VFS supplies financial services and accompanying service to Volvo Group customers. Together with the other business areas, integrated solutions are offered which add value to both customers and the dealer network.
Volvo Financial Services (VFS) supports the Volvo Group product range with expert financial services by delivering integrated, competitive financial solutions that meet customer and dealer needs.
By developing long-term relationships with customers and dealers, VFS seeks to establish a number one market position for the financing of Volvo Group products wherever VFS operates. When customers choose a vehicle or equipment supplier, the availability of financial solutions is an important factor. Customers desire total transport solutions that enable them to work more efficiently while maximizing profitability and reliability.
VFS creates value for Volvo Group customers by providing solutions including customer financing and leasing, dealer financing and other fee-based products such as insurance. Financial services are delivered to customers through VFS in conjunction with dealers of Volvo Group products, allowing customers to enjoy the benefits of a convenient, one stop-shop experience.
Good profitability levels
Although global economies and financial markets continued to be characterized by uncertainty and slow movement during 2012, VFS continued to achieve good profitability levels and growth while at the same time improving credit portfolio performance. Customer repayment patterns improved, which resulted in continued reductions in customer delinquencies, defaults and repossessions. During the year, VFS also continued to reduce inventories of repossessed units through good, coordinated remarketing activities with the other business areas.
In markets where VFS financing is offered, market penetration and financing volumes were strong in 2012. Through a disciplined approach to balancing new business development with risk and cost control, VFS managed its portfolio in a good way while growing its operations and supporting Volvo Group sales with historically high levels of finance market penetration of 27%.
During 2012, VFS provided financial services in 40 markets around the globe. In support of these offerings, VFS continued to strengthen its services through operational consolidation, process standardization and systems harmonization. These activities have enabled VFS to capitalize on profitable growth opportunities with scalable business platforms that boost efficiencies while improving service levels.
The demand for VFS products in 2012 was good and the global VFS credit portfolio reached historically high levels. In the Americas, Brazil rebounded well after a short downturn during Q3 and the US and Canadian credit portfolios continued to grow and perform well throughout the year. In EMEA (Europe, Middle East and Africa), the market remained soft but the VFS portfolio grew nonetheless and the performance of the credit portfolio improved steadily throughout the year. In APAC (Asia Pacific), the slowdown in China experienced towards the latter half of the year negatively impacted VFS growth rates in that country. However, portfolio performance remained good in China during the year even in light of the weakening economic conditions. In 2012, VFS continued to serve the markets of South Africa, India and Indonesia with third party finance alliances.
Customer finance operations
Total new financing volume in 2012 amounted to SEK 46.6 billion (44.8). Adjusted for changes in exchange rates, new business volume increased by 5.3% compared to 2011 as a result of increased penetration levels. In total, 50,994 new Volvo Group vehicles and machines (49,757) were financed during the year. In the markets where financing is offered, the average penetration rate was 27% (25).
As of December 31, 2012, the net credit portfolio amounted to SEK 99,690 M (94,275). The funding of the credit portfolio is matched in terms of maturity, interest rates and currencies in accordance with Volvo Group policy. For further information see note 15 to the Consolidated financial statements.
The operating income for the year amounted to SEK 1,492 M compared to SEK 969 M in the previous year. Return on shareholders’ equity was 12.5% (7.3). The equity ratio at the end of the year was 8.1% (9.1). The improvement in profitability is driven mainly by higher earning assets and good margins. During the year, credit provision expenses amounted to SEK 640 M (682) while write-offs of SEK 577 M (804) were recorded. The write-off ratio for 2012 was 0.58% (0.93). At the end of December 31, 2012, credit reserves were 1.23% (1.33) of the credit portfolio.