Event Brief of Q3 2008 Volvo AB Earnings Conference Call - Final.(Broadcast transcript)

PARTICIPANTS

. Leif Johansson, Volvo AB, CEO . Mikael Bratt, Volvo AB, CFO . Tony Helsham, Volvo AB, President Volvo Construction Equipment . Hakan Karlsson, Volvo AB, President, Buses . Goran Gummeson, Volvo AB, President Volvo Penta . Olof Persson, Volvo AB, President Volvo Aero Corporation . Sal Mauro, Volvo AB, President Volvo Financial Services . Fredric Stahl, UBS, Analyst . Julia Varesko, JP Morgan, Analyst . Patrik Lindqvist, HQ Bank, Analyst . Yann Benhamou, Exane, Analyst . Peter Testa, One Investments, Analyst . Alexis Albert, Natixis Securities, Analyst . Jeremy Taylor, AllianceBernstein, Analyst . Colin Gibson, HSBC, Analyst . Nico Dil, JPMorgan, Analyst . Jose Asumendi, Royal Bank of Scotland, Analyst

OVERVIEW

VOLV_B.ST reported 3Q08 results.

PRESENTATION SUMMARY

S1. 3Q08 Group Results (L.J.) 1. Highlights: 1. 3Q08, difficult qtr. 1. Came off all-time high in 2Q08 with record sales, record profits, and record margins. 2. As Co. progressed through 3Q08, started seeing very steep breaking curve from customers as they became more and more impacted by downturn and the following liquidity crisis. 1. QonQ comparison on comparison for last qtr., ended up with 2% growth, 26% in 1Q08 and 13% in 2Q08. 3. Operating income, came down 37%. 4. Business environment in Europe has falling volumes and heading towards downturn. 1. Is in a downturn there from all business areas. 5. Especially on truck side, had a number of cancellations of orders. 1. Seen some of that in the other business areas, even out to the extreme. 6. Even customers who in the short-term who have been looking for to take product, had to go back sometimes even when the products have been introduced, Co. takes it as they Co. don't have the current facilities that it thought it had because of failure of banking and financial system. 7. North America and Japan declined further. 1. In 2Q08, order intake had increased and on truck side, that would translate into slightly higher and volumes in North America. 2. In 3Q08, Co. found it progressively more difficult as it went through the qtr. 1. North American customers ending up in an acute liquidity crisis. 2. Co. ended up with double-digit numbers. 3. That has not been the case in Japan. 4. Japan has been a more reasonable financially liquid market. 5. Sees a great amount of uncertainty in Japan. 8. Over 3Q08, still had good development in South America and other international markets. 1. In Oct., has began to see signs, especially in India, China, to some extent also in Latin America, all being impacted by global downturn. 2. Net Sales: 1. Sales: 1. Negative 4% in Western Europe. 2. Eastern Europe still holding up. 3. North America, double-digit decline rather than scenario Co. had where it would possibly go up. 4. Asia, up, positive 3%. 5. South America, strong. 3. Operating Income: 1. Had good performance in Europe and international. 1. Did that as Co. delivered the order books that it had. 2. Order books have shrunk in 3Q08. 1. Still, good performance in Europe and international. 2. Difficulties in Europe and International: 1. In many cases, has to reallocate production from Europe to international markets. 1. That has put little pressure on margins here and there. 2. Had Co. only looked at Europe and international, would have had quite decent qtr. 3. What did not turn out well and produced negative results was truck operations in US. 1. Basically, has to found whole and lot of more people there in 3Q08 and made reductions in Hagerstown and in New River Valley. 4. Volvo CE contributed negatively in operating income development. 1. That's the same type of problems that Co. has seen on truck side and more so on material cost side and then it took one-time cost connection to that. 5. R&D expenses on comparative qtr., up by almost SEK800m. 6. Cost inflation of raw materials was SEK1b higher, most of that has been offset in pricing, some of it a real comparative only on cost side, was higher QonQ comparisons. 1. Restructuring in North America as a consequence of the much lower North American market both at Volvo Construction Equipment and Mack and Co. took the charge of that of SEK330m. 2. It was qtr. of underabsorption.

S2. 3Q08 Group Financial Summary (M.B.) 1. Cash Flow: 1. Negative cash flow for industrial operation, SEK6.1b. 1. 3Q is normally a tough qtr. from cash flow perspective as seen in 3Q07, also was negative even though only SEK0.4b. 2. Negative effect could found in inventory and payables primarily. 3. Has seen an increase in inventory today, SEK2.4b and then adjusted for currency. 1. Reduction in payables with SEK6.5b. 2. This is done on immediate effect of reduction in production volumes. 4. With these developments, now has a cash conversion cycle of 38 days and net debt position of SEK23.8b taking Co. to 32.4% of shareholders' equity. 1. In this net debt position is also net effect from ANSI transaction of SEK1.2b that took place in 3Q08. 2. Funding Situation: 1. Has strong cash position of SEK26b. 1. Has an objective here to be 6-10% in cash over sales. 2. Co. has committed facility as a result for funding purpose, with another SEK23b. 1. Those facilities are maturing in 2011 and 2013. 2. Industrial Debt: 1. Portfolio, around SEK43b. 2. Avg. maturity, 4.6 years. 3. Going forward, cash flow is on top of agenda. 3. Market: 1. Has primarily used bilateral funding in order to manage the volatile time and that has been during last couple of weeks. 2. Normal funding sources have been used very limited. 1. When this market returns to more normal stage, has more than 50% of its ordinary program on (indiscernible). 1. Had good results there. 4. Customer Financing Debt Portfolio: 1. It's a fully matched portfolio, somewhat shorter maturity, 1.4 years. 1. Fully matched against receivables in customer finance portfolio. 5. Financial Risk: 1. Pension plan assets are something Co. primarily has in US, Sweden and UK. 2. Co. is at this stage fully funded. 1. Currencies do not see any need for additional cash contribution at this time. 3. Residual Values: 1. Uses conservative approach. 2. Has much more stringent policy in place than what Co. has had those times around when it saw downturn. 3. Is in the residual value setting taking into account the use, geographic area where the truck is sold, there is number of parameters taken into consideration. 1. It's reviewed on a quarterly basis where the residual value commitments are valued and provision are taken when necessary and they are done on contract-by-contract basis. 4. For 3Q08, made about SEK100m in provision related to US exposure. 1. On global perspective, still has headroom left.

S3. 3Q08 Trucks Results (L.J.) 1. Highlights: 1. Net Sales: 1. Came off of a qtr. of almost SEK53b. 2. 3Q08 sales, SEK46b. 2. Margins, 5.8% from 9.2% in 2Q08. 3. Had significant slowdown in demand in Europe 1. For order intake actually netted, it looks like Co. had a 100% fall, which is netted in reality. 2. Had 20,000 new orders in European business. 1. 20,000 new orders offset by around 20,000 …