Three months ended March 31, 1998

First three months

1998

1997

Net sales, SEK M

48,839

41,849

Operating income, SEK M

1,976

1,888

Income after financial items, SEK M

2,274

5,248

1

Net income, SEK M

1,581

4,501

1

Income per share, SEK, excluding gains on sales of shares, during most recent 12-months period, SEK

13.00

9.40

Return on shareholders' equity, excluding gains on sales of shares, %

10.3

8.8

1) Including gain of SEK 3,027 M on sales of shares in Pripps Ringnes AB.

Comment by the Chief Executive Officer

Volvo's net sales rose during the first three months of the year in all business areas and in all regions except Asia. Most pleasing is Trucks' volume growth in North America, which also contributed to a significantly improved operating income in the Trucks' business area. Operating income from the Group as a whole was virtually unchanged compared with 1997. The failure of the earnings trend to parallel volume growth, despite a favorable currency situation, is attributable mainly to increased costs in conjunction with product generation shifts within both Cars and Trucks. As previously reported, the extensive changeover process prior to introduction and production start of Cars' new model from an entirely new platform resulted in increased investments and development costs as well as temporarily weaker earnings capacity. The costs for the changeover and introduction of the new model will also be charged against Cars' earnings in the next quarter. During the first half of the year, Trucks introduces the FH concept in Brazil and another model based on this platform will be presented on the European market this summer.

Development in Japan and Southeast Asia, which resulted in significantly lower sales in several business areas, also affected the Group's profitability adversely.

As a whole, the sales growth during the first three months of the year must be considered satisfactory. However, increasingly intense competition has resulted in heavy price pressure. In order to attain a higher operating margin, work is now being intensified to further reduce costs levels.

Volvo Group, first three months 1998

Acquisitions

Scandinavia's largest bus body manufacturer, Finnish Carrus Oy, which was acquired by Volvo Buses, is included in the consolidated accounts as of first quarter of 1998. Combined with Buses acquisition of 51% of the North American bus manufacturer Nova BUS, this purchase is an important step in Volvo's growth strategy. Nova BUS is consolidated in the Group's accounts as of the second quarter of 1998.

With the aim of strengthening Trucks' operations in sales-financing, British BRS Truck Rental and Contract Hire was acquired in February this year and the company is included in Volvo's accounts from the time of purchase.

During the first quarter, Volvo Construction Equipment signed a letter of intent with Samsung Heavy Industries Ltd. of Korea in which Volvo is negotiating to acquire the main portion of Samsung's operations in the construction equipment segment. Negotiations are expected to be completed during the second quarter of 1998.

Volvo Group net sales

Net sales of the Volvo Group in the first quarter of 1998 amounted to SEK 48,839 M, up 16% compared with the year-earlier period, excluding acquired units. Also excluding currency effects, the increase was 12%. All business areas reported significant sales increases. The number of cars and trucks sold rose 8% and 33%, respectively.

The Group's sales increase was attributable mainly to Western Europe, 12%, and North America, 34%, which combined account for 85% of total sales. Growth was also very favorable in South America and Eastern Europe, although from relatively low levels. In Asia, which accounts for 6% of Volvo's sales, sales declined by 22% due to the financial crisis prevailing in the region.

Operating income increased with 5% to SEK 1,976 M (1,888). The favorable effects of higher sales volumes, partly positive currency effects and cost reduction programs offset increased costs for the changeover in conjunction with model changes, lower sales volumes in Asia and increased price pressure. The operating margin for the Group fell to 4.0% (4.5).

Income from investments in associated companies amounted to SEK 99 M (3,005). Excluding the gain of SEK 3,027 M on the sale of shares in Pripps Ringnes AB during 1997 the increase was SEK 121 M. The positive change was due primarily to an earnings improvement within the partly owned NedCar car plant in the Netherlands.

Net interest income amounted to SEK 179 M, compared with SEK 190 M in the corresponding period in the preceding year.

Other financial income and expense, resulted in an expense of SEK 59 M compared with income of SEK 108 M a year earlier and included exchange losses on financial assets of SEK 31 M, as against a year-earlier gain of SEK 136 M.

Tax expense amounted to SEK 710 M (717), corresponding to an average tax rate of 31%. Tax expense pertained mainly to current taxes in foreign subsidiaries and deferred taxes in Swedish subsidiaries.

Consolidated income statements, SEK M

First three months

1998

1997

Net sales

48,839

41,849

Cost of sales

(37,015)

(32,324)

Gross income

11,824

9,525

Research and development expenses

(2,372)

(2,062)

Selling expenses

(4,385)

(3,681)

Administrative expenses

(1,754)

(1,686)

Other operating income and expenses

(1,337)

(208)

Operating income

1,976

1,888

Income from investments in associated companies

99

3,005

Income from other investments

79

57

Interest income and similar credits

427

993

Interest expenses and similar charges

(248)

(803)

Other financial income and expenses

(59)

108

Income after financial items

2,274

5,248

Taxes

(710)

(717)

Minority interests

17

(30)

Net income

1,581

4,501

First three months

Gross and operating margin, %

1998

1997

Gross margin

24.2

22.8

Research and development expenses in % of net sales

4.9

4.9

Selling expenses in % of net sales

9.0

8.8

Administrative expenses in % of net sales

3.6

4.0

Operating margin

4.0

4.5

Financial position

Consolidated balance sheets, SEK M

Volvo Group excl sales financing*

Sales financing

Total

980331

971231

980331

971231

980331

971231

Assets

Intangible assets

3,350

3,262

82

22

3,432

3,284

Tangible assets

32,787

32,043

14,128

12,251

46,915

44,294

Financial assets

13,426

14,233

16,291

14,508

24,995

24,527

Inventories

29,196

27,756

164

237

29,360

27,993

Short-term receivables

27,364

23,553

20,903

19,041

48,267

42,594

Marketable securities

14,530

10,930

31

32

14,561

10,962

Cash and bank accounts

7,049

8,807

668

834

7,717

9,641

Total assets

127,702

120,584

52,267

46,925

175,247

163,295

Shareholders' equity and liabilities

Shareholders' equity

61,951

60,431

4,722

4,214

61,951

60,431

Minority interests

916

859

41

40

957

899

Provisions

21,760

21,534

1,449

1,419

23,209

22,953

Loans

5,463

2,096

43,978

39,121

49,441

41,217

Other liabilities

37,612

35,664

2,077

2,131

39,689

37,795

Shareholders' equity and liabilities

127,702

120,584

52,267

46,925

175,247

163,295

* Sales-finance operations are reported in accordance with the equity method. Internal
receivables and liabilities related to the sales-finance operations are excluded.

The Group's total assets rose during the first quarter of 1998 by SEK 12.0 billion, of which the continued expansion in sales financing accounted for SEK 5.5 billion. Current receivables, mainly accounts receivables, rose by SEK 3.8 billion due mainly to higher sales. Inventories rose by SEK 1.4 billion, which is attributable to all business areas except Cars, where the production stop at the Torslanda plant prior to the model change resulted in lower inventories. Exchange rate movements reduced total assets by SEK 0.4 billion.

Capital expenditures for property, plant and equipment amounted to SEK 1.9 billion (2.0), of which a significant portion pertained to investments in type-specific tools within Cars in conjunction with the introduction of new models. Investments in leasing assets amounted to SEK 3.2 billion (0.7).

The Group's net financial assets, which is calculated excluding sales-financing operations, amounted to SEK 17.8 billion, a decrease of SEK 1.3 billion. The change was due mainly to the acquisition of Carrus Oy and Nova BUS, SEK 0.8 billion.

Shareholders' equity rose by SEK 1.5 billion as a result of the net profit for the period. Shareholders' equity and minority interests were equal to 35.9% of total assets (37.6% at December 31, 1997).

Cash flow analysis, SEK billions

Volvo Group excl sales financing

Sales financing

Total

Net income

1.5

0.1

1.6

Depreciation and other noncash-related items

1.8

0.6

2.4

Change in operating capital and deferred tax liabilities

(1.4)

(2.0)

(3.4)

Cash flow from operations

1.9

(1.3)

0.6

Capital expenditures

(1.9)

-

(1.9)

Investments in leasing assets

(0.3)

(2.9)

(3.2)

Disposals

0.2

0.4

0.6

Long-term receivables, net

0.8

(1.9)

(1.1)

Acquisitions and sales of companies

(0.8)

-

(0.8)

Remaining after net investments

(0.1)

(5.7)

(5.8)

Increase in loans

7.6

Change in liquid funds, excluding translation differences

1.8

Translation differences in liquid funds

(0.1)

Change in liquid funds

1.7

In the cash flow analysis, the effects of major acquisitions and divestments of subsidiaries have been excluded from other changes in the balance sheet. The effects of changes in foreign exchange rates at translation of foreign subsidiaries have been excluded, since they do not affect cash flow.

Key ratios

April 1997-
March 1998

Jan-Dec
1997

Return on shareholders equity, %

12.5

17.4

Return on shareholders' equity excluding gain on sales of shares, %

10.3

10.4

Income per share, SEK

16.80

22.90

Income per share, excluding gain on sales of shares, SEK

13.00

12.70

Shareholders' equity and minority interests as percentage of total assets

35.9

37.6

Shareholders' equity and minority interests excluding sales financing, as percentage of total assets

49.2

50.8

Net financial assets, SEK billion

17.8

19.1

Net financial assets as percentage of shareholders' equity and minority interests

28.3

31.2

Net sales and operating income by business area

Cars

Net sales for Cars rose 11%, from SEK 23,068 M to SEK 25,546 M, compared with the year-earlier period. The number of cars invoiced increased by 8%, of which the medium-size cars Volvo S40 and V40 accounted for most of the increase. Production of the Volvo 940, S90 and V90 ceased during the period.

The number of Volvo passenger cars registered in Europe rose in most markets, while the market share declined somewhat in Europe as a whole, mainly in the large car segment. The demand for the Volvo S40 and V40 was high in Germany, Italy, Belgium, France and Switzerland, while the larger cars posted a weak decline at the end of the period. Germany was Volvo's third largest market, with 10,770 (10,000) registered cars, of which slightly more than 50% were Volvo S40s and V40s. Volvo's sales declined in Great Britain. Volvo's sales in the Swedish market were at the same level as a year earlier. The trend was positive for the Volvo S40 and V40, while the large cars declined somewhat.

In North America, a continued strong sales trend was noted and the market share rose in an otherwise declining market. The share of station wagons increased and every fifth Volvo car sold in the U.S. featured four-wheel drive.

In the Japanese market, which continued to show weak demand, the Volvo S40 and V40 posted a positive sales trend. Nevertheless, Volvo's total sales declined, although less than other imported makes. Demand remained low in Southeast Asia.

Volvo S40 and V40 was cited by Motor Magazine as the import car of the year in Japan.

The Volvo S40 and V40 1.8i versions with direct-injected gasoline engines, which reduce fuel consumption, were introduced at the auto show in Geneva in March.

Operating income amounted to SEK 915 M (1,068). Income was affected favorably by increased volume, positive currency effects and cost-reduction programs. Reduced sales volumes in Japan and Southeast Asia affected income adversely. This, combined with increased costs for product development, changeover of production in the Torslanda plant to a new car model and higher selling costs in North America resulted in operating income declining somewhat compared with the year-earlier period. The operating margin was 3.6% (4.6).

Trucks

The total market for heavy trucks in Europe and North America strengthened further during the first quarter of the year. Demand remained at a high level in Brazil, while Asia continued to weaken. The world market for heavy trucks in 1998 is forecast to be somewhat weaker than in the preceding year.

During the first quarter, Volvo delivered 19,300 medium-heavy and heavy trucks, a 33% increase compared with the corresponding period in 1997. Deliveries in Europe rose 22% and in North America by 50%. In South America, deliveries were up 50%.

Volvo's market share at the end of February in the heavy class in Europe was 16.1% (16.7) and in Class 8 in the U.S. up to and including March 10.7% (9.2). The market share in Brazil was 25.1% (23.5).

The order backlog at the end of the period was 68% higher than on the same date a year earlier. The order backlog increased 25% since year-end 1997.

Operating income for the first quarter amounted to SEK 636 M (304). The improvement was due to significantly increased deliveries and improved margins in North America. The operating margin was 4.4% (2.8).

Buses

Volvo's bus operations reported net sales of SEK 2,352 M (2,341) for the first three months of 1998. The number of delivered buses and bus chassis declined somewhat to 1,790 units (1,840) for the period, of which the number of complete buses rose, however, by 24% to 410 units (330). Operating income declined to SEK 75 M (87), due partly to a very difficult winter period for the Canadian production. Operating margin declined to 3.2% (3.7).

Order bookings were somewhat higher in the first quarter this year and amounted to 2,290 units (2,260).

The acquisition of Nova BUS, the leading producer of city buses in the U.S. and Canada, was formally completed during the period. Operations will be included in the Group's financial reporting as of the second quarter 1998.

Construction equipment

Demand in important markets in Europe and in North America was higher during the first quarter of 1998 than in the corresponding period a year earlier, while markets in Asia posted a considerable decline.

Net sales increased to SEK 4,142 M (3,688). Most of the increase was attributable to markets in Europe and North America, while sales declined in Asia.

The positive effects of the volume increase did not fully offset the provisions incurred during the period regarding a product liability issue in North America and operating income declined to SEK 297 M (309) compared with the same period the preceding year. Operating margin was 7.2% (8.4).

Marine and industrial engines

Net sales in Marine and industrial engines increased 13% compared with a year earlier. Sales of marine engines rose in Europe as well as North America. Industrial engines sales also increased strongly in Europe, while sales to the Far East were lower than in the preceding year.

Higher marketing costs and higher expenses for start-up and integration of spare parts operations reduced operating income to SEK 25 M (50) and the operating margin declined to 2.2% (4.9).

Aero

Volvo Aero and BTM Capital formed together with their subsidiaries, AGES and Engine Lease Finance, a new company, Aviation Lease Finance. The new company's operations are leasing of aircraft engine medium- and long-term. Volvo Aero and AGES combined own 49% of the shares in Aviation Lease Finance. In addition, Volvo Aero acquired an interest in Engine Lease Finance and BTM Capital an interest in AGES. BTM Capital is a subsidiary of the Bank of Tokyo-Mitsubishi.

Operating income amounted to SEK 94 M (119). Operating margin fell to 4.8% (7.9). Earnings were affected by increased development costs.

Sales financing

Sales financing operations expanded, mainly within Trucks and Cars. Net sales rose to SEK 2,023 M (1,276).

Operating income of the sales-financing operations, SEK 99 M (33), was charged with the initial costs incurred in new markets and build-up of credit and residual value provisions. Net income was SEK 68 M (40).

Total assets within the Group's sales-financing amounted to SEK 52,267 M, an increase of 11% since year-end 1997. The increase is attributable primarily to strong growth in the North American market for Trucks.

Employees

The number of employees in the Volvo Group increased since year-end by 1,250 to 74,150. The acquisition of BRS Truck Rental and Carrus Oy increased the number of employees by 790.

The interim report for the six months ended June 30, 1998 will be released on July 16, 1998.

Göteborg, April 22, 1998

Net sales, SEK M

First three months
1998

First three months
1997

Change
in %¹

Apr 1997-
March 1998

Jan-Dec 1997

Cars

25,546

23,068

+11

98,931

96,453

Trucks

14,419

10,937

+31

54,322

50,840

Buses

2,352

2,341

(5)

10,593

10,582

Construction equipment

4,142

3,688

+11

17,212

16,758

Marine and industrial engines

1,142

1,015

+13

4,593

4,466

Aero

1,964

1,507

+30

7,933

7,476

Other and eliminations ²

(726)

(707)

-

(2,969)

(2,950)

Volvo Group total

48,839

41,849

+16

190,615

183,625

1 Excluding divested and acquired units.
2 Including operations being divested of SEK 0, 16, 65 and 66 M respectively.

Operating income, SEK M

First three months
1998

First three months
1997

Apr 1997-
March 1998

Jan-Dec 1997

Cars

915

1,068

4,357

4,510

Trucks

636

304

2,144

1,812

Buses

75

87

538

550

Construction equipment

297

309

1,432

1,444

Marine and industrial engines

25

50

156

181

Aero

94

119

447

472

Other and eliminations ¹

(66)

(49)

(568)

(551)

Volvo Group total

1,976

1,888

8,506

8,418

Operating margin, %

First three months
1998

First three months
1997

Cars

3.5

4.6

Trucks

4.4

2.8

Buses

3.2

3.7

Construction equipment

7.2

8.4

Marine and industrial engines

2.2

4.9

Aero

4.8

7.9

Volvo Group total

4.0

4.5

Volvo Group quarterly figures,
SEK M unless otherwise specified

1/1997

2/1997

3/1997

4/1997

1/1998

Net sales

41,849

47,175

41,924

52,677

48,839

Cost of sales

(32,324)

(35,649)

(31,330)

(39,687)

(37,015)

Gross income

9,525

11,526

10,594

12,990

11,824

Research and development expenses

(2,062)

(2,427)

(2,000)

(2,170)

(2,372)

Selling expenses

(3,681)

(4,201)

(3,914)

(5,364)

(4,385)

Administrative expenses

(1,686)

(1,773)

(1,788)

(1,771)

(1,754)

Other operating income and expenses

(208)

(1,065)

(1,065)

(1,042)

(1,337)

Operating income

1,888

2,060

1,827

2,643

1,976

Income from investments in associated companies

3,005

75

85

(236)

99

Income from other investments

57

277

845

(11)

79

Interest income and similar credits

993

1,035

929

529

427

Interest expenses and similar charges

(803)

(710)

(785)

(450)

(248)

Other financial income and expenses

108

(40)

(125)

(20)

(59)

Income after financial items

5,248

2,697

2,776

2,455

2,274

Taxes

(717)

(688)

22

(1,322)

(710)

Minority interests

(30)

(48)

(7)

(27)

17

Net income

4,501

1,961

2,791

1,106

1,581

Depreciations included above

1,670

1,539

1,557

2,030

1,933

Income per share, SEK

9.70

4.20

6.40

2.60

3.60

Average number of shares, millions

463,6

463,6

441,5

441,5

441,5

Definitions of key ratios

Income per share is calculated as net income divided by the weighted average number of shares outstanding during the period.
Return on shareholders' equity is calculated as net income divided by average shareholders' equity.
Net financial assets/net debt is calculated as liquid funds, short-term receivables and long-term interest-bearing receivables reduced by short-term and long-term interest-bearing liabilities. Net debt does not include net debt in Volvo's sales finance companies, since interest expense in these companies is charged against operating income and does not affect consolidated net interest expense.
Operating margin is calculated as operating income divided by net sales.

Volvo car sales, number of units invoiced

First three months
1998

First three months
1997

Change in %

Apr 1997- March 1998

Jan-Dec 1997

Europe

63,540

58,980

+8

244,520

239,960

Western Europe

61,860

57,630

+7

238,280

234,050

Eastern Europe

1,680

1,350

+24

6,240

5,910

North America

28,710

23,420

+23

107,270

101,980

South America

380

530

(28)

2,130

2,280

Asia

8,060

10,390

(22)

33,840

36,170

Other markets

1,620

1,150

+41

6,520

6,050

Total Volvo cars sold

102,310

94,470

+8

394,280

386,440

Renault cars

7,930

7,020

+13

30,540

29,630

Total cars

110,240

101,490

+9

424,820

416,070

By series

Volvo S90/V90

6,840

7,710

(11)

27,420

28,290

Volvo 940

5,430

9,290

(42)

35,590

39,450

Volvo S70/V70

52,200

52,120

0

203,750

203,670

Volvo S40/V40

36,320

25,350

+43

125,120

114,150

Volvo C70

1,520

-

-

2,400

880

Total

102,310

94,470

+8

394,280

386,440

Volvo truck sales

Europe

9,250

7,590

+22

36,120

34,460

Western Europe

8,350

6,850

+22

32,520

31,030

Eastern Europe

900

740

+22

3,600

3,430

North America

6,700

4,480

+50

23,120

20,900

South America

1,860

1,240

+50

7,600

6,970

Asia

1,020

860

+19

4,870

4,710

Other markets

470

300

+57

2,100

1,940

Total Volvo trucks sold

19,300

14,470

+33

73,810

68,980

Volvo bus/bus chassis sales

Europe

870

910

(4)

4,160

4,190

North America

130

180

(28)

930

1,110

South America

410

280

+46

1,550

1,350

Asia

350

290

+21

1,470

1,410

Other markets

30

180

(83)

570

670

Total buses sold

1,790

1,840

(3)

8,680

8,730

As of the fourth quarter, 1997, the Volvo Group's reporting is by market area in accordance with new geographical definitions based on ISO standards. Reporting in prior periods has been adjusted to reflect the new principle.