Volvo - six months ended June 30, 2002

Volvo - six months ended June 30, 2002 2002 2001 Net sales, SEK M 89 679 90 848 Operating income excluding restructuring 1 197 2 625 costs, SEK M Operating income, SEK M 1 197 1 306 Income after financial items, SEK M 692 561 Net income, SEK M 334 555 Sales growth, % (1) 53 Income per share during most recent 12 (4.00) 7.60 months period, SEK Return on shareholders' equity during (2.0) 3.4 most recent 12 months period, % · Improved earnings within Trucks in the second quarter resulting from a successful completion of the production changeover in Volvo Trucks. Production in Europe is running at full pace. · Operating income in the second quarter of 2002 was SEK 1,559 M, compared with SEK 2,123 M in the year-earlier period. · Cash flow in the second quarter improved to SEK 3.2 billion as a result of the continued focus on activities to improve cash flow. · Improved earnings within Buses and Construction Equipment. Volvo Aero was affected in full by the general downturn in the aviation industry. · Asian markets continue to develop favorably across business areas. Comments by the Chief Executive Officer The first quarter was characterized by model changes. Volvo Trucks' underwent an extensive industrial changeover to take the new FH and FM models in production. This was completed during the second quarter and the new models are now in full production. The next step is already underway. A new Volvo truck program, based on the same successful technology as in the FH and FM models, will be introduced in the North American market during the coming quarter. The new models will be equipped with engines that comply with the new "EPA02" emission standards in the US. A new family of EPA02-compliant Mack engines will also be introduced. With the new wheel loaders and excavators, Volvo CE also went through an extensive changeover although on a smaller scale, and production is now running at a high level to respond to the strong customer demand for these new product ranges. Business conditions continue to develop in different directions for the Group's business areas, with the exception of the markets in Asia and Eastern Europe where the entire Group has a very strong development. These regions are now representing more than ten percent of net sales. The increased order intake in the North American truck market during the second quarter is an encouraging sign that the market has now bottomed out. The uncertainty remains however, regarding the customer demand immediately after the introduction of the EPA02 emission regulation in October 2002. The truck market in Western Europe continues to be relatively stable. The general downturn is likely to be limited to the 10-percent decline that we previously predicted. This means that the truck market will remain at historically high levels. The demand for buses in North America and South America is weak, while some areas in Europe are recovering. The important coach market remains weak in all markets. The construction equipment market continues to decline in both Europe and North America. As a consequence of these varied business conditions, the Group's financial performance in the second quarter was mixed. Volvo Penta succeeded in offsetting the downturn by gaining market shares and reported yet another excellent quarter. The demand for Volvo CE's new products was strong and contributed to an improved result despite the difficult business climate. Volvo Trucks' new models have proved to be very competitive and the launch has resulted in more than 31.000 orders so far. Renault Trucks' and Mack Trucks' order intake increased as well. Turn-around efforts in Buses resulted in positive operating income, and two large and profitable orders were secured for the Mexico plant. Financial Services continues to stabilize its credit portfolio and made a slight improvement during the second quarter. Volvo Aero's weak result was anticipated. We knew - and announced - that the downturn in the air traffic sooner or later would affect the aerospace operations. With the current uncertainty in the business climate, our focus on business cycle management and structural improvements is retained. Volvo Aero has already taken a wide range of measures to adapt to the new conditions, including large personnel reductions, decisions that were regrettable but unavoidable. The transfer of Mack's South Carolina-based assembly operations to Volvo Trucks' facility in Virginia as well as the exit from the US city bus market are vital steps towards strengthening competitiveness in North America. The on-going integration within the truck operations is developing according to plan, and at the end of the second quarter synergies from this process was running on an annualized level of SEK 2.1 billion. The costs for the integration activities have, so far, developed slightly better than expected. In combination with the strong product renewal, these efforts will gradually improve our competitive position. Leif Johansson Significant events during the second quarter of 2002 Volvo Buses chosen as preferred supplier In June 2002, Volvo Buses was chosen as preferred supplier by two of the leading bus operator groups in Mexico. The contract gives Volvo Buses a leading position within the upper segments in the Mexican market. The deliveries involve 1,800 buses and will start as early as mid-2002 and continue until mid-2005. The total framework agreement amounts to approximately SEK 3.0 billion. This agreement follows an earlier order for 900 units of Volvo 7550, most of which were delivered in 2000 and 2001. Volvo CE establishes production facility in China Volvo Construction Equipment (Volvo CE) has decided to establish a wholly owned subsidiary production and facility, Volvo Construction Equipment (China) Co, Ltd, for the manufacture of construction equipment in Shanghai, China. The new facility is scheduled to be taken into operation by spring 2003 and will initially be used for the assembly of crawler excavators. The company will initially have 150 employees. AB Volvo celebrated its 75th anniversary On April 14, 2002, Volvo celebrated its 75th anniversary. On that day, it was exactly 75 years since the first series- manufactured Volvo car, the Volvo ÖV4, rolled off the production line on the island of Hisingen, Gothenburg. Since then, Volvo has developed from a small local industry to one of the world's leading manufacturers of heavy trucks, buses and construction equipment, with more than 70,000 employees world wide and a presence in over 125 countries. Significant events earlier in 2002 New structure for Volvo's truck operations Since Volvo's acquisition of Renault V.I. (now named Renault Trucks) and Mack Trucks, a large part of the operations has been focused on immediate integration programs and the development of a strategy for future product plans for both vehicles and engines. Most of this work is now completed and the years immediately ahead will be characterized by implementation of approved strategies and product plans in order to take advantage of the synergies created through the acquisition. A clear focus on customers, based on distinct and powerful brand names, will be decisive. A new organization and management was thus necessary. As of January 7, 2002, Volvo, Mack and Renault Trucks are separate business areas reporting to the Volvo Group Headquarters. Volvo CE launched new products Volvo Construction Equipment launched its B-series of excavators; a new generation of machines designed to provide more power and productivity and improved operator comfort. Volvo CE also launched the new Volvo E- series of wheel loaders. The new wheel loaders combine high productivity, low fuel consumption and low environmental impact, making them the ideal machines for rock, re-handling and log-handling applications. Volvo delivers 200 city buses to Johannesburg Volvo Bus South Africa Pty began delivery of 200 city buses to Metrobus in Johannesburg, South Africa. The delivery comprises 150 B7TL double- decker buses and 50 standard B7R buses. The delivery marks an important modernization of the city's fleet of buses and also represents a new element on the urban scene prior to this year's major UN summit meeting, where world leaders will discuss environmental and economic development. Volvo Aero Engine Services lands major overhaul order from Aeroflot Volvo Aero signed an agreement with the Russian airline Aeroflot, whereby Volvo Aero will overhaul Aeroflot's JT9D-59A engines, powering its DC 10-40 aircraft. The initial value of the contract is USD 60 M, making it the largest overhaul contract signed by Volvo Aero since 1998. There is also a potential for a total order value of USD 120 M if Aeroflot decides to add more DC 10-40's to its fleet. The Volvo Group - 2002 Net sales Net sales of the Volvo Group for the second quarter of 2002 amounted to SEK 49,294 M, compared with SEK 47,098 M in 2001, an increase of 8% adjusted for changes in currency rates and group structure. The increase in net sales is largely related to increased truck deliveries on most markets as a result of successful product introductions. Net sales of Trucks' amounted to SEK 32,554 M, an increase of 12% adjusted for currency effects compared with the year earlier period. The increase was largely due to increased deliveries. Deliveries in Europe increased by 10% following the introduction of the new Volvo FH and Volvo FM trucks in combination with high deliveries of Renault trucks in Southern and Eastern Europe. Volvo Trucks' production changeover was successfully completed during the second quarter and the initial start- up effects, resulting in delayed deliveries in the first quarter were resolved. Deliveries improved in North America to 10,592 vehicles, up 9% compared with the year-earlier period. Net sales of Buses for the second quarter of 2002 amounted to SEK 4,142 M, an increase of 2% adjusted for currency effects and the effect of consolidating Prévost/Nova Bus using the proportional method as of the fourth quarter 2001. The ramp-up issues relating to the production start of new models within Volvo CE from the first quarter were resolved in the second quarter and net sales for Volvo CE increased 7%, excluding currency effects. Sales of marine engines remained strong and Volvo Penta's sales in the second quarter increased by 16%, excluding currency effects. As a result of the downturn in the airline industry, Volvo Aero's net sales declined by 21%. During the second quarter of 2002, the Group's net sales in Western Europe increased by 9%, mainly due to increased deliveries of newly introduced products. Net sales in North America were down 6% and South America declined 28%, while significant growth was noted in Eastern Europe, Asia and on other markets. The distribution of net sales by market is further specified in the table below: Net sales by market area Second First six Change quarter months SEK M 2002 2001 2002 2001 in % % of total Western Europe 25 670 23 624 46 767 47 321 -1 52 Eastern Europe 1 946 1 427 3 264 2 626 +24 4 North America 14 491 15 354 26 229 28 795 -9 29 South America 1 239 1 727 2 450 3 106 -21 3 Asia 3 342 2 756 5 992 4 697 +28 7 Other markets 2 606 2 210 4 977 4 303 +16 5 Total 49 294 47 098 89 679 90 848 (1) 100 Operating income Operating income for the second quarter of 2002, amounted to SEK 1,559 M, compared with SEK 2,123 M in the corresponding period a year earlier. Adjusted to comparable basis, earnings improved by about SEK 550 M over the year-earlier period. Trucks' operating income for the second quarter of 2002 was SEK 483 M compared with SEK 639 M in the year-earlier period. Operating income improved significantly during the second quarter compared with the first three months. The improvement was mainly due to increased deliveries resulting from the production changeover of the new Volvo FH and Volvo FM trucks, and to a positive contribution from synergies. Operating income for the second quarter of 2001 included a gain on the sale of shares in Mitsubishi Motors of SEK 574 M, net. Buses operating income amounted to SEK 51 M compared with an operating loss of SEK 25 M in the year-earlier period. The improvement is largely related to turn-around activities and to stabilizing conditions in North America. Construction Equipment had a strong second quarter with operating income of SEK 464 M compared with SEK 408 M in the year- earlier period. Earnings for Volvo Penta continued to be favorable; with an operating margin of 10% in the second quarter of 2002. Volvo Aero's operating income declined significantly compared with the year-earlier period due to weaker demand and as a result of a weaker USD. Financial Services operating income amounted to SEK 120 M, which was slightly higher than the previous quarter and better than in the year-earlier period. Operating income for other companies declined to SEK 176 M in the second quarter of 2002 (530). The decline was a result from a lower dividend from Scania and a deficit in Volvo's Swedish pension foundation. Operating income for the second quarter of 2002 included a less positive effect from capitalization of development costs of SEK 53 M, compared with the corresponding period in 2001. These effects are related to new accounting standards, which were applied as of 2001. The total effect from capitalization of development costs, net of amortization, was SEK 398 M for the second quarter of 2002, compared with SEK 451 M in the year-earlier period. Income from other investments declined to SEK 325 M in the second quarter (1,448). The decline is attributable to a halved dividend from Scania combined with a capital gain from the sale of shares in Mitsubishi Motors in 2001. The deficit in Volvo's Swedish pension foundation increased by SEK 338 M and had a negative effect on operating income during the second quarter of 2002, mainly due to the weak development in the stock market. Net interest expense Net interest expense for the second quarter of 2002 declined to SEK 187 M compared with SEK 248 M in the first quarter. The improvement was mainly due to lower net financial debt and lower funding costs in the US combined with higher yield on financial assets in Sweden. Taxes During the second quarter of 2002, a tax expense of SEK 212 M was reported, mainly related to current tax expenses in subsidiaries outside Sweden. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/07/23/20020723BIT00050/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/07/23/20020723BIT00050/wkr0002.PDF The full report

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The Volvo Group is one of the world’s leading manufacturers of trucks, buses, construction equipment and marine and industrial engines. The Group also provides complete solutions for financing and service. The headquarter is located in Gothenburg, Sweden.

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