Volvo 2012 Annual Report Download - page 110

The table F shows outstanding forward and option contracts for the
hedging of commercial currency risks. The table Operating net flow per
currency on page 92 shows commercial net flows per currency (transac-
tional flows net).
Translation exposure during the consolidation of operating income
in foreign subsidiaries
In conjunction with the translation of operating income in foreign subsidiaries,
the Volvo Group’s earnings are impacted if currency rates change. The Volvo
Group does not hedge this risk. For more information on currency hedging of
equity see below.
Sensitivity analysis – currencies*
The tables below show the impact on sales and operating income for the
Volvo Group if key currencies fluctuate. The sensitivity analysis include the
transaction impact from commercial flows and the translation impact dur-
ing the consolidation of foreign subsidiaries.
Financial currency exposure
Loans and investments in the Volvo Group’s subsidiaries are performed
mainly through Volvo Treasury in local currencies, which minimizes indi-
vidual companies’ financial currency exposure. Volvo Treasury uses vari-
ous derivatives to facilitate lending and borrowing in different currencies
without increasing the company’s risk. The financial net position of the
Volvo Group is affected by exchange-rate fluctuations since financial
assets and liabilities are distributed among the Volvo Group companies
that conduct their operations using different currencies.
The Impact on Net financial position table D disloses the impact on
earnings before tax of Industrial operations financial net position, includ-
ing pensions and similar net obligations, if the SEK were to strengthen by
10%.
Currency exposure of equity
The consolidated carrying amounts of assets and liabilities in foreign sub-
sidiaries is affected by current exchange rates in conjunction with the trans-
lation of assets and liabilities to Swedish kronor. To minimize currency expo-
sure of equity, the size of equity in foreign subsidiaries is continuously
optimized with respect to commercial and legal conditions. Currency
hedging of equity may occur in cases where a foreign subsidiary is consid-
ered overcapitalized. Net assets in foreign subsidiaries and associated
companies amounted at year-end 2012 to SEK 69.8 billion (67.8). The
remaining loans used as hedging instruments have expired in 2011. For
more information on hedging of net investments in foreign operations rec-
ognized in equity refer to note 30 Financial Instruments. The need to under-
take currency hedging relating to investments in associated companies and
other companies is assessed on a case-by-case basis.
5,000
Changes in currency exchange rates compared to 2011 (Total SEK pos 1.9 bn)
Strengthen in value of SEK by 10% (Total SEK neg 31.2 bn)
3,000
1,000
(1,000)
(3,000)
(5,000)
(7,000)
(9,000)
CNYBRL EUR GBP JPY RUB SGD USD ZAR OtherINR
G
Sensitivity analysis
Currency effect on net sales from inflows in foreign
currency and translation effect when consolidating net
sales in foreign subsidiaries.
2
Changes in currency exchange rates compared to 2011 (Total SEK pos 1,5 bn)
Strengthen in value of SEK by 10% (Total SEK neg 6.2)
1
0
(1)
(2)
(3)
BRLAUD CNY EUR KRW RUB USD ZAR OtherGBP
H
Sensitivity analysis
Currency effect on operating income from net flows in
foreign currency and translation effect when consolidating
operating income in foreign subsidiaries.
Currency impact on operating income, SEK billion 2012 2011 Change
Net flows in foreign currency   1.6
Realizedgains and losses onhedging contracts 0.0 0.2 (0.2)
Unrealizedgains and lossesonhedging contracts 0.3 (0.3) 0.6
Unrealizedgains and lossesonreceivables andliabilities in foreign currency (0.2) 0.3 (0.6)
Translation effect on operating income in foreign subsidiaries   (0.1)
Total currency impact on operating income 1.3
Currency impact onNet flows in foreign currency and Translationeffect on operating income in foreign subsidiaries are detailed in table
Hin key currencies.
The Volvo Group’s currency review When the Volvo Group communicates the currency impact on operating income for Industrial
operations, the following factors are included:
I
* The Note’s sensitivity analysis on currency rate risks is based on simplified
assumptions. It is not unreasonable for the value in SEK to strengthen by 10% in
relation to other currencies. In reality, currencies usually do not change in the
same direction at any given time, so the actual effect of exchange-rate changes
may differ from the sensitivity analysis. Please refer to table D G H
Goals and policies in financial risk management (cont.)
NOTES TO FINANCIAL STATEMENTS
FINANCIAL INFORMATION 2012
106