Volvo 2012 Annual Report Download - page 72

BOARD OF DIRECTORS’ REPORT 2012 GROUP PERFORMANCE
manage increased funding needs in new growth
markets for the Group.
A strong and stable credit rating is
important for an industrial company
Being a large issuer with a growing customer
financing business, it is critical to have a strong
and stable credit rating. The level of the credit
rating is not only important for debt investors but
also a number of other stakeholders when it
comes to create long lasting relationships. A
strong credit rating has a positive effect on the
ability to attract and finance customers and on
the trust from suppliers.
The Volvo Group has contractual relations with
two global Credit Rating Agencies (CRAs) for
solicited credit ratings; Moody’s Investors Service
and Standard & Poors’ Rating Services. The credit
rating levels from both CRAs have been unchanged
during 2012. There are also agreements with
CRAs in Canada and Japan for local credit ratings.
The CRAs evaluate the Volvo Group future ability
to repay debt. A strong credit rating gives access
to more funding sources and lower cost of funds.
FINANCIAL MANAGEMENT
Balancing the requirements of different stakeholders
Credit rating at February 21, 2013
Short-term Long-term
Moody’s P-2 Baa2, stable
Standard & Poor's A2 BBB, stable
DBRS (Kanada) R-2 (high) –
R&I (Japan) a-1 A, stable
A long-term competitive market position requires
access to capital to be able to invest and grow
the business. The financial management secures
that the capital is used in the best possible way
through well-defined ratios and objectives for
the Industrial Operations as well as for the
Customer Finance Operations. The objectives on
net sales growth and operating margins for the
Industrial Operations and return on equity for the
Customer Finance Operations secure the return
requirements from shareholders. The restric-
tions on net debt to equity for the Industrial
Operations and equity ratio for the Customer
Finance Operations are to secure financial sta-
bility and flexibility for debt providers.
Steering principles to ensure financial
flexibility over the business cycle
To ensure financial stability and flexibility through-
out the business cycle the Volvo Group holds a
strong liquidity position. Besides cash and market-
able securities the liquidity position is also built
up of committed credit facilities. The funding
and lending is in local currency and the cus-
tomer finance portfolio is matched both from an
interest and a liquidity risk perspective.
Diversified funding sources give flexibility
and support the global presence
The Volvo Group has a central portfolio manage-
ment of all financial assets and liabilities, funding
operations and cash management through the
internal bank, Volvo Treasury. The liability portfolio
is separated into two portfolios, one for Industrial
Operations and one for Customer Finance, to cor-
respond to the needs in the different operations.
Volvo Treasury is increasing the possibility to
access capital markets at all time through diversi-
fied funding sources. Furthermore, the Volvo
Group global presence is supported by market
programs on all major debt capital markets in the
world. Besides the acces to capital markets
around the world, the Volvo Group uses different
instruments, such as bilateral bank funding,
corporate bonds and certificates, agency fund-
ing as well as securitization of assets in the
Customer Finance portfolio. An increasingly
important part of the treasury work is also to
The objectives of the financial management in the Volvo Group is to assure
shareholders long-term attractive and stable total return and debt providers
the financial strength and flexibility to secure proceeds and repayment.
Volvo Group liquidity position 2012
Geographically diversified market programs
Cash and
marketable
securities
Revolving
credit facility
Short-term
committed
facilities
0
20
40
60
27.6
5.5
28.9
SEK bn
CNY
SEK
JPY
AUD
EUR
CNH
CAD
USD
BRL
68