INTERIM REPORT 1 JANUARY - 30 JUNE 2011 VOLVOFINANS BANK AB

Transcription

1 INTERIM REPORT 1 JANUARY - 30 JUNE 2011 VOLVOFINANS BANK AB

2 Message from the President The second quarter of 2011 was characterised globally by the financial crises in a number of European countries, particularly Greece. During the latter part of the summer, the USA's debt crisis also became manifest. Standard & Poor s historic downgrading of the USA's credit rating at the beginning of August confirmed the crisis in the country. The weakening of the global economy that was already under way may well now have been accelerated. The economic situation in Sweden has remained strong, a view confirmed by the Riksbank's decision to continue raising interest rates. The outlook for the Swedish economy has been favourable compared with most other European countries. What will happen to the Swedish economy in the wake of the turbulence in the financial markets caused by the downgrading of the USA's credit rating remains to be seen. During the first half of the year, the Swedish vehicle market remained strong with 157,000 registrations, compared with 138,000 during the previous year. The latest forecast for the full year indicates volumes in excess of 300,000, which represents a historic high. The order book situation within the Swedish Volvo sales organisation remains positive and the level of activity is also still high. Much the same signals apply for the other brands that are sold through the Volvo dealerships, where Renault and Ford dominate. Dealerships with a truck business are also reporting increased sales volumes and high levels of activity. Volvofinans Bank's operating profit for the first half of the year amounted to SEK million, which is SEK 9.1 million better than the previous year. The profit was negatively affected by the accumulation of liquidity reserves and the extension to the bond portfolio which took place as a result of the new regulations which are set to be introduced. The margin reinforcements that were carried out have a gradual positive effect on the profit, as most of the financial portfolio is subject to continuous interest rate adjustment. Lending volumes to the public increased by SEK 2.2 billion. Lending for passenger vehicles accounted for the majority of the increase in the wake of the strong sales during the first half of the year. Truck sales have risen too, albeit not as strongly. Within the credit card business, we also saw an increase in sales volumes, as well as a 3 % increase in lending. Borrowing from the public via savings accounts and from the Volvo dealerships continues to increase and as of the end of the first half year amounted to SEK 3.6 billion, which represents an increase of SEK 1.2 billion over the previous year. Borrowing amounts to 16 % of Volvofinans Bank's financing requirements. Credit losses increased by SEK 1.0 million. These losses are as expected, remaining at a low level and, as previously, only concern the card portfolio. As previously, the financing of sales shows no losses, which is due to the success of our tried and tested business model with the Swedish Volvo dealerships. The credit losses of the Volvo dealerships remain limited, despite the economic downturn. The Swedish Volvo dealerships' overall operating profit for the whole of 2010 increased to just over SEK 1 billion, which is the highest ever. On 14 April, the Swedish Financial Supervisory Authority approved Volvofinans Bank's right, as a so-called IRB bank, to measure capital adequacy against the risk-weighted assets for the retail portfolio, which constitutes 70 % of the bank's total lending. The core capital ratio according to the old standardised method was % at the end of the quarter, whilst the corresponding calculation for risk-weighted assets is %, notwithstanding the transitional regulations. With an increase in lending volumes, a very strong core capital ratio, continually rising borrowing volumes from the public and strong owners, we are upbeat about the future. The information contained in this report is that which Volvofinans Bank AB (publ), corporate ID no , is obliged to publish in accordance with the Swedish Securities Market Act (SFS 2007:528). This report was submitted for publication at 4.30 p.m. on 22 August In the event of conflict in interpretation or differences between this interim report the Swedish version, the latter will prevail. 2

3 FACTS ABOUT VOLVOFINANS BANK The primary task of Volvofinans Bank is to actively support sales of products marketed by Volvo and Renault dealers on the Swedish market by providing product and sales financing, while reporting favourable earnings. VOLVOFINANS BANK - making life a little easier By offering a range of financial solutions for both the passenger car and truck markets, the bank will strive to support sales of all the products and services that are marketed by the dealerships. On the private side, this is done through loan products and Volvo cards. The loan products are adapted to customer needs and are intended to make vehicle ownership easier, so making it easy to both buy and own a car. With insurance solutions and card solutions, the customer gains an overall picture of their car expenses and the opportunity to finance their car ownership in a cost-effective way. The Volvo Card enables customers to pay for workshop visits with four month's interest-free credit, refuel cheaply at Tanka petrol stations, receive special offers of various kinds, etc. For the dealerships, the Volvo Card means an advanced CRM system which enables selected messages to be given to customers based on purchasing patterns and other variables. On the company side, the bank works with both the passenger car market and the truck market. The bank offers everything from flexible solutions for large truck fleets to leasing for companies with just one or two company cars. The card is also important on the company side as a carrier of messages out to customers and provides a way of giving end customers better vehicle ownership. On the company side, there is the Volvo Card for companies and also the Volvo Truck Card. The development of saving accounts at Volvofinans Bank is continuing during the year. On 1 September, the services were expanded through the additional introduction of a higher interest rate for big savers. Volvofinans Bank is an internet bank, which means that all transactions are handled via the website, volvokort.com. Using e-identification, the customer conveniently and easily manages their transactions on the website and gets an overview of both savings and card transactions. The proportion of our customers who choose to also invest their savings with us is continually increasing. The initiative relating to savings and cards will continue during the autumn. In addition to the marketing of savings, Volvo Card with a bonus will also be launched nationwide during the latter part of

4 FINANCIAL reports OWNERSHIP/OPERATIONS Since its establishment in 1959, Volvofinans Bank has been 50 % owned by Swedish Volvo dealerships via their holding company AB Volverkinvest. The Sixth Swedish National Pension Fund (AP-fonden) owns 40 % and Volvo Car Corporation (Volvo Personvagnar AB) 10 %. The primary task of Volvofinans Bank is to actively support sales of products marketed by Volvo dealers on the Swedish market by providing product and sales financing, while reporting favourable earnings. Volvofinans Bank AB is the parent company in a Group with a dormant subsidiary. Based on chapter 7, section 6a of the Swedish Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL), as of 31 December 2010 Volvofinans does not prepare consolidated accounts, as activities within the subsidiary are of negligible value. market segment includes financing for passenger cars through loans and leases, vehicle administration and the Volvo Card. The truck market segment includes financing for trucks and buses as well as the Volvo Truck Card. The operating income, operating profit, number of contracts and lending volume for Volvofinans Bank's lines of business are presented below. Operating income is defined as the net of interest income, interest expenses, leasing net, dividends received, net result of financial transactions, commission income and commission expenses. Expenses are defined as general administration expenses and other operating expenses. Volvofinans Bank is of the opinion that it is not relevant to divide up its liabilities among the various segments. Borrowing is determined by the total requirement and cannot be attributed to a specific segment. VOLUMES/LENDING Sales of new passenger cars in Sweden rose by 14 % compared with the same period in the previous year. In total, 157,042 passenger vehicles were registered (138,079). The number of Volvo, Renault and Ford registrations was 45,416 (40,709), and their combined market shares was 29 % (29). 44 % (42) of all passenger car business, both new and used, within the Swedish Volvo dealerships generates a financial contract with Volvofinans Bank. New and used vehicle penetration rates are 48 % and 37 % respectively. Volvofinans Bank finances the Swedish Volvo dealers' truck sales, apart from those that take place through the AB Volvo-owned Volvo Truck Centre. Penetration for new trucks was 41 % (48). The total contract portfolio (loan and leasing contracts) amounted to 193,847 contracts (187,441). The truck and bus element of the contract portfolio amounted to 8,304 contracts (8,333) which represents more than 4 % of the total. The number of corporate customers for whom Svensk Vagnparksfinans manages the car administration remains stable. Administration with cost follow-up was being provided for 31,305 cars (31,289) at the end of the reporting period. Goods and services purchased using the Volvo Card totalled SEK 5.2 billion and the number of accounts actively purchasing is half a million per month. Goods and services with a value of SEK 273 million were purchased using the 24,000 Volvo dealerships' Truck Cards. The lending volume was SEK 24.5 billion, compared with SEK 22.3 billion during the previous year. The truck and bus share of lending was SEK 3.7 billion (3.6), which corresponds to 15 % of total lending. Volvofinans Bank s primary segments are the business lines of the passenger car market and the truck market. The passenger car Jan - June 2011 Cars Trucks Total Number of contracts (average) 214,784 8, ,045 Lending volume, SEK million 21,093 4,190 25,283 (average) Operating revenue, SEK thousand 256,597 16, ,396 Expenses, SEK thousand -134,901-8, ,078 Credit losses, net, SEK thousand -11, ,612 Operating profit, SEK thousand 110,100 8, ,706 Jan - June 2011 Loans Leases Total Number of contracts 115,395 78, ,847 Average contract, SEK thousand Collateral value, SEK million 11,870 12,546 24,417 Drawn credit, SEK million 10,791 9,049 19,840 Collateral value 91 % 72 % 81 % Market value, SEK million 15,484 10,678 26,162 Surplus, SEK million 4,693 1,629 6,322 Surplus, 43 % 18 % 32 % RESULTS Volvofinans Bank's income before credit loss expenses is SEK million (119.0). The income was negatively affected by the cost of the liquidity reserve and a shift from shorter to longer borrowing, although higher margins and a rising interest rate level have had a positive effect. Income before appropriations and taxes for the period increased by 8 % to SEK million (109.6). 4

5 credit risks and credit losses The credit risk continues to be very low as most of the credit risk and residual value risk is borne by the Volvo dealers. Problem credits are all receivables that are overdue by more than 90 days. Volvofinans Bank's problem credits for credit card receivables total SEK million (129.9) and, for loan and lease lending, SEK million (154.1). The decrease in problem credits with regard to loans and leases can be attributed to improved business conditions and the majority, SEK million, of these are dealer credit risk through recourse agreements. There are no loans for which interest concessions have been agreed and no property has been received to provide security for receivables. The credit losses incurred refer to credit card transactions. Anticipated credit loss impairment for the retail segment is determined using statistical risk models and for the corporate segment by means of a manual review. Amounts in SEK thousand Jan - June 2011 Jan - June 2010 Confirmed credit losses -9,714-8,674 Recovered losses Total -9,680-8,631 Provisions for credit risk Provisions for anticipated credit losses -1, Credit losses, net -11,612-9,341 CAPITAL PROCUREMENT Volvofinans Bank has experienced excellent demand in connection with borrowing issues during the quarter. On , the outstanding financing via our market borrowing scheme amounted to a nominal SEK 14.7 billion. The deposits from the public has continued to increase. Volvofinans Bank's market borrowing is done via issuing commercial papers or bonds under three market borrowing schemes. The outstanding volume of commercial papers amounted to SEK 2.0 billion. Volvofinans Bank aims to increase the proportion of long-term financing. The outstanding volume of MTN bonds amounted to SEK 12.7 billion, which represents an increase of SEK 1.7 billion during the quarter. In addition to market borrowing, the business was also financed by SEK 3.9 billion in the form of bank credits. Deposits from private individuals and the Volvo dealerships amounted to SEK 3.6 billion. As previously, the increase in deposits has arisen as a result of the continuing influx of savings customers via Volvofinans Bank's internet savings account. The proportion of long-term financing with a remaining term of more than one year was 59 % at the end of the half year. financial risks As the bank operates within the financial sector, the company is continuously exposed to a number of financial risks. Liquidity risk is the risk that Volvofinans Bank's payment obligations will not be able to be met on maturity without the cost of the means of payment increasing considerably or, in the worst-case scenario, not being able to be met by any means. To deal with liquidity instability, Volvofinans Bank not only has a liquidity reserve, with high-quality liquid securities and deposits in another bank, but also agreed credit facilities that can be utilised at short notice. Borrowing with a remaining period of less than one year must be covered at all times by the liquidity reserve and undrawn credit facilities. At the end of the half year, the liquidity reserve amounted to a nominal SEK 2.6 billion. 60 % of the reserve comprised instant access deposits in other banks, while the remaining 40 % comprised chargeable treasury bills and other bills. Volvofinan's liquidity reserve must not fall below 5 % of lending. In addition to the liquidity reserve, unutilised available credit facilities amounted to SEK 9.6 billion. Interest rate risk is the current and future risk that net interest income declines as a result of unfavourable changes in the interest rate. The vast majority of Volvofinans Bank's lending and all borrowing follow the short-term market interest rate, which involves a limited interest rate risk. Currency risk is the risk of unfavourable changes in exchange rates. All of Volvofinans Bank's lending is in Swedish kronor and any borrowing in foreign currency is hedged, thus Volvofinans Bank is not exposed to fluctuations in exchange rates. RATING Volvofinans Bank has an international credit rating from Moody's Investors Service as follows: Short-term financing: P-2 Long-term financing: Baa2 There was no change in Volvofinans Bank's rating during the period. You will find a detailed analysis from Moody's on our website, volvofinans.se. CAPITAL ADEQUACY Capital adequacy means that capital requirements are connected to the total risk profile of the institute, which in the case of Volvofinans Bank entails a lower minimum capital requirement. Volvofinans Bank calculates the capital requirement for credit risk using the standardised method, which means that all exposures are allocated to one of fifteen exposure categories with a different risk weighting for each category. The capital requirement for operational risk is calculated using the base indicator method, which means that the capital requirement is 15 % of the average operating income for the last three financial years. On 14 April, the Swedish Financial Supervisory Authority approved Volvofinans Bank's IRB application for the retail portfolio. Since 30 June 2011, the retail portfolio's credit risk has been calculated in accordance with IRB. The rest of the borrowing is calculated according to the standardised method. events after the balance sheet date No other significant events have occurred since the end of the reporting period. 5

6 INTERIM REPORT The interim report provides a true and fair picture of the bank's operations, position and performance, and describes material risks and uncertainties relating to the bank. Gothenburg, August 2011 Urmal Kruusval Chairman Head of Swedish National Pension Fund Direct Investments, Sixth Swedish National Pension Fund, Gothenburg Tommy Andersson Chairman of The Volvo Dealer Association, Gothenburg Thomas Andersson President, Volvo Personbilar Sverige AB, Gothenburg Bob Persson President, AB Persson Invest, Östersund Jan Pettersson President and CEO, Bilia AB, Gothenburg Alexandra Nilsson Head of Fund Investments, Sixth Swedish National Pension Fund, Gothenburg Bert Björn President Volvofinans Bank AB FINANCIAL INFORMATION Interim Report January - September will be published on 20 November and will be available on our website, volvofinans.se. If you have any questions, please contact our President, Bert Björn, on +46 (0) This report has not been the subject of special examination by the company's auditors. 6

7 CAPITAL ADEQUACY Amounts in SEK million Risk weighted assets Credit Risk IRB (retail) 6,390 - Credit risk according to standardised method 7,303 19,293 Operational risk in accordance with the base indicator method 1,056 1,094 Total risk-weighted assets 14,749 20,387 Adjustment for flooring rules during the introductory phase of Basel II 2,663 - Total risk-weighted assets 17,412 20,387 Capital adequacy Core capital 3,011 2,859 Supplementary capital Capital base 3,212 3,066 Capital adequacy without transitional rules Risk weighted assets 14,749 - Capital requirement, credit risk IRB (retail) Capital requirement, credit risk in accordance with the standardised method Capital requirement, operational risk 84 - Total minimum capital requirement without transitional rules 1,180 - Capital adequacy ratio Capital adequacy level % - Core capital ratio % - Capital adequacy with transitional rules Risk weighted assets 17,412 - Capital requirement, credit risk IRB (retail) Capital requirement, credit risk in accordance with the standardised method Capital requirement, operational risk 84 - Capital requirement, adjustment for floor rules Total minimum capital requirement with transitional rules 1,393 - Capital adequacy ratio Capital adequacy level % - Core capital ratio % - Capital adequacy in accordance with the Basel II standard Risk weighted assets 22,485 20,387 Capital requirement, credit risk in accordance with the standardised method 1,715 1,544 Capital requirement, operational risk Total minimum capital requirement in accordance with the Basel II standard 1,799 1,631 7 Capital adequacy ratio Capital adequacy level % % Core capital ratio % %

8 Statement of comprehensive income Amounts in SEK thousand Jan - June 2011 April - June 2011 Jan - June 2010 April - June 2010 Interest income 344, , ,906 99,737 Lease income 1,431, ,106 1,220, ,500 Interest expense -375, , ,231-77,566 Dividends received Commission income 149,215 77, ,410 78,719 Commission expenses -8,742-4,848-7,699-4,074 Net result of financial transactions* -1, Total operating income 1,539, ,087 1,409, ,522 General administration expenses -115,303-58, ,978-57,384 Depreciation of property, plant and equipment -1,277, ,564-1,155, ,089 Other operating expenses -16,573-9,388-18,459-14,032 Total operating expenses -1,409, ,057-1,290, ,505 Income before credit losses 130,318 59, ,974 58,016 Credit losses, net -11,612-4,714-9,341-3,992 Income before appropriations and taxes 118,706 54,316, 109,633 54,024 Appropriations Tax, standard -31,220-14,285-28,834-14,208 Income 87,486 40,031 80,800 39,816 *Net income from financial transactions Currency related Interest-bearing securities and related derivatives -1, Total -1,

9 KPI Return on equity 6.15 % 5.99 % Risk capital/balance sheet total % % Income/risk-weighted assets 1.36 % 1.08 % Capital adequacy ratio - with transitional rules Capital adequacy level - with transitional rules % - Core capital ratio - with transitional rules % - Credit losses/lending 0.09 % 0.08 % E/I ratio E/I ratio, excl. credit losses BALANCE SHEET Amounts in SEK thousand Eligible government securities, etc. 1,022,820 0 Lending to credit institutions 1,542, ,329 Lending to the public 14,436,321 13,828,227 Shares and participations in associated and other 6,672 6,624 companies Shares and participations in Group companies 50,740 50,740 Intangible non-current assets 32,156 39,184 Equipment 1,943 3,214 Property, plant and equipment, lease items 10,042,470 8,427,245 Other assets* 611, ,000 Prepaid expenses and deferred income 75, ,272 Total assets 27,822,535 23,882,835 Liabilities to credit institutions 3,937,158 4,335,181 Borrowing and deposits from the public 3,582,322 2,338,649 Securities issued 14,662,820 11,706,267 Other liabilities* 604, ,155 Accrued expenses and prepaid income 812, ,998 Subordinated liabilities 201, ,182 Guarantee fund loan 200, ,000 Untaxed reserves 3,254,419 3,087,919 Equity 448, ,851 Income before appropriations and taxes 118, ,633 Total liabilities and equity 27,822,535 23,882,835 * Of which derivative instruments with positive and negative market value Derivative instruments with positive market value 68, ,864 Derivative instruments with negative market value -27,170-17,152 9

10 cash flow statement Amounts in SEK thousand Jan - June 2011 Jan - June 2010 Operating activities Operating profit 118, ,633 Amortisation 1,277,380 1,155,919 Changes in operating assets and liabilities Eligible government securities, etc. -1,022,820 - Lending to credit institutions -22, ,211 Lending to the public -522, ,004 Other assets -28, ,498 Liabilities to credit institutions 1, ,897 Borrowing from the public 1,067, ,364 Securities issued 1,420,468-1,138,923 Other liabilities -177, ,543 Cash flows from operating activities 2,111,892 1,485,137 Investing activities Change in intangible non-current assets 8,333 8,814 Change in shares and participations 1, ,222 Change in property, plant and equipment -2,083,331-1,516,055 Cash flows from investing activities -2,073,558-1,403,019 Financing activities Debenture loans -2,064-2,118 Dividend paid -36,270-80,000 Cash flows from financing activities -38,334-82,118 Cash flow for the period Cash and cash equivalents at start of year - - Cash flows from operating activities 2,111,892 1,485,137 Cash flows from investing activities -2,073,558-1,403,019 Cash flows from financing activities -38,334-82,118 Cash and cash equivalents at the end of the period

11 LEASE INCOME AND ACCUMULATED NET INTEREST Amounts in SEK thousand Jan - June 2011 April - June 2011 Jan - June 2010 April - June 2010 Leasing income from operational and financial leasing agreements 1,431, ,106 1,220,810, 613,500, Scheduled amortisation -1,266, ,927-1,146, ,239 Interest income 344, , ,906 99,737 Interest expense -375, , ,231-77,566 Accumulated net interest 134,238 60, ,448 59,432 change in equity Amounts in SEK thousand Share capital Statutory reserve fund Retained earnings Equity Opening equity, 1 January ,000 20, , ,507 Net profit for the year 76,658 76,658 Total change before transactions with shareholders ,658 76,658 Dividends -80,000-80,000 Closing equity, 31 December ,000 20, , ,165 Opening equity, 1 January ,000 20, , ,165 Profit for the period after tax 87,486 87,486 Total change before transactions with shareholders ,486 87,486 Dividends ,270-36,270 Closing equity, 30 June ,000 20, , ,381 ACCOUNTING POLICIES Volvofinans Bank prepares interim reports in accordance with legally limited IFRS. The Company applies the same valuation and accounting policies as in the latest annual report. Volvofinans Bank AB (publ) Corporate ID no Bohusgatan 15 Box 198 SE Gothenburg, Sweden Tel: +46 (0) Fax: +46 (0)