Fixed Income Investor Presentation - Volvo Cars

Fixed Income Investor Presentation2019

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respect to any securities.

| VOLVO CARS – DEBT INVESTOR PRESENTATION | 2

DISCLAIMER

AGENDA

• Volvo Cars at a Glance

• Key Credit Highlights

• Financials

• Appendix

Strengthened brand

Completely new vehicle range

Truly global presence

Standalone governance

Personal and direct relationship with consumers

Sustainable products and business

Safe mobility with leading AD technology

Purpose driven organization

2018


GAME CHANGING BUSINESS TRANSFORMATION

COMPANY TRANSFORMATION

OUR STRATEGIC JOURNEY

2.4

S60

SPA

V60 / V60CC


Petrol 3-4 cvl Diesel 4 cvlPHEV T8

twin engine

DRIVE-E

SUCCESSFUL BUSINESS TRANSFORMATION...

Scalable Product Architecture (SPA)

● Models: 60 / 90 Series

● Scale: Volvo 550’ units

Compact Modular Architecture (CMA)

● Models: 40 Series

● Scale: Volvo 250’ units

2015

Portfolio age (years)

XC90

SPA

2016

3.0

V90 / V90CC

S90

S90L

SPA

2017

2.5

XC60

XC40

CMA

SPA

2018

Modular Architecture Modular Powertrain

2019-2021 New Launches

Non-complex and Fully Invested Base Modular Architecture Driving Cost Efficiencies and Rapid Product Renewals

• Consolidation of separate engine architectures into one

• Outputs from 122 to >400bhp (in combination with an electric motor) while reducing number of cylinders

• Modular design allows high component commonality

- Reducing complexity in development and maintenance as well as increasing efficiencies in production

• Collaboration with Geely also facilities engine sales within the wider Geely Group

XC90 BEVXC40 BEV

9

1622

26296.9%

9.8%11.9% 12.5%

11.3%

0%

4%

8%

12%

16%

0

10

20

30

40

2014 2015 2016 2017 2018

…YIELDING STRONG PERFORMANCE


Strong Revenue Development…

XC40XC90 XC60

European car of the year 2018

…With Solid Earnings Growth…

EBITDA margin, %EBITDASEKbn %

…And Strong Cash Flow Generation… …Driven By Successful Product Launches

Note: 1) Operating cash flow: EBITDA + net cash interests + tax paid + movements in working capital

201620152014 2017 2018

9

2327

2528

Operating cash flow1 (SEKbn)

138164 181

209

253

2014 2015 2016 2017 2018

SEKbn

466 503 534 572642

2014 2015 2016 2017 2018

• Fastest growing premium OEM

• Standalone business with an own corporate governance, under ownership of Zheijang Geely Holding Group since 2010

• Global footprint with activities in EMEA, Asia-Pacific and the Americas

• ~43,000 employees1

• ~2,300 dealers selling in ~100 countries

• Headquartered in Gothenburg, Sweden

Diversified by model and increasing in SUVs

Overview FY18 Financial Highlights

Number of Cars Sold

642k units

56%29%

15%SUV

Sedan

Estate


+21.1%Revenue increase

4.7bnOperating & Investing

CF

253bnRevenue

+12.4%Retail Sales

642.3K Units

14.2bnOperating Income (EBIT)

18bnNet Cash position

Sales by Model - 2018

VOLVO CARS AT A GLANCE

Note: 1) Average 2018 employees

CAGR: 8%

Premium Products

Units ‘000

SEK, % PRICE

NEW PREMIUM

High

Low

Low High

Previous Price and Premium Positioning

XC90 Classic

XC60 Classic

V70

New Price and New Premium Positioning

XC40

XC90

V90

XC60

The Volvo Car Group and Affiliates

Care by Volvo

The Volvo Car Group Strategic Affiliates

Care by Volvo

Strong brand within the

premium segment

Robotaxi

Subscriptionservices

My car always

Solutions & services for

smarter mobility

My car sometimes

(Volvo Cars 50% ownership) (Volvo Cars 30% ownership) (Volvo Cars 50% ownership)

Spearheadingelectrification

Capturing new mass market

consumer group

A market leading AD / ADAS

software developer


HUMAN-CENTRIC

SYNERGIESEMBRACING DISRUPTION

TRULY GLOBALPIONEERING

PARTNERSHIPS

Non-consolidated entities

A STRUCTURE FOR THE FUTURE

POSITIVE RATING TRAJECTORY


09 May 2016

Moody's assigns first-time Ba3

rating with positive outlook; Positive

outlook reflects commencement of

major product renewal programme

30 Jun 2017

Moody’s comment: Volvo Car’s

declared SEK 2.2bn dividend is credit

negative but has no impact on Ba2

rating

06 May 2016

S&P assigns BB rating with positive outlook;

Positive outlook based on possibility of raising

rating by one notch to BB+ if Volvo Cars continues

to be successful in launching new car models,

while maintaining stronger profitability and low

levels of adjusted debt

21 Dec 2016

Moody’s comment:

SEK 5bn Preference

Shares Issue Is

Credit Positive

12 Oct 2016

Moody's upgrades rating to Ba2 with stable outlook;

Upgrade reflects strong operating performance based

on the successful introduction of new XC90 and

several expected new product launches

17 Oct 2017

Moody’s affirms Ba2 rating with stable outlook.

Stable outlook based on expectation that renewal

programme and subsequent sales and earnings

growth will lead to a further improvement in credit

metrics

10 May 2017

S&P raises rating to BB+ with stable outlook citing good

progress in strengthening competitive position and

business profile by demonstrating successful model

launches and improving profitability; Stable outlook reflects

expectation that Volvo Cars will continue successful rollout

of new car models while maintaining profitability and zero

or low levels of adjusted debt

2 May 2018

Moody’s upgrades rating to Ba1 with

stable outlook; Upgrade reflects

continued improvements in operating

performance and credit metrics, with

expectations that the trend will

continue founded by further successful

new model launches

20 November 2018

S&P affirms BB+ rating and revises outlook to positive; the

outlook reflects Volvo Cars’ good position to improve its credit

metrics over 2019-2021, including meaningful improvement in

free operating cash flow to debt. Positive outlook reflects good

progress in strengthening competitive position and successful

model launches establishing itself as a premium car

manufacturer

Oct-16Jan-16 Jul-16 Apr-17 Jul-17 Jan-18 Jul-18 Jan-19Apr-16 Jan-17 Apr-18Oct-17

19 March 2019

Volvo Car’s parent company Zhejiang Geely

Holding Group rated Investment Grade

BBB- with stable outlook+ by S&P

LONGER TERM AMBITIONS

>5 million direct consumer relationships

50% recurring subscription based revenues

50% pure electric cars

30% autonomous cars

Naturally hedged global production

Superior growth

Premium OEM profitability


AGENDA



• Financials

• Appendix


SYNERGIESSTRATEGIC AFFILIATES DRIVING SYNERGIES AND EARNINGS

4

HUMAN-CENTRIC BRAND IDENTITYWITH SUSTAINABILITY BEING AN INTEGRATED PART OF COMPANY CULTURE AND STRATEGY

1

KEY CREDIT HIGHLIGHTS

6 SOLID FINANCIAL PERFORMANCETRANSFORMATION FULLY SELF FINANCED

ROBUST GROWTH TRAJECTORYTRACK RECORD OF INDUSTRY OUTPERFORMANCE

2

EMBRACING DISRUPTION AND PIONEERING PARTNERSHIPSOPEN APPROACH TO TECHNOLOGY AND MARKET CHANGE

5

TRULY GLOBAL WITH UNIQUE CHINA POSITIONING

3

1. HUMAN-CENTRIC BRAND IDENTITY

Purpose, Culture and Customer Promise


FREEDOM TO MOVE – IN A PERSONAL, SUSTAINABLE AND SAFE WAY

WE ARE CURIOUS, WE CREATE TOGETHER, WE MAKE THE DIFFERENCE

Sustainability Visions

WITH SUSTAINABILITY BEING AN INTEGRATED PART OF COMPANY CULTURE AND STRATEGY

Full transparency of our 3TG and cobalt supply chain by 2020

50% of sales to be fully electric by 2025

Climate neutral operations by 2025

Brand Value in Line With Societal Development

No one should be seriously injured or killed in a new Volvo car by 2020

25% of plastic in our cars made from recycled material by 2025

We Understand You

We Protect What Is Important to You

We Make People Feel Special

2. ROBUST GROWTH TRAJECTORY

1.3%

5.6%

8.4%

Non-premium Cars Premium Cars Volvo Cars

Strong Track Record of Outgrowing Market1

Note: 1) Based on the LMC Automotive Q1-2019 edition of its Global Automotive Sales Forecast2) Premium Cars based on LMC Automotive’s Premium and Super-Premium segmentation.3) Non-premium Cars based on LMC Automotive’s segmentation excluding the Premium and Super-Premium segments.

Unit Sales CAGR 2014-18A

23

Impact and growth from strategic affiliates

All cars to be fully electric or plug-in hybrids

Full range now being rolled out including strong SUVs

Well-known brand with momentum

Global market share opportunities In particular US & China

New business segments

Key Growth Levers

TRACK RECORD OF INDUSTRY OUTPERFORMANCE


3. TRULY GLOBAL


Global Presence Why Volvo Car Group Is Uniquely Positioned in China

• Only fully integrated global car group in China

– Enabled VCG to move fast (3 plants in 4 years)

– Unique JV setup

• Parent with track record of creating strong brands in China

• Sales still outgrowing the premium car market

Well Diversified Manufacturing Footprint

– Charleston 75k

– Gothenburg 300k

– Ghent 225k

HIGHLY FLEXIBLE MANUFACTURING NETWORK WITH UNIQUE CHINA POSITION

– Chengdu 150k

– Daqing 75k

– Luqiao 45k

50%

20%

15%

15%

642k units

Other

China

Europe

US

75%

19%

4%2%

Global Employee Base

43k FTEs

Europe1

China

US

Other

Note: 1) Whereof Sweden represents 57% of total FTEs

Production

R&D

Units Sold By Region

• 2019 installed global capacity provides flexibility and all regions SPA platform compatible:

FY 2018 FY 2018

4. SYNERGIES


Powertrain Architecture ProductionR&D /

ProcurementDistribution /

Service Profitability

STRATEGIC AFFILIATES DRIVING SYNERGIES AND EARNINGS

Joint Venture with Veoneer

• Pure electric

• Hybrids

• CMA

• SPA

• Cars

• Engines

• Faster to market

• Lower cost

• Increased utilization of commercial system

• Earnings increase

• Economies ofscale

5. EMBRACING DISRUPTION AND PIONEERING PARTNERSHIPS


OPEN APPROACH TO TECHNOLOGY AND MARKET CHANGE

Electric Cars

Well-positioned on EU CO2 target having flexibility to launch BEV at right time

Sharing costs with broader Volvo-Geely ecosystem

Phasing out diesel from all new models; no diesel residual value exposure

Target all new models to be electrified; effectively transitioning to 100% electrification

Connected Premium Cars

All new cars produced are internet connectivity enabled

Focus on consumer experience to drive price premium and consumer loyalty

Transition to direct consumer relationships

Long term ambition of >5m direct customer relationships

Autonomous Cars

Aim to be first to commercialise L4 AD on wide scale

Safety branding recognition among consumers and legislators

Provider of total solutions to Robotaxi operators

Long term ambition of L4 AD cars representing 30% of car volume

Direct Consumer Business/

Subscription

Traditional and new consumer go to market model in place in parallel

Offers range of mobility solutions including subscription (Care by Volvo), Mobility per mile (Volvo Car Mobility) and Robotaxi

Long term ambition of 50% cars under subscirption1

Care by Volvo

FLEXIBLE AND FAST MOVINGCONSUMER EXPERIENCE FOCUS NO LIMITING LEGACY

Note: 1) Percentage of car volume produced and delivered through subscription services

(4.8)

7.2 6.5

(3.8)

4.7

2014 2015 2016 2017 2018

6. SOLID FINANCIAL PERFORMANCE


Longer Term Objective to Have a Capital Structure that Enables an Investment Grade Rating

Cash Flow From Operating and Investing Activities Net Cash (Net Debt) Position Development

TRANSFORMATION FULLY SELF FINANCED

SEK 9.9bn

Free cash flow

2014-2018

SEK 18bn

Net cash position 2018

(0.9)

7.7

18.9

12.5

18.1

(0.1x)

0.5x

0.9x

0.5x

0.6x

2014 2015 2016 2017 2018

Net Cash Net Cash/ EBITDA

SEKbn SEKbn

AGENDA



• Financials

• Appendix

155203

254 273359

173168

170 198185

6864

69101

98

7168

42

2014 2015 2016 2017 2018

296326 338 365

393

1 2 3 4 520162014 2015 2017 2018

PREMIUM PRODUCT PORTFOLIO DRIVES GROWTH

Retail Revenue

Average Revenue per Unit


Units ‘000

+12%

+8%

138

164181

209

253

2014 2015 20172016 2018

+21%

Volvo Cars consistently delivered on volume targets

Established track-record of successful execution of product launches

High exposure to fast growing SUV segment

20162014 2015 2017 2018

SUV Estate Sedan Other

SEK ‘000

SEKbn

9.5

16.0

21.5

26.2

28.6

2.1

6.6

11.0

14.1 14.2

1,5%

2014

4,0%

20172016

6,7%6,1%

2015

5,6%

2018

% margin EBIT

PROFITABILITY TRAJECTORY


6,9%

2015 20162014

9,8%11,9% 12,5%

20182017

11,3%

% margin EBITDA

Benefiting from increased pricing and stronger sales mix

Expects considerable benefits from operational leverage in the future

EBIT EBITDA

SEKbn SEKbn


7.2

9.510.2 10.1

12.1

5.2%5.9% 5.7%

4.9% 4.8%

R&D expenses% of Revenue

2014 201720162015 2018

R&D Expenses

Intangible investments Tangible investments

201620152014 2017 2018

8.6 9.213.1

17.0 13.6

5.2 4.7

6.4

9.78.5

10.1%

8.5%

10.8%

12.8%

8.7%

Intangible and tangible investments % of Revenue

Note: 1) Net working capital = inventory + accounts receivable – accounts payable2) Operating cash flow: EBITDA + net cash interests + tax paid + movements in working capital

2014 201720162015 2018

Net Working Capital1 Operating Cash Flow2

201620152014 2017 2018

6.8

2.8

(0.6)

3.0

5.2

9

2327

2528

CASH FLOW TRAJECTORY

Capex

SEKbn SEKbn

SEKbnSEKbn

LIQUIDITY AND NET CASH POSITION


SEKm

AS PER FY 2018

Liquidity and Debt Position Net Cash Position

SEK 18bnNet cash

position 2018

(0.9)

7.7

18.9

12.5

18.1

(0.1x)

0.5x

0.9x

0.5x

0.6x

2014 2015 2016 2017 2018

Net Cash Net Cash/ EBITDA

SEKbn

40,200

21,500

2,200

Liquidity

13,300

23,700

Debt

1,600

55,100

18,100

31,400

Undrawn Credit Facilities

Short-term Debt

Long-term Debt

Marketable Securities

Cash & Cash Equivalents

DIVERSIFIED FUNDING STRUCTURE


AS PER FY 2018

Prior to issuances during 2019

Loan and Bond Amortization Schedule of SEK 23.7bnFunding by Type

%

56%44%

Bonds

Bank loans

420 530 210

420

420

5,130

202520242019

2,360

2020

3,420

2021

5,550

3,000

2022 2023

5,130

2026

2,240

7,490

3,850

BondsLoans

MSEK


SYNERGIESSTRATEGIC AFFILIATES DRIVING SYNERGIES AND EARNINGS

4

HUMAN-CENTRIC BRAND IDENTITYWITH SUSTAINABILITY BEING AN INTEGRATED PART OF COMPANY CULTURE AND STRATEGY

1

KEY CREDIT HIGHLIGHTS

6 SOLID FINANCIAL PERFORMANCETRANSFORMATION FULLY SELF FINANCED

ROBUST GROWTH TRAJECTORYTRACK RECORD OF INDUSTRY OUTPERFORMANCE

2

EMBRACING DISRUPTION AND PIONEERING PARTNERSHIPSOPEN APPROACH TO TECHNOLOGY AND MARKET CHANGE

5

TRULY GLOBAL WITH UNIQUE CHINA POSITIONING

3

AGENDA



• Financials

• Appendix


VOLVO CAR GROUP OWNERSHIP STRUCTURE

Zhejiang Geely Holding Group Co., Ltd.

Volvo Car Corporation

Geely Sweden Holdings AB

Volvo Car AB

Volvo Cars consolidated subsidiaries

Volvo Car Group

Other Investors

100 %

100 %

1 %99 %

Guarantor of the Notes

Non-consolidated entities with Volvo Cars ownership

Volvo Cars (China) Investment Co. Ltd.

Issuer

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Fixed Income Investor Presentation - Volvo Cars