ANNUAL REPORT

BILIA

ANNUAL REPORT

2009

Contents

Directors’ Report 1

Consolidated Statement of Comprehensive Income 7 Consolidated Statement of Financial Position 9 Consolidated Statement of Changes in Equity 11

Consolidated Statement of Cash Flows 12

Notes to the consolidated fi nancial statements 13

Income Statement for Parent Company 54

Statement of Comprehensive Income for Parent Company 54

Balance Sheet for Parent Company 55

Statement of Changes in Equity for Parent Company 57

Cash Flow Statement for Parent Company 58

Notes to the Parent Company fi nancial statements 59

Signatures 70

Audit Report 71

Five-year review 72

Defi nitions 74

The Bilia share 75

Board of Directors 78

Corporate Governance Report 80

Management 83

Information on Annual General Meeting 84

Articles of Association 84

This information has been furnished in accordance

with the Securities Market Act on 23 March 2010.

Directors’ Report

Group and Parent Company

The Board of Directors and Managing Director of Bilia AB (publ), Corp. ID no. 556112-5690, hereby submit their annual report and consolidated fi nancial statements for fi nancial year 2009.

Operations – general

Bilia is Scandinavia’s largest car chain, with a leading position in servicing and sales of cars and transport vehicles plus sup- plementary services. The Group has 96 facilities in Sweden, Norway and Denmark plus an online auction site in Sweden, Netbil.

Bilia’s vision is to be the best service company in the busi- ness with the goal of having the most satisfi ed customers in our showrooms, our stores and our workshops. The customer should fi nd dealing with Bilia a pleasant experience. Bilia has a well-developed range of services and products in the Service Business, which includes workshop services, spare parts, store sales and fuel sales. Bilia is constantly developing new services and service concepts to simplify car ownership for our custom- ers. Our Vehicle Business includes sales of new and used cars, transport vehicles, customer fi nancing and supplementary ser vices. Bilia sells cars from Volvo, Renault, Ford, Hyundai, Nissan, Honda, BMW and Mini as well as transport vehicles from Renault, Ford, Hyundai and Nissan. Land Rover was dropped from the range in 2009.

The Bilia share

The total number of shares in the company is 25,293,574.

All issued shares are of Series A. It is also possible to issue B shares according to the Articles of Association, but this has not been done. All issued shares have equal rights in the company and are entitled to one vote at the Annual General Meeting (AGM). Bilia’s shares are listed on NASDAQ OMX Stockholm and can be transferred freely there, subject to the rules of the exchange.

Bilia has no knowledge of any shareholders’ agreements between Bilia’s shareholders.

There are no special rules in the Articles of Association concerning amendment of the same or appointment/dismissal of Board members. The 2009 AGM authorised the Board of Directors to buy back Bilia shares equivalent to no more than 10 per cent of the total number of shares.

In the event of signifi cant changes in the company’s owner- ship structure that affect the conditions or content of their jobs, the MD and the Chief Financial Offi cer of Bilia AB, plus 6 top executives in the subsidiaries, are entitled to terminate their own employment and receive 24 months’ salary, less any salary received by the employee from other service during the past 12 months. The same right to compensation also exists in the event of termination by the company. Bilia’s service and distribution agreements all contain clauses entailing that the agreement will be terminated if the company is transferred to a new owner who is not an authorised dealer or workshop for the same brand. However, the clauses cannot be applied as long as Bilia is listed on the stock exchange.

Key fi gures

Group 2009 2008 2007

Net turnover, SEK M 13,700 14,280 15,402

Operating profi t/loss, excluding items affecting comparability, SEK M 206 –16 177

Operating margin, excluding items affecting comparability, % 1.5 –0.1 1.2

Operating profi t/loss, SEK M 146 –57 169

Profi t/loss before tax, SEK M 116 –139 150

Net profi t/loss for the year, SEK M 114 –110 100

Return on capital employed, % 8.2 –0.6 7.8

Return on equity, % 8.6 –8.0 6.3

Net debt/equity, times 0.15 0.67 0.81

Cash fl ow from operating activities, SEK M 522 383 –305

Equity/assets ratio, % 30 23 21

Earnings/loss per share, SEK 5.45 –5.35 4.75

Equity per share, SEK 59 60 74

Number of employees, 31 December 3,290 3,553 3,961

Notable events during the year

• The outcome of the new issue, which was concluded in Janu- ary 2009, was to bring in an additional SEK 13 M SEK, a total of 100 M, to Bilia before issue expenses of SEK 6 M. The issue related to subordinated debentures in an amount of SEK 100 M and an associated issue of 5,000,000 warrants. The war- rants entitle holders to subscribe for an equal number of Se- ries A Bilia shares for SEK 20 each. During the year, 3,834,319 warrants were exercised to subscribe for new shares, resulting in a new issue of SEK 77 M.

• Bilia concluded an agreement with BMW Sverige AB to acquire BMW’s dealership in the Gothenburg area. The operation has been a part of Bilia since 16 May 2009.

• The long-standing dispute between Bilia’s subsidiary Säfveån AB (formerly AB Probo) and the litigation company Pacta was resolved when the parties agreed on a settlement. The settle- ment entails a cost for Säfveån of SEK 23 M.

Sales and earnings

Net turnover amounted to SEK 13,700 M (14,280). For compa- rable operations and adjusted for exchange rate changes, net turnover decreased by about SEK 1,343 M or 9 per cent. The decrease is mainly attributable to lower sales of new cars.

Operating profit amounted to SEK 146 M (loss: 57). Items affecting comparability reduced earnings by SEK 60 M (reduc- tion: 41). If items affecting comparability are excluded, operat- ing profit amounted to SEK 206 M (loss: 16). The underlying costs have declined by about SEK 195 M, which is the main explanation for the earnings improvement. An increased mar- gin and slightly higher sales of used cars have also contributed to the earnings improvement.

Items affecting comparability amounted to SEK –60 M (–41) and consist of SEK –35 M (–124) in costs for action programmes and SEK –25 M (–12) in costs for disputes. This year’s costs for disputes include a settlement cost of SEK –23 M in the Pacta dispute. Last year’s earnings include costs of SEK –29 M for impairment losses and gains of SEK 124 M from property sales.

Net financial items amounted to SEK –30 M (–82). Last year’s earnings include costs for the signing of a new bank agreement and issue expenses amounting to SEK 16 M. The remaining improvement is mainly attributable to lower net debt. The net figure includes a profit share of SEK 18 M (22) from the indirect shareholding in Volvofinans Bank AB.

Tax for the year amounted to SEK –2 M (28). Tax was affected by a revaluation of tax-loss carryforwards, which resulted in a net increase of SEK 24 M in the deferred tax asset (decrease:

45).

Net profit for the year was SEK 114 M (loss: 110) and earnings per share SEK 5.45 (LPS: 5.35). Exchange rate changes reduced the profit by SEK 4 M.

Directors’ Report cont’d.

Performance analysis, Group

Group, SEK M 2009 2008

Operating profit/loss, excluding

items affecting comparability 206 –16 Items affecting comparability

Gain from sale of property — 124

Structural costs etc. –35 –124

Impairment losses — –29

Disputes –25 –12

Operating profit/loss 146 –57

Profit/loss before tax excluding

items affecting comparability 176 –84 Items affecting comparability

Gain from sale of property/shares — 126

Structural costs etc. –35 –124

Impairment losses — –29

Disputes –25 –12

New bank agreement, issue expenses etc. — –16

Profit/loss before tax 116 –139

Cars divided into Service and Vehicle Businesses

Service and Vehicle Businesses

Net turnover, SEK M

Operating profit/loss, SEK M Operating margin, %

2009 2008 2007 2009 2008 2007 2009 2008 2007

Service Business

4,769 4,940 4,792 289 251 234 6.1 5.1 4.9

Vehicle Business

9,479 9,982 11,388 –37 –225 –6 –0.4 –2.2 –0.1

Deliveries Order backlog

2009 2008 2007 2009 2008 2007

Sweden 17,899 18,690 23,336 3,220 1,330 2,991

Norway 4,627 5,906 6,459 799 473 1,231

Denmark 3,103 4,749 6,719 202 171 514

Total 25,629 29,345 36,514 4,221 1,974 4,736

1)

Service includes workshop services, spare parts, accessories and fuel in the car operation. The Vehicle Business includes sales of new and used vehicles and customer financing.

2)

Net turnover does not include eliminations for internal sales.

Share of Cars’

net turnover, % Share of Cars’

employees, % Growth, Service, % Growth, Vehicles, %

History of car sales

in Sweden, Norway and Denmark Cars

Number of new vehicles

Service, 33 (33) Vehicles, 67 (67)

Service, 82 (80) Vehicles, 18 (20)

Key figures Net turnover, SEK M Operating profit/loss, SEK M Operating margin, %

Return on operational capital employed, %

2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007

Sweden 8,357 8,775 9,774 241 103 220 2.9 1.2 2.3 29.1 7.7 21.7

Norway 3,926 3,803 3,548 49 –28 15 1.3 –0.7 0.4 11.3 –3.6 2.3

Denmark 1,411 1,687 2,065 –38 –49 –7 –2.7 –2.9 –0.3 –11.2 –10.7 –2.6

Total 13,694 14,265 15,387 252 26 228 1.8 0.2 1.5 15.8 0.3 12.2

New cars

Sweden Norway Denmark

07 08 09 –5

0 5 10 15 20 25

07 08 09 –15

–10 –5 10 15 20 25 0 5

0 100,000 200,000 300,000 400,000

97 98 99 00 01 02 03 04 05 06 07 08 09

Investments and disposals

Net investments and disposals amounted to SEK –103 M (49).

Replacement investments represented SEK 20 M (39), expan- sion investments SEK 17 M (54), environmental investments SEK 1 M (5) and investments in new construction and additions to properties SEK 10 M (14). Net investments in leased vehicles and finance leases amounted to SEK –151 M (–63).

Financial position

Total assets decreased by SEK 697 M during the year to SEK 4,717 M (5,414). The decrease is mainly attributable to lower inventories and leased vehicles.

Cash flow from operating activities amounted to SEK 522 M (383). Cash flow after net investments amounted to SEK 585 M (581). Net debt decreased by SEK 606 M to SEK 214 M.

Equity amounted to SEK 1,425 M (1,229).

The equity/assets ratio amounted to 30 per cent (23) at the end of the year.

Personnel

Skilled and motivated employees who are prepared to develop and step in when needed are a prerequisite for keeping Bilia’s customers satisfied and loyal, which is crucial for Bilia’s con- tinued success.

The basis for the professional development of the employees is the performance appraisal interview they have at least once a year with their immediate superior. The point of departure for the employee interview is the individual’s knowledge, skills and needs. Together, the employee and his superior arrive at a plan that will promote personal development, job satisfaction and efficiency in the day-to-day work.

Bilia Academy is the name of the Group’s internal train- ing unit, which was started in 2001. Bilia Academy conducts regular surveys of the training need. Tailored trainings are then put together aimed at target groups with different duties in Bilia. The training is aimed at enhancing competencies within specific areas, strengthening the corporate culture with Bilia’s vision and core values, and at the same time contributing to an experience exchange and a broadened contact network for Bilia’s employees.

Bilia works continuously to improve the working environment at the Group’s facilities. A good working environment is a pre- requisite for healthy, happy and motivated employees.

The ambition in the workshops is to create environments that are light, airy, clean and quiet.

The average number of employees in the Group during the year amounted to 3,038 (3,304), of whom 1,884 (2,026) work in Sweden. The number of employees at 31 December 2009 was 3,290 (3,553).

Directors’ Report cont’d.

Goals and goal fulfilment

Operating Return Return

margin, % on capital on equity, % employed, %

Financial goals

Bilia’s overall financial objectives are to achieve:

• an operating margin of at least 2.2 per cent

• a return on capital employed of at least 14 per cent

• a return on equity of at least 15 per cent.

Key figures 2009 2008 2007

Average number of employees 3,038 3,304 3,536 Turnover per average number

of employees, SEK ‘000 4,510 4,322 4,356 Value added per average number

of employees, SEK ‘000 671 569 577

Profit/loss before tax per average

number of employees, SEK ‘000 38 –42 42

Average age 41 42 42

Sales, 17 (18) Workshop, 59 (58) Spare parts, 15 (16) Administration, 9 (8)

<29 years, 25 (21) 30–49 years, 47 (49) 50–60 years, 21 (22)

≥61 years, 7 (8) Sweden, 64 (63)

Norway, 24 (23) Denmark, 12 (14)

Personnel

Distribution Distribution Age structure, of employees of employees number of by function, % by country, % employees, %

07 08 09 –10

–5 0 5 10

15 Goal,

14 %

07 08 09 –10

–5 0 5 10

15 Goal,

15 %

07 08 09 –1

0 1 2 3 4

Goal, 2.2 %

Guidelines for remuneration to senior officers

A fee decided on by the Annual General Meeting is paid to the Chairman and members of the Board.

The AGM for 2009 has decided on the following guidelines for compensation to the management.

Remuneration to the Managing Director and other senior officers consists of basic salary, variable remuneration, other benefits and pension. By “other senior officers” is meant the four persons who, together with the Managing Director, make up the Group Management. For the composition of the Group Management, see Note 9, “Employees, personnel costs and remuneration for senior officers”.

The distribution between basic salary and variable salary

should be commensurate with the individual’s powers and

responsibilities. The Managing Director’s variable remunera-

tion may not exceed 52 per cent of his basic salary. The variable

remuneration of other senior officers may not exceed 43 per

cent of their basic salary. The variable remuneration is based on

performance goals and individual goals.

Premium-based pension benefits and other benefits for the Managing Director and other senior officers are payable as a part of the total remuneration.

The Board of Directors will propose to the 2010 AGM that the above compensation principles should apply up to the 2011 AGM.

Risks

Bilia’s business operations are associated with risks. Bilia can influence certain factors, while others are beyond the Group’s control. But the ambition is to identify threats and possibilities at an early stage so that steps can be taken quickly to avoid problems.

Market trend

Demand for Bilia’s products and services is influenced by fluc- tuations in the business cycle. In recessionary periods, some customers choose to put off their car purchases. Factors that influence the market trend include the labour market situa- tion, stock market performance, the ability of the customers to obtain financing, interest rates and fuel prices. The positioning of Bilia as a service company stabilises earnings. Collaboration with Volvofinans Bank AB and similar car financing companies is positive for Bilia and stabilises earnings, since a portion of the financial profit is realised over several years. The Service Busi- ness is less cyclical than the Vehicle Business, since cars require service and repairs regardless of the state of the economy.

However, a deep recession will also affect the Service Business to some extent.

Representation

Bilia’s core business consists of distribution and servicing of cars and transport vehicles in Sweden, Norway and Denmark.

Contractual terms with the manufacturers who have author- ised Bilia as their representative are based on the EU’s Block Exemption for the motor vehicle industry and equivalent national regulations. The current rules, which entered into force on 1 October 2003, are aimed at putting the consumer first and encouraging greater competition in the distribution and aftermarket segment. This has been favourable for Bilia, which has, within the framework of applicable agreements with the manufacturers, systematically looked for ways to exploit its size and strong market position to gain business advantages, for example in connection with purchasing and by seeking multi-brand representation. In 2008, the European Commission initiated an evaluation of the market effects of the current Block Exemption. In December 2009, the Commission presented a proposal to the effect that the portion of the Block Exemption that regulates new car sales be extended to May 2013 and the portion of the Block Exemption that regulates the aftermarket be replaced with a new Block Exemption effective from 1 June 2010. Changes in the regulatory framework could lead to changes in the competitive situation for Bilia. There is always a risk that a manufacturer or a general agent will decide to revoke the authorisation and cancel the agreements, or, in the prevailing tough market situation, even become insolvent, creating uncertainties on the market.

Competitiveness of the products

Bilia is dependent on the ability of the Group’s business partners to develop competitive products. Volvo, the single most important business partner for Bilia, will launch new S60 and V60 models in 2010. All suppliers have developed and will

develop new products with an environmental profile and fuel- efficient engines. Volvo has launched a new series of green cars designated DRIVe. The cars feature both low emissions and low fuel consumption. The V70 DRIVe was introduced in 2009, and a gas-powered V70 is being launched at the beginning of 2010.

Ford has been well established with ethanol-powered models and is now also introducing the fuel-efficient ECOnetic models.

Renault is focusing on electric cars, and Bilia expects to be able to start selling both cars and transport vehicles that are fully electric-powered in 2011. Sales will start in Denmark. The new Mégane has been well received.

Hyundai has changed its model range rapidly, and Bilia now has a good range of green cars from this manufacturer as well.

The new ix35, a little SUV, will come out in the spring.

BMW’s EfficientDynamics range has attracted great atten- tion, and BMW has succeeded in combining a premium brand strategy with an environmental profile. New X1 and 5 GT mod- els were launched in 2009. In 2010, a brand new 5 series will be launched with sedan models in the spring and touring models in the autumn.

Development of own services

To maintain and strengthen its competitiveness, Bilia must develop services that appeal to the customers. Bilia’s ability to develop new services also helps strengthen the suppliers’

brands. This development work requires resources. Bilia is confident that the Group has the size, structure and financial strength that are required to remain in the forefront of service development.

Key persons

In order to continue developing as a service company and thereby achieve growth and profitability, Bilia must be able to attract and develop skilled employees, both management and other staff. Bilia is an employer that encourages personal advancement by offering employees interesting work duties, individualised training programmes, bonus programmes and personal involvement in the development of the Group. There is no guarantee that Bilia will succeed in the future in recruit- ing or keeping the people they need to run and develop the company.

For financial risks see Note 30 “Financial risks and risk man- agement”.

Environment

Bilia’s environmental policy states that the Group’s services and products should have as little impact on nature as pos- sible and thereby contribute to sustainable development. The environmental work should be pursued within the framework of the business concept and be governed by a holistic approach in which technology, economics and ecology are weighed together.

Waste separation is another priority. Environmentally hazard- ous waste is managed in accordance with carefully planned procedures. Bilia also has systems, both proprietary and developed together with its partners, for managing and re- cycling waste from service and residual products from repairs.

Bilia’s employees are given training in environmental issues and receive environmental information regularly. All of Bilia’s facili- ties are environmentally certified to ISO 14001.

A study was initiated during the financial year to analyse

Bilia’s operations and the climate impact of its products.

The Group conducts activities that are subject to notification in accordance with the Environmental Code. In Sweden, 43 facilities are obligated to submit notification to the authorities due to petrol sales where no emissions may occur, 11 car washes due to effluents, and 17 facilities due to solvent emissions to the atmosphere. The biggest car washes carry the Nordic Ecolabel (the Swan). Activities requiring notification represent a small portion of Bilia’s total operations.

Share issues

At 31 December 2008, the new issue had brought in SEK 87 M to Bilia before issue expenses. The new issue, which was concluded in January 2009, brought in an additional SEK 13 M to Bilia, for a total of SEK 100 M, before issue expenses of SEK 6 M, by the issuance of subordinated debentures in an amount of SEK 100 M and an associated issue of 5,000,000 warrants entitling the bearer to subscribe for an equal number of Series A Bilia shares at SEK 20 per share. For further information see Note 1, “Key accounting principles”, page 17. Notification of subscription of shares can be made up to and including 5 January 2016. If the warrants are fully exercised, the com- pany’s share capital will increase by SEK 100 M. During 2009, 3,834,319 warrants were exercised to subscribe for new shares, resulting in a new issue of SEK 77 M.

Ownership

Bilia had 21,978 shareholders at the end of 2009, compared with 22,144 a year earlier. The proportion of institutional owner- ship amounted to 16.0 per cent (19.2), while the proportion of foreign ownership amounted to 14.2 per cent (10.0).

Board members Mats Qviberg and Sven Hagströmer and their close family members control, directly and indirectly via Investment AB Öresund, approximately 44 per cent (41) of the votes in the company.

Disclosure of acquisition, transfer and holding of own shares

The 2009 AGM also gave the Board of Directors a new authori- sation to buy back the company’s own shares. Bilia’s holding of own shares as of 31 December 2009 amounted to 1,000,000 shares, repurchased during 2007 for a total of SEK 115 M, equivalent to a shareholding of 4.0 per cent. Bilia’s shares have a quotient value of SEK 10. The purpose of all buy-backs has been to optimise the company’s capital structure.

The work of the Board

One post-election meeting and five ordinary Board meetings were held during 2009. In addition to the above meetings, the Board also met once by correspondence. An agenda, along with in-depth information on important matters, is sent to each Board member in good time before each Board meeting. The Board dealt with such items of business as strategy, finan- cial goals, follow-up of results, investments, acquisitions and follow-up of the dispute with Pacta.

Corporate Governance

Information on corporate governance in Bilia is provided on pages 80–82.

Parent Company

Bilia AB is responsible for the Group’s management, strategic planning, financing, accounting, public relations and business development. Furthermore, Bilia AB conducts training and IT activities, mainly for companies in the Group. The Parent Com- pany’s operating loss amounted to SEK 48 M (loss: 49).

Future outlook

Bilia predicts that the total market in Sweden, Norway and Denmark during 2010 will increase slightly compared with 2009.

Owing to the fact that Bilia’s earnings are affected by various factors beyond the company’s control, no earnings forecast is made. A review of the most important earnings-impacting fac- tors is provided in the sensitivity analysis in Note 30, “Financial risks and risk management”.

Proposed treatment of unappropriated earnings

The Board of Directors proposes that the earnings available for distribution, SEK 718 M, be disposed of as follows:

SEK M

Cash dividend, SEK 3.00 per share

76

To be carried forward 642

Total 718

1)

Bilia has outstanding warrants that expire on 5 January 2016. If the warrants are fully exercised, the dividend will amount to SEK 76 M.

Statement of Board of Directors regarding proposed dividend

The Group’s equity has been calculated according to the ac- counting rules set forth in the International Financial Report- ing Standards (IFRSs). The Parent Company’s equity has been calculated in accordance with the Swedish Financial Reporting Board’s recommendation RFR 2.2, Accounting for Legal Enti- ties.

The proposed dividend consists of a cash dividend of SEK 3.00 per share, totalling SEK 76 M if the warrants are fully exercised. The Group’s equity/assets ratio amounts to about 29 per cent after the proposed dividend totalling SEK 76 M if the warrants are fully exercised.

The proposed cash dividend is consistent with Bilia’s divi- dend policy, which states that at least 50 per cent of the net profit for the year should be distributed to the shareholders, and that Bilia should have an optimal capital structure at any given time.

It is the judgment of the Board of Directors that the com- pany’s and the Group’s equity after the proposed dividend will be sufficiently large in relation to the nature, scope and risks of the business and the terms of the lenders. The Board has also taken into account the Group’s history and investment plans and the general economic situation.

Approval of the financial statements

The financial statements were approved for publication by the Parent Company’s Board of Directors on 25 February 2010.

For further details concerning the company’s results and financial position, please refer to the following consolidated statements of comprehensive income and financial position with accompanying comments.

Directors’ Report cont’d.

Consolidated Statement of Comprehensive Income

SEK M Note 2009 2008

Continuing operations

Net turnover 2, 3, 6 13,700 14,280

Cost of goods sold 6, 20 –11,375 –12,093

Gross profi t 2,325 2,187

Other operating income 7 30 136

Selling expenses –1,725 –1,801

Administrative expenses 10 –393 – 448

Other operating expenses 8 –91 –131

Operating profi t/loss 3, 9, 11 146 –57

Financial income 248 133

Financial expenses –296 –237

Shares in profi ts of associated

companies 17 18 22

Net fi nancial items 12 –30 –82

Profi t/loss before tax 116 –139

Tax 13 –2 28

Profi t/loss for the year from

continuing operations 114 –111

Profi t from discontinued

operation, net after tax 4 — 1

Net profi t/loss for the year 114 –110 Other comprehensive income/loss

Translation differences for the period on

translation of foreign fi nancial statements 5 –4 Total comprehensive income/loss

for the year 119 –114

Net profi t/loss for the year attributable to:

Parent Company’s shareholders 114 –110

Total comprehensive income/loss for the year attributable to:

Parent Company’s shareholders 119 –114

Earnings per share, SEK 14 Group

Basic earnings/loss per share 5.45 –5.35

Earnings/loss per share after dilution 4.70 –5.35

Proposed dividend per share 3.00 —

Continuing operations

Basic earnings/loss per share 5.45 –5.40

Earnings/loss per share after dilution 4.70 –5.40

Proposed dividend per share 3.00 —

Performance analysis, Group

Operating profi t/loss Profi t/loss before tax

SEK M 2009 2008 2009 2008

Profi t/loss excluding items affecting comparability 206 –16 176 –84

Items affecting comparability

Gain from sale of property/shares — 124 — 126

Structural costs etc. –35 –124 –35 –124

Impairment losses — –29 — –29

Disputes –25 –12 –25 –12

New bank agreement, issue expenses etc. — — — –16

Net turnover, SEK M

Net turnover decreased by SEK 580 M to SEK 13,700 M (14,280) or by 4 per cent. The de- crease is mainly attributable to lower sales of new cars. Net turnover excluding acquisitions and currency effects decreased by 9 per cent or SEK 1,343 M.

Net fi nancial items, SEK M

Net fi nancial items improved by SEK 52 M, amounting to SEK –30 M (–82). The improve- ment is mainly attributable to lower net debt.

Last year’s net fi nancial items was charged with issue expenses and costs for a new bank agreement amounting to SEK 16 M. The profi t share from the indirect holding in Volvofi nans is included in the amount of SEK 18 M (22).

Operating profi t/loss, excluding items affecting comparability, SEK M

Operating profi t excluding items affecting profi tability amounted to SEK 206 M (loss: 16).

Sweden increased by SEK 134 M, Norway by SEK 77 M and Denmark by SEK 11 M. The op- erating margin increased to 1.5 per cent (–0.1).

In the fourth quarter, the operating margin was 2.7 per cent (0.3), which is higher than our goal of 2.2 per cent.

Operating profi t/loss, excluding items affecting comparability, SEK M Operating margin, excluding items affecting comparability, %

Operating profi t/loss, excluding items affecting comparability per quarter, SEK M

The year began with an operating loss in the fi rst quarter. The following quarters showed strong improvement, and the fourth quarter posted the best earnings in many years. The improvement is attributable to reduced costs in general and to the Vehicle Business, where in particu- lar increased sales and higher margins in used car sales contributed positively. The Service Business contributed to improved earnings, despite lower sales.

Operating profi t/loss, excluding items affecting comparability, SEK M Operating margin, excluding items affecting comparability, %

07 08 09 0

5,000 10,000 15,000

07 08 09

SEK M %

–100 0 100 200

–1 0 1 2 –90

–75 –60 –45 –30 –15 0 15

07 08 09

–30 0 30 60 90

07 08 09

Q1 07 08 09

Q2 07 08 09

Q3 07 08 09

Q4 –1 0 1 2

SEK M 3%

Net turnover

Net turnover decreased by SEK 580 M to SEK 13,700 M or by 4 per cent. If net turnover is adjusted for acquisitions and exchange rate changes, the decrease was about SEK 1,343 M or 9 per cent. The main reason is that sales of new cars have declined.

Net turnover in the Service Business amounted to SEK 4,769 M (4,940), a decline of 3 per cent. Adjusted for acquisitions and exchange rate effects, net turnover decreased by 6 per cent. In Sweden, net turnover decreased by 5 per cent (–5), in Norway by 5 per cent (0) and in Denmark by 17 per cent (–14).

Net turnover in the Vehicle Business decreased by 5 per cent (–12) to SEK 9,479 M (9,982). If the Vehicle Business is adjusted for comparable units and exchange rate effects, net turnover decreased by 12 per cent (–18). In Sweden, net turnover de- creased by 14 per cent (–23), in Norway by 1 per cent (–5) and in Denmark by 29 per cent (–25).

Revenues from customer financing increased by SEK 11 M to SEK 293 M (282). The underlying cause is that revenues from long-term leases decreased by SEK 11 M, while commissions from finance companies increased by SEK 18 M.

Operating profit

The Group’s operating profit increased by SEK 203 M to SEK 146 M. The operating margin increased by 1.5 percentage points to 1.1 per cent compared with 2008.

All markets in the Group showed improved earnings com- pared with last year. Operating profit in the Swedish operation increased from SEK 103 M to SEK 241 M. Operating profit in Norway amounted to SEK 49 M (loss: 28), while the operating loss in Denmark improved by SEK 11 M to SEK 38 M (loss: 49).

The Vehicle Business’s operating loss improved by SEK 188 M to SEK 37 M. The improvement is mainly attributable to lower underlying costs and increased sales and higher margins in used car sales.

Operating profit in the Service Business increased by SEK 38 M to SEK 289 M. The improvement is attributable to lower costs, especially in Sweden.

The Service Business’s margin increased from 5.1 per cent to 6.1 per cent, while the Vehicle Business’s margin increased by 1.8 percentage points to –0.4 per cent. The Vehicle Business’s deliveries declined by 13 per cent (–20) while order bookings increased so that the order backlog grew during the year.

Items affecting comparability

Operating profit excluding items affecting comparability amounted to SEK 206 M (loss: 16). The operating margin amounted to 1.5 per cent (–0.1).

Items affecting comparability reduced the profit by SEK 60 M (–41). The items consist of SEK –35 M (–124) in costs for action programmes and SEK –25 M (–12) in costs for disputes.

Disputes refer to the Pacta case, where the cost for the year in- cludes a settlement cost of SEK 23 M. Items affecting compara- bility in 2008 include gains of SEK 124 M from sales of property in Sweden and Denmark and SEK –29 M in impairment of acquired surplus values, mainly goodwill.

Net financial items

Net financial items amounted to SEK –30 M (–82), which is an improvement of SEK 52 M. The improvement is mainly attribut- able to lower net debt. Last year’s net financial items were charged with issue expenses of SEK 6 M and costs for a new bank agreement of SEK 10 M. The profit share from the indirect holding in Volvofinans Bank AB is included in the amount of SEK 18 M (22).

Profit before tax

Profit before tax amounted to SEK 116 M (loss: 139), an im- provement of SEK 255 M.

Items affecting comparability

Items affecting comparability reduced the profit before tax by SEK 60 M (–55). The items consist of SEK –35 M (–124) in costs for action programmes and SEK –25 M (–12) in costs for disputes. Disputes refer to the Pacta case, where the cost for the year includes a settlement cost of SEK 23 M. Items affect- ing comparability in 2008 include gains of SEK 124 M from sales of property in Sweden and Denmark, SEK 2 M from sales of shares, SEK –16 M in costs for a new bank agreement and SEK –29 M in impairment of acquired surplus values, mainly goodwill.

Net profit for the year

Net profit for the year amounted to SEK 114 M (loss: 110). This is equivalent to basic earnings per share (before dilution) of SEK 5.45 (–5.35), based on a weighted number of shares. After dilution, earnings per share is SEK 4.70. Profit from discontin- ued operation affected the result last year by SEK 1 M.

Tax for the year amounted to SEK –2 M (28). In the calculation of this year’s tax, a revaluation of deductible tax-loss carryfor- wards in foreign entities has led to a net increase in tax assets of SEK 24 M (–45). Corporate tax is based on the tax expense in the relevant country.

Total comprehensive income for the year

Total comprehensive income for the year amounted to SEK 119 M (loss: 114). The effect of exchange rate changes in the translation of the financial statements of foreign entities was SEK 5 M (–4).

Key ratios

Return on capital employed increased to 8.2 per cent (–0.6).

Return on equity increased from –8.0 per cent to 8.6 per cent.

Items affecting comparability

Return on capital employed excluding items affecting compa- rability amounted to 11.1 per cent (1.4).

Comments on the Consolidated Statement of Comprehensive Income

SEK M Note 2009 2008

Assets 5, 29, 32

Non-current assets

Intangible assets 15

Intellectual property 114 115

Goodwill 92 89

206 204

Property, plant and equipment 16

Land and buildings 177 105

Construction in progress 0 4

Equipment, tools, fi xtures and fi ttings 341 393

Leased vehicles 1,246 1,512

1,764 2,014

Long-term investments

Interests in associated companies 17 272 257

Financial investments 18, 30 6 9

Long-term receivables 19 77 93

Deferred tax assets 13 87 64

442 423

Total non-current assets 2,412 2,641

Current assets Inventories

Merchandise 20 1,346 1,750

Current receivables

Current tax assets 13 10 26

Trade receivables 21 623 664

Deferred expenses and accrued income 22 131 115

Other receivables 19 62 99

Short-term investments 18, 30 14 21

Cash and cash equivalents 23 119 98

959 1,023

Total current assets 2,305 2,773

Total assets 3 4,717 5,414

Consolidated Statement of Financial Position

Consolidated Statement of Financial Position

SEK M Note 2009 2008

Equity and liabilities 5, 29, 32

Equity

Share capital 253 215

Reserves 5 0

Other contributed capital 39 —

Retained earnings including net profi t/loss for the year 1,128 1,014

Total equity 1,425 1,229

Non-current liabilities

Debenture loan 24, 30 100 87

Non-current interest-bearing liabilities 24, 30 107 89

Other non-current liabilities 27 425 697

Provisions for pensions 25 338 319

Other provisions 26 16 11

Deferred tax liabilities 13 103 96

Total non-current liabilities 1,089 1,299

Current liabilities

Current interest-bearing liabilities 24, 30 141 761

Trade payables 760 640

Current tax liabilities 8 2

Other liabilities 27 779 968

Accrued expenses and deferred income 28 492 488

Other provisions 26 23 27

Total current liabilities 2,203 2,886

Total liabilities 3,292 4,185

Total equity and liabilities 3 4,717 5,414

Pledged assets and contingent liabilities for the Group

Pledged assets 33 1,234 1,409

Contingent liabilities 33 3,776 4,209

Comments on the Consolidated Statement of Financial Position

The Group’s balance sheet total amounted to SEK 4,717 M (5,414), a decrease of SEK 697 M. The BMW operation in the Gothenburg area, Bilia Group Göteborg AB, was acquired during the year, which increased the balance sheet total by SEK 213 M.

The main underlying reasons for the decrease are lower car stocks (about SEK 510 M) and fewer cars sold with guaranteed residual values (leasing) (about SEK 310 M).

Financing

Net debt amounted to SEK 214 M (820), a decrease of SEK 606 M. The decrease is attributable to a decrease in interest- bearing liabilities by SEK 570 M, mainly bank loans.

The ratio of net debt to equity was 0.15, compared with 0.67 last year.

Equity

Equity increased by SEK 196 M to SEK 1,425 M (1,229). Total comprehensive income for the year of SEK 119 M is included, plus a new issue in the amount of SEK 77 M. No dividend was paid to the shareholders during the year (164). See the Consoli- dated Statement of Changes in Equity on page 11 for details on the change in equity.

Key ratios

The rate of turnover of capital employed increased during the year, amounting to a multiple of 6.0, compared with 5.0 last year, while the rate of turnover of total capital was a multiple of 2.7 (2.3).

The equity/assets ratio amounted to 30 per cent (23).

Equity per share before dilution amounted to SEK 58.65

(60.10), based on 24,293,574 shares (20,459,255).

Translation reserve

The translation reserve includes all exchange rate differences that arise when translating the fi nancial statements of foreign entities that have prepared their fi nancial statements in another currency than the currency in which the consolidated fi nancial statements are presented. The Parent Company and the Group present their fi nancial statements in Swedish kronor. The equity items in foreign entities are recognised at the historical rate.

Other contributed capital

When shares are issued at a premium, i.e. when the price paid for the shares is more than their quotient value, an amount corresponding to the amount obtained in excess of the shares’

quotient value shall be posted to “Other contributed capital”.

Retained earnings including net profi t for the year

Retained earnings including net profi t for the year includes earnings in the Parent Company and its subsidiaries. Previous provision to the statutory reserve, excluding transferred share premium reserves, is included in this equity item.

Consolidated Statement of Changes in Equity

SEK M Number

of shares Share capital

Reserves, translation reserve

Other contributed capital

Retained earnings incl.

net profi t

for the year Total equity

Opening equity 1 Jan. 2009 21,459,255 215 0 — 1,014 1,229

Exercised warrants 3,834,319 38 — 39 — 77

Comprehensive income for the year — — 5 — 114 119

Closing equity 31 Dec. 2009 25,293,574 253 5 39 1,128 1,425

Opening equity 1 Jan. 2008 21,459,255 215 4 — 1,288 1,507

Dividend (SEK 8.00 per share) — — — — –164 –164

Comprehensive loss for the year — — –4 — –110 –114

Closing equity 31 Dec. 2008 21,459,255 215 0 — 1,014 1,229

Reconciliation, translation

reserve ²⁰⁰⁹ 2008

Opening translation reserve 0 4

Exchange rate difference 5 –4

Closing translation reserve 5 0

Cash fl ow from operating activities

Cash fl ow from operating activities increased by SEK 139 M during the year, amounting to SEK 522 M (383). Inventories decreased by SEK 551 M, compared with a decrease of SEK 852 M last year, and other working capital affected cash fl ow by SEK –450 M (–543).

Investing activities

Cash fl ow from investing activities amounted to SEK 63 M (198).

Acquisitions and disposals of non-current assets, including leased assets, amounted to SEK –103 M (49). Replacement in- vestments amounted to SEK 20 M (39), expansion investments to SEK 17 M (54) and environmental investments to SEK 1 M (5).

Investments in new construction and additions to properties amounted to SEK 10 M (14). Net investments in leased vehicles and fi nance leases amounted to SEK –151 M (–63).

Business combinations affected the cash fl ow statement by

SEK –60 M (–236) and relate to the acquisition of the BMW operation in the Gothenburg area, Bilia Group Göteborg AB.

Remaining after net investments

Cash fl ow from operating activities was SEK 522 M (383), while cash fl ow from investments in leasing and non-current assets, interest-bearing receivables and business combinations was SEK 63 M (198), which means that cash fl ow after net investments amounted to SEK 585 M, compared with SEK 581 M last year.

Financing activities

Debts decreased by SEK 647 M compared with a decrease of SEK 491 M last year, and exercised warrants amounted to SEK 77 M.

Net debt

Net debt amounted to SEK 214 M, compared with SEK 820 M last year.

SEK M Note 2009 2008

Operating activities 35

Profi t/loss before tax from continuing operations 116 –139

Profi t before tax from discontinued operation — 2

Depreciation/amortisation and impairment losses 302 343

Other items not affecting cash –1 –125

Tax paid 4 –7

Cash fl ow from operating activities

before change in working capital 421 74

Change in inventories 551 852

Change in operating receivables 79 361

Change in operating liabilities –529 –904

Cash fl ow from operating activities 522 383

Investing activities

Acquisitions and disposals of non-current assets 103 –49

Investments and disposals of fi nancial assets 20 –34

Acquisition of subsidiary/operation, net –60 –236

Disposal of subsidiary/operation, net — 43

Disposal of discontinued operation, net — 474

Cash fl ow from investing activities 63 198

Remaining after net investments 585 581

Financing activities

Change in bank loans and other loans –647 –491

Exercised warrants 77 —

Dividend paid to Parent Company’s shareholders — –164

Cash fl ow from fi nancing activities –570 –655

Change in cash and cash equivalents, excluding translation differences 15 –74

Exchange difference in cash and cash equivalents 1 1

Change in cash and cash equivalents 16 –73

Cash and cash equivalents at start of year 114 187

Cash and cash equivalents at year-end 130 114

Consolidated Statement of Cash Flows

Comments on the Consolidated Statement of Cash Flows

Amounts in SEK M unless otherwise stated.

Compliance with standards and legislation

The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Re- porting Interpretations Committee (IFRIC), as approved by the European Commission for application within the EU. Further- more, the Swedish Financial Reporting Board’s recommenda- tion RR 1.2 “Supplementary Accounting Rules for Groups” has been applied.

The Parent Company applies the same accounting principles as the Group, except in the cases described in the section entitled “Parent Company accounting principles”.

The annual report and the consolidated accounts were approved for publication by the Board of Directors on 25 February 2010. The Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position and the Parent Company’s Income Statement and Balance Sheet will be subject to adoption at the Annual General Meeting (AGM) on 29 April 2010.

Valuation criteria applied in preparation of Parent Company and consolidated fi nancial statements

Assets and liabilities are measured at cost, except for certain fi nancial assets and liabilities, which are measured at fair value.

Financial assets and liabilities that are measured at fair value consist of derivative instruments measured at fair value through profi t or loss or available-for-sale fi nancial assets.

With certain exceptions, non-current assets and disposal groups held for sale are carried, from the time of their clas- sifi cation as such assets, at the lower of the carrying amount at reclassifi cation and the fair value less selling expenses.

Functional currency and reporting currency

The Parent Company’s functional currency is the Swedish krona, which is also the reporting currency for the Parent Com- pany and the Group. This means that the fi nancial statements are presented in Swedish kronor.

Accounting estimates and judgements in the fi nancial statements

Preparing the fi nancial statements in accordance with IFRS re- quires management to make accounting estimates and judge- ments as well as assumptions that infl uence the application of the accounting principles and the carrying amounts of assets, liabilities, revenue and expenses. Actual outcomes may differ from these estimates and judgements.

The estimates and judgements are regularly reviewed.

Changes in estimates are reported in the period in which the change is made if the change affects only that period, or in the period in which the change is made and future periods if the change affects both the current and future periods.

Estimates by management related to the application of IFRSs that have a signifi cant impact on the fi nancial statements and

estimates that may entail signifi cant adjustments in the fi nancial statements of subsequent years are described in greater detail in Note 37, “Signifi cant accounting estimates and judgements”.

Key applied accounting principles

The Group accounting principles presented below have been consistently applied to all periods presented in the consoli- dated fi nancial statements, unless otherwise stated below. The Group accounting principles have been applied consistently to the reporting and consolidation of parent companies, subsidi- aries and associated companies.

Revised accounting principles

Revised accounting principles occasioned by new or revised IFRSs

The revised accounting principles applied by the Group as from 1 January 2009 are described below. Other revisions of IFRSs with application as from 2009 have not had any signifi cant ef- fect on the consolidated accounts.

Presentation of the fi nancial statements

As of 1 January 2009, the Group applies revised IAS 1 Presen- tation of Financial Statements (2007). As a result of the revision, revenue and expenses that were previously recognised directly in equity are now instead recognised in other comprehensive income, which the Group presents after the net profi t for the year in an extended income statement called “Consolidated Statement of Comprehensive Income”. The Group has chosen to use the new titles of the statements introduced in IAS 1 (2007): statement of comprehensive income, statement of fi - nancial position, statement of changes in equity and statement of cash fl ows.

Comparative periods have been consistently revised in the annual report so that they follow the new presentation.

Since the changes only affect the manner of presentation, no amounts have been changed regarding earnings per share or other items in the fi nancial statements.

Disclosures regarding segments

Since 1 January 2009 the Group applies the new IFRS 8 Oper- ating Segments, which supercedes IAS 14 Segment Reporting.

IFRS 8 introduces a management perspective on how operating segments are to be classifi ed and presented. The new princi- ples are described further down among the accounting princi- ples in this note. The standard has been applied in accordance with its transitional provisions by adapting the information for the comparative year to the requirements in IFRS 8.

The application of IFRS 8 has entailed a change in the Group’s segment classifi cation so that the segments that were identifi ed coincided with those monitored by Group Manage- ment. The Group continues to apply the same accounting principles in the operating segments as in the consolidated accounts, i.e. IFRS. The information for the comparative period in 2008 has been restated and is presented in accordance with IFRS 8.

Notes to the consolidated fi nancial statements

Note 1 • Key accounting principles

Disclosures regarding financial instruments

Amendments to IFRS 7 Financial instruments: Disclosures effec- tive as of 1 January 2009 affect the Group’s financial reporting as from the annual report for 2009. The amendments mainly entail new disclosure requirements regarding financial instru- ments measured at fair value in the statement of financial posi- tion. The instruments are divided into three levels depending on the quality of inputs in the measurement. The division into levels determines how and what disclosures are to be made regarding the instruments, where level 3 with the lowest quality of inputs is subject to more disclosure requirements than the other levels. In addition, the revision of IFRS 7 entails some changes regarding disclosures of liquidity risk. These disclosure requirements have mainly affected Note 29, “Measurement of financial assets and liabilities at fair value and categorisation”

and Note 30, “Financial risks and risk management”.

According to the transitional provisions in IFRS 7, compara- tive information does not have to be provided during the first year of application for the disclosures required by the changes.

The Group has nevertheless chosen to voluntarily provide com- parative information for 2008 even with regard to the disclo- sures introduced with the changes. Since the changes do not affect how reported amounts are to be determined, no adjust- ments have been made of amounts in the financial statements.

Borrowing costs

As of 1 January 2009 the Group applies revised IAS 23 Borrow- ing Costs. The amendment entails that the Group capitalises borrowing costs as a part of the cost of qualified assets with a commencement date of 1 January 2009 or later. Previously, borrowing costs have been charged to earnings in the period to which they are attributable instead of being capitalised. The amendment is applied prospectively, in accordance with the transitional provisions in IAS 23. However, no capitalisation of borrowing costs has occurred during the year.

New IFRS standards and interpretations that have not yet begun to be applied

A number of new or revised IFRSs do not enter into effect until during the coming financial year and have not been applied in advance in the preparation of these financial statements. New or amended provisions with future application are not planned to be applied in advance. The amendments that may in the present situation have effect on the consolidated financial statements are presented below.

Revised IFRS 3 Business Combinations and revised IAS 27 Consolidated and Separate Financial Statements contain changes regarding consolidated accounts and accounting of business combinations. The revised standards are applied to financial years beginning on 1 July 2010 or later.

The amendments will only have prospective effects for the Group.

Presentation etc.

Non-current assets and non-current liabilities in the Parent Company and the Group consist for the most part solely of amounts that are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities in the Parent Company and the Group consist for the most part solely of amounts that are expected to be recovered or paid within twelve months of the balance sheet date. Any departure from this principle is reported in a note to the relevant line item.

Operating segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses and for which discrete financial information is available. An operating segment’s operating results are regu- larly reviewed by the company’s chief operating decision maker for the purposes of allocating resources to the segment and assessing its performance. See Note 3 “Operating segments”

for further description of the identification and presentation of operating segments.

Consolidation principles Subsidiaries

Subsidiaries are companies that are under the control of Bilia AB. Control is the power to govern, directly or indirectly, the financial and operating policies of an enterprise so as to obtain benefits from its activities.

Subsidiaries are accounted for by the purchase method. The consolidated cost is established at the acquisition date in an acquisition plan. The difference between the cost of the sub- sidiary shares and the fair value of identifiable assets, liabilities and contingent liabilities constitutes goodwill on consolidation.

The financial statements of subsidiaries are included in the consolidated accounts as from the acquisition date until the date when control no longer exists.

Associated companies

Associated companies are those companies in which the Group has a significant, but not a controlling, influence over the operational and financial direction of the company, normally through shareholdings giving them between 20 and 50 per cent of the votes. As from the point in time when the signifi- cant influence is exercised, interests in associated companies are recognised in the consolidated accounts in accordance with the equity method. The equity method entails that the value of the shares in the associated companies carried in the consolidated accounts is equivalent to the Group’s share of the associated companies’ equity plus goodwill on consolida- tion and any other remaining amounts of consolidated positive or negative goodwill. The Group’s share of the associated companies’ profits after tax and minority interest adjusted for amortisation, impairment or dissolution of acquired positive or negative goodwill is recognised in the Consolidated Statement of Comprehensive Income as “Shares in profits of associated companies”. Dividends received from associated companies reduce the carrying amount of the investment.

Any difference on the date of acquisition between the cost of the holding and the investor’s share of the net fair value of the associated company’s identifiable assets, liabilities and contingent liabilities is recognised in accordance with IFRS 3, Business Combinations.

When the Group’s share of recognised losses in the associ- ated company exceeds the carrying amount of the investment in the Group, the carrying amount of the investment is reduced to zero. Deduction for losses is also made against long-term financial dealings without security, whose financial implications constitute part of the investor’s net investment in the associ- ated company. Continued losses are not recognised unless the Group has provided guarantees to cover losses arising in the associated company. The equity method is applied until such time as the significant influence ceases to exist.

Note 1 cont’d.

Transactions eliminated on consolidation

Intra-Group receivables and liabilities, revenue or expenses and unrealised profits or losses arising from intra-Group trans- actions between subsidiaries are eliminated in their entirety when the consolidated accounts are prepared.

Foreign currencies

Transactions in foreign currencies

Transactions in foreign currencies are translated to the func- tional currency at the exchange rate prevailing on the trans- action date. Monetary assets and liabilities in foreign currencies are translated to the functional currency at the rate prevailing on the balance sheet date. Exchange rate differences arising from translations are recognised in the Consolidated Statement of Comprehensive Income. Non-monetary assets and liabilities recognised at cost are translated at the exchange rate prevail- ing at the time of the transaction. Non-monetary assets and liabilities recognised at fair value are translated to the func- tional currency at the rate prevailing at the time the fair value was measured.

Financial statements of foreign entities

Assets and liabilities in foreign entities, including goodwill and other corporate fair value adjustments, are translated to Swed- ish kronor at the rate prevailing on the balance sheet date. Rev- enue and expenses in foreign entities are translated to Swedish currency at an average rate which constitutes an approximation of the rates prevailing at the time of the transaction. Translation differences that arise when translating the accounts of foreign entities are recognised in other comprehensive income and accumulated in a separate component of equity, called the translation reserve.

On disposal of a foreign entity, the cumulative translation dif- ferences attributable to the foreign equity are reclassified from equity to profit or loss as a reclassification adjustment at the time profit or loss is recognised on the sale.

After 1 January 2004, i.e. the date of transition to accounting according to IFRS, translation differences have been recog- nised in the translation reserve included in equity.

Revenue Sale of goods

Revenue from the sale of goods is recognised in net profit/loss for the year when the significant risks and rewards of ownership have been transferred to the buyer. The revenue is recognised at the fair value of what has been received. Revenue is not recognised if it is probable that the economic benefits will not flow to the Group. If considerable uncertainty exists regarding payment, associated costs or the risk of returns, revenue is not recognised.

In cases where the sale of a product is combined with a future repurchase commitment at a guaranteed residual value, the transaction is reported as a lease, provided that the seller retains significant risks. The revenue from the transaction is not recognised at the time of sale, but is allocated on a straight-line basis from the time of sale to the time of repurchase.

Performance of service work

Revenue from service work is recognised in net profit/loss for the year based on the stage of completion on the balance sheet date (percentage-of-completion method). The stage of completion is determined by an assessment of services ren- dered and material employed at the balance sheet date.

Leasing of cars

Revenue from leased vehicles is recognised on a straight-line basis during the lease period.

Commissions on transferred financial assets

Commissions on transferred financial assets are recognised on a straight-line basis during the lease period and are calculated on the outstanding instalment and lease portfolios for which recourse liability exists.

Leases

Operating leases – Lessees

Costs pertaining to operating leases are recognised in net profit/loss for the year on a straight-line basis over the lease period. Benefits obtained in conjunction with the signing of a lease are recognised in the Consolidated Statement of Com- prehensive Income as a reduction in the lease payments on a straight-line basis over the term of the lease. Variable payments are recognised as expenses in the periods they are incurred.

Finance leases – Lessees

Minimum lease payments are allocated between interest expense and amortisation of the outstanding liability. The interest expense is allocated over the lease period so that each accounting period is charged with an amount corresponding to a fixed rate of interest for the liability recognised during that period. Variable payments are recognised as expenses in the periods they are incurred.

Result from customer financing

The Group’s customer financing is extensive and accounts for a considerable portion of consolidated profit. Concentration on the core operation has led to an increase in the importance of cus- tomer financing in terms of being able to both analyse the Group’s performance and forecast the Group’s future earnings potential.

Long-term leases, instalment receivables, current net return on financial contracts transferred to Volvofinans Bank AB, and other commissions associated with financing that have been transferred to finance companies are presented in Note 6,

“Result from customer financing”.

Consignment agreements

The company can reduce its risks and tied-up capital by pur- chasing vehicles on commission or consignment from certain of Bilia’s main suppliers. These vehicles are not included in inventories. In the event a new vehicle cannot be sold, Bilia can return it to the supplier, and a charge is paid to the supplier during the time the vehicle is kept at Bilia.

Financial income and expenses

Financial income consists of interest income on invested funds (including available-for-sale financial assets), dividend income, gain on disposal of available-for-sale financial assets and un- realised gains on hedging instruments.

Interest income on financial instruments is recognised

according to the effective interest method (see below). Divi-

dend income is recognised when the right to receive dividend

has been established. The gain or loss from sale of a financial

instrument is recognised when the economic risks and rewards

incidental to ownership have been transferred to the purchaser

and the Group no longer has control over the instrument.