Volvo 2002 Annual Report Download - page 25

for Mack Trucks. Expressed as an aver-
age, VFS financed approximately 19% of
the units sold in the markets where
financing is offered.
Total assets as of December 31, 2002
amounted to SEK 69.4 billion (73.5), of
which SEK 61.3 billion (64.0) was in the
credit portfolio. Adjusted for the effects of
foreign exchange movements, the credit
portfolio growth in 2002 was 8% (9%).
The credit portfolio consists of 59% Volvo
Trucks, 15% Construction Equipment,
11% Buses, 8% Renault Trucks and 5%
Mack Trucks. The remaining 2% is mainly
related to Volvo Aero and Volvo Penta.
From a currency perspective, 37% of the
portfolio was denominated in USD, 34%
in Euro, 12% in GBP, and 7% in AUD
and CAD. The remaining 10% is primarily
denominated in other European and Latin
American currencies.
Volvo Treasury, the in-house bank of
the Volvo Group, coordinates the global
funding strategy of VFS. Volvo Treasury
also manages all interest-bearing assets
and liabilities of the Group. This includes
maintenance and further development of
an optimal financial infrastructure for li-
quidity management and payments.
Execution of foreign exchange, currency
hedging, loan transactions, bank relations
and other treasury related services further
underscores Volvo Treasury’s role as an
in-house bank. These activities enhanced
the interest net of the Volvo Group and
added good value to the performance of
VFS during 2002.
Danafjord, VFS’s real estate unit, saw
a further expansion in 2002. The opera-
tion mainly covers the letting and devel-
opment of commercial real estate in
Göteborg, Sweden. In total, including the
real estate related to Volvo Cars, the
operation encompasses about 2 million
square meters. The occupancy rate at the
end of the year was 99.9% (98), and
59% (61) of the total leasing was for
tenants outside of the Volvo Group. 77%
(70) of the lease agreements run for five
years or more.
Volvo’s insurance operations provide a
wide array of transport-related insurance
products and services to support Volvo
customers and dealers. In most cases,
these products are available at the point
of sale, and premiums can often be financed
along with the vehicles. In the US, Volvo
Action Service offers an integrated claims
process which minimizes the customer’s
downtime in case of accidents.
Financial performance
Operating income amounted to SEK 490
M (325) corresponding to a return on
equity of 4.8% (4.2). Operating income in
the established customer-financing com-
panies was stable, but continued to be
adversely affected by high level of provi-
sions for expected losses from financing
in North America. Operations in South
America and Eastern Europe continued to
perform well, with operating income high-
er than in previous years. Mainly due to
higher claims, the insurance operation
had a disappointing year, with much lower
operating income than in 2001. Income
from real estate and treasury was higher
than in the preceding year.
Provision is made for credit risks on an
up-front basis, where the level of reserves
placed on each contract is related to the
expected risk for that class of transaction.
Condensed income statement
SEKM 2000 2001 2002
Net sales 9,678 9,495 9,925
Income after
financial items 1,499 325 490
Taxes (471) 10 (134)
Net income 1,028 335 356
Distribution of credit portfolio, net
%2000 2001 2002
Commercial products
Operational leasing 23 23 22
Financial leasing 28 27 25
Installment contracts 34 36 37
Dealer financing 14 14 16
Other customer credits 1 0 0
For customers not expected to fulfil their
contractual obligations, specific reserves
are allocated based on an individual
assessment of each contract.
At the end of December, total credit
reserves amounted to 2.6% (2.9) Total
write-offs for 2002 amounted to SEK 893
M (823) whereof SEK 175 M (0) was
related to the judicial portfolio in Latin
America.
Ambitions for 2003
With an improved customer finance
model and a streamlined organization in
place, VFS next intends to refine its sys-
tems and processes through operational
excellence initiatives that focus on effi-
ciencies, customer satisfaction and con-
trols. In addition, new business solutions
such as credit syndications and risk diver-
sification will be explored. A strategy will
be developed to meet the Volvo Group’s
growing need for financial services in the
Asian and Eastern European markets.
Finally, the economic climate will continue
to be monitored so that financial risks and
opportunities can be managed.