Financial performance

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Lower earnings

For the Volvo Group, the year 2013 was characterized by the most extensive product renewal in the history of the Group, with associated costs in manufacturing, sales, administration and research and development, as well as costs connected to restructuring primarily within the truck operations. Net sales amounted to SEK 273 billion and operating income to SEK 7.1 billion.

The Volvo Group

Net sales
Net sales for the Volvo Group decreased by 9% to SEK 272,622 M in 2013, compared with SEK 299,814 M in the preceding year.

Operating income
Volvo Group's operating income amounted to SEK 7,138 M (18,069).

Operating income for the Industrial Operations decreased to SEK 5,616 M compared with SEK 16,573 M in the preceding year. The Customer Finance operations' operating income rose to SEK 1,522 M (1,496).

Net financial items
Net interest expense amounted to SEK 2,429 M, compared with SEK 2,496 M in the preceding year.

Income taxes
The tax expense for the year amounted to SEK 919 M (4,116) corresponding to a tax rate of 20% (27). The tax expense was positively impacted by a revaluation of deferred tax and a tax credit in Brazil.

Income for the period and earnings per share
The income for the period amounted to SEK 3,802 M (11,378), corresponding to diluted earnings per share of SEK 1.76 (5.61). The return on shareholders' equity was 5.0% (14.7).


Industrial Operations

In 2013, net sales for the Volvo Group’s Industrial Operations decreased by 9% to SEK 265,420 M (292,198). Compared with 2012, sales decreased in all of the Group's markets except South America. Adjusted for changes in exchange rates net sales declined by 2%.

Lower earnings
In 2013, operating income for the Volvo Group’s Industrial Operations amounted to SEK 5,616 M compared to SEK 16,573 M in the preceding year. The operating margin for the Industrial Operations amounted to 2.1% (5.7). Excluding restructuring charges of SEK 715 M (1,550) operating income amounted to SEK 6,332 M (18,123) and the operating margin to 2.4% (6.2).

The lower profitability is primarily an effect of lower volumes, negative currency impact, revaluation of assets held for sale (Volvo Rents), lower capitalization of research and development expenses, higher selling and administration expenses, that Volvo Aero contributed to the income for the first three quarters of 2012 and that the divestment of Volvo Aero had a positive impact during 2012. Lower restructuring charges, improved price variances and lower warranty costs had a positive impact on profitability.

Impact of exchange rates on operating income
Operating income for 2013 was negatively impacted by approximately SEK 3.4 billion as a consequence of changes in currency exchange rates when compared with 2012.


Customer Finance Operations

Total new financing volume in 2013 amounted to SEK 47.0 billion (46.6). Adjusted for changes in exchange rates, new business volume increased by 5.9% compared to 2012. In total, 51,466 new Volvo Group vehicles and machines (50,994) were financed during the year. In the markets where financing is offered, the average penetration rate was 27% (27).

As of December 31, 2013, the net credit portfolio amounted to SEK 103,873 M (99,690). 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 4 to the Consolidated financial statements.

The operating income for the year amounted to SEK 1,522 M compared to SEK 1,496 M in the previous year. Return on shareholders’ equity was 12.1% (12.5). The equity ratio at the end of the year was 8.1% (8.1). Improvements in gross income and operating expenses were partially offset by higher provisions.

During the year, credit provision expenses amounted to SEK 923 M (639) while write-offs of SEK 719 M (577) were recorded. Third quarter provisions and write-offs were higher than normal due to deterioration of collateral positions and values related to non-performing loans and leases in Spain stemming from the global financial crisis in 2009 and 2010 caused by the continuing recession and protracted legal processes in that country. The write-off ratio for 2013 was 0.71% (0.58). At the end of December 31, 2013, credit reserves were 1.31% (1.23) of the credit portfolio.