Volvo 2003 Annual Report Download - page 24

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Business Areas
Financial Services
Volvo Financial Services (VFS) provides
services in four main areas: customer finance
and insurance, treasury operations, real
estate management and related services.
Financial services play a significant role in
Volvo’s strategy for becoming the world’s
leading provider of commercial transport
solutions. Financial services also fulfill the
market’s growing need for increasingly
sophisticated financial solutions.
The customer in focus
Volvo’s customer financing operations cover
Europe, North America, Australia, parts of
South America and Asia. At the end of 2003,
VFS conducted customer financing directly
or through cross-border activities in over 50
countries. Emerging markets were also in
focus during the year, with plans for direct
expansion in the Russian and the Czech mar-
kets, as well as in China through strategic
alliances. Finance programs support the cus-
tomers of Volvo’s business areas. The range
of financial services includes instalment con-
tracts, financial and operational leasing, and
dealer financing. In most markets, insurance,
service and maintenance contracts are also
offered separately or in combination with
financing services.
For much of the year, VFS concentrated
on developing new business opportunities
with creditworthy customers. These relation-
ships and good margins are key components
for achieving the stable, long-term growth
and earnings that VFS desires. VFS benefit-
ed in 2003 from Renault Trucks’ and
Construction Equipment's volume and prof-
itability, as well as from a return to profitabil-
ity in the US, its largest market. The year was
not without challenges, however, as VFS
began to experience increasing rates, margin
pressure and competition from banks and
independent finance companies.
Notwithstanding these challenges, the
new customer finance model and strategies
introduced in 2001 were verified in 2003 by
VFS achieving its 10th consecutive quarter
of increasing operating income. All VFS
regions performed better than in the preced-
ing year. VFS’s lease and loan portfolio is
now at the midpoint of its turnaround transi-
tion.
Volvo Treasury coordinates the Group’s
global funding strategy and manages all of
its interest-bearing assets and liabilities.
Operating from Göteborg, Greensboro,
Singapore and Curitiba, the international
presence supports the growth strategy of the
Volvo Group. A flexible funding strategy kept
the Group’s borrowing cost at record low
levels and gave solid support to the cus-
tomer finance activities. In spite of volatile
financial markets, the management and
hedging of the Group’s assets and liabilities
and foreign exchange positions added good
value to VFS’s bottom line and enhanced the
interest net of the Group. In 2003, China
was given a large share of attention, and effi-
cient cash-pooling arrangements were set
up in Eastern Europe to further strengthen
the financial infrastructure. Volvo Treasury’s
role as an in-house bank also includes advi-
sory services for treasury related activities to
all the Group companies. Currency hedging
strategies, economic research and forecast-
ing are included in this concept.
Danafjord, VFS’s real estate unit, expand-
ed further in 2003. The operation covers the
renting and development of commercial real
estate in Sweden and increasingly in other
countries. A new office building in Arendal
was fully occupied in early 2003 with 1,080
persons. In addition, the acquisition of KFAB
(the former truck and construction equip-
ment operations of Bilia) includes seven real
Operating income, SEK M
99 00 01 03
1.066
1.499
325 926
26 29 30 33
99 00 01 03
Market penetration Volvo Trucks, %
12.0 14.1 4.2 9.8
99 00 01 03
Return on shareholders´equity, %
02
490
4.8
02
27
02
Credit portfolio, net, SEK bn
99 00 01 03
45.1 53.6 64.0 60.0
02
61.3