Volvo Group - report on operations 2007

Volvo Group - report on operations 2007

•  Strong sales increase in the fourth quarter, up 25% to SEK 84.6 billion
(67.6)
Net sales for the full year increased by 10% to SEK 285.4 billion (258.8) 

•  In the fourth quarter, operating income rose 12% to SEK 5,775 M (5,170)
Operating income for the full year rose 9% to SEK 22,231 M (20,399)

•  In the fourth quarter, income for the period rose 11% to SEK 4,094 M (3,701)
Income for the year declined by 8% to SEK 15,028 M (16,318)

•  In the fourth quarter, diluted earnings per share rose to SEK 2.00 (1.83)
Diluted earnings per share for the full year amounted to SEK 7.37 (8.03)

•  The Board of Directors proposes an ordinary dividend of SEK 5.50 per share

•  In the fourth quarter, the Industrial Operations had a very strong operating
cash flow amounting to SEK 12.4 billion (7.4)


Volvo Group       Fourth quarter                  Year
 SEK M              2007        2006        2007      2006 1)     Change

Net sales
Volvo Group       84,556      67,627     285,405     258,835         10%

Operating
income Volvo
Group              5,775       5,170      22,231      20,399          9%

  Operating
income
Industrial
operations         5,397       4,798      20,583      18,713         10%

  Operating
income
Customer
Finance              378         372       1,649       1,686        (2%)

Operating
margin Volvo
Group                6.8         7.6         7.8         7.9            

Income after
financial
items              5,609       5,226      21,557      20,299          6%

Income for
the period         4,094       3,701      15,028      16,318        (8%)

Diluted
earnings per
share, SEK          2.00        1.83        7.37        8.03            

Return on
shareholders'
equity, %                                   18.1        19.6  

1) 2006 included a reversal of a valuation reserve for deferred taxes
and an adjustment of goodwill. As an effect, operating income in 2006
was negatively affected in the amount of SEK 1,712 M, while income taxes
decreased by SEK 2,048 M. The total effect on income for the period was
positive in the amount of SEK 336 M.


CEO's comments - strong growth and favorable profitability
The Volvo Group concluded an intense 2007 with a fourth quarter in which sales
and operating income reached record levels. During the year we carried out
several major acquisitions, established a strong presence in Asia, advanced our
positions in important product segments, launched many new products and managed
widely shifting demand trends in our main markets - continued growth in Europe
and Asia and a sharp decline in North America. Following the acquisitions of
Nissan Diesel, Lingong and Ingersoll Rand's road development division, we now
have a significant industrial structure in Asia, with a presence in Japan, China
and, when the expected cooperation with Eicher Motors is in operation, also in
India. These are rapidly growing markets and we want to be part of that growth. 


Favorable level of underlying profitability
In the fourth quarter, sales increased by 25% to SEK 84.6 billion and operating
income rose 12% to SEK 5.8 billion. The operating margin of 6.8% was negatively
affected by the development in North America, integration expenses, which
initially yield lower profitability in acquired companies, and a provision for
engine-related warranty expenses in North America amounting to SEK 370 M. The
underlying profitability remained at a favorable level, which is a reflection on
the positive development in most of our markets. During the fourth quarter, our
industrial operations also had a very strong operating cash flow of SEK 12.4
billion. For the full year, the Group's sales increased by 10% to slightly more
than SEK 285 billion, while operating income was up 9% to more than SEK 22
billion. 

   The split market conditions are most apparent in our truck operations, in
which nearly all markets continued to show favorable development, with the
exception of North America and Japan. We have good stability and high
profitability in Europe, where we increased deliveries during the autumn,
despite already strained production. We are expanding production capacity,
particularly against the background of very high demand in Eastern Europe.

   Following the acquisition of Nissan Diesel, Asia has grown to become our
second largest truck market and we have continued high expectations about
development there. In Asia, truck deliveries tripled in the fourth quarter. In
North America, we introduced a new generation of engines during the year that
comply with the world's most stringent emission legislation, and simultaneously
implemented adaptations in the industrial system. Combined with weak demand,
these measures affected profitability. We have adapted the operations to suit
market conditions and have a high level of preparedness for handling changes in
demand. On February 1, the members of the UAW union at the New River Valley
plant decided to go on strike, and production at the plant has been halted. In
the Group's other engine and truck plants in North America there is a temporary
agreement since the old agreement expired.

   We estimate that the truck market in Europe will grow by 5-10% compared with
2007, with the industry's delivery capacity as the limiting factor. The North
American truck market is difficult to assess, but we estimate that it will be on
about the same level as in 2007.


Intensive year for Construction Equipment
Construction Equipment made major advances in Asia following the acquisition of
Lingong and Ingersoll Rand's road development division. Product renewal was
substantial during the year. The product offering increased by 100 products from
acquired companies, while at the same time new generations of existing machinery
were launched - a total of 46. During the fourth quarter, Volvo CE had a very
strong growth but profitability was impacted by increased production costs and
costs related to the integration of acquired companies.
   Buses have the new Euro 4-engines based on the new engine platforms in place
and are far ahead in the environment area, including hybrid buses in the
commercial phase. Buses are now being integrated closer to the truck companies
and Volvo 3P, with a focus on joint solutions, reduced costs and increased
profitability. 
   Volvo Penta continues to capture market shares in the marine segment and
Volvo Aero ended the year strongly. Volvo Financial Services has stable
profitability and delivered a return on equity of 15.9%. 


Profitability generates shareholder value
In 2007, Volvo transferred slightly more than SEK 20 billion to shareholders
through dividends and share redemptions. For 2007, the Board of Directors
proposes an ordinary dividend of SEK 5.50 per share, corresponding to 74% of the
year's profit. If the Annual General Meeting approves the dividend proposal, it
would mean that the ordinary dividend has continuously increased by an average
of 21% annually for the last 15 years. Profitability for the Volvo Group during
2007 will also benefit employees. They work hard for the continued successful
development of the Group and will receive a distribution of SEK 450 M in the
profit-sharing system.
   We have entered 2008 with strong order books, a very strong product program
and with an overall good demand in our main markets outside North America. The
focus is now on ensuring our delivery capacity with a competitive cost base and
on increasing productivity.

Leif Johansson
President and CEO



Contacts Investor Relations:
Christer Johansson          +46 31 66 13 34
Patrik Stenberg	            +46 31 66 13 36
John Hartwell 	            +1 212 418 7432