competitors may implement
new technologies before the Volvo Group does, or may offer more Political instability, security
attractively priced or enhanced products, services or solutions. The Volvo Group is active in more than 190 countries across the
world. Political instability, armed conflicts or civil unrest can impact
Comment the Group’s ability to trade in affected areas. Acts of terrorism,
Given the width of brands within the Group, it is important to utilize ­sabotage or other criminal or illicit activities directed towards the
synergies and economies of scale while at the same time empower Volvo Group’s production system, transports or facilities, or those of
the Business Areas to take responsibility for their businesses and its suppliers or customers, could cause harm to people and severely
offers. Continuous focus on diverse product, service and solution damage the Group’s operations. The geopolitical situation, includ-
development to create customer and society value, together with a ing e.g. ongoing trade discussions between USA and China and the
close monitoring of our competitors, are important components in Brexit process, may also give rise to further tariffs and other trade
our strategy to be a future industry leader. restrictions and barriers being imposed, which can negatively
impact the Group’s production system and ability to conduct its
operations.
Extensive government regulations
Regulations regarding exhaust emissions, noise, safety and pollut- Comment
ants from production plants and products are extensive and evolv- The Volvo Group strives to identify and monitor vulnerabilities and
ing. Most of the regulatory challenges affecting the product range implement appropriate measures to mitigate identified risks to avoid,
relate to reduced emission levels. In response to this, the Volvo prevent, reduce or transfer the impact.

69
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

OPERATIONAL RISKS

Technology shift and convergence Comment

Balancing the research and development resources between the The Volvo Group strives for a culture where customer success is at
traditional and new technologies is strategically important for the the heart of everything. Regardless of where in the value chain, the
Volvo Group. New technologies arising from the increasing aware- Group engages in understanding its customers’ business and focus
ness of climate change and the digitalization will enable auto­ efforts on creating value from the customer’s perspective.
nomous, electric and connected vehicles to deeply impact the The Volvo Group also puts a lot of effort on market research and
transport, logistics and construction industries – among others. customer interviews to secure knowledge of customer needs.
The effect will be particularly strong at the convergence of these Within product development, the Group has implemented a project
technologies as it affects vehicles, assets as well as infrastructures, gate model and a governance structure where risks regarding
and opens the way for a paradigm shift. ­project and product quality, cost, project lead time and product
The lack of broadly accepted technologies and standards poses ­features are constantly monitored.
significant risks for the Volvo Group and other participants in these Staff at retailers and workshops are continuously trained and pro-
industries, as they are required to choose relevant technologies, time vided with instructions and guidelines on how to interact with their
their introduction wisely, while respecting the wide spread in readi- customers to provide the best product life cycle profitability.
ness level among markets and segments across the globe. The fact
that various countries, and even within regions, have different
­climate related and environmental laws and regulations may lead to Industrial operations
higher costs for the Volvo Group. Our ability to deliver according to market demand depends signifi-
A further level of risk relates to the need to evolve from a vehicle/ cantly on obtaining a timely and adequate supply of materials, com-
product focus towards an ecosystem-driven approach, where vehi- ponents and other vital services, as well as on our ability to properly
cles and infrastructures are to be developed and implemented utilize the capacity in the Group’s different production and services
simultaneously. facilities. The Group strives to produce components as well as com-
If the Volvo Group positions itself unsuccessfully in this technol- plete vehicles and machines, and supply material to customers and
ogy shift, earnings capacity and financial standing could be severely factories in a sustainable and resource-efficient way. Our supply-­
affected. chain and industrial system may be affected by several factors,
including shortages of materials and components, shortages of
Comment transport services, global trade discussions and other geopolitical
The Volvo Group is striving to lead the technology development. developments as well as strikes, pandemics or extreme weather.
Together with customers, suppliers, and partners, Volvo Group Each of these factors could result in stoppages in production, oper-
explores new technologies, technology viability, desired features, ations and parts deliveries, which could have a material negative
and cost, safety, climate and environmental impact. The Volvo effect on the Group’s financial performance
Group offers products and solutions which can support customers Electrification of the products also poses higher risks of fires and
in reducing their environmental impact. This includes fuel efficiency, harmed personnel as high voltage systems are introduced into the
electrification and alternative fuels to reduce emissions from vehi- production facilities.
cles and machinery, as well as autonomous and connected solution
and services to increase efficiency and productivity. Comment
The organization is continuously working to manage and mitigate
disturbances of the supply chain and in the industrial system The
Customer satisfaction and demand Group also seeks to mitigate risks by the integration of the industrial
Top priority for the Volvo Group is to support its customers’ busi- system itself through, among other things, improving the ability to
nesses and profitability in order for them to succeed, regardless of manufacture and source from other Volvo Group sites and proactive
segment, brand, product or service. Customer satisfaction is reliant monitoring of the supply chain. However, there can be no assurance
on the expectations in relation to the actual delivery or user experi- that any such actions are sufficient to manage supply chain or indus-
ence of the total offer. trial system disturbances at any given time.
Customer demands are increasingly influenced by higher sustain- The contributions to reducing environmental impact from the
ability ambitions and stricter requirements from customers and end Group’s operations include improving efficiency in the use of natural
users on products and services. resources like water, energy and chemicals, reducing the depend-
Customer satisfaction and demand, and thereby the Group’s sales ency on hazardous substances, preventing adverse impacts from
and revenues, is at risk if the total experience is not at the expected emissions to land, water and air, and strategically working to
level, price point or time. increase renewable energy use and reduce CO2 emissions.

70
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

Reliance on suppliers and scarce materials Mergers and acquisitions, partnerships and divestments
The ongoing technology shift into electrification and other new cus- In addition to the Volvo Group’s in-house work and focus on organic
tomer offerings, combined with required investments in traditional growth, we engage in acquisitions and divestments, as well as in
technologies, may move the industry and the Volvo Group towards reli- JVs, partnerships and other forms of cooperation. This is essential
ance on new suppliers, new materials and on materials being used in parts in executing on our strategy. However, there can be no assur-
new applications and in different quantities compared to traditional ance that these transactions and cooperations become or remain
technologies. Some of these materials may pose a risk of supply due to successful, nor that they will deliver expected benefits. Acquisitions
scarcity or geopolitical, conflict or human rights concerns. At the same could e.g. result in incurrence of contingent liabilities and an
time the suppliers providing more traditional products might lose busi- increase in amortization expenses and impairments related to good-
ness and risk closing, which could leave the Volvo Group with a short- will and other intangible assets, as well as unanticipated difficulties
age of suppliers in a particular area and thereby a need to make invest- in integration of an acquired entity. Divestments could present risks
ments. in e.g. the operational separation or through contractual under­
takings or legal liabilities with respect to the business divested.
Comment JVs and partnerships may fail to perform as expected for various
To manage the high volatility in the commercial vehicle market, reasons, including our or our partner’s incorrect assessment of needs
capacity management is a focus area. Another focus area is life-­ and potential synergies, a failure to invest sufficient resources in the
cycle assessments to manage life-cycle effects on environment and cooperation or a change of strategic direction that the cooperation
human rights in the supply chain. This is a key component of the fails to accommodate. Further, JVs and partnerships may restrict
Group’s environmental policy. e.g. our ability to run independent operations within the scope of
cooperation, and limitations in our or our partner’s operational and
financial resources may restrain the capabilities of the cooperation.
Cybersecurity and IT infrastructure
The operation of many of the Volvo Group’s business processes Comment
depends on reliable information technology (IT) systems and infra- Volvo Group evaluates potential acquisitions, business partners and
structure. This applies to e.g. production, logistics and sales, as well JV’s cross-functionally by following a four steps approach: 1) assess
as products using connectivity and automation features. Disrup- the strategic need, 2) define key areas to be filled, 3) collect and
tions, cyberattacks and other security threats against our products assess data, 4) present an informed and fact-based proposal for
or business could harm the Volvo Group’s operations, reputation and decision. The Group also makes in-depth analyses of selected pro-
have a significant adverse effect on earnings and financial position. jects after completion, to benefit from lessons learned.
Timely detection of cybersecurity and other security incidents is
becoming increasingly complex, and the Volvo Group seeks to inves-
tigate and manage incidents with a view to prevent their recurrence. Residual value commitments
The Volvo Group relies on third parties where significant parts of If the Volvo Group is offering the customer a residual value commit-
maintenance and operations of the IT systems has been outsourced. ment, it means that the customer can return the asset at the agreed
The Volvo Group has taken precautions in the selection and ongoing date and to the agreed price.
management of these third parties, but events or incidents caused Volvo Group will have a residual value risk if the rebought vehicle
by vulnerabilities in their operations or products could cause disrup- can be sold only for a price below the vehicle’s committed residual
tion of operations and loss or leakage of data. value. A residual value commitment can also become a future used
vehicle inventory risk if vehicles are not sold, affecting the cash flow
Comment negatively.
The Volvo Group strives to identify and monitor vulnerabilities and
implement appropriate measures to mitigate identified risks to Comment
avoid, prevent, reduce or transfer the impact. Security incidents In order to minimize the risk and the impact on future profitability,
that potentially involve personal data breach are managed as part of the Volvo Group has established processes and procedures within
the Volvo Group Data Protection compliance program. each Business Area, where each Business Area assumes the
responsibility for establishing and maintaining a residual value
matrix to reflect fair future market values, proactive planning and
management of expiring contracts as well as portfolio evaluation.
For further information on residual value commitments as per
December 31, 2020, please see Note 13 Tangible assets.

71
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

CLIMATE AND SOCIET Y RISKS

Pandemics developing in areas such as vehicle regulations on CO2 and on emis-

The outbreak of pandemics throughout the world, such as the ongoing sion standards as well as chemical substance and noise regulations.
Covid-19 pandemic, may lead to major disruptions in the economies of Compliance with fuel efficiency and emission control requirements
many countries, including the Group’s key markets, and can be might lead to a need to accelerate introduction of significant vol-
expected to impact economic activity negatively going forward. The umes of electric vehicles as well as implementing additional new
Covid-19 pandemic has had and might also continue to have an adverse technologies for conventional diesel engines. This could lead to
effect on demand for the Group’s products and services and on the increased costs and potentially pose a transformative risk as there
financial performance of the Group. The duration and expected devel- can be no assurance that these technologies can be produced and
opment of the Covid-19 pandemic is unknown, and no predictions can sold profitably or that customers will purchase those in the quanti-
be made in relation to the length of present, and further measures that ties needed to meet the regulatory requirements. These develop-
different countries and others may take in response to the crisis. How- ments increase the need for monitoring and adaption to new
ever, any prolongation or worsening of the virus outbreak may lead to requirements. Even if challenges in these areas are resolved and
e.g. the following: handled, they could have a negative impact on the Group’s reputa-
• the extension of containment measures and restrictions on tion, usage of resources, and cost of production, and may result in
­freedom of movement in the Group’s key markets, adverse effects on earnings and financial position.

• key suppliers experiencing severe financial difficulties,

Comment
• shortages of necessary material and parts from suppliers directly To mitigate risks and impact in the climate related and environmen-
or indirectly affected by the virus outbreak that may in turn lead tal regulatory area, the Volvo Group invests substantial resources to
to supply chain disruptions and production downtimes, adhere to different legislations throughout the entire value chain.
• a larger number of customers directly or indirectly affected by Examples of these are:
the virus outbreak having difficulties, or being prevented from, • Monitoring of upcoming climate related and environmental regu-
making payments to the Group when due, lations and initiatives which could have an impact on the business
• further price pressure on new and used vehicles, which may give • Governance structure to address upcoming climate related and
rise to write-downs or further reserve requirements with respect environmental requirements
to vehicles in stock and residual value commitments,
• Prioritizations and investment decisions in regular operational
• impairments of goodwill and other intangible assets, processes.
• further disruption of financial markets and/or
• a prolonged global economic downturn leading to a more severe
reduction in demand for Group products. Human capital
The Volvo Group strongly believes that there is a high correlation
Given the evolving nature of the crisis, the above list is not exhaustive, between the Group’s future success and its capability to recruit,
but each of these events, or any combination of them, could amplify retain and develop qualified personnel. To meet expectations from
the negative impact of the crisis on the Group’s financial performance employees and other stakeholders, a strong focus is required on areas
and have material adverse effect on the Group’s business, financial such as leadership, empowerment, employee engagement, human
development and shareholder value. rights, company culture and values, sharing of knowledge, and build-
ing diverse teams. Failure to do the right things in these areas can
Comment cause a negative impact on the Volvo Group’s reputation, as well as on
Managing the immediate challenges and consequences of the Covid- the image as an employer and on the ability to recruit, retain and
19 pandemic has been an important part of the work throughout 2020 develop the knowledge and skills of the employees necessary to
and provided experience and learnings for future events. This work has ensure customer success.
involved teams on all levels in the Group, including local task forces,
focusing on our colleagues, customers and business partners, with Comment
health and safety as first priority while maintaining a tight cost control This risk is managed by leveraging the full diversity of the workforce
and focus on cash. to ensure business success on a global arena and the Volvo Group
continuously monitoring changing legislation to ensure compliance.
The Volvo Group Pulse survey has been complemented by other
Climate related and environmental regulations tools and processes designed to increase dialogue, which allows the
International agreements on limiting the CO2 emissions, such as the Group to capture the voice of employees and strengthen engage-
Paris Agreement, together with related national and regional initia- ment. By uniting employees through a common set of behaviors that
tives leads to continued and increased attention to climate change are in line with the business ambitions, the Group consciously
and influence regulatory development. Environmental legislation is grows an inclusive culture and a value-based leadership.

72
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

Human rights The consequences of human rights risks for the Volvo Group could
The Volvo Group is committed to respect human rights in line with range from liability to reputational and brand damage, depending also
applicable legislation throughout the world, relevant global frame- on the severity of the nature of harm done. This depends on whether the
works as well as its own standards. Adverse human rights impacts Group is seen in breach of applicable laws or is seen as causing, contrib-
may potentially materialize not only within the Group’s own organiza- uting to or being directly linked to the harm done, as defined in the
tion, but also through the Group’s business relationships and in the United Nations Guiding Principles on Business and Human Rights.
value chain. The Group is aware that conducting business in certain
parts of the world constitutes higher risks for potential human rights Comment
violation and therefore has identified certain countries where the People are at the core of what the Volvo Group does. In the Volvo
Volvo Group has a substantial number of employees and/or close busi- Group Code of Conduct and Supplier Code of Conduct, human and
ness partners that are considered to have elevated risk in this respect. labor rights issues such as mutual respect, non-discrimination, safe
The Group is also aware that certain purchasing and customer seg- and healthy workplace, freedom of association and collective
ments constitutes higher risks for negative human rights impacts. ­bargaining, working hours and compensation, as well as modern
slavery and child labor are emphasized.

COMPLIANCE RISKS

Non-compliance with data protection laws been developed or acquired over a number of years and are valuable
Data protection laws apply to the Volvo Group in the jurisdictions in to the operations of the Volvo Group. Further, in order to safeguard
which Volvo operates. The EU General Data Protection Regulation investments in R&D, the Volvo Group has an intellectual property
(“GDPR”), which became applicable from May 2018, has introduced plan defining the creation and use of its intellectual property rights.
increased monetary penalties for breaches of the regulation. Non-­ The share of trade in counterfeit goods as a proportion of global
compliance with data protection laws could expose the Group to fines trade has grown significantly. Products infringing on Volvo Group’s
and penalties and severe infringements may potentially cause authori- intellectual property rights are often of substandard quality and
ties to issue instructions to stop processing of personal data, which poses risks to the Group regarding the vehicle performance, like
could disrupt operations. The Group could also be faced with litiga- safety, quality and emission levels that will affect the climate, as
tions from persons allegedly affected by data protection violations. well as the corporate brand reputation.
Data protection law infringements may hence involve severe negative AB Volvo and Volvo Car Corporation jointly own the Volvo brand
impact for the business operations, including reputational damage and and trademarks through Volvo Trademark Holding AB. AB Volvo has
adverse effect on the Group’s earnings and financial standing. the exclusive right to use the Volvo name and trademark for its prod-
ucts and services and according to a license agreement. Similarly,
Comment Volvo Car Corporation has the exclusive right to use the Volvo name
The data privacy area is closely monitored to identify improvement and trademark for its products and services. The Volvo Group’s
areas, as well as potential issues that may have a negative impact on rights to use the Renault brand and trademarks are related to the
the Volvo Group. The Code of Conduct emphasizes the importance of truck operations only and are regulated by a license from Renault
compliance with data protection legislation and a Volvo Group Data s.a.s., which owns the Renault brand and trademarks. In addition,
Privacy Compliance Program has been established. Further, the the Volvo Group owns several other trademarks relating to its busi-
Group Privacy Office (and connected network) manage implementa- ness. Use in possible conflict with third-party intellectual property
tion, monitoring and training in respect of the compliance program. rights, or third-parties’ unauthorized use of the Volvo Group’s pro-
prietary rights, may have significant business impact on the Group.

Intangible assets Comment

The Volvo Group owns or otherwise has rights to patents, trade- The Volvo Group is continuously assessing intellectual property
marks, designs and copyrights that relate to the products and ser- rights of third parties as well as possible infringements by third
vices that the Group manufactures and markets. These rights have ­parties of the Group’s intellectual property rights.

73
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

Legal proceedings the Group may be responsible, as well as to the behaviors of employ-
In the normal course of business, the Volvo Group is involved in legal ees in situations in relation to public officials and other customer
proceedings. These proceedings may relate to a number of topics, representatives. The overall risk level is also affected by the fact that
including vehicle safety and other product related claims, warranty Volvo pursues business operations in markets that are considered
claims, commercial disputes, intellectual property claims, allega- high-risk from a corruption perspective. Potential risks for non-­
tions concerning health, environmental or safety issues, antitrust, compliance with competition law (e.g. price fixing, market sharing,
tax or labor disputes and regulatory inquiries and investigations. Fur- unlawful information exchange, abuse of market power) are primar-
ther, AB Volvo and other companies in the Group, as well as their ily linked to behavior of employees when interacting with competi-
officers, may be subject to claims alleging failures to comply with tors and other external stakeholders in various situations. Corrup-
stock market regulations, securities law and other applicable rules tion as well as competition law infringements may involve severe
and regulations. Legal proceedings can be expensive, lengthy, take negative impacts for the business operations, including reputational
up resources that could be used for other purposes and are often damage, legal proceedings, fines and imprisonment of employees.
difficult to predict. There can be no assurance that provisions, where The Group could also be affected by claims raised by persons or
recognized, for a particular legal proceeding will cover the costs of entities affected by allegedly non-compliant practices.
an adverse outcome, nor that unprovisioned proceedings will not
give rise to any significant additional expenditure. Information about Comment
certain legal proceedings involving entities within the Volvo Group, Corruption-related risks are managed via the Volvo Group’s Anti-­
see Note 21 Other Provisions and in Note 24 Contingent Liabilities. Corruption Compliance Program, which consists of different miti-
gating activities including anti-corruption due diligence of business
Comment partners. This is to ensure that the Group selects the right business
The Volvo Group has well-established structures and processes in partners to prevent corrupt practices in connection with the sale of
place to evaluate and handle complaints and legal proceedings with products and services. As regards to employees and contractors,
the purpose of mitigating legal risks for the Group. the Code of Conduct emphasizes that Volvo employees and con-
tractors may not participate in or endorse any corrupt practices. The
Code of Conduct also emphasizes that the Group competes on the
Corruption and non-compliance with competition law merit of products and services and do not take actions that are ille-
Corruption risks are primarily linked to the activities of the Volvo gal under the competition laws, such as colluding with competitors.
Group’s business partners (distributors and sales agents), for which Also, regular training is provided.

FINANCIAL RISKS

Insurance Credit risk

The Volvo Group generally takes out insurance coverage where it is The Volvo Group is exposed to credit risk mainly through its sales to
legally or contractually obligated to do so and otherwise against such customers in the Industrial Operations, and its long-term credit
risks, in such amounts and on terms that it considers commercially receivables in its Financial Services operations. Total exposure as of
motivated from time to time. Where insurance coverage cannot be December 31, 2020 can be found in Note 15 Customer-financing
procured on such terms, the Group can be exposed to material unin- receivables, and Note 16 Receivables. The Group is also exposed to
sured losses, which could have a materially adverse effect on Group financial credit exposure due to short-term deposits with the Group’s
operations and financial standing. For example, the Group has sub- core banks and unrealized results from derivatives used for hedging
stantial operations in Japan that are not fully insured against effects purposes. For further information, please see Note 4 Goals and poli-
from flooding, earthquakes and other natural disasters. cies in financial risk management and Note 15 Customer-­financing
receivables. If several larger customers, dealers, or a core bank, fails
Comment to meet its undertakings the Group could suffer significant losses.
The Volvo Group strives to identify and monitor vulnerabilities and
implement appropriate measures to mitigate identified risks to avoid, Comment
prevent, reduce or transfer the impact. This is a recurring process that The Volvo Group has set clear principles for how to manage external
adapts to changes in the risk and operational environment. customer relationship, including customer assessment, how to
manage and measure exposure and mitigate risks, monitoring of the
economic, political and industry conditions in each market, financ-

74
 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 RISKS AND UNCERTAINTIES

ing solutions, collection procedures and performance follow-up Currency risk

structure. The Group has several so-called CSA (Credit Support The Volvo Group’s global presence means that business is conducted
Annex) agreements in place in order to decrease credit exposure in several different currency regions. More than 95% of the Group’s
arising from hedge activities with financial derivatives. net sales are generated in countries other than Sweden. The Volvo
Group’s cash flow, profitability, and balance sheet are impacted by
fluctuations in foreign exchange rates.
Pension commitments
The Volvo Group has substantial pension commitments, some of Comment
which are owed under defined benefit plans. Changes in assump- The Volvo Group strives to have sourcing and manufacturing located
tions of interest and inflation rates, mortality, retirement age and in the major markets which offsets structural currency exposures,
pensionable remunerations could result in significant changes to and actively manages currency flows and translation risk to reduce
the present value of already accrued benefit obligations as well as the impact on profitability and cash flow.
the cost of new benefit accruals, affecting funding level of such
plans. The investment performance of pension assets may also sub-
stantially affect funding levels. Defined benefit plan assets are man- Liquidity risk
aged independently from the Group, with a significant portion of It is of critical importance for the Volvo Group to assure a sufficient
plan assets held in shares and other similar instruments that are payment capability over time, to continuously manage demands and
exposed to market risks. Please see Note 20 Provisions for post-­ expectations from external stakeholders.
employment benefits for further information. Sudden changes in the business cycle, unforeseen events within
If there is a shortfall in benefit plans, the Volvo Group could be the financial markets, changes in the Volvo Group’s access to finan-
required to make substantial unexpected cash contributions, which cial markets, and changes in customers’ appetite for financing from
would adversely affect cash flow and the Group’s financial position. the Group, may stress the Group’s liquidity preparedness.
Failure to properly manage the Group’s liquidity risks, may cause
Comment material adverse impact on earnings capability and financial standing.
The exposure is controlled in the short term by ensuring strict adher-
ence to each plan’s investment policy and by proactively imple- Comment
menting portfolio de-risking strategies when deemed necessary. The Volvo Group ensures sound financial preparedness by always
keeping a certain portion of its sales in liquid assets. A sound balance
between short- and long-term debt maturities as well as long-term
Interest rate risk committed credit facilities and cash, are intended to secure liquidity
Volvo Group’s net financial debt structure is exposed to fluctuations preparedness and thus the Volvo Group’s payment capability.
in market interest rates. Movements in interest-rate levels may
impact the Group’s net income and cash flow or the value of financial
assets and liabilities. Impairment
The Volvo Group has substantial values in goodwill and other in­tangi-
Comment ble assets on its balance sheet. There is a risk for impairment if the
Industrial Operation’s interest-rate fixing for net financial debt is calculated recoverable amount is lower than the carrying amount.
kept short, i.e. below six months, to leverage on the countercyclical Please see Note 12 Intangible assets. The calculated recoverable
relationship of short-term interest rates. Financial Services funding amounts differ between the operating segments and they are, to a
and lending shall be matched to mitigate undesired volatility in prof- varying degree, sensitive to changes in the business environment.
itability due to interest-rate risk. Instability in the business performance and volatility in interest and
currency rates may indicate a need for impairment.

Comment
Goodwill and capitalized development cost not yet in use are evalu-
ated yearly or at any indication of impairment. Other intangible
assets, with finite useful lives, are evaluated in case of indication of
impairment.

75
 GROUP PERFORMANCE 2020

NOTES
PAGE NOTE PAGE NOTE PARENT COMPANY PAGE
Notes to financial s­ tatements 77 10 Income taxes 97 1 Accounting policies 143
Parent Company AB Volvo 139 11 Non-controlling interest 99 2 Revenue and intra-group transactions 143
Proposed policy for remuneration 188 12 Intangible assets 100 3 Administrative expenses 143
to senior executives 13 Tangible assets 102 4 Other operating income and expenses 144
Proposed disposition of unappropriated earnings 190 14 Leasing 105 5 Income from investments 144
Audit report for AB Volvo 191 15 Customer-financing receivables 108 in Group companies
Key ratios 194 16 Receivables 110 6 Income from investments in joint ­ 144
Eleven-year summary 197 ventures and associated ­companies
17 Inventories 112
7 Income from other investments 144
18 Cash and cash equivalents 113
NOTE THE VOLVO GROUP PAGE 8 Interest expenses and similar charges 144
19 Equity and number of shares 114
1 Accounting policies 77 9 Other financial income and expenses 144
20 Provisions for post-employment b ­ enefits 115
2 Key sources of estimation uncertainty and 79 10 Appropriations 144
21 Other provisions 121
critical judgments 11 Income taxes 145
22 Liabilities 123
3 Acquisitions and divestments of shares 80 12 Intangible and tangible assets 145
23 Assets pledged 124
and operations 13 Investments in shares and ­participations 146
24 Contingent liabilities and contingent 125
4 Goals and policies in financial risk 82 14 Other receivables 147
assets
­management
25 Transactions with related parties 126 15 Untaxed reserves 147
5 Investments in joint ventures, associated 88
26 Government grants 126 16 Provisions for post-­employment benefits 148
companies and other shares and
­participations 27 Personnel 127 17 Other provisions 149
6 Segment reporting 92 28 Fees to the auditors 131 18 Non-current liabilities 149
7 Revenue 94 29 Cash flow 132 19 Other liabilities 149
8 Other operating income and expenses 96 30 Financial instruments 133 20 Contingent liabilities 149
9 Other financial income and expenses 97 31 Changes in Volvo Group 137 21 Cash flow 149
Financial reporting 2020

FINANCIAL STATEMENTS

Financial performance Financial position Cash flow statement Changes in

Page 42 Page 45 Page 50 consolidated equity
Page 65

STATUTORY SUSTAINABILITY REPORT

The Volvo Group has prepared a sustainability report in accordance

with the Global Reporting Initiative’s guidelines (GRI Standards) and
the non-financial disclosure requirements in the Swedish Annual
Accounts Act. The Volvo Group’s sustainability report consists of the
Sustainability Notes on pages 150-171 together with all other relevant
sustainability disclosures in this Annual and Sustainability Report, see:

Strategy and business model, pages 6–39

Policies, assessments and results, pages 150–171
Material risks and mitigation, pages 68–75 and 150–171
Key performance indicators, pages 150–171

76
 GROUP PERFORMANCE 2020 NOTES

NOTES TO FINANCIAL STATEMENTS

Amounts in SEK M unless otherwise specified. The amounts within parentheses refer to amounts for year 2019.

1 ACCOUNTING POLICIES

The consolidated financial statements for AB Volvo and its subsidiaries are accordance with IAS 1 Presentation of Financial Statements and the ­Swedish
prepared in accordance with International Financial Reporting Standards Annual Accounts Act. In addition, RFR 1 Supplementary Rules for Groups
(IFRS) issued by the International Accounting Standards Board (IASB), as has been applied, which is issued by the Swe­dish Financial Reporting Board.
adopted by the European Union, EU. This Annual Report is prepared in

Accounting policies Note IFRS standard

Assets and liabilities held for sale 3, Acquisitions and divestments of shares and operations IFRS 5, IFRS 13
and discontinued o ­ perations
Acquisitions and divestments 3, Acquisitions and divestments of shares and operations IFRS 3
Joint ventures 5, Investments in joint ventures, associated companies IFRS 11, IFRS 12, IAS 28
and other shares and participations
Associated companies 5, Investments in joint ventures, associated companies IFRS 12, IAS 28
and other shares and participations
Other shares and participations 5, Investments in joint ventures, associated companies IFRS 7, IFRS 9, IFRS 13, IAS 28, IAS 32
and other shares and participations
Operating segments 6, Segment reporting IFRS 8
Revenue 7, Revenue IFRS 9, IFRS 15, IFRS 16
Financial income and expenses 9, Other financial income and expenses IFRS 9
Income taxes 10, Income taxes IAS 12
Non-controlling interest 11, Non-controlling interest IFRS 10, IFRS 12
Research and development 12, Intangible assets IAS 23, IAS 36, IAS 38
Goodwill 12, Intangible assets IFRS 3, IAS 36, IAS 38
Tangible assets 13, Tangible assets IFRS 13, IFRS 16, IAS 16, IAS 23, IAS 36, IAS 40
Leasing 14, Leasing IFRS 16
Inventories 17, Inventories IAS 2
Earnings per share 19, Equity and number of shares IAS 33
Pensions and similar obligations 20, Provisions for post-employment benefits IFRS 2, IAS 19
Residual value risks 21, Other provisions IFRS 15, IAS 37
Product warranty 21, Other provisions IAS 37
Technical goodwill 21, Other provisions IAS 37
Restructuring costs 21, Other provisions IAS 19, IAS 37
Extended coverage and service contracts 21, Other provisions IFRS 15, IAS 37
Insurance operations 21, Other provisions IFRS 4
Contingent liabilities and contingent assets 24, Contingent liabilities and contingent assets IAS 37
Transactions with related parties 25, Transactions with related parties IAS 24
Government grants 26, Government grants IAS 20
Incentive programs 27, Personnel IAS 19
Cash flow statement 29, Cash flow IAS 7
Financial instruments 4, Goals and policies in financial risk management IFRS 7, IFRS 9
15, Customer-financing receivables IFRS 7, IFRS 9, IFRS 13, IFRS 16, IAS 32
16, Receivables IFRS 7, IFRS 9, IFRS 13, IAS 32
18, Cash and cash equivalents IFRS 7, IFRS 9, IFRS 13, IAS 32
22, Liabilities IFRS 7, IFRS 9, IFRS 13, IAS 32
30, Financial instruments IFRS 7, IFRS 9, IFRS 13, IAS 32

77
 GROUP PERFORMANCE 2020 NOTES

on loans and other financial instruments in foreign currency, which are used
VOLVO GROUP’S ACCOUNTING POLICIES to hedge net assets in foreign subsidiaries and associated companies, are
offset against translation differences in equity of the respective companies.
The Volvo Group describes the accounting policies in conjunction with each Read more in Note 4 Goals and policies in financial risk management, about
note in the aim of providing enhanced understanding of each accounting currency exposure and currency risk management.
area. The Volvo Group focuses on describing the accounting choices made
within the framework of the prevailing IFRS standard and avoids repeating The most important exchange rates used in the consolidated financial
the actual text of the standard, unless the Volvo Group considers it particu- statements are shown in table 1:1.
larly important to the understanding of the note’s content. The following
symbols I/S and B/S show if amounts in the notes can be found in the
income statement or balance sheet. The total amount in tables and state-
ments might not always summarize as there are rounding differences. The Exchange rates Closing rate
aim is to have each line item corresponding to the source and it might Average rate as of Dec 31
therefore be rounding differences in the total. Refer to the table below to Country Currency 2020 2019 2020 2019
see the note in which each accounting policy is applicable and the relevant
IFRS standard with material impact. Australia AUD 6.3380 6.5724 6.2646 6.5125
Brazil BRL 1.8068 2.4007 1.5715 2.2979
Canada CAD 6.8603 7.1308 6.3996 7.1283
Consolidated financial statements China CNY 1.3329 1.3691 1.2537 1.3333
Principles for consolidation Euro Zone EUR 10.4867 10.5888 10.0375 10.4336
The consolidated financial statements comprise the parent company, Great Britain GBP 11.7981 12.0658 11.0873 12.2145
­subsidiaries, joint ventures and associated companies. Intra-group trans­ Japan JPY 0.0862 0.0868 0.0792 0.0853
actions as well as gains on transactions with joint ventures and associated Norway NOK 0.9786 1.0747 0.9546 1.0579
companies are eliminated in the consolidated financial statements. South Africa ZAR 0.5614 0.6548 0.5590 0.6668
Read more in Note 3 Acquisitions and divestment of shares and operations. South Korea KRW 0.0078 0.0081 0.0075 0.0081
 ead more in Note 5 Investments in joint ventures, associated companies and
R United States USD 9.2037 9.4604 8.1886 9.3171
other shares and participations, about definitions of subsidiaries, joint ventures
and associated companies. 1:1
Read more in Note 11 Non-controlling interest.
New accounting policies 2020
Translation to Swedish kronor when consolidating companies that have As of January 1, 2020, the Volvo Group has changed the classification of
other functional currencies certain costs related to commercial customer commitments. This has
The functional currency of each Volvo Group company is determined caused a shift between the lines in the income statement for Industrial
based on the primary economic environment in which the company oper- Operations as well as the Volvo Group, while Financial Services is not
ates. The primary economic environment is normally in which the com- affected. Restated income statements for 2019 are disclosed in note 31.
pany primarily generates and expends cash. The functional currency is in No other new or revised accounting standards or interpretations effec-
most cases, the currency in the country where the company is located. AB tive from January 1, 2020 have significantly affected the Volvo Group’s
Volvo’s and the Volvo Group’s presentation currency is SEK. In preparing financial statements.
the consolidated financial statements, items in the income statements of
foreign subsidiaries are translated to SEK using monthly average exchange New accounting policies 2021 and later
rates. Balance sheet items are translated into SEK using exchange rates A number of accounting standards and interpretations have been pub-
at year end (closing rate). Exchange differences are recognized in other lished and is effective from 2021 and later.
comprehensive income and accumulated in equity.
The accumulated translation differences related to a certain subsidiary, Amendments to IFRS 7, IFRS 9 and IFRS 16
joint venture or associated company are reversed to the income state- The amendments to IFRS 7, IFRS 9 and IFRS 16 relates to the interest rate
ment as a part of the gain/loss arising from disposal of the company or benchmark reform - phase 2 and provides guidance on how to account for
repayment of capital contribution from the company. the effects of the reform. The interest rate benchmark reform refers to the
transition from current interest reference rate such as LIBOR to new
Receivables and liabilities in foreign currency benchmark interest rates. The Volvo Group closely follows the transition
Receivables and liabilities in currencies other than the functional currency which will take place during 2021. The amendments to IFRS 7, IFRS 9 and
of the reporting entity (foreign currencies) are translated to the functional IFRS 16 will be applied when new interest rate benchmarks are incorpo-
currency using the closing rate. Exchange rate gains and losses arising rated in the underlying contracts which is expected to have taken place by
from operating assets and liabilities impact operating income while the end of 2021. The amendment is effective from January 1, 2021.
exchange rate gains and losses arising from financial assets and liabilities Other new and revised accounting standards or interpretations are not
impact other financial income and expenses. Interest-bearing financial considered to have a material impact on the Volvo Group’s financial state-
assets and liabilities are defined as items included in the net financial posi- ments.
tion of the Volvo Group (see section Key ratios). Exchange rate differences

78
 GROUP PERFORMANCE 2020 NOTES

2 KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL JUDGMENTS

The Volvo Group’s most significant accounting policies are described in

conjunction with the applicable note, read more in note 1 Accounting
Source of estimation
­Policies for a specification. The preparation of AB Volvo’s Consolidated
uncertainty and critical
Financial Statements requires the use of estimates and assumptions that judgments Note
may affect the recognized amounts of assets and liabilities at the date of
the financial statements. In addition, the recognized amounts of net sales Sales with residual value commit- 7, Revenue
and expenses during the periods presented are affected. In preparing the ments and variable sales price
financial statements, management has made its best judgments of Deferred taxes and uncertainty over 10, Income taxes
income tax treatments and claims
­certain amounts included in the financial statements, materiality taken
into account. Actual results may differ from previously made estimates. Impairment of goodwill and other 12, Intangible assets
­intangible assets
In accordance with IAS 1, the company is required to disclose the assump-
Impairment of tangible assets 13, Tangible assets
tions and other major sources of estimation uncertainties that, if actual and residual value risks
results differ, may have a material impact on the financial statements.
Measurement of lease liabilities 14, Leasing
and right-of-use assets
Allowance for expected credit 15, Customer-financing
The sources of estimation uncertainty and critical judgments losses ­receivables
identified by the Volvo Group and which are considered to fulfill 16, Receivables
these criteria are presented in connection to the items considered to be Write down of inventories 17, Inventories
affected. The table 2:1 discloses where to find these descriptions. Assumptions when calculating 20, Provisions for
post-employment benefits post- ­employment
benefits
Provisions for product warranty 21, Other provisions
and provisions for legal proceedings

2:1

79
 GROUP PERFORMANCE 2020 NOTES

3 ACQUISITIONS AND DIVESTMENTS OF SHARES AND OPERATIONS

Assets and liabilities held for sale and discontinued operations

ACCOUNTING POLICY In a global group like the Volvo Group, processes are continuously ongoing
regarding the sale of assets or groups of assets at minor values. When the
Acquisitions and divestments criteria for being classified as an assets and liabilities held for sale are ful-
All acquisitions and divestments are recognized in accordance with the filled and the asset or group of assets are of significant value, the asset or
acquisition method. Volvo Group measures acquired identifiable assets, group of assets, both current and non-current, and the related liabilities are
tangible and intangible, and liabilities at fair value. Any surplus amount recog­nized on separate lines in the balance sheet. The asset or group of
from the ­purchase price, possible non-controlling interest and fair value of assets are measured at the lower of its carrying amount and fair value after
previously held equity interests at the acquisition date compared to the deductions for selling expenses. The balance sheet items and the potential
Volvo Group’s share of acquired net assets is recognized as goodwill. Any income effect resulting from the revaluation to fair value less selling
deficit amount, known as gain from a bargain purchase, is recognized in expenses are, if related to Industrial Operations, normally recognized in the
the income statement. segment Group functions & Other, otherwise in the Financial Services
For acquisitions done in stages, a business combination occurs only on segment. When the sale is completed the result is distributed to the
the date control is achieved, which is also the time when goodwill is cal- ­relevant segments.
culated. Transactions between the Volvo Group and owners with non-
controlling interest are recognized in equity as long as control of the sub-
sidiary is retained. For each business combination, the Volvo Group decides AB Volvo’s holding of shares in subsidiaries as of December 31, 2020 is
whether the non-controlling interest shall be valued at fair value or at the disclosed in note 13 Investments in shares and participations for the
non-controlling interest’s proportionate share of the net assets of the ­P arent Company. Significant acquisitions, formations and divestments
acquiree. All acquisition-related costs are expensed. Companies acquired for the Volvo Group are listed below.
during the year are consolidated as of the date of acquisition. Companies
that have been divested are included in the consolidated financial state- Acquisitions during the period
ments up to and including the date of the divestment. Divestment of oper- The Volvo Group has not made any acquisitions during 2020 and 2019,
ations with the main purpose to dispose intangible and tangible assets is which solely or jointly have had a significant impact on the Volvo Group’s
treated as disposal of intangible and tangible assets. financial statements.

80
 GROUP PERFORMANCE 2020 NOTES

Divestments during the period Assets and liabilities held for sale
The Volvo Group has made divestments during 2020 which resulted in a As of December 31, 2020, the Volvo Group recognized assets and liabili-
net gain affecting operating income. The divestments include the sale of ties held for sale amounting to SEK 34,296 M (32,773) and SEK 11,286 M
majority of Volvo Buses’ business in India to the Volvo Group’s joint ven- (10,413) respectively. The amounts mainly relate to the intended divest-
ture VECV, and sale of Volvo Construction Equipment’s Blaw-Knox paver ment of UD Trucks business globally from the Volvo Group to Isuzu
range in North America. The Volvo Group has not made any other divest- Motors. The delay in signing of the binding agreement to October 2020
ments during 2020 that have had a significant impact on the Volvo Group. has caused the period to complete the sale to be extended to more than
During 2019 the Volvo Group made divestments which resulted in a net 12 months from the initial reclassification. Based on the binding agree-
gain within operating income. The gain mainly pertained to the sale of the ment the closing is expected during the first half of 2021. The transaction
majority of the Volvo Group’s holding of shares in WirelessCar. is subject to certain conditions, including approval from regulatory
The impact on the Volvo Group’s balance sheet, income statement and authorities. No translation differences on foreign operations were recog-
cash flow statement in connection with the divestment of shares and nized in other comprehensive income related to the reclassified assets
operations are specified in the following table. and liabilities held for sale.
Assets and liabilities held for sale in Industrial Operations have been
reclassified within the segment Group Functions & Other. Assets and
­liabilities held for sale in Financial Services have been reclassified within
Divestments 2020 2019 the segment Financial Services.

Goodwill –20 –22

Property, plant and equipment –144 –1
Assets under operating lease – –1
Assets and liabilities held for sale Dec 31, Dec 31,
Inventories –293 – 2020 2019
Accounts receivables –2 –133
Intangible assets 3,592 3,096
Other receivables –2 –248
Tangible assets 11,782 11,831
Cash and cash equivalents –3 –
Financial assets 6,446 4,324
Provisions 36 13
Inventories 5,755 5,510
Trade payables 4 118
Accounts receivable 4,196 4,742
Other liabilities 13 146
Other current receivables 2,524 3,269
Divested net assets –411 –128
B/S Total assets 34,296 32,773
Cash and cash equivalents received 435 1,343
Net gain/loss on divestments affecting Provisions 1,910 1,340
operating income 25 1,634 Other non-current liabilities 1,642 910
Trade payables 4,796 4,774
Effect on Volvo Group cash and Other current liabilities 2,938 3,388
cash equivalents 435 1,343 B/S Total liabilities 11,286 10,413
Effect on Volvo Group net financial position 407 1,324
3:2
3:1
Acquisitions and divestments after the end of the period
The Volvo Group has not made any acquisitions or divestments after the
end of the period that have had a significant impact on the Volvo Group.

81
 GROUP PERFORMANCE 2020 NOTES

4 GOALS AND POLICIES IN FINANCIAL RISK MANAGEMENT

The Volvo Group’s global operations expose the Group to financial risks in the business operations where parts of the responsibility for the finance
the form of interest rate risks, currency risks, credit risks, liquidity risks and operation and financial risk management are centralized to Volvo Group
other price risks. The board of AB Volvo has adopted a financial risk policy Treasury, the internal bank of the Volvo Group. The Volvo Group has man-
that regulates how these risks should be controlled and governed and aged to safeguard liquidity, perform financial activities and manage risk in
defines roles and responsibilities within the Volvo Group. The financial risk accordance with the financial risk policy throughout the Covid-19 pandemic
policy also establishes principles for how financial activities shall be carried and the uncertainty in the financial markets. Information on the impact from
out, sets mandates and steering principles for the management of financial the Covid-19 pandemic related to financial risks is included in the respective
risks as well as defines the financial instruments to be used for mitigating notes.
these risks. The board of AB Volvo is regularly informed about the develop- Read more in Note 30 Financial instruments about accounting policies for
ment of the Volvo Group’s financial risks and other matters covered within financial instruments.
the financial risk policy. The financial risk policy is reviewed on an annual
Read more in section Financial Management, page 64 and section Risks and
basis. The Volvo Group manages financial risk as an integrated element of uncertainties, page 68 about financial risk management.

FINANCIAL RISKS

INTEREST RATE RISKS CURRENCY RISKS CREDIT RISKS LIQUIDITY RISKS OTHER PRICE RISKS

USD
COMMERCIAL CURRENCY COMMERCIAL
CASH FLOW RISKS
EXPOSURE CREDIT RISK
COMMODIT Y RISKS 16.4

FINANCIAL CURRENCY
PRICE RISKS FINANCIAL CREDIT RISK
EXPOSURE

CURRENCY EXPOSURE FINANCIAL

OF EQUIT Y COUNTERPART Y RISK

BRL
5.1
INTEREST RATE RISKS

matching degree excludes equity, which amounted to 8% in Financial

INTEREST RATE RISKS A Services. At year-end 2020, the degree of such matching ratio was 98%
(99) in Financial Services which is in line with the Group policy.
Interest rate risk refers to the risk that changed interest rates will affect
the Volvo Group’s net income and cash flow (cash flow risk) or the fair In ­addition to the financial assets in Financial Services, the Volvo Group’s
value of financial assets and liabilities (price risk). interest-bearing assets consisted primarily of cash and cash equivalents.
On December 31, 2020 the average interest on Industrial Operations
financial assets was 0.2% (0.4). The Industrial Operations’ results and
profitability are closely aligned to the business cycle. Therefore, in order to
POLICY minimize the interest rate risk, outstanding loans had interest terms
­corresponding to an interest rate fixing of between one to three months.
Matching the interest fixing terms of financial assets and liabilities reduces The average interest on Industrial Operations financial liabilities at year
the exposure. Interest rate swaps are used to change/influence the inter- end amounted to 2.7% (4.4), including the Volvo Group’s credit costs.
est fixing term for the Volvo Group’s financial assets and liabilities. Currency The decrease primarily relates to the effect from the repayment of the first
interest rate swaps enable borrowing in foreign currencies from different tranche of the hybrid bond in June 2020.
markets without introducing currency risk. The Volvo Group may from Table 4:1 shows the impact on income after financial items in Industrial
time to time use other types of forward contracts (futures) and forward Operations’ net financial position, excluding lease liabilities and pensions
rate agreements (FRAs). Most of these contracts are used to hedge and similar obligations, if interest rates were to increase by 1 percentage
­interest rate levels for current borrowing or investments. point, assuming an average interest rate fixed term of three months on the
liability side.1 The impact on equity is earnings after tax.

Cash flow risks Price risks C

The effect of changed interest rate levels on future currency and interest­ Exposure to price risk as a result of changed interest rate refers to financial
flows primarily pertains to Financial Services and Industrial Operations’ assets and liabilities with a longer interest rate fixing term (fixed interest).
net financial items. Financial Services measure the degree of match­ing This is not a risk for Industrial Operations since all outstanding loans are
interest rate fixing on borrowing and lending. The calculation of the signed with a short interest rate fixing.

1 The sensitivity analysis on interest rate risk is based on simplified assumptions. It is not  ead more in Note 20 Provisions for post-employment benefits regarding
R
unlikely for market interest rates to change by one percentage point on an annual basis. ­sensitivity analysis on the defined benefit obligations when changes in the
However, in reality, these rates often rise or decline at ­different points in time. The sen- ­applied assumptions for discount rate and inflations are made.
sitivity analysis also assumes a parallel deferment of the return curve, and that the
interest on assets and liabilities will be equally impacted by changes in market interest
rates. Accordingly, the impact of real interest­rate changes may differ from the analysis
presented in table 4:1.

82
 GROUP PERFORMANCE 2020 NOTES

The Volvo Group’s

net assets in different
currencies (SEK bn) = Risk net financial Net financial Impact on income Impact on net financial
position Dec 31, ­position excl. after financial items position if SEK a­ ppreciates
2020 ­pensions and if interest rate rises 1% against other ­currencies 10%
SEK M lease liabilities
A (Interest rate risks) B (Currency risks)
SEK 47,037 512 –
JPY –11,996 –104 1,200
EUR 11,574 102 –1,157
USD 8,488 76 –849
CNY 8,000 81 –800
SEK GBP 5,228 46 –523
61.2 Other 6,365 65 –636
Total C 74,696 778 –2,766
GBP 4.6
Read more in section Financial Position about the Industrial Operations Net financial position.

EUR 4:1
20.3
JPY 2.2
KRW 3.4

CNY
15.1

INR 1.6
OTHER 14.7

For Financial Services, financial assets and liabilities are matched in (VaR) as the main tool for mandating market risk (including interest rate
order to limit risk. Volvo Group Treasury is allowed to take limited active risk, currency risk and liquidity risk). Volvo Group Treasury measures VaR
currency and interest rate positions in relation to the Financial Services over a one day holding period, using a 97.7% confidence level and his-
portfolio. This responsibility is subject to, and shall be within, applicable torical volatility and correlation. The total VaR mandate for Volvo Group
market risk limitations. There are several measurements which can be Treasury is SEK 150 M, and the usage is measured daily. As of December
used to define market risk. Volvo Group Treasury is using Value-at-Risk 31, 2020, the VaR usage was SEK 13.1 M (11.6).

CURRENCY RISKS

CURRENCY RISKS B

The balance sheet may be affected by changes in different exchange Volvo Group’s outstanding derivatives hedging commercial
rates. Currency risks in the Volvo Group’s operations are related to currency risks December 31, 2020
changes in the value of contracted and expected future payment flows
Millions USD/BRL
(commercial currency exposure), changes in the value of loans and invest-
ments (financial currency exposure) and changes in the value of assets Due date 2021 10
and liabilities in foreign subsidiaries (currency exposure of equity). Total local currency 10

Average contract rate 5.54

Market value of outstanding derivatives, SEK M 5
POLICY
4:2
The aim of the Volvo Group’s currency risk management is to secure cash
flow from firm flows through currency hedges pursuant to the established
Financial risk policy, and to minimize the exposure of financial items in the
Volvo Group’s balance sheet. Below is a presentation on how this work
is conducted for commercial and financial currency exposure, and for
­currency exposure of equity.

83
 GROUP PERFORMANCE 2020 NOTES

Translation exposure from the consolidation of operating income in

Sensitivity analysis1
­foreign subsidiaries
In conjunction with the translation of operating income in foreign subsidi-
Risk currency Impact on operating
­exposure income if currency rate aries, the Volvo Group’s income is impacted if currency rates change. The
Transaction
2020 exposure from appreciates against all Volvo Group does not hedge this risk. Graph 4:7 shows the translation
operating other currencies by 10% effect in key currencies when consolidating operating income for 2020 in
SEK bn net flows B (Currency risks) foreign subsidiaries in the Volvo Group.
SEK –32 –3.2 Read more in section Currency exposure of equity.
KRW –6 –0.6
EUR 2 0.2 Sensitivity analysis for transaction exposure 1
GBP 6 0.6 The table 4:3 illustrates the impact on operating income if key currencies
USD 8 0.8 for Volvo Group appreciate by 10% against all other currencies. Hedge
accounting is not applied on derivatives hedging cash flows in foreign
The deficit in transaction exposure in SEK is mainly generated from flows
in USD, GBP, EUR, NOK and ZAR against SEK.
­currency. As a consequence, the impact on equity equals the impact on
operating income before tax.
4:3
Volvo Group currency review
Commercial currency exposure The table and graphs 4:4 to 4:8 illustrate the transaction exposure and
Transaction exposure from commercial flows currency impact on operating income from commercial net flows in for-
The Volvo Group conducts manufacturing in 18 countries around the eign currency , translation effect when consolidating operating income in
globe and more than 95% of net sales are generated in countries other foreign subsidiaries and currency impact on sales in key ­currencies.
than Sweden. Transaction exposure from commercial flows in foreign  ead more about Volvo Group transaction exposure in section ­C ommercial
R
­currency is generated from internal purchases and sales between manu- ­currency exposure above.
facturing entities and market companies and external sales and purchases
in foreign currency around the globe. As the predominant parts of the Financial currency exposure
operations in the Volvo Group are situated outside Sweden, the fluctu­ Loans and investments in the Volvo Group’s subsidiaries are performed
ations in currency rates affecting the transaction flows in foreign currency mainly in local currencies through Volvo Group Treasury, which minimizes
are in many cases not against SEK. Industrial Operations’ transaction individual companies’ financial currency exposure. Volvo Group Treasury
exposure from commercial flows for key currencies is presented in graph uses various derivatives to facilitate lending and borrowing in different
4:5. The graph represents the transaction exposure from commercial currencies without increasing the risk for the Volvo Group. The net
operating cash flows in foreign ­currency, expressed as net surpluses or ­f inancial position of the Volvo Group is affected by currency fluctuations
deficits in key currencies. The deficit in SEK and KRW is mainly an effect since financial assets and liabilities are distributed among the Volvo Group
of manufacturing costs in the plants in Sweden and South Korea, but lim- companies that conduct their operations using different currencies.
ited external revenues in those currencies. The surplus in EUR on the Table 4:1 discloses the impact on income after financial items on Indus-
other hand, is the net of significant volumes of sales and purchases made trial Operations net financial position, excluding pensions and similar net
between many entities around the globe in EUR. The surplus in USD is obligations, if SEK were to strengthen by 10%.
mainly generated from external sales to entities in the USA and emerging
markets around the globe. The surplus in GBP is g ­ enerated from external Currency exposure of equity
sales to Great Britian. The carrying amount of assets and liabilities in foreign ­subsidiaries are
The hedging of the Volvo Group’s commercial currency exposure is affected by current exchange rates in conjunction with the translation of
executed centrally. The Volvo Group’s consolidated currency portfolio assets and liabilities to SEK. To minimize currency exposure of equity, the
exposure is the value of forecasted flows in foreign c ­ urrency. The Volvo size of equity in foreign subsidiaries is continuously optimized with respect
Group only hedge the part of the forecasted portfolio that is considered to commercial and legal conditions. Currency hedging of equity may occur
highly probable to occur, i.e. firm flows, where the main parts will be real- in cases where a foreign subsidiary is considered overcapitalized. Net
ized within six months. The Volvo Group uses forward contracts and assets in foreign subsidiaries, associated companies and joint ventures
­currency options to hedge the portion of the value of forecasted future amounted at year end 2020 to SEK 84 billion (90). The need to undertake
payment flows in foreign currency. The hedged amount of firm flows for currency hedging relating to investments in associated companies, joint
all periods fall within the framework of the Volvo Group’s financial risk ventures and other companies is assessed on a case-by-case basis.
policy. The Covid-19 pandemic has created an uncertainty regarding fore- On the map on the previous pages the Volvo Group’s net assets in
casted flows in foreign currency with the consequence that the hedge ­different currencies (SEK bn) are displayed.
activity has decreased substantially. Table 4:2 shows outstanding deriva-
Read more in Note 30 Financial instruments about Volvo Group’s policy choice
tives for the hedging of ­commercial currency risks. on hedge accounting.

1 The sensitivity analysis on currency rate risks is based on simplified assumptions. It is any given time, so the actual effect of exchange rate changes may differ from the
not unlikely for a currency to appreciate by 10% in relation to other ­currencies. sensitivity analysis. Please refer to tables 4:1 4:3
In reality however, all currencies usually do not change in the same direction at

84
 GROUP PERFORMANCE 2020 NOTES

The Volvo Group’s currency review

When the Volvo Group communicates the currency impact on operating income, the following factors are included:

Currency impact on operating income, Volvo Group, SEK billion 2020 2019 Change

Net flows in foreign currency –1.5

Realized and unrealized gains and losses on hedging contracts –0.0 –0.0 –0.0
Unrealized gains and losses on receivables and liabilities in foreign currency 0.2 –0.1 0.4
Translation effect on operating income in foreign subsidiaries –2.0
Total currency impact on operating income Volvo Group –3.2

Currency impact on net flows in foreign currency is detailed in graph 4:6 and translation effect on operating income in foreign subsidiaries
is detailed in graph 4:7 in key currencies.

4:4

Transaction exposure from commercial net flows in 2020 and 2019 Currency impact on operating income from net flows in foreign
currency 2020 versus 2019
SEK bn
30 SEK bn
0.3
15
0.2
0 0.1

–15 0
–0.1
–30
–0.2
–45 –0.3
–0.4
–60
USD EUR NOK ZAR CAD AUD KRW SEK Other –0.5
GBP
8 6 2 4 3 4 3 –6 –32 8 –0.6
12 9 7 7 5 5 4 –7 –53 12 Other USD EUR GBP NOK ZAR
0.2 –0.2 –0.3 –0.3 –0.4 –0.5
Currency flow 2019 Currency flow 2020
Changes in currency rates compared to 2019 (Total SEK –1.5 bn).
 he graph above represents the transaction exposure from commercial
T
­operating net cash flows in foreign currency, expressed as net surpluses Currency effect on operating income from net flows in foreign c
­ urrency in
or deficits in key currencies. Volvo Group is presented in the graph above.

Read more in section Commercial currency exposure. 4:6

4:5

Translation effect on operating income in 2020 versus 2019

Currency impact on net sales in 2020 versus 2019
SEK M
SEK M
200 1,000

0 0

–200 –1,000

–2,000
–400
–3,000
–600
–4,000
–800 –5,000

–1,000 –6,000
BRL RUB USD CNY EUR CAD TRY ZAR JPY Other BRL Other USD RUB CNY ZAR GBP JPY EUR
–935 –325 –303 –103 –96 –51 –49 –49 –44 –95 –4,937 –3,701 –2,331 –1,407 –936 –915 –403 –180 42

Changes in currency rates compared to 2019 (Total SEK –2,049 M). Changes in currency rates compared to 2019 (Total SEK –14,768 M).

Translation effect when consolidating operating income in foreign

­subsidiaries for Volvo Group is presented in the graph above. Currency effect on net sales from inflows in foreign currency and transla-
tion effect when consolidating net sales in foreign subsidiaries for Volvo
Group is presented in the graph above.
4:7

4:8

85
 GROUP PERFORMANCE 2020 NOTES

CREDIT RISKS

Collateral is provided in the form of the financed products. In the credit

CREDIT RISKS granting the Volvo Group strives for a balance between risk exposure and
expected return.
Credit risk is defined as the risk that the Volvo Group does not receive pay- The Volvo Group’s accounts receivables as of December 31, 2020
ment for recognized accounts receivables and customer-financing receiv- amounted to net SEK 36 billion (38).
ables (commercial credit risk), that the Volvo Group’s investments are  ead more in Note 15 Customer-financing receivables about Volvo Group’s
R
unrealizable (financial credit risk) and that potential profit is not realized concentration of credit risk in Financial Services.
due to the counterparty not fulfilling its part of the contract when using R
 ead more in Note 16 Receivables.
derivative instruments (financial counterparty risk).
Financial credit risk
The Volvo Group’s financial assets are to a large extent managed by Volvo
Group Treasury. All investments must meet the requirements of high
POLICY
liquid­ity and low credit risk. According to the Volvo Group’s financial risk
policy, this includes using counterparties for investments and derivative
The objective of the Volvo Group’s credit risk management is to define,
transactions with a credit rating better or equivalent to A– from one of the
measure and monitor the credit exposure in order to minimize the risk of
well-established credit rating institutions or similar.
losses deriving from credit to customers and suppliers, financial credit risk,
Cash and cash equivalents including marketable securities as of
counterparty risk and customer finance activities within Financial Services.
December 31, 2020 amounted to SEK 85 billion (62) and consists pri-
marily of bank account positions.

Commercial credit risk Read more in Note 18 Cash and cash equivalents.
The Volvo Group’s credit granting is steered by group policies and
­customer-classification rules. The credit portfolio should contain a distri- Financial counterparty risk
bution among different customer categories and industries. The credit The use of derivatives involves a counterparty risk, in that a potential loss
risk is managed through active credit monitoring, follow-up routines and, may not be possible to offset (in full or in part) against a potential gain if the
where applicable, product repossession. Moreover, regular monitoring counterparty fails to fulfill its part of the contract. The Volvo Group is
ensures that necessary allowances are made for expected credit losses on actively working with limits per counterpart in order to reduce the risk for
financial assets. Risk management practices and the impact on estimation high net amounts towards individual counterparts. To reduce the expos­ure
uncertainty and critical judgement due to the Covid-19 pandemic for Finan- further the Volvo Group enters into master netting agreements, so ­called
cial Services are presented in note 15 Customer-financing receivables and ISDA agreements, with all counterparts eligible for derivative transactions.
for Industrial Operations in note 16 Receivables. Moreover, note 15 includes The netting agreements provide the possibility for assets and lia­bilities to
information on gross exposure for customer-financing receivables by past be offset under certain circumstances, such as in the case of the counter-
due status and in note 16 accounts receivables, a gross exposure for part’s insolvency. A Credit Support Annex (CSA) often accompanies the
accounts receivables by past due status is presented in relation to allow- ISDA agreement. The CSA stipulates the terms and conditions under
ance for expected credit losses. which the two parties are required to make cash transfers to each other in
The customer-financing receivables in the Volvo Group amounted to order to further reduce the exposure from the net open positions. The net-
net SEK 129 billion (143) on December 31, 2020. The credit risk of this ting agreements have no effect on the income statement or the financial
portfolio is distributed over a large number of retail customers and dealers. position of the Volvo Group, since derivative transactions are accounted for
on a gross basis. Table 4:9 shows the effect of netting agreements and
cash transfers on the Volvo Group’s gross exposure from outstanding
interest and currency risk derivatives as of December 31, 2020.
Read more in Note 30 Financial instruments about the Volvo Group’s gross
exposure from positive derivatives per type of instrument.

The impact from netting agreements and cash transfers on the Volvo Group’s gross exposure from derivatives as of Dec 31, 2020

Netting
SEK M Gross amount ­agreements Cash ­transfers Net position Change
Interest and currency risk derivatives reported as assets 6,050 –864 –4,428 758 87%

Interest and currency risk derivatives reported as liabilities 1,357 –864 0 492 64%

4:9

86
 GROUP PERFORMANCE 2020 NOTES

LIQUIDITY RISKS

A hybrid bond amounting to EUR 1.5 billion was issued in the Volvo
LIQUIDIT Y RISKS Group in 2014 in order to further strengthen the Volvo Group’s balance
sheet and prolong the maturity structure of the debt portfolio. The first
tranche of this bond (EUR 0.9 billion) was repaid on June 10, 2020. The
Liquidity risk is defined as the risk that the Volvo Group would be unable
remaining tranche (EUR 0.6 billion) has a first call in 2023 and is classi-
to finance or refinance its assets or fulfill its payment obligations.
fied as a loan with an original duration of 61.6 years, subordinated to all
other financial liabilities currently outstanding.
Read more in Note 14 Leasing about the maturity for non-current lease l­iabilities
POLICY in table 14:4.

The Volvo Group ensures sound financial preparedness by always keeping

a certain percentage of its sales in liquid assets, mainly as bank account Future cash flow including lease liabilities and derivatives
positions in banks rated at least A– from one of the well-established related to non-current and current financial liabilities1, 2
credit rating institutions or similar. A sound balance between current and
non-current debt maturities, as well as non-current committed credit SEK bn
facilities, is intended to secure liquidity preparedness, and thus the Volvo 0
Group’s payment capability.

The Volvo Group’s cash and cash equivalents amounted to SEK 85 billion
–20
(62) on December 31, 2020. In addition to this, granted but unutilized
credit facilities amounted to SEK 42 billion (43). Graph 4:10 discloses
expected future cash flows related to financial liabilities. Capital flow refers
to expected payments of loans, lease liabilities and derivatives, see note
22 Liabilities. Expected interest flow refers to the future interest payments –40
on loans, lease liabilities and derivatives based on interest rates antici-
pated by the market. The interest flow is recognized within cash flow from
operating activities. The maturity structure of the unutilized credit facilities
is disclosed in note 22, in table 22:3. The predominant part of expected –60
future cash flows that will occur in 2021 and 2022 is an effect of the Volvo 2021 2022 2023 2024 2025 2026 2027 or later
Group’s normal business cycle, with shorter duration in the portfolio
–58.2 –34.9 –32.3 –11.6 –7.5 –1.4 –7.5
within Financial Services compared to Industrial Operations. –2.5 –1.7 –1.2 –0.5 –0.3 –0.1 –0.2
Financial Services measure the degree to which the duration of borrow­
Capital flow Interest flow
ing and lending matches. The calculation of the matching degree excludes
equity, which amounted to 8% in Financial Services. At year-end 2020, 4:10
the degree of such matching was 98% (99) for the segment Financial 1 In addition to derivatives included in graph 4:10 there are also derivatives in the
Services, which was in line with the Volvo Group’s policy. Volvo Group Volvo Group related to financial liabilities with a positive fair value recognized as
Treasury has, for practical as well as business reasons, the mandate to assets, which are expected to give a future capital flow of SEK 5.5 billion (1.3) and
a future interest flow of SEK -0.1 billion (0.2).
mismatch their portfolio for Financial Services between a matching ratio
2 T he interest payments related to the hybrid bond are included with an amount of
of 80–120%. At year-end 2020, the matching ratio was 99% (95). Any
SEK 0.9 billion (1.6), which pertains to the period through the first call date for the
gains or losses from the mismatch impact the segment Group functions & remaining tranche, in 2023. The interest payments that follow in the event that
other within industrial Operations. the call option is not exercised have as yet not been established.

OTHER PRICE RISKS

OTHER PRICE RISKS POLICY

Commodity risks Changes in commodity prices are included in the product cost calculation.
Commodity risk refers to the risk that changed commodity prices will Increased commodity prices are therefore reflected in the sales price of
affect the consolidated earnings within the Volvo Group. Procurement of the Volvo Group’s final products. Purchasing agreements with commodity
commodities such as steel, precious metals and electricity are made in the suppliers may also be long-term in nature or structured in a way to
Volvo Group on a regular basis where prices are set in the global markets. decrease the volatility in commodity prices.

87
 GROUP PERFORMANCE 2020 NOTES

5 INVESTMENTS IN JOINT VENTURES, ASSOCIATED COMPANIES

AND OTHER SHARES AND PARTICIPATIONS

Equity method
ACCOUNTING POLICY The Volvo Group’s share of the companies’ income/loss recognized
according to the equity method is included in the Volvo Group’s income
Subsidiaries statement as income/loss from investments in joint ventures and associ-
The Volvo Group has production facilities in 18 countries and sales of ated companies. Where appropriate, the income has been reduced by
products in more than 190 markets, which means that the Volvo Group depreciation of surplus values and the effect of applying different account-
has subsidiaries in many parts of the world. A subsidiary is defined as an ing policies has been taken into account. Income from companies recog-
entity controlled by the Volvo Group. A subsidiary is controlled when the nized in accordance with the equity method is included in operating
parent company has power over the investee, exposes over or hold rights income since the Volvo Group’s investments are business related in
to variable returns from its involvement with the investee and holds the nature. For practical reasons, some of the associated companies are
ability to use its power over the investee to affect the amount of the inves- included in the consolidated financial statements with a certain time lag,
tor’s return. Most of the Volvo Group’s subsidiaries are 100% owned and normally up to one quarter. Dividends from joint ventures and associated
are therefore considered to be controlled by the Volvo Group. For some companies are not included in the consolidated income. The carrying
subsidiaries there are restrictions on the Volvo Group’s ability to access or amount of investments in joint ventures and associated companies are
use cash or cash equivalents from these subsidiaries. affected by the Volvo Group’s share of the company’s net income, less
Read more in Note 11 ­Non-controlling interest. depreciation of surplus values and dividends received. Investments in
joint ventures and associated companies are also affected by the Volvo
 ead more in Note 13 Investments in shares and participations in
R
Group’s share of the company’s other comprehensive income and by the
the parent company about the composition of the Volvo Group.
translation difference from translating the company’s equity in the consol-
Read more in Note 18 Cash and cash equivalents.
idation of the Volvo Group. When applying the equity method and associ-
ates or joint ventures recognize losses, additional impairment losses
Joint ventures might be recognized given any indication of impairment. For instance, a
Joint ventures are companies over which the Volvo Group has controlling significant or prolonged decline in the fair value of the shares is an indica-
influence together with one or more external parties. Joint ventures are tion of impairment. However, investments accounted for in accordance
recognized by applying equity method accounting. The Volvo Group has with the equity method cannot amount to a negative carrying value and
holdings in a few joint ventures with VE Commercial Vehicles, Ltd., losses are therefore not adjusted for if the holding is of a negative amount.
(VECV) being the significant holding. The investment in VECV is of a busi- Additional losses are provided for to the extent that the Volvo Group has
ness-related nature and aims at strengthening the Volvo Group’s position incurred legal or constructive obligations to make payments on behalf of
in India. VECV is included in the Trucks segment. During 2020, the Volvo the joint venture or the associated company.
Group, as part of Volvo Buses Transformation Program, divested Volvo
Buses business in India to VECV. The Bus business has been integrated Other shares and participations
into VECV. Other shares and participations recognizes holding of shares in which the
Volvo Group does not hold a significant influence. This generally means
Associated companies that the Volvo Group’s holding of shares corresponds to less than 20% of
Associated companies are companies in which the Volvo Group has a the voting rights. Listed shares are recognized at fair value through other
­significant influence. A strong indication of such influence is when the comprehensive income since the shares are not held for trading. For
Group’s holding is at least 20% but less than 50% of the voting rights. unlisted shares and participations, a fair value cannot be reasonably
Holdings in associated companies are recognized in accordance with the measured, hence these are measured at amortized cost. Earned or paid
equity method accounting. The ownership in the Chinese automotive interest attributable to these assets is recognized in the income state-
manufacturer Dongfeng Commercial Vehicles Co., Ltd (DFCV) is classi- ment as part of net financial items, in accordance with the effective inter-
fied as an associated company and is included in the Trucks segment. est method. Dividends received attributable to these assets are recog-
nized as income from other investments within operating income.
Read more in Note 30 Financial instruments, regarding classification and valu-
ation of financial instruments.

88
 GROUP PERFORMANCE 2020 NOTES

Joint ventures
The Volvo Group's investments in joint ventures are listed below.

Investments in joint ventures Dec 31, 2020 Dec 31, 2020 Dec 31, 2019 Dec 31, 2019
Percentage holding Carrying value Percentage holding Carrying value

VE Commercial Vehicles, Ltd., (VECV)¹ 45.6 2,359 45.6 2,854

Other holdings in joint ventures² 108 1
Investments in joint ventures 2,467 2,855

5:1
1 V E Commercial Vehicles, Ltd., is considered to be a joint venture as the Volvo Group and Eicher Motors Ltd. have signed an agreement which states
that common agreement is needed for important matters related to the governance of VECV.
2 O ther holdings in joint ventures include investments in SOPROVI Algérie SPA, PT UD Astra Motor and World of Volvo AB. Part of other holdings in joint ventures have
been reclassified to assets held for sale. Read more in Note 3 Acquisitions and divestments of shares and operations.

The following tables present summarized financial information for the Volvo Group’s joint ventures:

Summarized income statements 2020 2019

Other joint Other joint
VECV ventures Total VECV ventures Total

Net sales 8,847 304 9,151 12,853 232 13,084

Operating income 1 –219 –40 –259 381 –6 375
Interest income and similar credits 53 1 54 96 1 97
Interest expense and similar charges –43 0 –43 –35 0 –35
Other financial income and expenses –1 – –1 –2 – –2
Income taxes 83 8 91 –152 1 –151
Income for the period2 –128 –31 –159 287 –3 284

Other comprehensive income 3

–1 –5 –6 –5 – –5
Total comprehensive income –129 –36 –165 282 –3 280

5:2
1 Depreciation and amortization of SEK 500 M (503) are included within operating income.
2 Income for the period in joint ventures includes depreciation of surplus values.
3 Including the Volvo Group’s share of OCI related to joint ventures. Translation differences from translating joint ventures’ equity in the Volvo Group are excluded.

Summarized balance sheets Dec 31, 2020 Dec 31, 2019

Other joint Other joint
VECV ventures Total VECV ventures Total

Non-current assets 5,368 90 5,457 6,421 13 6,434

Marketable securities, cash and cash
equivalents 1,813 63 1,876 1,249 16 1,266
Other current assets 4,150 216 4,366 4,541 152 4,693
Total assets 11,331 368 11,699 12,211 181 12,393

Equity 1
5,173 286 5,459 6,259 77 6,337
Non-current financial liabilities 667 – 667 91 – 91
Other non-current liabilities 240 2 242 354 – 354
Current financial liabilities 3,426 21 3,447 3,475 75 3,550
Other current liabilities 1,826 59 1,885 2,032 29 2,061
Total equity and liabilities 11,331 368 11,699 12,211 181 12,393

5:3
1 Including the translation differences from translating joint ventures’ equity in the Volvo Group.

Net financial position for the joint ventures (excluding post-employment benefits) amounted to SEK 1,624 M (974) as of December 31, 2020.
As of December 31, 2020, the Volvo Group’s share of contingent liabilities in its joint ventures amounted to SEK 93 M (110). During 2020 no dividend
from VECV was received (78).
89
 GROUP PERFORMANCE 2020 NOTES

Associated companies
The Volvo Group’s investments in associated companies are listed below.

Investments in associated companies Dec 31, 2020 Dec 31, 2020 Dec 31, 2019 Dec 31, 2019
Percentage holding Carrying value Percentage holding Carrying value

Dongfeng Commercial Vehicles Co., Ltd (DFCV) 45.0 9,574 45.0 9,349
Other holdings in associated companies1 1,118 751
Investments in associated companies 10,693 10,100

5:4
1 Other holdings in associated companies include the investment in two dealers in Japan, Blue Chip Jet II HB and WirelessCar Sweden AB. Part of other holdings in
­associated companies have been reclassified to assets held for sale. Read more in Note 3 Acquisitions and divestments of shares and operations.

The following tables present summarized financial information for the Volvo Group’s associated companies:

Summarized income ­statements 2020 2019

Other associated Other associated
DFCV companies Total DFCV companies Total

Net sales 68,546 4,730 73,276 61,210 3,431 64,641

Operating income 3,492 17 3,509 3,272 53 3,325
Income for the period1 3,679 –32 3,647 3,038 38 3,076

Other comprehensive income2 2 – 2 2 – 2

Total comprehensive income 3,681 –32 3,649 3,040 38 3,078

5:5
1 Income for the period in associated companies includes depreciation/amortization of surplus values and internal transactions.
2 Including the Volvo Group’s share of other comprehensive income related to associated companies.
Translation differences from translating the associated companies’ equity in the Volvo Group are excluded.

Summarized balance sheets Dec 31, 2020 Dec 31, 2019

Other associated Other associated
DFCV companies Total DFCV companies Total

Non-current assets 19,590 1,605 21,195 20,681 1,159 21,841

Current assets 55,160 2,181 57,341 49,349 2,195 51,544
Total assets 74,750 3,786 78,537 70,030 3,355 73,385

Equity 20,303 1,770 22,073 20,039 1,368 21,407

Non-current liabilities 4,544 432 4,976 4,986 331 5,317
Current liabilities 49,904 1,584 51,488 45,005 1,656 46,660
Total equity and liabilities 74,750 3,786 78,537 70,030 3,355 73,385

5:6

Dividend received during 2020 from DFCV amounted to SEK 1,058 M (392).

90
 GROUP PERFORMANCE 2020 NOTES

Other shares and participations

The carrying amount of the Volvo Group’s holding of shares and participa-
Income/loss from investments in joint tions in other companies as of December 31, 2020, is disclosed in the
ventures and associated companies 2020 2019
table below.
Income/loss joint ventures Read more in Note 30 Financial Instruments, regarding classification
VECV –55 135 and valuation of financial instruments.
Other companies –15 –2
Subtotal –70 133

Income/loss associated companies Holding of shares in listed Dec 31, 2020 Dec 31, 2019
and non-listed companies Carrying value Carrying value
DFCV 1
1,776 1,692
Other companies 45 35 Holdings in Japanese companies 0 0
Subtotal 1,821 1,727
Holdings in other listed
Revaluation, write-down and gain on companies1 0 0
divestment of shares associated companies
Other companies –2 – Holdings in non-listed companies 276 158
Subtotal –2 – B/S Other shares and
participations2 276 158
I/S Income/loss from investments in joint
ventures and associated companies2 1,749 1,860
5:8
1 Changes in fair value is measured through other comprehensive
5:7
income and amounts to SEK – 8 M (48).
1 Income/loss includes an internal profit elimination of net SEK 39 M (26) a
­ nd
2P  art of holdings in Other shares and participations have been reclassified to
an adjustment to Volvo Group Accounting policies of SEK 130 M (334).
assets held for sale. Read more in Note 3 Acquisitions and divestment of
2 Income/loss from investments in associated companies includes depreciation shares and operations.
of surplus values of SEK 39 M (39).

91
 GROUP PERFORMANCE 2020 NOTES

6 SEGMENT REPORTING

Solution was created and the financial results are reported in the Trucks
ACCOUNTING POLICY segment. The truck brands are seen as one segment since the operations
are highly integrated, strategic allocation of resources are done to the total
Operating segments are reported in a manner consistent with the internal segment and the independence for each truck brand are lower compared to
reporting provided to the chief operating decision-maker. The chief oper- other segments. As from February 2021 a new business area, Volvo
ating decision-maker, who is responsible for allocating resources and Energy, has been created and the financial result will be reported as part
assessing financial performance of the operating segments, has been of the Trucks segment.
identified as the Group Executive Board that makes strategic decisions. The Volvo Group has shared operations in both the Trucks segment and
The Volvo Group comprises ten business areas: Volvo Trucks, Mack in the segment Group functions & Other. Shared operations for produc-
Trucks, Renault Trucks, UD Trucks and JV's, Volvo Autonomous Solution, tion, development and logistics for powertrain and parts are included in
Volvo Construction Equipment, Volvo Buses, Volvo Penta, Arquus and the Trucks segment. Volvo Group IT and Volvo Group Real Estate are seen
Volvo Financial ­Services. as business support functions and are part of Group functions & Other.
Each business area, except for the truck brands, Arquus, Volvo Autono- The cost of these operations is shared between the different business
mous Solution, is seen as a separate segment. Arquus is part of the seg- areas based on utilization according to principles set by the Volvo Group.
ment Group functions & Other. On January 1, 2020 Volvo Autonomous

Con­ Group functions

struction Volvo & Other Industrial Financial Elimina- Volvo
2020 Trucks Equipment Buses Penta incl. elim. Operations Services tions Group

Net sales, external

­customers 206,198 81,230 18,955 11,400 6,983 324,766 13,679 – 338,446
Net sales, internal 2,064 223 836 491 –1,908 1,706 281 –1,987 0
I/S Net sales 208,262 81,453 19,791 11,891 5,074 326,472 13,960 –1,987 338,446

Expenses –194,236 –71,870 –20,320 –10,493 –5,384 –302,303 –12,396 1,989 –312,710
I/S Income from
­investments in joint
ventures and associ-
ated companies 1,738 – 6 4 1 1,749 – – 1,749
I/S Operating income 15,764 9,583 –522 1,402 –308 25,919 1,564 2 27,484
I/S Interest income
and similar credits 372 – –73 299
I/S Interest expense
and similar charges –1,422 0 73 –1,349
I/S Other financial
income and expense –518 – – –518
I/S Income after financial items 24,351 1,564 2 25,917

Other segment information

Depreciation, amortiza-
tion and impairment –15,117 –2,304 –801 –580 2,874 –15,928 –4,671 – –20,599
Restructuring costs –1,649 –574 –140 –223 –72 –2,659 –44 – –2,703
Gains/losses from
­divestments 43 8 –31 – 4 25 – – 25

Investments in
in-/tangible assets 7,848 1,104 431 583 334 10,300 8,632 – 18,933
B/S Investments in
joint ­ventures and asso-
ciated ­companies 12,280 0 77 38 765 13,160 – – 13,160
B/S Assets held
for sale1 29,362 29,362 4,934 – 34,296
B/S Liabilities held
for sale1 –6,638 –6,638 –4,649 – –11,286

6:1

92
 GROUP PERFORMANCE 2020 NOTES

Con­ Group functions

struction Volvo & Other Industrial Financial Elimina- Volvo
2019 Trucks Equipment Buses Penta incl. elim. Operations Services tions Group

Net sales, external

customers 275,178 88,400 30,083 12,732 11,005 417,398 14,590 – 431,987
Net sales, internal 1,469 205 936 555 –2,202 964 281 –1,252 –7
I/S Net sales 276,647 88,606 31,019 13,287 8,803 418,361 14,870 –1,252 431,980

Expenses –246,937 –76,695 –29,690 –11,415 –8,713 –373,450 –12,104 1,245 –384,308
I/S Income from
­investments in joint
ventures and associ-
ated companies 1,841 – 8 4 6 1,859 – – 1,859
I/S Operating income 31,552 11,910 1,337 1,876 96 46,771 2,766 –6 49,531
I/S Interest income
and similar credits 320 – 0 320
I/S Interest expense
and
similar charges –1,673 0 0 –1,674
I/S Other financial
income and expense –1,346 – – –1,345
I/S Income after financial items 44,071 2,767 –6 46,832

Other segment information

Depreciation,
amortization and
impairment –13,905 –2,213 –752 –427 1,500 –15,797 –4, 788 – –20,585
Restructuring costs –176 1 –28 – –1 –204 – – –204
Gains/losses from
­divestments – – –5 – 1,639 1,634 – – 1,634

Investments in
in-/tangible assets 10,574 1,317 434 538 1,061 13,924 10,008 – 23,932
B/S Investments in
joint ­ventures and
associated companies 12,549 – 75 35 297 12,955 – – 12,955
B/S Assets
held for sale1 28,427 28,427 4,345 – 32,773
B/S Liabilities
held for sale1 -5,927 –5,927 –4,486 – –10,413

6:2
1 Reclassifications of assets and liabilities have been made to assets and liabilities held for sale.
Read more in Note 3 Acquisitions and divestments of shares and operations about assets and liabilities held for sale.

Reporting by Net sales Non-current assets2

market 2020 2019 2020 2019

Europe 134,708 163,748 71,509 77,047

of which Sweden 10,283 10,208 26,063 25,315
of which France 28,349 33,955 10,910 11,661
of which the UK 13,915 18,729 7,692 9,509
North America 81,372 131,310 17,972 21,151
of which USA 65,872 103,166 16,342 19,231
South America 21,499 31,222 1,939 2,991
of which Brazil 13,934 20,427 1,464 2,460
Asia 81,111 79,951 5,451 5,990
1 Reclassifications of assets and liabilities have been made to assets and liabili-
of which China 36,294 29,535 2,118 2,259
ties held for sale. Read more in Note 3 Acquisitions and divestments of
of which Japan 19,636 20,905 236
1
1741
shares and operations about assets held for sale.
Other markets 19,755 25,750 2,553 3,331 2 Non-current assets include tangible and intangible assets excluding ­goodwill.
I/S B/S Total 338,446 431,980 99,424 110,510
The reporting of net sales by market is based on where the delivery of
6:3 the goods or services took place.

93
 GROUP PERFORMANCE 2020 NOTES

7 REVENUE

portionate share of cost of goods sold. The remaining revenue is recog-

ACCOUNTING POLICY nized as a refund liability and the remaining cost of goods sold as a right of
return asset during the commitment period. If the vehicle is not returned
The recognized net sales in Industrial Operations pertain to revenues from the refund liability is recognized as revenue and the right of return asset is
sales of vehicles and services. Revenue from vehicles and services are recognized as cost of goods sold at the end of the commitment period.
recognized when control has been transferred from Volvo Group to the
customer. Control refers to the customers’ ability to use vehicles or ser- Services
vices in its operations and to obtain the associated cash flow related to Services include sale of spare parts, maintenance services, repairs,
the use. Vehicles and services are sold separately or as a combined offer. extended coverage and other aftermarket products. The control of the
In combined offers where the vehicle and services are separable from service has been transferred to the customer when the Volvo Group incurs
each other and the customer can benefit from the vehicle and the service the associated cost to deliver the service and the customer can benefit
independently, the transaction price is allocated between vehicles and from the use of the delivered services. For spare parts, revenue is normally
services based on stand-alone selling price according to price lists. recognized at one point time, which is when it is delivered to the cus-
The recognized net sales in Financial Services pertain to interest tomer. For maintenance services and other aftermarket products, revenue
income related to finance leases and installment credits as well as income is recognized over time, i.e. normally during the contract period. When
from operating lease contracts. Interest income are recognized during the payment for maintenance contracts is received in advance, the payment is
underlying contract period and income from operating leasing is recog- recognized as a contract liability.
nized over the leasing period. Services also includes sales in Financial Services related to finance
lease, installment credits and operating leases. During 2020, revenue
Vehicles from Financial Services operations amounted to SEK 13,960 M (14,870).
Vehicles include sales of new vehicles, machines and engines as well as
Read more in Note 6 Segment reporting regarding net sales by segment
sales of used vehicles, machines, trailers, superstructures and special
and market.
vehicles. A standard contractual warranty is included as part of the sales,
Read more in Note 14 Leasing about lease income on assets under operating
read more in note 21 Other provisions about product warranty. The cus- lease and finance income om customer-financing receivables.
tomer can pay for the vehicle at the point of sale or defer the payment by
entering into agreements such as installment credits and finance lease.
Revenue is recognized when the control of the vehicle has been trans-
ferred to the customer, normally at one point in time which is when the SOURCE OF ESTIMATION UNCERTAINT Y
vehicle has been delivered to the customer. The value of rebates, returns AND CRITICAL JUDGMENTS
and variable sales price have been considered as part of the revenue
­recognition. Sales with residual value commitments
If the sale of the vehicle is combined with a residual value commitment When the Volvo Group enters into sales transactions of vehicles with
(buybacks and tradebacks) the criterion of transferring control is based on residual value commitments (buybacks and tradebacks) the judgment
if the customer has a significant economic incentive to exercise the option whether control has been transferred from Volvo Group to the customer
to return the vehicle or not. A significant economic incentive exists if the and at what point in time revenue shall be recognized is critical. The judg-
repurchase price is higher than the assessed fair market value i.e. net real- ment made is when a significant economic incentive exists or not for the
izable value at the end of the residual value commitment period, or if the customer to return the vehicle at the end of the commitment period. The
historical returns indicate that it is probable that the customer will return assessment of significant economic incentive is performed at the incep-
the vehicle at the end of the commitment period. Thus, the control has not tion of the contract and the outcome at the end of the commitment period
been transferred and the sales transaction is recognized as an operating can differ from the initial assessment. Factors that are considered and
lease transaction. The revenue and expense are recognized over the resid- requires judgment is the assessed fair market value i.e. net realizable
ual value commitment period in the income statement. Assets under value at the end of the residual value commitment period and historical
operating leases, a residual value liability, and a deferred lease income are returns. The uncertainty due to Covid-19 and the macroeconomic devel-
recognized in the balance sheet. The asset is depreciated over the com- opment makes the judgment of the assessed fair market value even more
mitment period and the deferred lease income is recognized as revenue difficult.
over the same period. The residual value liability amount remains
Read more in Note 13 Tangible assets for a description of residual value risks
unchanged until the end of the commitment period. If the vehicle is
and the assessment of fair market value.
returned at the end of the commitment period, the residual value liability
is paid to the customer and the vehicle is reclassified from assets under
operating lease to inventory. Variable sales price
In some sales transactions, the sales price is variable such as residual
 ead more in Note 14 Leasing about lease income on assets under
R value guarantees. In assessing the variable sales price, the expected value
operating lease.
method is used and revenue is recognized when it is highly probable that
a reversal will not occur. Both the expected value method and the assess-
If the customer is not considered to have a significant economic incentive
ment of highly probable requires judgments to be able to make estimates.
to return the vehicle, the sales transaction is recognized in accordance
The estimates are made at the contract start with continuous assessment
with the right of return model. Revenue corresponding to the sales amount
at each reporting period.
less the buyback amount is recognized at the initial sale, as well as a pro-

94
 GROUP PERFORMANCE 2020 NOTES

Disaggregation of
Group func­tions
revenue Construction Volvo & Other Industrial Financial Elimina- Volvo
2020 Trucks Equipment Buses Penta incl. elim Operations Services tions Group

Net sales per

product group
Vehicles 149,902 70,146 16,072 8,365 2,912 247,397 – –1,946 245,451
Services 58,360 11,306 3,720 3,526 2,163 79,075 13,960 –41 92,995
Net sales 208,262 81,453 19,791 11,891 5,074 326,472 13,960 –1,987 338,446

Net sales per

geographical region
Europe 92,127 23,191 5,765 6,064 3,309 130,457 6,116 –1,865 134,708
North America 52,038 13,020 8,302 2,562 580 76,501 4,907 –36 81,372
South America 15,830 2,245 1,793 345 –79 20,133 1,380 –14 21,499
Asia 35,441 39,095 2,397 2,228 927 80,088 1,022 1 81,111
Africa and Oceania 12,826 3,902 1,535 691 338 19,293 535 –73 19,755
Net sales 208,262 81,453 19,791 11,891 5,074 326,472 13,960 –1,987 338,446

Timing of revenue
recognition
Revenue of vehicles and
services recognized at
the point of delivery 189,798 79,605 19,214 11,891 2,378 302,887 – –484 302,403
Revenue of vehicles and
services recognized over
contract period 18,464 1,848 577 0 2,696 23,585 13,960 –1,503 36,043
Net sales 208,262 81,453 19,791 11,891 5,074 326,472 13,960 –1,987 338,446

7:1

Disaggregation of
Group functions
revenue Construction Volvo & Other Industrial Financial Elimina- Volvo
2019 Trucks Equipment Buses Penta incl. elim Operations Services tions Group

Net sales per

product group
Vehicles 213,071 76,506 25,600 9,698 7,682 332,558 – –1,170 331,388
Services 63,575 12,099 5,419 3,588 1,122 85,804 14,870 –81 100,593
Net sales 276,647 88,606 31,019 13,287 8,803 418,361 14,870 –1,252 431,980

Net sales per

geographical region
Europe 112,125 30,300 7,369 6,671 2,521 158,985 6,279 –1,516 163,748
North America 85,731 17,404 15,543 3,180 3,996 125,855 5,534 –78 131,310
South America 23,753 2,532 3,281 319 –147 29,739 1,555 –72 31,221
Asia 37,610 33,932 2,617 2,439 2,315 78,914 1,010 26 79,951
Africa and Oceania 17,427 4,437 2,209 679 117 24,869 492 389 25,750
Net sales 276,647 88,606 31,019 13,287 8,803 418,361 14,870 –1,252 431,980

Timing of revenue
recognition
Revenue of vehicles and
services recognized at
the point of delivery 256,923 86,819 30,355 13,287 6,749 394,132 – 95 394,228
Revenue of vehicles and
services recognized over
contract period 19,725 1,786 664 0 2,054 24,230 14,870 –1,347 37,752
Net sales 276,647 88,606 31,019 13,287 8,803 418,361 14,870 –1,252 431,980

7:2

95
 GROUP PERFORMANCE 2020 NOTES

Contract and right of return assets Of which due Of which due

Dec 31, 2020 within 12 months after 12 months Dec 31, 2019 Dec 31, 2018

Contract assets 5,945 3,555 2,390 6,423 3,748

Right of return assets 1,152 191 961 1,280 1,655
Parts return assets 138 99 39 165 48
Total 7,235 3,845 3,390 7,868 5,451

7:3

Contract assets are recognized within other receivables and include reve- Right of return assets and parts return assets represents the product cost
nue that has been recognized but not yet invoiced for work performed. for the assets that might be returned to the Volvo Group.

Contract and refund l­ iabilities Of which due Of which due

Dec 31, 2020 within 12 months after 12 months Dec 31, 2019 Dec 31, 2018

Contract liabilities
Deferred service revenue 15,826 3,558 12,268 16,419 14,270
Advances from customers 8,010 6,427 1,583 7,707 6,526
Other deferred income 1,570 1,266 304 1,427 1,083
 ccrued expenses for dealer bonuses
A
and rebates 5,255 5,247 8 6,659 6,223
Refund liabilities 1,543 501 1,042 1,726 1,912
Total 32,204 16,999 15,205 33,938 30,014

7:4

Contract liabilities are recognized within other liabilities and include amounted to SEK 18,715M (14,207) as of December 31, 2020. Approxi-
advance payments received from customers, e.g. advance payments for mately 35% are expected to be recognized as revenue during 2021 and
service contracts and extended coverage, for which revenue is recognized the remaining 65% as revenue during 2022–2024. The change in con-
when the service is provided. Refund liabilities related to the right to return tract and refund liabilities are mainly due to decreased cost for dealer
products and residual value guarantees are included with an amount that bonuses and rebates. During 2020, revenue has been recognized with
is expected to be paid to the customer if the vehicle or spare part is SEK 14,396 M (9,480) that was included in the ­contract liabilities at the
returned. In service contracts, the revenue expected to be recognized beginning of the period.
over the remaining term of the contract for services not yet delivered

8 OTHER OPERATING INCOME AND EXPENSES

1 In 2019 a capital gain from the sale of the majority of Volvo Group’s holding
of shares in WirelessCar of SEK 1,621 M was included.
Other operating income and expense 2020 2019  Read more in Note 3 Acquisitions and divestments of shares and
operations, about gains/losses on divestment of Group companies.
Gains/losses on divestment 2 Read more in Note 15 Customer-financing receivables.
of Group companies1 25 1,634
3 Read more in Note 16 Receivables.
Change in allowances and write-offs for
doubtful customer-financing receivables2 –1,892 –729 4 Including costs for legal advisors for claims related to the EU antitrust
investigation (2016).
Change in allowances and write-offs for
other doubtful receivables3 176 –204 5 Including costs of SEK 2,210 M related to headcount reductions.
Damages and litigations4 –715 –673 6 In 2019 capital gains from sale of real estate of SEK 707 M were included.
Restructuring costs5 –2,703 –204
Read more in Note 4 Goals and policies in financial risk management ­regarding
Volvo profit sharing program –138 –728 the Volvo Group's management of credit risk and credit reserves.
Other income and expenses6 –212 683
I/S Total –5,459 –221

8:1

96
 GROUP PERFORMANCE 2020 NOTES

9 OTHER FINANCIAL INCOME

AND EXPENSES 10 INCOME TAXES

ACCOUNTING POLICY ACCOUNTING POLICY

In Other financial income and expenses unrealized revaluation on deriva- Income tax for the period includes current and deferred taxes. Current
tives used to hedge interest rate ­exposure as well as realized result and taxes are calculated on the basis of the tax regulations prevailing in the
unrealized revaluation on derivatives used to hedge future cash flow expo- countries where the group companies have operations.
sure in foreign currency are recognized. The derivatives are recognized at Deferred taxes are recognized on differences that arise between the tax-
fair value through the income statement and no hedge accounting is able value and carrying value of assets and liabilities as well as on tax-loss
applied. The unrealized revaluation on derivatives used to hedge interest carryforwards. Deferred tax assets are recognized to the extent it is prob­
rate exposure was mainly related to the debt portfolio within ­Industrial able that they will be utilized against future taxable profits.
­Operations and customer-financing portfolio within Financial Services. Deferred tax liabilities related to temporary differences on investments
in subsidiaries, joint ventures and associated companies are recognized in

Read more in Note 1 Accounting ­policies about receivables and ­liabilities
in ­foreign currency. the balance sheet except when the Volvo Group controls the timing of the
reversal of the temporary difference related to accumulated undistributed

Read more in Note 30 Financial Instruments regarding the accounting
­policy for financial assets at fair value through the income statement. earnings and it is probable that a reversal will not be done in the foresee­
able future.
Tax laws in Sweden and certain other countries allow companies to defer
payment of taxes through allocations to untaxed reserves. In the Volvo
Group financial statements, untaxed reserves give rise to temporary differ-
Other financial income and ences which are recognized as deferred tax liabilities.
expenses 2020 2019
Tax liabilities are recognized for income tax charges that are probable as
Unrealized revaluation of derivatives a result of identified risks. Hence, when it is probable that the taxation
used to hedge i­nterest rate exposure –379 –439 authority or court will not accept an uncertain income tax treatment under
Realized result and unrealized revalua- tax law, adjustments of the tax liability are made for the estimated out-
tion on derivatives used to hedge future come. Tax claims for which no adjustment of the tax liability is c ­ onsidered
cash flow e
­ xposure in foreign currency –22 –452
required are generally reported as contingent liabilities.
Financial instruments at fair value
through income statement –401 –892 Read more in Note 24 Contingent liabilities and contingent assets.

Exchange rate gains and losses

on ­f inancial assets and liabilities –205 –86
Financial income and expenses
related to taxes 334 –103 SOURCE OF ESTIMATION UNCERTAINT Y
Costs for Treasury function, AND CRITICAL JUDGMENTS
credit ­facilities, etc. –245 –265
Deferred taxes
I/S Total1 –518 –1,345
The Volvo Group recognizes deferred tax assets related to tax-loss carry­
9:1
forwards. The deferred tax assets are recognized based on a thorough
1 Other financial income and expenses attributable to financial instruments assessment in order to ensure that it is probable that sufficient taxable
amounted to SEK –606 M (–978). The amount is specified in note 30 Financial ­profits will be generated in the coming years that will enable the tax-loss
Instruments in table 30:3. carryforwards to be utilized. The assessment is based on an evaluation of
business plans. In addition, the possibility to offset tax assets and tax lia­
bilities and the fact that the major part of the tax-loss carryforwards is
related to countries with long or indefinite periods of utilization is consid-
ered. As a consequence of the Covid-19 pandemic the evaluation of busi-
ness plans for current year has been made on a more detailed level in order
to evaluate potential risks. The evaluation has included potential limitations
in time in certain markets.
If deferred tax assets related to tax-loss carryforwards are not expected
to be realized based on current business plans, valuation allowances are
recognized. If actual results differ from the business plans, or if business
plans for future periods are adjusted, changes in the valuation allowance
may be required. Such recognitions and adjustments could have a
­significant impact on the financial position and the income for the period.

Uncertainty over income tax treatments and claims

The Volvo Group regularly evaluates income tax positions to determine if a
tax liability or a contingent liability shall be recognized. The judgment is
based on several factors, such as changes in facts and circumstances, the
progress of the case and experience in similar cases. The actual outcome of
income tax positions may deviate from the expected outcome and materi-
ally affect future financial statements.

97
 GROUP PERFORMANCE 2020 NOTES

Distribution of Income taxes 2020 2019 Specification of deferred Dec 31, Dec 31,
tax assets and liabilities 2020 2019
Current taxes relating to the period –6,853 –9,809
Adjustment of current Deferred tax assets:
taxes for prior ­periods 278 1,016 Unused tax-loss carryforwards 2,186 2,547
Deferred taxes originated or Other unused tax credits 755 78
reversed during the period 926 –981 Intercompany profit in inventories 1,270 1,570
Remeasurements of deferred tax assets –194 –563 Write down of inventories 499 684
I/S Total income taxes –5,843 –10,337 Valuation allowance for
doubtful ­receivables 1,068 1,130
10:1 Provisions for warranties 2,861 3,756
Provisions for residual value risks 274 312
The Swedish corporate income tax rate amounted to 21% (21) in 2020.
Lease liabilities 1,252 1,422
The table below explains the major reasons for the difference between the
Provisions for post-
Swedish corporate income tax rate and the Volvo Group’s effective tax employment ­benefits 4,477 4,511
rate, based on income after financial items.
Provisions for restructuring measures 126 39
Land – 1,290
Other deductible temporary
­differences 5,714 6,287
Reconciliation of effective tax rate % 2020 2019
Deferred tax assets before ­deduction
Swedish corporate income tax rate 21 21 for valuation allowance 20,481 23,626
Difference between corporate tax Valuation allowance –828 –689
rate in ­Sweden and other countries 3 2
Deferred tax assets after deduction
Non-taxable income –3 –4 for valuation allowance 19,653 22,937
Non-deductible expenses 1 0
Netting of deferred tax
Current taxes related to prior years –1 0
assets and liabilities –9,058 –9,695
Remeasurement of deferred taxes 1 2
B/S Deferred tax assets, net 10,595 13,242
Other differences 1 0
Effective tax rate for the Volvo Group 23 22 Deferred tax liabilities:
Accelerated depreciation
10:2 on­ ­property, plant and equipment 1,552 1,914
Accelerated depreciation
The effective tax rate for the Volvo Group, as of December 31, 2020, was on leasing assets 2,225 2,808
mainly impacted by a changed country mix in the Volvo Group's earnings. Right-of-use assets, leased 1,207 1,376
LIFO valuation of inventories 352 361
Capitalized product and
software development 2,271 2,570
Untaxed reserves 2,239 2,239
Other taxable temporary ­differences 2,472 2,775
Deferred tax liabilities 12,318 14,043

Netting of deferred tax

assets and liabilities –9,053 –9,700
B/S Deferred tax liabilities, net 3,265 4,343

Deferred tax assets and liabilities, net1, 2 7,330 8,899

10:3

1 T
 he deferred tax assets and liabilities are recognized in the balance sheet partially
on a net basis, after taking into account offsetting possibilities. Deferred tax
assets and liabilities have been measured at the tax rates that are expected to be
applied during the period when the asset is realized or the ­liability is settled,
according to the tax rates and tax regulations that have been resolved or enacted
at the balance sheet date.
2 A reclassification has been made to assets held for sale of SEK 1,530 M (84).
 Read more in Note 3 Acquisitions and divestments of shares and operations.

The total valuation allowance for deferred tax assets amounted to SEK
828 M (689) as of December 31, 2020. Most of the allowance, SEK
690 M (–), consisted of allowance for a tax credit in Brazil. For 2019 most
of the allowance, SEK 530 M, consisted of allowance for unused tax-loss
carry­forwards, mainly related to Japan.

98
 GROUP PERFORMANCE 2020 NOTES

11 NON-CONTROLLING INTEREST

As of December 31, 2020, the Volvo Group’s gross unused tax-loss

carry­forwards amounted to SEK 9,350 M (9,243) pertaining to deferred ACCOUNTING POLICY
tax assets of SEK 2,186 M (2,547) recognized in the balance sheet. Out of
the total deferred tax asset attributable to unused tax-loss carryforwards, Owners with a non-controlling interest have a limited ownership of shares
SEK 929 M (–) pertained to Sweden and SEK 884 M (1,173) to France. In and voting rights in a subsidiary, thereby also limited rights to the subsidi-
Sweden the unused tax-loss carryforwards emerged due to restrictions in ary's equity. Non-controlling interest equity is presented separately from
distributing group contributions. the Parent Company's equity. In acquisitions, non-controlling interests are
The gross unused tax-loss carryforwards will expire according to the valued either at fair value or to a proportionate share of the acquired com-
­following table. pany’s net assets. Ownership changes in non-controlling interests, not
resulting in change of control, are recognized within equity.

Due date, unused tax-loss ­ Dec 31, Dec 31, The Volvo Group has a few non-wholly owned subsidiaries, of which
carryforwards gross 2020 2019
Shandong Lingong Construction Machinery Co. (Lingong), in China, is
after 1 year 0 1,490 the largest company with non-controlling interest. Owners with non-­
after 2 years 5 430 controlling interests hold a 30% shareholding in the company. During
after 3 years 47 415 2020, the profit allocated to the non-controlling interest in Lingong
after 4 years 164 347 amounted to SEK 742 M (614). The accumulated amount allocated to the
after 5 years 23 415 non-­controlling interest within equity of Lingong amounts to SEK 2,806
after 6 years or more 1 9,110 6,145 M (3,043).
Total2 9,350 9,243 The following table presents summarized financial information for
­Shandong Lingong Construction Machinery Co.
10:4
1 Tax-loss carryforwards with long or indefinite periods of utilization were mainly
related to Sweden and France. Tax-loss carryforwards with indefinite periods of Summarized income statement 2020 2019
utilization amounted to SEK 8,839 M (5,790) which corresponded to 95% (63)
of the total unused tax-losses carryforward.
Net sales 24,814 20,851
2 A reclassification has been made to assets held for sale of SEK 1,437 M (–),
Operating income 2,734 2,358
Read more in Note 3 Acquisitions and divestments of shares and operations. Income for the period 2,474 2,046

Other comprehensive income1 –704 97

Total comprehensive income
for the period1 1,770 2,143
Changes in deferred tax assets
and liabilities, net 2020 2019 Dividends paid to non-controlling interest 768 –

Deferred tax assets and liabilities, 11:1

net, opening balance 8,899 9,377
Recognized in Income statement 732 –1,544
Recognized in Other comprehensive
income, whereof:
Summarized balance sheet Dec 31, Dec 31,
Remeasurements of defined- 2020 2019
benefit pension plans 406 807
Remeasurements of holdings of shares at Non-current assets 3,589 3,334
fair value – –4 Marketable securities, cash
Reclassification to assets and liabilities held and cash equivalents 5,564 5,239
for sale –1,446 –84 Current assets 14,809 13,325
Translation differences and other changes –1,261 347 Total assets 23,962 21,898
Deferred tax assets and liabilities,
net, as of December 31 7,330 8,899 Non-current liabilities 702 217
Current liabilities 13,906 11,536
10:5 Total liabilities 14,608 11,753

Equity attributable to:

The cumulative amount of undistributed earnings in foreign subsidiaries,
Owners of AB Volvo1 6,548 7,101
which the Volvo Group currently intends to indefinitely reinvest outside
Non-controlling interest1 2,806 3,043
of Sweden and which no deferred income tax have been accounted for,
amounted to SEK 28 billion (30) at year end. Undistributed earnings
11:2
­pertaining to countries where the dividends are not taxable are excluded. 1 ­Includes exchange differences from translating equity in foreign ­subsidiaries
in the Volvo Group.

Read more in Note 4 Goals and policies in financial risk management about
how the Volvo Group handles currency exposure of equity.

99
 GROUP PERFORMANCE 2020 NOTES

12 INTANGIBLE ASSETS

the project. Every phase starts and ends with a reconciliation point,
ACCOUNTING POLICY known as a gate, for which the criteria must be met for the project’s deci-
sion making committee to allow the project to progress to the next phase.
Volvo Group applies the cost method for recognition of intangible assets, During the industrialization phase, the industrial system is prepared for
consisting of goodwill, capitalized product and software development serial production and the product is launched. A corresponding process is
and other intangible assets. developed for software development.

Goodwill Other intangible assets

Goodwill is recognized as an intangible asset with indefinite useful life. Other intangible assets include trademarks, distribution networks, licenses
For non-depreciable assets such as goodwill, impairment tests are per- and other rights. When participating in industrial projects in partnership
formed annually, as well as if there are indications of impairments during with other companies the Volvo Group in certain cases pays an entrance fee
the year. Goodwill is allocated and tested at the level of cash-generating to participate. These entrance fees are capitalized as intangible assets.
units which are identified as the Volvo Group’s operating segments. If the
carrying amount of the tested cash-generating unit exceeds the calcu- Amortization and impairment with finite useful life
lated recoverable amount, an impairment loss is recognized for the differ- Intangible assets other than goodwill are amortized on a straight line
ence. The recoverable amount for a cash-generating unit is determined on basis over their estimated useful life. Amortization is based on the cost of
the basis of value in use. The Volvo Group’s valuation model is based on a the assets, adjusted by impairments when applicable and estimated use-
discounted cash flow model, with a forecast period of five years. The val- ful lives. Amortization is recognized in the respective function to which it
uation is based on a business plan which is an integral part of the Volvo belongs, meaning that amortization of product development is part of the
Group’s financial planning process and represents management’s best research and development expenses in the income statement. Impair-
estimate of the development of the Group’s operations. Assumption of ment tests for amortizable assets are performed if there are indications of
2% (2) long-term market growth beyond the forecast period and the impairment. In addition, for capitalized development cost for products
Group’s expected performance in relation to this environment is a basis and software not yet in use, impairment tests are performed annually. If
for the valuation. In the model, the Volvo Group is expected to maintain the recoverable amount of the asset is less than the carrying amount, an
stable capital efficiency over time. Other parameters considered in the impairment is recognized and the carrying amount of the asset is reduced
calculation are operating income, mix of products and services, expenses to the recoverable amount. The recoverable amount is the higher of the
and level of capital expenditures. The Volvo Group uses a discount rate at fair value less costs of disposal and the value in use. The value in use is
10% (10) before tax for 2020. measured as the discounted future cash flows, which the asset is expected
In 2020, the recoverable amount of Volvo Group’s operations exceeded to generate either by itself or from the lowest cash-generating unit to
the carrying amount for all operating segments, thus no impairment was which the asset belongs.
recognized. The Volvo Group has also analyzed whether a negative adjust-
ment of several percentage points on the used assumptions for discount
Amortization periods
rate and operating income would result in impairment for goodwill, how-
ever none of the operating segments would be impaired as a result of this Trademarks Max 5 years
analysis. The operating parameters applied in the valuation are based on Distribution networks 10 years
management’s strategy and could indicate higher value than historical Product and software development 3 to 8 years
performance for each operating segment. Furthermore, the Volvo Group Other intangible assets 3 to 5 years
is operating in a cyclical industry why performance could vary over time.
The headroom differs between the operating segments why they are
sensitive to changes in the assumptions described above to a varying
degree. Therefore, the Volvo Group continuously follows the performance SOURCE OF ESTIMATION UNCERTAINT Y
of the operating segments whose headroom is dependent on the fulfill- AND CRITICAL JUDGMENTS
ment of the Volvo Group’s assessments. Instability in the recovery of the
market and volatility in interest and currency rates may lead to indications Impairment of goodwill and other intangible assets
of a need for impairment. The most important factors for the future Impairment testing of goodwill and capitalized development cost not yet
­operations of the Volvo Group are described in the Volvo Group operating in use are performed annually and in case of indication of impairment.
segment section, as well as in the Risk management section. Other intangible assets, with finite useful lives, are tested in case of indi-
cation of impairment. As the outbreak of Covid-19 is an event and indica-
Research and development tion of impairment, additional impairment tests on both goodwill and cap-
Expenditures for the development of new products and software are recog- italized development cost have been conducted during 2020 to reflect
nized as intangible assets if such expenditures, with a high degree of cer- the uncertainties and estimated impact on the financial performance of
tainty, will result in future financial benefits for the company. Intangible the Volvo Group. When conducting impairment tests, estimates have to
assets are amortized over the estimated useful life of the assets. be made to determine the recoverable amounts of cash-generating units.
The rules require stringent criteria to be met for these development The recoverable amount is based upon management’s projections of
expenditures to be recognized as assets. For example, it must be possible future cash flows, which are generally based on internal business plans
to prove the technical functionality of a new product or software prior to its and forecasts. While management believes that estimates of future cash
development expenditure being recognized as an asset. In normal cases, flows and other assumptions made are reasonable, there are uncertainties
this means that expenditures are capitalized only during the industrializa- which could materially affect the valuations. As described in the account-
tion phase of a product development project. Other research and develop- ing policy for goodwill, headroom differs between the operating seg-
ment costs are recognized in the income statement as incurred. ments and they are, to a varying degree, sensitive to changes in assump-
The Volvo Group has developed a process for conducting product tions and the business environment.
development projects, which has six phases focused on separate parts of

100
 GROUP PERFORMANCE 2020 NOTES

Intangible assets, acquisition costs Capitalized product and Other intangible Total intangible
Goodwill software development assets assets

Opening balance 2019 24,135 49,122 8,511 81,768

Investments 1
– 3,772 174 3,946
Sales/scrapping – –28 –17 –45
Acquired and divested operations1 –38 – 0 –38
Translation differences 628 314 212 1,153
Reclassification at divestment1 –1,720 –4,754 –2,876 –9,349
Reclassifications and other –24 5 –48 –67
Acquisition cost as of Dec 31, 2019 22,981 48,431 5,956 77,369

Investments1 – 2,263 759 3,023

Sales/scrapping – –3,829 –326 –4,155
Acquired and divested operations1 –13 – 0 –13
Translation differences –1,229 –714 –354 –2,297
Reclassification at divestment1 499 796 841 2,136
Reclassifications and other –10 –287 –31 –328
Acquisition cost as of Dec 31, 2020 22,228 46,661 6,846 75,735

12:1

Intangible assets, accumulated amortization Capitalized product and Other intangible Total intangible
and impairment Goodwill software development assets assets

Opening balance 2019 – 37,039 6,625 43,664

Amortization – 2,680 283 2,963

Impairment – 0 0 0
Sales/scrapping – –31 –17 –47
Acquired and divested operations1 – – 0 0
Translation differences – 293 133 425
Reclassification at divestment1 – –4,447 –1,806 –6,254
Reclassifications and other – 0 –50 –50
Accumulated amortization and impairment as of Dec 31, 2019 – 35,533 5,168 40,700

Amortization – 2,818 175 2,993

Impairment – 0 150 150
Sales/scrapping – –3 824 –326 –4,150
Acquired and divested operations1 – – 0 0
Translation differences – –634 –230 –864
Reclassification at divestment1 – 2,134 499 2,632
Reclassifications and other – –302 –4 –305
Accumulated amortization and impairment as of Dec 31, 2020 – 35,725 5,432 41,157
B/S Net value in balance sheet as of December 31, 20192 22,981 12,899 788 36,668
B/S Net value in balance sheet as of December 31, 20202 22,228 10,936 1,414 34,577

12:2
1  Read more in Note 3 Acquisitions and divestments of shares and operations, for a description
of acquired and divested operations as well as assets and liabilities held for sale.
2 Acquisition costs less accumulated amortization and impairments.

Goodwill per operating Dec 31, Dec 31,

segment 2020 2019

Trucks 11,993 11,983

Construction Equipment 8,568 9,198
Buses 1,008 1,083
Other operating segments 659 717
Total goodwill value 22,228 22,981

12:3

101
 GROUP PERFORMANCE 2020 NOTES

13 TANGIBLE ASSETS

ACCOUNTING POLICY
Depreciation periods
The Volvo Group applies the cost method for measurement of tangible
Type-bound tools 3 to 8 years
assets, consisting of property, plant, equipment and investment property
Operating leases, rental fleet 3 to 5 years
as well as assets under operating leases.
Sales with residual value commitments 3 to 5 years
Buildings include owner-occupied properties and investment proper-
ties. Investment properties are properties owned for the purpose of Machinery and equipment 5 to 20 years
obtaining rental income and appreciation in value. Investment properties Buildings and investment properties 20 to 50 years
are recognized at cost. For disclosure purposes, information regarding the Land improvements 20 years
estimated fair value of investment properties is based on an internal dis-
counted cash flow projection as relevant observable market inputs for the 13:1

assets are not available. The required return is based on current property
market conditions for comparable properties in comparable locations.
Hence, the applied valuation method to measure fair value is classified as
level 3 of the fair value hierarchy and there have not been any changes in SOURCE OF ESTIMATION UNCERTAINT Y
valuation method during the year. Land contains land and land improve- AND CRITICAL JUDGMENTS
ments. Machinery and equipment consists of production related assets
Impairment of tangible assets
such as machinery, type-bound tools and other equipment. Construction
Impairment tests are performed if there is any indication that a tangible
in progress are assets under construction and advanced payments. Right-
asset has been impaired. The impairment tests are based on estimation of
of-use assets relates to lease contracts with the Volvo Group as a lessee.
the recoverable amount of the asset, or the cash-generating unit to which
Assets under operating leases are mainly owned by the Volvo Group.
the asset belongs. To determine the recoverable amount, projections of
These transactions are accounted for as operating lease transactions and
future cash flows are used, which are based upon internal business plans
consists of contractual operating lease agreements with customers
and forecasts. While management believes that estimates of future cash
within Financial Services and rental fleet which are assets used in a fleet
flows and other assumptions made are reasonable, there are uncertainties
for rental business within Industrial Operations. Some rental fleet assets
which could materially affect the valuations.
are leased by the Volvo Group and later sub-leased to customers as oper-
ating leases. Sales with residual value commitments within Industrial
Residual value risks
Operations are also recognized within assets under operating leases.
Volvo Group is exposed to residual value risks related to assets under
Read more in Note 7 Revenue about sales with residual value ­commitments. operating leases which is the risks that the Volvo Group in the future
Read more in Note 14 Leasing about right-of-use assets and assets under would have to dispose used vehicles at a loss if the price development of
operating leases. these products is worse than what was expected when the contracts
were entered. The assessment of residual value risks is based upon an
Depreciation and impairment estimation of the used vehicle’s future net realizable value (fair market
Property, plant, equipment and investment property are depreciated over value). The estimated future net realizable value of the vehicles at the end
their estimated useful lives. Land is not depreciated. Depreciation is rec- of the contract period is monitored individually on a continuing basis.
ognized on a straight-line basis based on the cost of the assets, adjusted Thus, a decline in prices for used vehicles may negatively affect the Volvo
by residual value when applicable, and estimated useful lives. Right-of- Group’s operating income. High inventories in the truck industry and the
use assets are generally depreciated over the lease term on a straight-line construction equipment industry and low demand may have a negative
basis. Assets under operating leases are depreciated on a straight-line impact on the prices of new and used vehicles. In monitoring estimated
basis over the contract period. During the contract period, the depreciable net realizable value of each vehicle included as assets under operating
amount is adjusted by accelerated depreciation and/or write-downs. The leases, management considers current price level of the used product
adjustment is recognized through the income statement to correspond to model. The price level is impacted by value of optional equipment, mile-
estimated future net realizable value to continuously reflect potential age, current condition, future price deterioration due to expected change
residual value risks at the end of the contract period. Depreciation is rec- of market conditions, alternative distribution channels, inventory lead-
ognized in the respective function to which it belongs. Impairment tests time, repair and reconditioning costs, handling costs, indirect costs asso-
are performed if there are indications of impairment by calculating a ciated with the sale of used vehicles and legislative demands. Due to the
recoverable amount which is the higher of the asset’s fair value less cost outbreak of Covid-19, an extensive analysis has been made during 2020
of disposal and its value in use. to evaluate the effects on used vehicles estimated net realizable value.
A prolongation or worsening of the Covid-19 pandemic may lead to further
price pressure and/or an increase of the return rate for used vehicles,
which may give rise to accelerated depreciation and/or write-downs.

102
 GROUP PERFORMANCE 2020 NOTES

Reclassifications Investment properties

Reclassifications and other presented in the tables 13:2 and 13:3 mainly The acquisition value of investment properties at year-end amounted to
consist of construction in progress, rental fleet and assets related to sales SEK 93 M (91). Reclassifications amounted to SEK 0 M (0). Accumulated
with residual value commitments (buyback and tradebacks). depreciation amounted to SEK 33 M (28) at year-end, of which SEK 4 M
For construction in progress, reclassification occurs when the asset is (4) refers to 2020. The net carrying value amounted to SEK 60 M (63).
available for use by transferring the assets to the respective category The estimated fair value of investment properties amounted to SEK 91 M
within property, plant and equipment. (94) at year-end and 97% (98) of the area available for lease was leased
For rental fleet and sales with residual value commitments, reclassifi- out during the year. Operating income was affected by rental income from
cations occur when the vehicle is sold or rented out to customers by trans- investment properties that amounted to SEK 11 M (11) and direct costs
ferring the vehicle from inventory to assets under operating leases. If the that amounted to SEK 7 M (7).
vehicle is returned by the end of the residual value commitment period or
the leasing period, the vehicle is reclassified back to inventory.

Tangible assets, Property, plant, equipment Assets under operating

Acquisition cost and investment property leases1
Sales w.
­residual
Machinery Construc- Right- value Total
and equip- tion in of-use Operating Rental commit- ­tangible
Buildings Land ment progress assets1 leases fleet ments2 assets

Opening balance 2019 39,423 12,514 85,591 5,801 – 31,832 6,096 25,233 206,490

Transition effect IFRS 16 4

–715 –78 –501 – 7,503 – – – 6,209
Investments 502 335 2,198 5,094 1,914 9,944 0 0 19,987
Sales/scrapping –284 –284 –3,474 –5 –200 –11,268 0 0 –15,514
Acquired and divested operations 3 – – –8 – –34 – – – –43
Translation differences 1,264 643 1,644 29 189 1,069 210 304 5,352
Reclassified at divestment 3 –9,074 –6,297 –9,073 –79 –830 – – –188 –25,540
Reclassifications and other 1,729 128 2,084 –3,954 164 826 –963 –49 –34
Acquisition costs as of Dec 31, 2019 32,847 6,962 78,460 6,887 8,706 32,402 5,343 25,301 196,908
Investments 480 45 1,523 3,686 1,612 8,564 – – 15,910
Sales/scrapping –502 –150 –2,758 –2 –580 –10,669 – – –14,661
Acquired and divested operations 3 –94 –3 –172 – – – – – –270
Translation differences –2,246 –453 –5,242 –370 –663 –2,288 –454 –1,475 –13,191
Reclassified at divestment 3 –129 –72 2,150 –96 –72 – – –206 1,576
Reclassifications and other 1,298 216 2,002 –3,489 449 –275 –188 –288 –275
Acquisition costs as of Dec 31, 2020 31,655 6,544 75,964 6,617 9,452 27,734 4,701 23,332 185,998

13:2
1  Read more in Note 14 Leasing about right-of-use assets and assets under operating leases.
2  Read more in Note 7 Revenue about sales with residual value commitments.
3  Read more in Note 3 Acquisitions and divestments of shares and operations, for a description
of acquired and divested operations as well as assets and liabilities held for sale.
4 The opening balance for 2019 is restated due to the implementation of IFRS 16.

103
 GROUP PERFORMANCE 2020 NOTES

Tangible assets, Property, plant, equipment Assets under operating

Accumulated depreciation and investment property leases1
and impairments Sales w.
residual
Machinery Construc- Right- Operat- value Total
and equip- tion in of-use ing Rental commit- ­tangible
Buildings Land ment progress assets1 leases fleet ments2 assets

Opening balance 2019 20,805 1,390 65,446 15 – 9,643 1,730 8,685 107,714

Transition effect IFRS 16 4

–219 –10 –279 – 508 – – – 0

Depreciation 1,436 101 4,736 – 2,125 4,708 1,016 2,554 16,676

Impairment 5 –2 0 – 0 0 27 916 946
Sales/scrapping –201 –23 –3,299 – –92 –5,105 – – –8,720
Acquired and divested operations 3 0 – –8 – –3 0 – – –11
Translation differences 663 32 1,225 – –3 323 64 111 2,415
Reclassified at divestment 3 –5,443 –199 –7,641 – –379 – – –47 –13,710
Reclassifications and other 21 10 –164 – –188 231 –1,308 –3,829 –5,226
Accumulated depreciation and
­impairments as of Dec 31, 2019 17,068 1,299 60,016 15 1,968 9,800 1,529 8,391 100,084

Depreciation 1,226 75 4,271 – 2,021 4,574 729 3,059 15,954

Impairment –6 9 1 – 0 0 –11 1,510 1,502
Sales/scrapping –424 –10 –2,618 – –355 –4,805 – – –8,211
Acquired and divested operations 3 –38 –1 –152 – 0 0 – – –191
Translation differences –1,119 –79 –3,159 – –218 –682 –131 –401 –5,790
Reclassified at divestment 3 –34 –13 1,375 – 167 – – 33 1,527
Reclassifications and other 15 –4 –79 –15 –84 –375 –483 –4,929 –5,955
Accumulated depreciation and
­impairments as of Dec 31, 2020 16,688 1,276 59,656 0 3,498 8,511 1,632 7,662 98,923
B/S Net value in balance sheet
as of Dec 31, 20195 15,779 5,663 18,444 6,872 6,738 22,602 3,814 16,910 96,822
B/S Net value in balance sheet
as of Dec 31, 20205 14,967 5,268 16,308 6,617 5,953 19,223 3,069 15,670 87,075

13:3
1  Read more in Note 14 Leasing about right-of-use assets and assets under operating leases.
2  Read more in Note 7 Revenue about sales with residual value commitments.
3  Read more in Note 3 Acquisitions and divestments of shares and operations, for a description
of acquired and divested operations as well as assets and liabilities held for sale.
4 The opening balance for 2019 is restated due to the implementation of IFRS 16.
5 Acquisition costs less accumulated depreciation and impairments.

104
 GROUP PERFORMANCE 2020 NOTES

14 LEASING

made before the commencement date, less any lease incentives received.
ACCOUNTING POLICY Moreover, any initial direct costs are included as well as an estimate of
costs to be incurred in dismantling, removing or restoring the underlying
Volvo Group as the lessor asset. The leased asset is depreciated on a straight-line basis over the
Leasing contracts are defined in two categories, operating and finance lease term, or over the useful life of the underlying asset if the ownership is
leases, depending on the contracts’ financial implications. transferred to the Volvo Group at the end of the lease term. The lease
Operating leases are offered from Financial Services (contractual oper- expense is recognized as depreciation of the asset within operating income
ating leases) and from Industrial Operations (rental fleet agreements). and interest expense within the finance net. Payments made are ­distributed
Sales with residual value commitments (buybacks and tradebacks) are between interest paid and amortization of the lease liability.
also accounted for as operating lease transactions when the customer has Lease contracts with the Volvo Group as the lessee are primarily con-
a significant economic incentive to exercise the option to return the vehicle tracts of real estate (such as office buildings, warehouses and dealer
and the control therefore has not been transferred to the customer. Oper- premises), company cars and production related assets. For real estate
ating lease agreements are recognized as tangible assets in assets under and company car leases, service components are normally a considerable
operating leases and are valued at cost less accumulated depreciation and portion of the contracts and are therefore separated. The service compo-
impairment, if needed. The cost of an asset comprises the acquisition value nents are recognized as operating expenses and not included in the RoU
and any initial direct costs related to the contract. Depreciation of the asset asset and the lease liability. For other lease contracts, both the leased
is recognized on a straight-line basis over the contract period. During the asset and services are included in the RoU asset and the lease liability.
period the depreciable amount is adjusted through the income statement If a lease contract includes variable lease payments not dependent on
by depreciations or write-downs to correspond to the estimated future an index or rate, or include a low value asset or has a lease term that is
realizable value to reflect residual value risks at the end of the contract twelve months or less, the lease payments are recognized as operating
period. Lease income is equally distributed over the contract period and expenses as they occur.
recognized within net sales. During 2020, IASB added an exemption for lessees regarding account-
Read more in Note 7 Revenue, about sales with residual value commitments. ing for Covid-19 related rent concessions. The Volvo Group does not apply
the exemption since the lease modifications that have been negotiated as
Read more in Note 13 Tangible assets, about residual value risks related to assets
under operating lease. a direct result of the Covid-19 pandemic in the Volvo Group during the
year have not been material.
Finance leases are offered from Financial Services. As Industrial Opera-
tions manufacture the vehicles which are leased from Financial
Services to the customers, the Volvo Group is acting as a manufacturer SOURCE OF ESTIMATION UNCERTAINT Y
lessor. Hence, a finance lease asset gives rise to a selling profit which is AND CRITICAL JUDGMENTS
recognized within Industrial Operations. Finance lease contracts are rec-
Measurement of lease liabilities and right-of-use assets
ognized as non-current and current customer-financing receivables
When entering a lease contract, judgments related to contract scope,
within Financial Services. The asset is measured at an amount equal to
lease term and interest rate used when discounting future lease payments
the net investment in the finance lease contract corresponding to the
are made which affects the measurement of the lease liability and the
gross investment (future minimum lease payments and unguaranteed
RoU asset.
residual value) discounted with the rate in the finance lease contract and
Assessment of contract scope includes judgments whether a leased
reduced by unearned finance income and allowance for expected credit
asset and/or a service component is identified in the contract. In com-
losses. Assessment of allowance for expected credit losses is reflected in
bined contracts, the total contract amount is allocated between the
the valuation of customer-financing receivables and recognized at initial
leased asset and the service by using a market stand-alone price.
recognition and reassessed during the contract period. Lease income is
When determining the lease term of a contract, judgments are also
recognized as interest income within net sales in Financial Services. Vari-
required. The lease term includes the non-cancellable period. If the Volvo
able lease payments not dependent on an index or rate are recognized as
Group is reasonably certain to use an option to extend the lease, or not to
income as they occur. Payments received from finance lease contracts are
use an option to terminate the lease in advance, this is also considered.
distributed between interest income and amortization of the receivable.
The contracts contain a range of different conditions. Extension and ter-
Read more in Note 15 Customer-financing receivables, about finance leases. mination options are mainly related to real estate leases. Thus, all relevant
facts and circumstances that create an economic incentive to include
Volvo Group as the lessee optional periods are evaluated. The importance of the underlying asset in
Lease contracts are recognized as right-of-use (RoU) assets as well as the operations and its location, availability of suitable alternatives, signifi-
interest-bearing lease liabilities in the balance sheet. Lease liabilities are cant leasehold improvements, level of rentals in optional periods com-
recognized within other loans and are measured by the present value of pared to market rates as well as past practice are examples of factors
future lease payments. The lease payments are discounted by using a rate included in the assessment. Lease terms are negotiated on an individual
reflecting what the Volvo Group would have to pay to borrow funds to basis and are reassessed if an option is exercised.
acquire a similar asset, with similar collateral and similar term. RoU assets Judgments are also required to determine the interest rate when dis-
are presented as tangible assets and are valued at cost less accumulated counting future lease payments and whether the interest rate implicit in
depreciation and impairment, if needed. The cost of an RoU asset contains the lease can be readily determined and thereby used, or if the Volvo
the initial amount of the lease liability adjusted for any lease payments Group’s incremental borrowing rate should be used.

105
 GROUP PERFORMANCE 2020 NOTES

Volvo Group as the lessor Volvo Group as the lessee

Lease income Dec 31, Dec 31, Lease liabilities Dec 31, Dec 31,
2020 2019 2020 2019

Finance leases Non-current lease liabilities 4,434 5,334

Finance income on customer-financing Current lease liabilities 1,552 1,755
receivables 2,625 2,738 Total lease liabilities1 5,986 7,089
Total 2,625 2,738
14:3
Operating leases
1 Non-current and current lease liabilities amounting to SEK 377 M (0) and SEK
Lease income on assets under 124 M (0) respectively have been reclassified to liabilities held for sale,
operating lease 11,532 12,305 Read more in Note 3 Acquisitions and divestments of shares and operations.
Total 11,532 12,305

14:1
Non-current lease liabilities maturities, SEK M
During 2020, the profit from sale of vehicles subject to finance leases
amounted to SEK 2,863 M (3,959) and was recognized within Industrial
Operations.
As of December 31, 2020, future lease income from non-cancellable
finance and operating leases (minimum lease fees excluding sales with
residual value commitments) amounted to SEK 70,293 M (75,198).
Read more in Note 15 Customer-financing r­ eceivables about finance leases.
2022 2023 2024 2025 2026 2027 or later
1,385 982 596 425 314 732

14:4

Maturity analysis of lease Finance Operating During 2020, total cash outflow related to leases amounted to SEK 3,231
payments receivable leases leases
M (3,283), with a distribution of SEK 975 M (1,249) within operating
2021 20,268 7,775 cash flow and SEK 2,256 M (2,034) within financing activities.
2022 14,341 5,553
2023 9,179 3,406
2024 4,869 1,569
2025 2,028 657
2026 or later 462 186
Total undiscounted lease payments 51,147 19,146

Unguaranteed residual value 917

Unearned finance income –3,631
Allowance for expected credit losses –1,287
Customer-financing receivables
(current and non-current) 47,146

14:2

106
 GROUP PERFORMANCE 2020 NOTES

Carrying amount of right-of-use assets Asset under

as of Dec 31, 2020 Machinery operating lease
and Company and rental
Buildings Land equipment cars fleet1 Total

Acquisition cost
Opening balance 2020 6,548 512 639 1,007 418 9,124
Additions to right-of-use assets2 293 67 162 224 21 767
Acquisition cost as of Dec 31, 2020 6,841 579 801 1,231 439 9,891

Accumulated depreciation
Opening balance 2020 –1,331 –68 –207 –362 –131 –2,099
Depreciation –1,358 –40 –187 –436 –64 –2,085
Other changes 348 9 28 105 54 544
Accumulated depreciation as of Dec 31, 2020 –2,341 –99 –366 –693 –141 –3,640

Carrying amount in balance sheet as of Dec 31, 20203 4,500 480 435 538 298 6,251

Carrying amount of right-of-use assets Asset under

as of Dec 31, 2019 Machinery operating lease
and Company and rental
Buildings Land equipment cars fleet1 Total

Acquisition cost
Opening balance 2019 5,535 419 920 629 397 7,900
Additions to right-of-use assets2 1,013 93 –281 378 21 1,224
Acquisition cost as of Dec 31, 2019 6,548 512 639 1,007 418 9,124

Accumulated depreciation
Opening balance 2019 –219 –10 –271 –8 –136 –644
Depreciation –1,371 –51 –283 –419 –62 –2,187
Other changes 259 –7 347 65 67 732
Accumulated depreciation as of Dec 31, 2019 –1,331 –68 –207 –362 –131 –2,099

Carrying amount in balance sheet as of Dec 31, 20193 5,217 444 432 645 287 7,025

14:5
1 Refer to the assets leased by the Volvo Group which are later sub-leased to customers as operating lease.
2 Additions to RoU assets mainly relate to new lease contracts signed.
3 RoU assets amounting to SEK 689 M (451) have been reclassified to assets held for sale,
Read more in Note 3 Acquisitions and divestments of shares and operations.

Recognized in the income

statement 2020 2019

Interest expense on lease liabilities within

Financial Services –2 –1
Depreciation of right-of-use assets –2,085 –2,187
Short term lease expense –530 –785
Low value asset expense –114 –116
Variable lease expense –47 –33
Income from sub-leasing right-of-use assets 140 145
Gain or losses on right-of-use assets 2 24
Recognized in operating income –2,636 –2,952

Interest expense on lease liabilities within

Industrial Operations –282 –338
Recognized in net financial items –282 –338

14:6

107
 GROUP PERFORMANCE 2020 NOTES

15 CUSTOMER-FINANCING RECEIVABLES

financial asset credit impaired if it meets one or more of the following

ACCOUNTING POLICY ­criteria; when there are indications that the customer is unlikely to pay,
such as bankruptcy filing, unauthorized transfer of collateral, at surrender of
Installment credits, dealer financing and other receivables within customer- collateral etc. or, at the latest, when the customer fails to make contractual
financing receivables are held as part of a business model whose objective payment within 90 days of when the receivable falls due.
is of collecting contractual cash flows. The contractual cash flows are
solely payments of principal and interest and are valued at amortized cost
in accordance with the effective interest method. Finance lease contracts Risk management practices
are valued at amortized cost, for further information on recognition and Other than the dealer financing, customer-financing receivables extend
classification see note 14 Leasing. over several years, but normally the customers make monthly payments
The Volvo Group is applying the simplified expected credit loss model throughout the term to reduce the outstanding exposure. The customer-­
for customer-financing receivables, under which the loss allowance is financing receivables are secured by the financed commercial vehicles and
measured at an amount equal to lifetime expected credit losses. The equipment. However, in the case of customer default, the value of the
allowance is recorded at initial recognition and is reassessed during the repossessed commercial vehicles and equipment may not necessarily
contract period. cover the outstanding financed amount. In order to mitigate this risk,
Interest income on customer-financing receivables is recognized within Financial Services has strong portfolio management processes based on
net sales, mainly within Financial Services. Changes to the allowance for prudent credit approval, active monitoring of individual loan performance,
expected credit losses are recognized in other operating income and utilization of in-house and external collections, portfolio segmentation
expense. analysis, and on-going monitoring of the economic, p ­ olitical and industry
conditions in each market. In addition, other credit enhancements such as
down payments, personal guarantees, credit insurance, liens on other
SOURCE OF ESTIMATION UNCERTAINT Y property owned by the borrower etc. may be required at the time of origi-
AND CRITICAL JUDGMENTS nation or when there are signs of impairment. When customer-­financing
receivables exceed 90 days of overdue collateral repossession is initiated,
Allowance for expected credit losses although there may be circumstances where repossession is i­nitiated ear-
The assessment of allowances for expected credit losses on customer-­ lier. When the collateral is repossessed, the net realizable value is estab-
financing receivables is dependent on estimates including assumptions lished and the vehicle is transferred to inventory and becomes part of the
regarding past dues, repossession rates and quality level of repossessed Volvo Group’s normal business activity of selling used vehicles and equip-
collateral. ment and the expected loss on the customer-financing receivable is writ-
A collective assessment is made for customer-financing receivables ten off. If repossession has not occurred on customer-financing receiva-
that are not credit impaired. The assets are grouped based on shared risk bles exceeding 180 days of overdue the expected loss on the receivable is
characteristics such as type of customer, geographical area, initial credit written off. Financial Services continues to engage in enforcement activity
risk rating, collateral type and date of initial recognition to evaluate the on all customer financing-­receivables written off during the year to attempt
credit losses collectively. Historical information regarding credit loss to recover the contractual amount not previously received from the cus-
experience is used to forecast future losses, adjusted for ­current and fore- tomer.
casted conditions in the different regions based on management’s evalu- During 2020, a significant part of the customer-financing receivables
ation of macro-level and portfolio-level factors, such as GDP, oil prices, has been modified through extended payment terms which is also delay-
unemployment rates etc. ing the individual assessment for credit impaired customer-financing
During the Covid-19 pandemic, the assessment process has been inten- receivables. The amortized cost on customer-financing receivables before
sified. The collective assessment for customer-financing receivables that modifications amounted to SEK 38.6 billion. The typical modification
are not credit impaired is reviewed and adjusted on a more detailed level, provided to customers are reduced or zero payments for approximately
in order to identify individual segments in each market that are significantly three months with the original yield on the contract.
impacted by the pandemic, to forecast future losses on those individual
Read more in Note 4 Goals and policies in financial risk management, for
segments. As a critical part in the collective assessment, the largest cus-
a description of credit risks, interest risks and currency risks.
tomers in each market are reviewed individually based on the financial con-
dition of each customer and the value of the underlying collateral. The
As of December 31, 2020, the total allowances for expected credit losses
impact from government programs and modifications through extended
in Financial Services amounted to 2.07% (1.51) of the total credit portfo-
payment terms is taken into consideration and is monitored closely for
lio in the segment. This reserve ratio is used as an important measure for
on-going payment performance and signs of impairment. Worst case sce-
Financial Services and includes operating leases and inventory. Allow-
narios from historical information regarding credit loss experience is also
ances for expected credit losses for customer-financing receivables has
used in order to estimate the potential impact of the pandemic.
increased since the beginning of the year from SEK 2,343 M to SEK
Overall, in the collective assessment the historical information regard-
2,900 M primarily due to the impact from the many disruptions in the
ing credit loss experience is still used as a base and is adjusted based on
economies around the world due to the outbreak of Covid-19. This has
information from the detailed assessment from the largest customers.
impacted all markets and segments in Financial Services. Most of the
This provides a basic understanding of how the pandemic is impacting
increase in the allowance for expected credit losses due to the pandemic
customers in various segments in each market to estimate expected
is recognized in customer financing-receivables not credit impaired as
credit losses on the rest of the customer-financing receivables portfolio.
specific customers have not yet been identified as credit impaired. The
An individual assessment is made for credit impaired customer-financing
main reason is that a significant part of the portfolio is modified through
receivables based on the financial condition of the customers and the value
extended payment terms, which is delaying any potential impairment.
of the underlying collateral and guarantees. The Volvo Group ­considers a

108
 GROUP PERFORMANCE 2020 NOTES

Non-current customer-financing Dec 31, Dec 31, Credit risk in customer-financing Dec 31, Dec 31,
receivables 2020 2019 receivables 2020 2019

Installment credits 40,732 41,212 Customer-financing receivables gross 131,431 145,326

Finance leases 28,576 29,682 Allowance for expected credit losses for
Other receivables 1,239 989 ­customer-financing receivables –2,900 –2,343
B/S Non-current customer- Whereof allowance for credit impaired   –611 –361
financing receivables1 70,547 71,883 Whereof allowance for not credit impaired –2,289 –1,982
Customer-financing receivables,
net of allowance 128,531 142,982
15:1
1 A reclassification has been made to assets held for sale of
SEK 3,160 M (2,740), Read more in Note 3 Acquisitions and divestments 15:4
of shares and operations.

The effective interest rate for non-current customer-financing receivables

Change of a ­ llowance 2020 2019
amounted to 4.87% (4.98) as of December 31, 2020.
for expected credit Not Not
losses for customer-­ credit Credit credit Credit
financing ­receivables impaired impaired impaired impaired
Non-current customer-­financing receivables maturities, SEK M
Closing balance
previous year 1,982 361 1,859 329
New valuation allowance
charged to income 1,461 269 642 217
Reversal of valuation
allowance charged to
income –3 –52 –40 –90
Utilization of valuation
2022 2023 2024 2025 2026 or later allowance related to
30,280 20,814 12,525 5,525 1,402 actual losses –0 –702 –0 –532
Movements between not
15:2
credit impaired/credit
impaired1 –802 802 –430 430
Translation differences –297 –68 71 11
Current customer-financing Reclassification – – –11 –3
Dec 31, Dec 31,
receivables 2020 2019 Syndication transactions
and other –52 0 –109 –1
Installment credits 21,427 21,732 Allowance for
Finance leases 18,571 18,993 expected credit losses
Dealer financing 16,485 28 ,654 for customer-­financing
receivables as of
Other receivables 1,502 1 ,719 December 312 2,289 611 1,982 361
B/S Current customer-financing
receivables1 57,985 71,099 15:5
1 When a receivable becomes credit impaired a transfer of allowance is made to
15:3 allowance for credit impaired receivables.
1 A reclassification has been made to Assets held for sale of 2 A reclassification has been made to Assets held for sale of SEK 16 M. Read more
SEK 1,510 M (1,405), Read more in Note 3 Acquisitions and divestments ­ in Note 3 Acquisitions and divestments o­ f shares and operations.
of shares and operations.

The effective interest rate for current customer-financing receivables

amounted to 4.71% (4.85) as of December 31, 2020.

Customer-financing receivables Dec 31, 2020 Dec 31, 2019

Gross exposure Not due 1–30 31–90 >90 Total Not due 1–30 31–90 >90 Total

Customer-financing receivables total 118,974 8,248 2,657 1,551 131,431 130,818 10,223 3,017 1,268 145,326
Whereof not credit impaired 118,250 8,021 2,237 102 128,610 130,606 9,172 2,366 218 142,362
Whereof credit impaired 725 227 420 1,449 2,821 213 1,051 651 1,049 2,963

15:6

109
 GROUP PERFORMANCE 2020 NOTES

During the end of this year the majority of the customers have come to an Concentration of credit risk
end of their modification periods and have resumed to original payment Customer concentration
levels. So far, the customers are generally able to make their payment obli- The ten largest customers within Financial Services account for 5.6%
gations as a result of the extensions, increased government support pro- (6.8) of the total asset portfolio. The rest of the portfolio is attributable to
grams and the financial recovery for companies during the modification a large number of customers and the credit risk is therefore spread across
periods provided by Financial Services and other obligors. Increased many customers. During 2020 SEK 6.8 billion (11.3) of customer financ-
transport and construction activity in the second half of 2020 have also ing receivables were syndicated in order to reduce concentration risks.
been beneficial for their financial situation. However, it is still expected
that a number of customers will have difficulties to survive with the full Concentration by geographical market
impact of the economic downturn caused by the Covid-19 pandemic and Graph 15:7 discloses the concentration of Financial Services portfolio
when the government support programs no longer exist. The allowance divided into geographical markets.
for expected credit losses on credit impaired customer financing-receiva- Read more in Note 4 Goals and policies in financial risk management about
bles is expected to increase during next year as customers become credit risks.
impaired and at the same time the corresponding allowance for expected

Read more in the Board of Directors’ report about Financial Services’
credit losses on customer financing-receivables not credit impaired will ­development during the year.
be released.
 ead more in Note 30 Financial instruments, for information on the gain or loss
R
recognized in the operating income arising from derecognition of
­customer-financing receivables in table 30:3. Geographic market, percentage of customer-financing portfolio (%)

Table 15:6 represents the gross credit exposure on customer-financing

receivables within the Volvo Group per age interval. The lifetime expected Europe, 40.0%
credit loss allowance for customer-financing receivables not credit North America, 40.3%
im­paired amounted to SEK 2,289 M (1,982) and allowance for customer-­
Asia, 7.8%
financing receivables credit impaired amounted to SEK 611 M (361),
South America, 7.9%
included in tables 15:4 and 15:5. The remaining exposure was secured
by liens on the financed commercial vehicles and equipment and, in cer- Africa and Oceania, 4.0%
tain circumstances, other credit enhancements such as personal guaran-
tees, credit insurance, liens on other property owned by the borrower etc.
Collaterals taken in possession that meet the criteria for recognition in the 15:7
balance sheet amounted to SEK 155 M (278) as of December 31, 2020.

16 RECEIVABLES

SOURCE OF ESTIMATION UNCERTAINT Y

ACCOUNTING POLICY AND CRITICAL JUDGMENTS

Receivables are recognized at amortized cost. The Volvo Group is apply- Allowance for expected credit losses
ing the simplified expected credit loss model for accounts receivables, Accounts receivables are short term by nature and consequently the risk
under which the loss allowance is measured at an amount equal to lifetime assessment horizon is short. A collective assessment is made on accounts
expected credit losses. The allowance is recorded at ­initial recognition receivables not credit impaired. Historical information regarding credit
and is reassessed during the contract period. Changes to the allowance loss experience is used to forecast future losses, adjusted for ­current and
for expected credit losses for accounts receivables are recognized in other forecasted conditions. An individual assessment is made on credit
operating income and expense. impaired accounts receivables based on the financial condition of the cus-
tomer. During the Covid-19 pandemic, the assessment process has been
 ead more in Note 30 Financial instruments in section derecognition of
R
­f inancial assets, for receivables subject to discounting activities. intensified. All Volvo Group entities have revisited their model for expected
credit losses, taking into consideration the impact from the many disrup-
tions in the economies around the world due to the outbreak of the Covid-
19 pandemic, as well as from the significant government support meas-
ures implemented, when making allowances. Due to the significant
changes in market conditions, the high level of uncertainty and the varia-
tion in impact on different markets and regions, individual assessments
have increased.

110
 GROUP PERFORMANCE 2020 NOTES

Risk management practices

Credit risks are managed through active credit monitoring and follow-up
routines in accordance with the Volvo Group Credit management direc- Current receivables Dec 31, Dec 31,
2020 2019
tive. This directive includes different steps to perform when an invoice is
not paid at due date. When a credit risk is verified, for example through a Other interest-bearing receivables 1 199 1,275
bankruptcy, or when an allowance has been unchanged for two years and Accounts receivables2 35,660 37,723
it can be demonstrated that all required steps have been performed the Prepaid expenses and accrued income 2,700 3,030
allowance is reversed and the accounts receivables are written off. Apart VAT receivables 2,638 3,223
from certain exceptions the Volvo Group continues to engage in enforce- Interest and currency risk derivatives3 1,612 909
ment activity even after a write-off in order to recover the contractual
Contract and right of return assets 4 3,845 4,589
amount not previously received.
Other receivables 5,950 7,465
During the spring of 2020 renegotiated receivables increased, but dur-
Current receivables, after deduction of
ing the autumn the amounts returned to prior levels and as per December allowance for expected credit losses on
31, 2020 there is no significant impact on either the credit risk or the accounts receivable s 52,605 58,214
income statement. Renegotiated receivables continue to be closely mon-
itored for on-going payment performance and signs of impairment. 16:2
As of December 31, 2020, the total allowance for expected credit 1 The amount is the current part of other interest-bearing receivables in note 30
Financial instruments, table 30:1.
losses for accounts receivables amounted to 2.12% (2.64) of total
2 Accounts receivables of SEK 4,196 M (4,742) have been reclassified to assets
accounts receivables.
held for sale, Read more in Note 3 Acquisitions and divestments ­of shares
 ead more in Note 4 Goals and policies in financial risk management,
R and operations.
regarding credit risk. 3 T he amount is the current part of Interest and currency risk derivatives in note 30
Financial instruments, table 30:1.
4  Read more in Note 7 Revenue, about contract and right of return assets.

Non-current receivables Dec 31, Dec 31,

2020 2019

Other interest-bearing receivables 1 203 229 Change of allowance

Interest and currency risk derivatives2 4,437 1,106 for expected credit losses on accounts
Contract and right of return assets3 3,390 3,279 receivables 2020 2019
Other receivables 4,733 4,645 Opening balance 1,021 1,221
Non-current receivables 12,763 9,259 New allowance charged to income 378 380
Reversal of allowance charged to income –418 –173
16:1
Utilization of allowance related to actual losses –196 –121
1 The amount is the non-current part of other interest-bearing receivables in note
30 Financial instruments, table 30:1. Translation differences –71 34
2 The amount is the non-current part of Interest and currency risk derivatives in Reclassifications, etc1 57 –320
note 30 Financial instruments, table 30:1.
Allowance for expected credit losses on
3  Read more in Note 7 Revenue, about contract and right of return assets. accounts r­ eceivables as of December 31 771 1,021

16:3
1 Whereof reclassification from other non-current receivables of SEK 55 M (–277).

Read more in Note 30 Financial instruments.

Age analysis of accounts receivables Dec 31, 2020 Dec 31, 2019
Not Due 1–30 31–90 >90 Total Not Due 1–30 31–90 >90 Total

Accounts receivables gross 32,788 1,692 557 1,394 36,431 35,406 1,281 625 1,433 38,744
Allowance for expected credit losses
on accounts receivables –183 –11 –28 –549 –771 –285 –19 –52 –664 –1,021
B/S Accounts receivables net 32,605 1,680 529 846 35,660 35,121 1,262 572 768 37,723

16:4

111
 GROUP PERFORMANCE 2020 NOTES

17 INVENTORIES

ACCOUNTING POLICY
Inventories Dec 31, Dec 31,
2020 2019
Inventories are recognized at the lower of cost and net realizable value.
The cost is established by using the first-in, first-out principle (FIFO) Finished products 26,589 34,368
and is based on a standard cost method, including costs for all direct man- Production materials etc. 21,036 22,277
ufacturing expenses and the attributable share of capacity and other B/S Inventories1 47,625 56,644
manu­facturing-related costs. The standard costs are tested regularly and
adjustments are made based on current conditions. Manufacturing costs 17:1
are based on normal capacity utilization which are allocated to inventory 1 A reclassification has been made to assets held for sale amounting to SEK 5,755
while unabsorbed cost due to changes in production volume are recog- (5,510) M. Read more in Note 3 Acquisitions and divestments of shares and
operations.
nized in the income statement as incurred. Costs for research and devel-
opment, selling, administration and financial expenses are not in­cluded.
Net realizable value is calculated as the selling price less costs attribut- The total value of inventories, net after write downs, was SEK 47,625 M
able to the sale. (56,644) as of December 31, 2020. Inventories recognized as cost of sold
products during the period amounted to SEK 244,512 M (311,495).

SOURCE OF ESTIMATION UNCERTAINT Y

Change in write down of inventories 2020 2019
AND CRITICAL JUDGMENTS
Opening balance 4,303 3,926
Write down of inventories Change in write down of inventories
The calculation of net realizable value involves estimation of a future sales charged to income 554 722
price, which is dependent on several parameters, such as market demand, Scrapping –510 –414
model changes and development of used products prices. Due to the Translation differences –259 109
Covid-19 pandemic, a thorough analysis has been conducted during Reclassifications etc. –637 –40
2020 to consider the uncertainties due to capacity utilization and impact Write down of inventories
on new and used vehicles estimated net realizable value. A prolongation as of December 31 3,452 4,303
or worsening of the pandemic could lead to further price pressure, which
may give rise to write downs. 17:2

112
 GROUP PERFORMANCE 2020 NOTES

18 CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of December 31, 2020, include SEK 2.5 billion
ACCOUNTING POLICY (2.4) that is not available for use by the Volvo Group and SEK 11.0 billion
(9.1) where other limitations exist, mainly cash and cash equivalents in
Cash and cash equivalents include highly liquid interest-bearing securities countries where exchange controls or other legal restrictions apply. There-
that are considered easily convertible to cash. These include market­able fore, it is not ­possible to immediately use these cash and cash equivalents
securities and reverse repurchase agreements, with a date of maturity in other parts of the Volvo Group, however there is normally no limitation to
within three months at the time of investment. Interest-bearing securities use them for the Volvo Group’s operation in the respective country.
with a date of maturity exceeding three months at the time of investment Mortgage bonds to a value of SEK 7.8 billion (0) with an average tenor
are recognized as marketable securities. of 3.1 years has been received as collateral for the outstanding reverse

Read more in Note 30 Financial instruments, about accounting policies for repurchase agreements as of December 31, 2020.
financial instruments.

Cash and cash equivalents Dec 31, Dec 31,

2020 2019

Cash in banks 60,571 49,030

Marketable securities with original
duration less than 3 months1 2,327 2,925
Time deposits in banks 14,495 9,505
Reverse repurchase agreements2 7,812 –
B/S Cash and cash equivalents 85,206 61,461

18:1
1 A dditionally the Volvo Group recognized outstanding marketable securities with
original duration exceeding 3 months of SEK 213 M (200) in government securi-
ties as of December 31, 2020.
2 A reverse repurchase agreement is a financial transaction where one party
­commits to buy securities from a counterpart with the agreement to sell back
the securities at an agreed price at a set future date.

113
 GROUP PERFORMANCE 2020 NOTES

19 EQUITY AND NUMBER OF SHARES

ACCOUNTING POLICY
Change in other reserves Holding of
shares at
Earnings per share before dilution is calculated as income for the period, fair value
attributable to the owners of AB Volvo, divided by AB Volvo’s average
number of outstanding shares for the fiscal year. Diluted earnings per Opening balance 2020 236
share is calculated as income for the period attributable to the owners of Other changes –
AB Volvo, divided by AB Volvo’s average number of outstanding shares for Remeasurements of holdings of
the fiscal year. If during the year there were potential shares redeemed or shares in Japanese companies –6
expired, they are also included in the average number of shares used to Remeasurements of holdings of
calculate the earnings per share after dilution. shares in other companies 0
Balance as of December 31, 2020 230

Due to the extraordinary situation as a result of the Covid-19 pandemic the 19:1
Annual General Meeting, held on June 18, 2020, resolved that no payment
of dividend will be made and that the entire amount available will be carried
forward. The Meeting further resolved to adopt the Board of Directors’
Information regarding Dec 31, Dec 31,
proposal to reduce the share capital by way of cancellation of the number of shares 2020 2019
­com­pany’s approximately 95 million own shares and an increase of the
share capital by way of a bonus issue, without any issue of new shares, in Own Series A shares – 20,728,135
order to restore the share capital. Own Series B shares – 74,240,001
The share capital of the Parent company is divided into two series of Total own shares – 94,968,136
shares, A and B. Both series carry the same rights, except that each Series
Own shares in % of total
A share carries the right to one vote and each Series B share carries the ­registered shares – 4.46
right to one tenth of a vote. The shares’ quota value is SEK 1.26 (1.20).
During 2020 AB Volvo converted a total of 8,070,990 Series A shares to Outstanding Series A shares 448,113,346 456,184,336
Series B shares. Unrestricted equity in the Parent company as of Decem- Outstanding Series B shares 1,585,338,738 1,577,267,748
ber 31, 2020 amounted to SEK 54,801 M (53,328). Total outstanding shares 2,033,452,084 2,033,452,084

Total registered Series A shares 448,113,346 476,912,471

Total registered Series B shares 1,585,338,738 1,651,507,749
Total registered shares 2,033,452,084 2,128,420,220

Average number of
outstanding shares 2,033,452,084 2,033,405,780

19:2

Series A shares Series B shares Total

Share capital 2020 2019 2020 2019 2020 2019

Outstanding shares opening balance 456,184,336 457,377,694 1,577,267,748 1,575,536,664 2,033,452,084 2,032,914,358
Allotment to long-term incentive program – – – 537,726 – 537,726
Converting Series A shares to Series B shares –8,070,990 –1,193,358 8,070,990 1,193,358 – –
Outstanding shares as of December 31 448,113,346 456,184,336 1,585,338,738 1,577,267,748 2,033,452,084 2,033,452,084

19:3

Information regarding shares 2020 2019

Number of outstanding shares, December 31, in millions 2,033 2,033

Average number of shares before dilution in millions 2,033 2,033
Average number of shares after dilution in ­millions 2,033 2,033
Average share price, SEK 158.23 139.93
Net income attributable to owners of AB Volvo 19,318 35,861
Basic earnings per share, SEK 9.50 17.64
Diluted earnings per share, SEK 9.50 17.64

19:4

114
 GROUP PERFORMANCE 2020 NOTES

20 PROVISIONS FOR POST-EMPLOYMENT BENEFITS

The following tables disclose information about defined benefit plans. The
ACCOUNTING POLICY Volvo Group recognizes the difference between the obligations and the
plan assets in the balance sheet. The disclosures refer to assumptions
The Volvo Group’s post-employment benefits, such as pensions, health- applied for actuarial calculations, recognized costs during the financial
care and other benefits are mainly settled by means of regular payments year and the value of obligations and plan assets at year-end. The tables
to independent authorities or bodies that assume pension obligations and also include a reconciliation of obligations and plan assets during the year.
administer pensions through defined contribution plans.
The remaining post-employment benefits are defined benefit plans
where the obligations remain within the Volvo Group and are secured by
proprietary pension foundations. The Volvo Group’s defined benefit plans Assumptions applied for Dec 31, Dec 31,
relate mainly to subsidiaries in the USA and comprise both pensions and actuarial ­calculations 2020 2019
other benefits, such as healthcare. Other large-scale defined benefit
plans apply to white collar employees in Sweden (mainly through the ITP Sweden
pension plan) and employees in France, Great Britain and Belgium. Discount rate, %1 1.45 1.70
Actuarial calculations are made for all defined benefit plans in order to Inflation, % 1.75 1.75
determine the present value of the obligation for benefits vested by its Expected salary increase, % 2.40 2.90
current and former employees. The actuarial calculations are prepared Assumed life expectancy on
annually and are based upon actuarial assumptions that are determined at retirement at age 65 (Male/Female)
the balance sheet date each year. Changes in the present value of obliga- Retiring today (member age 65), year 20.9/23.5 20.90/23.5
tions due to revised actuarial assumptions and experience adjustments Retiring in 25 years
constitute remeasurements. (member age 40 today), year 22.7/24.6 22.70/24.6
Provisions for post-employment benefits in the Volvo Group’s balance USA
sheet correspond to the present value of obligations at year-end, less fair value
Discount rate, %1,2 0.53-2.42 2.06–3.27
of plan assets. All changes in the net defined liability (asset) are recognized
Inflation, % 2.20 2.20
when they occur. Service cost and net interest expense (income) are recog-
nized in the income statement, while remeasurements such as actuarial gains Expected salary increase, % 3.00-3.50 3.00–4.10
and losses are recognized in other comprehensive income. Special payroll tax Assumed life expectancy on
is included in the ­pension liability in pension plans in Sweden and ­Belgium. retirement at age 65 (Male/Female)
For defined contribution plans, expenses for premiums are recognized Retiring today (member age 65), year 20.5/22.2 20.67/22.44
in the income statement as incurred. Retiring in 25 years
(member age 40 today), year 22.3/24.0 22.65/24.44
France
SOURCE OF ESTIMATION UNCERTAINT Y Discount rate, %1 0.87 0.70–1.20
AND CRITICAL JUDGMENTS Inflation, % 1.50 1.50
Expected salary increase, % 2.50 3.00
Assumptions when calculating post-employment benefits
Great Britain
Provisions and costs for post-employment benefits, mainly pensions and
health care benefits, are dependent on actuarial assumptions. The actuarial Discount rate, %1 1.40 2.05
assumptions and calculations are made separately for each defined benefit Inflation, % 2.90 2.75
plan. The most significant assumptions are discount rate and inflation. Expected salary increase, % 0.00 0.00
Inflation assumptions are based on an evaluation of external market Assumed life expectancy on
­indicators. A sensitivity analysis is included in graph 20:6 and shows the retirement at age 65 (Male/Female)
effect on the defined benefit obligations if significant assumptions are Retiring today (member age 65), year 22.0/23.7 21.71/23.51
changed. There are also other assumptions made such as salary increases, Retiring in 25 years
retirement rates, mortality rates, health care cost trends rates and other (member age 40 today), year 23.8/26.3 23.97/26.30
factors. The salary increase assumptions reflect the historical trend, the Belgium
near-term and long-term outlook and assumed inflation. Retirement and
Discount rate, %1 0.81 1.10
mortality rates are based primarily on officially available mortality statistics.
Inflation, % 1.50 1.50
Healthcare cost trend assumptions are based on historical data as well as
Expected salary increase, % 2.52 2.55
the near-term outlook and an assessment of likely long-term trends. The
Volvo Group has engaged a global actuary in order to ensure that a profes-
20:1
sional assessment is made and that assumptions are consistently devel-
1 The discount rate for each country is determined by reference to market yields on
oped across jurisdictions. The actuarial assumptions are reviewed annually
high quality corporate bonds. In countries where there is no functioning ­market in
by the Volvo Group and m ­ odified when deemed appropriate. such bonds, the market yields on government bonds are used. The ­discount rate
The Covid-19 pandemic has indirectly impacted the net financial posi- for the Swedish pension obligation is determined by extra­polating current market
tion of the defined benefit pension plans via movements on the financial rates along the yield curve of mortgage bonds.
markets. Lower discount rates, following Covid-19 measures taken by 2 For all plans except three the discount rate used is within the range
central banks, have adversely impacted the obligation, in particular for 1.97–2.42% (2.92–3.27).
plans in the USA and Great Britain. Return seeking asset classes have
been exceptionally volatile during 2020, impacting the net provision by
material amounts during the year, mainly in Sweden and Belgium.

115
 GROUP PERFORMANCE 2020 NOTES

Summary of provisions for Dec 31, Dec 31, Costs for the period, post-employ-
­post-employment benefits 2020 2019 ment b
­ enefits other than pensions 2020 2019

Obligations –67,920 –68,335 Current year service costs 86 123

Fair value of plan assets 51,203 50,010 Interest costs 142 187
Net provisions for post-employment Interest income –28 –25
benefits –16,718 –18,325
Past service costs –15 6
Gain/loss on settlements – –
20:2
Remeasurements 79 30
Total costs for the period 265 322

Pension costs 2020 2019 20:4

Current year service costs 1,558 1,749

Interest costs 1,314 1,602
Interest income –1,128 –1,378
Past service costs1 –710 70
Gain/loss on settlements – 3
Pension costs for the period,
defined benefit plans 1,034 2,045

Pension costs for defined contribution plans 2,597 2,986

Total pension costs for the period 3,631 5,031

20:3
1 Past service costs includes a positive effect of SEK 721 M from the announced
freeze of two defined benefit plans in the USA, a change of inflation index from
RPI to CPI for two defined benefit plans in Great Britian, a freeze of current
defined benefit plan in the Netherlands and a curtailment impact in France.

Sweden USA France Great Britain Belgium USA

Pensions Pensions Pensions Pensions Pensions Other benefits

Average duration of the obligations, years 23.5 12.3 13.8 18.4 13.6 11.0

20:5

The analysis in graph 20:6 presents the sensitivity of the defined benefit this is not probable, and changes in some of the assumptions may be
­ bligations when changes in the applied assumptions for discount rate
o correlated. Depending on specific plan and benefit design, the sensitiv-
and inflation are made. The sensitivity analysis is based on a change in ity effect on the obligation differs for the respective assumptions.
an assump­tion while holding all other assumptions constant. In practice,

116
 GROUP PERFORMANCE 2020 NOTES

Sensitivity analysis
2020 − Effect on obligation, SEK M +
If discount rate increases 0.5% If discount rate decreases 0.5%
Sweden Pensions –2,939 3,345
USA Pensions 1,190 1,325
France Pensions –187 205
Great Britain Pensions –651 742

Belgium Pensions –239 281

USA Other benefits –166 182
Other plans –224 251

If inflation decreases 0.5% If inflation increases 0.5%

Sweden Pensions –2,930 3,300
USA Pensions 0 0
France Pensions –7 7

Great Britain Pensions –431 352

Belgium Pensions –161 176
USA Other benefits –13 15

Other plans –29 29

20:6

Obligations in defined benefit plans Great USA

Sweden USA France Britain Belgium Other Other
Pensions Pensions Pensions Pensions Pensions benefits plans Total

Obligations opening balance 2019 19,047 18,772 2,328 6,791 2,939 3,508 3,874 57,260
Acquisitions, divestments and other changes –11 35 –2 – – 0 284 305
Current year service costs 734 421 153 2 228 58 276 1,871
Interest costs 470 767 47 205 49 144 107 1,790
Past service costs 17 43 –11 – – 0 26 75
Settlements –103 – –8 – – – 1 –110
Employee contributions – – – – 0 28 49 77
Remeasurements:
– Effect of changes in demographic assumptions – –110 –14 –64 – –214 –8 –409
– Effect of changes in financial assumptions 3,947 2,319 300 877 364 350 220 8,377
– Effect of experience adjustments 333 69 –29 – 85 –16 2 445
Exchange rate translation – 679 35 510 40 135 111 1,509
Benefits paid –470 –1,321 –65 –253 –144 –372 –229 –2,854
Obligations as of December 31, 2019 23,964 21,675 2,733 8,068 3,562 3,620 4,713 68,335
of which
Funded defined benefit plans –23,517 –21,816 –19 –8,262 –3,561 – –2,790 –59,965

Acquisitions, divestments and other changes 0 56 0 –4 0 38 –898 –807

Current year service costs1 431 502 178 1 265 19 248 1,644
Interest costs 405 636 32 157 39 103 85 1,456
Past service costs 99 –357 –89 –182 – 0 –63 –592
Settlements – – – – – 0 –3 –3
Employee contributions – – – – 0 30 40 70
Remeasurements2:
– Effect of changes in demographic assumptions – –135 17 –163 – –39 3 –316
– Effect of changes in financial assumptions 1,524 2,070 4 910 132 306 9 4,956
– Effect of experience adjustments 749 –51 –30 –231 17 65 41 560
Exchange rate translation 0 –2,711 –109 –752 –148 –436 –241 –4,396
Benefits paid –494 –1,413 –57 –272 –118 –342 –291 –2,987
Obligations as of December 31, 20203 26,677 20,273 2,680 7,533 3,750 3,363 3,644 67,920
of which
Funded defined benefit plans –26,073 –19,560 –18 –7,534 –3,749 0 –2,405 –59,339

20:7
1 Current year service cost for Sweden includes a positive effect of SEK 604 M from correction of actuarial calculations.
2 Remeasurements for Sweden includes a negative effect of SEK 1,663 M for corrections of actuarial calculations.
117
3 Obligation as of December 31, 2020 for Sweden includes an increase of SEK 1,059 M related to correction of actuarial calculations.
 GROUP PERFORMANCE 2020 NOTES

Fair value of plan assets in funded plans Great USA

Sweden USA France Britain Belgium Other Other
Pensions Pensions Pensions Pensions Pensions benefits plans Total

Plan assets opening balance 2019 12,048 19,270 13 6,983 2,370 – 1,643 42,327
Acquisitions, divestments and other changes 0 2 – 0 – 33 289 323
Interest income 300 790 0 212 39 – 62 1,403
Settlements – – – – – – 0 0
Remeasurements 1,407 2,693 0 701 190 – 47 5,038
Asset ceiling – – – –193 – – –30 –223
Employer contributions 924 – 2 60 174 – 276 1,437
Employee contributions – – – – 0 –28 47 19
Exchange rate translation – 700 0 530 33 0 47 1,309
Benefits paid 1 –1,153 –1 –253 –122 –17 –80 –1,624
Plan assets as of December 31, 2019 14,680 22,301 15 8,040 2,685 –12 2,301 50,010
Acquisitions, divestments and other changes 0 45 – –4 0 49 –169 –79
Interest income 250 656 0 162 30 0 58 1,156
Settlements – – – – – – 0 0
Remeasurements 964 2,062 0 908 104 0 27 4,065
Asset ceiling – – – –749 – – –1 –750
Employer contributions 1,998 0 0 147 209 39 152 2,545
Employee contributions – 28 – – 0 263 40 331
Exchange rate translation 0 –2,771 –1 –752 –110 –4 –170 –3,808
Benefits paid 1 –1,404 – –272 –114 –302 –175 –2,266
Plan assets as of December 31, 2020 17,892 20,917 15 7,480 2,804 33 2,063 51,203

20:8

Net provisions for post-employment benefits Great USA

Sweden USA France Britain Belgium Other Other
Pensions Pensions Pensions Pensions Pensions benefits plans Total

Net provisions for post-employment benefits

as of December 31, 2019 –9,284 626 –2,718 –28 –877 –3,632 –2,412 –18,325

of which reported as:

B/S Net pension assets – – – 140 – 1,518 5 1,663
B/S Provisions for post-employment benefits –9,284 626 –2,718 –167 –877 –5,151 –2,417 –19,988
Net provisions for post-employment benefits
as of December 31, 20201 –8,784 643 –2,665 –53 –947 –3,330 –1,581 –16,718

of which reported as:

B/S Net pension assets – 1,512 – 81 – 120 0 1,712
B/S Provisions for post-employment benefits –8,784 –869 –2,665 –134 –947 –3,449 –1,581 –18,430

20:9
1 A reclassification has been made to asset held for sale of SEK 693 M (72).

Read more in Note 3 Acquisitions and divestments of shares and operations.

Sweden SEK 6,332 M, whereof SEK 1,998 M during 2020, have been made to
The main defined benefit plan in Sweden is the ITP2 plan which is based the foundation. The plan assets in the Volvo Group’s ­Swedish pension
on final salary. The plan is semi-closed, meaning that only new employees foundation are invested in Swedish and foreign stocks and mutual funds,
born before 1979 enters the ITP2 solution. The Volvo Group’s pension and in interest-bearing securities and alternative assets, in accordance
foundation in Sweden was formed in 1996 to secure obligations relating with a strategic allocation that is determined by the foundation’s Board of
to retirement pensions for white collar workers in Sweden in accordance Directors. As of December 31, 2020, the fair value of the foundation’s plan
with the ITP plan. Plan assets amounting to SEK 2,456 M were contrib- assets amounted to SEK 17,871 M (14,662), of which 45% (47) was
uted to the foundation at its formation, corresponding to the value of the invested in equity instruments. At the same date, retirement pension obli-
pension obligations at that time. Since its formation, net contributions of gations attributable to the ITP plan amounted to SEK 26,048 M (23,492).

118
 GROUP PERFORMANCE 2020 NOTES

Swedish companies can secure new pension obligations through

­ alance sheet provisions or pension fund contributions. Furthermore, a
b
Plan assets by category as of December 31, 2019 credit insurance policy must be taken out for the value of the obligations. In
addition to benefits relating to retirement pensions, the ITP plan also
Cash and cash equivalents, 2,356 (5%)
includes, for example, a collective family pension, which the Volvo Group
Equity instruments, 12,405 (25%)
finances through an insurance policy with the Alecta insurance company.
Debt instruments, 30,982 (62%)
According to an interpretation from the Swedish Financial Reporting
Real estate, 1,329 (3%) Board, this is a multi-employer defined benefit plan. For the fiscal year
Assets held by insurance company, 1,532 (3%) 2020, the Volvo Group did not have access to information from Alecta that
Other assets, 1629 (3%) would have e ­ nabled this plan to be recognized as a defined benefit plan.
Accordingly, the plan has been recognized as a defined contribution plan.
The Volvo Group estimates it will pay premiums of about SEK 303 M to
Alecta in 2021. The collective consolidation level measures the apportiona-
ble assets in relation to the insurance commitment. According to Alecta’s
Plan assets by category as of December 31, 2020¹ consolidation policy for defined benefit pension insurance, the collective
consolidation level is ­normally allowed to vary between 125% and 175%.
Cash and cash equivalents, 1,359 (3%)
Alecta’s preliminary consolidation ratio amounts to 148% (148). If the
Equity instruments, 11,580 (22%)
­consolidation level falls short or exceeds the normal interval, one measure
Debt instruments, 36,018 (69%) may be to increase the contract price for new subscription or to introduce
Real estate, 1,412 (3%) premium reductions.
Assets held by insurance company, 1,447 (3%) The Volvo Group’s share of the total saving premiums for ITP2 in Alecta
Other assets, 359 (1%) as of December 31, 2020 amounted to 0.18% (0.31) and the share of the
total number of active policy holders amounted to 1.78% (1.76).
All employees in Sweden benefit from a jubilee awards plan according
to which they receive a certain number of shares after they have rendered
20:10
25, 35 and 45 years of services. This plan is accounted for as a share-
based payment program, where the fair value of the equity-settled pay-
ments is determined at the grant date. No payment from the jubilee
Fair value of plan assets Dec 31, 2020 Dec 31, 2019 awards plan as of year 2020 have been done due to the circumstances
under the Covid-19 pandemic and therefore the allotment of the jubilee
Cash and cash equivalents 1,357 2,349 shares has been postponed to a future occasion.
With a quoted market price
Equity instruments 9,400 10,047 USA
Debt instruments 35,358 30,288 In the USA, the Volvo Group has tax qualified pension plans, post-­retirement
Real estate 167 175 medical plans and non-qualified pension plans. The tax qualified pension
Derivatives –3 –19 plans are funded while the other plans are generally unfunded. There are
five funded defined benefit plans, whereof three are closed, one is par-
Other 500 1,610
tially closed and one is open to new entrants. All plans are open for future
With an unquoted market price
accruals. The Volvo Group’s subsidiaries in the USA mainly secure their
Other 5,397 5,784
pension obligations through transfer of funds to pension plans. The US
Total1 52,176 50,233
Retirement Trust manages the assets related to the five funded plans.
The strategic allocation of plan assets must comply with the investment
20:11
policy as decided by the Board of Directors of the Trust. All members of
the board are nominated by the company although each member is sub-
1 Excluding asset ceiling of SEK 973 M (223).
ject to strict regulatory requirements on fiduciary responsibility. At the
end of 2020, the total value of pension obligations secured by pension
plans of this type amounted to SEK 19,560 M (21,816). At the same point
in time, the total value of the plan assets in these plans amounted to SEK
20,917 M (22,301), of which 11% (12) was invested in equity instruments.
The ­regulations for securing pension obligations s­ tipulate certain mini-
mum l­evels concerning the ratio between the value of the plan assets and
the value of the obligations. During 2020, the Volvo Group contributed
SEK 0 M (0) to the USA pension plans.

119
 GROUP PERFORMANCE 2020 NOTES

France Investment strategy and risk management

In France, the Volvo Group has two types of defined benefit plans, The Volvo Group manages the allocation and investment of pension plan
­Indemnité de Fin de Carrière (IFC) and jubilee awards plan. The plans are assets with the purpose of meeting the long term objectives. The main
unfunded. The IFC is compulsory in France. The benefits are based on the objectives are to meet present and future benefit obligations, provide
Collective Bargaining Agreement applicable in the company, on the ­sufficient liquidity to meet such payment requirements and to provide a
employee’s seniority at retirement date and on the final pay. The benefit total return that maximizes the ratio of the plan assets in relation to the
payment is due only if employees are working for the company when they plan liabilities by maximizing return on the assets at an appropriate level of
retire. The jubilee award plan is an internal agreement and the benefit is risk. The final investment decision often resides with the local trustee, but
based on the employee’s seniority career at 20, 30, 35 and 40 years. As the investment policy for all plans ensures that the risks in the investment
of December 31, 2020, the total value of pension obligations amounted to portfolios are well diversified. The primary risk mitigating activity in the
SEK 2,680 M (2,733). long run is to close defined benefit plans to new entrants or to future accru-
als for existing members and replace with defined contribution plans when
Great Britain and where possible. The risks related to already accrued pension obligations,
In Great Britain, the Volvo Group has five defined benefit pension plans, e.g. longevity and inflation, as well as buy out premiums and matching strat-
which are all funded. The pension funds are set up as separate legal enti- egies are monitored on an ongoing basis in order to further limit the Volvo
ties, which are governed by a professional trustee for all schemes. All Group’s exposure where and when possible.
plans are closed to new entrants and closed for future accruals to existing In the last couple of years, some of the defined benefit plans have been
members. closed to new entrants and replaced by defined contribution plans in order
The allocation of plan assets must comply with the investment strategy to reduce risk for the Volvo Group.
agreed between the company and the professional trustee. For three of In Sweden, the minimum funding target is decided by PRI Pensions­
the plans, if a net surplus is recognized in the balance sheet when the garanti. This is mandatory in order to stay in the system and get insurance
pension scheme runs-off, the Volvo Group has an unconditional right to for the pension liability. The contributions usually represent one year’s new
the surplus of that plan or plans. For two plans this is not strictly legally accrued benefits plus any shortfall towards the minimum funding target
the case and therefore an asset ceiling is applied. unless there is a surplus according to local scheme valuation principles.
At the end of 2020, the total value of pension obligations amounted to In the USA, the minimum funding target is decided by the c ­ ompany in
SEK 7,533M (8,068). The total value of the plan assets in these plans order to avoid penalties, keep flexibility and avoid extensive filing with the
amounted to SEK 7,480M (8,040). Internal Revenue Service and participants. The minimum contributions
During 2020, the Volvo Group has made extra contributions to the usually represent one year’s accrued benefits plus a seventh of any deficit
­pension plans in Great Britain in the amount of SEK 147M (60). unless a scheme is showing a surplus according to local scheme valuation
principles.
Belgium In Great Britain, there is no minimum funding ratio. There is a regulatory
In Belgium, the Volvo Group has four traditional defined benefit pension requirement for each scheme to perform triennial valuations whereby
plans based on final salary, whereof one is closed to new entrants. All plans any scheme showing a deficit must develop a recovery plan that returns
are open for future accruals. Two are funded via own pension fund and two the scheme to a fully funded basis within a reasonable timeframe. The
are funded via the group insurance product referred to in Belgium as Branch ­recovery plan shall be agreed with the company and submitted to the
21. Benefits are paid as a lump sum at retirement. There is also a local profit ­regulator for approval.
sharing program whereby any pay-outs are contributed to a defined contri- In Belgium, the minimum funding level is regulated by law and monitored
bution pension plan managed by the own pension fund or through a group by the financial supervisory authority, FSMA. The framework for the mini-
insurance. All defined contribution pension plans in Belgium have a statu- mum funding requirement is based on a discount rate, which is based on
tory minimum return guarantee and are therefore accounted for as defined the expected return of the plan assets. The pension fund must be fully
benefit plan. The strategic asset allocation of plan assets must comply with funded on this basis at all times. The contribution policy of the pension fund
the investment policy as decided by the Board of Directors of the pension is designed to provide stability in contributions over the duration of the plan.
fund. All board members of the pension fund are nominated by the com- In 2021, the Volvo Group estimates to transfer an amount of SEK 0.5–
pany. At the end of 2020, the total value of pension obligations amounted 1.5 billion to pension plans.
to SEK 3,750 M (3,562). At the same point in time the plan assets of these
plans amounted to SEK 2,804 M (2,685). During 2020 the Volvo Group
contributed SEK 209 M (174) to the Belgium pension plans.

120
 GROUP PERFORMANCE 2020 NOTES

21 OTHER PROVISIONS

Residual value commitments that are independent from the sales trans­
ACCOUNTING POLICY action are not recognized as assets under operating leases or as right of
return in the balance sheet, hence the potential residual value risks related
Provisions are recognized in the balance sheet when a legal or construc- to these contracts are recognized as provisions. To the extent the residual
tive obligation exists as a result from a past event, it is probable that an value exposure does not meet the definition of a provision, the gross expo-
outflow of resources will be required to settle the obligation and the sure is reported as a contingent liability.
amount can be reliably estimated. When these criteria are not met, a con-
Read more in Note 24 Contingent liabilities and contingent assets.
tingent liability may be recognized.
Provisions for service contracts
Provisions for product warranty
Service contracts offer the customer preventive maintenance according
Provisions for product warranty are recognized as cost of sales and
to an agreed service plan. The provision is intended to cover the risk that
include contractual warranty and campaign warranty. Provisions for con-
the expected cost of providing services and repairs under the service
tractual warranty are recognized when the products are sold. Provision for
contract exceeds the expected revenue.
campaigns in connection with specific quality problems are recognized
when the campaign is decided.

SOURCE OF ESTIMATION UNCERTAINT Y

Provisions for technical goodwill
AND CRITICAL JUDGMENTS
Technical goodwill is coverage in excess of contractual warranty or cam-
paigns which is accepted as a matter of policy or normal practice in order The uncertainties about the amount or timing of outflows vary for different
to maintain a good business relation with the customer. The provisions for kind of provisions. Regarding provisions for product warranty, technical
technical goodwill are determined based on historical statistics for cus- goodwill, extended coverage, residual value risks and service contracts, the
tomers where a constructive obligation exists. provisions are based on historical statistics and estimated future costs, why
the provided amount has a high correlation with the outflow of resources.
Provisions for extended coverage Regarding provisions for disputes, like tax and legal disputes, the uncer-
An extended coverage is a product insurance sold to a customer to cover tainty is higher.
a product according to specific conditions for an agreed period as an addi-
tional insurance to the factory contractual warranty. The provision is Provisions for product warranty
intended to cover the risk that the expected cost of providing services Warranty provisions are estimated with consideration of historical statis-
under the extended coverage contract exceed the expected revenue. tics with regard to known changes in warranty claims, warranty periods,
the average time-lag between faults occurring until claims are received by
Provisions in insurance operations the company and anticipated changes in quality indexes. The actual out-
Volvo Group has a captive insurance company and the provisions in insur- come of product warranties may deviate from the expected outcome and
ance operations are related to third party claims addressed to companies materially affect the warranty costs and provisions in future periods.
within the Volvo Group. The claims reserve also includes a provision for ­Re­funds from suppliers, that decrease the Volvo Group’s warranty costs,
unreported losses based on past experience. The unearned premium are recognized to the extent these are considered to be certain.
reserve is reported as an accrued expense within other current liabilities.
Provisions for legal proceedings
Provisions for restructuring costs The Volvo Group regularly reviews the development of significant out-
A provision for decided restructuring measures is recognized when a standing legal disputes in which the Volvo Group companies are parties,
detailed plan for the implementation of the measures is complete and both regarding civil law and tax disputes, in order to assess the need for
when this plan is communicated to those who are affected. A provision provisions and contingent liabilities in the financial statements. Among
and costs for termination benefits as a result of a voluntary termination the factors that the Volvo Group considers in making decisions on provi-
program is recognized when the employee accepts the offer. Normally sions and contingent liabilities are the nature of the dispute, the amount
restructuring costs are included in other operating income and expenses. claimed, the progress of the case, the opinions of legal and other advisers,
experience in similar cases, and any decision of the Volvo Group’s man-
Provisions for residual value risks agement as to how the Volvo Group intends to handle the dispute. The
Residual value risks are the risks that the Volvo Group in the future would actual outcome of a legal dispute may deviate from the expected outcome
have to dispose used vehicles at a loss if the price development of these of the dispute. The difference between actual and expected outcome of a
products is worse than expected when the contracts were entered. The dispute might materially affect future financial statements, with an
residual value risks pertain to operating lease contracts and sales transac- adverse impact upon the Volvo Group’s operating income, financial posi-
tions with residual value commitments (buybacks and tradebacks) where tion and liquidity.
the Volvo Group has a residual value commitment. The majority of these Provisions for legal disputes are included within other provisions in
contracts are recognized as assets under operating leases or as right of table 21:1 .
return asset in the balance sheet. During the period, the depreciable
Read more in Note 24 Contingent liabilities and contingent assets.
amount is adjusted through the income statement to correspond to esti-
mated future net realizable value to continuously reflect potential residual
value risks at the end of the contract period.
Read more in Note 13 Tangible assets about residual value risks.

121
 GROUP PERFORMANCE 2020 NOTES

Carrying
Carrying Acquired and Other value as of Of which Of which
value as of divested Trans­lation reclassi­ Dec 31, due within due after
Dec 31, 2019 Provisions Reversals Utilizations companies differences fications 20202 12 months 12 months
Provisions
for product
warranty1 17,526 7,657 –1,471 –8,648 –1 –954 280 14,389 7,351 7,038
Provisions
for technical
goodwill 1,236 597 –57 –461 – –208 –56 1,051 534 517
Provisions
for extended
coverage 619 412 –125 –357 – –63 31 517 242 275
Provisions
in insurance
operations 720 173 –165 –29 – –76 0 623 – 623
Provisions for
restructuring
costs3 170 3,425 –1,026 –745 – –38 0 1,786 1,656 130
Provisions
for residual
value risks 559 1,532 –563 –942 – –117 25 494 456 38
Provisions
for service
­contracts 416 533 –299 –341 – –40 134 403 177 226
Other
provisions 5,246 3,836 –1,148 –2,586 –11 –515 –14 4,808 2,737 2,071
B/S Total 26,492 18,165 –4,854 –14,109 –12 –2,011 400 24,071 13,153 10,918

21:1
1 Including a provision for emission control component in 2018. For more information see below.
2 A reclassification has been made to liabilities held for sale of SEK 956 M (1,333), Read more in Note 3 Acquisitions and divestments of shares and operations.
3 Including a provision of SEK 3.2 billion related to cost reduction measures. For more information see below.

The Volvo Group has detected that an emissions control component used To adjust its operations to lower demand due to the Covid-19 ­pandemic,
in certain markets and models, may degrade more quickly than expected, the Volvo Group reduced the white-collar workforce globally during 2020.
affecting the vehicles emission performance negatively. The Volvo Group A provision for restructuring charges of SEK 3,200 M was recognized in
made a provision of SEK 7 billion impacting the operating income in 2018, the second quarter whereof SEK 992 M was released in the fourth q ­ uarter.
relating to the estimated costs to address the issue. Negative cash flow Other provisions mainly includes provisions for l­egal disputes, provi-
effects started in 2019 and will gradually ramp up in the coming years. sions for externally issued credit guarantees and other p
­ rovisions, unless
The Volvo Group will continuously assess the size of the provision as the separately specified and commented in the table and text.
matter develops. Long-term provisions as above are expected to be settled within 2 to 3
years.

122
 GROUP PERFORMANCE 2020 NOTES

22 LIABILITIES

Non-current liabilities
ACCOUNTING POLICY The tables below disclose the Volvo Group’s non-current liabilities with
the largest loans listed by currency. Loans in the Volvo Group’s subsidiaries
Loans are valued at amortized cost using the effective interest rate are mainly denominated in local currencies through Volvo Group Treasury
method. A hybrid bond issued by the Volvo Group is classified as debt in which minimizes the currency exposure in the individual companies. Volvo
the Volvo Group’s financial reporting as it constitutes a contractual obliga- Group Treasury uses various derivatives to facilitate lending and borrowing
tion to make interest payments and repay the nominal amount of the debt in ­different currencies without increasing the risk for the Volvo Group.
to the holder of the instrument.
Read more in Note 4 Goals and policies in financial risk management.
 ead more in Note 30 Financial instruments for accounting policies related to
R
financial instruments.

Non-current bond loans and other loans Actual interest rate Effective interest rate
Currency/start year/maturity Dec 31, 2020, % Dec 31, 2020, % Dec 31, 2020 Dec 31, 2019

Bond loans
EUR 2012–2020/2022–20781 0.00–4.79 0.00–4.79 34,969 39,373
SEK 2018-2020/2022-2024 0.40–2.31 0.40–2.31 25,741 23,462
NOK 2019-2020/2022-2024 1.21–2.28 1.22–2.30 3,580 1,587
HKD 2019/2024 2.31 2.31 765 866
USD 2019/2029 2.96 2.96 409 466
JPY 2020/2023 0.70 0.70 927 –
B/S Total bond loans2,3 66,391 65,754

Other loans
USD 2014-2020/2022-2024 0.49–3.03 0.71–3.25 6,522 12,936
EUR 2012-2020/2022-2026 0.00–2.34 0.00–2.34 6,760 6,919
CAD 2019/2022 1.43 1.44 640 1,925
MXN 2020/2025 5.24–5.91 5.37–6.07 742 594
JPY 2019-2020/2023-2024 0.37–1.24 0.37–1.24 1,585 903
BRL 2013-2015/2023-2028 3.00–12.32 3.00–12.32 3,500 2,814
AUD 2018-2020/2022-2024 0.92–1.52 0.92–1.53 315 448
CNY 2018-2020/2022-2023 2.70–4.99 3.20–4.99 2,409 1,497
Loans in other currencies 1,451 972
Lease liabilities 4 4,434 5,334
Revaluation of outstanding derivatives to SEK 5 416 1,521
B/S Total other loans2,3 28,775 35,862

22:1

Other non-current liabilities Dec 31, 2020 Dec 31, 2019

Deferred leasing income 6

4,647 5,123
Residual value liabilities6 8,540 9,829
Deferred service revenue6 12,268 13,049
Refund liabilities6 1,042 1,265
Advances from customers6 1,583 2,215
Outstanding interest and currency risk derivatives5 643 440
Other liabilities 2,701 4,390
B/S Total other liabilities 31,424 36,311

22:2
1 Including the remaining tranche of the hybrid bond of EUR 0.6 billion with a first call in 2023 and final maturity in 2078.
2 L oans to finance the credit portfolio in Financial Services amounted to SEK 50,332 M (50,142) in bond loans and SEK 23,149 M (28,538) in other loans.
3 Non-current loans of SEK 6,638 M (12,521) were secured by assets pledged. Read more in Note 23 Assets pledged.
4 Lease liabilities of SEK 377 M (0) have been reclassified to liabilities held for sale, Read more in Note 3 Acquisitions and divestments of shares and operations.
5  Read more in Note 30 Financial instruments, table 30:1 regarding non-current part of ­outstanding interest and currency risk derivatives.
6  Read more in Note 7 Revenue regarding contract and refund liabilities, and sales with residual value commitments.

123
 GROUP PERFORMANCE 2020 NOTES

1 Loans to finance the credit portfolio in Financial Services amounted to SEK

30,904M (31,759) in bond loans and SEK 19,945 (20,772) in other loans.
Maturity Not utilized 2 C urrent loans of SEK 7,645 M (5,516) were secured by assets pledged.
Bond loans and non-current credit Read more in Note 23 Assets pledged.
Year other loans facilities
3 L ease liabilities of SEK 124 M (0) have been reclassified to liabilities held for sale,
Read more in Note 3 Acquisitions and divestments of shares and operations.
2022 34,868 5,502
4  Read more in Note 30 Financial instruments, table 30:1 regarding
2023 32,263 1,000 current part of ­outstanding interest and currency risk derivatives.
2024 11,610 15,056
2025 7,482 20,075 Other current loans include current maturities of non-current loans of SEK
2026 1,455 – 16,943 M (15,512).
2027 or later 7,489 –
Total 95,166 41,633

Other current liabilities Dec 31, Dec 31,

22:3 2020 2019
Read more in Note 14 Leasing, table 14:4 for maturities of non-current lease
liabilities. Advances from customers1 6,427 5,493
Wages, salaries and withholding taxes 11,697 11,957
 ead more in Note 15 Customer-financing receivables, table 15:2 for maturi-
R
ties of non-current customer-financing receivables. VAT liabilities 4,295 3,358
Accrued expenses for dealer
The Volvo Group issued a hybrid bond in 2014, amounting to EUR 1.5 bonuses and rebates1 5,247 6,647
billion with an original maturity of 61.6 years, in order to further strengthen Other accrued expenses 10,138 11,867
the Volvo Group’s balance sheet and prolong the maturity structure of the Deferred leasing income1 3,116 3,036
debt portfolio. The first tranche of this bond, amounting to EUR 0.9 bil- Deferred service revenue1 3,558 3,371
lion, was repaid on June 10, 2020. The predominant part of loans that Other deferred income1 1,266 1,184
mature in 2022 is an effect of the Volvo Group’s normal business cycle, Residual value liabilities1 4,705 4,775
with shorter duration in the Financial Services portfolio compared to Refund liabilities1 501 461
Industrial Operations. Other financial liabilities 279 155
Granted but not utilized credit facilities consist of stand-by facilities for Interest and currency risk ­derivatives2 66 140
loans. A fee is charged for granted credit facilities and recognized in the Other liabilities 5,274 5,059
income statement within other financial income and expenses. Due to the B/S Total other liabilities 56,569 57,502
uncertainty caused by the Covid-19 pandemic some credit facilities were
renegotiated in early 2020, prolonging the maturity, see table 22:3. 22:5

Read more in Note 9 Other financial income and expenses. 1  Read more in Note 7 Revenue regarding contract and refund liabilities,
and sales with residual value commitments.
2  Read more in Note 30 Financial instruments, table 30:1 regarding
Current liabilities current part of ­outstanding interest and currency risk derivatives.

Table 22:5 presents the Volvo Group’s other current liabilities. In addition
Current bond loans and other loans Dec 31, Dec 31,
to this, non-interest-bearing current liabilities also include trade payables
2020 2019
of SEK 59,611 M (66,866) and current tax liabilities of SEK 4,599 M
Bond loans 30,904 31,759 (3,493). A reclassification has been made from trade pay­ables to liabilities
B/S Total bond loans1,2 30,904 31,759 held for sale of SEK 4,796 M (4,774), Read more in Note 3 Acquisi-
tions and divestments of shares and operations.
Other loans 25,572 22,254
Non-interest-bearing current liabilities amounted to SEK 130,890 M
Lease liabilities3 1,552 1,755 (138,267), or 69% (71) of the Volvo Group’s total current liabilities.
Revaluation of outstanding derivatives to SEK4 230 367
B/S Total other loans1,2 27,354 24,377

22:4

23 ASSETS PLEDGED

Non-current and current loans of SEK 14,283 M (18,037) were secured

by assets pledged to an amount of SEK 14,960 M (21,220).
Assets pledged Dec 31, Dec 31, Under the terms of asset-backed securitizations, SEK 14,135 M (17,766)
2020 2019
of securities have been issued tied to US-based loans, secured by
Property, plant and equipment ­customer-financing receivables, SEK 14,731 M (20,834), recognized on
­mortgages 48 70 the balance sheet with trucks and construction equipment assets as
Assets under operating leases 181 317 ­collaterals, whereof SEK 4,991 M (12,876) were signed in 2020.
Customer-financing receivables 14,731 20,834
Read more in Note 22 Liabilities.
Total assets pledged 14,960 21,220

23:1

124
 GROUP PERFORMANCE 2020 NOTES

24 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Residual value commitments amounted to SEK 795 M (1,118) and were

ACCOUNTING POLICY attributable to sales transactions with residual value commitments (buy-
backs and tradebacks) that are independent from the sales transaction
A contingent liability is recognized for a possible obligation, for which it is and therefore not recognized as assets in the balance sheet. The amount
not yet confirmed that a present obligation exists that could lead to an corresponds to the gross exposure and has not been reduced by the esti-
outflow of resources. Alternatively, there is a present obligation that does mated net selling price of used products taken as collaterals. To the extent
not meet the definitions of a provision or a liability as it is not probable that the used products pertaining to those transactions are expected to be
an outflow of resources will be required to settle the obligation or a suffi- disposed at a loss, a provision for residual value risk is recognized.
ciently reliable estimate of the amount of the obligation cannot be made.
Read more in Note 21 Other ­provisions about provisions for residual value risks.
A contingent asset is a possible asset that arises from past events that
will be confirmed by uncertain future events not wholly within the control
Other contingent liabilities amounted to SEK 4,610 M (5,017) and include
of the Volvo Group. A contingent asset is disclosed where an inflow of
for example bid and performance clauses and legal proceedings.
economic benefits is probable.
Legal proceedings
In January 2011, the Volvo Group and a number of other companies in the
truck industry became part of an investigation by the European Commis-
Contingent liabilities Dec 31, Dec 31, sion regarding a possible violation of EU antitrust rules. The Volvo Group
2020 2019 co-operated fully with the European Commission in the investigation.
Credit guarantees issued for In July 2016, the Volvo Group reached a settlement with the European
customers and others 4,419 2,944 Commission in the investigation. Following the adoption of the European
Tax claims 4,008 4,653 Commission’s settlement decision, the Volvo Group has received and will
Residual value commitments 795 1,118 be defending itself against numerous private damages claims brought by
Other contingent liabilities 4,610 5,017 customers and other third parties alleging that they suffered loss by
Total contingent liabilities 13,832 13,732 reason of the conduct covered in the decision. The claims are being
­
brought in various countries by claimants either acting individually or as
24:1 part of a wider group or class of claimants. Further claims are likely to be
commenced. At this stage it is not possible to make a reliable estimate of
Total contingent liabilities at December 31, 2020, amounted to SEK 13,832 any liability that could arise from any such proceedings. An adverse out-
M (13,732). come or outcomes of some or all of the litigation, depending on the nature
and extent of such outcomes, may have a material impact on the Volvo
Credit guarantees issued amounted to SEK 4,419 M (2,944). The recog- Group’s financial results.
nized amount for credit guarantees corresponds to the gross exposure and The Volvo Group is also involved in a number of legal proceedings other
has not been reduced by the value of counter guarantees received or other than those described above. The Volvo Group’s assessment is that such
collaterals such as the right to repossess the products. The value of coun- other legal proceedings in aggregate are not likely to entail any risk of
ter guarantees and other collaterals reducing the exposure is dependent on having a material effect on the Volvo Group’s financial position.
the development of used products prices and on the possibility to repos-
sess the products. Detected premature degradation of emissions control component
A major part of the credit guarantees pertains to the credit guarantees The Volvo Group has detected that an emissions control component used
related to Chinese dealers and retail customers within Construction in certain markets and models, may degrade more quickly than expected,
­Equipment. The increase compared to last year is mainly an effect of higher affecting the vehicles emission performance negatively. The Volvo Group
sales in Construction Equipment in China. has made a provision that will be continuously assessed as the matter
develops.
Tax claims amounted to SEK 4,008 M (4,653) and pertain to charges Read more in Note 21 Other ­provisions.
against the Volvo Group for which the criteria for recognizing a tax liability
or a provision were not met. Global companies such as the Volvo Group Total contingent assets at December 31, 2020 amounted to SEK 1,252 M
are occasionally involved in tax processes of varying scope and in various (0) and is related to a tax credit in Brazil.
stages. Volvo Group regularly assesses these tax processes. When it is
probable that additional taxes must be paid and the outcome can be rea-
sonably e ­ stimated, the required provision is made. Out of total tax claims,
SEK 1.2 billion (1.8) is related to a transfer price audit in Brazil and SEK 1.0
billion (1.2) to a custom duties audit in India. The decrease in Brazil is due
to exchange rate effects.

125
 GROUP PERFORMANCE 2020 NOTES

25 TRANSACTIONS WITH RELATED PARTIES

ACCOUNTING POLICY

The Volvo Group engages in transactions with some of its related parties,
such as associated companies and joint ventures. The transactions arise in Sales of goods, Purchases of
services and other goods, services
the ordinary course of business and are conducted on commercial terms income and other expense
and market prices. They mainly consist of sales of vehicles, parts, equip-
2020 2019 2020 2019
ment and services as well as purchases of parts, engines and vehicles for
resale. Transactions between AB Volvo and its subsidiaries have been Associated companies 1,547 2,569 53 142
eliminated in the Group and are not disclosed in this note. Transactions Joint ventures 1,837 1,709 726 891
with the Board of Directors and the Group Executive Board consist of
remunerations, which are disclosed in note 27 Personnel. 25:1

 ead more in Note 5 Investments in joint ventures, associated companies and

R
other shares and participations.

Read more in Corporate Governance Report about Board of Directors and Receivables Payables
Group Executive Board.
Dec 31, Dec 31, Dec 31, Dec 31,
2020 2019 2020 2019

The Volvo Group’s transactions with related parties are presented in table Associated companies 242 595 24 73
25:1 and 25:2. Joint ventures 330 214 71 38

25:2

26 GOVERNMENT GRANTS

In 2020, government grants of SEK 3,473 M (746) were received, and

ACCOUNTING POLICY SEK 3,107 M (890) were recognized in the income statement.
During the Covid-19 pandemic, grants related to various governmental
Government grants are financial grants from governmental or supra­ short-term layoff programs were received by the Volvo Group. Out of the
national bodies that are received in exchange for fulfillment of certain con- total amount of grants received, SEK 2,672 M were received in relation to
ditions by the Volvo Group. The financial grants are recognized in the the short-term layoff programs whereof SEK 487 M will be repaid to the
financial statement when there is a reasonable assurance that the condi- authorities in Sweden. SEK 2,248 M were recognized in the income
tions will be complied with and that the grants will be received. statement as a deduction of the related costs for personnel. The grants
Government grants related to assets are presented in the balance sheet were mainly received from the authorities in Sweden, France and Canada.
either as deferred income or as a deduction of the carrying amount of the
related assets. ­Government grants related to income are reported as a Read more in note 27 Personnel, table 27:4 and 27:5.

deferred income in the balance sheet and recognized in the income state-
Government grants also includes tax credits of SEK 351 M (411) related to
ment to match the related costs. If the costs are incurred before the grants
product development, which were primarily received in France and in the
have been received, but there is an agreement that grants will be received,
United States. Other grants were mainly received from Swedish, Chinese
grants are recognized in the income statement to match the related costs.
and US governmental organizations and from the European Commission.

126
 GROUP PERFORMANCE 2020 NOTES

27 PERSONNEL

The holding requirements for the Executives shall cease upon termination
ACCOUNTING POLICY of an Executive’s employment, and the Board of Directors may grant such
other exceptions to the requirements as the Board deems appropriate.
Incentive programs Further cash remuneration may be awarded in extraordinary circum-
The Volvo Group has a long-term and a short-term incentive program that is stances, provided that such extraordinary arrangements are limited in
accounted for in accordance with IAS 19 Employee benefits. During the time and only made on an individual basis, either for the purpose of
vesting period, the incentive program is recognized as an expense and as a recruiting or retaining Executives, or as remuneration for extraordinary
short-term liability. performance beyond the individual’s ordinary tasks. Such remuneration
may not exceed an amount corresponding to 100 per cent of the annual
base salary. Any resolution on such remuneration shall be made by the
Policy for remuneration to senior executives, approved by the Board of Directors based on a proposal from the Remuneration Committee.
Annual General Meeting on 18 June 2020 For the President & CEO, pension benefits shall be granted on the basis
The Annual General Meeting 2020 decided upon the following policy on of a defined contribution plan except where law or collective agreement
remuneration and other terms of employment for the members of the would require a defined benefit pension. The pensionable salary shall
Volvo Group Executive Board. include base salary and short-term incentives. The pension contributions
These guidelines are forward-looking, i.e. they are applicable to remu- for the President & CEO attributable to the annual base salary shall
neration agreed, and amendments to remuneration already agreed, after amount to not more than 35 per cent of the base salary, and contributions
the proposed adoption of these guidelines by the 2020 annual general attributable to short term incentives shall not exceed the corresponding
meeting. These guidelines do not apply to any remuneration decided or proportion.
approved by the general meeting. Any new share-based incentive plans Other benefits may include, for example, life insurance, medical and
will, where applicable, be resolved by the general meeting, but no such health insurance, and company cars. Premiums and other costs relating to
plan is currently proposed. such benefits may amount to not more than 3 per cent of the annual base
salary for the President & CEO.
The guidelines’ promotion of the Volvo Group’s business strategy, ­­ For other Executives, pension benefits shall be granted on the basis of
long-term interests and sustainability a defined contribution except where law or collective agreement require a
It is a prerequisite for the successful implementation of the Volvo Group’s defined benefit pension. The pensionable salary shall include base salary
business strategy and safeguarding of its long-term interests, including and short-term incentives. The pension contributions for other Executives
its sustainability, that the Group can recruit, retain and develop top exec- attributable to the annual base salary shall amount to not more than 40
utives. These guidelines enable AB Volvo to offer Executives a competi- per cent of the base salary and contributions attributable to short term
tive total remuneration. More information regarding the Volvo Group’s incentives shall not exceed the corresponding proportion.
business strategy is available in the Volvo Group Annual and Sustainability Other benefits may include, for example, life insurance, medical and
Report. health insurance, and company cars. Premiums and other costs relating to
such benefits may amount to not more than 10 per cent of the annual base
Types of remuneration salary for other Executives.
Volvo Group remuneration to Executives shall consist of the following Remuneration for Executives that reside outside Sweden or reside in
components: base salary, short-term and long-term variable incentives, Sweden but having a material connection to or having been residing in a
pension benefits and other benefits. country other than Sweden may be duly adjusted to comply with manda-
Short-term incentives may, for the President & CEO, amount to a max- tory rules or local practice, taking into account, to the extent possible, the
imum of 100 per cent of the base salary and, for other Executives, a max- overall purpose of these guidelines.
imum of 80 per cent of the base salary. In addition to remuneration set out above, Executives who relocate for
Long-term incentives may, for the President & CEO, amount to a max- the purposes of the position or who work in other multiple countries may
imum of 100 per cent of the base salary and, for other Executives, a max- also receive such remuneration and benefits as are reasonable to reflect
imum of 80 per cent of the base salary. The current long-term incentive the special circumstances associated with such arrangements, taking
plan for the Group’s top executives, including the Executives, was intro- into account the overall purpose of these guidelines and alignment with
duced in connection with the 2016 annual general meeting. The objective the general policies and practices within the Volvo Group applicable to
of the program is to align the interests of the top executives with those of cross border work.
the Group shareholders. The program does that by a combination of a
performance based award and a requirement to purchase and hold AB Termination of employment
Volvo shares. The program is funded on an annual basis by an award, Upon termination of an Executive’s employment, the notice period may
measured against performance criteria established by the Board of not exceed twelve months. Base salary during the notice period and
­Directors. The after tax portion of this payment must be immediately ­severance pay may not together exceed an amount corresponding to the
invested in AB Volvo shares which must be held for a minimum of three base salary for two years.
years. In this way, the top executives are rewarded for the performance of Executives that reside outside Sweden or reside in Sweden but having
the Group each year, and will have a vested interest over the longer term a material connection to or having been residing in a country other than
in changes in the value of the shares. At the end of the three year period, Sweden may be offered notice periods for termination and severance
top executives may sell their shares, if they meet the requirement for own- ­payment as are reasonable to reflect the special circumstances, taking
ing shares valued at two years of the pre-tax base salary for the President into account the overall purpose of these guidelines and alignment with
& CEO and one year of the pre-tax base salary for the other Executives. the general policies and practices within the Volvo Group.

127
 GROUP PERFORMANCE 2020 NOTES

Criteria for awarding variable cash remuneration, etc. mittee shall also monitor and evaluate plans for variable remuneration for
Short-term and long-term incentives shall be linked to predetermined and Executives, the application of the guidelines for executive remuneration as
measurable criteria. The criteria – which for example may relate to EBIT, well as the current remuneration structures and compensation levels in the
cash flow, return on capital employed or similar ratios, or sustainability Group. The members of the Remuneration Committee are independent of
­targets – shall be devised to promote the Volvo Group’s strategy and AB Volvo and its executive management. The President & CEO and other
long-term value creation and strengthen the link between achieved
­ members of the executive management do not participate in the Board of
­performance targets and reward. The criteria for short-term and long-term Directors’ processing of and resolutions regarding remuneration-related
incentives shall be determined by the Board of Directors annually. The sat- matters in so far as they are affected by such matters.
isfaction of the criteria shall be measured over periods of one year each.
To which extent the criteria for awarding variable remuneration has Derogation from the guidelines
been satisfied shall be determined when the relevant measurement period The Board of Directors may temporarily resolve to derogate from the
has ended. The Board of Directors is responsible for the determination of guidelines, in whole or in part, if in a specific case there is special cause for
variable remuneration to all Executives. the derogation and a derogation is necessary to serve the Volvo Group's
long-term interests, including its sustainability, or to ensure the Group's
Claw-back and adjustments financial viability. As set out above, the Remuneration Committee's tasks
Executives participating in the Volvo Group’s current short-term and long- include preparing the Board of Directors' resolutions in remuneration-related
term incentive plans are obligated, in certain circumstances and for spec- matters. This includes any resolutions to derogate from the guidelines.
ified periods of time, to repay, partially or in its entirety, variable incentive
awards already paid if payments have been made by mistake or been Description of material changes to the guidelines
based on intentionally falsified data or in the event of material restatement Due to new legislation passed in 2019, the guidelines for executive remu-
of the Volvo Group’s financial results. Furthermore, the Board of Directors neration decided by the 2020 annual general meeting are more detailed
may decide on adjustments of pay-out under the incentive plans (before than before. In addition, the short-term and long-term incentives may be
payment has been made) in case of extraordinary circumstances or to linked to EBIT, cash flow, return on capital employed or similar ratios, or
adjust for unforeseen one-timers. sustainability targets, instead of EBIT and cash flow only.

Salary and employment conditions for employees Fees paid to the Board of Directors
In the preparation of the Board of Directors’ proposal for these remunera- According to a resolution adopted at the Annual General Meeting 2020,
tion guidelines, the Board has considered that the various benefits offered fees to the Board of Directors appointed at the Annual General Meeting for
to the Executives need to be aligned with the general structures applica- the period until the close of the Annual General Meeting 2021 remain
ble for employees of AB Volvo at levels that are competitive in the market. unchanged meaning that the Chairman of the Board should be awarded
Thus, salary and employment conditions for other AB Volvo employees SEK 3,600,000 (3,600,000) and each of the other members SEK
have been taken into account by including information thereon in the 1,060,000 (1,060,000) with exception of the President and CEO of AB
Remuneration Committee’s and the Board of Directors’ basis of decision Volvo, who does not receive a director’s fee. In addition, SEK 380,000
when evaluating whether the guidelines and the limitations set out herein (380,000) should be awarded to the Chairman of the Audit Committee
are appropriate. and SEK 175,000 (175,000) to each of the other members of the Audit
Committee, and SEK 160,000 (160,000) to the Chairman of the Remu-
The decision-making process to determine, neration Committee and SEK 115,000 (115,000) to each of the other
review and implement the guidelines members of the Remuneration Committee. During 2020, the Board
The Board of Directors has established a Remuneration Committee. The decided to discontinue its Technology and Business Transformation Com-
Committee’s tasks include preparing the Board of Directors’ decision to mittee. Further, the Board members decided on a 20 per cent reduction of
propose guidelines for executive remuneration. The Board of Directors their Board and Committee remuneration from the Annual General Meet-
shall prepare a proposal for new guidelines at least every fourth year and ing 2020 to the Annual General Meeting 2021. For more information,
submit it to the general meeting. The guidelines shall be in force until new please refer to the Corporate Governance Report.
guidelines are adopted by the general meeting. The Remuneration Com-

Remuneration to the Group Fixed remuneration Variable remuneration

Executive Board Other Short-term Long-term Other Pension
SEK Fixed salary benefits1 incentives incentives remunerations2 premiums

President and CEO 14,517,854 251,546 10,720,811 10,720,811 – 7,714,902

Deputy CEO 7,871,465 91,810 4,647,870 4,647,870 – 4,049,242
Other members of the
Group Executive Board3 78,342,719 20,133,762 43,423,320 43,423,320 3,000,000 29,721,602
Total 2020 100,732,038 20,477,118 58,792,001 58,792,001 3,000,000 41,485,746
Total 2019 97,876,492 21,439,999 69,818,155 – 3,000,000 35,909,751

27:1
1 Other benefits mainly pertain to company cars, housing and costs for a change of tax status of an expatriate
2 O ther remunerations include compensation in connection with employment in the Group.
3 The Group Executive Board comprised, excluding the CEO and Deputy CEO, of 13 (12) members at the end of the year.

128
 GROUP PERFORMANCE 2020 NOTES

Terms of employment and remuneration to the CEO 2020, the short-term and long-term incentives are based on adjusted
Fixed salary, short-term and long-term incentives operating income margin and cash flow for the Volvo Group. In 2020,
The President and CEO is entitled to a remuneration consisting of a fixed short-term and long-term incentives, could each amount to a maximum of
annual salary and short-term and long-term incentives. During the financial 80% of the annual base salary.
year 2020, the short-term and long-term incentives are based on adjusted For the financial year 2020, Jan Gurander received a fixed salary includ-
operating income margin and cash flow for the Volvo Group. The short- ing vacation payment of SEK 7,871,465 (8,159,410) and a short-term
term and long-term incentives, each, amounts to a maximum of 100% of incentive of SEK 4,647,870 (5,695,955). The short-term incentive was
the annual base ­salary. 56.3% (69.0) of the annual base salary. The fixed salary for 2020 is lower
For the financial year 2020, Martin Lundstedt received a fixed salary than previous year as Jan Gurander decided to lower his salary during a part
including vacation payment of SEK 14,517,854 (14,924,697) and a short- of the year due to the extraordinary situation as a result of the Covid-19
term incentive of SEK 10,720,811 (13,066,469). The short-term incentive pandemic. Other benefits, mainly pertaining to car benefit, amounted to
was 70.3% (88.8) of the annual base salary. The fixed salary for 2020 is SEK 91,810 (144,928).
lower than previous year as Martin Lundstedt decided to lower his salary Jan Gurander also participated in the long-term incentive program
during a part of the year due to the extraordinary situation as a result of the decided by the Board of Directors in 2020. The long-term incentive
Covid-19 pandemic. Other benefits, mainly pertaining to car and housing, amounted to SEK 4,647,870 (-), which was 56.3% (0) of the annual base
amounted to SEK 251,546 (369,530). Housing benefits were discontin- salary and the full net amount shall be invested in Volvo B shares. There is
ued as of July. to be no pay-out of the amount if the Annual Meeting held in 2021 decides
Martin Lundstedt was also participating in the long-term incentive not to distribute any dividends to the shareholders for 2020. The Annual
­program decided by the Board of Directors in 2020. During the financial General Meeting held in June 2020 resolved that no payment of dividend
year the outcome of the long-term incentive program amounted to SEK would be made and thus there was no pay-out regarding the long-term
10,720,811 (–), which was 70.3% (–) of the base salary. The full net incentive program as of year 2019.
amount shall be invested in Volvo B shares. There is to be no pay-out of
the amount if the Annual Meeting held in 2021 decides not to distribute Pensions
any dividends to the shareholders for 2020. The Annual General Meeting The Deputy CEO is covered both by pension benefits provided under col-
held in June 2020 resolved that no payment of dividend would be made lective bargain agreements and by the Volvo Management P ­ ension (VMP)
and thus there was no pay-out regarding the long-term incentive program and Volvo Executive Pension (VEP) plans. Both VMP and VEP are defined
for 2019. contribution plans. The pensionable salary consists of the annual salary,
vacation payment and a calculated short-term variable pay. The premium
Pensions for the VMP plan is SEK 30,000 per year plus 20% of pensionable salary
The President and CEO is covered both by pension benefits provided over 30 income base amounts and the premium for the VEP plan is 10%
under collective bargain agreements and by the Volvo Management of pensionable salary. There are no commitments other than the payment
­Pension (VMP) and Volvo Executive Pension (VEP) plans. Both VMP and of the premiums. In addition to the collective bargain agreement (ITP), the
VEP are defined contribution plans. The pensionable salary consists of the disability pension is 25% of salary between 7.5 price base amounts and
annual salary, vacation payment and a calculated short-term variable pay. 20 income base amounts, 37.5% of salary between 20–30 income base
The premium for the VMP plan is SEK 30,000 per year plus 20% of ­pen- amounts and 50% of salary between 30–50 income base amounts. The
sionable salary over 30 income base amounts and the premium for the right to disability pension is conditional to employment and will cease
VEP plan is 10% of pensionable salary. There are no commitments other upon termination of employment.
than the payment of the premiums. In addition to the collective bargain The Deputy CEO is also covered by Volvo Företags­pension, a defined con-
agreement (ITP), the disability pension is 25% of salary between 7.5 price tribution plan for additional retirement benefits. For 2020, the premium
base amounts and 20 income base amounts, 37.5% of salary between amounted to SEK 8,568 (8,280) for the full year.
20–30 income base amounts and 50% of base salary above 30 income Total pension premiums for Jan Gurander amounted to SEK 4,049,242
base amounts. The right to disability pension is conditional to employ- (3,514,535) in 2020.
ment and will cease upon termination of employment.
The President and CEO is also covered by Volvo Företags­pension, a Severance payments
defined contribution plan for additional retirement benefits. For 2020, the Jan Gurander has a 12 months notice period upon termination by
premium amounted to SEK 8,568 (8,280) for the full year. AB Volvo and a 6 months notice period upon termination on his own
Total pension premiums for Martin Lundstedt amounted to SEK initiative. If terminated by the company, Jan Gurander is entitled to a
7,714,902 (6,916,015) in 2020. ­severance payment equivalent to 12 months’ salary.

Severance payments Remuneration to the Group Executive Board

Martin Lundstedt has a 12 months notice period upon termination by Fixed salary, short-term and long-term incentives
AB Volvo and a 6 months notice period upon termination on his own Members of the Group Executive Board are entitled to a remuneration of a
initiative. If terminated by the company, Martin Lundstedt is entitled to a fixed annual salary and short-term and long-term incentives. During the
severance payment equivalent to 12 months’ salary. In the event of new financial year 2020, the short-term and long-term incentives are based on
employment during the severance period, the severance pay is reduced adjusted operating income margin and cash flow for the Volvo Group.
with an amount equal to 100% of the income from the new employment. In 2020, short-term and long-term incentives, for Group Executive Board
members excluding the CEO, could each amount to a maximum of 80% of
Terms of employment and remuneration to the Deputy CEO the annual base salary.
Fixed salary, short-term and long-term incentives For the financial year 2020, fixed salaries amounted to SEK 78,342,719
The Deputy CEO is entitled to a remuneration consisting of a fixed annual (74,792,385) and a compensation in connection with employment in the
salary and short-term and long-term incentives. During the financial year Group amounted to SEK 3,000,000 (3,000,000). Short-term incentive

129
 GROUP PERFORMANCE 2020 NOTES

amounted to SEK 43,423,320 (51,055,732) for the Group Executive Severance payments
Board members excluding the CEO and Deputy CEO. Short-term incentive The employment contracts for Group Executive Board members contain
was in average 56.3% (69.0) of the annual base salary. The fixed salary for rules governing severance payments when the company terminates the
2020 is lower than previous year as all Group Executive Board Members employment. For Executives resident in Sweden, the notice period upon
decided to lower their salary during part of the year due to the extraordinary termination by the company shall not exceed 12 months and the notice
situation as a result of the Covid-19 pandemic. The Group Executive Board period upon termination by the Executive shall not exceed 6 months. In
comprised, excluding the CEO and Deputy CEO, of 13 (12) members at the addition, in the event of termination by the company, the Executive is enti-
beginning and 13 (12) at the end of the year. Other benefits, including com- tled to a severance payment equivalent to maximum of 12 months’ salary.
pany cars, housing and costs for a change of tax status of an expatriate, Executives resident outside Sweden or resident in Sweden but having a
amounted to SEK 20,133,762 (20,925,541). material connection to or having been resident in a country other than Sweden
The Group Executive Board also participated in the long-term incentive may be offered notice periods for termination and severance payment that are
program decided by the Board of Directors in 2020. The long-term incen- competitive in the country where the Executives are or have been resident or
tive amounted to SEK 43,423,320 (–) for the Group Executive Board to which the Executives have a material connection, preferably solutions com-
members excluding the CEO and Deputy CEO, which was 56.3% (–) of parable to the solutions applied to Executives resident in Sweden.
the annual base salaries and the full net amount shall be invested in Volvo
B shares. There is to be no pay-out of the amount if the Annual Meeting Volvo Group's total cost for remuneration and benefits to the
held in 2021 decides not to distribute any dividends to the shareholders for Group Executive Board
2020. The Annual General Meeting held in June 2020 resolved that no The total cost for remuneration and benefits to the Group Executive Board
payment of dividend would be made and thus there was no pay-out regard- amounted to SEK 345 M (375) and pertained to fixed salary, short-term
ing the long-term incentive program as of year 2019. and long-term incentives, other benefits and pensions. It also included
social fees on salaries and benefits, special payroll tax and additional
Pensions costs for other benefits.
Group Executive Board members enrolled in the Swedish pension plan are
also covered by a defined contribution plan, Volvo Executive Pension Long-term incentive programs
(VEP) plan with pension premium payments at the longest to the age of Long-term incentive program valid from 2016
65 years. The premium is 10% of pensionable salary. As a complement to The Board of Directors have in 2016 approved a long-term cash-based
the collective bargaining agreement regarding occupational pension, incentive program comprising the top 300 Executives in the Volvo Group.
members of the Group Executive Board enrolled in the Swedish pensions A prerequisite for participation in the program is that the participants shall
plan and who are born before 1979 are also covered by a defined contribu- undertake to invest the annual net (after tax) payout amounts under the
tion pension plan, Volvo Management Pension (VMP). The premium is plan in Volvo B-shares and to hold those shares for at least three years.
SEK 30,000 per year plus 20% of pensionable salary over 30 income Long-term incentive may, as regards the President & CEO, amount to a
base amounts. The pensionable salary consists of the annual salary, vaca- maximum of 100% of the fixed salary and, as regards other Executives, a
tion payment and a calculated short-term variable pay. maximum of 80% of the fixed salary. There will however be no payout
Pension premiums for the Group Executive Board, excluding CEO and under the long-term incentive program if the Annual General Meeting that
Deputy CEO amounted to SEK 29,721,602 (25,479,200) in 2020. is held in the year following the performance year, decides not to d­ istribute
any dividends to the shareholders.

Average 2020 2019 Board 2020 2019

number of Number of of which Number of of which members1
employees employees women, % employees women, % and other
senior Number at of which Number at of which
AB Volvo executives year-end women, % year-end women, %
Sweden 301 51 325 54
AB Volvo
Subsidiaries Board
Sweden 20,150 23 20,267 22 members1 11 36 10 40
Western CEO, Dep-
Europe uty CEO
(excl. and other
Sweden) 21,037 17 21,864 17 senior exec-
utives 15 27 14 29
Eastern
Europe 6,754 20 7,103 21 Volvo
North Group
America 15,875 20 17,880 20 Board
South members1 573 23 517 25
America 5,736 17 5,865 17 Presidents
Asia 17,429 14 17,724 14 and other
Other senior
countries 2,292 20 2,702 18 executives 613 26 591 26
Group total 89,573 19 93,731 18
27:3
1 Excluding deputy Board members.
27:2

130
 GROUP PERFORMANCE 2020 NOTES

Wages, salaries and other 2020 2019

­remunerations Board and Other
of which Board and of which Other
SEK M Presidents 4 variable salaries employees 4 Presidents variable salaries employees

AB Volvo1 62.5 28.8 338.0 51.4 21.1 420.0

Subsidiaries 770.7 139.9 39,715.6 912.3 193.9 47,216.7
Group total 833.2 168.7 40,053.6 963.7 215.0 47,636.7

27:4

Wages, salaries and other 2020 2019

remunerations and social costs Wages, salaries Pension Wages, salaries
SEK M remuneration4 Social costs costs remuneration Social costs Pension costs

AB Volvo 2
400.5 120.4 123.5 471.4 143.5 184.7
Subsidiaries 40,486.3 9,150.0 3,507.1 48,129.0 10,416.1 4,846.3
Group total3 40,886.7 9,270.3 3,630.7 48,600.4 10,559.6 5,031.0

27:5
1 Including current and former Board members, President & CEO, Deputy CEO and Executive Vice Presidents.
2 The parent company’s pension costs, pertaining to Board members and ­Presidents are disclosed in note 3 Administrative expenses in the annual report of the parent company.
3 O f the Volvo Group’s pension costs, SEK 92 M (94) pertain to Board members and Presidents, including current and former Board members, Presidents, Deputy CEO
and Executive Vice Presidents. The Volvo Group’s outstanding ­pension obligations to these individuals amount to SEK 609 M (670). The cost for non-monetary benefits
in the Volvo Group amounted to SEK 2,853 M (3,336) of which SEK 41 M (54) pertained to Board members and Presidents. The cost for non-monetary ­benefits in the
parent ­company amounted to SEK 9.0 M (11.9) of which SEK 0.1 M (0.6) to Board members and ­P resident.
4 Including compensation from authorities, mainly related to short-term layoff programs, of SEK 2,248 M and salary reduction, due to the extraordinary situation following
the Covid-19 pandemic.

28 FEES TO THE AUDITORS

Fees to the auditors 2020 2019

Deloitte
– Audit fees 105 108
whereof to Deloitte AB 30 29
– Audit-related fees 7 6
whereof to Deloitte AB 2 3
– Tax advisory services 2 1
whereof to Deloitte AB – –
– Other fees 7 4
whereof to Deloitte AB – 1
Total 121 119

Audit fees to others 3 2

Volvo Group Total 124 121

28:1

The audit assignment involves review of the Annual report and financial
accounting and the administration by the Board and the President.
Audit-related assignments mean quality assurance services required by
enactment, articles of association, regulations or agreement. The amount
includes the fee for reviewing the half-year report. Tax services include
both tax consultancy and tax compliance services. All other tasks are
defined as other.

131
 GROUP PERFORMANCE 2020 NOTES

29 CASH FLOW Other non-cash items

Allowance for expected credit losses on accounts

2020 2019

­receivables/customer-financing receivables 1,725 962

ACCOUNTING POLICY Capital gains/losses on divested operations1 –25 –1,590
Unrealized exchange rate gains/losses
Cash flow analysis on accounts ­receivables and payables 50 –76
The cash flow statement is prepared in accordance with the indirect Unrealized exchange rate gains/losses
method. The cash flows of foreign group companies are translated at aver- on other operating assets and liabilities –270 119
age rates. Changes in group structure, acquisitions and divestments are Provision for profit sharing program 87 550
recognized gross, excluding cash and cash equivalents, and are included in Provision for incentive programs 1,053 1,860
cash flow from investing activities, in the items Acquired operations and Gains/losses on disposals of in-/tangible assets 55 –634
Divested operations. Gains/losses on divestments of shares
Read more in Note 18 Cash and cash equivalents. and participations2 43 –222
Income from investments in joint ventures –1,751 –1,860
Service cost related to pensions 1,645 1,911
Deferred sales with residual value commitments –3,137 –3,903
Provision for restructuring 1,685 –
Other changes 57 114
Total other non-cash items 1,217 –2,769

29:1
1 I n 2019 Volvo Group divested the majority of the shares in WirelessCar with
a capital gain of SEK 1.6 billion.
2 In 2019 Volvo Group divested all shares in Terratech AB with a capital gain of
SEK 199 M.
 Read more in Note 3 Acquisitions and divestment of shares and operations,
about gain/loss from divestments.

Changes in loans 2020 Cash flows Non-cash items

December New Repayment of Reclass­i ­ Unrealized Currency December 31,
31, 2019 borrowings borrowings fications1 currency effects translation 2020

Current bond loans

and other loans 56,135 66,452 –115,109 55,091 4,133 –8,445 58,258
Non–current bond loans
and other loans 101,616 63,614 –5,128 –55,676 –1,104 –8,155 95,166
Interest and currency
risk derivatives –1,328 – – – –4,169 – –5,496
Realized derivatives – – –895 – – – –
Other – –1,6122 – – – – –
Cash flow impact from changes in loans 128,453 –121,132 –584

Changes in loans 2019 Cash flows Non-cash items

December Transition effect New Repayment of Reclass­i ­ Unrealized Currency December 31,
31, 2018 IFRS 16 3 borrowings borrowings fications1 currency effects translation 2019

Current bond loans

and other loans 48,646 1,525 29,967 –61,166 35,174 –706 2,694 56,135
Non-current bond loans
and other loans 87,210 4,684 49,498 –7,871 –35,182 748 2,528 101,616
Interest and currency
risk derivatives –2,966 – – – – 1,639 – –1,328
Realized derivatives – – – 946 – – – –
Other – – –1,9132 –121 – – – –
Cash flow impact from changes in loans 77,553 –68,212 –7

29:2
1 A reclassification of SEK 584 M (7)has been made from current and non-current other loans to liabilities held for sale.
2 During 2020, new lease liabilities of SEK 1.6 billion (1.9) were adjusted as non-cash items.
3 The opening balance for 2019 is restated due to the implementation of IFRS 16.

Net borrowings increased by SEK 7.3 billion (9.3) mainly as an effect to safe-  ead more in Note 22 Liabilities regarding Current loans and
R
Non-current loans.
guard liquidity for the Volvo Group.
Syndications were performed in Financial Services to an amount of  ead more in Board of Directors report about Cash flow statement
R
SEK 6.8 billion (11.4). All syndications impacted cash flow this year. and Financial position.

132
 GROUP PERFORMANCE 2020 NOTES

30 FINANCIAL INSTRUMENTS

Financial assets measured at fair value through other

ACCOUNTING POLICY comprehensive income
In this category the Volvo Group includes holding of shares in listed compa-
Purchases and sales of financial assets and liabilities are recognized on the nies as the shares are not held for trading. Changes in fair value is measured
transaction date. Transaction expenses are included in the assets’ fair value, through other comprehensive income and amounted to SEK –8 M (48).
except in cases in which the change in value is recognized in the income
 ead more in Note 5 Investments in joint ventures, associated companies and
R
statement. The transaction costs that arise in conjunction with the admission other shares and participations.
of financial liabilities are amortized over the term of the loan as financial cost.
A financial asset is derecognized from the balance sheet at maturity Financial assets and liabilities measured at fair value
and when all ­significant risks and benefits related to the asset have been through the income statement
transferred to a third party. Volvo Group’s financial assets and liabilities held for trading are recog-
The fair value of financial assets is determined based on valid market nized at fair value through the income statement. As p ­ resented in table
prices, when available. If market prices are unavailable, the fair value is deter- 30:1, these instruments are derivatives, used for hedging interest and
mined for each asset through the use of various measurement techniques. currency risks and marketable securities, further presented in note 18
The fair value of financial instruments is classified based on the degree Cash and cash equivalents.
that market values have been utilized when measuring fair value. The Derivatives used for hedging interest rate exposure in the customer-
majority of financial instruments measured at fair value held by Volvo financing portfolio within Financial Services as well as the debt portfolio
Group is classified as level 2. The valuation of level 2 instruments is based in Industrial Operations are included in this section. Unrealized gains and
on market conditions using quoted market data existing at each balance losses from fluctuations in the fair value of the financial instruments are
sheet date. The basis for the interest is the zero-coupon-curve in each cur- recognized in other financial income and expenses. The Volvo Group
rency which is used to calculate the present value of all the estimated intends to hold these derivatives to maturity, which is why, over time, the
future cash flows. For forward exchange contracts the basis is the forward market valuation will be offset by the interest-rate fixing on borrowing and
premium based on current spot rate for each currency and future date. The lending in Financial Services, and thus not affect net income or cash flow.
fair value is then discounted based on the forward rates as per the balance Financial instruments used for hedging currency risks arising from
sheet date. Shares and participations are classified as level 1 for listed future firm commercial cash flows are also recognized in this section.
shares and level 3 for non-listed shares. Call options are classified as level Realized result and unrealized revaluation of derivatives are recognized in
3 and are based on the Black & Scholes option pricing formula. other financial income and expenses to be able to net all internal flows
before entering into external derivatives to hedge future currency risk.
Financial assets measured at amortized cost When hedging future cash flows for specific orders the classification in
Customer-financing receivables are held as part of a business model the income statement is decided on a case by case basis. In 2020, gains
whose objective is to collect contractual cash flows. The contractual cash and losses from derivatives hedging currency risks for specific orders of
flows are solely payments of principal and interest and are valued at amor- SEK –47 M (–35) have been recognized in operating income and SEK 63
tized cost in accordance with the effective interest method. In this cate- M (–54) in other financial income and expenses.
gory the Volvo Group also includes accounts receivables and holding of
Read more in Note 9 Other financial income and expenses.
shares in non-listed companies for which a fair value cannot reasonably be
determined. The carrying value for financial assets measured at amortized
Hedge Accounting is not applied by the Volvo Group.
cost has been analyzed and compared with an estimated fair value. The
carrying value is a reasonable approximation of the fair value.
 ead more in Note 5 Investments in joint ventures, associated ­companies
R
and other shares and participations. Information regarding carrying amounts and fair values
In table 30:1, carrying amounts are compared with fair values for all of
Read more in Note 15 Customer-financing receivables.
the Volvo Group’s financial instruments.
Read more in Note 16 Receivables.

133
 GROUP PERFORMANCE 2020 NOTES

Carrying amounts and fair values on financial instruments Dec 31, 2020 Dec 31, 2019
SEK M Carrying Fair Carrying Fair
value value value value

Assets
Financial assets measured at fair value through the income statement1
Interest and currency risk derivatives2 Note 16 6,049 6,049 2,015 2,015
Other derivatives3 564 564 564 564
B/S Marketable securities Note 18 213 213 200 200
6,826 6,826 2,779 2,779

Financial assets measured at fair value through other comprehensive income

Holding of shares in listed companies1 Note 5 – – – –

Financial assets measured at amortized cost

B/S Accounts receivables Note 16 35,660 35,660 37,723 37,723
Customer-financing receivables Note 15 128,531 128,531 147,127 147,127
Holding of shares in non-listed ­companies1 Note 5 276 276 158 158
Other interest-bearing receivables Note 16 402 402 1,504 1,504
164,870 164,870 186,512 186,512

B/S Cash and cash equivalents Note 18 85,206 85,206 61,461 61,461

Liabilities Note 22
Financial liabilities measured at fair value through the income statement
Interest and currency risk derivatives1,4 1,356 1,356 2,468 2,468

Financial liabilities measured at ­amortized cost5

Non-current bond loans and other loans 94,750 97,024 100,096 101,737
Current bond loans and other loans 58,027 58,188 55,768 55,822
B/S Trade Payables 59,611 59,611 66,866 66,866
212,388 214,823 222,730 224,425

30:1
1 All derivatives and marketable securities are classified as level 2, shares in listed 4 T he Volvo Group’s derivatives reported as liabilities is reduced by 64% (88)
companies are classified as level 1 and shares in non-listed companies are classi- by netting agreements and cash deposits to SEK 492 M (285).
fied as level 3. A reclassification has been made to assets held for sale by SEK 5 In
 the Volvo Group balance sheet, financial liabilities include loan-related deriva-
537 M (544), related to shares in listed companies. tives amounting to SEK –647 M (–1,888). The credit risk is included in the fair
2 T he Volvo Group’s gross exposure from derivatives reported as assets is reduced value of loans.
by 87% (89) by netting agreements and cash deposits to SEK 758 M (230).
Read more in Note 4 Goals and policies in financial risk management.
3 T he input data used in the valuation model for calculating the fair value has not
changed during 2020.

134
 GROUP PERFORMANCE 2020 NOTES

Derecognition of financial assets guarantees, i.e. the total amount the Volvo Group would have to pay in case
The Volvo Group is involved in discounting activities to reduce financial risks. of default of the customers. The likelihood for all customers going into default
An evaluation is performed to establish whether substantially all the risks at the same time is considered to be low. The gross exposure for the Volvo
and rewards have been transferred to an external party when entering into Group amounted to SEK 4.4 billion (2.9) related to credit guarantees issued
an agreement. The Volvo Group’s intention is not to be involved in for customers and others and is part of the Volvo Group’s contingent liabili-
­discounting activities if not substantially all the risks and rewards can be ties. This amount has not been reduced by the value of counter guarantees
transferred to an external party. As of December 31, 2020, there were no received or other collateral such as the right to repossess products.
transferred financial assets in the Volvo Group that did not fulfill the Read more in Note 21 Other provisions.
requirements for derecognition.
Read more in Note 24 Contingent Liabilities.
Financial assets for which substantially all risks and rewards have been
transferred are derecognized from the Volvo Group’s balance sheet.
Involvement in these assets is reflected in the Volvo Group’s ­balance sheet Gains, losses, interest income and interest expenses from
as part of the external credit guarantees. They are recognized at fair value financial instruments
as provisions in the balance sheet and amounted to SEK 0.1 billion (0.1). Table 30:3 shows how gains and losses, as well as interest income and
The Volvo Group’s maximum loss exposure is considered being the total interest expenses have affected income after financial items in the Volvo
recourse relating to transferred assets that are part of the recognized credit Group divided by the different categories of financial instruments.

In the table below outstanding derivatives hedging currency and interest rate risks are presented.

Outstanding derivative instruments Dec 31, 2020 Dec 31, 2019

SEK M Nominal amount Carrying value Nominal amount Carrying value

Interest-rate swaps
– receivable position 126,549 5,448 87,221 948
– payable position 167,422 –1,214 194,399 –2,329
Forward and futures
– receivable position 248 – – –
– payable position 666 –73 669 –19
Foreign exchange derivatives
– receivable position 25,779 596 27,589 1,061
– payable position 7,255 –67 16,695 –118
Options purchased
– receivable position 10,409 2 428 5
– payable position – – – –
Options written
– receivable position – – – –
– payable position 205 –2 405 –2
Total 4,691 –453

30:2

135
 GROUP PERFORMANCE 2020 NOTES

Recognized in operating income 2020 2019

Gain/ Interest Interest Gain/ Interest Interest
SEK M Loss income expense Loss income expense

Financial assets and liabilities at fair value through the income statement
Currency risk derivatives1, 2 –47 – – –35 – –
Financial assets measured at amortized cost
Accounts receivables/trade payables3 –102 – – –502 – –
Customer-financing receivables 4 267 7,208 – 423 7,765 –
Shares and participations in listed companies5 20 – – 18 – –
Shares and participations in non-listed companies5 14 – – 267 – –
Financial liabilities measured at amortized cost6 – – –2,992 – – –3,424
Impact on operating income 152 7,208 –2,992 171 7,765 –3,424

Recognized in net financial items7,8 2020 2019

Gain/ Interest Interest Gain/ Interest Interest
SEK M Loss income expense Loss income expense

Financial assets and liabilities at fair value through the income statement
Marketable securities –28 1 – 17 4 –
Interest and currency rate risk ­derivatives1, 2 7,473 –1 –1,246 –3,848 11 –1,483
Financial assets measured at amortized cost
Cash and Cash equivalents – 299 – – 306 –
Financial liabilities measured at amortized cost –8,051 – 192 2,853 – 189
Impact on net financial items7,8 –606 299 –1,055 –978 321 –1,294

30:3
1 Accrued and realized interest related to financial assets and liabilities measured 6 Interest expenses attributable to financial liabilities measured at amortized cost
at fair value through the income statement is included in the amounts for gains recognized in operating income include interest expenses for financing o ­ perating
and losses. lease activities, which are not classified as financial instruments.
2 T he Volvo Group uses forward contracts and currency options to hedge the value 7 In gain/loss, interest income and expenses related to financial instruments
of future cash flows in foreign currency. Both unrealized and realized result of ­recognized in net financial items, SEK –606 M (–978) was recognized in
currency risk contracts is included in the table. other financial income and expenses.
3 Information regarding changes in allowance for expected credit losses on 8 Interest expenses attributable to pensions reported in net financial items of
accounts receivables is provided in note 16 Receivables and note 8 Other SEK 294 M (379) are not included in this table.
­operating income and expenses.
Read more in Note 4 Goals and policies in financial risk management.
4 T he amount includes gains/losses due to derecognition of assets where SEK 177
M (333) is related to the sale of customer-financing receivables and SEK 91 M  ead more in Note 5 Investments in joint ventures, associated ­companies
R
(90) is related to early buy-out revenue. Information regarding changes in allow- and other shares and participations.
ance for expected credit losses on customer-financing receivables is provided in
note 15 Customer-financing receivables and note 8 Other o ­ perating income and Read more in Note 9 Other financial income and expenses.
expenses.
5 Changes in fair value on shares and participations in listed companies through
other comprehensive income amounted to SEK –8 M (48).

136
 GROUP PERFORMANCE 2020 NOTES

31 CHANGES IN VOLVO GROUP FINANCIAL REPORTING 2020

New accounting policies sequence, Cost of sales has decreased and Selling expenses has increased
As of January 1, 2020, the Volvo Group has changed the classification of by the corresponding amount, with no impact on the operating income.
certain costs related to commercial customer commitments, which now are The reclassification has been done retrospectively and the financial infor-
recognized as Selling expenses instead of as Cost of sales. This has caused a mation for 2019 has been restated to facilitate the comparability between
shift between the lines in the income statement of the Industrial Operations the years.
as well as the Volvo Group, while Financial Services is not affected. As a con-

CONSOLIDATED INCOME STATEMENT

Industrial Operations Volvo Group

Previously After Previously After
reported restatement reported restatement
SEK M 2019 Restatement 2019 2019 Restatement 2019

Net sales 418,361 – 418,361 431,980 – 431,980

Cost of sales –319,055 1,292 –317,763 –326,895 1,292 –325,603
Gross income 99,306 1,292 100,598 105,085 1,292 106,377

Research and development expenses –18,539 – –18,539 –18,539 – –18,539

Selling expenses –30,483 –1,292 –31,775 –33,037 –1,292 –34,329
Administrative expenses –5,887 – –5,887 –5,901 – –5,901
Other operating income and expenses 230 – 230 –221 – –221
Income/loss from investments in joint ventures and
associated companies 1,859 – 1,859 1,859 – 1,859
Income from other investments 285 – 285 285 – 285
Operating income 46,771 – 46,771 49,531 – 49,531

Interest income and similar credits 320 – 320 320 – 320

Interest expenses and similar charges –1,673 – –1,673 –1,674 – –1,674
Other financial income and expenses –1,346 – –1,346 –1,345 – –1,345
Income after financial items 44,071 – 44,071 46,832 – 46,832

Income taxes –9,650 – –9,650 –10,337 – –10,337

Income for the period 34,422 – 34,422 36,495 – 36,495

31:1

137
 PARENT
COMPANY

138
 GROUP PERFORMANCE 2020 PARENT COMPANY

PARENT COMPANY AB VOLVO

Corporate registration number 556012-5790.
The amounts within parentheses refer to the preceding year, 2019.

Board of Directors’ report The carrying value of shares and participations in Volvo Group companies
AB Volvo is the parent company of the Volvo Group and its operations amounted to SEK 71,857 M (72,272), of which SEK 70,554 M (71,084)
­comprise of the Volvo Group’s headquarters with staff together with some pertained to shares in wholly owned subsidiaries. The corresponding share-
cor­porate functions. AB Volvo has been affected by the situation caused holders’ equity in the subsidiaries (including equity in untaxed reserves but
by the Covid-19 pandemic. To reduce the number of redundancies the excluding non-controlling interests) amounted to SEK 144,701 M (139,883).
company has applied for, and received, government grants and the Investments in joint ventures and associated companies amounted to
employees have been on short-term layoff, completely or partially, during SEK 8,938 M (8,989). In the consolidated accounts for the Volvo Group
parts of the financial year 2020. Group contributions of SEK 1,020 M these are accounted for according to the equity method. The equity portion
(25,792) has been received during the financial year. Due to the receiving in joint ventures and associated companies pertaining to AB Volvo amounted
of government grants no group contributions has been given for 2020. to SEK 10,177 M (10,400).
Income from investments in Volvo Group companies include dividends Financial net debt amounted to SEK 7,565 M (32,160).
amounting to SEK 1,128 M (7,509). AB Volvo’s risk capital (equity plus untaxed reserves) amounted to
SEK 74,700 M (73,220) corresponding to 90% (60) of total assets.

INCOME STATEMENT
SEK M 2020 2019

Net sales Note 2 327 362

Cost of sales Note 2 –327 –362
Gross income 0 0

Administrative expenses Note 2, 3 –1,185 –1,332

Other operating income and expenses Note 4 128 –52
Operating income1 –1,057 –1,384

Income from investments in Group companies Note 5 413 6,167

Income from investments in joint ventures and associated companies Note 6 1,058 451
Income from other investments Note 7 –1 0
Interest income and similar credits 0 1
Interest expenses and similar charges Note 8 –587 –834
Other financial income and expenses Note 9 –19 –22
Income after financial items –193 4,379

Appropriations Note 10 1,020 21,792

Income taxes Note 11 653 –4,162
Income for the period 1,480 22,009

OTHER COMPREHENSIVE INCOME

Income for the period 1,480 22,009

Other comprehensive income, net of income taxes – –
Total comprehensive income for the period 1,480 22,009
1 The comparative information has been restated, for more information, please see note 1.

139
 GROUP PERFORMANCE 2020 PARENT COMPANY

BALANCE SHEET
SEK M Dec 31, 2020 Dec 31, 2019

Assets
Non-current assets
Tangible assets Note 12 7 7
Financial assets
Shares and participations in Group companies Note 13 71,857 72,272
Investments in joint ventures and associated companies Note 13 8,946 8,997
Other shares and participations Note 13 1 1
Deferred tax assets Note 11 298 207
Total non-current assets 81,109 81,484

Current assets
Current receivables
Receivables Group companies 1,735 39,191
Other receivables Note 14 85 360
Total current assets 1,820 39,551
Total assets 82,929 121,035

Equity and liabilities

Equity
Restricted equity
Share capital 2,562 2,554
Statutory reserve 7,337 7,337

Unrestricted equity
Non-restricted reserves 390 390
Retained earnings 52,930 30,929
Income for the period 1,480 22,009
Total equity 64,699 63,219

Untaxed reserves Note 15 10,000 10,000

Provisions
Provisions for post-employment benefits Note 16 268 248
Other provisions Note 17 3 –
Total provisions 271 248

Non-current liabilities Note 18

Liabilities to Group companies 5,589 5,589
Other liabilities 6 6
Total non-current liabilities 5,595 5,595

Current liabilities
Trade payables 87 226
Other liabilities to Group companies 1,789 39,246
Tax liabilities 1 1,722
Other liabilities Note 19 487 779
Total current liabilities 2,364 41,973
Total equity and liabilities 82,929 121,035

140
 GROUP PERFORMANCE 2020 PARENT COMPANY

CASH FLOW STATEMENT

SEK M 2020 2019

Operating activities
Operating income –1,057 –1,384
Depreciation and amortization 0 0
Other non-cash items Note 21 –45 –36
Total change in working capital whereof –105 –725
Change in accounts receivable –107 –70
Change in trade payables 134 48
Other changes in working capital –132 –703
Interest and similar items received 0 1
Interest and similar items paid –597 –829
Other financial items –23 –13
Dividends received from group companies Note 5 1,127 6,378
Dividends received from joint ventures and associated companies Note 6 876 451
Group contributions received 25,792 14,440
Income taxes paid –1,108 –2,218
Cash-flow from operating activities 24,860 16,065

Investing activities
Investments in in-/tangible assets Note 12 – 0
Disposals of in-/tangible assets Note 12 0 –17
Investments of shares in group companies Note 13 –300 –32
Divestments of shares in group companies Note 5, 13 – 13
Investments of shares in non-group companies Note 13 –125 –101
Divestments of shares in non-group companies Note 13 176 –
Cash-flow after net investments 24,611 15,928

Financing activities
New borrowings Note 21 – 4,377
Repayment of borrowings Note 21 –24,611 –
Dividends to AB Volvo shareholders – –20,335
Other – 30
Change in cash & cash equivalents 0 0

Cash & cash equivalents, beginning of year – –

Cash & cash equivalents, end of year – –

141
 GROUP PERFORMANCE 2020 PARENT COMPANY

CHANGES IN EQUITY
Restricted equity Unrestricted equity
Statutory Share premium Retained Total
SEK M Share capital reserve reserve earnings Total equity

Balance at December 31, 2018 2,554 7,337 378 51,275 51,653 61,544

Income for the period – – – 22,009 22,009 22,009

Other comprehensive income

Other comprehensive income for the period

Total income for the period – – – 22,009 22,009 22,009

Transactions with shareholders

Dividends to AB Volvo shareholders – – – –20,335 –20,335 –20,335
Share based payments – – 12 –11 1 1
Transactions with shareholders – – 12 –20,346 –20,334 –20,334

Balance at December 31, 2019 2,554 7,337 390 52,938 53,328 63,219

Income for the period – – – 1,480 1,480 1,480

Other comprehensive income

Other comprehensive income for the period

Total income for the period – – – 1,480 1,480 1,480

Transactions with shareholders

Dividends to AB Volvo shareholders – – – – – –
Other changes 8 – – –8 –8 0
Transactions with shareholders 8 – – –8 –8 0

Balance at December 31, 2020 2,562 7,337 390 54,410 54,800 64,699

Read more in Note 19 Equity and number of shares in the consolidated financial statements about the share capital of the parent company.

142
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

NOTES TO FINANCIAL STATEMENTS

The amounts within ­parentheses refer to the preceding year, 2019.

1
• The discount rate used in the calculations is set by PRI Pensions­garanti
and Finansinspektionen, respectively.
ACCOUNTING POLICIES • Changes in the discount rate, actual return on plan assets and other
actuarial assumptions are recognized directly in the income statement
The parent company has prepared its financial statements in accordance and in the balance sheet.
with the Swedish Annual Accounts Act (1995:1554) and RFR 2, Accounting • Deficit must be either immediately settled in cash or recognized as a
for legal entities. According to RFR 2, the parent company shall apply all the liability in the balance sheet.
International Financial Reporting Standards endorsed by the EU as far as this • Surplus cannot be recognized as an asset, but may in some cases be
is possible within the framework of the Swedish Annual Accounts Act. refunded to the company to offset pension costs.
The changes in RFR 2 applicable to the fiscal year beginning January 1,
2020, has not had any significant impact on the parent company.

2
There are no announced changes in RFR 2 applicable to the fiscal year
beginning January 1, 2021 or later. REVENUE AND INTRA-GROUP
The accounting policies applied by the Volvo Group are described in the
­T RANSACTIONS
respective notes in the consolidated financial statements. The main devi-
ations between the accounting policies applied by the Volvo Group and
The recognized net sales of SEK 327 M (362) pertain mainly to revenues
the parent company are described below.
from sale of services to group companies SEK 288 M (320). Revenue is
Shares and participations in group companies and Investments in joint
recognized when the control of the service has been transferred to the
ventures and associated companies are recognized at cost in the parent com-
customer, which is when the parent company incurs the associated cost to
pany and test for impairment is performed annually. In accordance with RFR
deliver the service and the customer can benefit from the use of the deliv-
2, the parent company includes costs related to acquisition of a business in
ered services.
the acquisition value. Dividend is recognized in the income statement.
Purchases from group companies amounted to SEK 232 M (468).
All holdings of shares were previously recognized as operational and

3
the income was reported in the operating income. As from the financial
year 2020 and onwards, all holding of shares are recognized as financial
assets and the result is reported in the income from financial items.
A ­corresponding change has also taken place for the comparison year. ADMINISTRATIVE EXPENSES
Over the course of the year, the company has also made changes to the
classification of certain intra-group transactions in the income statement. Personnel
This reclassification has no effect on income and no change has taken Wages, salaries and other remunerations amounted to SEK 418 M (471),
place in respect of the company’s transfer price model. A corresponding social costs to SEK 120 M (143) and pension costs to SEK 210 M (193).
change for the comparison year means that an income of SEK 122 M has During 2020 government grants due to the extraordinary situation raised by
been reclassified within the operating income, from Income from invest- Covid-19, were received by SEK 23 M (–). Of these, SEK 18 M were recog-
ments in Group companies to Administration expenses. nized in the income statement, and SEK 5 M will be repaid to the authorities
As a consequence of the two above mentioned changes, the operating in Sweden. Pension cost of SEK 10 M (9) pertained to Board Members and
income for the financial year 2019 has therefore decreased by SEK 6,618 M. the President. The parent company has outstanding pension obligations of
Accordingly, the income from financial items has increased by SEK 6,618 M. SEK 1 M (1) to these individuals.
The parent company applies the exception in the application of IFRS 9 The number of employees at year end was 289 (331).
which concerns accounting and measurement of financial contracts of guar-  ead more in Note 27 Personnel in the consolidated financial statements
R
antee in favor of subsidiaries and associated companies. The parent company about the average number of employees, wages, salaries and other remunera-
tions including incentive program as well as Board members and senior
recognizes the financial contracts of guarantee as contingent liabilities. ­executives by gender.
RFR 2 includes an exception in regard to IFRS 16, allowing all lease
contracts to be accounted for as operational lease contract when the par- Depreciation
ent company is a lessee. Administrative expenses include depreciation of SEK 0 M (0) and pertains
Reporting of group contributions is recognized in accordance with the to machinery and equipment.
alternative rule in RFR 2. Group contributions are reported as appropriations.
According to RFR 2, application of the regulations in IAS 19 regarding
defined benefit plans is not mandatory for legal entities. However, IAS 19
Fees to the auditors 2020 2019
shall be applied for supplementary disclosures when applicable. RFR 2
refers to the Swedish law on safeguarding of pension commitments Deloitte AB
(“tryggandelagen”) related to recognition of provisions for post-employment – Audit fees 17 18
benefits in the balance sheet and of plan assets in pension foundations.
– Audit-related fees 3 1
Volvo Group applies IAS 19 Employee Benefits in the consolidated
– Other fees 0 1
financial statements. This implies differences, which may be significant,
Total 20 20
in the accounting of defined benefit pension plans as well as in the
accounting of plan assets invested in the Volvo Pension Foundation.
3:1
The accounting principles for defined benefit plans differ from IAS 19
mainly relating to:  ead more in Note 28 Fees to the Auditors in the consolidated financial state-
R
ments for a description of the different categories of fees.
• Pension liability calculated according to Swedish accounting principles
does not take into account future salary increases.

143
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

4 OTHER OPERATING INCOME

AND EXPENSES 6 INCOME FROM INVESTMENTS IN JOINT
VENTURES AND ASSOCIATED COMPANIES
Other operating income and expenses include loss on sale of rights by Income from investments in joint ventures and associated companies
SEK – M (51), write-offs of receivables by SEK 33 M (–) and donations, include dividend from Dongfeng Commercial Vehicles Co., Ltd by SEK
grants and Volvo profit sharing program costs by SEK 14 M (4). 1,058 M (392) and from VE Commercial Vehicles, Ltd. by SEK – M (59).

5 INCOME FROM INVESTMENTS

IN GROUP COMPANIES 7 INCOME FROM OTHER INVESTMENTS

AB Volvo has not had any transactions from other investments which have
had a significant impact on the financial statements.
Income from investments in
Group Companies 2020 2019

Dividends received
Volvo China Investment Co., China
Volvo Italia Spa, Italy
394
243
137
–
8 INTEREST EXPENSES AND SIMILAR
CHARGES
JSC Volvo Vostok, Russia 214 316 Interest expenses and similar charges totaling SEK 587 M (834) include
Volvo Automotive Finance (China) Ltd, China 196 180 ­interest of SEK 587 M (834) to subsidiaries.
Volvo Malaysia Sdn Bhd, Malaysia 63 106

9
Volvo Norge AS, Norway 18 92
Volvo Autonomous Solutions AB (former OTHER FINANCIAL
Volvo Holding Sverige AB), Sweden – 4,980
VNA Holding Inc., USA – 1,423 INCOME AND EXPENSES
Volvo Group UK Ltd., Great Britain – 175
Other financial income and expenses include exchange rate gains and
Volvo Danmark A/S, Denmark – 100
losses, costs for credit rating and stock exchange listing cost.
Subtotal 1,128 7,509

10
Impairment of shares
Volvo Equipamentos de Construcao Latin
America –490 –
Volvo Italia Spa, Italy –225 –170 APPROPRIATIONS
Volvo Construction Equipment AB, Sweden – –2,554
Volvo Lastvagnar Sverige AB, Sweden – –300
Appropriations include a net of group contributions of SEK 1,020 M
(25,792), tax allocation reserve of SEK – M (4,000) and reversal of addi-
Subtotal –715 –3,024
tional depreciation of SEK 0 M (0).
Reversal impairment of shares
Volvo Bussar AB, Sweden – 1,054
Volvo Information Technology AB, Sweden – 145
JSC Volvo Vostok, Russia – 143
Volvo Group UK, Ltd., Great Britain – 134
Volvo Business Services AB, Sweden – 118
Volvo Logistics AB, Sweden – 85
VFS Servizi Financiari Spa Italy – 22
Subtotal – 1,701
Income from divestment of shares
Alviva AB, Sweden – –21
Volvo Event Management SA, Belgium – 2
Subtotal – –19
Income from investments in Group Companies 413 6,167

5:1

144
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

11 INCOME TAXES 12 INTANGIBLE AND TANGIBLE ASSETS

Income taxes were distributed as follow:

Intangible assets, Other Total

acquisition costs intangible intangible
Income taxes 2020 2019 assets assets

Current taxes relating to the period –111 –4,217 Opening balance 2019 116 116
Adjustment of current taxes for prior period 673 34 Sales – –
Deferred taxes 91 21 Acquisition cost as of
I/S Total income taxes 653 –4,162 ­2019-12-31 116 116

Sales – –
11:1
Acquisition cost as of
­2020-12-31 116 116
Deferred taxes relate to estimated tax on temporary differences.
Deferred taxes has been revaluated based on the tax rate that are
expected for the period when the asset is realized or the liability are Intangible assets, Other Total
adjusted. Table 11:2 discloses the principal reasons for the difference accumulated intangible intangible
amortization assets assets
between the corporate income tax of 21.4% and the tax for the period:
Opening balance 2019 116 116
Sales – –
Income taxes for the period 2020 2019 Accumulated amortization
as of 2019-12-31 116 116
Income before taxes 827 26,171
Income tax according to applicable tax rate –177 –5,601
Sales – –
Accumulated amortization
Capital gains/losses 0 –4
as of 2020-12-31 116 116
Non-taxable dividends 468 1,703
B/S Net value in balance sheet
Tax effect due to changed income tax rate –3 1 as of December 31, 20191 – –
Non-taxable revaluations of shareholdings 2 16 B/S Net value in balance sheet
Other non-deductible expenses –210 –656 as of December 31, 20201 – –
Other non-taxable income 0 349
Adjustment of current taxes for prior period 673 34 Tangible assets, Total
Machinery
Withholding tax –93 –9 acquisition costs and equip- tangible
Remeasurement of deferred tax assets 4 –2 ment assets
Current tax on standardized method –11 7 Opening balance 2019 21 21
Income taxes for the period 653 –4,162
Sales/scrapping –4 –4
Acquisition cost as of
11:2
­2019-12-31 17 17

Sales/scrapping –1 –1
Acquisition cost as of
Specification of deferred Dec 31, Dec 31, ­2020-12-31 16 16
tax assets 2020 2019

Provisions for post-employment benefits 298 207 Tangible assets, Machinery Total
B/S Deferred tax assets 298 207 accumulated and equip- tangible
depreciation ment assets
11:3
Opening balance 2019 13 13
Depreciation 0 0
Sales/scrapping –3 –3
Accumulated depreciation
as of 2019-12-31 10 10

Depreciation 0 0
Sales/scrapping –1 –1
Accumulated depreciation
as of 2020-12-31 9 9
B/S Net value in balance sheet
as of December 31, 20191 7 7
B/S Net value in balance sheet
as of December 31, 20201 7 7
1 Acquisition value, less accumulated depreciation, amortization and
impairment.

12:1

145
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

13 INVESTMENTS IN SHARES AND PARTICIPATIONS

Shares and participations in group companies In December 2019, the Volvo Group announced the intention to transfer
During 2020, shareholder´s contribution has been paid to Volvo Logistics ownership of the complete UD Trucks business globally from the Volvo
AB by SEK 300 M. Impairment of investment in Volvo Equipamentos de Group to Isuzu Motors. In October 2020, the binding agreements were
Construcao Latin America has been made by SEK 490 M and in Volvo signed and the transaction is expected to be fulfilled during first half of 2021.
Italia Spa by SEK 225 M.
During 2019, shares in Volvo Equipamentos de Construcao Latin Investments in joint ventures and associated companies
America was received in form of dividend from Volvo Autonomous
­ During 2020 investment in World of Volvo AB by SEK 125 M has been
­Solutions AB (former Volvo Holding Sverige AB) by SEK 830 M. Share- made with 50% ownership. The investment is classified as a joint venture
holder´s contribution was paid to Alviva AB by SEK 32 M and Alviva AB together with Volvo Car Corporation. The participation of 50% in Blue Chip
was divested with carrying value of SEK 32 M. Impairment of Volvo Jet II HB has been divested by SEK 176 M.
­C onstruction Equipment AB was made by SEK 2,554 M. This impairment During 2019 capital contribution has been paid to Blue Chip Jet II HB
refers to previous ownership of Volvo Construction Equipment N.V. which by SEK 100 M.
was transferred to Volvo Construction Equipment AB 2018 as a share-
holder´s contribution. Impairment has been made in Volvo Lastvagnar Other shares and participations
Sverige AB by SEK 300 M and Volvo Italia Spa by SEK 170 M. Reversal No significant transactions have affected the value of other shares and
of impairments was made in Volvo Bussar AB by SEK 1,054 M, Volvo participations during 2020 and 2019.
Information ­Technology AB by SEK 145 M, JSC Volvo Vostok by SEK 143
M, Volvo Group UK by SEK 134 M, Volvo Business Services AB by SEK
118 M, Volvo Logistics AB by SEK 85 M and VFS Servizi Financiari Spa by
SEK 22 M.

Changes in AB Volvo´s holding of Joint ventures

shares and participations Group and associated Other shares and
companies companies participations
2020 2019 2020 2019 2020 2019
Opening balance 72,272 72,765 8,997 8,894 1 4
Acquisitions/New issue of shares – 830 125 – – –
Divestments/Redemption of shares – –32 –176 – – –
Shareholder’s contribution 300 32 – 100 1 1
Impairment of shares and participations –715 –3,024 – – –1 –1
Reversal impairment of shares and ­participations – 1,701 – – – –
Reclassification – – – 3 – –3
B/S Carrying value, as of December 31 71,857 72,272 8,946 8,997 1 1

13:1

Holding of shares in Joint Ventures, associated Dec 31, 2020 Dec 31, 2020 Dec 31, 2019
companies and other shares and participations Registration Percentage Carrying Carrying
number holding1 value2 value2
Dongfeng Commercial Vehicles Co. Ltd., China – 45.0 7,197 7,197
VE Commercial Vehicles Ltd., India3, 4 – 34.7 1,616 1,616
Blue Chip Jet II HB, Sweden 969717-2105 – – 176
World of Volvo AB, Sweden4 559233-9849 50.0 125 –
Other investments – 9 9
Total carrying value, joint ventures, ­associated companies and other shares and participations 8,947 8,998

13:2
1 T he percentage holding refers to the parent c
­ ompany AB Volvo’s holding.
2 Refers to AB Volvo’s carrying value of its holding.
3 The total holding by Volvo Lastvagnar AB and AB Volvo is 45.6%.
4 In Volvo Group the companies are reported as joint ventures, consolidated according to equity method.

146
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

AB Volvo owns, directly or indirectly, 285 (276) legal entities. The direct owned entities are listed in below table.

Holding of shares in Group ­companies Dec 31, 2020 Dec 31, 2020 Dec 31, 2019
Registration Percentage Carrying Carrying
number holding1 value2 value2

Volvo Lastvagnar AB, Sweden 556013-9700 100 8,711 8,711

Volvo Autonomous Solutions AB (former Volvo Holding Sverige AB), Sweden 556539-9853 100 8,134 8,134
UD Trucks Corporation, Japan – 100 8,928 8,928
Volvo Bussar AB, Sweden 556197-3826 100 3,033 3,033
Volvo Construction Equipment AB, Sweden 556021-9338 100 7,559 7,559
AB Volvo Penta, Sweden 556034-1330 100 586 586
VNA Holding Inc., USA – 100 3,688 3,688
Volvo Financial Services AB, Sweden 556000-5406 100 2,667 2,667
Volvo Treasury AB, Sweden 556135-4449 100 13,044 13,044
Sotrof AB, Sweden 556519-4494 100 2,888 2,888
Volvo Lastvagnar Sverige AB, Sweden 556531-8572 100 2,355 2,355
Volvo China Investment Co Ltd., China – 100 1,302 1,302
Volvo Automotive Finance (China) Ltd., China – 100 491 491
Volvo Group UK Ltd., Great Britain3 – 35 350 350
Volvo Group Mexico SA, Mexico – 100 543 543
Volvo Group Venture Capital AB, Sweden 556542-4370 100 369 369
Volvo Powertrain AB, Sweden 556000-0753 100 898 898
Volvo Information Technology AB, Sweden 556103-2698 100 1,511 1,511
Volvo Parts AB, Sweden 556365-9746 100 200 200
Volvo Group Insurance Försäkrings AB, Sweden 516401-8037 100 182 182
Volvo Business Services AB, Sweden 556029-5197 100 118 118
Volvo Danmark A/S, Denmark – 100 157 157
VFS Servizi Financiari Spa, Italy4 – 25 101 101
Kommersiella Fordon Europa AB, Sweden 556049-3388 100 2,693 2,693
Volvo Norge AS, Norway – 100 50 50
Volvo Malaysia Sdn Bhd., Malaysia – 100 48 48
JSC Volvo Vostok, Russia5 – 75 177 177
Volvo Italia Spa, Italy6 – 65 335 559
Volvo Logistics AB, Sweden 556197-9732 100 385 85
Volvo Information Technology GB Ltd., Great Britain – 100 3 3
VFS Latvia SIA, Latvia – 100 9 9
VFS Int Romania Leasing Operational, Romania – 100 2 2
Volvo Equipamentos de Construcao, Latin America, Brazil7 – 66 340 830
Other holdings – 0 1
Total carrying value Group companies8 71,857 72,272

13:3
1 T he percentage holding refers to the parent c
­ ompany AB Volvo’s holding. 6 Total holding by Renault Trucks (SAS), Volvo Lastvagnar AB, AB Volvo Penta and
2 Refers to AB Volvo’s carrying value of its holding. AB Volvo is 100%.

3 Total holding by Volvo Lastvagnar AB and AB Volvo is 100%. 7 Total holding by Volvo Autonomous Solutions AB and AB Volvo is 100%.

4 Total holding by Volvo Italia Spa and AB Volvo is 100%. 8 A B Volvo’s share of shareholders’ equity in ­subsidiaries (including equity in untaxed
reserves) was SEK 144,701 M (139,883).
5 Total holding by AB Volvo and Volvo Trucks Region Central Europe GmbH is 100%.

14 OTHER RECEIVABLES 15 UNTAXED RESERVES

Dec 31, Dec 31, Dec 31, Dec 31,

2020 2019 2020 2019

Accounts receivable 14 7 Tax allocation reserve 10,000 10,000

Prepaid expenses and accrued income 20 53 Accumulated additional depreciation:
Other receivables 51 300 Machinery and equipment 0 0
B/S Total other receivables 85 360 B/S Total untaxed reserves 10,000 10,000

14:1 15:1
There is no valuation allowance for doubtful receivables at the end of the
year. Fair value is not considered to differ from carrying value. 147
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

16 PROVISIONS FOR POST-EMPLOYMENT BENEFITS

The parent company has two types of pension plans, defined contribution
plans and defined benefit plans.
Defined contribution plans: post-employment benefit plans where the Fair value of plan assets in funded plans
company makes regular payments to separate entities and has no legal or
constructive obligation to pay further contributions. The expenses for Plan assets opening balance 2019 788
defined contribution plans are recognized during the period when the Actual return on plan assets 110
employee provides service. Contributions and compensation
to/from the fund 33
Defined benefit plans: post-employment benefit plans where the com-
pany’s undertaking is to provide predetermined benefits that the employee Plan assets as of December 31, 2019 931
will receive on or after retirement. These benefit plans are secured through Actual return on plan assets 126
balance sheet provisions or pension fund contributions. Furthermore, a Contributions and compensation to/from the fund 0
credit insurance policy has been taken out for the value of the obligations.
Plan assets as of December 31, 2020 1,057
The main defined benefit plan is the ITP2 plan which is based on final
salary. The plan is semi-closed, meaning that only new employees born 16:2
before 1979 have the possibility to choose the ITP2 solution. The ITP2
plan for the company is funded in Volvo Pension Foundation. Pension obli-
gations are calculated annually, on the balance sheet date, based on actu-
arial assumptions. Provisions for post-employment Dec 31, Dec 31,
The defined benefit obligations are calculated based on the actual benefits 2020 2019
­salary levels at year-end and based on a discount rate of 3.84% (3.84)
Obligations1 –999 –948
for the ITP2 plan and 0.3% (0.7) for other pension obligations. Assump-
Fair value of plan assets 1,057 931
tions for discount rates and mortality rates are determined annually by
Funded status 58 –17
PRI ­Pensionsgaranti for ITP2 and Finansinspektionen for other pension
­obligations, respectively. Limitation on assets in accordance with
The Volvo Pension Foundation was formed in 1996 to secure obliga- RFR2 (when plan assets exceed
tions relating to retirement pensions in accordance with the ITP plan. corresponding obligations) –326 –231
Since its formation, net contributions of SEK 332 M have been made to B/S Net provisions for
post-employment ­benefits2 –268 –248
the foundation by the parent company.
Provisions for post-employment benefits in the parent company’s
16:3
­balance sheet correspond to the present value of obligations at year end,
1 The ITP2 obligations amount to SEK –714 M (–683).
less fair value of plan assets.
2 ITP2 obligations, net, amount to SEK 0 M (0).

Obligations in defined Pension costs 2020 2019

benefit plans Funded Unfunded Total
Service costs 46 32
Obligations opening balance 2019 663 258 921 Interest costs1 29 29
Service costs 31 1 32 Interest income1 17 –2
Interest costs 27 2 29 Pension costs for defined benefit plans 92 59
Benefits paid –21 –13 –34
Pension costs for defined contribution plans 62 62
Obligations as of
December 31, 2019 700 248 948 Special payroll tax/yield tax 2 51 67
Service costs 26 19 45 Cost for credit insurance FPG 5 5
Interest costs 28 1 29 Total costs for the period 210 193
Benefits paid –23 0 –23
16:4
Obligations as of
1 Interest income, net of SEK 17 M (–2) is included in financial items.
December 31, 2020 731 268 999
2 Special payroll tax/yield tax are calculated according to Swedish
Tax law and accrued for in current liabilities.
16:1

148
 GROUP PERFORMANCE 2020 PARENT COMPANY NOTES

17 OTHER PROVISIONS 21 CASH-FLOW

Other provisions include provisions for restructuring measures of SEK 3 M (–).

Other non-cash items

18
2020 2019
Transfer price adjustments, net –85 –58
Other changes 40 22
NON-CURRENT LIABILITIES Total Other items not affecting cash flow –45 –36

21:1

Maturity

2022–2026 5,591 Change in loans Non-current Current

2027 or later 4 liabilities to liabilities to
Group companies Group companies
B/S Total non-current liabilities 5,595
Loan Volvo Loan/Cashpool
Treasury AB Treasury AB
18:1
December 31, 2018 13,973 13,554
Cash flows

19
new borowings – 4,377
Cash flows
repayments of
OTHER LIABILITIES borrowings – –
Reclassification –8,384 8,384
Other – 8
December 31, 2019 5,589 26,323
Dec 31, Dec 31, Cash flows
2020 2019
new borrowings – –
Wages, salaries and withholding taxes 282 294 Cash flows
repayments of
Accrued expenses and prepaid income 191 480 borrowings – –24,611
Other liabilities 14 5 Reclassification – –
B/S Total other liabilities 487 779 Other – –4
December 31, 2020 5,589 1,708
19:1

21:2
No collateral is provided for current liabilities.

20 CONTINGENT LIABILITIES

Contingent liabilities as of December 31, 2020, amounted to SEK

278,457 M (307,460) of which SEK 278,410 M (307,194) pertained to
group companies.
Credit guarantees are included to an amount corresponding to the
credit limits. Credit guarantees amounted to SEK 266,286 M (284,992).
The total amount pertained to group companies.
The utilized portion at yearend amounted to SEK 138,757M (139,894),
of which SEK 138,743 M (139,871) pertained to group companies.

149
 SUS TA IN A B IL I T Y N O T E S

GROUP SUSTAINABILITY
DISCLOSURES

PAGE PAGE
About the report 150 Human rights 165
Impacts, stakeholders and material t­ opics 151 Human rights assessment 165
Climate and environment 152 Non-discrimination 166
Governance, strategy and risk management 152 Freedom of association and
Metrics and targets – Energy and emissions 155 collective ­bargaining 166

Waste and water 158 Child labor 166

Materials of concern 158 Forced or compulsory labor 166

Environmental compliance 158 Responsible sales 166

Employees and development 159 Suppliers 167

Employment 159 Supplier environmental assessment 167

Labor management relations 160 Supplier social assessment 167

Training and education 160 Business ethic and compliance 169

Diversity and equal opportunities 161 Compliance, Anti-corruption 169

Safety 162 Tax practices, Lobbying 170

Occupational health and safety 162 Other disclosures 170

Customer health and safety 164 Organizational profile and reporting

practices 170

About the report ate, for our employees and everyone else who works
These Sustainability notes include the Volvo Group's on our behalf. In addition to the Code of Conduct, the
collected sustainability disclosures. As sustainability Volvo Group‘s policies on competition, data privacy,
topics are top strategic issues for the Volvo Group, anti-corruption and export control, tax and environ-
additional sustainability disclosures can be found in ment are complemented with compliance programs
other parts of the report, see below. and management systems for effective policy
Governance deployment. In line with our decentralized model
The overall governance of sustainability is described in each business area is responsible to ensure compli-
the Corporate Governance report on page 175 and 182. ance with the Volvo Group’s minimum requirements
and standards for sustainable and responsible busi- Reporting standards referred
Strategy and Business model ness conduct. Business areas are also free to com- This report has been prepared in accordance
The Volvo Group´s strategy includes sustainability pri- plement existing policies and compliance programs with the Global Reporting Initiative's (GRI)
orities and are presented on pages 8–39. Our busi- with more stringent requirements. Standards “Core” option. GRI is complemented
ness model is outlined on pages 18–23. With busi- by other relevant frameworks where stated. GRI
ness operations in more than 190 countries whereof Risks and mitigation and UN Global Compact’s guide Business
many are classified as high-risk countries from an The Volvo Group’s enterprise risk management pro- Reporting in the SDGs have been used to trans-
environmental, human rights or corruption perspec- cess includes sustainability-related risks. Material late the disclosures herein to a number of the
tive we need to ensure that we pursue our business sustainability-related risks for the Volvo Group are 169 SDG targets.
operations in a responsible manner. Environmental, reported in the overall Risks and uncertainties sec-
social and financial sustainability aspects as well as tion, see pages 68–75. These Sustainability Notes Topics related to this report
ethical business conduct are ­integrated into the Volvo include a more detailed overview on risks and mitiga- Complementary information is available on vol-
Group overall strategy and business model and also tion activities. [Link]/asr2020. This includes:
incorporated into our processes and policies. • GRI index, also available on
Key Performance Indicators
[Link]/gri2020
Policies KPI’s in relation to the environment, employees,
• SASB index, Industrial Goods and Machinery
The Volvo Group Code of Conduct is a Group-wide social factors, human rights and business ethics are
• Locations of major operations
policy that sets the standards on how we conduct reported for each material topic in these Sustain­
• Membership of associations
business; ethically and in compliance with applicable ability notes.
• Code of Conduct and related policies
laws and regulations. It applies everywhere we oper-

150
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Impacts, stakeholders and material topics

Report content with a wide range of stakeholders on sustainable business for the pur-
Volvo Group’s sustainability disclosures are prepared to provide pose of establishing key sustainability priorities. In this work, input
stakeholders with relevant information about the Group’s economic, from stakeholders are sought via key functions within the Volvo
environmental and social impact. In defining the report content, the Group and include views from stakeholders such as customers, inves-
Volvo Group applies GRI’s reporting principles on stakeholder inclu- tors, employees, supply chain partners and community.
siveness, sustainability context, materiality and completeness. While different stakeholder groups raise concerns or ask for spe-
cific information on different topics certain sustainability topics are
Strategic framework common for most stakeholder groups. During 2020 such topics have
During 2019 and 2020 Volvo Group updated its strategic framework revolved mainly around health, climate and human rights. Read more
to drive sustainability and performance, revolving around climate, about our main stakeholder groups and their topics of interest, mate-
resources and people. Sustainability priorities have been concluded riality and reporting on [Link]/materiality.
in dialogue with a network of sustainability professionals and man- Translated into GRI topics, material topics are briefly described in
agement of all truck divisions, business areas as well as the executive the table below. More details are provided under the specific sustain-
management of the Volvo Group and the Board of Directors. ability notes on the following pages and complemented by the risk
descriptions on pages 150–170.
Consulting stakeholders Additional topics are mentioned briefly but not according to GRI,
Stakeholder perspectives are considered throughout strategy devel- e.g. materials of concern, lobbying, compliance and tax practices.
opment and deployment. The approach is to have an open dialogue

Material topics and summary of main impacts

Supply Volvo Customers
GRI topic chain Group and society Comment on the main impacts and boundaries

Economic performance Risks and opportunities mainly relate to the transitional aspects of ­customer
• • • demands, emission regulation, technology development and scarce materials.
Energy and emissions Reducing environmental impacts from customers’ use of our products is a key
business driver. Over 95% of energy and emissions related to the product’s
• • • lifecycle occur in the customer use phase. It is also important to reduce
emissions in Volvo Group’s own operations and transportation of goods.
Waste, water and environmental Environmental footprint from own operations, including energy and emis-
­compliance • • sions are managed by a Group wide environmental management system.

Employment Continuously improving workplaces, creating jobs and adapting to

• ­market demands are primarily tied to the Group’s own operations.

Labor management relations A respectful social dialogue creates better workplaces and can help
• ­effective management of operations.
Diversity and equal opportunities Diversity drives performance for the Group and equal opportunities in the
• community.

Training and education Training enables matching of competency to needs for employees, the
• • Volvo Group and customer and helps to create employment opportunities.
Occupational health and safety The main focus is on own operations and employees' work situation
• • but also a s­ ignificant part of supplier requirements.

Customer health and safety Health and safety related to the product use phase and the wider impact
• on road safety and end users' occupational safety.
Supplier environmental and social Suppliers make up the extended operations of the Group. Influence is
assessments • mainly bound to tier one and focus areas are social topics as well as
­innovation for reduced environmental impact.
Human rights (including sub-topics) Includes potential human rights impacts within Volvo Group's operations,
• • • the s­ upply chain, operations of business partners and in relation to the use
of sold products.
Anti-corruption Volvo Group condemns all form of corruption. It distorts the market, inter-
• • • fere with free competition, violate laws and undermine social development.

151
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Climate and environment

GOVERNANCE, STRATEGY AND RISK MANAGEMENT

Scenario analysis
Potential pathways to a 1.5°C or a well below 2°C scenario include a succes-
Connection to Agenda 2030 and reporting standards sive decarbonization of the transport sector and of the energy sector. New
technology solutions such as electric vehicles are, in order to deliver their full
potential, depending on access to energy sources with low CO2 intensity.
The Volvo Group has committed to the business ambition of the Sci-
ence Based Target initiative to limit the global temperature rise to 1.5°C
Main connections to the UN SDGs and targets above pre-industrial levels and to reach net-zero by 2050. In working
7.3 Double energy efficiency towards this ambition, the Volvo Group has performed CO2 emission
11.2 Sustainable transport systems reduction scenarios based on the composition of the annual volume and
12.2 Sustainable management of natural resources CO2 intensity of products forecasted to be put on different markets over
13.3 Knowledge and capacity building to meet climate change time. Each Business Area and Truck Division have made their own sce-
nario analyses, covering factors such as customer demand, regulatory
requirements, infrastructure roll-out, access to renewable energy, gov-
ernmental incentives for clean technologies, removal of governmental
subsidies for fossil fuels etc. The analyses are made to set a strategy with
the right mix of products for the respective market over time, a mix which
may include electrified products as well as conventional combustion
Referenced reporting standards engine products powered by renewable liquid and gaseous fuels.
GRI 201 – Economic performance
GRI 302 – Energy Climate-related opportunities for the Volvo Group
GRI 305 – Emissions
The transition of the transport sector offers significant business opportu-
TCFD recommendations
nities for the Volvo Group. The Volvo Group strives to lead the development
of new technologies and has developed, and is continuing to develop an
extensive portfolio of products and services using new technologies to
continue to provide high quality products and services to our customers,
The Volvo Group supports the Task Force on Climate-related Financial Dis- while at the same time enabling our customers to reduce their environmen-
closures initiative (TCFD). The below sets forth the Group's disclosures on tal impact. The Volvo Group is broadening its offer of products that can be
its overall governance, strategy and management of climate related risks powered by renewable energy through the introduction of electric vehicles
and opportunities, including relevant climate related metrics and targets. as described in the strategy section on pages 13–14. Another example is
the electrification of the entire European Volvo Truck range, see page 25.
Governance The Group also invests in fuel cell technology with the ambition to have a
Climate-related risks and opportunities are critical topics of the transport heavy-duty hydrogen offer available during the second half of this decade.
sector today and are integrated parts of the Volvo Group overall strategy and In parallel, the Volvo Group continues to offer products that can be pow-
business model. Risk assessment, decision-making and accountability is ered by renewable liquid and gaseous fuels like HVO and biogas, see page
embedded in the line organization in accordance with the Volvo Group Gov- 26. In addition to new technology products, the Volvo Group has devel-
ernance Framework. The AB Volvo Board of Directors and the Executive oped a range of service solutions that helps to reduce the number of trans-
Board set the strategic direction for the Group’s work as further detailed on ports needed by optimizing fill rates, consolidating transports and choos-
page 172–182 in the Corporate Governance Report. The strategic work is ing the most effective routing, see examples on page 33.
facilitated by cross-functional working groups that consolidate and prepare Customer demand for products and solutions with lower environmental
information for decision-making at Executive and AB Volvo Board level. impact is increasing. Total cost of ownership is steadily reduced over time as
the operational cost of fuel are gradually shifted to capital cost for electric
Strategy propulsion. The transition to electrification also depends upon external fac-
The Volvo Group supports the ambitions of the Paris Agreement – to keep tors such as the existence of a functioning charging infrastructure and
the increase of the global average temperature to well below 2°C above access to renewable energy sources to power battery electric and fuel cell
pre-industrial level and to pursue efforts to limit the temperature increase to electric products. Customer demand in different markets is depending on
1.5 °C. In this scenario, emissions would need to decline rapidly across all of factors such as availability of the necessary infrastructure and energy, gov-
society’s main sectors, including buildings, industry, transport and energy. In ernmental incentives for green technologies and the removal of fossil-fuel
the transport sector, there is an increasing need for electrified products and subsidies. The Volvo Group strives to have products and solutions available
for solutions using technologies that increase resource efficiency. The in pace with customer demand using a highly flexible production system.
ongoing transition of the transport sector towards new technologies and The Volvo Group invests in new technologies and new business models.
new service-based business models bring significant business opportuni- In addition to that, the Volvo Group has issued a Green Financial Frame-
ties as well as transitional risks for the Volvo Group as further described work to get access to additional capital for the development and produc-
below. tion of sustainable technologies for the transport sector, see pages 64.

152
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Illustrative scenario for 1.5°C

In this scenario, all products from the Volvo Group
enable fossil-free running fleets from 2040.
Carbon fuel Carbon neutral

100%

Battery electric
Carbon neutral electricity

ICE
liqu FC share?
efie

Running fleet
Share dm
of new eth
ane Fuel cell electric
trucks Carbon neutral hydrogen

Internal Combustion Engine (ICE) ICE share?

BioLNG

HVO, electrofuels, hydrogen etc.

0%

2020 2030 2040 2050

The illustration above shows a pathway to reach the ambitions of the Paris cell-electric or vehicles propelled with low CO2 intensity energy sources for
Agreement and to achieve net-zero emissions by 2050. Because it takes combustion engine drivelines. In order to reach the ambitions of the Paris
around ten years to renew a running fleet, the aim is to by 2040 offer prod- Agreement, this shift needs to happen on a global scale. Some markets are
ucts exclusively propelled by carbon neutral alternatives. The exact future expected to be more progressive in this transition depending on of technology
product mix cannot be foreseen but in this scenario the running fleets in the and infrastructure development, emission regulation, market incentives and
transportation sector are likely to include different technologies that can be customer demand.
powered by renewable energy. These solutions can be battery-electric, fuel

Climate-related risks for the Volvo Group Physical risks

Climate-related risks can be divided into transitional risks and physical Based on the main scenario outlined in the Volvo Group's strategy – a 1.5°C
risks. Transitional risks include technology-related risks, policy and legal-re- scenario – the physical risks are not identified as material in the short- to
lated risks, market risks and reputational risks. Physical risks are acute medium-term perspective. However, climate-related acute physical risks
physical risks such as extreme weather events and chronic physical risks such as extreme weather events as well as chronic physical risks are likely to
due to changing weather patterns and rising mean temperature and sea increase for the Volvo Group in the long-term perspective if the global warm-
levels. With the ambition to limit the temperature increase to 1.5°C, the ing significantly deviates from a 1.5°C scenario. Potential physical risks will
transitional risks are considered as the most material for the Volvo Group. be closely monitored, reviewed and reported in the Risks and uncertainties
disclosures if and when they emerge as material risks.
Transitional climate risks In summary, the Volvo Group strives to contribute to the transition of
The Volvo Group has identified a number of climate related transitional the transport sector and to support our customers in the shift to new and
risks, which are incorporated into the Volvo Group Enterprise Risk Man- more sustainable technologies. A successful positioning of the Volvo
agement process. Transitional risks are considered material for the Volvo Group in this transition may lead to increased revenue streams, whereas
Group in the short, medium and long term. These risks, including their an unsuccessful positioning may negatively affect the Volvo Group’s earn-
potential financial impact, are described in more detail in the Group's ings and financial standing, as explained in the risks section on pages
overall Risks and uncertainties section on page 68–75 under the follow- 69–72. In the transition towards solutions that can to a greater extent be
ing risk categories: powered by renewable energy, the Volvo Group will utilize its common
• Extensive governmental regulations, page 69 architecture and shared technology (CAST, read more on page 26), and
• Technology shift and convergence, page 70 adapt its production system to develop and produce new products and
• Customer satisfaction and demand, page 70 services in a cost-effective way.
• Reliance on suppliers and scarce materials, page 71
• Climate related and environmental regulations, page 72

153
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Risk management The risks identified in the ERM process are considered from a short-,
In accordance with the decentralized Volvo Group governance model, medium- and/or long-term perspective and are further reviewed from a
each Business Area and Truck Division is accountable for its risk manage- materiality standpoint. The risks identified in the ERM process are
ment. The Volvo Group works with a Group-wide Enterprise Risk Man- assessed through a materiality analysis conducted with internal and exter-
agement (ERM) process, which is a systematic and structured process to nal stakeholders and the risks that are classified as material are considered
consolidate and analyze risks and mitigations as well as to follow up on to be the most prominent risk factors for the Volvo Group, see page 68.
the risks that might impact the Group’s business. Truck Divisions, Busi- Certain climate-related transitional risks have been identified as material
ness Areas and Group functions report risks in the ERM process using an to the Volvo Group in connection with the ERM Process, see above and
integrated multi-disciplinary approach. The ERM process includes all pages 68–75.
types of risks for the Volvo Group, including climate related risks and other
sustainability related risks. Metrics and targets
The ERM risks are divided into five categories, i.e. Macro and market The Volvo Group uses various metrics and targets to assess climate-­
related risks, Operational risks, Climate and society risks, Compliance related and environmental risks and opportunities in relation to its products
risks and Financial risks. Climate related risks are mainly reported in the and operations, see Energy and Emissions on pages 155–157 and Waste,
Climate and society risks category, but as the nature of climate risks are Water and Environmental compliance on page 158.
overlapping with certain other identified risk categories, some climate-­
related risks are also reported under Macro and market related risks and
Operational risks.

Index of TCFD recommended disclosures

Page reference

Governance The Board’s oversight of climate-related risks and opportunities. 175

The organizations governance around
climate-related issues and opportunities The Management’s role in assessing and managing climate related risks and 182
opportunities.

Strategy The climate-related risks and opportunities the organization has identified 152
Actual and potential impacts of climate-­ over the short, medium and long term.
related risks and opportunities on the
organization’s business, strategy and The impact of climate-related risks and opportunities on the organization’s 152
financial planning where such information businesses, strategy and financial planning.
is material
The resilience of the organization’s strategy taking into consideration 153–154
­ ifferent climate-related scenarios, including a 2°C or lower scenario.
d

Risk Management The company’s processes for identifying and assessing climate-­related risks. 68, 153
Actual and potential impacts of climate-­
related risks and opportunities on the
The organization’s processes for managing climate-related risks. 68, 153–154
organization’s business, strategy and
financial planning where such information
is material The processes for identifying, assessing and managing climate-related risks 68, 153–154
are integrated into the organization’s overall risk management.

Metrics and targets The metrics used by the organization to assess climate related risks and 154, 155
Actual and potential impacts of climate-­ opportunities in line with its strategy and risk management process.
related risks and opportunities on the
organization’s business, strategy and The Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions and the 155–157
financial planning where such information related risks.
is material.
The targets used by the organization to manage climate-related risks and 155–157
opportunities and performance against targets.

154
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

ENERGY AND EMISSIONS

The Volvo Group’s Environmental Policy is the steering document address-

ing risks and opportunities in areas such as emissions, resource use, chem-
Connection to Agenda 2030 and reporting standards icals and residuals. Strategic priorities related to environment and climate
are based on product life cycle assessments, to reduce emissions and other
climate-related risks where they make the most impact.
Emission metrics, targets and disclosures are based on the Green-
house Gas (GHG) Protocol corporate standard. In line with this standard,
Main connections to the UN SDGs and targets the Volvo Group monitors significant scope 1, 2 and partly scope 3 emis-
7.3 Double rate of energy efficiency sions. When nothing else is stated, CO₂ emissions are adjusted for acqui-
8.4 Resource efficiency in production sitions and divestments according to the accounting principles of the
11.2 Sustainable transport systems GHG protocol. Product life cycle assessments show that around 95% of
12.2 Sustainable management of natural resources the energy and emissions are connected to the use of sold products.
Energy and emissions from production and freight transportation are
additional important strategic areas.
The Volvo Group has reported climate-related information, targets and
results since the beginning of the 2000s. The latest target period was devel-
oped as part of the WWF Climate Savers program and covered the period
2015–2020, see highlight on page 29. The approach of managing cli-
Referenced reporting standards mate-related risks has served the Volvo Group well, both in terms of reducing
GRI 401 – Energy
emissions in line with targets set and in terms of developing new technolo-
GRI 402 – Emissions
gies and business plans to meet the transition towards fossil-free transports.
TCFD recommendations
Looking ahead, the Volvo Group is in the process of setting new climate-­
related objectives in line with the ambition of the Paris Agreement. In this
work the Volvo Group has committed to the Science Based Targets initia-
tive. Follow the development on [Link]/climate.

Scope and area Metrics and targets Achievements and comments

Scope 1 and 2 emissions from own production and operations •S  cope 1 and 2 emissions •S cope 1 and 2 emissions down
Emissions from production and operations make up a smaller part of ­according to GHG protocol 35% since 2015
the product life-cycle emissions. However, the direct management • Increase share of renewable energy • 52% renewable energy in 2020
control of this scope makes it highly relevant for the Volvo Group. to 65% by 2025 •S ince 2015, 1,260 activities have
Targets and ambitions are set to increase energy efficiency for • I mplement energy savings of 150 been implemented, that together
operations and to reduce the carbon intensity of the energy used. GWh 2 ­ 015–2020 and an addi- save 207 GWh per year from 2020
tional 150 GWh 2021–2025

Scope 3 emissions from own transportation and distribution • Until 2020 – reduce freight CO2 • In 2020, the freight CO2 emissions
Similar to the production and operations, this part makes up a emissions per produced unit by per produced unit were 24% below
smaller part of the life-cycle impact but is important due to its close 20% from baseline 2013 baseline 2013
link to Volvo Group's business, mission and vision. The Volvo Group • Next period target – reduce CO2
works with third party logistics providers to increase the use of CO2 emissions per produced unit by
efficient transport modes and to reduce unnecessary transports by 30% 2025 from baseline 2018
e.g. increasing fill rates and more efficient routing. The more efficient
the Volvo Group can make its own logistics network the better
suited the Group is to provide transport solutions for its end-users
and contribute to making their transport systems more efficient.

Scope 3 emissions during use of sold products • Reduce use-phase emissions •T

 he attainment by end of 2020 was
The most significant part of the emissions occurs during the use of by 40 million tons of CO2 cumula- 43 million tons
sold products – when the end-users drive or operate vehicles and tive between 2015 and 2020 •E
 xamples of electric introduction in
machines. This is the foundation for the Volvo Group’s business and •N ext period target – 35% e ­ lectric all segments on page 13–14
environmental priorities. vehicle sales by 2030
The majority the Group’s total R&D expenditure is invested into
lower emission technologies such as electrification, alternative fuels,
fuel efficiency and exhaust cleaning.

New targets for scope 1, 2 and 3 emissions are being developed as part of the Volvo Group's commitment to the Science Based Targets initiative.

155
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Energy within and outside the organization Energy intensity and share from renewable sources
(Connected to scope 1 and 2 emissions)
Energy intensity 2020 2019 2018 2017 2013
Energy GWh 2020 2019 2018 2017 2013
Net sales, SEK M 326 418 378 324 265
Natural gas Scope 1 459 551 573 539 727
Energy / net sales1
Diesel Scope 1 168 207 219 192 271 MWh /SEK M 5.6 5.1 5.8 6.4 8.7
Other Scope 1 144 175 186 187 81 Share of energy from
Electricity Scope 2 873 998 1,031 981 1062 renewable sources², % 52% 48% 43% 40% –
District ­heating Scope 2 172 187 186 170 156 1 The energy use in relation to net sales is not adjusted for acquisitions
Total 1,816 2,118 2,195 2,069 2,320 and divestments since the denominator of revenues are not.
2 Reported first time 2017

Scope 3 emissions of sold products are By applying LCA, a general conclusion is that the vast majority of
the customers’ scope 1 or 2 life-cycle emissions occur during the use phase. This is particularly
The Volvo Group assesses environmental impacts of solutions using noticeable for traditional diesel engine drivelines. An electric driveline
life-cycle assessments (LCA). One example from Volvo Trucks is reduces the total lifecycle emissions, but can also shift parts of the
described below where four different vehicles are presented, the environmental footprint to other phases depending on access to
Volvo FE Electric vs. a Volvo FE diesel and a Volvo FH LNG vs. a Volvo renewable energy. The Volvo Group supports customers in finding the
FH diesel. Applying LCA can provide a good overview of where envi- most suitable solution for their specific transport application and
ronmental impacts occur and where to focus improvements. LCA fur- ­market prerequisites. The main initiatives Volvo Group can utilize to
ther help to identify trade-offs that may occur in other places in the support customers to reduce emissions from the use phase are:
value chain when choosing one solution over another. Please go to • Reducing fuel and energy consumption in all applications.
Volvo Trucks Environmental footprint calculator to sources of the • Enabling the use of alternative carbon-neutral fuels.
assessments below, compare fuel types, electricity sources and other • Increasing electrified solutions where viable.
choices that may affect the environmental footprint and climate risks,
[Link]/footprintcalculator. A science-based approach with pros and cons of using various fuels
are available on [Link]/fuels

SEGMENT Urban delivery: 60,000 km per year Long range: 185,000 km per year

VOLVO FE ELECTRIC VOLVO FE VOLVO FH LNG VOLVO FH

EXAMPLE,
VOLVO TRUCKS

Life cycle
36,600 412,000 360,000 1,080,000
CO2-equivalent
Energy/fuel mix Hydropower EU Average Diesel (B0) Liquefied biogas EUR 6 Diesel (B0) EUR 6
Energy per 100 km 104 KWh / 100 km 41.5 l / 100 km 33 l / 100 km 33 l / 100 km
By source:
Energy, MWh 535 1,570 6,660 4,130
Water, m3 36,600 711 3,300 9,050
NO x, kg 73 264 1,310 673
Materials (net), tons 3,620 1,700 6,940 3,520

156
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Energy usage CO2 emissions, Scope 1 and 2

Absolute energy use (GWh) Scope 1, 1,000 tons

Energy use per net sales, Scope 2, 1,000 tons
Industrial operations Emissions per net sales,
(MWh/SEK M) Industrial operations
(ton/ SEK M)

13 // 16 17 18 19 20 13 // 16 17 18 19 20
20 76 ,068 ,196 18 16 255 211 207 223 211 173
2,3 2,0 2 2 2,1 1,8
8.7 7.1 6.4 5.8 5.1 5.6 243 196 192 198 113 97
1.88 1.40 1.23 1.11 0.77 0.83

Scope 3: Freight emissions Scope 3: Accumulated emissions

CO₂ per produced unit savings from sold products

CO2 per ton km * Annual saving

* Accumulated

* T he target was to reduce transport * T he target was to save 40 million

CO₂ ­emission per produced unit tons CO2 from the customer use
­transported by 20%. phase 2015–2020.
13 // 16 17 18 19 20 15 16 17 18 19 20
100 90 91 85 82 76* 3 9 5 8 9 9
3 12 17 25 34 43*

Reduction of energy use and emissions to air ­ nvironmental KPIs relative to the business growth over the long term con-
E
CO₂ emissions and energy use in the operations are lower in absolute terms, tinues to improve. Compared to 2017, which was a comparable year in terms
and over time also in relation to net sales. A large part of the absolute reduction of net sales, the 2020 relative energy use (energy/net sales) was 12% lower
in 2020 is explained by the lower production levels during parts of the year due and the relative CO₂ emissions (CO₂/net sales) were 33% lower.
to the pandemic. At the same time, the efficiency efforts have continued.

Direct (Scope 1) GHG emissions Sources of scope 1 and 2 emissions

Indirect (Scope 2) GHG emissions
Metric tons x1,000 CO₂e 2020 2019 2018³
Metric tons x1,000 2020 2019² 2018 2017 2013¹
Natural gas Scope 1 93 111 –
CO2e emissions scope 1 173 211 222 207 236 Diesel Scope 1 46 57 –
CO2e emissions scope 2 Other Scope 1 34 43 –
Market based 97 113 198 190 243
Total CO₂e emissions, Electricity Scope 2 86 99 188
market based 270 324 420 397 479 District heating Scope 2 11 14 10
1 Historical data is restated due to acquisitions and divestments. Total CO₂e emissions 270 324 420
2 2019 were the first year marked based emissions are used fully. 3 This detailed data was not available for 2018 on scope 1.

Scope 3 emission reduction GHG emissions intensity

Emissions reduction 2020 2019 2018 2017 2016 2015 Scope 1 and 2 2020 2019 2018 2017 2013

Emissions during Net sales, Industrial

use of sold ­operations, SEK M 326 418 378 324 265
­products, annual million Products delivered,
reduction tons 9 9 8 5 9 3 (x1,000) 267 333 299 252 280
Emissions during CO2 (scope 1 and 2)
use of sold prod- by net sales 0.83 0.77 1.11 1.23 1.88
ucts, aggregated million
reduction tons 43 34 25 17 12 3 CO2 (scope 1 and 2)
by ­products delivered 1.01 0.97 1.40 1.58 1.78
Goods transpor-
tation, CO₂ per Index
produced units 2013 76 82 85 91 90 100 Nitrogen oxides (NOx), sulphur oxides (SOx), and other air emissions

Please note the total scope 3 is not reported. This is due to lack of Tons 2020 2019 2018 2017 2013
standards that enable comparable results within the industry. With the
introduction of VECTo in the EU, a standardized simulation metric will NO x tons 204 311 360 301 347
be available for certain vehicles sold on the EU27 markets from 2021. SO x tons 5.6 9.6 13.6 13.3 23.4
Solvents (VOC) tons 1,342 1,488 2,148 1,681 2,221

157
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

WATER, WASTE AND ENVIRONMENTAL COMPLIANCE

level, water use and discharge is less material relative to other environ-
mental topics. It is included in this report due to specific interest and
Connection to Agenda 2030 and reporting standards tracking from certain stakeholders.

Waste and recycling

Volvo Group’s sites either have in place or are in the process of developing
landfill-free objectives. This work is supported by a directive and guide-
Main connections to the UN SDGs and targets lines setting out the criteria for when a Volvo Group site can be considered
6.4 Increase water use efficiency a landfill-free site.
8.4 Improve resource efficiency in production The reduction of waste sent to landfill is largely due to a reclassification
12.2 Sustainable management of natural resources of the foundry sand from the operation Skövde, Sweden. This is from
12.4 Responsible management of chemicals 2020 classified as non-metal recycling.
12.5 Reduce waste generation
The hazardous waste fraction includes waste from a soil remediation
project executed at the foundry operation in Skövde, Sweden.

Waste by type and disposal method

Metric tons 2020 2019 2018
Referenced reporting standards
GRI 303 – Water and effluents 2016 Recycling, metal scrap from
­operations 84,880 107,004 97,691
GRI 306 – (Effluents and) Waste 2016
GRI 307 – Environmental Compliance 2016 Recycling, other metal scrap 13,322 18,634 18,868
Recycling, non-metal 141,620 133,297 119,358
% recycling of total 86% 76% 75%
Composting 1,865 2,315 2,524
The Volvo Group’s Environmental Policy is the steering document for Incineration with energy recovery 18,387 29,258 32,920
managing risks in areas such as emissions, resource use, chemicals and % recycled, composted or
residuals. It is based on the principles of life ­cycle management and con- energy recovery 93% 85% 86%
tinuous improvement. Incineration without energy
The Group's ISO 14001 certified environmental management system recovery 1,644 2,222 2,598
covers approximately 95% of p ­ roduction facilities and 90% of distribu- Treatment by professional waste
tion centers. The management system is used in a hierarchical way to ­contractor 9,945 19,594 15,153
deploy effective environmental work in the Group’s divisions and business Landfill 6,076 26,839 24,202
areas. This means that the business areas and truck divisions are all Landfill, only inert material 694 2,571 699
responsible for their environmental performance in the same way as finan- Total residuals 278,433 341,734 314,013
cial or other performance. Environmental management is also part of sup- Whereof hazardous wastes 51,806 51,024 38,601
plier assessments, read more on page 167.
Most environmental KPIs, see also previous page, were reduced in
2020 in absolute terms and over time also in relation to net sales. A large
part of the absolute reduction in 2020 is explained by the lower produc- Materials of concern
tion levels during parts of the year due the pandemic. At the same time, Some of the materials used in Volvo Group’s products come in scarce sup-
efficiency work is continuously on-going. ply and some materials and substances are potentially hazardous. The
Group works to reduce its dependency on such materials and substances
Water with the aim to protect both people and the environment and to secure
Water consumption has also been reduced in absolute terms, although sustainable supply. In collaboration with partners, the Volvo Group proac-
not to the same extent as other environmental indicators in relation to net tively evaluates alternatives in the design and supply processes to mini-
sales. The topic of water can be highly material for some local production mize and eliminate use of scarce materials and substances of concern.
facilities but less relevant for others. This means that on an aggregated Scarce materials may lead to a variety of difficulties such as high prices
and increased risk for corrupt behavior or adverse human rights impacts
when sourced from high risk areas. Volvo Group is implementing a dedi-
Water withdrawal by source cated supplier Sustainable Minerals Program, currently focusing on tin,
tungsten, tantalum, gold and cobalt, to support sourcing of materials in a
Water consumption in production 2020 2019 2018 2017
responsible way. The program is built on the five step framework of the
Total water consumption, OECD Due Diligence Guidance for Responsible Supply Chains of Minerals
Mega-liters 5,218 5,706 4,870 4,817
from Conflict-­Affected and High-Risk Areas, as well as on the tools of the
Relative water consumption,
Responsible Minerals Initiative, to which the Volvo Group is a member.
Cubic meters/SEK M net sales 16.0 13.6 12.9 14.9
At Group level, only total water consumption is available.
Environmental compliance
No significant environmental incidents or spills were recorded during 2020.
In 2020 the Volvo Group had 12 licensed facilities in Swede. For some facil-
ities the environmental permits are under review due to planned changes.
158
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Employees and development

The Volvo Group Code of Conduct is the foundation for responsible busi-
ness conduct that builds trust with stakeholders in societies where the
Connection to Agenda 2030 and reporting standards Group operates. As an integral part of daily operations, the leaders of Busi-
ness Areas, divisions and functions are accountable for areas such as
employment practices, labor relations, people development and diversity.
To do this effectively, they are supported by both local and central HR pro-
fessionals, expertise and leadership. In addition to the topics listed herein,
Main connections to the UN SDGs and targets different countries, regions and units may address specific areas in line
4.3 Equal access to affordable, technical, with the local context and needs.
vocational and higher education
4.4 Increase the number of people with relevant skills
EMPLOYMENT
5.1 End discrimination against women and girls
5.5 Ensure women's full participation in leadership and
decision making The Group’s employees are its most valuable asset and to provide safe and
engaging workplaces where people can grow is an essential focus area for
the Volvo Group. The strategy is to invest in people, to grow talent, and to
create an inclusive and people centric culture where everyone is encour-
aged to contribute.
The collected efforts have resulted in high rankings in global employer
branding surveys. In 2020, the Volvo Group was ranked as number 20 of
the world’s best places to work by Fortune and World’s Best WorkplacesTM.
Referenced reporting standards
GRI 401 – Employment 2016
During 2020, the Volvo Group, like many other companies worldwide,
GRI 402 – Labor management relations 2016 faced an unprecedented situation because of the Covid-19 pandemic. The
GRI 404 – Training and education 2016 Volvo Group has put in extensive measures to maintain its operations and
GRI 405 – Diversity and equal opportunities 2016 employment resulting from the effects of the Covid-19 pandemic. By
using short-term-layoff programs or similar schemes the Group tried to
avoid the most severe social impacts to individuals and retain employment.

New employee hires and employee turnover

Employee ­turnover 1, % 2020 2019 New hires
Year of age and total Year of age and total 2020 2019
<40 40+ All <40 40+ All <40 40+ All <40 40+ All

Europe 10 7 8 9 6 7 Europe 1,514 621 2,135 2,820 1,240 4,060

Men 10 7 8 9 6 7 Men 1,115 468 1,583 2,115 957 3,072
Women 10 7 8 8 6 7 Women 399 153 552 705 283 988
North America 35 20 25 13 7 9 North America 1,161 750 1,911 898 543 1,441
Men 36 21 26 13 7 9 Men 909 558 1,467 670 412 1,082
Women 32 17 22 13 7 9 Women 252 192 444 228 131 359
South America 16 19 17 9 8 9 South America 640 95 735 885 196 1,081
Men 15 18 16 10 10 9 Men 496 80 576 706 170 876
Women 18 24 19 9 8 9 Women 144 15 159 179 26 205
Asia/Pacific 10 9 8 10 6 7 Asia/Pacific 830 89 919 1,201 189 1,390
Men 10 8 7 10 5 6 Men 695 66 761 954 142 1,096
Women 14 11 11 12 7 9 Women 135 23 158 247 47 294
Africa 13 12 12 14 8 11 Africa 55 9 64 126 23 149
Men 13 13 13 15 8 12 Men 39 9 48 80 12 92
Women 11 10 11 12 7 10 Women 16 16 46 11 57
Group total 15 10 12 10 6 7 Group total 4,200 1,564 5,764 5,930 2,191 8,121
Men 15 10 12 10 6 7 Men 3,254 1,181 4,435 4,525 1,693 6,218
Women 15 10 12 9 6 8 Women 946 383 1,329 1,405 498 1,903
1 The total employee turnover rate is the proportion of employees who left
Volvo Group both voluntary (such as retirements and resignations) and
involuntary (including due to redundancy).

159
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

However, the Group had already started adjusting its activity levels by TRAINING AND EDUCATION
using its structural flexibility, terminating temporary and consultant con-
tracts during 2019. During the second half of 2020, the Group started to Individual and organizational learning is essential for the Volvo Group and
further decrease resources to adjust to lower activity levels. In parallel, the for employees. Learning helps the Group to perform current business oper-
Group is accelerating the competence shift needed for the development ations and to transform for the future. From the employees’ perspective,
of new technologies and business models. learning is also an integral part of development and growth. The Group
Over time, the Volvo Group has developed pragmatic solutions and drives scalable learning and competency development via its own corpo-
ways of working to adjust according to changing demands. The Volvo rate campus – the Volvo Group University (VGU). VGU is responsible for
Group works in close dialogue with employee representatives for the the design, development and delivery of trainings, thereby ensuring that
deployment of solutions that help to maintain and strengthen the compe- high quality trainings are easily and widely accessible. To create the best
tence needed for the Volvo Group as well as reducing negative social con- learning experience, a wide variety of formats are used, e.g. online, on-site,
sequences. This can include utilizing time-banks to reduce labor time, on stage and face-to-face or virtual classroom training as well as videos
furlough, re-skilling or upskilling for continued employability, early retire- and games. All VGU training programs are managed in a personalized and
ment, financial compensation, internal mobility programs and outplace- collaborative learning portal that supports competence development and
ment via third parties. engages employees in their learning journey.

LABOR AND MANAGEMENT RELATIONS

Programs for upgrading employee skills and transition
The relations between the company and employees, including employee assistance programs
representatives and unions, is based on honesty, transparency, fairness The Group offers programs specifically designed for roles that
and creativity. These basic principles were jointly developed with the require upgraded skills or that will be transitioned over time. For
Global Works Council members and guide how we act together when example, a wide curriculum on electric vehicles targeting engi-
maneuvering the Volvo Group through necessary business changes. One neers, workshop operators and other relevant work roles and sev-
cornerstone in this relationship is the yearly Volvo Global Dialogue in eral programs on Artificial Intelligence (AI) has been deployed
which about 50 employee representatives from over 20 different coun- over the last few years.
tries meet with the CEO and the Volvo Group Management members to In addition to programs facilitated by VGU, the Group's opera-
discuss the current business situation and strategic initiatives of the tions manage vocational training in different parts of the world
Group, but also specific future opportunities in respect of new business focusing on practical skills for production operators or workshop
areas, digitalization and needed competence shifts. technicians.
In 2020, for the first time, this event was held virtually due to the spe-
cific pandemic circumstances. In parallel, the Global Works Council and The Future Industrial Worker
European Works Council meetings are normally held to facilitate reoccur- The ongoing transformation of industry requires new skills, com-
ring social dialogue. Due to travel and meeting restrictions respecting the petencies and ways of working. Volvo Group Trucks Operations
Covid-19 situation, these meetings were not conducted in 2020. However, – employing a significant part of the production staff across the
several virtual meetings were held between Executive Board Members Group – is leading the work to predict future needs for employees
and the European and Global Works Council to maintain a close dialogue and the organization. Three pilot projects have showed that com-
and collaboration. petence development is key, as anticipated, but there is not one
Three ordinary and two deputy members appointed by employee single simple solution. The work includes learning about what
organizations are part of the AB Volvo Board of Directors. roles we should have, how we should work with flexibility and
what skills are needed for the future industrial workers. Lessons
from the pilot areas will be disseminated to other parts of the
organization and the Volvo Group works closely with the unions
Process regarding operational changes around the Group to spread lessons learnt about competence
Prior to major organizational changes, the employee representa- development, quality instructions, repair and maintenance.
tives and relevant authorities are informed and consulted in
accordance with legal and contractual requirements. In 2020, the Klas Grenabo is one of the employees at
Group conducted 13 information meetings with the European the plant in Skövde, Sweden, taking part
Works Council, complemented by 178 meetings with local in establishing the future industrial
employee representatives and unions in different countries to worker. “We have set our goals and vision
consult on changes and their specific impact on a local level. for our work. It is very exciting to be
An estimated 44% of employees around the world are mem- included from the start and to create our
bers of an independent trade union. Approximately 75% of vision for the future”.
employees in 23 different countries are covered by Collective
­Bargaining Agreements. This shows a significant higher union
density rate or coverage of collective bargaining than the average
compared to the International Labor Organization statistics in our
major markets like Sweden, the US, Japan, Poland and Brazil.

160
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Vocational training is an important factor in driving prosperity. In addition to To maximize the positive effects of diversity and inclusion, the leaders
training for employees and distributors, the Group initiates, supports or runs and team members of each business area and function are responsible for
vocational training programs across the world focusing on practical skills for making it an integral part of their daily operations. Different countries,
mechanics, bus or truck drivers and machine operators. Volvo Group special- regions and units may have different diversity challenges, leading to local
ists can be directly involved as teachers or trainers and in some countries the and business specific diversity goals and actions.
Group cooperates with technical colleges and universities. On the corporate level, the Volvo Group follows age and gender as key
In several markets, the Volvo Group and its customers have experi- indicators of diversity. The total gender balance is assessed as a total of
enced a mismatch between skills and business needs. In many of these the workforce, for line management positions and at the senior manage-
markets the Volvo Group therefore works together with national and inter- ment level, as described in the gender diversity table below. The Volvo
national aid agencies to provide the education needed for increasing Group's ambition is to reach 35% women employees by 2030, in general
employment and opportunities for people to be self-sufficient. and in management positions.

Strengthening the employability of Moroccan youth Diversity of governance bodies and employees
ACCES (Académie de Conduite de Camions En Sécurité) was Age diversity of the Volvo
created in 2018 in Casablanca, Morocco. Located within an Group workforce, 2020 2019 2018
existing vocational training center in the industrial hub of Casa- % <40 / 40+ <40 / 40+ <40 / 40+
blanca, ACCES provides specialized training in driving buses and
Europe 36 / 64 37 / 63 38 / 62
trucks to professional drivers as well as Moroccan youth inter-
North America 33 / 67 34 / 66 34 / 66
ested in pursuing a career in the road transport sector. Over four
South America 61 / 39 59 / 41 60 / 40
years (2018–2022), ACCES aims to train around 500 profes-
sional drivers in a wide range of critical subjects, such as safe and Asia / Pacific 51 / 49 44 / 56 45 / 55
fuel-efficient driving for different types of trucks and buses. As a Africa 54 / 46 56 / 44 58 / 42
result, ACCES seeks to contribute to the objectives of the Moroc- Group average 40 / 60 40 / 60 41 / 59
can government by upgrading the skills of professional drivers
while strengthening the employability of Moroccan youth in the
Gender diversity of the 2020 2019 2018
transport sector. ACCES is the result of a partnership between Volvo Group workforce, Women / Women / Women /
the Government of Morocco, the United States Agency for Inter- % Men Men Men
national Development (USAID), Volvo Group, and the United
Nations Industrial Development Organization (UNIDO). Volvo Europe 21 / 79 21 / 79 21 / 79
Group provides training vehicles, equipment, and teacher train- North America 21 / 79 14 / 86 20 / 80
ing. Volvo Trucks, Volvo Buses and Renault Trucks are all cooper- South America 17 / 83 17 / 83 16 / 84
ating on the training program. Asia / Pacific 14 / 86 14 / 86 14 / 86
Africa 24 / 76 24 / 76 21 / 79
Group average 19 / 81 19 / 81 19 / 81

Gender diversity over time, share of women, %

DIVERSIT Y AND EQUAL OPPORTUNITIES
2020 2019 2018 2017 2016 2015
Diversity drives performance by enriching creativity, encouraging innova- All employees 19 19 18 19 18 18
tion and improving decision making. Following the decentralized model Manager (all levels) 20 20 19 19 18 18
within the Volvo Group, the responsibility for promoting diversity belongs Presidents and
to each part of the organization. other senior
­executives 26 26 25 25 24 22
The Volvo Group has been working systematically with diversity and
inclusion for over a decade. The work includes a wide range of aspects, AB Volvo Board
(excluding deputies) 36 40 40 36 36 33
such as culture, generations, background and gender. It also includes
facilitation and support of networks for employees on sexual orientation
and gender identity, as well as employees with special needs. The overall
ambition is to attract a wide range of people, to grow and develop them
and attain the skills and competencies needed for today as well as for the
future. The Group has established targets to increase gender diversity in
management positions, in graduate programs and training programs. This
overall approach also spreads to other areas such as vocational training
programs in local communities. One of the overall aims is that manage-
ment and workforce reasonably reflect the diversity of the regions and
businesses of the Volvo Group.

161
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Safety
OCCUPATIONAL HEALTH AND SAFET Y

Safety is the first item on the agenda of business review meetings with
all business areas and their units. Throughout 2020, we have emphasized
Connection to Agenda 2030 and reporting standards how health, safety and wellbeing is Volvo Group’s first priority and commu-
nicated this widely by senior leaders across the Group. Within the Group, a
global network of over 200 expert practitioners on Occupational Health
and Safety – including doctors, nurses, safety engineers, psychologists,
and ergonomists collaborate to find and share best practices.
Main connections to the UN SDGs and targets
3.3 End epidemics of communicable diseases Occupational health and safety management system
8.8 Promote safe working environments Each business area is accountable and responsible for managing health,
safety and wellbeing. Volvo Buses and Volvo Construction Equipment
have continued to certify their parts of the management systems accord-
ing to OHSAS 18001 or ISO 45001. Others have been developing inter-
nal safety management systems with regular assessments and coaching
as an integral part the Volvo Group Management System (VGMS) and
Volvo Production System (VPS). This helps to ensure that there are writ-
Referenced reporting standards ten procedures, internal controls, clear ownership and management
GRI 403 – Occupational health and safety 2018 review, and that deviations are acted upon. The scope of prevention work
includes both physical and psychological health, and workplace safety. It
covers all employees working for Volvo Group on- or off-site, as well as
the period of time spent commuting to and from work.

The health, safety and wellbeing of employees and business partners is Hazard identification, risk assessment and incident investigation
always the first priority of the Volvo Group. Health and safety are material Volvo Group and its subsidiaries apply tools and processes to manage risk
issues in several aspects of Volvo Group’s direct operations as well as in and create productive working environments. Risk assessments are carried
activities that occur along the value chain. The Volvo Group Health and out on a regular basis at all levels from shop floor to office. Health and safety
Safety Policy gives direction on how workplace safety, health and well­ professionals ensure the quality of risk assessments and involve line man-
being shall be handled within the Group. The policy covers both direct agement and union representatives in this work. Potential risks are in focus
employees and consultants. during internal assessments and external audits, where typically a sample
of risk assessments and corrective and preventative actions are reviewed.
During 2020 Volvo Group, similar to all other organizations around the Managers and employees are reviewed in their knowledge of their own
world, had to respond to the Covid-19 pandemic. Protecting the health, major risks. Measures to mitigate or eliminate the identified risks are
safety and wellbeing of all our colleagues has been and remains the prior- defined and implemented, and risk assessments are reviewed and updated
ity. The Volvo Group took action at sites, across operating countries and periodically or after any incident has occurred. Recordable accidents are
at the Group level. Many workplaces and activities were adapted to help reported and followed up at the unit level and further up in the organization,
colleagues keep safe. Communications and education campaigns about continuing up to the Group level. Investigations resulting in corrective and
health and wellbeing were introduced across the Group. preventative actions must be deployed after each recordable accident. In
Some teams across the Group have progressed further with developing cases where the issue is linked to risks that may be relevant for other units
proactive approaches towards mental health and wellbeing, raising – the causes of the accident and the corrective and preventative measure to
awareness and ensuring adequate support is available. The Group’s work avoid a repeat are shared with other relevant units within the global health
in this area will extend well beyond the pandemic. Examples of workplace and safety network. In certain cases, directives are built to be deployed
adaptations focusing on both mental and physical health during the throughout the company as part of a preventative measure.
Covid-19 situation are highlighted on page 35. Based on the risk assessment carried out for a specific machine, process
or work area, employees receive training so they understand the risks and
Arrangements for health and safety have continued how to manage them – through following defined procedures or wearing
to strengthen across the Group personal protective equipment, for example. When defining corrective or
Safety is one of the centerpieces of the Volvo Group’s strategy. During the preventative actions in response to identified risk, the Volvo Group Health
year the Group has continued safety awareness campaigns and increased and Safety Policy requires that the hierarchy of control measures principles
focus on safety leadership. There is a clear expectation of being even more be applied. The first option is hazard elimination. If hazard elimination is not
proactive in managing risks across our activities, in sharing good practice possible, substitution, engineering controls, administrative controls and
and recognizing the successes that help create good and productive personal protective equipment are applied. The policy is distributed and
places to work. made visible on the walls of factories and offices within the company.
Across Volvo Group teams investigate accidents leading to lost time. Employees are asked to report accidents, incidents and unsafe acts and
During the year the Group continued to focus on preventing serious and conditions – as they are a vital source of improvements and highlight
fatal incidents with targeted approaches towards high risk activities. opportunities to better control the associated risk. The Volvo Group’s Code

162
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

of Conduct and related processes make it clear that any management More specific training is provided depending on the job responsibilities.
reprisals against individuals making such reports in good faith are not tol- Specific training for potentially hazardous jobs – such as working with
erated. In the unlikely event that a manager or colleague acts against the electricity or hazardous substances, at heights and in high heat conditions
Code of Conduct – a whistle blower process can be used to escalate this. – is mandatory for employees working in these environments, and needs
Health and safety coordinators are employed to support team leaders to be repeated on a regular basis. All trainings are provided during working
and managers in the organization. Periodic training is also organized on hours. The effectiveness of these trainings is assessed locally depending
health and safety procedures, roles and responsibilities for managers and on each organization and country.
health and safety coordinators.
Promotion of worker health
Occupational health services The Volvo Group has for a long time provided various health promoting
Occupational health services are provided to employees at most units and activities beyond occupational safety. These programs are often provided
vary from one country to another depending on the specific needs of the by external partners. Health promotion programs may cover topics such as
unit, the level of health service provided and local legislation. In many preventing communicable diseases, substance abuse, obesity, healthy life-
countries and locations, health services are supported by company doc- style, physical exercise, nutrition, sleep and stress management. The psy-
tors and nurses, psychologists, physiotherapists and ergonomists. chological work environment is growing in focus, and many tools are avail-
In some countries/organizations such services can be supplied by third able to support in preventing issues and promoting good mental health.
parties. If so, they are required to ensure data privacy in accordance with There are various types of tools that can be used depending on specific and
applicable regulations. Occupational health services play a major role in individual needs. The confidentiality of individuals is protected in line with
health promotion. These service providers manage confidential data- general data privacy laws. Throughout the year many countries have used
bases and can help to provide anonymized reports about relevant health pulse surveys and engagement tools to understand attitudes and feelings
aspects – diabetes, cardiovascular disease, stress levels, etc. – to imple- in general, and in particular to a shift where work-life is affected by remote
ment relevant preventive and corrective actions. They contribute signifi- work and social distancing. This approach has been useful and actions
cantly to training and webinars, and provide support to individuals, teams have been taken in response.
and organizations. They stay current in their fields of knowledge to be on
the forefront of new initiatives for the Volvo Group. Prevention and mitigation of occupational health and safety
impacts directly linked by business relationships
Worker participation, consultation and communication In accordance with the Volvo Group’s Supplier Code of Conduct, on-site
on occupational health and safety audits are performed at suppliers on a wide variety of ­sustainability topics.
Worker representatives are appointed to health and safety committees by Health and safety are central elements to this process. Read more about
employees. Depending on the type of business area, health and safety this on page 167 – Supplier social assessments.
committees operate on the factory level, retail office level or unit level. Occupational safety, as well as road safety, are central elements in the
The main objective of the committees is to bring together worker and Group’s offer to end-users. The Volvo Group provides customer solutions
management representatives, define actions and jointly agree on meas- and training to increase safe behavior and safe product use. Please read
ures needed to improve health and safety performance. Committees more about customer health and safety on next page.
meet on a regular basis and decisions taken shall be communicated to the
workforce, acted upon and followed up. The committees could also be Workers covered by an occupational health
involved in accident and incident investigations and support in additional and safety management system
corrective or preventative measures. The Volvo Group Management System includes health and safety manage­
ment based on legal requirements and covers all employees and consultants,
Worker training on occupational health and safety and these are all included in the safety reporting presented below.
All employees and consultants are provided health and safety training as The percentage of employees and consultants who have been covered
well as other Code of Conduct training as part of their induction training. by an internal audit cannot be reported for the previous year. The data was
not available.
By December 2020, over 60 sites covering around 30% of Volvo Group's
employees have chosen to certify their operations according to OHSAS
Rates of injury and number of work-related fatalities 2013-2020
18001 or ISO 45001. Volvo Buses and Volvo Construction Equipment are
two business areas that have chosen to certify their entire operations.
–19% –13% –23% –6% +22% 0% –29%
Work-related injuries
Volvo Group measures the accident and accident rates in all locations
Lost time acci- including plants, workshops and offices in all countries of operations. In
dent rate (LTAR) 2020, the accident rate was 0.87 per 200,000 worked hours. The reduc-
per 200,000 13 14 15 16 17 18 19 20 tion in both accidents and improvement of accident rates may partly be
worked hours. 1.97 1.59 1.38 1.06 1.00 1.22 1.22 0.87 linked to the different ways of working and a general lower activity level in
production during parts of the year. Consultants are not separately
Number of
reported but are included in the figures along with all of the Volvo Group’s
­accidents with
lost time 686 1.109 980 809 789 972 1004 656
employees. Health and safety data is collected quarterly at the Group
level and on a monthly basis by several business areas and truck divisions.
Number of fatali-
ties Employees 1 3 0 0 3 1 0 0 High-consequence or serious work-related injuries and related hazards are
Number of fatali- not consolidated at Group level but are shared in health and safety networks
ties Contractors 0 0 0 0 0 2 0 0 to spread learnings and best practices sharing.

163
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

CUSTOMER HEALTH AND SAFET Y

Assessment of the health and safety impacts

All product lines are carefully assessed for health and safety impacts. This
Connection to Agenda 2030 and reporting standards is a key competitive advantage of the Volvo Group. Such assessment can
include product assessments, audits of different processes in the design,
development, production and use phases, as well as research investiga-
tions from real accidents. Please read more on [Link]/safety.

Main connections to the UN SDGs and targets

3.6 Halve road traffic accidents
8.8 Promote safe working environments
11.2  P rovide access to safe, affordable and sustainable
­transport systems for all, improving road safety.

Referenced reporting standards

GRI 416 – Customer health and safety 2016

Volvo Group has a value chain approach to customer health and safety
that considers the effects on both customers, end users and indirect
stakeholders. The Group’s business and the products it offers target a SITIS – Sweden-India Transport Innovation
wide range of application areas and impact many categories of people, and Safety C ­ ollaboration (SITIS)
such as drivers and operators, commuters, as well as other traffic system SITIS was launched in Stockholm in connection with the UN
users like cyclists and pedestrians. Road Safety Conference in February 2020 and as a direct out-
The vision is zero accidents with Volvo Group products, and the offer- come of a Joint Declaration on Sweden-India Innovation Partner-
ing of world-leading products and solutions for sustainable transports is ship for a sustainable future agreement.
in important part of getting closer to our vision. Robust and relevant data is going to be a key factor behind
Every year, 1.35 million people lose their lives in road traffic accidents future safety initiatives that would be deployed to reduce fatalities
worldwide, and many million are seriously injured. In addition, there are on Indian roads. As part of an ongoing project, one of the bus lanes
occupational health and safety risks in and around vehicles and machines, operating in Bengaluru, India, has been equipped with cameras,
both on the road and in construction and work sites. Issues such as noise sensors, logging equipment capturing the surroundings outside
and air pollution are also considered in customer health and safety. as well as what happens inside the bus. Data is processed to ana-
A holistic approach means addressing all these concerns in a proactive lyze and build insights in order to characterize the Indian traffic
and systematic way. Volvo Group works systematically with in-depth conditions as well as driver behavior. In phase two of this project,
accident research to understand the context and challenges facing cus- buses will be further equipped with radar systems and equipment
tomers in their operations. This knowledge is then the basis for the that monitors weather, air quality and various other parameters.
Group's product development. Volvo Group also work with partners in In October 2020, SITIS held a virtual three-day Vision Zero
academia and policy makers to gain knowledge and strives to accelerate Academy training program for senior transport and highway offi-
progress in road traffic safety to enable safer solutions to be brought to cials across India. The program was facilitated by the Swedish
the market. Designing the best solutions to address these global health Transport Administration (Trafikverket) and Automotive Research
and safety challenges is delivering both on the Volvo Group’s commitment Association of India.
to the Sustainable Development Goals and to offer the most competitive SITIS is one of the largest collaborations in the road safety
solutions to customers and business partners. The knowledge gained on arena – involving a range of Swedish and Indian companies such as
safety is shared via communication and training programs in many mar- Autoliv, Ericsson, Manipal Hospitals, Altair, Saab, Tech ­Mahindra
kets where the Group operates to raise awareness of key safety concerns and Volvo Group, as well as universities and research institutes
such as speed, seat belts and alcohol. from both countries.

164
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Human Rights
Respect for human rights in strategy and governance
The Group’s commitment to respect human rights is an essential part of
Connection to Agenda 2030 and reporting standards the Volvo Group’s Sustainability Strategy. The Group’s human rights gov-
ernance includes cross-functional governance forums and working groups,
steered by a human rights board with relevant members from our Execu-
tive Board. In 2020, we initiated work to formalize and strengthen our
human rights program and plans.
Main connections to the UN SDGs and targets Group functions such as Corporate Responsibility, Legal and Compli-
5.1 End discrimination against women and girls ance and Human Resources, together with the Group’s Truck divisions and
8.7  Take immediate and effective measures to eradicate forced Business Areas, identify, assess and monitor human rights-related risks
labour, end modern slavery and human trafficking within our operating environment through human rights due diligence, our
8.8  P rotect labor rights and promote safe and secure working enterprise risk management process, dialogues with unions, inputs from
environments for all workers
the Volvo Group Whistle mechanism and collaboration with peers and oth-
ers. Volvo Group’s human rights due diligence and mitigation efforts takes
into account, country specific human rights risk levels, inherent risks in
certain purchasing categories and sales segments and potential concerns
brought to our attention by internal and external stakeholders.

Policy commitment
Referenced reporting standards The Volvo Group Code of Conduct, Supplier Code of Conduct and other
GRI 406 – Non-discrimination 2016 relevant Group-level policies and directives reflect our commitment to
GRI 407 – Freedom of association and collective bargaining 2016
respecting human rights. Through these guiding documents, we set and
GRI 408 – Child labor 2016
GRI 409 – Forced or compulsory labor 2016
communicate our expectations on mutual respect, non-discrimination, safe
GRI 412 – Human rights assessments 2016 and healthy workplaces, freedom of association and collective bargaining,
working hours and compensation and zero tolerance for all forms of modern
UNGP Reporting framework
slavery and child labor. We consider these the most relevant human rights
issues for the Volvo Group currently and continue to identify any other issues
that may become relevant. These topics are also part of the mandatory train-
ing for all employees on the Volvo Group Code of Conduct. See page 169 for
The Volvo Group is committed to respecting human rights. Negative human more information about the Code of Conduct and associated training.
rights impacts may potentially materialize not only within the Group’s own
organization, but also through the Group’s business relationships and in the Human rights reviews in our own operations
value chain. This includes colleagues in our operations, people in neighbor- We carry out human rights reviews in our own operations as part of our
ing communities, suppliers, business partners and others potentially overall due diligence work along the value chain. These reviews aim to
impacted by the use of our products and solutions. The Group continues to identify actual and potential adverse human rights impacts on employees,
strengthen and align its human rights work with the following international consultants and on-site service providers. It typically involves desktop
frameworks that we recognize and support: reviews of country and sector human rights risks, self-assessments and
• UN International Bill of Human Rights. in-person workshops with the local management and human resources
• ILO’s eight fundamental conventions. personnel, in-person discussions with employees, on-site service provid-
• UN Global Compact. ers and their employees, union representatives and also, if relevant,
• UN Guiding Principles on Business and Human Rights. potential in-person discussions with other stakeholders. It is adapted to
• OECD Guidelines for Multinational Enterprises. reflect the needs and risks of the country being reviewed. The findings of
• Children’s Rights and Business Principles. each country-level human rights review are communicated to relevant
members of the Executive Board. Following each human rights review,
These frameworks provide support and guidance in contexts with ele- action plans for identified improvement areas are created with clear own-
vated human rights risks and where local regulations are sometimes ership and anchoring within the local management. We strive to align our
insufficient or inadequately enforced. The Volvo Group reports on its human rights review methodology with the UN Guiding Principles on
human rights-­related work under applicable laws and regulations, includ- Business and Human Rights while also taking into account Volvo Group’s
ing national laws under the EU’s non-financial reporting directive and the global and local operating structures.
UK Modern Slavery Act. In 2020, we published Modern Slavery State- One focus area in 2020 was to clarify human rights review processes
ments for relevant companies within the Group. and methodology as well as follow up on findings from previous human
The year 2020 was marked by Covid-19 and as a result demand and rights reviews in India (2017), South Africa (2018), and Mexico (2019) with
business activity levels were impacted. The Group’s primary focus has the local management. The Group is planning for remote human rights
been to ensure the health, safety and well-being. reviews, taking into account an expected continuation of travel and meet-
ing restrictions due to the Covid-19 pandemic.

165
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Human rights due diligence in the supply chain well as other relevant questions can also be raised in the Volvo Global
The Volvo Group’s Supplier Code of Conduct sets not only the minimum Dialogue, which is a forum including employee representatives across the
requirements, but also the aspirations for suppliers in the areas of human globe and Group management. Please refer to page 160 for details on
rights and working conditions, health and safety, responsible sourcing of labor management relations.
raw materials, environmental performance and business ethics. Despite the Our Supplier Code of Conduct requires suppliers to respect their
global pandemic affecting our ability to visit suppliers, we continued to employees’ right to freedom of association and their right to collective bar-
develop and implement our Sustainable Minerals program. gaining. It also provides that where local law sets restrictions on the right
More on this and a summary of findings is available in the Supplier to freedom of association and collective bargaining, the supplier shall allow
assessment section on the next page. alternative forms of worker representation, association and bargaining.

Strengthening human rights capacity with Child labor

strategic business partners The Volvo Group assesses risks related to child labor as part of its overall
In addition to our owned manufacturing operations, the Volvo Group col- human rights due diligence in its own operations and in the supply chain.
laborates with private business partners to assemble trucks in certain In 2020, no cases of child labor were identified at own operations or in
locations in Africa and Asia, and build bus bodies on our chassis in line with supplier sustainability audits.
customer requirements globally. Our human rights plan for truck assembly
partners includes strengthening contractual provisions with human rights Forced or compulsory labor
requirements, risk assessments including onsite visits, and training and The Volvo Group assesses risks related to forced and compulsory labor as
raising awareness on human rights. part of its overall human rights due diligence in its own operations and in
the supply chain. In 2020, no cases of forced or compulsory labor were
Grievance channels and access to remedy identified at own operations or during supplier sustainability audits.
Our employees and external stakeholders have the possibility, to the
extent permitted by local laws, to report any instances of human rights
violations in connection with the Volvo Group or breach of our Code of RESPONSIBLE SALES
Conduct through internal and third-party hosted publicly available griev-
ance channels. See page 169 for more information on our grievance chan- The Volvo Group has processes and policies in place with the aim to
nels and the types of concerns reported in 2020. ensure that our business is conducted in compliance with applicable laws
and regulations, including sanctions and export control regimes. In addi-
Specific Global Reporting Initiative topic-related disclosures tion, we assess certain sales deals for risks related to human rights, envi-
ronmental factors, and business ethics as part of knowing the customer
Non-discrimination or end-user. These are primarily carried out in connection with direct
The Volvo Group assesses risks related to discrimination as part of its sales, involving customer finance and support from export credit guaran-
overall human rights due diligence in its own operations and the supply tees. In line with our internal policy on military sales, we make extended
chain. In 2020, 34 allegations perceived as related to discrimination or assessments of proposed sales. In 2020, we continued our work to
harassment were reported via the Volvo Group Whistle, included in the improve the methodology and scope of these assessments.
category Workplace Management on page 169. All reports were investi- We identify sustainability risks through credible tools when performing
gated. Approximately half of the reports were not substantiated. Discipli- these assessments. Identified findings are assessed, described and esca-
nary measures were taken in the substantiated cases, supported by train- lated to relevant forums within business areas or Group functions. Mitiga-
ings or changes to processes and routines. tion actions typically include engagement with our customers on the find-
Depending on the situation, specific actions are designed and applied. ings with the aim to support them to mitigate identified risks. If the risks
The Volvo Group provides awareness trainings to prevent harassment and are considered high or difficult to mitigate, we may decide not to proceed
discrimination. This is done with the Volvo Group Code of Conduct as the with individual sales deals. In our assessments, we consider country risk
core foundation. In addition, special courses about prevention from har- levels, customer segments, end-users and potential end-use of our prod-
assment and discrimination are offered for managers in some jurisdic- ucts. Our business areas have the responsibility to perform these assess-
tions, for example the training Civil Treatment for Leaders in the US. ments, with support from Group functions when needed.
In 2020, Volvo Trucks, Renault Trucks, Volvo Construction Equipment and
Freedom of association Volvo Buses assessed approximately 85 sales deals, involving customer
Legal compliance is the foundation for Volvo Group’s activities globally. Var- financing and sales to certain high-risk markets. Some of these assessments
ying country legislation on union independence means the approach to identified issues related to potential adverse impacts on the environment
managing freedom of association and collective bargaining may differ from and communities, lack of respect for human and labor rights, poor employ-
one case to another. The Volvo Group clearly states, in the Code of Conduct, ment conditions, occupational health and safety, and unethical business
that we respect the right of all employees to form and join an association to behavior. Group functions also assessed approximately 40 potential trans-
represent their interests as employees, to organize, and to bargain collec- actions to selected military and government end-users in various countries in
tively or individually, as well as the right to refrain from joining a union. line with our internal policy on military sales. Volvo Construction Equipment
The Volvo Group assesses risks related to freedom of association and and Volvo Buses also continued to raise awareness among its customer
collective bargaining as part of its overall human rights due diligence in its finance personnel across all sales regions.
own operations and in the supply chain. Human and labor rights issues, as

166
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Suppliers
SUPPLIER SOCIAL AND ENVIRONMENTAL ASSESSMENTS

managed by the responsible buyer together with the auditor until resolved.
First and foremost, the work focuses on establishing a strong partnership
Connection to Agenda 2030 and reporting standards
and developing a sustainable supply base. Those who fail to address critical
issues risk having their contracts terminated. All Volvo Group Purchasing
employees receive regular mandatory trainings on the concept of Sustaina-
bility and on the content of our Supplier Code of Conduct.
In 2020, 95% of the total Volvo Group spend was to suppliers who
were self-assessed on environmental and social criteria, 92% with a
Main connections to the UN SDGs and targets recorded approved score. In high risk areas, this percentage was 98%,
8.8 Protect labor rights and promote safe working environments
where 97% have recorded an approved score. Because the population
12.4 Responsible management of chemicals and waste
and scope of suppliers changes continuously, and the total number of sup-
13.3 Knowledge and capacity building to meet climate
change mitigation pliers can shift over time, the exact percentage of new suppliers that were
screened using social and environmental criteria is not available.
In addition, new suppliers of direct material in high risk countries are sub-
ject to due diligence, thorough screening or audit. Indirect material suppli-
ers are audited when the suppliers are located in a high risk country and the
annual spend exceeds a certain pre-defined financial threshold.
In 2020, 38 suppliers were audited in Brazil, China, India, Malaysia,
Mexico, Russia and South Africa. 21 of these audits were fully approved
Referenced reporting standards
without identified non-conformances.
GRI 414 – Supplier social assessment 2016
GRI 308 – Supplier environmental assessment 2016 Due to the Covid-19 situation, on-site audits have been difficult to con-
duct during 2020 and as response, audits have also been trialed via digital
connection. On-site sustainability trainings for our suppliers had to be
postponed due to Covid-19. Instead, in cooperation with DRIVE Sustain-
ability, a collaboration platform for responsible sourcing within the auto-
The Group relies on a global network of supply chain partners to innovate, motive sector, the Volvo Group has taken part in producing and launching
produce and deliver parts, systems or complete solutions for the product an on-line training for supply chain partners. This training enables com-
and services offered by Volvo Group. A global supply chain can mean a mitment and communication around all key sustainability topics and
range of environmental and social risks. The on-going digitalization, auto- serves as a good alternative to previously held face to face training. The
mation and electrification in the transport and infrastructure industries training is built on knowledge and experience with on-site face to face
also increases use of new and potentially scarce materials as well as reli- training held previous years but reached a wide audience without travel-
ance on new suppliers and associated risks. ling and avoiding gathering larger groups of participants.
The Supplier Code of Conduct outlines the minimum requirements,
which suppliers shall comply with in the areas of human rights, working Social impacts in the supply chain and actions taken
conditions, health and safety, responsible sourcing of raw materials, envi- In 2020, deviations were found within the areas of health and safety,
ronmental performance and business ethics. It also includes aspirations working hours and sustainability communication towards sub-suppliers.
through which suppliers are encouraged to go beyond the basic require- In the area of Health and Safety, the deviations related to fire emergency
ments to further advance sustainable performance and impact in the and first aid procedures as well as handling of chemicals and hazardous
areas covered by the Volvo Supplier Code of Conduct. materials. In the area of working hours, the findings were related to exces-
The supplier screening and auditing is centrally coordinated by Volvo sive working hours and in the area of supplier communication, the devia-
Group Purchasing and covers tier one suppliers. A risk-based approach is tions were found around inconsistent sub-supplier Code of Conducts,
used to prioritize screenings and audits. Prioritization is made by review- lack of cascading requirements and information and training to sub-con-
ing risks by country or market, commodities, processes or work areas of tractors about social, environmental or business ethics requirements. The
the suppliers. In addition to this overall risk mapping, environmental, findings from the audits are communicated back to the suppliers. The
human rights and other social risks can be flagged during any type of sup- suppliers are expected to set up and implement a corrective action plan in
plier audit, training or visit. For this purpose, the Volvo Group carries out a timely manner. Such corrective actions are then monitored by the
most audits and reviews with internal resources with a shared responsi- responsible buyer in cooperation with the auditor and the Responsible
bility between procurement staff and specialized auditors, whose tasks it Purchasing Team. All have confirmed corrective actions to be taken.
is to ensure that proper actions are taken to resolve identified gaps.
Screenings are done from desktop studies using Volvo Group’s internally Environmental impacts in the supply chain and actions taken
developed risk tool and external risk heat maps, in combination with sup- In 2020, minor deviations related to hazardous waste management were
plier self-assessments. Auditing of suppliers is traditionally carried out at found. All have confirmed corrective actions to be taken.
suppliers’ locations by Volvo Group specialists. The Code of Conduct audit An important environmental focus in the supply chain focuses on the
procedure is based on a checklist with questions focusing on a wide range transition to carbon neutrality. This includes both components and solu-
of aspects, such as human rights, working conditions, environment and tions used in Volvo Group’s products but will increasingly also include emis-
business ethics. The responsibility of improvements and corrective actions sion performance at suppliers. The supply chain ambition follows the Volvo
always lies with the suppliers themselves, where non-compliance cases are Group’s overall ambition to enable customers to go fossil free by 2040.

167
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Sustainable Minerals Program

Volvo Group does not directly source tin, tantalum, tungsten, gold and
Examples of industry collaborations for
cobalt. Regardless, these minerals are part of global supply chains and are
sustainable supply chains
used in a variety of materials and components. The Volvo Group’s ambi-
tion is to support its suppliers to secure sustainable supply chains of such
The Responsible Minerals Initiative (RMI) is a collaborative plat-
minerals. As part of this work, Volvo Group is a member of RMI (Respon-
form addressing responsible mineral sourcing issues in global
sible Minerals Initiative, see information to the right). In 2020, 1,121 tier
supply chains. Volvo Group is working with RMI with the aim to
one companies were invited to take part in the Volvo Group’s sustainable
ensure responsible and sustainable sourcing of tin, tantalum,
minerals program with the aim to create transparency and visibility in the
tungsten and gold (sometimes referred to as conflict minerals), as
supply chains of minerals. The ultimate aim is to secure an environmen-
well as cobalt. Through RMI, participants develop and gain
tally and socially sound supply chain of components and minerals.
access to tools and resources to ensure regulatory compliance
Several of the invited companies already collaborate and all invited will
and support responsible sourcing of minerals from conflict-­
be assessed on the parameters of (a) strength of Human Rights Due Dili-
affected and high-risk areas.
gence program and (b) association to smelters or refiners of concern in
their supply chain. The long-term ambition of the Sustainable Minerals
DRIVE Sustainability is a network of eleven leading automotive
program is to drive full transparency by 2025 where all supply chain part-
companies working towards enhancing sustainability throughout
ners in scope are to be compliant with our Responsible Purchasing stand-
the automotive industry by leveraging a common voice and by
ards and requirements.
engaging with our supply chain partners, stakeholders and related
sectors on impactful activities. Volvo Group is active in several
working groups within the initiative to leverage a circular and sus-
tainable automotive value chain. The Self-Assessment Question-
The Volvo Group’s program for sustainable purchasing naire was during 2020 launched in its fourth version and has now
can be summarized in these main elements been translated and made available in 13 different languages.
The foundation is the Supplier Code of Conduct which creates
the right mindset and shall be part of all contracts with suppliers. The Global Battery Alliance a public-private collaboration plat-
A supplier sustainability assessment program requires a basic form under the umbrella of the World Economic Forum. The
evaluation of all our supply chain partners through the Sustaina- vision is to create a circular and sustainable battery value chain
bility Self-Assessment Questionnaire, a tool developed in collab- set on ten guiding principles covering issues from the circular
oration with DRIVE Sustainability. Significant new supply chain recovery of battery materials, ensuring transparency of green-
partners in high-risk countries are assessed through an on-site house gas emissions and their progressive reduction, to eliminat-
audit with focus on working environment and labor practices. ing child and forced labor.
Audits of existing suppliers are made of selected suppliers in con-
nection with the Human Rights reviews of our own operations
and on an ad hoc basis if a specific need is identified.
Detailed supply chain mapping focus on specific segments and
areas. One such focus area is the sustainable minerals program
focusing on minerals such as tin, tantalum, tungsten, gold and cobalt.
Suppliers play a key role in implementing innovation in our sus-
tainability processes and tools. Joint innovation programs focus
on topics such as circularity and eco-design as well as electrifica-
tion, automation and connectivity.
Industry Collaboration drives broader implementation.

Creating
Supplier Code of Conduct right
mindset

Industry Supplier
collabo- assess-
rations ment
program

Innovation Supply
people and chain
environment mapping

168
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Business ethics and compliance

adjacent areas such as commercial gifts, charitable donations, anti-
money laundering and fraud reporting. Corporate Compliance is responsi-
Connection to Agenda 2030 and reporting standards ble for designing and developing the Volvo Group anti-corruption compli-
ance program and monitors the implementation across the Group. A
network of compliance officers in the business areas and divisions work
closely with Corporate Compliance to ensure the implementation in their
respective areas.
Main connections to the UN SDGs and targets Volvo Group uses a combination of audits, management control sys-
16.5 Substantially reduce corruption and bribery tems and internal controls to ensure adherence to the Code of Conduct.
Further, the Code of Conduct encourages all employees to speak up and
report suspected violations to their managers or other management repre-
sentatives. Another way to raise a concern is through the Volvo Group
Whistle, available on [Link].

Communication and training about anti-corruption

Referenced reporting standards policies and procedures
GRI 205 – Anti-corruption 2016 Volvo’s top management, Corporate Compliance and other internal stake-
holders regularly communicate the importance of anti-corruption compli-
ance in various forms. Training is a central element of the Volvo Group’s
compliance programs. In 2020, the Volvo Group has revised its compli-
ance training strategy to ensure a risk-based combination of face-to-face
COMPLIANCE PROGRAMS training and online courses depending on individual exposure to corrup-
tion risk. Due to the impact of Covid-19 and the related furlough or short-
Legal compliance forms the basis for everything we do in the Volvo Group. term lay-offs of employees globally, the annual Code of Conduct Training
It covers many different areas and is guided by people of expertise and was postponed to December 2020. By year-end, 37,000 employees
knowledge across the Group, and spans across topics such as emissions (86% of the target group) had finalized the training.
regulations, competition and anti-corruption laws, export control regula-
tions and data privacy.
Our Code of Conduct states that we shall compete in a fair manner on WHISTLE BLOWER REPORTING
the merits of our products and services and not participate in or endorse
any corrupt practices. These principles of compliance are implemented In 2020, 97 cases were reported via Volvo Group’s whistle-blower help-
through dedicated resources and compliance programs, including poli- line, escalated to Corporate Audit and investigated. We observed a lower
cies and guidelines, a comprehensive range of e-learning and tailored input of cases reported correlating with periods of stricter lockdown
face-to-face training, counselling and support, as well as auditing and measures during Q2 and Q4. Six of the reported cases were categorized
reviews. In addition, the Volvo Group whistle-blower procedures apply to as suspected corruption or conflict of interest. One was closed substanti-
all compliance areas. ated with appropriate disciplinary and remediation actions taken.

Whistle-blower concerns escalated to Corporate Audit

ANTI-CORRUPTION
2020 2019

The Volvo Group’s Code of Conduct and the related anti-corruption policy Type of concerns reported
condemn all forms of corruption. This is based on the conviction that brib- Workplace management 40 41% 69 52%
ery and other forms of corruption distort the market, interfere with free Business Ethics and Financial Practices 33 34% 42 32%
competition, violate laws and undermine social development. Volvo Corruption and Conflict of Interest 6 6% 7 5%
Group employees may not participate in or endorse any corrupt practices, Other including Inquiries 18 19% 15 11%
including offering or accepting kickbacks, bribes, excessive gifts or hospi- Total 97 100% 133 100%
tality, or facilitation payments – directly or indirectly, such as through a
third party. Nor will the Volvo Group accept suppliers, vendors or partners
that offer or accept bribes.
Corruption risks are primarily linked to the activities of the Volvo
Group’s business partners and to the behaviors of employees in situations
in relation to public officials and other customer representatives. The
overall risk level is also affected by the fact that Volvo Group pursues busi-
ness operations in many markets that are considered high-risk from a cor-
ruption perspective.
The Volvo Group has established dedicated anti-corruption policies
and guidelines to complement the Volvo Group Code of Conduct. Among
other things, these include a risk-based mandatory anti-corruption due
diligence process for new and existing business partners requiring the use
of external screening tools. We also implemented binding rules to ensure
appropriate gift and hospitality practices as well as further documents in

169
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

TAX PRACTICES for transparency. In 2020, the total staff cost for lobbying in the EU and
the US was approximately SEK 12 M.
The Volvo Group regards corporate tax compliance as a matter of respon- The Volvo Group observes neutrality with regard to political parties and
sible business behavior. The Volvo Group shall comply with the tax laws candidates for public office. The Volvo Group Code of Conduct and related
and regulations of each country where we operate. The Group does not policies serve as the foundation for our position on public policy.
engage in any aggressive tax planning activities through structures in tax Volvo Group's lobbying efforts, direct or indirect via its memberships in
havens or otherwise. Where tax laws do not give clear guidance, prudence associations, related to public policy are based on the following guiding prin-
and transparency shall be the guiding principles. A fundamental objective ciples, set by the Executive Board:
of Volvo Group's tax policy is to ensure compliance with these principles 1. In line with the Paris Climate Agreement
throughout the Group, and at the same time ensure tax-conscious man- 2. Fair and free trade
agement of our operations. The average corporate tax rate of the Volvo 3. Level playing field
Group for the last five years is 24% (24). 4. Technology neutrality
5. Global standards
6. Long-term prerequisites
LOBBYING 7. Clarity and predictability

The Volvo Group has a continuous dialogue with authorities, regulators Volvo Group is member of several trade associations, providing a possibility
and policymakers on issues relevant for us and our customers’ business to monitor and comment on proposed regulations and policies. A list of mate-
and operations. The dialogue is guided by yearly priorities approved by the rial memberships is available on [Link]/lobbying. A risk-based
Executive Board. The Volvo Group is engaged in direct and indirect lobby- review of indirect corporate climate lobbying activities has also been initiated
ing, mainly in EU and US. Associated costs are reported to lobby registers and the results from this will be made available as we progress during 2021.

Organizational profile and reporting practices

Reporting cycle Ownership and legal form
The reporting cycle is annual. No significant restatements have been AB Volvo (publ) is a publicly-held company, and its shares are listed on the
made. The reporting period is January 1, 2020 to December 31, 2020. stock exchange Nasdaq Stockholm, Sweden.
The date of most recent report was February 25 2020.
Scale of the organization
Name of the organization Net sales amounted to SEK 338 billion in 2020. See page 92 for segment
The name of the company issuing this report is AB Volvo (publ). The com- reporting. Refer to page 205 for a summary of products delivered.
pany is the parent company of the Volvo Group.
Supply chain
Activities, brands, products and services As one of the world’s leading manufacturers of trucks, buses, construction
The Volvo Group is one of the world’s leading manufacturers of trucks, equipment and marine and industrial engines, the Volvo Group is highly
buses, construction equipment and marine and industrial engines. The reliant on robust global and local supply chains to deliver components,
Group also provides complete solutions for financing and service. The parts and complete services and systems.
brand portfolio consists of Volvo, Volvo Penta, UD Trucks, Terex Trucks, In 2020, the Volvo Group bought goods and services for SEK 233 billion.
Renault Trucks, Prevost, Nova Bus, Mack and Arquus. Joint ventures are
held with the SDLG, Eicher and Dongfeng brands. Significant changes to the organization and its supply chain
No significant changes of the Group's organization or supply chain have
Location of headquarters and operations affected the reporting set out herein for 2020.
The Volvo Group is headquartered in Gothenburg, Sweden, and has pro-
duction facilities in 18 countries and sells its products in more than 190 Precautionary principle or approach
markets. The company was founded in Sweden in 1927 where the Volvo A precautionary principle is applied. This is exemplified by the life-cycle
Group still operates a significant part of its operations. Other significant management approach taken when developing trucks, buses, construc-
operations are found in the US, B­ razil, India, France, Japan and China. For tion equipment and other vehicles and machinery. Applying life-­ cycle
more information about major production facilities, please refer to approach provides insights for decision making on environmental gains
[Link]/asr2020. and potential trade-offs. This approach is the foundation for the Volvo
The Group’s five largest markets are the US, France, United Kingdom, Group Environmental Policy.
Japan and Germany.

170
 GROUP PERFORMANCE 2020 SUSTAINABILIT Y NOTES

Health and safety data is reported at operating unit level and consoli-
External initiatives dated at Business Area/Truck Division and Group level.
The Volvo Group is a signatory of the UN Global Compact. It further recog- Other employee related data is reported and quality assured at legal
nizes and supports several international conventions and principles, entity level, consolidated and quality assured at a shared service center
including the International Bill of Human Rights, the ILO eight fundamen- and controlled and reviewed at Group level.
tal conventions, the UN Guiding Principles on Business and Human Rights Compliance related information are gathered using a case manage-
and the OECD Guidelines for Multinational Enterprises. In addition, the ment system from the Code of Conduct help- and whistle-blower report-
Group participates in a number of initiatives and collaboration platforms ing line provided by a third party.
more specifically targeting CO2 emission reductions, such as: Qualitative data is collected from a range of functions responsible for
• Science Based Targets initiative (SBTi) is a partnership between driving each material sustainability topic.
CDP, the United Nations Global Compact, World Resources Institute
and the WWF. The purpose is to provide technical assistance and External assurance
expert resources to companies who set science-based targets in line The Volvo Group has secured external assurance of certain parts of its sus-
with the latest climate science. tainability related activities. Limited assurance has been done on the topics
of Energy and Emissions as reported on pages 155–157 and activities
• H
 2Accelerate is an industry collaboration focusing on creating the
undertaken as part of the Volvo Group's commitment to WWF Climate
conditions for the mass-market roll-out of hydrogen trucks in Europe.
Savers as described on page 29 and further on [Link]/climate,
• Energy Transition Commission is a global coalition from across the where the separate assurance letter is also available.
energy landscape committed to achieving net-zero emissions by The Group’s Auditor reviews the statutory sustainability report accord-
mid-century. ing to auditing standard RevR 12 as defined on page 193 of the Annual
and Sustainability Report under the title The auditor´s opinion regarding
Data collection the statutory sustainability report.
Quantitative data for the sustainability disclosures are consolidated in
different systems.
Environmental data is reported at site level following the setup of the
environmental management system. The data is controlled internally by
an environmental coordination network and consolidated at Group level.

Information on employees and other workers

Total number of employees by employment contract, by gender and region
Permanent Temporary Agency/consultants Total workforce
Men Women Men Women

Europe 38,335 10,068 824 434 4,012 53,673

North America 12,320 3,239 91 33 626 16,309
South America 4,522 926 257 61 81 5,847

Asia and Pacific 14,624 2,435 945 120 1,164 19,288

Africa 774 249 37 13 4 1,077
Group total 70,575 16,917 2,154 661 5,887 96,194

Total number of employees by employment type, by gender

Full time Part time Agency/consultants Total workforce
Men Women Men Women

Group total 71,919 16,729 810 849 5,887 96,194

171
 CORPORATE
CORPORATE GOVERNANCE
GOVERNANCE CORPORATE
CORPORATE GOVERNANCE
GOVERNANCE REPORT
REPORT 2020
2020

C O RP O R AT E GOV ERN A N C E

CORPORATE
GOVERNANCE
REPORT 2020
The Volvo Group appreciates sound corporate governance as a fundamental base
in promoting its long-term strategic objectives and in achieving a trusting relation
with shareholders and other key stakeholders. High standards when it comes to
transparency, reliability and ethical values are guiding principles within the Volvo
Group’s operations.

The Swedish Corporate ­Governance Code Corporate Governance Model

AB Volvo’s shares are admitted to trading on the stock exchange Nasdaq At the General Meetings of AB Volvo, which is the Parent Company of the
Stockholm’s main market. As a listed company, Volvo applies the Volvo Group, the shareholders exercise their voting rights with regard to
­Swedish Corporate Governance Code (the Code), which is available at for example the composition of the Board of Directors of AB Volvo and the
[Link]. election of auditors.
This Corporate Governance Report has been prepared in accordance An Election Committee, appointed by the Annual General Meeting of AB
with the Swedish Annual Accounts Act and the Code, and is separate Volvo, submits proposals to the General Meeting concerning the election
from the Annual and Sustainability Report. The report has been reviewed of Board members and Board Chairman as well as proposals for resolu-
by Volvo’s auditors and includes a report from the auditors. tions concerning remuneration of the Board. When applicable, the Election
Committee also submits proposals to the General Meeting for the election
of external auditors and for resolutions concerning fees to the auditors.
The Board is ultimately responsible for Volvo’s organization and the
management of its operations.
In addition, the Board appoints the President and CEO of AB Volvo.
The CEO is in charge of the daily management of the Group in accordance
with the guidelines provided by the Board.

172
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

1
Shareholders

Vote at the General Meetings

AB VOLVO

2 Elects Auditor
General Meeting

Appoints Submits proposals concerning election of Board

Election members, auditors and Election Committee for
5 Audit Committee Committee the upcoming Annual General Meeting.
7 Auditor
6 Remuneration 3 Election Committee
Committee

Elects Board

Prepare
part of the
Board’s work.
4
Board of Directors
The auditors review
the interim report for
the period January 1
to June 30 and audit
Appoints President/CEO the annual report
and ­consolidated
9 financial ­s tatements.

10
President/CEO

8 Corporate Audit

11 Internal Control over

Financial Reporting

10
Group Executive Board
Business Areas/
Truck Divisions

Operations

173
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

1 SHARES AND SHAREHOLDERS 2 GENERAL MEETING

AB Volvo (publ) is a CSD company, which means that the share register is General
maintained by Euroclear Sweden AB. On December 31, 2020, Volvo had The General Meeting is Volvo’s highest decision-making body. The Annual
283,731 shareholders according to the share register. The largest share- General Meeting is held within six months of the end of the fiscal year,
holder, in terms of votes on that date was AB Industrivärden, with 27.5 normally in Gothenburg, Sweden.
percent of the votes. As per the same date, Geely Holding held 15.9 In addition to what follows from applicable law regarding shareholders’
­percent of the votes, AMF Insurance & Funds held 5.6 percent of the right to participate at General Meetings, under Volvo’s Articles of Associa-
votes, Alecta held 4.7 percent of the votes and Norges Bank Investment tion shareholders must give notice of their attendance (within the time
­Management held 4.2 percent of the votes, based on the number of stated in the convening notice) and, when applicable, notify the company
shares outstanding. of any intention to bring assistants.
Volvo has issued two classes of shares: series A and series B. At a A shareholder who wants the Meeting to consider a particular matter
­General Meeting, series A shares carry one vote and series B shares one- must submit a request to the Board in sufficient time prior to the Meeting
tenth of a vote. The two share classes carry equal rights in the assets and to the address provided on Volvo’s website, [Link].
earnings of the company. According to a special share conversion clause The Annual General Meeting 2020 resolved to amend the Articles of
in the Articles of Association, holders of series A shares are entitled to Association, allowing the Board to collect powers of attorney in accor­
request that their series A shares be converted to series B shares. Imple- dance with the procedure described in the Companies Act as well as
mentation of such conversions, which occurs on a regular basis, entail allowing the Board to decide that shareholders shall be able to exercise
that the total number of votes in the company decreases. their right to vote by post before a General Meeting.
The Annual General Meeting 2020 resolved to adopt the Board’s pro- As a consequence of the developments due to the Covid-19 pandemic,
posal to reduce the share capital by way of cancellation of the company’s the Board decided by the end of March 2020 to postpone the Annual
approximately 95 million own shares. The cancellation was implemented General Meeting 2020. The Meeting, which was initially planned for April
in July 2020 and entailed that the total amount of registered shares in the 8, was held on June 18. In order to reduce the risk of spreading the virus
company decreased by a corresponding amount. and considering the authorities’ regulations and advice on avoiding public
For more information about the Volvo share and its shareholders, gatherings, the Meeting was carried out through postal voting, without
please refer to the Board of Director’s Report on pages 66–67 of the any physical attendance, pursuant to temporary legislation. As communi-
Annual and Sustainability Report. cated by the Swedish Corporate Governance Board in March 2020, this is
not to be considered a deviation from the Code.

Annual General Meeting 2021

Volvo’s Annual General Meeting for 2021 will be held on Wednesday,
March 31, 2021. For further information about the Annual General Meet-
ing 2021, please refer to the fold-out at the end of the Annual and Sustain-
ability Report and Volvo’s website, [Link].

3 ELECTION COMMITTEE

Duties whom four shall represent the largest shareholders in the company, in
The Election Committee is elected by the General Meeting. The Election terms of votes who have expressed their willingness to participate in the
Committee shall perform the tasks that are incumbent upon the Election Election Committee. In addition, one of the members shall be the Chair-
Committee according to its instructions from the General Meeting and man of the AB Volvo Board.
the rules of the Code. The main task is to prepare and present proposals to
the Annual General Meeting on behalf of the shareholders for the election Volvo’s Annual General Meeting 2020 resolved to appoint the following
of Board members, Chairman of the Board and Board remuneration and, individuals as members of the Election Committee:
when applicable, proposals for auditors and fees to the auditors. • Bengt Kjell (AB Industrivärden)
In addition, the Election Committee presents proposals for members of • Anders Oscarsson (AMF and AMF Funds)
the Election Committee for the following year, in accordance with prevail- • Ramsay Brufer (Alecta)
ing instructions for Volvo’s Election Committee. • Carine Smith Ihenacho (Norges Bank Investment Management)
• Carl-Henric Svanberg, Chairman of the Board.
Composition
In accordance with the current instructions for Volvo’s Election Commit- The Election Committee appointed Bengt Kjell as Chairman of the Election
tee (adopted by the Annual General Meeting 2019), the Annual General Committee.
Meeting shall elect five members to serve on the Election Committee, of

174
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

4 BOARD OF DIRECTORS

Duties The Board’s work in 2020

The Board is ultimately responsible for Volvo’s organization and manage- The Board’s work is mainly performed within the framework of formal
ment of the company’s operations. The Board is responsible for the Board meetings and through meetings in the respective committees of
Group’s long-term development and strategy, for regularly controlling and the Board. In addition, regular contact is maintained between the Chair-
evaluating the Group’s operations and for the other duties set forth in the man of the Board and the CEO in order to discuss ongoing business and
Swedish Companies Act. to ensure that the Board’s decisions are executed.
In 2020, the extraordinary situation due to the Covid-19 pandemic has
Composition had a significant impact on the Board’s work. In 2020, there were nine
During the period January 1, 2020 to June 18, 2020, AB Volvo’s Board regular Board meetings and one statutory Board meeting, all included in
consisted of ten members elected by the Annual General Meeting and three the Board’s initial meeting plan. In addition, the Board has met on a
members and two deputy members appointed by employee organizations. ­frequent basis during 2020, resulting in a total of 14 extraordinary Board
The Annual General Meeting 2020 re-elected Matti Alahuhta, Eckhard meetings. Most of the Board meetings have been held as video confer-
Cordes, Hanne de Mora, Eric Elzvik, James W. Griffith, Martin Lundstedt, ences. The attendance of Board members at these meetings is pres­ented
Kathryn V. Marinello, Martina Merz, Helena Stjernholm and Carl-Henric in the table on page 177. The company’s auditor attended one Board
Svanberg as Board members and Kurt Jofs was elected as new Board meeting during the year.
member. This meant that the total number of members elected by the An important part of the Board’s focus during 2020 has been on man-
General Meeting increased from ten to eleven. The Annual General Meet- aging the immediate challenges and consequences of the Covid-19 pan-
ing re-elected Carl-Henric Svanberg as Chairman of the Board. A more demic including a focus on the Volvo Group colleagues, customers and
detailed presentation of each Board member is set out in the “Board of business partners and to maintain a tight cost control and focus on cash
Directors” section on pages 178–179. flow. In addition, the Board has continued its focus on new technologies
Prior to the Annual General Meeting 2020, the Election Committee and the Group’s positioning in the transformation of the industry. Product
announced that it had applied the provisions of rule 4.1 of the Code as development to meet the Group’s own as well as regulators’ climate
board diversity policy. The aim is that the Board as a collective should pos- related and other goals is one important part of this work.
sess the required mix in terms of background and knowledge, whereby an Other important parts of the focus on new technologies and industry
even gender distribution is taken into particular account. The result of the transformation include the Group’s strategic partnerships and other larger
Election Committee’s application of the diversity policy is a Board that transactions. Here, the Volvo Group and Isuzu Motors signed an agree-
represents a mix of both professional experience and knowledge as well ment in October 2020 to form a strategic alliance within commercial
as geographical and cultural backgrounds. 36 percent (four out of eleven) vehicles. Further, the Volvo Group and Daimler Truck AG signed an agree-
of the Board members elected by the Annual General Meeting are women. ment to establish a new joint venture to develop, produce and commer-
cialize fuel-cell systems for use in heavy-duty trucks as the primary focus,
Independence requirements as well as other applications.
The Board of Directors of AB Volvo is subject to the independence require- The Board is continuously updated about climate and sustainability
ments prescribed in the Code. related issues, for instance as part of the health and safety related issues,
Prior to the Annual General Meeting 2020, the Nomination Committee product plans, investment plans and talent review. During 2020, the
presented the following assessment of the independence of Board mem- Board has been continuously updated and involved in the development of
bers elected at the Annual General Meeting 2020. the Group’s sustainability work, including the Group’s commitment to the
Carl-Henric Svanberg, Matti Alahuhta, Eckhard Cordes, Hanne de Science Based Targets initiative (for further information, see page 29).
Mora, Eric Elzvik, James W. Griffith, Kurt Jofs, Kathryn V. Marinello and Climate related issues are considered mainly in relation to product plans
Martina Merz were all considered independent of the company and com- and R&D investments, both of which are critical to meet changing cus-
pany management, as well as the company’s major shareholders. tomer demands, new business models, environmental impact and regula-
Martin Lundstedt, as President of AB Volvo and CEO of the Volvo tory demands. Climate related and environmental regulations as well as
Group, was considered independent of the company’s major shareholders technology shift and convergence are two of the Group’s top strategic
but not of the company and company management. risks and therefore also opportunities and critical topics to be dealt with
Helena Stjernholm was considered independent of the company and at Board level.
company management but not in relation to one of the major sharehold- During 2020, the Board decided on an overall financial plan and invest-
ers, due to her capacity as President and CEO of AB Industrivärden. ment framework for the Group’s operations, including investments in
R&D for both electrification and combustion engines to reduce CO2 emis-
Work procedures sions. In addition, the Board regularly monitors the Group’s earnings and
Every year, the Board adopts work procedures for the Board’s work. financial position and maintains continuous focus on risk related issues
The work procedures outline how the Board’s duties should be distrib- such as overall risk management and ongoing legal disputes and investi-
uted, including the specific role and duties of the Chairman, instructions gations. Further, throughout the year, the Board has devoted time to tal-
for the division of duties between the Board and the President and for the ent review and succession planning and on the review and follow-up of
reporting of financial information to the Board. The Board has also the Company’s quality work.
adopted specific instructions for the Board’s committees, which are By allocating time to business reviews of the Group’s various truck divi-
linked to the work procedures. sions and business areas the Board remains continuously up-to-date on

175
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

The Board’s committees

5 AUDIT COMMITTEE

the status and development of the Group’s operations. As part of this Duties
work, the Board usually makes a yearly visit to the Company’s operations The Board has an Audit Committee primarily for the purpose of supervis-
throughout the world. In 2020, the Board had to cancel its trip due to the ing the accounting and financial reporting processes and the audit of the
global situation caused by the Covid-19 pandemic. annual financial statements.
Finally, during 2020, the Board decided to discontinue its Technology The Audit Committee’s duties include preparing the Board’s work to
and Business Transformation Committee since the technology change assure the quality of the Group’s financial reporting by reviewing interim
and business transformation of the Volvo Group require the full Board’s reports, the Annual and Sustainability Report and the consolidated
involvement. accounts. The Audit Committee also has the task of reviewing and over-
seeing the Group’s legal and taxation matters as well as compliance with
Evaluation of the Board’s work laws and regulations that may have a material impact on financial report-
In 2021, the Board performed its yearly evaluation of the Board’s work ing. Furthermore, the Audit Committee has the task of reviewing and
during the previous year. The purpose of the evaluation is to further overseeing the impartiality and independence of the company’s auditors.
develop the Board’s efficiency and working procedures and to determine The Audit Committee is also responsible for evaluating both internal and
the main focus of the Board’s coming work. In addition, the evaluation external auditors’ work and, when applicable, handling the tender process
serves as a tool for determining the competence required by the Board for audit services. In addition, it is the Audit Committee’s task to preap-
and for analyzing the competence that already exists in the current Board. prove what other services, beyond auditing, the company may procure
By that, the evaluation also serves as input for the Election Committee’s from the auditors. The Audit Committee also adopts guidelines for trans-
work with proposing Board members. actions with companies and persons closely associated with Volvo. Further,
As part of the yearly evaluation, Board members were asked to com- the Audit Committee evaluates the quality, relevance and effectiveness of
plete a questionnaire and assess various areas related to the Board’s work the Group’s system for internal control over financial reporting, as well as
from their own perspective. The areas evaluated for 2020 included the with respect to the internal audit and risk management, and discharge any
Board’s composition, the management and focus of Board meetings, other duties of an audit committee according to law or its instructions.
Board support and how the Board addresses issues related to strategy, Finally, the Audit Committee oversees developments within the ESG
sustainability, potential risks and succession planning. The areas covered (Environmental, Social and Governance) standards, and the Group’s
by the evaluation may differ from one year to another to reflect the devel- reporting in these areas.
opment of the Board’s work and the Volvo Group and in 2020, particular
focus was kept on the Board’s work during the Covid-19 pandemic. Composition and work in 2020
Separate evaluations were conducted of the Board as a collective, of At the statutory Board meeting following the Annual General Meeting
the Chairman of the Board, the Audit Committee and the Remuneration 2020, the following Board members were appointed members of the
Committee. The results of the evaluations of the Board as a collective and Audit Committee:
of the Chairman were discussed by the Board. The results of the evalua- • Hanne de Mora
tions of the committees were, or will be, discussed by the relevant com- • Eric Elzvik
mittee. In addition, the results of the evaluations of the Board as a collec- • Helena Stjernholm.
tive and of the Chairman are shared with the Election Committee.
Hanne de Mora was appointed Chairperson of the Audit Committee.
Remuneration of Board Members The Audit Committee met with the external auditors without the pres-
The Annual General Meeting resolves on fees to be paid to the Board ence of management on four occasions in 2020 in connection with Audit
members elected by the Annual General Meeting. For information about Committee meetings. The Audit Committee regularly met with the Head
Board remuneration adopted by the Annual General Meeting 2020, of Corporate Audit in connection with Audit Committee meetings.
please refer to Note 27 in the Group’s notes in the Annual and Sustainabil- The Election Committee’s assessment of independence of the Audit
ity Report. During the year, the Board members decided on a 20 percent ­Committee members prior to the Annual General Meeting 2020 is presented
reduction of their Board and Committee remuneration from the Annual above under the “Independence requirements” section on page 175.
General Meeting 2020 to the Annual General Meeting 2021. The Audit Committee and the external auditors, among other tasks,
discussed the external audit plan and the view of risk management. The
Audit Committee held nine regular meetings during 2020. The atten­
Remuneration of Board members, 2020 dance of Board members at the committee meetings is presented in the
(from AGM on June 18, 2020, not adjusted
table on page 177. The Audit Committee reports the outcome of its work
for the 20 percent reduction) SEK
to all members of the Board on a regular basis and the minutes of the
Chairman of the Board 3,600,000 Audit Committee meetings are distributed to all Board members.
Board member 1 1,060,000
Chairman of the Audit Committee 380,000
Member of the Audit Committee 175,000
Chairman of the Remuneration Committee 160,000
Member of the Remuneration Committee 115,000
1 With the exception of the CEO.

176
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

6 REMUNERATION COMMITTEE

Duties Composition and work in 2020

The Board has a Remuneration Committee for the purpose of preparing At the statutory Board meeting following the Annual General Meeting
and deciding on issues relating to the remuneration of senior executives in 2020, the following Board members were appointed members of the
the Group. The duties of the Committee include making recommendations Remuneration Committee:
to the Board on the Board’s decisions regarding terms of employment and • Carl-Henric Svanberg
remuneration of the CEO and the deputy CEO of AB Volvo, principles for • Matti Alahuhta
the remuneration, including pensions and severance payments, of other • James W. Griffith
members of the Group Executive Board and principles for variable salary • Mikael Sällström.
systems, share based incentive programs and for pension and severance
payment structures for other senior executives in the Group. Carl-Henric Svanberg was appointed Chairman of the Remuneration
The Remuneration Committee shall also monitor and evaluate ongoing Committee.
programs and programs concluded during the year for the variable remu- The Election Committee’s assessment of the independence of mem-
neration of senior executives, application of the guidelines for the remunera- bers of the Remuneration Committee in accordance with the require-
tion of senior executives on which the Annual General Meeting has resolved ments in the Code, prior to the Annual General Meeting 2020, is pres­
on, and the current remuneration structures and levels in the Group. ented under “Independence requirements” on page 175.
The Board shall prepare a report for each financial year detailing unpaid The Remuneration Committee held four regular and two extraordinary
and outstanding remuneration that is covered under the guidelines. The meetings during 2020. The attendance of Board members at committee
report shall be submitted to the Annual General Meeting for approval. meetings is presented in the table below. The Remuneration Committee
reports the outcome of its work to all members of the Board on a regular basis.

The Board’s composition and attendance at meetings January 1, 2020 – December 31, 2020

Ordinary Board
meetings (10 incl. Extraordinary Audit Remuneration
Member statutory) Board meetings (14) Committee (9) ­C ommittee (6)

Carl-Henric Svanberg 10 14 6
Martin Lundstedt 10 14
Matti Alahuhta 10 13 6
Eckhard Cordes 10 131
Hanne de Mora 10 142 9
Eric Elzvik 10 12 9
James W. Griffith 10 14 6
Kurt Jofs³ 6 4
Kathryn Marinello 10 13
Martina Merz 10 4 85
Helena Stjernholm 10 14 9
Lars Ask, employee representative 10 13
Mats Henning, employee representative 10 14
Mikael Sällström, employee representative 106 14 6
Camilla Johansson, employee representative 10 13
Mari Larsson, employee representative 10 14
Total number of meetings 10 14 9 6
1 Eckhard Cordes partly attended the extraordinary Board meeting in October 2020.
2 Hanne de Mora partly attended one of the extraordinary Board meetings in March 2020.
3 Kurt Jofs joined the Board in June 2020 and has since attended all ordinary and extraordinary Board meetings during 2020.
4 Martina Merz partly attended ordinary Board meetings in January, October and December 2020.
5 Martina Merz partly attended one of the extraordinary Board meetings in May 2020.
6 Mikael Sällström partly attended one of the ordinary Board meetings in October 2020.

177
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

BOARD OF DIRECTORS
BOARD ­M EMBERS
ELECTED BY THE
ANNUAL GENERAL
MEETING

Carl-Henric Svanberg Matti Alahuhta Eckhard Cordes Hanne de Mora Eric Elzvik
Chairman of the Board, Member of the Remuneration Chairman of the Audit Member of the Audit
­Chairman of the Remuneration Committee Committee Committee
Committee

Education MSc in Applied Physics, MSc, Dr Sc. MBA and PhD, University of BA in Economics from HEC MSc Business Administra-
Linköping Institute of Tech- Doctor of Science, Helsinki Hamburg. in Lausanne, MBA from IESE tion, Stockholm School of
nology, BSc Business Admin- University of Technology. in Barcelona. Economics.
istration, University of Uppsala.

Born 1952 1952 1950 1960 1960

Member of the Chairman of the Volvo Board Since April 2, 2014. Since April 1, 2015. Since April 14, 2010. Since April 5, 2018.
Volvo Board since April 4, 2012.

Position and Board Chairman of the Academy: Board Chairman: DevCo Partner in Cevian Capital and Board Chairperson: Board Chairman: Global
­memberships The Royal Swedish Academy ­Partners Oy. EMERAM Capital Partners. ­a-connect (group) AG and ­Connect Group.
of Engineering Sciences (IVA) Vice Board Chairman: Metso Board Chairman: Bilfinger SE. Microcaps AG. Board member: Telefon­
and Chairman of the Outotec. Member of the Executive Board Member: IMD Super­ aktiebolaget LM Ericsson,
­European Round Table of Board member: Kone ­Committee of Eastern visory Board, Metso Outotec Landis+Gyr Group AG and
Industrialists. ­Corporation and ABB Ltd. ­European Economic Relations and Nestlé S.A. VFS Global.
of German Industry.

Principal Has held various positions at Has held several manage- Started within Daimler Benz Credit Analyst Den Norske Joined ABB in 1984 and has
work experience Asea Brown Boveri (ABB) ment positions in the Nokia AG in 1976, where he has C
­ redit­bank in Luxemburg held several management
and Securitas AB, President Group – President of Nokia held several manage­ment 1984. Various positions positions in the Finance
and CEO of Assa Abloy AB, Telecommunications, Presi- positions, such as Head of the within brand management ­function at ABB in Sweden,
President and CEO of Telefon­ dent of Nokia Mobile Phones trucks and buses business, and controlling within Procter Singa­pore and Switzerland
aktiebolaget LM Ericsson, and Chief Strategy Officer of Head of Group Controlling, & Gamble 1986–1989, – most recently as Group
member of the External the Nokia Group, President of Corporate Development and ­Partner McKinsey & CFO between 2013 and 2017
Advisory Board of the Earth Kone Corporation between M&A in AEG AG and CEO of ­Company, Inc. 1989–2002, and previously as CFO for the
Institute at Columbia 2005–2014 and between ­Mercedes Car Group. one of the founders and own- Divisions Discrete Automa-
University, the Advisory 2006–2014 also CEO. ­Previously CEO of Metro AG, ers, also Board Chairperson of tion & Motion and Automa-
Board of Harvard Kennedy senior advisor at EQT and the global consulting firm and tion Products and a position
School and Board Chairman Board ­member of Air Berlin, ­talent pool a-connect (group) as Head of Mergers & Acqui-
of BP plc. SKF, Carl Zeiss and Rhein- AG since 2002. sitions and New Ventures and
metall AG. Since 2012 also as Head of Corporate
­partner in Cevian Capital and Development. Currently, sen-
EMERAM Capital Partners ior industrial ­advisor to EQT.
respectively.

Holdings in Volvo, 2,000,000 Series B shares. 146,100 Series B shares. None. 18,230 Series B shares. 7,475 Series B shares.
own and related p
­ arties

BOARD MEMBERS APPOINTED BY THE EMPLOYEE ORGANIZATIONS

Lars Ask Mats Henning Mikael Sällström

Employee representative, ordinary member Employee representative, ordinary member Employee representative, ordinary member
Member of the Remuneration Committee

Born 1959 1961 1959

Member of the Ordinary member since April 6, 2016. Since May 9, 2014. Since September 7, 2009.
Volvo Board Deputy member from June 16, 2009–2016.

Background within Volvo With Volvo since 1982. With Volvo since 1982. With Volvo 1980–1999 and since 2009.

Holdings in Volvo, 116 Series B Shares. 293 Series A shares, 616 Series B shares. 293 Series A shares, 116 Series B shares.
own and related parties

178
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

James W. Griffith Kurt Jofs Martin Lundstedt Kathryn V. Marinello Martina Merz Helena Stjernholm
Member of the Remuneration President and CEO Member of the Audit
Committee ­Committee

BSc Industrial Engineering, MSc, KTH Royal Institute of MSc, Chalmers University of BA from State University of BS from University of Coop- MSc Business Administra-
MBA from Stanford Technology, Stockholm. Technology. New York at Albany, MBA from erative Education, Stuttgart. tion, Stockholm School of
University. Hofstra ­University. Economics.

1954 1958 1967 1956 1963 1970

Since April 2, 2014. Since June 18, 2020. Since April 6, 2016. Since April 2, 2014. Since April 1, 2015. Since April 6, 2016.

Board member: Illinois Tool Board Chairman: Vesper President and CEO of AB CEO of PODS. President and CEO of President and CEO of
Works Inc. Holding AB and Höganäs AB. Volvo. Board Chairman: Board Chairperson: Concentrix. Thyssen­k rupp AG. AB Industri­värden.
Board Member: Telefonaktie- P
­ ermobil AB. Board Member: Ares Acquisi- Board Member: SAF Holland Board Member: AB Industri­
bolaget LM Ericsson and Feal Board Member: ACEA tion Corporation. SA. värden, Sandvik AB and
AB. ­Commercial Vehicle and Telefon­­aktie­bolaget LM
­Concentric AB. Member of ­Ericsson.
the Royal Swedish Academy
of Engineering ­Sciences (IVA).

Began his career at The Previous positions include President and CEO of Scania Has held several management Until January 2015, CEO for Between 1998–2015,
­Timken Company in 1984, Executive Vice President and 2012–2015. Prior to that, positions at Citibank, Chemical Chassis Brakes International. employed by the private
where he has held several responsible for Ericsson’s ­various managerial positions Bank New York (now JP Morgan Has, during almost 25 years equity firm IK Investment
management positions, such Networks business 2003– at Scania since 1992. Co- Chase), First Bank Systems and held various management Partners (former Industri
as responsible for Timken’s 2008, CEO of Segerström & chairman of the UN First Data Corporation, Division positions in Robert Bosch Kapital) where she held
­bearing business activities in Svensson 1999–2001, CEO Secretary-­General’s High- President General Electric GmbH, most recently as ­various positions. She was
Asia, the Pacific and Latin of Linjebuss 1996–1999, and Level Advisory Group on Financial Assurance Partnership Executive Vice President a ­Partner with responsibility
America and for the various positions within ABB S­ ustainable Transport Marketing and Division Presi- Sales and Marketing in the for the Stockholm office.
­company’s automotive and Ericsson. 2­ 015–2016. dent General Electric Fleet Ser- Chassis System Brakes divi- She was also a member of
­business in North America. vices, President and CEO of sion combined with responsi- IK’s Executive ­Committee.
Until 2014 President and Ceridian Corporation and subse- bility for regions China and Prior to that she worked as
CEO at Timken Company. quently also Chairman, Board Brazil and ­previously CEO of a consultant for Bain &
Chairman, President and CEO the subsidiary Bosch Closure ­Company.
of Stream Global Services, Inc. Systems, also member of the
Senior ­Advisor, Ares Manage- Board of Management of
ment, LLC. Board Member of Brose Fahrzeugteile GmbH
Nielsen, ­RealPage, General & Co.
Motors Co. and MasterCard US.
Until 2020 President and CEO
of Hertz Global Holdings.

40,000 Series B shares. 36,800 Series B shares. 191,884 Series B shares. None. 4,500 Series B shares. 8,000 Series B shares.

DEPUTIES APPOINTED BY THE EMPLOYEE ORGANIZATIONS SECRETARY TO THE BOARD

Camilla Johansson Mari Larsson Sofia Frändberg

Employee representative, deputy member Employee representative, deputy member Secretary to the Board
Master of Laws

1966 1978 1964

Deputy member since April 6, 2016. Deputy member since May 22, 2015. Secretary to the Board since April 1, 2013.

With Volvo since 1997. With Volvo since 2004. Executive Vice President Group Legal &
Compliance and General Counsel.

643 Series A shares, 116 Series B shares. 605 Series A shares, 116 Series B shares. 1,738 Series A shares, 54,212 Series B shares.

179
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

7 EXTERNAL AUDITING 8 CORPORATE AUDIT

Volvo’s auditors are elected by the Annual General Meeting. The auditors Volvo’s internal audit function, Corporate Audit, provides the Board and
review the interim report for the period January 1 to June 30 and audit the the Group Executive Board with an independent, risk based and objective
annual financial statements and consolidated accounts. The auditors also assurance on the effectiveness and the efficiency of the governance, risk
review the Corporate Governance Report and confirms whether the management and control systems of the Volvo Group. Corporate Audit
Group has presented a Sustainability Report. The auditors report the runs from time to time advisory work as well. Corporate Audit helps the
results of their audit in the Audit Report and in an opinion on the Corpo- organization to accomplish its objectives by bringing a systematic,
rate Governance Report, and provides an opinion on whether the guide- ­disciplined approach to evaluate and to improve the effectiveness of risk
lines for remuneration to senior executives have been complied with, management, control and governance processes.
which they present to the Annual General Meeting. Corporate Audit performs internal audits in selected focus areas, iden-
The current auditor, Deloitte AB, was elected at the Annual General tified through an independent risk assessment process involving key
Meeting 2018 for a period of four years. Jan Nilsson is responsible for the stakeholders, input from past audits and from the other assurance func-
audit of Volvo and Auditor-in-Charge. tions including the external auditors. This audit plan is approved by the
For information about Volvo’s remuneration of the auditors, please refer Audit Committee. In addition, special assignments requested by manage-
to Note 28 “Fees to the auditors” in the Group’s notes in the Annual and ment and the Audit Committee are performed. The audits cover, among
Sustainability Report. other things, assessments on the adequacy and effectiveness of the
organization’s processes for controlling its activities and managing its
risks and evaluation of compliance with policies and directives.
The head of Corporate Audit reports directly to the CEO, the Group’s
General Counsel and the Board’s Audit Committee.
For additional information on internal control over financial reporting,
see pages 186–187.

180
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

9 GOVERNANCE PRINCIPLES AND ORGANIZATIONAL STRUCTURE

Volvo’s strategy The Group’s Trucks Business is further organized into three divisions:
The Volvo Group’s mission is to “Drive prosperity through transport and Group Trucks Technology (GT T), Group Trucks Purchasing (GTP) and
infrastructure solutions”. The Volvo Group drive prosperity socially, envi- Group Trucks Operations (GTO).
ronmentally and financially, by striving for transport and infrastructure GT T has overall responsibility for product development of engines,
solutions that are safe, fossil-free and productive. The Volvo Group drive transmissions and trucks. GTP is responsible for purchasing for the
the transformation in its industry to shape the world we want to live in. Group’s trucks, engines and transmissions operations as well as for the
Based on the updated Group’s strategic priorities and Volvo Group 2030 Group’s purchase of indirect products and services. GTO is responsible
ambitions, each Business Area defines its own operational plans. The long for the production of all trucks and the Group’s engines and transmissions,
term plans, such as the Group’s industrial and product plans, are also as well as for the Group’s spare parts supply and logistics operation.
­crucial parts of the Group’s strategic direction. For more information The five Group Functions: Group Human Resources, Group Finance,
about the Volvo Group’s strategy, please refer to pages 8–16 of the Annual Group Communication, Group Legal & Compliance and Group IT, are
and Sustainability Report. tasked with supporting the entire organization with expertise within each
Group Function area, developing standards through policies, directives
Governance documents and guidelines and providing services and/or products for the entire Group.
Another key component of the Group’s governance is its policies and With this governance model, Volvo can utilize the synergies of having
directives, such as the Code of Conduct and policies pertaining to invest- global organizations for product development, purchasing and manufac-
ments, financial risks, accounting, financial control and internal audit, turing, while maintaining clear leadership and responsibility for each
which contain Group-wide operating and financial rules for the opera- brand to make sure that customer needs are met. The aim of the gover­
tions, as well as responsibility and authority structures. nance model is that all Business Areas are driven according to the same
distinct business principles, whereby each Business Area can follow and
Organizational structure optimize its own earnings performance and cash flow generation in the
During 2020, the business of the Volvo Group was organized into ten short and long term.
Business Areas. Of these, four represent brand-specific Business Areas On January 28, 2021 the Volvo Group announced that it creates a new
for trucks: Volvo Trucks, Renault Trucks, Mack Trucks and UD Trucks, business area dedicated to accelerating electrification. The business area,
each with profit and loss and balance sheet responsibility for their respec- Volvo Energy, will strengthen the Volvo Group’s business flow of batteries
tive business. The other Business Areas are Volvo Construction Equip- over the life cycle as well as the customer offer for charging infrastructure.
ment, Volvo Buses, Volvo Penta, ARQUUS, Volvo Financial Services Starting in February 2021, Joachim Rosenberg, member of the Volvo
(VFS) and Volvo Autonomous Solution (VAS). Group Executive Board and Chairman of UD Trucks, will head the new
business area.

Volvo Group organization

Valid as per December 31, 2020

Executive Assistant &
Group CEO
Head of CEO Office

Deputy CEO Group IT

Group Finance Group Human Resources

Group Legal & Compliance Group Communication

BUSINESS AREAS

Renault Mack UD Volvo Volvo Volvo Volvo

ARQUUS VFS VAS
Trucks Trucks Trucks Trucks CE Buses Penta

TRUCK DIVISIONS

Group Trucks Technology

Group Trucks Operations

Group Executive Board members
Group Trucks Purchasing Extended Group Management members

181
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

10 GROUP EXECUTIVE BOARD AND GROUP MANAGEMENT

The Group Executive Board comprises 15 members. Changes to the Group Executive Board and Group Management
In addition to the CEO and the deputy CEO, the Group Executive Board On January 1, 2020 Scott Rafkin assumed the position as Executive Vice
comprises the Executive Vice Presidents of the Group Functions, the President and Chief Digital Officer and joined the Group Executive Board.
Executive Vice Presidents of the Business Areas Volvo Trucks, Renault Nils Jaeger, President of the new Business Area, VAS, joined the Group
Trucks, Mack Trucks, UD Trucks and Volvo Construction Equipment as Management Team on January 1, 2020. Marcio Pedroso was appointed
well as the Executive Vice Presidents of the Truck Divisions. The members President of Volvo Financial Services and new member of the Group Man-
of the Group Executive Board report directly to the CEO. agement Team from March 16, 2020. Heléne Mellquist was appointed
The Presidents of the Business Areas Volvo Buses, Volvo Penta, President of Volvo Penta and new member of the Volvo Group Manage-
ARQUUS, VFS and VAS also report directly to the CEO and are part of an ment Team from September 1, 2020. Jens Holtinger replaced Jan Ohlsson
extended Group Management Team together with the members of the on his position as Executive Vice President GTO on October 1, 2020,
Group Executive Board. when he also became a member of the Group Executive Board. Finally,
The CEO is responsible for managing the day-to-day operations of the Anna Westerberg replaced Håkan Agnevall as President of Volvo Buses
Volvo Group and is authorized to make decisions on matters that do not on February 1, 2021, when she also joined the Group Management Team.
require Board approval. The CEO leads the operations of the Group mainly
through the Group Executive Board and the extended Group Manage- Sustainability and climate related matters
ment Team. The organizational structure described in this Corporate Governance
Key decisions related to the Group’s offering and technology portfolio Report applies to all strategic topics within the Volvo Group, including
are made by the Product Board. climate and sustainability matters. The Volvo Group relies on an inte-
Quality-related matters are addressed in the Quality Board in order to grated approach to ensure that sustainability topics are considered in all
support fast decision-making, coordination and customer focus in this area. relevant decision making. Opportunities and risks are identified in the
At special meetings for Sales & Operations Planning (S&OP), decisions business areas primarily through government regulation, technology
are made regarding a production plan aimed at optimizing the Volvo development, customer satisfaction and physical risks integrated with
Group’s overall profitability. The purpose of the meetings is to balance other risk perspectives.
demand with supply chain capabilities, drive capacity management and Cross-functional working groups, such as the Product Board, Human
provide directions for the Group’s sales and operations activities. Rights Board, People Board and Environmental Committee, prepare and
Each Business Area has quarterly business review meetings where key coordinate topics for decision at the Group Executive Board and AB Volvo
decisions for the respective Truck Division and Business Area are made. Board level. These groups include relevant Business Area and Truck
All of the above bodies affect control and monitoring of the Group’s ­Division representatives depending on the topic. Climate related opportu-
financial development, strategies and targets, and make decisions regard- nities and risks are discussed e.g. in the Product Board, primarily as part
ing investments and other matters. of the transition toward fossil-free transportation.

Remuneration of the Group Executive Board

AB Volvo’s Annual General Meeting shall, at least every fourth year,
resolve on a remuneration policy for remuneration for the members of the
Group Executive Board, based on a proposal from the Board. For informa-
tion about the remuneration policy adopted by the Annual General Meet-
ing 2020, please refer to Note 27 “Personnel” in the Group’s notes in the
Annual and Sustainability Report.

182
CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

183
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

GROUP EXECUTIVE BOARD

Martin Lundstedt Jan Gurander Roger Alm Bruno Blin Sofia Frändberg Andrea Fuder Jens Holtinger
President and CEO Deputy CEO Executive Vice Executive Vice Executive Vice ­Executive Vice Executive Vice
­President Volvo Group ­President Volvo Group ­President Group Legal ­President Volvo Group ­ resident Group
P
and President Volvo and P­ resident Renault & ­Compliance and Trucks Purchasing and Trucks ­Operations
Trucks Trucks ­General Counsel Chief Purchasing
Officer for Volvo Group
Education

MSc. MSc. MBA. Master of Laws. MSc and MBA. MSc in Mechanical
Engineering,
­Chalmers University
of ­Technology.
­experience Born

1967 1961 1962 1963 1964 1967 1970

Principal work

President and CEO of Deputy CEO & CFO Senior Vice President After having worked Responsible for Group Has worked in Quality Senior Vice President
AB Volvo and member 2016–2018. CFO & Volvo Trucks Europe for several companies Legal & Compliance and Logistic and held Europe & Brazil Man-
of the Group Execu­ Executive Vice Presi- 2016–2018. Senior in the manufacturing, and General Counsel various senior posi- ufacturing Group
tive Board since dent Volvo Group Vice President Volvo ­quality and purchas- of the Volvo Group tions at Volkswagen’s Trucks Operations
Octo­ber 2015. Presi­ 2014–2016. CFO & Group Trucks North- ing areas, he joined since April 2013. Purchasing organiza- 2016–2020. Vice
dent and CEO of Senior Vice President ern Europe 2015– Renault Trucks Pur- Head of Corporate tion since 1992. Head President Powertrain
Scania 2012–2015. Finance Volvo Car 2016. President Volvo chasing in 1999. Has Legal at AB Volvo of Purchasing at Production Skövde
Prior to that, ­various Corporation 2011– Group Trucks Latin held several senior 1998–2013. Corpo- ­Scania 2012–2016. Plant 2012–2016.
managerial ­positions 2013. CFO MAN America 2012–2014. positions over the rate Legal ­C ounsel at Member of the Group Has held several lead-
at Scania since 1992. ­Diesel & Turbo SE President Volvo Trucks years until being AB Volvo 1994–1997. Executive Board since ing positions within
Co-chairman of the 2010. CFO MAN Latin America 2010­– appointed Senior Vice Member of the Group 2017. With Volvo the Volvo Group. With
UN Secretary- ­Diesel SE 2008– 2011. Man­ag­ing President of Volvo Executive Board since since 2017. Volvo since 1995.
General’s High-Level 2009. Group Vice Director Volvo Trucks, Group Purchasing. April 2013. With Member of the Group
Advisory Group on President and CFO Region East 2004– Has also served as Volvo since 1994. Executive Board since
Sustainable Transport Scania AB 2001– 2009. With Volvo Senior Vice President, October 2020.
2015–2016. 2006. President of since 1989. Member Group Truck Sales
Business Unit Finance of the Group Execu- South Europe January
AB Volvo 1999–2001. tive Board since Janu- 2013–2016. Member
Senior Vice President ary 2019. of the Group Execu-
& Finance Director tive Board since
­Scania AB 1998– March 2016. With
1999. Member of the Volvo since 1999.
Group Executive
Board since 2014.
With Volvo 1999–
2001 and since 2014.
Board
memberships

Chairman of Permobil Board Member of Secretary to the AB Member of the Board

AB. Board Member Teknikföretagen Volvo Board since of the German-Swed-
of ACEA C­ ommercial and Skanska AB. April 2013. ish Chamber of Com-
Vehicle and Con­ merce.
centric AB. Member
of the Royal Swedish
Academy of
­Engineering Sciences
(IVA).
Holdings in
Volvo, own
and related
­parties

191,884 Series B 73,825 Series B 398 Series A shares, 25,165 Series B 1,738 Series A shares, 1,600 Series A shares, 13,652 Series B
shares. shares. 15,034 Series B shares. 54,212 Series B 36,348 Series B shares.
shares. shares. shares.

184
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

Melker Jernberg Diana Niu Scott Rafkin Joachim Lars Stenqvist Martin Weissburg Kina Wileke Jan Ytterberg
Executive Vice Executive Vice Executive Vice ­Rosenberg Executive Vice Executive Vice Executive Vice Executive Vice
­President Volvo ­President Group ­P resident and Executive Vice ­President Group ­President Volvo ­President Group ­President Group
Group and Human Resources Chief Digital Officer ­President Volvo Trucks ­Technology Group and Presi- ­Communication Finance and CFO
­P resident Volvo for Volvo Group Group and Chair- dent Mack Trucks
­Construction man of UD Trucks
­Equipment

MSc in Mechanical MBA and BA in BBA (Bachelors in MSc Industrial MSc Industrial Master of Business MA in journalism. MSc in Business
­Engineering. ­Economics. Business Adminis- Engineering and ­Engineering. Management, BSc Administration and
tration), University Management, MSc Industrial Manage- Economics.
of Massachusetts Financial Econom- ment.
at Amherst. ics, MSc Business
and Economics.

1968 1966 1969 1970 1967 1962 1974 1961

CEO and President Joined Volvo Executive Vice Executive Vice Executive Vice President Mack Responsible for CFO of Husqvarna
at Höganäs AB Group in February President and Chief President Volvo ­P resident Group Trucks since 2018. Group Communi- Group 2015–2018.
2014–2017. Exec- 2005, with SVP Digital Officer Group and Chair- Trucks Technology President Volvo cations since Executive Vice
utive Vice Presi- HR jobs in two Volvo Group since man UD Trucks and Volvo Group Construction 2018. With the ­P resident and CFO
dent, Business Business Areas, 2020. President since 2016. Execu- Chief Technology Equipment 2014– Volvo Group since of S
­ cania Group
Area EMEA at Trucks Asia Pacific Volvo Financial tive Vice President Officer since Octo- 2017. President & 2008, most 2006–2015. Vari-
SSAB 2011–2014. and Volvo Con- Services 2014– Group Trucks Sales ber 2016. Head of CEO Volvo Finan- recently as Senior ous positions in
Has held various struction Equip- 2019. Chief Finan- 2015–2016. Exec- R&D and CTO at cial S
­ ervices 2010 Vice President accounting and
positions at Scania ment. Worked for cial Officer Volvo utive Vice Presi- Volkswagen Truck –2014. President Brand, Communi- finance, ­Scania
AB since 1989, Ericsson from July Financial Services dent Group Trucks & Bus 2015–2016. Volvo Financial cation & ­Marketing Group 1987–
most recently as 1993 to January 2010–2014. Sales & M ­ arketing Senior Vice Presi- Services Americas Volvo Penta 2016– 2006. Member of
Senior Vice Presi- 2005 in a number Senior Vice Presi- APAC 2012–2014. dent Vehicle Defi- 2005–2010. Prior 2017, Senior Vice the Group Execu-
dent Buses and of leadership posi- dent Global Opera- President Volvo nition R&D at to Volvo, President President External tive Board since
Coaches at Scania tions. Member of tions Volvo Finan- Group Asia Truck ­Scania 2007– Woodard LLC, Corporate ­November 2018.
AB 2007–2011. the Group Execu- cial Services Operations 2007– 2015. Prior to that President Great Communi­cation
­Member of the tive Board since 2003–2009. 2011. Vice Presi- various senior posi- Dane Financial Volvo Group
Group Executive January 2019. ­Senior Vice Presi- dent Volvo Group tions at Scania Services and Sen- 2012–2016 and
Board since 2018. dent Risk Volvo ­ lliance Office
A since 1992. Mem- ior Vice President CEO Communica-
Financial Services 2007. Vice Presi- ber of the Group ORIX. Member of tion Volvo Group
2001–2002. dent Volvo Executive Board the Group Execu- 2008–2012. Has
Prior to 2001, held Power ­train 2005– since 10 October tive Team 2010– held a number of
several senior posi- 2007. Consultant 2016. With Volvo 2014. Member of positions in T V4
tions with Volvo with McKinsey & Group since Octo- the Group Execu- Group 1998–
Car Finance North Company 1996– ber 2016. tive Board since 2008. Member of
America. Prior to 2004. Member of March 2016. the Group Execu-
Volvo, Business the Group Execu- tive Board since
Assurance and tive Board since 2018.
Capital Markets 2012. With Volvo
Manager Coopers since 2005.
& Lybrand LLC
(predecessor firm
to PriceWater-
houseCoopers).

Board Member of
­International
Chamber of
Commerce (ICC),
Sweden.

17,277 Series B 46,022 Series B 45,120 Series B 87 Series A shares, 23,789 Series B 111,863 Series B 344 Series A 9,031 Series B
shares. shares. shares. 190,143 Series B shares. shares. shares, 14,956 shares.
shares. Series B shares.

185
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

EXTENDED GROUP MANAGEMENT TEAM

Nils Jaeger Emmanuel Levacher Heléne Mellquist Marcio Pedroso Anna Westerberg
President of Volvo President and CEO of President of Volvo Penta President of Volvo Financial President of Volvo Buses
­Autonomous Solutions ARQUUS Services

Born 1969 1962 1964 1968 1975

Principal work Until 2019, President of During his 30 years in the 2019–2020 Senior Vice Between 2015 and 2019 Senior Vice President, Volvo
­experience Volvo Financial Services automobile industry President of Volvo Trucks President of Volvo Financial Group Connected Solutions
EMEA. Several leading posi- (Renault Trucks, Renault, Europe, 2016–2019 Senior Services Americas. Presi- 2017–2021. Prior that Presi-
tions at John Deere both Volvo), Emmanuel has held Vice President of Volvo dent of Brazil and Chile for dent for Volvo Group Ven-
within the agricultural & turf multiple operational and Trucks International and Volvo Financial Services ture Capital, since 2014 Vice
division and the financial strategic functions in con- 2012–2016 CEO of 2011–2014. Vice President President, Product Manage-
services division, including tact with markets on the five TransAtlantic AB. 1988– Latin America Markets for ment Industrial, Volvo Penta.
the position as Vice Presi- continents. He has also built 2011 Heléne has held several Volvo Financial Services With Volvo since 2009.
dent International Finance, a solid experience with leading position within the 2010–2011. Marcio has held
Europe, CIS, N&M East, French and foreign govern- Volvo Group. other senior positions and
Northern Africa and Global ments, state authorities and special assignments across
Trade Finance. public and diplomatic insti- Americas and Europe in the
tutions. Volvo Group, 2001–2010.
Prior to 2001, held various
leadership positions outside
of Volvo in insurance and
corporate finance.

11 INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board is responsible for the internal controls according to the Swedish Volvo also has an internal audit function, Corporate Audit, which among
Companies Act and the Code. The purpose of this report is to provide other things, independently monitors that companies in the Group follow
share-holders and other interested parties with an understanding of how the principles and rules that are stated in the Group’s directives, policies
internal control is organized at Volvo with regard to financial reporting. The and instructions for financial reporting. The head of the Corporate Audit
description has been designed in accordance with the Swedish Annual function reports directly to the CEO, to the Group’s General Counsel and
Accounts Act and is thus limited to internal control over financial reporting. the Board’s Audit Committee.

Introduction Control environment

Volvo has a function for internal control with the objective to provide sup- Fundamental to Volvo’s control environment is the business culture that is
port for management, allowing them to continuously provide solid internal established within the Group and in which managers and employees
controls relating to financial reporting. Work that is conducted through operate. Volvo works actively on communication and training regarding
this function is primarily based to ensure compliance with directives and the company’s basic values included in the Group’s Code of Conduct, to
policies, and to create effective conditions for specific control activities in ensure that the business conducted by the organization is characterized
key processes related to financial reporting. The Audit Committee is regu- by good ethics, integrity and is in compliance with the law.
larly informed of the results of the work performed by the Internal Control
function within Volvo with regard to risks, control activities and follow-up
on the financial reporting. ies
enc Pla
fici na
f de ting focnd
o or u
ep
se are
d n
an atio

s
lec as
r
i

ty
ed

Volvo Group Internal

ear
Rem

Control Programme
ly

Volvo Group Internal Control Program FPP* VICS*

Yearly evaluation of the effectiveness of internal control
Test

over financial reporting (ICFR) within the Volvo Group.

en ol
o

* F PP – Financial Policies and Procedures;

fd

sm n tr
t
et a

VICS – Volvo Internal Control Standard

e s co

(v an
il s

ali
da ss ss
tio ce a
n) P r o sig n
de
186
 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2020

The foundation of the internal control process relating to the financial Follow-up
reporting is based on the Group’s directives, policies and instructions, as Ongoing responsibility for follow-up rests with the Group’s financial
well as the organization’s responsibility and authority structure. The prin- reporting function. In addition, the Corporate Audit and the Internal Con-
ciples for Volvo’s internal controls and directives and policies for the finan- trol function conduct review and follow-up activities in accordance with
cial reporting are contained in the Volvo Group Management System, a what is described in the introduction of this report. More specifically, the
group wide management system comprising, among other things, Internal Control function runs and coordinates evaluation activities
instructions, rules and principles. through the “Volvo Group Internal Control Programme”, with the purpose
of systematically evaluating the quality of the internal control over finan-
Risk assessment cial reporting on an annual basis. An annual evaluation plan is established
Risks relating to financial reporting are evaluated and monitored by the and presented to the Audit Committee. This evaluation program com-
Board through the Audit Committee inter alia through identifying risks prises three main areas:
that could be considered as material, and through the mitigating control
objectives. The risk assessment is based on a number of criteria, such as 1. Group-wide controls: Self-assessment procedure carried out by man-
the complexity of the accounting principles, revaluation principles of agement teams at business area, Group Function and company levels.
assets or liabilities, complex and/or changing business circumstances, The main areas evaluated are compliance with the Group’s financial
etc. The risks together with mitigating control objectives are collected in directives and policies and the Group’s Code of Conduct.
a framework for internal control over financial reporting, Volvo Internal 2. P rocess controls at transaction level: Processes related to the financial
Control Standard (VICS). reporting are evaluated by testing procedures/controls based on the
framework for internal control over financial reporting, Volvo Internal
Control activities Control Standards (VICS).
In addition to the Board and its Audit Committee, the management 3. 
General IT controls: Processes for maintenance, development and
groups and other decision-making bodies in the Group constitute overall access management of financial applications are evaluated by testing
supervisory bodies. Business processes are designed to ensure that procedures and controls.
potential errors or deviations in the financial reporting are prevented, dis-
covered and corrected by implementing control activities that correspond
The results of the evaluation activities are reported to Group management
to the control objectives defined in the VICS framework. Control activities
and the Audit Committee. During 2020, the Internal Control function
range from review of outcome results against earlier periods and fore-
reported two times1 to the Audit Committee regarding the annual evalua-
casts in management group meetings to specific reconciliation of
tion plan, status on outstanding issues and final assessment of the control
accounts and analyses of the ongoing processes for financial reporting.
environment.

Information and communication

Policies and instructions relating to the financial reporting are updated
Göteborg, February 25, 2021
and communicated on a regular basis from management to all affected
employees. The Group’s financial reporting function has direct operating AB Volvo (publ)
responsibility for the daily financial reporting and works to ensure a uni- The Board of Directors
form application of the Group’s policies, principles and instructions for the
financial reporting and to identify and communicate shortcomings and 1 In 2020 the Internal Control function reported only twice to the Audit Committee,
areas of improvement in the processes for financial reporting. depending on a changed frequency and content in the reporting.

AUDITOR’S REPORT ON THE CORPORATE GOVERNANCE STATEMENT

To the Annual General Meeting of the shareholders of AB Volvo, corporate Opinion

identity number 556012-5790 A corporate governance statement has been prepared. Disclosures in
accordance with chapter 6 section 6 the second paragraph points 2–6 of
Engagement and responsibility the Annual Accounts Act and chapter 7 section 31 the second paragraph the
The Board of Directors is responsible for that the corporate governance same law are consistent with the other parts of the annual accounts and
statement on pages 172–187 has been prepared in accordance with the consolidated accounts and are in accordance with the Annual Accounts Act.
Annual Accounts Act.

The scope of the audit Göteborg, February 25, 2021

Our examination of the corporate governance statement is conducted in
Deloitte AB
accordance with FAR’s auditing standard RevU 16 The auditor’s examina-
tion of the corporate governance statement. This means that our examina- Jan Nilsson
tion of the corporate governance statement is different and substantially Authorized Public Accountant
less in scope than an audit conducted in accordance with International
Standards on Auditing and generally accepted auditing standards in
­Sweden. We believe that the examination has provided us with sufficient
basis for our opinions.

187
 OTHER INFORMATION 2020

PROPOSED POLICY FOR REMUNERATION

TO SENIOR EXECUTIVES

The Board of Directors’ of AB Volvo (publ) proposal for guidelines have a vested interest over the longer term development in the value of the
for remuneration to the Volvo Group Executive Board shares. At the end of the three year period, the Executives may sell their
(remuneration policy) shares, if they meet the requirement for owning shares valued at two
These guidelines (AB Volvo’s remuneration policy) concern the remunera- years of the pre-tax base salary for the President and CEO and one year of
tion and other terms of employment for the members of the Volvo Group the pre-tax base salary for the other Executives. The holding requirements
Executive Board (“Executives”). for the Executives shall cease upon termination of an Executive’s employ-
The guidelines are forward-looking, i.e. they are applicable to remuner- ment, and the Board of Directors may grant such other exceptions to the
ation agreed, and amendments to remuneration already agreed, after the requirements as the Board deems appropriate.
proposed adoption of these guidelines by the 2021 annual general meet- Further cash remuneration may be awarded in extraordinary circum-
ing. These guidelines do not apply to any remuneration decided or stances, provided that such extraordinary arrangements are limited in time
approved by the general meeting. Any new share-based incentive plans and only made on an individual basis, either for the purpose of recruiting or
will, where applicable, be resolved by the general meeting, but no such retaining Executives, or as remuneration for extraordinary performance
plan is currently proposed. beyond the individual’s ordinary tasks. Such remuneration may not exceed
an amount corresponding to 100 per cent of the annual base salary. Any
The guidelines’ promotion of the Volvo Group’s business strategy, ­ resolution on such remuneration shall be made by the Board of Directors
­long-term interests and sustainability based on a proposal from the Remuneration Committee.
It is a prerequisite for the successful implementation of the Volvo Group’s For the President and CEO, pension benefits shall be granted on the
business strategy and safeguarding of its long-term interests, including its basis of a defined contribution plan. The pensionable salary shall include
sustainability, that the Group can recruit, retain and develop senior man- base salary only. The pension contributions for the President and CEO
agement. These guidelines enable AB Volvo to offer Executives a compet- attributable to the annual base salary shall amount to not more than 35
itive total remuneration. More information regarding the Volvo Group’s per cent of the base salary.
business strategy is available in the Volvo Group Annual and Sustainability Other benefits may include, for example, life insurance, medical and
Report. health insurance, and company cars. Premiums and other costs relating to
such benefits may amount to not more than 3 per cent of the annual base
Types of remuneration salary for the President and CEO.
Volvo Group remuneration to Executives shall consist of the following For other Executives, pension benefits shall be granted on the basis of
components: base salary, short-term and long-term variable incentives, a defined contribution plan except where law or collective agreement
pension benefits and other benefits. require a defined benefit pension. The pensionable salary shall include
Short-term incentives may, for the President and CEO, amount to a base salary and where required by law or collective agreement, short-
maximum of 100 per cent of the base salary and, for other Executives, term incentives. The total pension contributions for other Executives shall
a maximum of 80 per cent of the base salary. amount to not more than 35 per cent of base salary, unless a higher per-
Long-term incentives may, for the President and CEO, amount to a centage results from the application of law or collective agreement.
maximum of 100 per cent of the base salary and, for other Executives, Other benefits may include, for example, life insurance, medical and
a maximum of 80 per cent of the base salary. The current long-term incen- health insurance, and company cars. Premiums and other costs relating to
tive plan for the Group’s senior management, including the Executives, such benefits may amount to not more than 10 per cent of the annual base
was introduced in connection with the 2016 annual general meeting. The salary for other Executives.
objective of the program is to drive long-term value creation and align the Remuneration for Executives that reside outside Sweden or reside in
interests of the senior management with those of shareholders. To achieve Sweden but having a material connection to or having been residing in a
this, the program operates on a four year cycle; with a performance based country other than Sweden may be duly adjusted to comply with manda-
annual award, which is invested in Volvo shares with a mandatory lock-in tory rules or local practice, taking into account, to the extent possible, the
period of three years. There will be no payout under the long-term incen- overall purpose of these guidelines.
tive program if the Annual General Meeting that is held in the year follow- In addition to remuneration set out above, Executives who relocate for
ing the performance year, decides not to distribute any dividends to the the purposes of the position or who work in other multiple countries may
shareholders. The program is funded on an annual basis by an award, also receive such remuneration and benefits as are reasonable to reflect
measured against performance criteria established by the Board of Direc- the special circumstances associated with such arrangements, taking
tors. The after tax portion of this payment must be immediately invested into account the overall purpose of these guidelines and alignment with
in AB Volvo shares which must be held for a minimum of three years. In the general policies and practices within the Volvo Group applicable to
this way, the Executives will build up a shareholding in the company and cross border work.

188
 OTHER INFORMATION 2020

Termination of employment The decision-making process to determine,

Upon termination of an Executive’s employment, the notice period may review and implement the guidelines
not exceed twelve months. Base salary during the notice period and sev- The Board of Directors has established a Remuneration Committee. The
erance pay may not together exceed an amount corresponding to the base Committee’s tasks include preparing the Board of Directors’ decision to
salary for two years. propose guidelines for executive remuneration. The Board of Directors
Executives that reside outside Sweden or reside in Sweden but having shall prepare a proposal for new guidelines at least every fourth year and
a material connection to or having been residing in a country other than submit it to the general meeting. The guidelines shall be in force until new
Sweden may be offered notice periods for termination and severance pay- guidelines are adopted by the general meeting. The Remuneration Com-
ment as are reasonable to reflect the special circumstances, taking into mittee shall also monitor and evaluate plans for variable remuneration for
account the overall purpose of these guidelines and alignment with the Executives, the application of the guidelines for executive remuneration
general policies and practices within the Volvo Group. as well as the current remuneration structures and compensation levels in
the Group. The members of the Remuneration Committee are indepen­
Criteria for awarding variable cash remuneration, etc. dent of AB Volvo and its executive management. The President and CEO
Short-term and long-term incentives shall be linked to predetermined and and other members of the executive management do not participate in the
measurable criteria. The criteria – which for example may relate to EBIT, Board of Directors’ processing of and resolutions regarding remunera-
cash flow, return on capital employed or similar ratios, or sustainability­ tion-related matters in so far as they are affected by such matters.
­targets – shall be devised to promote the Volvo Group’s strategy and long-
term value creation and strengthen the link between achieved perfor- Derogation from the guidelines
mance targets and reward. The criteria for short-term and long-term The Board of Directors may temporarily resolve to derogate from the guide-
­incentives shall be determined by the Board of Directors annually. The lines, in whole or in part, if in a specific case there is special cause for the
­satisfaction of the criteria shall be measured over periods of one year each. derogation and a derogation is necessary to serve the Volvo Group’s long-
To which extent the criteria for awarding variable remuneration has been term interests, including its sustainability, or to ensure the Group’s financial
satisfied shall be determined when the relevant measurement period has viability. As set out above, the Remuneration Committee’s tasks include
ended. The Board of Directors is responsible for the determination of vari- preparing the Board of Directors’ resolutions in remuneration-related
able remuneration to all Executives. ­matters. This includes any resolutions to derogate from the guidelines.

Claw-back and adjustments Description of material changes to the guidelines and how the views of
Executives participating in the Volvo Group’s current short-term and long- shareholders’ have been taken into consideration
term incentive plans are obligated, in certain circumstances and for spec- During 2020, the Remuneration Committee and the Board of Directors
ified periods of time, to repay, partially or in its entirety, variable incentive have consulted with shareholders individually and collectively and have
awards already paid if payments have been made by mistake or been followed up on comments and questions received from shareholders in
based on intentionally falsified data or in the event of material restatement connection with the annual general meeting in June 2020 and otherwise
of the Volvo Group’s financial results. Furthermore, the Board of Directors during the year. For further information, please refer to the section Con-
may decide on adjustments of pay-out under the incentive plans (before sideration of shareholder views in the Remuneration Report 2020. The
payment has been made) in case of extraordinary circumstances or to Remuneration Committee and the Board have for 2021 and onwards
adjust for unforeseen one-timers. decided to propose a change to the company’s pension commitments to
its President and CEO, Deputy CEO and other Executives employed in
Salary and employment conditions for employees Sweden, aiming to simplify the pension commitments and bring them
In the preparation of the Board of Directors’ proposal for these remunera- more in line with the prevailing pension schemes for similar individuals in
tion guidelines, the Board has considered that the various benefits offered the Swedish market, without materially altering the remuneration from an
to the Executives need to be aligned with the general structures applica- economical perspective. Due to the forward-looking nature of the remu-
ble for employees of AB Volvo at levels that are competitive in the market. neration policy, the amendments apply to new employment contracts
Thus, salary and employment conditions for other AB Volvo employees entered into after approval of the amended policy by the annual general
have been taken into account by including information thereon in the meeting 2021 and for existing employment contracts if changes are
Remuneration Committee’s and the Board of Directors’ basis of decision agreed to by the Executives in scope.
when evaluating whether the guidelines and the limitations set out herein Additional information regarding executive remuneration in the Volvo
are appropriate. Group is available in the Volvo Group Annual and Sustainability Report.

189
 OTHER INFORMATION 2020

PROPOSED DISPOSITION OF
UNAPPROPRIATED EARNINGS

AB Volvo SEK According to the Board of Directors’ opinion, the proposed dividend
will not affect the Company’s or the Group’s ability to fulfill their payment
Retained earnings 53,320,235,368.24 obligations and the Company and the Group are well prepared to handle
Income for the period 2020 1,480,480,229.43 both changes in the liquidity and unexpected events.
Total retained earnings 54,800,715,597.67 The Board of Directors is of the opinion that the Company and the Group
have capacity to assume future business risks as well as to bear contingent
The Board of Directors proposes that the losses. The proposed dividend is not expected to adversely affect the
above sum be disposed of as ­follows: Company’s and the Group’s ability to make further commercially justified
investments in accordance with the Board of Directors’ plans.
SEK In addition to what has been stated above, the Board of Directors has
considered other known circumstances which may be of importance for
To the shareholders, an ordinary dividend
of SEK 6.00 per share and an extraordinary
the Company’s and the Group’s financial position. In doing so, no circum-
dividend of SEK 9.00, for a total of 30,501,781,260.00 stance has appeared that does not justify the proposed dividend.
To be carried forward 24,298,934,337.67 If the Annual General Meeting resolves in accordance with the Board
Total 54,800,715,597.67 of Directors’ proposal, SEK 24,298,934,337.67 will remain of the
­C ompany’s non-restricted equity, calculated as per year end 2020.
The record date for determining who is entitled to receive dividends is The Board of Directors has the view that the Company’s and the
proposed to be Tuesday April 6, 2021. Group’s shareholders’ equity will, after the proposed dividend, be suffi-
In view of the Board of Directors’ proposal to the Annual General cient in relation to the nature, scope and risks of the business.
­Meeting to be held March 31, 2021 to decide on the distribution of an The Board of Directors and the President certify that the annual finan-
ordinary dividend of SEK 6.00 per share and an extraordinary dividend of cial report has been prepared in accordance with generally accepted
SEK 9.00 per share, the Board hereby makes the following statement in accounting principles and that the consolidated accounts have been pre-
accordance with Chapter 18, Section 4 of the Swedish Companies Act. pared in accordance with the international set of accounting standards
The Board of Directors concludes that the Company’s restricted equity is referred to in Regulation (EC) No 1606/2002 of the European Parliament
fully covered after the proposed dividend. The Board further concludes that and of the Council of 19 July 2002 on the application of international
the proposed dividend is justifiable in view of the parameters set out in Chap- accounting standards, and give a true and fair view of the position and
ter 17, Section 3, second and third paragraphs of the Swedish Companies profit or loss of the Company and the Group, and that the management
Act. In connection herewith, the Board wishes to point out the following: report for the Company and for the Group gives a fair review of the devel-
The proposed dividend reduces the Company’s solvency from 78.0% opment and performance of the business, position and profit or loss of the
to 65.2% and the Group’s solvency from 29.0% to 24.5%, calculated as Company and the Group, and describes the principal risks and uncertain-
per year end 2020. The Board of Directors considers this solvency to be ties that the Company and the companies in the Group face.
satisfactory with regard to the business in which the Group is active.

Göteborg, February 25, 2021

Carl-Henric Svanberg
Board Chairman

Matti Alahuhta Eckhard Cordes Eric Elzvik

Board member Board member Board member

James W. Griffith Kurt Jofs Martin Lundstedt

Board member Board member President, CEO and Board member

Kathryn V. Marinello Martina Merz Hanne de Mora

Board member Board member Board member

Helena Stjernholm Lars Ask Mats Henning

Board member Board member Board member

Mikael Sällström
Board member

Our audit report was issued on February 25, 2021

Deloitte AB
Jan Nilsson
Authorized Public Accountant

190
 OTHER INFORMATION 2020

AUDIT REPORT FOR AB VOLVO (PUBL)

To the general meeting of the shareholders of AB Volvo (publ) Impairment risk for vehicles sold with residual value commitment
corporate identity number 556012-5790 Risk description
When the sale of the vehicle is combined with a residual value commitment
REPORT ON THE ANNUAL ACCOUNTS AND and it is concluded that control with respect to the vehicle sold has not been
CONSOLIDATED ACCOUNTS transferred, the sales transaction is recognized as an operating lease trans-
action and an asset is recognised in the balance sheet. These assets carry a
Opinions risk that the ultimate disposal of the used vehicles could lead to a loss if the
We have audited the annual accounts and consolidated accounts of AB price development of these vehicles is worse than what was expected
Volvo (publ) for the financial year 2020-01-01–2020-12-31 except for the when the contracts were entered. The assessment of the risk is based on
sustainability report on page 76. The annual accounts and consolidated the estimation of the used vehicle’s future fair market value. The accounting
accounts of the company are included on pages 40–149, 188–190 and principles for vehicles sold with residual value commitment and manage-
194–196 in this document. ment’s significant judgments applied in relation thereto are further
In our opinion, the annual accounts have been prepared in accordance described in Note 13 “Tangible Assets” to the annual report.
with the Annual Accounts Act and present fairly, in all material respects, Fair market values are dependent on the situation in the used vehicle
the financial position of the parent company as of 31 December 2020 and markets prevailing when the vehicles are expected to be returned. The
its financial performance and cash flow for the year then ended in accor­ future-oriented valuation is based on a number of assumptions and involves
dance with the Annual Accounts Act. The consolidated accounts have high degree of estimation for example on conditions of the vehicles returned
been prepared in accordance with the Annual Accounts Act and present and expected repair costs, future price developments due to change of
fairly, in all material respects, the financial position of the group as of 31 market conditions and distribution channels used for ultimate disposal of
December 2020 and their financial performance and cash flow for the the vehicles. The Covid-19 pandemic created a demand and supply gap
year then ended in accordance with International Financial Reporting which impacted the prices of used vehicles negatively during parts of 2020
Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. and also the used vehicles fair market value expectations for future years.
Our opinions do not include the sustainability report on page 76. The stat-
utory administration report is consistent with the other parts of the annual Audit procedures
accounts and consolidated accounts. Our audit procedures included, but were not limited to:
We therefore recommend that the general meeting of shareholders • evaluating the design and implementation of relevant internal controls
adopts the income statement and balance sheet for the parent company implemented within the determination of fair market value process;
and the group.
• assessing the reasonableness of the methodology used in determina-
Our opinions in this report on the annual accounts and consolidated
tion of fair market value including reviewing management’s written
accounts are consistent with the content of the additional report that has
policies, procedures and accounting position papers;
been submitted to the parent company’s audit committee in accordance
with the Audit Regulation (537/2014) Article 11. • performing audit procedures to test the completeness and accuracy
of the underlying data and information used by management in deter-
Basis for Opinions mining the fair market value;
We conducted our audit in accordance with International Standards on • assessing and challenging the reasonableness of management’s
Auditing (ISA) and generally accepted auditing standards in Sweden. Our ­significant assumptions in relation to fair market values of used
responsibilities under those standards are further described in the Audi- ­vehicles based on current market trends and future market develop-
tor’s Responsibilities section. We are independent of the parent company ments, expected repair costs and distribution channels. Manage-
and the group in accordance with professional ethics for accountants in ment’s assessment was evaluated based on enquiries and inspection
Sweden and have otherwise fulfilled our ethical responsibilities in accor­ of documentation supporting key assumptions and considerations
dance with these requirements. This includes that, based on the best of taken by management.
our knowledge and belief, no prohibited services referred to in the Audit
Regulation (537/2014) Article 5.1 have been provided to the audited com-
Allowance for Expected Credit Losses for Customer- Financing Receivables
pany or, where applicable, its parent company or its controlled companies
Risk description
within the EU.
The Volvo Group applies a simplified expected credit loss model for
We believe that the audit evidence we have obtained is sufficient and
­customer-financing receivables, under which the loss allowance is measured
appropriate to provide a basis for our opinions.
at an amount equal to lifetime expected credit losses. The allowance is
recorded at initial recognition and is reassessed during the contract period.
Key Audit Matters
The accounting principles for expected credit losses and management’s
Key audit matters of the audit are those matters that, in our professional
significant judgments applied in relation thereto are further described in
judgment, were of most significance in our audit of the annual accounts
Note 15 “Customer-Financing Receivables” to the annual report.
and consolidated accounts of the current period. These matters were
addressed in the context of our audit of, and in forming our opinion
thereon, the annual accounts and consolidated accounts as a whole, but
we do not provide a separate opinion on these matters.

191
 OTHER INFORMATION 2020

The determination of the allowance for expected credit losses for the and best estimates. At December 31, 2020, the Company has not been
customer-financing receivables requires management to make significant able to make a reliable estimate of the amount of any liability that could
qualitative judgments, including assumptions regarding current and fore- arise from these claims. Further information is disclosed in Note 24 “Con-
casted market conditions and individual assessment of the largest tingent Liabilities” to the annual report.
­customers and business segments. Due to uncertainty caused by the
ongoing Covid-19 pandemic, historical credit loss information used within Audit procedures
the expected credit loss model to forecast future credit losses may not Our audit procedures included, but were not limited to:
adequately reflect the current economic environment. This leads to a • holding discussions with management and audit the relevant docu-
higher risk related to management’s assumptions to estimate the mentation and conclude how management and the board assessed
expected frequency and severity of defaults and other qualitative man- the claims.
agement overlays due to the high degree of uncertainty and subjectivity of • holding discussions with internal legal department and with Volvo
the severity and duration of the pandemic and its impact on customer and Group’s external legal advisors in order to obtain an understanding
business segments. Additionally, modifications made to customer con- of matters relevant to the claims.
tracts during the year in response to the Covid-19 pandemic changing • reviewing internal minutes and relevant assessments prepared for
payment terms increases risk in management’s monitoring of on-going management to corroborate the consistency of information received.
payment performance and identification of signs of customer default as
• evaluating the appropriateness of the Company’s final conclusions.
part of the individual assessment of the financial condition of customers.
• assessing the adequacy of the disclosures around the legal proceedings.
Audit procedures
Our audit procedures included, but were not limited to: Other information than the annual accounts
and consolidated accounts
• evaluating the design and implementation of relevant internal controls
The Board of Directors and the Managing Director are responsible for other
implemented within the allowance for expected credit loss process;
information. The other information includes the Remuneration report, and
• assessing the reasonableness of the expected credit loss model and the pages 1–39, 150–171 and 197–206 in this document which does not
methodology used including reviewing management’s written poli- include the annual accounts and consolidated accounts or our Auditors
cies, procedures and accounting position papers around the model; report.
• involving our financial service industry valuation experts with specific Our opinion on the annual accounts and consolidated accounts does
knowledge and expertise who assisted in evaluating the reasonable- not cover this other information and we do not express any form of assur-
ness of the methodology used; ance conclusion regarding this other information.
• performing audit procedures to test the completeness and accuracy of In connection with our audit of the annual accounts and consolidated
the underlying data and information used in management’s expected accounts, our responsibility is to read the information identified above and
credit loss model and management overlays; consider whether the information is materially inconsistent with the annual
• independently reperformed the calculations within the model to accounts and consolidated accounts. In this procedure we also take into
ensure the output is accurate and carried out retrospective review to account our knowledge otherwise obtained in the audit and assess whether
assess the reliability of model’s historical ability to estimate future the information otherwise appears to be materially misstated.
credit losses; If we, based on the work performed concerning this information, con-
• assessing and challenging the reasonableness of management’s signifi- clude that there is a material misstatement of this other information, we
cant assumptions in relation to severity of default, frequency of default are required to report that fact. We have nothing to report in this regard.
and management overlays, including inspection of documentation sup-
porting key assumptions and considerations taken by management. Responsibilities of the Board of Directors and the President
The Board of Directors and the President are responsible for the prepara-
tion of the annual accounts and consolidated accounts and that they give
Provisions for losses from claims from customers
a fair presentation in accordance with the Annual Accounts Act and, con-
and other third parties – EC Antitrust ­Settlement
cerning the consolidated accounts, in accordance with IFRS as adopted
Risk description
by the EU. The Board of Directors and the President are also responsible
In July 2016, the European Commission and Volvo Group reached a settle-
for such internal control as they determine is necessary to enable the
ment with regards to antitrust allegations made by the European Commis-
preparation of annual accounts and consolidated accounts that are free
sion in relation to Volvo Group and other companies in the truck manufac­
from material misstatement, whether due to fraud or error.
turing industry. Following the adoption of the European Commission’s
In preparing the annual accounts and consolidated accounts, The Board of
settlement decision, the Company has received and may continue to receive
Directors and the President are responsible for the assessment of the compa-
numerous third-party damages claims from customers and other third par-
ny’s and the group’s ability to continue as a going concern. They disclose, as
ties alleging that they suffered loss by reason of the conduct covered in the
applicable, matters related to going concern and using the going concern
decision. The accounting principles for provisions for legal disputes is further
basis of accounting. The going concern basis of accounting is however not
described in Note 21 “Other Provisions” to the annual report.
applied if the Board of Directors and the President intends to liquidate the
The recognition and measurement of any provisions recorded for such
company, to cease operations, or has no realistic alternative but to do so.
legal disputes is complicated, requires expert legal input, and involves
The Audit Committee shall, without prejudice to the Board of Director’s
consideration of potential future outcomes of the claims which at this
responsibilities and tasks in general, among other things oversee the
stage are uncertain. Due to these complexities, the valuation of any such
company’s financial reporting process.
provisions is significantly impacted by management’s ultimate judgments

192
 OTHER INFORMATION 2020

Auditor’s responsibility situation and ensuring that the company’s organization is designed so that
Our objectives are to obtain reasonable assurance about whether the the accounting, management of assets and the company’s financial affairs
annual accounts and consolidated accounts as a whole are free from otherwise are controlled in a reassuring manner. The Managing Director
material misstatement, whether due to fraud or error, and to issue an audi- shall manage the ongoing administration according to the Board of Direc-
tor’s report that includes our opinions. Reasonable assurance is a high tors’ guidelines and instructions and among other matters take measures
level of assurance, but is not a guarantee that an audit conducted in that are necessary to fulfill the company’s accounting in accordance with
accordance with ISAs and generally accepted auditing standards in Swe- law and handle the management of assets in a reassuring manner.
den will always detect a material misstatement when it exists. Misstate-
ments can arise from fraud or error and are considered material if, individ- Auditor’s responsibility
ually or in the aggregate, they could reasonably be expected to influence Our objective concerning the audit of the administration, and thereby our
the economic decisions of users taken on the basis of these annual opinion about discharge from liability, is to obtain audit evidence to assess
accounts and consolidated accounts. with a reasonable degree of assurance whether any member of the Board
A further description of our responsibilities for the audit of the annual of Directors or the President in any material respect:
accounts and consolidated accounts is located at the Swedish Inspector- • has undertaken any action or been guilty of any omission which can
ate of Auditors website: [Link]/revisornsansvar. give rise to liability to the company, or
This description forms part of the auditor´s report.
• in any other way has acted in contravention of the Companies Act,
the Annual Accounts Act or the Articles of Association.
REPORT ON OTHER LEGAL AND REGULATORY
­R EQUIREMENTS Our objective concerning the audit of the proposed appropriations of the
company’s profit or loss, and thereby our opinion about this, is to assess
Opinions with reasonable degree of assurance whether the proposal is in accor­
In addition to our audit of the annual accounts and consolidated accounts, dance with the Companies Act.
we have also audited the administration of the Board of Directors and the Reasonable assurance is a high level of assurance, but is not a guaran-
President of AB Volvo (publ) for the financial year ­2020-01-01–2020-12-31 tee that an audit conducted in accordance with generally accepted audit-
and the proposed appropriations of the company’s profit or loss. ing standards in Sweden will always detect actions or omissions that can
We recommend to the general meeting of shareholders that the profit give rise to liability to the company, or that the proposed appropriations of
to be appropriated in accordance with the proposal in the statutory the company’s profit or loss are not in accordance with the Companies Act.
administration report and that the members of the Board of Directors and A further description of our responsibilities for the audit of the manage-
the President be discharged from liability for the financial year. ment’s administration is located at the Swedish Inspectorate of Auditors web-
site: [Link]/revisornsansvar. This description forms
Basis for Opinions part of the auditor´s report.
We conducted the audit in accordance with generally accepted auditing
standards in Sweden. Our responsibilities under those standards are fur- The auditor´s opinion regarding the statutory sustainability report
ther described in the Auditor’s Responsibilities section. We are indepen­ The Board of Directors is responsible for the statutory sustainability
dent of the parent company and the group in accordance with profes- report on page 76 and that it is prepared in accordance with the Annual
sional ethics for accountants in Sweden and have otherwise fulfilled our Accounts Act.
ethical responsibilities in accordance with these requirements. Our examination has been conducted in accordance with FAR:s audit-
We believe that the audit evidence we have obtained is sufficient and ing standard RevR 12 The auditor´s opinion regarding the statutory
appropriate to provide a basis for our opinions. sustain­ability report.
This means that our examination of the statutory sustainability report is
Responsibilities of the Board of Directors and the President different and substantially less in scope than an audit conducted in
The Board of Directors is responsible for the proposal for appropriations of accordance with International Standards on Auditing and generally
the company’s profit or loss. At the proposal of a dividend, this includes an accepted auditing standards in Sweden. We believe that the examination
assessment of whether the dividend is justifiable considering the require- has provided us with sufficient basis for our opinion.
ments which the company’s and the group’s type of operations, size and A statutory sustainability report has been prepared.
risks place on the size of the parent company’s and the group’s equity,
consolidation requirements, liquidity and position in general. Deloitte AB, was appointed auditor of AB Volvo by the general meeting of
The Board of Directors is responsible for the company’s organization the shareholders on April 5, 2018 and has been the company’s auditor
and the administration of the company’s affairs. This includes among other since April 5, 2018.
things continuous assessment of the company’s and the group’s financial

Gothenburg, February 25, 2021

Deloitte AB

Jan Nilsson
Authorized Public Accountant

193
 OTHER INFORMATION 2020

KEY RATIOS
The Volvo Group uses key ratios in order to a ­ nalyze trends and perfor- EBITDA and EBITDA margin
mance within the Group. The key ratios are not defined by IFRS, unless Definition: EBITDA is the operating income before depreciation and
otherwise is stated, whereby definitions and reconciliations of significant amortization of tangible and intangible assets. The key figure EBITDA
key ratios are presented in the annual report. If the reconciliation is not margin is calculated as operating income adjusted with depreciation and
directly reflected in the financial statements, a separate reconciliation is amortization, in relation to net sales.
presented below.
Industrial Operations
Basic earnings per share (defined by IFRS) SEK M 2020 2019
Definition: Income for the period attributable to shareholders of AB Volvo
divided by the weighted average number of shares o ­ utstanding during the Net sales 326,472 418,361
period. For reconciliation see note 19 Equity and number of shares. Operating income 25,919 46,771
Amortization product and software development 2,733 2,629
Cash flow Amortization other intangible assets 334 283
Definition: The combined changes in the Group’s cash and cash equiva- Depreciation tangible assets 12,861 12,886
lents during the fiscal year. Changes in cash and cash equivalents are Total depreciation and amortization 15,928 15,797
specified with reference to changes in operating activities, changes in Operating income before depreciation and
investing activities, which add up to operating cash flow, as well as amortization (EBITDA) 41,847 62,568
changes in net investments and financing activities. For reconciliation see EBITDA margin, % 12.8 15.0
Consolidated cash flow statements.

Diluted earnings per share (defined by IFRS)

Definition: Diluted earnings per share is calculated as income for the
period attributable to the shareholders of AB Volvo divided by the average
number of shares outstanding plus the average number of shares that
would be issued as an effect of ongoing share-based incentive programs
and employee stock option programs. For reconciliation see note 19
Equity and number of shares.

Equity ratio
Definition: Total equity divided by total assets.

Industrial Operations Volvo Group

SEK M 2020 2019 2020 2019

Total equity 135,127 127,150 148,142 141,678

Total assets 377,579 384,517 510,821 524,837
Equity ratio, % 35.8 33.1 29.0 27.0

Gross margin Interest coverage

Definition: Gross income divided by net sales. Definition: Operating income plus interest income and similar credits
divided by interest expense and similar charges.
Industrial Operations Volvo Group
SEK M 2020 2019 2020 2019 Industrial Operations
SEK M 2020 2019
Net sales 326,472 418,361 338,446 431,980
Gross income 73,539 100,598 79,127 106,377 Operating income 25,919 46,771
Gross margin, % 22.5 24.0 23.4 24.6 Interest income and similar credits 372 320
Operating income and interest
income and similar credits 26,291 47,091

Interest expenses and similar charges –1,422 –1,673

Interest coverage, times 18.5 28.1

194
 OTHER INFORMATION 2020

Net capitalization of research and development cost Net financial position

Definition: Capitalized research and development cost reduced by amor- Definition: Cash and cash equivalents, marketable securities and interest-
tizations. bearing receivables reduced by short- and long-term interest-bearing
liabili­ties and provisions for post-employment benefits. For reconciliation
Volvo Group see table Net financial position, which is presented after the balance sheet
SEK M 2020 2019 for the Volvo Group.

Capitalization 2,163 3,526

Amortization –2,548 –2,520
Net capitalization of research
and development cost –385 1,006

Operating income, operating margin, adjusted operating

income and adjusted operating margin
Definition operating income: Operating income is profit before interest before interest and tax as well as significant expenses or income of a one-
and tax, also known as EBIT (Earnings before interest and tax) and is a time character.
measure of profit from the ordinary business operations. For ­reconciliation Definition adjusted operating margin: Adjusted operating income divided
see the Income statements Volvo Group. by net sales.
Definition operating margin: Operating income divided by net sales.
Definition adjusted operating income: Adjusted operating income is profit

Group
2020 Construc- functions Industrial
tion Equip- Volvo & Other opera- Financial Elimi­ Volvo
SEK M Quarter Trucks ment Buses Penta incl. elim tions Services nations Group

Net sales 208,262 81,453 19,791 11,891 5,074 326,472 13,960 –1,987 338,446

Operating income 15,764 9,583 –522 1,402 –309 25,919 1,564 2 27,484
Depreciation of Assets held for sale 1 – – – – 234 234 – – 234
Depreciation of Assets held for sale 2 – – – – 315 315 – – 315
Depreciation of Assets held for sale 3 – – – – 291 291 – – 291
Depreciation of Assets held for sale 4 – – – – 287 287 – – 287
Restructuring charges related to head-
count reductions 2 –2,335 –615 –85 –50 –70 –3,155 –45 – –3,200
Restructuring charges related to head-
count reductions 3 28 –12 –8 –8 – 0 – – 0
Restructuring charges related to head-
count reductions 4 821 140 16 12 1 990 2 – 992
Year –1,486 –488 –77 –46 1,059 –1,037 –43 – –1,081
Adjusted operating income 17,251 10,071 –445 1,448 1,370 26,955 1,606 2 28,564

Operating margin, % 7.6 11.8 –2.6 11.8 – 7.9 – – 8.1

Adjusted operating margin, % 8.3 12.4 –2.2 12.2 – 8.3 – – 8.4

Group
2019 functions
Construction Volvo & Other Industrial Financial Elimi­ Volvo
SEK M Quarter Trucks Equipment Buses Penta incl. elim operations Services nations Group

Net sales 276,647 88,606 31,019 13,287 8,802 418,361 14,870 –1,252 431,980

Operating income 31,552 11,910 1,337 1,876 97 46,771 2,766 –6 49,531

Capital gain on sale of shares in
WirelessCar 1 – – – – 1,466 1,466 – – 1,466
Capital gain on sale of shares in
WirelessCar 4 – – – – 156 156 – – 156
Year – – – – 1,621 1,621 – – 1,621
Adjusted operating income 31,552 11,910 1,337 1,876 –1,524 45,150 2,766 –6 47,910

Operating margin, % 11.4 13.4 4.3 14.1 – 11.2 – – 11.5

Adjusted operating margin, % 11.4 13.4 4.3 14.1 – 10.8 – – 11.1

195
 OTHER INFORMATION 2020

Penetration rate Return on operating capital

Definition: Share of unit sales financed by Financial Services in relation to Definition: Operating income divided by weighted average operating
total number units sold by the Volvo Group in markets where financial ­capital.
services are offered.
Industrial Operations
Financial Services SEK M 2020 2019
Number of units 2020 2019
Operating income 25,919 46,771
Number of financed units 61,047 62,209 Weighted average operating capital 88,305 89,383
Number of units sold where Return on operating capital,
financial services are offered 201,525 247,218 12 months rolling, % 29.4 52.3
Penetration rate, % 30 25

Return on total equity

Return on capital employed
Definition: Income for the period divided by weighted average total equity.
Definition: Operating income plus interest income and similar credits
divided by weighted average capital employed.
Volvo Group

Industrial Operations SEK M 2020 2019

SEK M 2020 2019 Income for the period 20,074 36,495

Weighted average total equity 145,343 135,122
Operating income, 12 months rolling 25,919 46,771
Interest income and similar credits, Return on total equity,
12 months rolling 372 320 12 months rolling, % 13.8 27.0
Operating income and interest income and
s­ imilar credits, 12 months rolling 26,291 47,091

Weighted average capital employed 179,029 166,084

Return on capital employed,
12 months rolling, % 14.7 28.4

Sales growth adjusted for currency and acquired and divested operations
Definition: Sales growth adjusted for currency and acquired and divested operations, divided by net sales for the prior year.

Industrial Operations Volvo Group

SEK M 2020 2019 2020 2019

Net sales 326,472 418,361 338,446 431,980

Increase/decrease of net sales for the year –91,889 40,042 –93,534 41,146
Currency rates 13,941 –20,911 14,768 –21,591
Acquired and divested units 0 0 0 0
Adjusted Increase/decrease of net sales for the year –77,948 19,131 –78,766 19,555
Sales growth adjusted for currency and acquired and divested units, % –18.6 5.1 –18.2 5.0

Self-financing ratio
Definition: Cash flow from operating activities divided by net investments in tangible assets, intangible assets and leasing vehicles as defined in the
Consolidated cash flow statement.

Industrial operations Volvo Group

SEK M 2020 2019 2020 2019

Cash flow from operating activities 25,862 48,996 30,610 39,047

Investment in in-/tangible assets and leasing vehicles, net 7,317 10,687 10,974 14,591
Self-financing ratio, % 353 458 279 268

196
 OTHER INFORMATION 2020

ELEVEN-YEAR SUMMARY
The reporting in the eleven-year summary is based on IFRS. Respective year is presented in accordance with the Generally
Accepted Accounting Practice (GAAP) for that year. Earlier years are not restated when new accounting standards are applied.

Consolidated income statement

SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Net sales 338,446 431,980 390,834 334,748 301,914 312,515 282,948 272,622 303,647 310,367 264,749
Cost of sales –259,319 –326,895 –303,478 –254,581 –231,602 –240,653 –220,012 –212,504 –235,085 –235,104 –201,797
Gross income 79,127 105,085 87,357 80,167 70,312 71,862 62,937 60,118 68,562 75,263 62,952

Research and development

expenses –16,798 –18,539 –15,899 –16,098 –14,631 –15,368 –16,656 –15,124 –14,794 –13,276 –12,970
Selling expenses –26,510 –33,037 –30,890 –28,582 –26,867 –27,694 –27,448 –28,506 –28,248 –26,001 –24,149
Administrative expenses –4,621 –5,901 –5,798 –5,642 –5,121 –5,769 –5,408 –5,862 –5,669 –7,132 –5,666
Other operating income
and expenses –5,459 –221 –2,273 –1,061 –3,135 –4,179 –7,697 –3,554 –2,160 –1,649 –2,023
Income from investments in
joint ventures and associated
­companies 1,749 1,859 1,948 1,407 156 –143 46 96 –23 –81 –86
Income from other investments –3 285 33 135 112 4,609 50 –30 –47 –225 –58
Operating income 27,484 49,531 34,478 30,327 20,826 23,318 5,824 7,138 17,622 26,899 18,000

Interest income and

similar credits 299 320 199 164 240 257 328 381 510 608 442
Interest expenses
and similar charges –1,349 –1,674 –1,658 –1,852 –1,847 –2,366 –1,994 –2,810 –2,476 –2,875 –3,142
Other financial income
and expenses –518 –1,345 –870 –385 11 –792 931 11 –301 297 213
Income after financial items 25,917 46,832 32,148 28,254 19,230 20,418 5,089 4,721 15,355 24,929 15,514

Income taxes –5,843 –10,337 –6,785 –6,971 –6,008 –5,320 –2,854 –919 –4,097 –6,814 –4,302
Income for the period 20,074 36,495 25,363 21,283 13,223 15,099 2,235 3,802 11,258 18,115 11,212

Attributable to:
Owners of AB Volvo 19,318 35,861 24,897 20,981 13,147 15,058 2,099 3,583 11,039 17,751 10,866
Non-controlling interest 755 635 466 302 75 41 136 219 219 364 346
20,074 36,495 25,363 21,283 13,223 15,099 2,235 3,802 11,258 18,115 11,212

Income statement Industrial Operations

SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Net sales 326,472 418,361 378,320 323,809 291,459 303,582 275,999 265,420 296,031 303,589 257,375
Cost of sales –252,933 –319,055 –296,109 –248,382 –225,797 –236,311 –217,251 –209,307 –231,216 –233,097 –197,480
Gross income 73,539 99,306 82,210 75,428 65,662 67,271 58,748 56,113 64,815 70,492 59,895

Research and
development expenses –16,798 –18,539 –15,899 –16,098 –14,631 –15,368 –16,656 –15,124 –14,794 –13,276 –12,970
Selling expenses –24,284 –30,483 –28,642 –26,495 –24,946 –25,857 –25,778 –26,904 –26,582 –25,181 –22,649
Administrative expenses –4,611 –5,887 –5,756 –5,602 –5,081 –5,728 –5,367 –5,824 –5,639 –4,753 –5,640
Other operating income
and expenses –3,673 230 –1,828 –640 –2,531 –3,473 –6,931 –2,710 –1,600 –1,045 –659
Income/loss from investments
in joint ventures and
associated companies 1,749 1,859 1,948 1,407 156 –143 46 96 –23 –82 –86
Income from other investments –4 285 33 135 112 4,610 49 –31 –46 –225 –57
Operating income 25,919 46,771 32,067 28,135 18,740 21,312 4,111 5,616 16,130 25,930 17,834

197
 OTHER INFORMATION 2020

Consolidated balance sheets

SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Intangible assets 34,577 36,668 38,104 35,893 37,916 36,416 37,115 36,588 40,373 39,507 40,714
Property, plant and equipment 49,113 53,496 55,673 53,348 55,875 53,618 55,181 52,233 55,004 54,540 54,242
Assets under operating leases 37,962 43,326 43,103 37,166 34,693 32,531 31,218 25,672 29,022 23,922 19,647
Shares and participations 13,436 13,113 11,875 11,225 12,420 12,050 9,839 6,327 2,890 1,874 2,098
Inventories 47,625 56,644 65,783 52,701 48,287 44,390 45,533 41,153 40,409 44,599 39,837
Customer-financing receivables 128,531 142,982 126,927 109,378 110,821 102,583 99,166 83,861 80,989 78,699 72,688
Interest-bearing receivables 5,880 2,743 3,393 3,501 2,393 2,938 2,555 1,389 5,635 3,638 2,757
Other receivables 73,982 81,432 82,509 72,961 70,814 61,932 68,448 59,943 55,531 59,877 53,154
Cash and cash equivalents 85,419 61,660 47,093 36,270 25,172 24,393 33,554 29,559 28,889 37,241 32,733
Assets held for sale 34,296 32,773 203 51 525 3,314 288 8,104 – 9,348 136
Assets 510,821 524,837 474,663 412,494 398,916 374,165 382,896 344,829 338,742 353,244 318,007

Total equity1 148,142 141,678 125,831 109,011 97,764 85,610 80,048 77,365 86,914 85,681 74,121
Provision for post-employment
­benefits 18,430 19,988 16,482 14,476 14,669 13,673 16,683 12,322 6,697 6,665 7,510
Other provisions 27,335 30,835 32,165 25,477 26,408 27,207 28,010 19,900 21,787 20,815 18,992
Interest-bearing liabilities 153,424 157,752 135,857 127,676 141,048 132,607 147,985 135,001 131,842 130,479 123,695
Other liabilities 152,204 164,171 164,328 135,854 118,879 114,495 110,042 99,891 91,502 104,888 93,554
Liabilities held for sale 11,286 10,413 – – 148 573 130 350 – 4,716 135
Total equity
and liabilities 510,821 524,837 474,663 412,494 398,916 374,165 382,896 344,829 338,742 353,244 318,007
1
of which non-controlling
interests 2,847 3,083 2,452 1,941 1,703 1,801 1,723 1,333 1,266 1,100 1,011
Assets pledged 14,960 21,220 15,988 12,791 10,592 9,428 7,680 5,078 4,099 1,832 3,339
Contingent liabilities 13,832 13,732 14,247 15,242 16,056 15,580 15,940 17,290 17,763 17,154 11,003

198
 OTHER INFORMATION 2020

Balance sheets Industrial Operations

SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Intangible assets 34,423 36,467 37,889 35,716 37,768 36,314 37,010 36,479 40,267 39,385 40,613
Property, plant and equipment 49,045 53,411 55,631 53,308 55,812 53,554 55,087 52,146 54,899 54,446 54,169
Assets under operating leases 29,460 33,794 32,700 24,051 22,752 20,616 19,484 17,013 21,263 16,749 13,217
Shares and participations 13,421 13,095 11,866 11,215 12,409 12,042 9,825 6,321 2,884 1,871 2,080
Inventories 47,273 56,080 65,366 52,231 48,080 44,194 45,364 40,964 40,057 43,828 38,956
Customer-financing receivables 1,695 1,570 1,560 1,358 1,698 11 1,828 1,406 1,397 1,702 1,428
Interest-bearing receivables 6,301 4,916 3,882 4,966 4,415 3,738 2,777 2,195 11,011 6,734 11,153
Other receivables 84,413 99,082 101,347 85,822 75,759 68,223 70,413 60,679 54,324 59,062 52,358
Cash and cash equivalents 82,186 57,675 43,907 32,447 20,875 21,210 31,105 28,230 27,146 35,951 31,491
Assets held for sale 29,362 28,427 203 51 525 3,314 288 8,104 – 9,348 136
Assets 377,579 384,517 354,351 301,165 280,093 263,216 273,181 253,537 253,248 269,076 245,602

Total equity 135,127 127,150 113,144 97,790 86,579 75,151 70,105 68,467 78,321 76,682 66,101
Provision for post-employment
­benefits 18,282 19,850 16,374 14,391 14,608 13,621 16,580 12,249 6,663 6,635 7,478
Other provisions 23,794 27,055 28,476 22,680 22,545 23,936 25,054 17,575 19,653 19,101 17,240
Interest-bearing liabilities 35,017 32,326 25,328 27,001 33,944 32,562 48,180 52,491 54,472 55,394 59,857
Other liabilities 158,721 172,209 171,029 139,303 122,269 117,374 113,131 102,405 94,139 106,548 94,791
Liabilities held for sale 6,638 5,927 – – 148 573 130 350 – 4,716 135
Total equity
and liabilities 377,579 384,517 354,351 301,165 280,093 263,216 273,181 253,537 253,248 269,076 245,602

199
 OTHER INFORMATION 2020

Consolidated cash flow statements

SEK bn 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Operating income 27.5 49.5 34.5 30.3 20.8 23.3 5.8 7.1 17.6 26.9 18.0
Depreciation and amortization 20.6 20.6 18.4 16.9 16.7 16.8 15.9 17.4 14.7 13.9 13.8
Other non-cash items 1.2 –2.8 9.7 1.4 –0.4 –0.5 6.1 2.4 1.4 1.3 1.6
Change in working capital –13.7 –18.2 –23.7 –4.7 –13.9 –9.0 –14.1 –10.8 –21.9 –15.1 4.8
Financial items and income tax –5.0 –10.1 –7.7 –6.3 –5.7 –4.6 –5.0 –5.1 –8.0 –7.3 –5.5
Cash flow from operating activities 30.6 39.0 31.2 37.6 17.5 25.9 8.7 11.0 3.8 19.7 32.7

Investments in in-/tangible assets –8.8 –12.0 –10.7 –7.7 –9.5 –8.8 –8.6 –12.2 –14.6 –12.6 –10.4
Investments in leasing assets –8.6 –10.0 –10.1 –11.5 –10.8 –10.5 –10.1 –8.2 –10.0 –7.4 –4.8
Disposals of in-/tangible assets and leasing
assets 6.3 7.4 6.2 5.4 9.0 6.0 5.0 3.4 3.1 3.3 3.1
Investments and divestments of shares, net –0.5 0.1 1.0 2.2 0.2 –2.0 0.1 0.0 –1.2 –0.1 –0.1
Acquired and divested operations, net 0.4 1.3 –0.2 0.9 1.4 0.4 7.4 0.9 3.4 –1.6 0.6
Interest-bearing receivables including
­marketable securities 1.1 –1.0 0.1 1.6 2.5 3.6 –4.8 0.5 3.7 2.6 6.8
Cash flow after net investments 20.7 24.9 17.4 28.5 10.4 14.5 –2.3 –4.6 –11.8 3.9 27.9

Change in loans, net 7.3 9.3 1.9 –9.0 –2.2 –13.2 6.7 13.0 14.1 8.7 –25.7
Repurchase of own shares – – – – – – – – – – –
Dividend to AB Volvo’s shareholders – –20.3 –8.6 –6.6 –6.1 –6.1 –6.1 –6.1 –6.1 –5.1 0.0
Dividend to non-controlling interests –0.8 0.0 0.0 0.0 –0.2 0.0 0.0 –0.2 0.0 0.0 –0.1
Other –0.1 0.2 0.0 0.0 0.0 0.0 –0.1 0.1 0.0 0.0 0.0
Change in cash and cash equivalents
excluding translation differences 27.1 14.0 10.7 12.8 1.9 –4.8 –1.8 2.2 –3.8 7.5 2.1

Translation differences on cash and

cash equivalents –3.4 0.5 0.1 –0.7 1.0 –0.4 1.1 –0.5 –0.8 –0.1 –0.4
Change in cash and
cash equivalents 23.7 14.5 10.8 12.1 2.9 –5.2 –0.7 1.7 –4.6 7.4 1.7

Operating cash flow Industrial Operations

SEK bn 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Operating income 25.9 46.8 32.1 28.1 18.7 21.3 4.1 5.6 16.1 26.0 17.8
Depreciation and amortization 15.9 15.8 13.8 12.6 12.6 12.6 12.7 14.5 12.0 11.4 11.4
Other non-cash items –0.8 –3.6 8.9 0.9 –1.1 –1.1 5.3 1.5 0.8 0.6 0.1
Change in working capital –11.0 –0.5 –11.0 –0.2 –14.7 –1.9 –3.3 –2.0 –9.2 –4.2 4.6
Financial items and income taxes –4.2 –9.5 –7.5 –5.6 –5.6 –4.0 –4.5 –4.9 –7.3 –6.9 –5.1
Cash flow from operating activities 25.9 49.0 36.4 35.8 9.9 26.7 14.3 14.7 12.4 26.9 28.8

Investments in in-/tangible assets –8.7 –11.9 –10.7 –7.7 –9.4 –8.8 –8.6 –12.2 –14.6 –12.6 –10.3
Investments in leasing assets –0.0 –0.1 –0.0 –0.1 –0.1 –0.3 –0.5 –1.5 –3.6 –1.4 –0.3
Disposals of in-/tangible assets
and leasing assets 1.4 1.4 0.9 0.4 3.2 0.7 1.1 0.5 0.9 1.2 0.8
Operating cash flow 18.5 38.3 26.6 28.4 3.5 18.3 6.4 1.5 –4.9 14.1 19.0

200
 OTHER INFORMATION 2020

Exports from Sweden

SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Volvo Group, total 92,746 118,543 117,887 107,958 91,962 86,731 78,174 88,560 84,314 91,065 72,688

Key ratios
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Gross margin, %1 22.5 23.7 21.7 23.3 22.5 22.2 21.3 21.1 21.9 23.7 23.3
Research and development expenses
as percentage of net sales1 5.1 4.4 4.2 5.0 5.0 5.1 6.0 5.7 5.0 4.4 5.0
Selling expenses as percentage
of net sales1 7.4 7.3 7.6 8.2 8.6 8.5 9.3 10.1 9.0 8.0 8.8
Administration expenses as
percentage of net sales1 1.4 1.4 1.5 1.7 1.7 1.9 1.9 2.2 1.9 2.3 2.2
Operating income before depreciation
and amortization (EBITDA), SEK M1 41,847 62,568 45,858 40,732 31,373 33,886 16,784 20,089 28,117 37,376 29,171
EBITDA margin, %1 12.8 15.0 12.1 12.6 10.8 11.2 6.1 7.6 9.5 12.3 11.3
Net capitalization of research and
development, SEK M –385 1,006 791 –876 90 –550 –1,441 787 2,264 1,197 223
Return on capital employed in Industrial
Operations, % 14.7 28.4 22.4 – – – – – – – –
Return on operating capital in Industrial
Operations, % 29.4 52.3 39.0 32.5 21.5 25.0 4.5 5.9 16.5 28.8 19.5
Return on total equity, % 13.8 27.0 21.3 20.8 14.9 18.4 2.8 5.0 12.9 23.1 16.0
Interest coverage, times1 18.5 28.1 19.5 15.3 10.3 9.1 2.2 2.1 6.7 9.6 5.9
Self-financing ratio, % 279 268 213 272 155 194 64 84 18 118 270
Self-financing ratio Industrial
Operations, % 353 458 373 483 155 316 180 112 72 210 294
Net Financial position excl. post­-
employment benefits and lease
liabilities SEK M1 74,691 62,596 43,926 26,339 –1,151 349 –9,924 –19,828 –19,023 –14,974 –18,849
Net financial position excl. post-­
employment benefits and lease
liabilities as percentage of total equity1 55.3 49.2 38.8 26.9 –1.3 0.5 –14.2 –29.0 –24.3 –19.5 –28.5
Net Financial position incl. post­-
employment benefits and lease
liabilities SEK M1 50,959 37,267 29,101 12,200 –15,679 –13,237 –26,378 –32,066 –22,978 –19,346 –24,691
Net financial position incl. post-­
employment benefits and lease
liabilities as percentage of total equity1 37.7 29.3 25.7 12.5 –18.1 –17.6 –37.6 –46.8 –29.3 –25.2 –37.4
Equity ratio 29.0 27.0 26.5 26.4 24.5 22.9 20.9 22.4 25.7 24.3 23.3
Equity ratio, Industrial Operations 35.8 33.1 31.9 32.5 30.9 28.6 25.7 27.0 30.9 28.5 26.9
Equity ratio excluding ­non-controlling
­interest 28.4 26.4 26.0 26.0 24.1 22.4 20.5 22.0 25.2 23.9 23.0
1 Pertains to the Industrial Operations.

201
 OTHER INFORMATION 2020

Volvo share statistics

Data per share

(adjusted for issues and splits)1 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Basic earnings, SEK1 9.50 17.64 12.25 10.08 6.47 7.42 1.03 1.77 5.44 8.75 5.36
Cash dividend, SEK 15.009 0 10.008 4.25 3.25 3.00 3.00 3.00 3.00 3.00 2.50
Share price at year end (B share), SEK 193.80 156.90 115.95 152.70 106.40 79.10 84.70 84.45 88.80 75.30 118.50
Dividend yield (B share), %2 7.7 0 8.6 2.8 3.1 3.8 3.5 3.6 3.4 4.0 2.1
Effective return (B share), %3 33 35 –21 48 39 –3 4 –2 22 –34 97
Price/earnings ratio (B share)4 20.4 8.9 9.5 14.8 16.4 10.7 82.2 47.7 16.3 8.6 22.1
EBIT multiple5 12.5 6.1 6.5 9.9 11.7 7.7 26.3 19.6 9.0 5.1 12.0
Payout ratio, %6 158 0 82 41 50 40 291 169 55 34 47
Total equity, SEK 7 72 68 61 52 47 41 39 38 43 42 36
Return on total equity, % 13.8 27.0 21.3 20.5 14.9 18.4 2.8 5.0 12.9 23.1 16.0
1 Basic earnings per share is calculated as income for the period divided by average 6 Cash dividend divided by basic earnings per share.
number of shares outstanding. 7 Total equity for shareholders in AB Volvo divided by number of shares out­s tand­
2  P roposed dividend in SEK per share divided by share price at year end. ing at year end.
3 Share price at year end, including proposed dividend during the year, divided by 8 SEK 5.00 per share in ordinary dividend and SEK 5.00 per share in extra dividend.
share price at beginning of the year. 9 P roposed by the Board of Directors. SEK 6.00 per share in ordinary dividend
4 Share price at year end divided by basic earnings per share. and SEK 9.00 per share in extra dividend.
5 Market value at year end less net financial position and non-controlling interests
divided by operating income.

Other share data

2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Number of shareholders at year end 283,731 250,798 245,663 240,521 237,654 234,989 237,871 246,265 242,482 251,715 240,043
Number of Series A shares
outstanding at year end, million 448 456 457 459 472 485 492 499 526 643 657
Number of Series B shares
outstanding at year end, million 1,585 1,577 1,576 1,573 1,560 1,546 1,537 1,530 1,502 1,385 1,371
Average number of shares
outstanding, million 2,033 2,033 2,032 2,032 2,031 2,030 2,028 2,028 2,028 2,027 2,027
Number of Series A shares traded
in Stockholm during the year, million 65.7 43.8 51.8 46.7 67.2 51.7 86.3 53.0 45.4 130.5 203.2
Number of Series B shares traded
in Stockholm during the year, million 1,407.6 1,146.1 1,293.8 1,341.3 1,667.9 2,052.1 2,068.7 1,878.5 2,081.2 2,944.1 2,272.4

The largest shareholders in Number Share of Share of Distribution of shares, Number of % of Share of
AB Volvo, December 31, 2020 of shares votes, % capital, % December 31, 2020 shareholders total votes capital, %

Industrivärden 170,200,000 27.5 8.4 1–1,000 shares 235,566 2.8 2.7

Geely Holding 167,247,516 15.9 8.2 1,001–10,000 shares 44,154 5.6 6.0
AMF Insurance & Funds 68,194,803 5.6 3.4 10,001–100,000 shares 3,412 3.2 4.1
Alecta 79,131,010 4.7 3.9 100,001– 599 88.4 87.2
Norges Bank Investment Total 283,731 100.0 100.0
Management 48,619,792 4.2 2.4
AFA Insurance 17,271,346 2.7 0.8
AP4 Fund 16,915,843 1.8 0.8
BlackRock 96,766,082 1.7 4.8
Swedbank Robur Funds 64,753,255 1.4 3.2
Skandia Life 16,825,644 1.1 0.8
Total 745,925,291 66.6 36.7

202
 OTHER INFORMATION 2020

Business area statistics

Net sales1
SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Trucks Europe 92,127 112,125 111,237 99,642 91,468 83,767 72,757 73,640 76,365 83,451 69,606
North America 52,038 85,731 70,233 52,405 51,849 73,017 53,696 40,314 42,650 37,042 26,901
South America 15,830 23,753 16,021 12,789 10,613 11,624 19,669 23,318 21,172 26,847 21,680
Asia 35,441 37,610 36,664 36,998 33,464 31,589 29,264 26,740 36,531 37,840 35,231
Africa and Oceania 12,826 17,427 16,203 14,646 13,256 13,982 15,518 14,462 15,565 13,741 13,887
Total 208,262 276,647 250,358 216,480 200,650 213,978 190,904 178,474 192,283 198,920 167,305

Construction Europe 23,191 30,300 27,291 22,977 19,739 17,732 17,215 16,356 16,518 17,765 16,138
Equipment North America 13,020 17,404 15,575 12,234 10,724 11,843 10,784 8,319 12,027 7,829 6,267
South America 2,245 2,532 2,304 1,760 1,414 2,207 3,234 3,314 3,788 4,163 4,130
Asia 39,095 33,932 33,781 25,058 15,765 16,424 18,458 21,911 27,033 29,999 24,352
Africa and Oceania 3,902 4,437 5,287 4,468 3,088 2,802 3,164 3,539 4,192 3,745 2,923
Total 81,453 88,606 84,238 66,497 50,731 51,008 52,855 53,437 63,558 63,500 53,810

Buses Europe 5,765 7,369 7,036 7,753 7,861 7,284 6,139 5,429 6,200 6,631 6,242
North America 8,302 15,543 13,244 12,512 11,345 10,635 6,721 5,929 6,675 7,532 7,200
South America 1,793 3,281 1,393 1,148 1,363 1,425 2,559 1,836 2,794 2,715 1,737
Asia 2,397 2,617 2,094 3,135 3,067 2,557 1,892 2,055 2,853 2,953 3,299
Africa and Oceania 1,535 2,209 2,060 1,530 1,749 1,678 1,334 1,457 1,774 1,992 2,038
Total 19,791 31,019 25,826 26,078 25,386 23,580 18,645 16,707 20,295 21,823 20,516

Volvo Penta Europe 6,064 6,671 7,487 5,727 4,973 4,462 3,779 3,714 3,620 4,274 4,507
North America 2,532 3,180 2,912 2,456 2,191 2,161 1,584 1,491 1,486 1,379 1,500
South America 345 319 299 289 291 365 386 297 306 335 335
Asia 2,228 2,439 2,443 2,082 1,891 1,855 1,615 1,692 1,867 2,130 2,008
Africa and Oceania 691 679 599 566 546 562 425 356 352 341 366
Total 11,891 13,287 13,741 11,119 9,893 9,406 7,790 7,550 7,631 8,458 8,716

Volvo Aero Europe – – – – – – – – 2,404 2,893 3,768

North America – – – – – – – – 2,657 3,300 3,599
South America – – – – – – – – 0 7 27
Asia – – – – – – – – 109 104 233
Africa and Oceania – – – – – – – – 49 52 81
Total – – – – – – – – 5,219 6,356 7,708
Other and
eliminations 5,074 8,802 4,157 3,635 4,799 5,610 5,806 9,252 7,044 4,532 –680
Net sales Industrial
Operations 326,472 418,361 378,320 323,809 291,459 303,582 275,999 265,420 296,031 303,589 257,375
Financial
Services Europe 6,116 6,279 6,063 5,431 5,116 5,278 5,120 4,686 4,703 4,663 4,733
North America 4,907 5,534 4,600 4,234 4,202 4,033 2,999 2,900 2,833 2,326 2,605
South America 1,380 1,555 1,276 1,368 1,235 1,116 1,122 1,009 1,195 1,131 1,156
Asia 1,022 1,010 800 543 476 548 638 707 795 571 435
Africa and Oceania 535 492 332 235 213 224 232 237 257 192 101
Total 13,960 14,870 13,070 11,812 11,242 11,199 10,111 9,539 9,783 8,883 9,031
Eliminations –1,987 –1,252 –555 –873 –787 –2,265 –3,162 –2,336 –2,167 –2,104 –1,658
Volvo Group total 338,446 431,980 390,834 334,748 301,914 312,515 282,948 272,622 303,647 310,367 264,749

Of which:
Vehicles2 247,397 332,558 299,356 252,063 223,996 237,430
Services 79,075 85,804 78,963 71,747 67,463 66,152
Financial Services 13,960 14,870 13,070 11,812 11,242 11,199
Eliminations –1,987 –1,252 –555 –873 –787 –2,265
1 Volvo Aero was divested on October 1, 2012.
2 Including construction equipment and Volvo Penta engines.

203
 OTHER INFORMATION 2020

Operating income1
SEK M 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Trucks 15,764 31,552 19,541 20,383 15,020 19,517 4,157 6,145 10,216 18,227 10,112
Construction Equipment 9,583 11,910 12,125 7,917 2,246 2,044 652 2,592 5,773 6,812 6,180
Buses –522 1,337 575 928 911 860 92 –190 51 1,114 780
Volvo Penta 1,402 1,876 2,341 1,439 1,269 1,086 724 626 541 825 578
Volvo Aero – – – – – – – – 767 360 286
Financial Services 1,564 2,766 2,411 2,192 2,086 2,006 1,712 1,522 1,492 969 167
Other –308 91 –2,515 –2,532 –707 –2,195 –1,514 –3,557 –1,217 –1,408 –102
Operating income/loss
Volvo Group 27,484 49,531 34,478 30,327 20,826 23,318 5,824 7,138 17,622 26,899 18,000
1 Between
 2009 and 2011, the benefits from the synergies created in the business units are transferred back to the various business areas.
Operating income in 2014 included expected credit losses of 660. See section for Key ratios regarding adjusted items.

Operating margin
% 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Trucks 7.6 11.4 7.8 9.4 7.5 9.1 2.2 3.4 5.3 9.2 6.0
Construction Equipment 11.8 13.4 14.4 11.9 4.4 4.0 1.2 4.9 9.1 10.7 11.5
Buses –2.6 4.3 2.2 3.6 3.6 3.6 0.5 –1.1 0.3 5.1 3.8
Volvo Penta 11.8 14.1 17.0 12.9 12.8 11.5 9.3 8.3 7.1 9.8 6.6
Volvo Aero – – – – – – – – 14.7 5.7 3.7
Volvo Group Industrial
­Operations 7.9 11.2 8.5 8.7 6.4 7.0 1.5 2.1 5.4 8.5 6.9

Financial Services 11.2 18.6 18.4 18.6 18.6 17.9 16.9 16.0 15.3 10.9 1.8
Volvo Group 8.1 11.5 8.8 9.1 6.9 7.5 2.1 2.6 5.8 8.7 6.8

Regular employees at year-end

Number 1 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Trucks 56,483 59,142 58,891 55,026 52,154 54,668 58,067 58,542 61,256 62,315 57,796
Construction Equipment 13,404 13,756 13,419 12,788 13,397 13,889 14,901 14,663 14,788 18,422 16,648
Buses 6,608 8,324 8,178 7,943 7,353 7,270 6,900 6,648 7,514 8,529 8,685
Volvo Penta 1,798 1,800 1,713 1,622 1,530 1,470 1,422 1,412 1,361 2,549 2,353
Volvo Aero – – – – – – – – – 3,179 3,120
Financial Services 1,511 1,538 1,401 1,363 1,328 1,340 1,339 1,355 1,362 1,323 1,235
Other 7,688 8,015 8,527 8,362 8,277 9,827 10,193 12,913 12,436 1,845 572
Volvo Group, total 87,492 92,575 92,129 87,104 84,039 88,464 92,822 95,533 98,717 98,162 90,409
1 As of 2012, employees in business units are not allocated to the business areas.

Environmental performance of Volvo production plants, Industrial operations

More detailed information and management approach are further described in Sustainability Notes on page 155-158.
Absolute values and related to net sales 2020 2019 2018 2017

Energy usage (GWh; MWh/SEK M) 2

1,814; 5.6 2,118; 5.1 2,196; 5.8 2,068; 6.4
Direct CO2 emissions, scope 1 (1,000 tons; tons/SEK M)2 173; 0.5 211; 0.5 223; 0.6 207; 0.6
Indirect CO2 emissions, scope 2 (1,000 tons; tons/SEK M)2 97; 0.3 113; 0.3 198; 0.5 192; 0.6
Water consumption (1,000 m3; m3/SEK M) 5,218; 16.0 5,706; 13.6 4,870; 12.9 4,817; 14.9
NOX emissions (tons; kilos/SEK M) 204; 0.6 311; 0.7 360; 1.0 301; 0.9
Solvent emissions (tons; kilos/SEK M) 1,342; 4.1 1,488; 3.6 2,148; 5.7 1,681; 5.2
Sulphur dioxide ­emissions (tons; kilos/SEK M) 5.6; 0.02 9.6; 0.02 13.6; 0.04 13.3; 0.04
Hazardous waste (tons; kilos/SEK M) 51,806; 160 51,024; 122.0 38,601; 102.0 31,941; 98.6
Net sales, Industrial operations (SEK bn) 326.5 418.4 378.3 323.8

1 Restated according to new standards.

2 From 2012 revised system boundaries and emission factors.

204
 OTHER INFORMATION 2020

Regular employees at year-end

Number 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Sweden 20,598 21,094 20,887 19,965 19,235 20,412 21,384 22,588 23,052 24,663 23,073
Europe, excluding Sweden 27,678 29,033 28,807 27,596 26,955 27,662 29,449 29,746 30,382 30,458 29,239
North America 15,559 17,750 17,845 15,882 14,245 15,534 15,217 16,397 16,569 15,427 12,844
South America 5,448 5,466 5,228 4,774 4,762 5,380 6,353 6,275 5,977 5,234 4,322
Asia 16,121 16,863 16,888 16,526 16,469 17,046 17,793 17,953 20,222 19,924 18,535
Africa and Oceania 2,088 2,369 2,474 2,361 2,373 2,430 2,626 2,574 2,515 2,456 2,396
Volvo Group total 87,492 92,575 92,129 87,104 84,039 88,464 92,822 95,533 98,717 98,162 90,409

Delivered units
Number 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Heavy-duty trucks (>16 tons) 140,652 201,092 193,886 171,963 158,025 176,589 173,650 170,307 172,798 179,779 123,522
Medium-duty trucks (7–16 tons) 10,736 12,700 14,065 14,331 15,691 14,749 15,114 16,779 32,935 34,631 30,657
Light trucks (<7 tons) 15,453 18,977 18,539 16,108 16,708 16,137 14,360 13,188 18,284 23,982 25,811
Total trucks 166,481 232,769 226,490 202,402 190,424 207,475 203,124 200,274 224,017 238,391 179,989

Number 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Trucks Europe 79,814 104,145 110,349 105,432 97,909 86,448 72,458 82,088 84,355 95,113 65,503
North America 32,056 62,308 53,877 37,941 39,193 64,507 57,714 44,755 47,806 42,613 24,282
South America 17,684 23,729 16,146 11,073 9,442 11,069 23,741 29,137 23,443 29,274 21,483
Asia 27,009 29,435 32,276 35,476 31,502 31,979 32,399 28,692 51,514 56,165 53,833
Africa and Oceania 10,278 13,152 13,842 12,480 12,378 13,472 16,812 15,602 16,899 15,226 14,888
Total 166,841 232,769 226,490 202,402 190,424 207,475 203,124 200,274 224,017 238,391 179,989

Construction Europe 15,762 21,420 19,567 17,519 14,700 12,539 14,174 13,522 12,545
Equipment North America 5,025 7,278 7,218 5,685 5,105 5,710 7,127 5,240 6,782
South America 2,335 2,004 2,023 1,372 1,175 2,036 3,669 3,568 3,908
Asia 68,232 53,664 50,716 36,254 21,072 22,339 33,648 44,892 49,263
Africa and Oceania 2,406 2,519 3,130 3,297 2,254 2,094 2,699 3,564 2,982
Total 93,760 86,885 82,654 64,127 44,306 44,718 61,317 70,786 75,480

Buses Europe 1,565 2,350 2,142 2,645 2,676 2,431 2,221 2,146 2,491 2,695 2,395
North America 1,644 3,084 2,796 2,973 2,659 2,398 1,590 1,752 1,826 3,014 2,092
South America 1,152 1,917 973 784 1,149 1,415 2,985 2,434 2,560 2,620 1,174
Asia 1,097 1,465 1,451 2,186 1,849 1,656 1,242 1,822 2,945 3,417 3,477
Africa and Oceania 797 915 1,064 805 1,220 925 721 756 856 1,040 1,091
Total 6,215 9,731 8,426 9,393 9,553 8,825 8,759 8,910 10,678 12,786 10,229

2016 2015 2014 2013 20121 2011 2010

2,076; 7.1 2,077; 6.8 2,168; 7.9 2,320; 8.7 2,483; 8.5 2,471; 8.1 2,315; 9.0
211; 0.7 220; 0.7 231; 0.8 255; 1.0 273; 0.9 255; 0.8 279; 1.1
196; 0.7 192; 0.6 218; 0.8 243; 0.9 260; 0.9
4,430; 15.2 4,919; 16.2 4,982; 18.1 5,815; 21.9 7,372; 25.2 7,970; 26.2 7,519; 29.2
333; 1.1 344; 1.3 332; 1.2 347; 1.3 413; 1.4 474; 1.6 719; 2.8
1,792; 6.1 1,885; 6.2 2,472; 9.0 2,221; 8.4 2,358; 8.1 2,554; 8.4 2,294; 8.9
12.9; 0.04 32.1; 0.1 37.9; 0.1 23.4; 0.1 26; 0.1 34; 0.1 33; 0.1
27,649; 94.9 27,824; 91.6 24,944; 90.4 28,395; 107.0 32,547; 111.4 25,943; 85.5 22,730; 88
291.5 303.6 276.0 265.4 292.2 303.6 257.4

205
 OTHER INFORMATION 2020

ANNUAL GENERAL MEETING, MARCH 31, 2021 PRELIMINARY FINANCIAL CALENDAR

The Annual General Meeting of AB Volvo will be held Wednesday,March, Annual General Meeting 2021 March 31, 2021
2021. The Meeting will be carried out through advance voting (postal voting) Report on the first quarter 2021 April 22, 2021
pursuant to temporary legislation.
Report on the second quarter 2021 July 20, 2021
Notice Report on the third quarter 2021 October 21, 2021
Those who wish to participate must (i) be recorded in the share register
prepared by Euroclear Sweden AB relating to the circumstances on March The reports are available on [Link] and [Link]
23, 2021, and (ii) notify its intention to participate in the Meeting no later on date of ­publication and are also sent electronically to shareholders who
than March 30, 2021, by casting its advance vote in accordance with the have advised Volvo that they wish to receive financial ­information.
below instructions so that the advance form is received by Euroclear Historical and current time series reflecting the Volvo Group’s market
­Sweden AB no later than that day. information are published regularly on [Link] and on
A special form shall be used for advance voting. The form is available on [Link].
AB Volvos website [Link]. The advance form is consid-
ered as the notification of participation. CONTACTS
The completed voting form must be received by Euroclear Sweden AB
no later than Tuesday, March 30, 2021. The form may be submitted via
Investor Relations:
e-mail to GeneralMeetingService@[Link], or by post to AB Volvo
Christer Johansson +46 739 02 25 22
(publ), “Annual General Meeting”, c/o Euroclear Sweden, P.O. Box 191,
Johan Bartler +46 739 02 21 93
SE-101 23 Stockholm, Sweden. Shareholders who are natural persons may
Anders Christensson +46 765 53 59 66
also cast their advance votes electronically through BankID verification via
E-mail: investorrelations@[Link]
AB Volvo's website, [Link].
If the shareholder is a legal entity, a certificate of incorporation or a cor-
Corporate Responsibility:
responding document shall be enclosed to the form. The shareholder may
Martina Klaus +46 31 323 45 64
not provide special instructions or conditions in the voting form. If so, the
Jonas André +46 739 02 63 80
vote (i.e. the advance vote in its entirety) is invalid. Further instructions
E-mail: csr@[Link]
and conditions are included in the form for advance voting.
To be entitled to participate in the Annual General Meeting, a share-
Aktiebolaget Volvo (publ) 556012-5790
holder whose shares are held in the name of a nominee must register
Investor Relations, VGHQ
its shares in its own name so that the shareholder is recorded in the share
SE-405 08 Göteborg
register as at March 23, 2021. Such registration may be temporary (so-
Sweden
called voting right registration) and is requested from the nominee in
accordance with the nominee's procedures and such time in advance as
Tel +46 31 66 00 00
the nominee determines. Voting registrations completed not later than
March 25, 2021 are taken into account when preparing the register of
[Link]
shareholders.

VOLVO’S ELECTION COMMITTEE

The following persons are members of Volvo’s Election Committee:

Bengt Kjell  Chairman of the Election Committee (AB
Industrivärden), appointed by the Annual
­General Meeting
Pär Boman (Svenska Handelsbanken, SHB Pensionsstiftelse,
SHB Personalstiftelse, SHB Pensions­kassa and
Oktogonen), appointed by the Annual General
Meeting
Ramsay Brufer (Alecta), appointed by the Annual General
­Meeting
Carine Smith Ihenacho (Norges Bank Investment Management),
appointed by the Annual General Meeting
Carl-Henric Svanberg Chairman of the Board, appointed by the
Annual General Meeting

Among other duties, the Election Committee is responsible for ­submitting

to the Annual General Meeting proposals for candidates to serve as mem-
bers of the Board of Directors, Chairman of the Board and p
­ roposal for audi-
tors if applicable. The Election Committee also p
­ roposes the amount of the
fees to be paid to the Board of Directors.

206
A CLIMATE SMART SOLUTION FOR HEAVY TRANSPORT

HYDROGEN FUEL CELLS

Electrification of commercial vehicles will play an important
role on the journey towards a carbon neutral society. Using
hydrogen fuel cells to power the electric driveline looks like
a promising future alternative for heavy transport and
demanding long-haul applications.
 The Volvo Group drives prosperity through transport and infrastructure
solutions, offering trucks, buses, construction equipment, power solu-
tions for marine and industrial applications, financing and services that
increase our customers’ uptime and productivity. Founded in 1927, the
Volvo Group is committed to shaping the future landscape of sustainable
transport and infrastructure solutions. The Volvo Group is headquartered
in Gothenburg, Sweden, employs almost 100,000 people and serves
­customers in more than 190 markets. In 2020, net sales amounted to
SEK 338 billion. Volvo shares are listed on Nasdaq Stockholm.

AB Volvo, Investor Relations and Group Accounting

AB Volvo (publ)
SE-40508 Göteborg, Sweden
Telephone +46 31 66 00 00
[Link]