AKTIEBOLAGET VOLVO \PUBL\ - VOLVY Annual and Transition Report (foreign private issuer) (20-F) ITEM 4. INFORMATION ON THE COMPANY

The following is an excerpt from a 20-F SEC Filing, filed by AKTIEBOLAGET VOLVO \PUBL\ on 6/29/2004.

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ITEM 4. INFORMATION ON THE COMPANY

4.A. History and Development of Company

AB Volvo is an international transport equipment group with a worldwide marketing organization and production. AB Volvo, which was incorporated in 1915 under the laws of Sweden, started production of cars in 1927 and of trucks in 1928. Historically Volvo has operated in two main areas: cars and vehicles for commercial use. The latter includes trucks, buses, construction equipment and marine and industrial engines. Operations also include production and maintenance of aircraft engines and financial services. In March 1999, Volvo sold Volvo Cars to Ford Motor Company. As a result of this sale, Volvo is today focused entirely on the commercial transport products segment. Through the acquisition of Mack Trucks Inc. and Renault V.I. in 2001, the Volvo Group strengthened its position as a producer of heavy trucks.

Headquartered in Gteborg, Sweden, the Volvo Group had 75,740 employees at December 31, 2003. With 55% of sales in Western Europe, 5% in Eastern Europe, 24% in North America, 3% in South America and 9% in Asia, the Group operates in an international environment with production and assembly carried out on six continents. Its shares are traded on stock exchanges in Stockholm, London, Frankfurt, Dsseldorf, Hamburg and in the United States its American Depositary Shares are traded on the Nasdaq National Market (NASDAQ). In the fourth quarter of 2003, Volvo decided to apply for delisting of its shares from the German stock exchanges in Frankfurt, Hamburg and Dsseldorf. The delisting is planned to become effective in the latter part of 2004.

Volvo's brand name is strongly identified with quality, safety and concern for the environment. The Group's position in the fields of vehicle safety and quality is being consolidated through continuing improvements and technical innovations. In the environmental area, Volvo is intensifying its efforts to reduce the negative impact on the environment throughout the entire life cycle of its products.

AB Volvo is domiciled in Gteborg, Sweden. The address and telephone number of AB Volvo is S-405 08, Gteborg, Sweden, +46 31 660000.

Significant events in 2003

Volvo Trucks began production in Russia. Volvo Trucks became the first Western truck manufacturer to start production in its own name in Russia. The new assembly facility for heavy trucks was inaugurated on March 20 in Zelenograd, just north of Moscow.

Volvo CE started production in China. The first Volvo Excavator, built in Volvo CE's new plant located in the Pudong area outside Shanghai in China, left the production line at the beginning of April.

Volvo CE acquired US dealer L.B. Smith. On May 2, Volvo Construction Equipment purchased the assets associated with the Volvo distribution business of L.B. Smith, Inc., its largest dealer in the United States. The intention is to spin off the acquired operations.

Volvo started assembly of trucks in China. On June 9, Volvo Trucks signed a joint-venture agreement with China National Heavy Truck Corporation for production of trucks. Production started during the first quarter of 2004.

Volvo Trucks introduced new models. Volvo Trucks launched the new Volvo NH in Brazil. This model was developed for the South American market and is built in Brazil. The launch was accompanied by the introduction of the new Volvo FH and Volvo FM in South America. The new medium-heavy truck in the 17-23 ton segment, Volvo VM, was also introduced during 2003. This marks a renewal of the entire Volvo truck range in South America.

On June 5, Volvo Trucks presented the new Volvo FH16. The Volvo FH16 was developed to meet the trend for heavier and longer truck combinations. The new Volvo FH16 is equipped with an all-new 16-liter engine, with a power output of up to 610 hp, making it the most powerful truck in the European market.

Volvo Penta introduced new products. Volvo Penta is launching a new generation of medium-heavy diesel engines for leisure boats. The new electronic diesel engines, the D4 at 210 hp and the D6 at 310 hp, are manufactured at Volvo Penta's engine plant in Vara, Sweden.

Volvo Penta is also launching the new 130- or 160-hp D3 diesel engine and the new D2 75-hp engine for sailing yachts.

Volvo acquired Bilia's truck and construction equipment operations. The truck and construction equipment operations of Bilia was acquired in the third quarter through the exchange of the predominant part of Volvo's holding in Bilia for 98% of the shares in the acquired operations, Kommersiella Fordon Europa AB (KFAB). KFAB is a leading service supplier and reseller of Volvo trucks and construction equipment in Europe.

Significant events in 2004

Divestment of Scania shares. Volvo's holding of Scania B shares was sold to Deutsche Bank on March 4, 2004 for an amount of approximately SEK 15 billion. As a consequence of the divestment, the Scania holding was written down as of the fourth quarter of 2003. The transaction was carried out as part of Volvo's commitment to the European Commission to divest the Scania shares not later than April 23, 2004. After the sale of the Scania B shares to Deutsche Bank, Volvo owned 27.3 million A shares in Scania AB, corresponding to 24.8% of the votes and 13.7% of the capital. At the Annual General Meeting of AB Volvo on April 16, 2004, the Board's proposal to transfer all A shares in Scania to Ainax and thereafter to distribute 99% of the shares in Ainax to Volvo's shareholders was approved. The value of the distribution of Ainax was set at SEK 6,309,538,646. The shares in Ainax were distributed to Volvo's shareholders on June 8, 2004.

Volvo Trucks agreed upon cooperation covering engine manufacture in China. Volvo Trucks signed an Engine Cooperation Frame Agreement with the truck manufacturers China National Heavy Truck Corporation (CNHTC), and First Automotive Works (FAW) covering the establishment of a jointly owned engine plant in China. The plant will manufacture complete engines for Volvo's business areas in China and for CNHTC's and FAW's trucks. The three companies will form a joint company for production of engines for the Chinese market of which Volvo will own 52% and CNHTC and FAW 24% each. In accordance with the agreement, the company will produce the future heavy diesel engines based on the Volvo Group's new engine platform. The plan is for a definitive agreement to be concluded during 2004. The aim is to start production of component kits from Europe during 2005 and begin own production during 2006. The plant will have an annual production of 50,000 engines in 2010.

Renault Trucks concludes agreement in principle to manufacture trucks in China. The AB Volvo subsidiary Renault Trucks has signed an agreement in principle with the Chinese truck manufacturer Dong Feng Motors aimed at establishing a joint-venture company for manufacturing trucks and truck components in China. It is planned that the new company will manufacture Renault's Kerax heavy construction trucks for the Chinese market. The agreement is still subject to final negotiation. The relevant Chinese authorities must also approve the agreement. Initially, the agreement aims to establish local assembly of CKD kits for Renault's Kerax trucks. The long-term aim is to manufacture components, primarily cabs, for Renault's and Dong Feng's Chinese product range.

Industrial relocation within Renault Trucks. The Volvo Group is carrying out an industrial relocation in Europe as a result of which manufacture of crankshafts for medium-heavy truck engines is being increased at Villaverde, Spain, while the production of Renault branded trucks is being concentrated to the plant in Bourg-en-Bresse, France. The relocation is a consequence of the transition to a greater degree of shared technical architecture for trucks within the Volvo Group.

Volvo CE initiated LB Smith divestiture. As part of its stated intention to divest the assets which Volvo Construction Equipment acquired from its former dealer, LB Smith, Volvo CE has sold its Florida construction equipment distribution marketing area, with the exception of Tallahassee, to Flagler Construction Equipment LLC, Orlando, Florida, USA and its Nashville and Memphis, Tennessee, market areas to its Louisiana dealer, Scott Construction Equipment Company.

Capital Expenditures

The following table sets forth the Group's aggregate capital expenditures for property, plant and equipment, intangible assets and assets under operating leases, by principal business areas for each of the three years ended December 31:

2001 2002 2003

(In millions of SEK)
Capital expenditures
Trucks..…………………………………………………… 5,949 4,797 4,384 Buses……………………………………………………... 360 256 161 Construction Equipment…………………………………. 569 660 525 Volvo Penta ……………………….. ……………………. 199 236 362 Volvo Aero……………………………………………….. 933 583 262 Financial Services………………………………………... 5,775 5,461 5,459 Other and corporate capital expenditures………………… 354 244 528 Group total ……………………………………………… 14,139 12,237 11,681

Investment projects emphasized plant and machinery for the production, design and development of commercial vehicles and machinery. The following table illustrates the geographic distribution of the capital expenditures:

2001 2002 2003
(In millions of SEK)
Sweden……………………………………………... 4,646 3,701 2,629 Europe (excluding Sweden)………………………... 5,942 5,793 6,042 North America……………………………………… 3,169 2,261 2,442 Other countries……………………………………... 382 482 568 Group total ………………………………………... 14,139 12,237 11,681

Capital expenditures for property, plant and equipment in 2003 amounted to SEK 4.9 billion (SEK 4.8 billion in 2002, SEK 5.7 billion in 2001). Capital expenditures in Trucks, which amounted to SEK 3.2 billion (SEK 3.2 billion in 2002, SEK 4.1 billion in 2001), were made in tools and equipment for the production of new truck models in North America, Brazil and France. Investments were also made in Sweden and France for increased capacity in the paint shops. The level of capital expenditures in Buses amounted to SEK 0.1 billion (SEK 0.1 billion in 2002, SEK 0.1 billion in 2001), in Construction Equipment SEK 0.4 billion (SEK 0.4 billion in 2002, SEK 0.4 billion in 2001), in Volvo Aero SEK 0.2 billion (SEK 0.2 billion in 2002, SEK 0.2 billion in 2001) and in Volvo Penta to SEK 0.2 billion (SEK 0.2 billion in 2002, SEK 0.1 billion in 2001).

Capital expenditures for intangible assets, mainly product and software development, amounted to SEK 1.2 billion (SEK 2.0 billion in 2002, SEK 2.6 billion in 2001). The capital expenditures were distributed among Trucks SEK 0.7 billion (SEK 1.3 billion in 2002, SEK 1.6 billion in 2001), Buses SEK 0.1 billion (SEK 0.1 billion in 2002, SEK 0.2 billion in 2001), Construction Equipment SEK 0.1 billion (SEK 0.2 billion in 2002, SEK 0.2 billion in 2001) and Volvo Penta SEK 0.2 billion (SEK 0.1 billion in 2002, SEK 0.1 billion in 2001) and Volvo Aero SEK 0.1 billion (SEK 0.3 billion in 2002, SEK 0.5 billion in 2001).

Capital expenditures for assets under operating leases amounted to SEK 5.6 billion (SEK 5.4 billion in 2002, SEK 5.9 billion in 2001), including SEK 5.3 billion in Financial Services (SEK 5.1 billion in 2002, SEK 5.4 billion in 2001). The capital expenditures pertained mainly to vehicles and machines subject to new operating lease contracts with external customers within Financial Services' operations in North America and Western Europe.

Capital expenditures currently in progress are shown in Item 5.B - Liquidity and Capital Resources.

4.B. Business Overview

General

Five years ago, the operations of the Volvo Group were concentrated on those products with the strongest positions and most competitive volumes. This meant that Volvo exited the car industry and transferred these resources over to commercial vehicles, machines and engines through a series of acquisitions.

In recent years, major changes have been implemented in the organization to coordinate the new structure and simultaneously renew large segments of the product range. The result is a streamlined Group with considerably reduced costs and strong global market positions.

Three large acquisitions were made on three different continents: Samsung's excavator operations in Southeast Asia, Renault Trucks in Europe and Mack Trucks Inc. in North America. These acquisitions strengthened the Group's presence in Asia and made the Volvo Group the largest heavy truck manufacturer in Europe, with a market share of 27 percent, and the third-largest in North America, with a 20-percent market share by the end of 2003. Following the acquisitions, Volvo believes it is the world's largest manufacturer of diesel engines, in the 9-16 liter segment, for heavy vehicles and machinery.

All business areas hold strong positions in their respective markets. Volvo Buses is the world's second-largest bus manufacturer and Volvo Construction Equipment (Volvo CE) is one of the largest manufacturers of construction equipment. Volvo Penta is a global market leader in marine leisure diesel engines. Components from Volvo Aero are included in 80 percent of all new major aircraft in the world.

The new companies have been integrated rapidly. The new excavators have been sold under the Volvo brand since 1999 and the plant in South Korea is now Volvo's global center for the development and production of crawler excavators, the largest product segment in the construction equipment industry.

Commercial transport equipment market

In parallel with the changes in recent years, most of the business areas have implemented extensive measures to adjust capacity to lower demand. The recession in the United States, which first became noticeable in 2000 in the form of falling demand for construction equipment, impacted in full during 2001 with a sharp decline in the North American truck market. To adjust capacity in the short term and improve efficiency in the longer term, a number of actions were taken, including the merger of Mack's and Volvo's tractor truck manufacturing operations to the New River Valley plant at the end of 2002. These actions have resulted in significantly reduced costs and consequently, improved earnings.

The Group experienced a general downturn in Europe in 2002 and 2003, although the extent varied greatly between countries and product segments. Truck sales in Europe have been sustained at a relatively high level, and the high customer values in the new Volvo product range have resulted in increased market shares. In Europe, Volvo Trucks continued to deliver a solid performance with improved margins. Demand for our new models resulted in strong exports to Eastern Europe and Asia.

The business area that has fared the best in the recession is Volvo Penta, which increased its sales and consolidated its position as a global leader within marine diesel engines. Compared with most of its competitors, Volvo CE has been best able to handle the downturn. Volvo Buses and Volvo Aero, on the other hand, suffered the effects of the global downturn in the travel and aviation industry, and were consequently forced to reduce capacity considerably. Volvo Buses exited the unprofitable US market for city buses in 2002 and reduced capacity in Europe in 2003.

The Group as a whole has performed well during the recession. Excluding the restructuring costs incurred in 2001 in connection with implementing the new truck organization, the Group has generated profit throughout the period, demonstrating that we are better equipped to manage cyclical fluctuations than previously.

Strategy

A major challenge over the next few years is to consolidate the market organization and increase sales in growth markets. With its strong economic growth, Eastern Asia is a priority region. Volvo already has a well-functioning market organization in the region and extensive industrial operations in South Korea.

In 2003, an agreement was concluded with China National Heavy Trucks regarding a joint venture to manufacture Volvo branded trucks in China. Volvo is already the largest imported brand of Western trucks in China and will now become the first Western truck company with manufacturing of heavy trucks in the country. The production volume will initially be 2,000 trucks per year, but will gradually increase. Renault Trucks has initiated a cooperative venture with China's third-largest truck manufacturer, Dong Feng Motors, on the transfer of engine technology.

Volvo Construction Equipment also commenced production in China during the year and had appointed 19 dealers in China by the end of 2003. Volvo Buses and Volvo Penta already have manufacturing operations in China through joint-venture agreements.

In Eastern Europe and the Middle East, the Group is in a development phase in terms of building the dealer network. Volvo Trucks has for some time held a strong position as an import make in these regions. In recent years, Renault Trucks has increased its activity in Eastern Europe, resulting in considerably increased sales in the new EU countries.

Like some of the competitors, Volvo has worked hard during the recession to adapt production costs to lower demand. Substantial efficiency improvements have been made within the industry in general. With the positive trend in the world economy discerned in the latter half of 2003, we are well positioned for profitable growth in 2004.

Summary of Group Businesses

Volvo Trucks. Volvo's truck manufacturing operations started in 1928. Today, Volvo Trucks is one of the world's largest producers of heavy trucks by volume. In 2003, vehicles of more than 16 tons accounted for 90% of total production. Volvo Trucks' products are marketed in more than 130 countries, with most sales in Western Europe and North and South America.

Renault Trucks. Renault Trucks is one of the largest European manufacturers of commercial vehicles, with its origins in the Renault automobile company that was founded in 1898, and also in Berliet, another manufacturer founded in 1895. Renault Trucks has a product program that includes a variety of commercial vehicles, ranging from light trucks for urban distribution services to special vehicles and heavy trucks for long-haul operations.

Mack Trucks. Mack is one of the largest manufacturers of heavy trucks in North America by volume. Mack was founded in 1900, and focused on commercial vehicles from the start. Today, Mack is one of the most-recognized heavy-truck brands and a leader in the vocational segment of the North American market. The products are sold and serviced in more than 45 countries worldwide.

Buses. Volvo Buses is the world's second largest bus manufacturer, with a complete range of heavy buses and coaches to meet demanding customer requirements for passenger transport solutions. The product range includes complete buses and coaches as well as chassis combined with a comprehensive range of services.

Construction Equipment.Volvo Construction Equipment develops, manufactures and markets equipment for the construction and related industries. Products include a comprehensive range of wheel loaders, wheeled and crawler hydraulic excavators, articulated haulers and motor graders as well as compact excavators, compact wheel loaders, backhoe loaders and skid steer loaders. Distribution takes place mainly through independent dealers and a rental channel.

Volvo Penta. Volvo Penta provides engines and complete power systems for leisure boats and workboats and for industrial applications such as power-generating equipment. Volvo Penta operates worldwide and has one of the industry's most-recognized brand names and the largest dealer networks with more than 5,000 dealers globally. The engine program comprises diesel and gasoline engines with power outputs of between 10 and 2,000 hp.

Volvo Aero. Volvo Aero develops and manufactures components for aircraft and rocket engines with a high technology content in cooperation with the world's leading producers, such as General Electric, Pratt & Whitney and Rolls-Royce. In the aftermarket, Volvo Aero offers an extensive range of services, including sales of spare parts for aircraft engines and aircraft, sales and leasing of aircraft engines and aircraft, as well as overhaul and repair of aircraft engines.

Financial Services. Volvo Financial Services (VFS) develops and coordinates Volvo's operations within customer financing and insurance, treasury, real estate and related services. It is focused on providing financial services to the Group's internal and external customers. Financial solutions created by VFS are designed to enhance the long-term competitiveness of the Volvo Group and its distributors.

Trucks

The total market. The total market for heavy trucks in Western Europe was unchanged during 2003, compared with 2002. The markets in Germany and in the UK strengthened by 6% and 10%, respectively, while the markets in Italy and France weakened. Eastern Europe continues to show a positive trend.

The total market for heavy trucks in North America (Class 8) was unchanged at 179,000 trucks in 2003 compared with 2002. The trend during the fourth quarter showed positive signs in the vocational segment, however the uncertainty remains in other segments. The market for heavy trucks in Brazil rose by 28% compared with a year earlier.

Business environment. The acquisitions of Mack and Renault V.I. in 2001 were part of the restructuring that has been under way in the heavy-truck industry for a long time. In 1965 there were 40 independent manufacturers of heavy trucks in Western Europe; today, there are fewer than ten. Deregulation and increased globalization have created very tough competition that is driving the trend toward fewer and larger transport companies with increasingly streamlined operations. As a result, demands on truck manufacturers are also growing. Large development resources and rational production are required in order to meet customers' needs in a cost-effective way.

In 2003, Trucks accounted for 64% of Volvo's sales.

Volvo Trucks. In 2003, Volvo Trucks presented the new Volvo FH16. The Volvo FH16 is equipped with an all-new 16-liter engine, available with a choice of two power outputs, 610 and 550 hp, making it the most powerful standard truck ever in Europe. Also in 2003, Volvo Trucks introduced an entirely new truck, the Volvo VM, mainly for the South American market in the 17- to 23-ton class. In addition, a new generation of the Volvo NH, Volvo FH and Volvo FM was launched in South America. With these introductions, the entire Volvo Trucks product range has been renewed since 2000.

Volvo Trucks' products are marketed in more than 130 countries. The greater part of the sales takes place in Western Europe and in North and South America.

Volvo Trucks has an extensive network of dealers and service centers in both Europe and North America. The distribution network in Europe was strengthened in 2003 through the acquisition of Bilia's network of truck dealers. To further improve its customers' ability to conduct competitive operations, Volvo Trucks offers a broad range of services.

During 2003, Volvo Trucks delivered a total of 75,312 trucks, an increase of 8% compared with 2002. Deliveries increased by 15% in North America and by 37% in Asia. The strong development in Asia is largely based on high deliveries to Iran.

Renault Trucks. In 2003, Renault introduced a light truck, the new generation of the Renault Master. The Renault Master features new exterior and interior design, new engines and improved performance. The Renault Master is also accompanied by new service offers to reinforce and improve Renault Trucks' market share in the less than 3.5-ton segment. An integrated Customer Center was opened in March within the Saint Priest facilities outside Lyon as part of an enhancement intended to increase service levels and strengthen the network in Europe. Renault Trucks has a strong international presence, with 2,000 dealers and service centers throughout the world, of which 1,350 are located in Europe. Aftersales services are provided in more than 80 countries.

Renault Trucks' deliveries during 2003 amounted to 61,686 vehicles, a decrease of 4%. Deliveries to Eastern Europe rose by 11%. In Western Europe deliveries of Renault trucks decreased by 8%, while deliveries in other parts of the world rose by 6%.

Mack Trucks. Due to the success of the Granite model in the vocational truck market, Mack ended the production of its RD model at the end of 2003 - further streamlining its product line-up while addressing a broader range of applications.

Mack deliveries were down to 18,991 trucks in 2003, compared with 23,245 trucks a year earlier. The decline was partly related to competition from truck OEMs able to offer engines that are not compliant with the EPA '02 emission requirements as well as the transition of production of highway trucks from Winnsboro to the New River Valley plant in the first half of 2003.

Strategic development. The aim in 2004 is to continue the development of the distribution networks in Europe and North America, including the integration of the acquired former Bilia distribution network in Europe. In 2004, the brand identities and product ranges of the three strong brand names Volvo, Renault and Mack will be developed further.

Products. The customer offering is based on an adequate vehicle specification for every customer's needs. The truck operations of the Volvo Group have a broad range of truck specifications for all kinds of transport needs, from city distribution to construction work and long-distance transports. More than 90 % of the trucks branded Volvo are sold in the heavy truck segment (above 16 tons), where all models are based on the company's global modular platform. The use of a common platform ensures product quality, parts availability and service, all contributing to higher vehicle uptime.

Customers are also offered an extensive range of support services. For example, financial services include many different kinds of leasing solutions, often in combination with service and insurance agreements. One common type of leasing contract gives the customer a fixed price per kilometer, apart from fuel and driver costs.

Production. The following table sets forth, by series, the number of trucks produced by Volvo during each of the years 1999 through 2003 and the numbers of trucks produced by Mack and Renault during the years 2001, 2002 and 2003.

Number of trucks produced 1999 2000 2001 2002 2003 Volvo FL -series ……………………... 7,040 7,890 6,690 5,640 4,820 Volvo FL7, 10, and 12-series and
FM7, 10, and 12-series……………… 13,090 15,310 14,580 15,300 17,480 Volvo FH-series……………………… 25,880 32,720 28,920 31,880 33,720 Volvo NL and NH-series……………. 3,210 2,690 2,400 1,490 1,940 Volvo VN Series and VHD1………... 35,440 23,400 12,860 14,300 17,080 Volvo VM ………………………… - - - - 400 Total……………………………………. 84,660 82,010 65,450 68,610 75,440 Mack CH……………………………….. 7,298 7,540 1,744 Mack CL………………………………... 984 288 64 Mack Vision……………………………. 2,122 2,523 4,811 Mack Granite…………………………... 1,099 4,592 6,217 Mack DM…………………………….… 703 528 458 Mack DMM……………………………. 111 47 - Mack LE………………………….…….. 1,393 1,084 964 Mack MR……………………………….. 3,015 1,668 2,034 Mack RB……………………………..…. 488 103 130 Mack RD……………………………….. 4,532 2,298 921 Mack RD8…………………………. 86 35 54 Other……………………….…….…… - - 1,122 Total………………………………….…. 21,831 20,706 18,519 Renault Kerax………………………….. 7,967 7,677 6,674 Renault Midlum………………...……... 12,764 12,545 12,801 Renault Premium………………………. 17,918 16,150 15,567 Renault Magnum………………………. 7,027 7,848 7,516 Total……………………………………. 45,676 44,220 42,558 Total Volvo, Mack and Renault….….. 132,957 133,536 136,517

1 Includes other truck models produced in the United States

Production and capacity.Production of trucks in 2003 amounted to 75,440 Volvo trucks (68,610), 42,558 Renault trucks (44,220) and 18,519 Mack trucks (20,706). In addition, Renault Trucks also distributes the Renault Mascott and Renault Master trucks, which are produced by Renault SA and the SISU trucks.

On June 9, 2003, Volvo Trucks signed a joint venture agreement with China National Heavy Truck Corporation, CNHTC, for production of trucks. Production started during the first quarter of 2004 in CNHTC's premises in Jinan, in the Shandong Province. The initial capacity is 2,000 trucks per year. Volvo's product range in China will comprise the Volvo FL, Volvo FM9 and Volvo FM12. The aim is to increase volumes to 10,000 trucks per year by 2010 with a high level of local integration.

The transfer of production of Mack highway trucks from Winnsboro to New River Valley was completed on May 1, 2003.

Markets and Sales. In 2003, Trucks accounted for 64% of Volvo's sales. Volvo's truck operations' sales by principal geographic market area and operating income for the years 1999 through 2003 are set forth in the following table:

1999 2000 2001 2002 2003
(In millions of SEK)
Western Europe………………….. 30,006 30,415 60,841 61,406 63,097 Eastern Europe…………………… 2,265 3,158 5,526 6,424 7,004 North America…………………… 22,303 17,048 33,630 33,721 28,151 South America…………………… 2,190 3,111 3,993 3,277 3,464 Asia……………………………….. 2,010 3,432 4,659 5,919 9,206 Other markets……………………. 1,492 1,911 7,919 8,005 6,047 Total sales………………………… 60,266 59,075 116,568 118,752 116,969 Operating income………………... 3,247 1,414 (2,066) 1,189 3,951

Includes Mack Trucks and Renault V.I. since January 2001

Total deliveries for Volvo's truck operations amounted to 155,989 vehicles during 2003, a decrease of 1% compared with 2002.

In Europe, deliveries from Volvo and Renault Trucks amounted to 92,083 trucks in 2003, down 5%. In North America, Mack and Volvo delivered a total of 34,765 vehicles, a decrease of 5% compared with a year earlier. Total deliveries of Mack and Volvo trucks in South America were up 12% to 5,976 vehicles.

On July 11, 2003, all conditions for Volvo's acquisition of Bilia's truck and construction equipment operations, Kommersiella Fordon Europa AB (KFAB), were met. KFAB is a leading service supplier and dealer of Volvo trucks and construction equipment, with operations in the Nordic countries and in several other countries in Europe. The acquisition of the KFAB dealerships and workshop network has significantly strengthen Volvo Trucks' European distribution system.

Buses

The total market. The global market for tourist buses remained very low in 2003, particularly in North America and Europe. The total market in Europe is weak, in particular in Central Europe. Strong price pressures continue to prevail. In Asia, the markets in Hong Kong and Singapore are still at a low level, while a positive trend was noted in China. In 2003, the market was stable in Mexico while markets in South America continued to be weak, but with a tendency towards recovery.

General. As of December 31, 2003, Volvo was the second-largest manufacturer, by volume, of heavy buses, coaches and bus chassis (with a total weight above 12 tons) in the world. Volvo Buses' product line comprises complete buses, bus chassis and bodies for various applications such as city, intercity buses and coaches as well as related services. Priority is given to transport economy, reliability and environmental characteristics in the development of products of Volvo Buses. Buses' customers are primarily bus operators with vehicle fleets varying from a single bus up to as many as 20,000 buses.

In 2003, Buses accounted for 7% of Volvo's sales.

Strategic development. Volvo Buses' aim for 2004 is to continue implementing a comprehensive program to achieve profitability. Restructuring of the commercial and industrial operations in Europe will continue. The product program will be standardized and globalized to secure economies of scale. Focus during 2004 will also be placed on capital utilization and cash flow, primarily through reducing lead times.

Business environment.Within the OECD countries, deregulation and privatization have altered the conditions for many operators. New competitors are penetrating and establishing a foothold in previously restricted areas, and competition between operators is increasing. There is a move toward fewer and larger operators who impose high demands on good overall economics and better potential for focusing on their core operations. Significant bus markets in Europe are in a state of recession, which results in increased competition in other markets. The trend toward consolidation in the bus industry is prevailing.

Products. Volvo Buses has renewed its entire product range in less than five years. Most of the new models are based on a common product platform for intercity buses and tourist coaches. The introduction of the TX platform has provided Volvo one of the most modern product ranges in the bus industry. The product range provides efficient transport solutions and includes complete buses and chassis for city and intercity traffic as well as coaches, which meet customers' and environmental demands.

Volvo Buses offers an extended range of facilities within servicing and financing to be able to offer all-encompassing customer-tailored transport solutions with the best total economy. In 2003, an agreement was made with Renault Trucks covering the sale of Volvo buses. The French bus market is the second largest in Europe and the cooperation with Renault Trucks gives Volvo Buses access to an extensive dealer network for sales, repair, service and spare parts availability.

Production. The following table sets forth the number of buses and bus chassis produced by Volvo during each of the years 1999 through 2003:

Company Location 1999 2000 2001 2002 2003 Volvo Bus Corporation Sweden 4,745 4,975 5,405 5,968 4,898 Volvo Truck & Bus UK 971 381 0 0 0 Volvo do Brasil Brazil 782 1,169 964 691 561 Prvost Car Inc. Canada 996 1,018 518 544 404 Nova Bus Corporation Canada 1,201 1,176 807 762 352 Volvo Bus de Mexico Mexico 1,293 1,791 1,847 1,117 1,051 Volvo Poland Poland - 722 756 650 335 Volvo Peru Peru 66 12 24 0 0 Proportional method (657) (378) Nova/Prevost 1 - - (154) Total buses and bus chassis 10,054 11,244 10,167 9,063 7,223

1 From October 2001, Nova/Prvost was consolidated using the proportional method, reflecting a reduction in Volvo's ownership in those entities.

Production and capacity.During 2003 Volvo produced 7,223 (9,063 in 2002) buses and bus chassis, of which 35% were complete buses. The degree of utilization in the production system in Europe and North America decreased as an effect of the downturn in the market. In 2003, Volvo Buses decided to close the bus body plant in Aabenraa, Denmark. Some 200 employees will be affected by the closure.

Markets and Sales. Sales by Volvo Buses by principal geographic market area and operating income for the years 1999 through 2003 are set forth in the following table:

1999 2000 2001 2002 2003

(In millions of SEK)
Western Europe………………….. 5,735 6,767 6,263 6,695 6,153 Eastern Europe………………… 226 182 373 409 381 North America…………………… 6,871 7,723 6,847 3,838 2,984 South America…………………… 469 732 757 366 329 Asia……………………………….. 943 1,269 1,839 2,022 1,447 Other markets……………………. 469 514 596 705 684 Total sales……………………….. 14,713 17,187 16,675 14,035 11,978 Operating income (loss) ……… 224 440 (916) (94) (790)

The deliveries of buses from Volvo amounted to 7,817 (9,059 in 2002) units during 2003, a 14% decrease from 2002. The decline was attributable mainly to significantly lower volumes in North America, which were offset to some extent by favorable volumes in China and the Nordic countries.

Volvo CE

The total market. The world market for heavy and compact construction equipment, within Volvo CE's product range, increased by 11% during 2003. In North America the market increased by 15%, Western Europe was down 1%, while other markets were up 19%, primarily driven by strong development in China, up 60%. Eastern Europe rose 48% and Africa was up 32%.

The increase in the total market is mainly driven by heavy construction equipment, which rose 18% during the year. The North American market for heavy equipment was up 15% while the market in Europe was flat. Other markets rose by 30%.

The world market for compact equipment increased slightly in 2003, up 5% compared with the preceding year. The market in North America was up 15%, while markets in Europe were down 1%. Other markets rose by 6%.

General. Volvo CE has production facilities in Sweden, Germany, France, Poland, the US, Canada, Brazil, South Korea and China. Volvo CE's products are sold and serviced through an extensive network of independent distributors and dealers worldwide, combined with Volvo CE's own sales and marketing companies. Operations are focused on strong growth. The objective is to broaden the range of products, continue to penetrate new markets outside Europe and North America and implement programs directed at important customer segments. Services such as financing, handling of used equipment and information technology support in the sales and distribution process are also being intensively developed.

In 2003, Construction Equipment accounted for 13% of Volvo's sales.

Strategic development. Volvo CE's aim for 2004 is to capitalize on the recently launched new products and the extended product range to increase market shares. The dealer development program will continue, focusing on integrating the acquired network of former Bilia dealers in Europe and on developing and divesting the former L.B. Smith distribution network in the United States. The Rental initiative will be further developed and additional rental stores will be opened in Europe and North America. In China, the new production plant for excavators is important, since China is the fastest-growing and one of the largest markets for crawler excavators.

Business environment. The number of acquisitions in the construction equipment industry was reduced in 2003, compared with 2002. Instead, a high number of joint ventures or cooperation agreements took place, such as Caterpillar that set up a supply agreement with Blount International to expand their forestry offering. Another example is Daewoo Heavy Industries & Machinery, which agreed to supply heavy equipment for Terex in the United States. Companies such as Caterpillar, Komatsu and Mitsubishi are also focusing on China, which remains a huge market for construction equipment.

Products. Volvo CE's products, spare parts and services are offered worldwide in more than 200 countries. The products are used in a number of applications including general construction, road construction and maintenance, forestry, demolition, waste handling and mining.

Volvo CE has launched more than 40 new products on the market over the past two years. The product range comprises a comprehensive offering of excavators, wheel loaders, articulated haulers, motor graders and a range of compact wheel loaders, compact excavators, backhoe loaders and skid-steer loaders.

Services such as financing, leasing and sales of used equipment are also offered. In 2002, Volvo CE launched a franchise initiative for the rental market, Volvo CE Rents. At December 31, 2003, Volvo CE Rents had 45 stores open, most of them in North America.

Markets and Sales. Sales by Construction Equipment by principal geographic market area and operating income for the years 1999 through 2003 are set forth in the following table:

1999 2000 2001 2002 2003

(In millions of SEK)
Western Europe………………….. 9,901 10,029 10,326 10,383 11,576 Eastern Europe…………………… 193 255 341 454 772 North America…………………… 5,725 5,823 6,145 5,667 5,428 South America…………………… 498 776 847 709 636 Asia……………………………….. 1,903 2,484 2,773 3,048 3,707 Other markets……………………. 662 626 703 751 1,035 Total Sales………………………. 18,882 19.993 21,135 21,012 23,154 Operating Income………………... 1,709 1,594 527 406 908

Production and capacity. Over the past two years Volvo CE has launched more than 40 new products. The product portfolio is now in a highly competitive position. During the spring of 2003, production of excavators began in the new facilities located in the Pudong area outside Shanghai in China. The new factory ramped up production to around 1,200 machines a year. In addition, the dealer network expanded and in the beginning of 2004, there were 19 dealer partners supporting Volvo CE in China.

Volvo Penta

The total market. The world market for marine and industrial engines was relatively stable during 2003, although the situation varied considerably in different parts of the world. The demand in Europe has been relatively strong, while the total demand in North America has been weaker. An increase of the North American demand was, however, noted in the second half of 2003. Demand for industrial engines in China has continued to rise.

General. By supplying technologically advanced products focused on performance and operational reliability, and sensitivity to customer demands on effective service solutions, Volvo Penta has developed a strong position as a supplier of engines and power systems, and one of the industry's most-recognized brands. With more than 5,000 dealers in some 130 countries, Volvo Penta has a global presence.

The plant in Vara in Sweden manufactures large diesel engines. Gasoline engines and drive systems are developed and manufactured in the United States.

In 2003, Volvo Penta accounted for approximately 4% of Volvo's sales.

Business environment. Environmental issues are gaining increasing importance in the industries in which Volvo Penta is active. Environmentally, Volvo Penta is well positioned, particularly as a result of the favorable environmental characteristics of the diesel engines launched in 2003. All new engines already fulfill the comprehensive environmental standards planned for Europe and the US in 2006 and 2007. In addition, Volvo Penta's new engines also feature very low fuel consumption and noise levels.

The D12 engine contributed during the year to increased sales for Volvo Penta, among other segments to car and passenger ferries. These types of vessels are often operated in traffic in urban environments or in the vicinity of other built-up areas, which means that operators often place higher demands on exhaust emission standards than legally required. Consequently, the D12's very low emissions level has strengthened Volvo Penta's competitiveness.

In China, Volvo Penta was selected as engine supplier to a number of newly built tourist boats that will traffic one of China's large systems of inland waterways. Since the inland system represents an important reserve of fresh water the local Chinese authorities conducted a very thorough evaluation of the engine's environmental impact and fuel consumption. The choice fell on Volvo Penta's newly launched 4- and 5-liter diesel engines, the so-called workhorse engines.

Strategic development. The activity levels for new product introductions will remain high during 2004. At the same time, Volvo Penta is focusing resources in order to secure efficient customer support for the new products. The strategy to strengthen the cooperation and the integration with key customers in all business segments will continue. Volvo Penta has no intention to compete with its customers through the production of boats or generator sets.

Products. Volvo Penta offers complete power systems and service for leisure boats, workboats and industrial applications such as power-generating equipment. Volvo Penta operates within three areas of activity: Marine Leisure, Marine Commercial and Industrial.

The year 2003 was the most comprehensive product introduction period in the history of Volvo Penta and it includes the launch of the completely new generation of medium-heavy marine diesel engines, D4 at 210 hp and D6 at 310 hp. These electronic diesel engines, launched with new stern drives and specially-adapted propellers, feature a number of technical solutions that make the boats faster. In addition the engines are more powerful, cleaner and quieter than their predecessor.

The D4-210 and D6-310 are developed for leisure boats as well as commercial vessels in the sizes of about 22 to 45 feet. This is a performance diesel segment in which Volvo Penta is a market leader.

The new D3-130 and D3-160 engines, which are the marine versions of Volvo Car Corporation's successful diesel engine for passenger cars, were also launched in 2003. D3's advantages in terms of weight, noise level and fuel consumption will open new segments for Volvo Penta.

In 2003, Volvo Penta also launched the D2-75 diesel engine together with a new four-blade folding propeller for sailing yachts.

Production and capacity. All of Volvo Penta's production facilities; the diesel engine factories in Vara, Sweden, and in Wuxi, China, and the gasoline engine factory in Lexington, Tennessee, USA; were operated at full capacity in 2003. The production capacity in all of these factories was increased in order to meet the strong demand for Volvo Penta products. During 2003 the production of the new diesel engines, D4-210 and D6-310, started in Vara. The Vara plant will have parallel production of these new engines together with the 3- and 4-liter engines.

Markets and Sales. The following table sets forth Volvo Penta's sales by geographic market area and operating income (loss) for the years 1999 through 2003:

1999 2000 2001 2002 2003
(In millions of SEK)
Western Europe………………….. 2,986 3,204 3,789 3,846 4,081 Eastern Europe…………………… 26 30 38 99 108 North America…………………… 1,770 2,257 2,175 2,261 2,109 South America…………………… 134 160 213 127 146 Asia……………………………….. 692 794 988 1,141 947 Other markets……………………. 153 154 177 195 205 Total sales……………………….. 5,761 6,599 7,380 7,669 7.596 Operating income (loss) ……… 314 484 658 647 695

Volvo Aero

The total market. At the end of 2003, air traffic showed a positive trend in all regions of the world. Accumulated, however, 2003 declined compared with 2002, and it was the third consecutive year of declining air traffic.

Substantial challenges remain for the airline industry. There are positive signs from the low-cost segment, which has shown tremendous growth in the United States and Europe. It is also starting to become established in Asia. This segment continues to put pressure on the established airlines.

General. In the aerospace field, Volvo has substantial resources for the development and manufacturing of engine components and also for the aerospace aftermarket.

Operations include development and production of commercial and military aircraft engines in association with the major engine manufacturers - Pratt & Whitney, General Electric, Snecma, MTU and Rolls-Royce. Volvo Aero is also developing and manufacturing engine components for Ariane space rockets. In the aftermarket, Volvo Aero offers an extensive range of services, including sales of spare parts for aircraft engines and aircraft, sales and leasing of aircraft engines and aircraft, as well as overhaul and repair of aircraft engines.

In 2003, Volvo Aero accounted for approximately 4% of Volvo's sales from continuing operations.

Strategic Development. The aviation industry's sharp downturn necessitates continued adaptation to new conditions. Restoring profitability is the most important goal for 2004, while opportunities for increasing market shares are also created during a recession.

Accordingly, Volvo Aero aims to continue building its components business and will make strong efforts to become involved in engine programs, either as a partner or long-term supplier.

In the service sector, major efforts are being made to develop the customer offering and sign long-term contracts with airlines, partners and other customers.

Business environment. Aircraft deliveries decreased in 2003 for the second consecutive year and the production of large commercial aircraft will most likely remain on the same level in 2004. Since there is a time lag between airline profits and orders and deliveries of new aircraft, a recovery in deliveries is not expected before the end of 2005 or the beginning of 2006. A recovery in the aftermarket is expected during 2004.

Products. Volvo Aero develops and manufactures high-technology components for commercial aircraft and rocket engines. Volvo Aero also develops, manufactures and maintains military engines. Volvo Aero offers a wide range of services, including sale of parts for aircraft engines and aircraft, sale and leasing of aircraft engines and aircraft, overhaul and repair of aircraft engines, and asset management. In addition, Volvo Aero provides aftermarket services for gas-turbine engines and systems.

The company's operations are based on close cooperation with partners and on selective specialization. In 2003, overhaul contracts were signed with SAS, General Electric, MK Airlines, and Skyways Express. Partnership agreements for the manufacture of components for the GP7000 engine were signed with MTU Aero Engines. In addition, an extension of the marketing and distribution agreement for Boeing's surplus inventory for commercial aircraft, was signed with Boeing in 2003.

Production and capacity. To align operations to a lower level, Volvo Aero is reducing its workforce in Trollhttan, Sweden. As a consequence, 195 persons will leave the company, mainly during 2004.

In 2003, a contract was signed with SAS, whereby Volvo Aero became the principal supplier of engine overhaul services for SAS/Spanair's fleet of MD80 aircraft. The contract covers the period up to and including 2006. Also in 2003, Skyways Express and Volvo Aero signed an agreement whereby Volvo Aero will become Skyways' exclusive supplier of engine overhaul and equipment maintenance services for the PW125 engines. The agreement is based on a price per hour of flying time and is valid until 2005. Volvo Aero also signed overhaul contracts of JT9D engines for General Electric and the UK freight carrier MK Airlines.

An agreement was also signed with MTU Aero Engines of Germany to manufacture components for the GP 7000, an engine intended for Airbus's forthcoming A380 jumbo jet. Volvo Aero will produce the low-pressure turbine case over a 15-year period. Volvo Aero is already a partner in the Rolls-Royce Trent 900 engine program, the second engine alternative for the A380.

Volvo Aero has been a partner with General Electric since the 1980s and in 2003 Volvo Aero and GE agreed to cooperate as partners in the new LMS100 gas turbine. Volvo Aero will deliver a number of key components for the new environmentally friendly gas turbine.

Markets and Sales. The following table sets forth Volvo Aero's sales by geographic market area and operating income for the years 1999 through 2003:

1999 2000 2001 2002 2003
(In millions of SEK)
Western Europe………………….. 4,560 4,651 4,788 3,422 3,951 Eastern Europe…………………… 16 42 87 28 49 North America…………………… 4,557 5,040 5,841 4,573 3,301 South America…………………… 193 134 187 177 152 Asia………………………………... 491 701 708 497 428 Other markets…………………….. 136 145 173 140 149 Total sales………………………… 9,953 10,713 11,784 8,837 8,030 Operating income……………… 584 621 653 5 (44)

Financial Services

Financial services are a significant part of Volvo's strategy to become the world's leading provider of commercial transport solutions. The business area Volvo Financial Services (VFS) was established in 2000 to handle Group customer-financing operations, the insurance business, treasury activities and real estate operations. The aim is to focus on developing various types of financial services primarily related to Volvo's products and services.

VFS aims to fulfill the market's growing need for increasingly sophisticated financial solutions separately or combined with insurance and/or service contracts. This strengthens the competitiveness of Volvo's dealers thereby potentially enhancing the Group's growth and profitability.

Volvo's customer-financing operations cover Europe, North America, Australia, parts of South America and Asia. Customized finance programs for the Group's three truck brands - Mack, Renault and Volvo - as well as for the other Business Areas in the Group. The range of financing services includes installment contracts, financial leasing, operational leasing and dealer financing. In most markets, insurance, service and maintenance contracts are also provided for as stand-alone products or in combination with financing services.

Net sales amounted to SEK 9,153 million (SEK 9,925 million in 2002) representing 5% of Volvo's sales from continuing operations. Operating income in 2003 amounted to SEK 926 million (SEK 490 million in 2002). Return on equity (net income divided by average shareholders' equity) was 9.8% (4.8% in 2002).

Operational excellence initiatives will be pursued in 2004 to further improve efficiency and ability to care for customers. The approach will be conservative when moving into emerging markets.

Suppliers

Volvo's decision on whether to manufacture or to purchase from suppliers any particular component is made competitively on commercial terms. Although Volvo manufactures certain major components, including engines, transmissions and truck cabs, components are, to a large extent, purchased from suppliers outside of the Volvo Group. Increasingly, Volvo contracts with suppliers to manufacture an entire functional unit, such as completely finished seats, with the supplier assuming full responsibility for production to Volvo's specifications. The primary prerequisites for cooperation with suppliers are near zero-defect quality level, competitive cost, and flexible and reliable delivery performance. Volvo also considers environmental matters in its selection of suppliers.

Sources and availability of raw materials. Volvo purchases raw materials, components and parts from a number of suppliers. An interruption of supply will have an impact on Volvo's operations. The impact would vary depending on the commodity. Volvo's exposure to such interruptions is no greater than the industry as a whole. Volvo keeps contingent business interruption insurance in order to limit the losses from an interruption of supply.

Research and Development

In 2003, 2002 and 2001, research and development expenses were SEK 6,829 million, SEK 5,869 million and SEK 5,391 million, respectively. Considerable research work is devoted not only to traditional product development, but also to developing effective software and total solutions designed to improve profitability in Volvo's customer's business.

New products offering customers improved operating economy. Volvo's research and development focuses on its customers' business, environmentally adapted solutions and safety awareness. During 2003, Volvo introduced a large number of new products that offer customers improved operating economy through reduced fuel consumption, as well as a higher degree of reliability and quality. One area of priority in research involves the development of transport telematics and other software designed to improve profitability in the customer's business, which also has positive effects on the environment. In product development, all business areas and business units use a well-structured process with quality gates and milestones specifying the requirements that have to be fulfilled before a project is allowed to continue. Safety and environmental requirements are also key parameters in the process.

The focus on product quality in the development process as well as in the interface with the customer has led to improved results in customer satisfaction measurements.

Safety in focus. Safety is one of Volvo's core values and research in this field has a high priority. So-called active safety involves research pertaining to the driving and road characteristics of a vehicle, such as electronic stability systems, ABS brakes and disc brakes on heavy trucks, while passive safety is being developed in the form of safety belts, airbags and impact-resistant cabs.

An important area of safety research deals with the interplay between driver and vehicle or machine. The driver has to feel comfortable and must be able to see and reach all-important controls in order to operate the vehicle as safely and efficiently as possible. A dedicated work to integrate the Volvo safety features and concepts into the new product lines at Volvo CE demonstrates how a good workplace with easy entrance and good visibility for the operator adds to higher safety.

Future fuels and energy efficiency. Major changes regarding the use of energy sources, fuels and vehicle powertrains, are based on extensive investigations involving many different aspects and take a long time to develop. A few of the most important are possible energy supply, energy efficiency and greenhouse gas emissions, all of them in a well-to-wheel perspective.

The Volvo Group believes that DME (Di-Methyl Ether) has a very strong potential as a long term vehicle fuel, derived both from fossil and renewable sources. The Group also believes that the diesel engine will play a vital role in future drive trains, due to its inherent energy efficiency and ultra low emission potential, also together with fuels derived from renewable sources.

The focused environmental agenda defines far-reaching objectives for energy efficiency also in the production processes. The organization is now being challenged on how to achieve substantially decreased CO2 emissions in the most cost-effective way.

Patents, Trademarks and Licenses

Volvo's patents, trademarks, trade names and licenses are important to the business of each of the business areas within Volvo. Volvo owns or otherwise has rights to a substantial number of trademarks that it uses in conjunction with its business. Volvo believes that the level of protection of trademarks and other intellectual property rights used in its business is and has historically been adequate relative to its business. Volvo will use its best efforts to maintain the protection of such rights to the same extent in the future and is continuously evaluating and renewing its trademark and trade name registrations in all countries in which Volvo does any material amount of business. After the sale of Volvo Cars to Ford, the Volvo trademark is owned by Volvo Trademark Holding AB, which is jointly owned by AB Volvo and Volvo Car Corporation. The right to use the trademark Volvo has thereafter been regulated through license agreements made between Volvo Trademark Holding AB and AB Volvo and Volvo Car Corporation, respectively.

Volvo Car Corporation has the right to use the Volvo trademark for passenger cars, minivans carrying up to 10 passengers, light trucks with payload up to 1,500 kilograms, sports utility vehicles and other vehicles, but not buses or other vehicles used solely for commercial purposes, that have a gross vehicle weight of not greater than 5,400 kilograms (12,000 lbs. gross weight). AB Volvo has the right to use the trademark for trucks, buses, construction equipment, industrial and marine engines, aerospace equipment and all other products (apart from those which Volvo Car Corporation has the right to use the trademark for).

Renault VI has the right under a license agreement with the proprietor of the Renault trademark, Renault SA, to use the trademark Renault for trucks and certain other related products and services. The trademark Mack is owned by Mack Trucks Inc.

Sales by Geographical Areas

The following table sets forth the geographic distribution of the Volvo Group's net sales. Sales are shown based upon the market where the customer is located.

2001 2002 2003
Market area: (in millions of SEK)
Western Europe 97,758 97,209 100,849
Eastern Europe 6,743 7,860 8,819
North America 57,724 53,438 44,502
South America 6,469 5,070 5,080
Asia 10,887 12,693 15,819
Other markets 9,699 9,928 8,222
Total 189,280 186,198 183,291

Regulatory Matters

Environmental and Other Regulatory Matters

The corporate values of quality, safety and environmental care are present in the daily operations of the Volvo Group. Quality and environmental management systems are used in all parts of the organization as the means for addressing responsibility and objectives. The Group policies and a common network of environmental auditors monitor compliance with the Group guidelines and objectives. During 2003 the Group's business areas finalized introduction of environmental management systems in most operations. All but two production sites are now certified. Some market organizations still remain and projects are ongoing for all other operations with certification planned for 2004.

During 2002, improved energy efficiency and lower emissions were defined as the focused environmental agenda for the entire Volvo Group, and objectives for the coming tree-year period were developed.

Fuel efficiency is the main interest of all our customers, with its direct link to the operating costs of the business. Improved total fuel efficiency is also the most rewarding way to decrease carbon dioxide (CO2) emissions.

At the same time to improve ambient air quality, increasingly stricter emission regulations put pressure on the engine development to decrease mainly nitrogen oxides (NOx) and particle emissions. Unfortunately, higher fuel efficiency normally means higher emissions of NOx, a physical fact resulting from higher combustion temperatures. This balance is the challenge for all the Volvo Group business areas.

The recent product launches demonstrate how the stricter emission requirements have been met with highly competitive fuel efficiency, like the Volvo CE product lines. Volvo Penta's new medium-heavy marine diesel engines, D4-210 and D6-310, and the new D3, a future alternative to outboard engines demonstrate decreased fuel consumption combined with substantially lower emissions as well as advantages in terms of weight and noise levels. The key to this strategy is a close collaboration between engine development and each application, to ensure the right combination of engine, transmission, chassis and body. The I-shift transmission used in the Volvo Trucks is an example of this integration.

4.C. Organizational Structure

The Volvo Group's operations during 2003 were organized in eight business areas:
Volvo Trucks, Renault Trucks and Mack Trucks, Buses, Construction Equipment, Volvo Penta, Volvo Aero and Financial Services. In addition to the eight business areas, there are certain operations, consisting mainly of service companies that are designed to support the business areas' operations. In the financial reporting the business areas Volvo Trucks, Renault Trucks and Mack Trucks are reported as one segment.

Each business area except Financial Services has total responsibility for its operating income and operating capital. The Financial Services business area has responsibility for its net income and total balance sheet within certain restrictions and principles that are established centrally.

The supervision and coordination of treasury and tax matters is organized centrally to obtain the benefits of a Group wide approach. The legal structure of the Volvo Group is based on optimal handling of treasury, tax and administrative matters and, accordingly, differs from the operating structure.

See Note 2 to Volvo's consolidated financial statements for information concerning Volvo's group structure and significant subsidiaries, including the name, country of incorporation, proportion of ownership interest and, to the extent different, proportion of voting power held.

4.D. Property, Plants and Equipment

At December 31, 2003, the eight business areas of Volvo had manufacturing facilities worldwide.

Major components for the Group's products are manufactured in Sweden, including engines, power transmission systems, cabs and sheet metal components.

Trucks are assembled in Volvo-owned plants in Sweden, France, Belgium, Brazil, Malaysia, Australia, the United States and India. There are local manufacturers of Volvo trucks in Morocco, Botswana, Colombia, Iran, Tunisia, Egypt, Saudi Arabia and China.

Besides eleven plants in Europe, Volvo's bus production takes place in Poland, Sweden, Finland, Germany, Brazil, the United States, Canada, Mexico and China. Facilities for production of construction equipment are located in Sweden, Germany, France, Poland, the United States, Canada, Brazil, South Korea and China.

Volvo Penta's production facilities are in Vara, Sweden, as well as in Lexington, Tennessee, United States and Wuxi, China. The principal production facilities of Volvo Aero are located in Trollhttan, Sweden and in Kongsberg, Norway.

Spare part operations of Trucks, Buses, Construction Equipment and Marine and Industrial Engines in Europe is being coordinated through Volvo Parts' warehouses in Belgium and six support warehouses in England, France, Italy, Sweden, Finland and Spain.

The major part of the properties owned by the Volvo Group are used in the Group's own operations. A certain number of the properties owned are leased to Volvo Car Corporation. The greater part of Volvo's production facilities is owned by Volvo.

Volvo believes that the Group's principal manufacturing facilities and other significant properties are in good condition and are adequate to meet the needs of the Volvo Group.

Environmental impact from production. The Volvo Group has production sites on five continents. Maintaining environmental standards and implementing ongoing improvement programs are required at all plants, and have been followed up by regular audits since 1989. The environmental audits identify environmental risks and possible need for clean-up or other corrective actions, with a follow-up to ensure that these are promptly conducted. The Volvo Group has insurance coverage for possible accidental damage to nearby areas.

At the beginning of 2004, Volvo had a total of 48 plants for the production of trucks, buses, construction equipment, marine and industrial power systems, and aircraft engines, of which 16 are in Sweden. All the plants have the requisite permits, which in Sweden cover waste, noise and emissions to air, water and soil. Two Swedish permits are to be renewed during 2004 due to a future increase in production volume.

Consumption of energy remained at roughly the same level as in 2002 but a slight decrease can be seen in the emissions of CO2 and NOx during 2003. The total water consumption also decreased during 2003. The program to increase resource efficiency is starting to give effect also in the emission values. Although using low sulphur content fuels when possible, an increase in the use of heating oil caused an increase in sulphur dioxide emissions compared to 2002. A total increase in production volumes caused a minor increase in solvent emissions and hazardous waste.

Freight. Transport to and from Volvo's production facilities and distributors cause more substantial emissions of air pollutants than the operations at the company's production plants. In order to encourage environmental improvement measures, Volvo Logistics, the Group's procurement company for transport services, continuously assesses the environmental work of contracted transport companies according to a classification system. Every new supplier contract includes an environmental clause whereby the transport company undertakes to operate in accordance with the ISO 9000 and ISO 14001 standards.