Fixed Income Investor Presentation 2019
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 4
GAME CHANGING BUSINESS TRANSFORMATION
COMPANY TRANSFORMATION
OUR STRATEGIC JOURNEY
2.4
S60
SPA
V60 / V60CC
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 5
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
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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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 7
+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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 8
HUMAN-CENTRIC
SYNERGIESEMBRACING DISRUPTION
TRULY GLOBALPIONEERING
PARTNERSHIPS
Non-consolidated entities
A STRUCTURE FOR THE FUTURE
POSITIVE RATING TRAJECTORY
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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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 10
AGENDA
• Volvo Cars at a Glance
• Key Credit Highlights
• Financials
• Appendix
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 12
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
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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
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3. TRULY GLOBAL
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 15
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 16
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 17
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
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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
• Volvo Cars at a Glance
• Key Credit Highlights
• 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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 20
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 21
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 22
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 23
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 24
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
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 25
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
• Volvo Cars at a Glance
• Key Credit Highlights
• Financials
• Appendix
| VOLVO CARS – DEBT INVESTOR PRESENTATION | 27
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