Volvo 2005 Annual Report Download - page 75

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Condensed income statement
SEK M 2004 2005
Net sales 9,598 7,549
Income after
financial items 1,365 2,033
Income taxes (430) (609)
Income for the period 935 1,424
Distribution of credit portfolio, net1
% 2004 2005
Operational leasing 20 1
Financial leasing 25 40
Installment contracts 38 41
Dealer financing 16 17
Other customer credits 1 1
1 Impact of IFRS leasing classification
52% (52) of the total was accounted for by
tenants outside the Volvo Group. 81% (84) of
the leases extend for five years or more.
Expanding credit portfolio
During 2005, the volume of new financing
amounted to SEK 33 billion, up by more than
SEK 3.5 billion compared with 2004.
On December 31, 2005, total assets
amounted to SEK 86 billion (72), of which
SEK 79 billion (64) related to the net credit
portfolio. Adjusted for the effects of foreign-
exchange movements, the credit portfolio
grew by 10% during the year, compared with
growth of 11% in the preceding year.
From a currency perspective, 37% of the
portfolio was denominated in EUR, 35% in
USD, 9% in GBP and 6% in CAD. The remain-
ing 13% is primarily a mix of other European
and Latin American currencies.
Good returns and profitability
Operating income for VFS in 2005 amounted
SEK 2,033 M, up 49% from the SEK 1,365 M
reported in 2004. Return on equity was 15.3%
(11.1), with a year-end equity ratio of 11.2%
(11.6). Throughout 2005, VFS successfully
achieved a healthy balance among credit risk,
volume, sales penetration and professional
pricing. All customer finance regions improved
performance over the prior year.
Write-offs in 2005 totaled SEK 297 M, cor-
responding to an annualized write-off ratio of
0.40% (0.66). On December 31, total credit
reserves amounted to SEK 1,751 M giving a
credit-reserve ratio at year-end of 2.17%.
Commercial Focus initiative
During 2005, VFS developed and launched a
new strategic initiative called “Commercial
Focus” (CF) to further improve its effective-
ness and contribute greater value to the
Group’s Business Areas, its dealers and cus-
tomers. The goals of CF are to integrate VFS’s
activities more closely with those of the other
Business Areas, enhance the depth and
breadth of VFS’s services and develop how
services are provided to key accounts. The first
six of numerous global projects were started
in 2005 to support these goals. VFS believes
this initiative will increase its market share as
it continues to maintain prudent pricing and
credit levels.
Volvo Financial Services (VFS) pro-
vides services in three main areas:
customer finance and insurance,
treasury operations and real-estate manage-
ment. These services enable Volvo to apply a
Group-wide approach to financial risk. They
also play a key role in Volvo’s strategy for
becoming the world’s leading provider of com-
mercial transport solutions.
Customer in focus
Volvo’s expanding customer finance oper-
ations cover Europe, North America, Australia,
and parts of South America and Asia. VFS
conducts customer finance operations in more
than 50 countries. Finance programs are
offered to the dealers and end-customers of
Volvo’s business areas. The range of financial
services includes installment contracts, finan-
cial and operational leasing, and the financing
of dealers. In many markets insurance service
and maintenance contracts are also offered
separately or in combination with financing
services.
Volvo’s internal bank, Volvo Treasury, coord-
inates the Group’s global funding strategy and
financial infrastructure. It is responsible for
the management of all interest-bearing assets
and liabilities and the execution of foreign-
exchange transactions. A diversified funding
strategy kept the Group’s borrowing cost at
competitive levels and gave strong support
to VFS’s growing customer finance activities
in 2005.
Operations within Danafjord, VFS’s real-
estate unit, include the renting and develop-
ment of commercial real estate in Sweden and,
increasingly, in other countries. During the
year, Danafjord sold some of its non-strategic
property in Kalmar and Torslanda generating
a gain of SEK 188 M. The occupancy rate at
the end of 2005 was 99.9% (99.8), and
Penetration, %
Volvo
Trucks
Renault
Trucks
Mack
Trucks
2005
2004
Volvo
CE
Buses
28 28 17
16
11 1135 34 14 13
Mack Trucks, 10%
Renault Trucks, 15%
Volvo Trucks, 48%
Buses, 6%
Volvo CE, 20%
Other, 1%
Credit portfolio
by business area, %
Volvo Group 2005 71