Volvo 2007 Annual Report Download - page 46
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Please find page 46 of the 2007 Volvo annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Impact of exchange rates on operating income
Compared with preceding year, SEK bn
Net sales1 (7.9)
Cost of sales 4.9
Research and development expenses 0.0
Selling and administrative expenses 0.3
Other operating income and expenses 0.8
Income from investments in shares 0.0
Total effect of changes in exchange
rates on operating income (1.9)
1 Group sales are reported at average spot rates and the
effects of currency hedges are reported among “Other
operating income and expenses”.
Operating net fl ow per currency
SEK M 2006 2007
USD 17,700 19,000
EUR 14,100 17,800
GBP 5,700 8,700
CAD 2,700 2,000
Other currencies 10,800 15,800
Total 51,000 63,300
Change in operating income
SEK bn
Operating income 2006 20.4
Higher volumes and improvement
of gross margins 4.0
Income from acquired and divested operations 0.7
Gain on sale of Petro Stopping Centers
and Sörred Energi 0.5
Changes in currency exchange rates (1.9)
Lower capitalization of development costs (1.1)
Higher research and development
expenditures (0.5)
Higher selling and administrative expenses (1.0)
Adjustment of Goodwill in subsidiary
Mack Trucks, 2006 1.7
Restructuring costs Volvo Aero, Bromma, 2006 0.3
Outcome of dispute regarding export
credits in Brasil, 2006 (0.4)
Other (0.5)
Operating income 2007 22.2
Operating margin
% 2006 2007
Trucks 8.7 8.1
Construction Equipment 9.7 7.9
Buses 4.3 1.4
Volvo Penta 10.3 10.0
Volvo Aero 4.4 6.9
Industrial operations1 8.2 7.4
Industrial operations 7.5 7.4
Volvo Group 7.9 7.8
1 Excluding goodwill adjustment in 2006.
phased-out legacy engines and for truck
engines produced for the North American
market during 2007.
Nissan Diesel’s operations generated a
contribution to operating income amounting
to SEK 981 M, excluding negative effects from
purchase price allocation (PPA) adjustments
amounting to SEK 495 M.
Ingersoll Rand’s road development equip-
ment operations posted an operating income
amounting to SEK 184 M, excluding negative
effects from PPA adjustments amounting to
SEK 124 M.
In 2007, research and development expenses
amounted to SEK 11,059 M (8,354). The net
of research and development expense capi-
talization and amortization had a negative
impact of SEK 1,446 M compared with 2006
due to lower capitalization and increased
amortization.
The increase in selling and administrative
expenses is primarily an effect of the acquired
companies.
In 2006, Other Operating Income and
Expense included a negative adjustment of
goodwill amounting to SEK 1,712 M.
Impact of exchange rates
on operating income
The combined effect of changed exchange
rates, particularly for the USD, had an adverse
effect on operating income of approximately
SEK 1,900 M in 2007, compared with 2006.
Customer Finance
Operations
Total new fi nancing volume in 2007 amounted
to SEK 41.4 billion (35.3). In total, 46,686 new
Volvo vehicles and machines (41,732) were
fi nanced during the year. In the markets where
fi nancing is offered, the average penetration
rate was 24% (20).
At December 31, 2007 total assets in Cus-
tomer Finance amounted to SEK 95 billion
(80). Excluding receivables from acquired
operations, the credit portfolio grew by 12.6%
(5.3), adjusted for exchange-rate movements.
Operating income amounted to SEK 1,649 M
(1,686). Return on shareholders’ equity was
15.9% in 2007 (13.2). The equity ratio at the
end of the year was 8.1% (10.2).
The write-off ratio was 0.29% (0.33). On
December 31, 2007, the total credit reserves
were 1.59% of the credit portfolio (2.01).
Strong growth and
fi nancial performance
In 2007, Volvo Financial Services (VFS) main-
tained the operating income level and
improved the return on equity. VFS achieved
good penetration levels and record new busi-
ness volume.
VFS’ strategy for profi table growth focuses
on three main objectives: organic growth,
geographical expansion and growth through
the acquisitions of the Volvo Group. The acqui-
sitions of the Volvo Group provide Volvo
Financial Services growth opportunities in
several markets. During 2007, VFS began
offering fi nancing to road development cus-
tomers in the newly acquired operations from
Ingersoll Rand. Towards the end of the year,
customers and dealers of Lingong in China
were also offered fi nancing solutions.
At the end of 2007, write-offs and delin-
quencies remained at low levels within the
credit portfolio. Some softening is being
experienced in North America, although delin-
quencies, repossessions and write-offs were
at comparatively normal levels.
42 Board of Directors’ Report 2007