Volvo 2012 Annual Report Download - page 77

accounting policies for financial instruments are
described in note 30. The overall impact on a com-
pany’s competitiveness is also affected however
by how various macro-economic factors interact.
Interest-related risk
Interest-related risk includes risks that changes in
interest rates will impact the Group’s income and
cash flow (cash-flow risks) or the fair value of
financial assets and liabilities (price risks).
Currency-related risk
More than 90% of the net sales of the Volvo
Group are generated in countries other than Swe-
den. Changes in exchange rates have a direct
impact on the Volvo Group’s operating income,
balance sheet and cash flow, as well as an indirect
impact on Volvo’s competitiveness, which over
time affects the Group’s earnings.
Credit-related risk
An important part of the Group’s credit risk is
related to how the financial assets of the Group
have been placed. The majority are placed in
interest-bearing bonds issued by Swedish real
estate financing institutions.
Liquidity risk
The Volvo Group ensures its financial prepared-
ness by always maintaining a certain portion of
revenues in liquid assets.
Market risk from investments in shares or
similar instruments
The Volvo Group is indirectly exposed to market
risks from shares and other similar instruments, as
a result of managed capital transferred to inde-
pendent pension plans being partly invested in
instruments of these types.
Operational risk
The profitability depends on successful
new products
The Volvo Group’s long-term profitability depends
on the Company’s ability to successfully launch
and market its new products. Product life cycles
continue to shorten, putting increased focus on
the success of the Group’s product development.
Reliance on suppliers
The Volvo Group purchases raw materials, parts and
components from numerous external suppliers. A
significant part of the Group’s requirements for raw
materials and supplies is filled by single-source sup-
pliers. The effects of delivery interruptions vary
depending on the item or component. Certain items
and components are standard throughout the
industry, whereas others are internally developed
and require unique tools that are time- consuming to
replace.
The Volvo Group’s costs for raw materials and
components can vary significantly over a business
cycle. Cost variations may be caused by changes
in world market prices for raw materials or by an
inability of our suppliers to deliver.
Intangible assets
AB Volvo owns or otherwise has rights to patents
and brands that refer to the products the Com-
pany manufactures and markets. These have
been acquired over a number of years and are
valuable to the operations of the Volvo Group.
AB Volvo does not consider that any of the
Group’s operations are heavily dependent on any
single patent or group of patents.
Through Volvo Trademark Holding AB, AB
Volvo and Volvo Car Corporation jointly own the
Volvo brand. AB Volvo has the exclusive right to
use the Volvo name and trademark for its prod-
ucts and services. Similarly, Volvo Car Corporation
has the exclusive right to use the Volvo name and
trademark for its products and services.
The Volvo Group’s rights to use the Renault
brand are restricted to the truck operations only
and are regulated by a license from Renault
s.a.s., which owns the Renault brand. The amount
paid during 2012 to Renault s.a.s. for license
fees amounted to SEK 6.4 M.
The Volvo Group’s rights to use the Panhard
brand are regulated by a license from Peugeot
SA. The amount paid during 2012 to Peugeot
SA for license fees amounted to SEK 90,000.
Complaints and legal actions
The Volvo Group could be the target of complaints
and legal actions initiated by customers, employ-
ees and other third parties alleging health, envi-
ronmental, safety or business related issues, or
failure to comply with applicable legislation and
regulations. Information about legal proceedings
involving entities within the Volvo Group are found
in note 24 Contingent Liabilities.
Even if such disputes are resolved success-
fully, without having adverse financial conse-
quences, they could negatively impact the
Group’s reputation and take up resources that
could be used for other purposes.
Risk related to human capital
A decisive factor for the realization of the Volvo
Group’s vision is our employees and their knowl-
edge and competence. Future development
depends on the company’s ability to maintain its
position as an attractive employer. To this end,
the Volvo Group strives for a work environment
in which energy, passion and respect for the
individual are guiding principles. Every year a
Group-wide survey is conducted, and according
to the survey the share of satisfied employees
has been on a high level in recent years.
Short-term risk factors
An increase in demand could potentially result in
delivery disturbances due to suppliers’ financial
instability or shortage of resources.
Uncertainty regarding customers’ access to
the financing of products in emerging markets
might have a negative impact on demand.
The Volvo Group verifies annually, or more fre-
quently if necessary, the goodwill value and other
intangible assets for possible impairment. The size of
the overvalue differs between the business areas
and they are, to a varying degree, sensitive to
changes in the business environment. Instability in
the business recovery and volatility in interest and
currency rates may lead to indications of impairment.
For further information on intangible assets, see
note 12.
The reported amounts for contingent liabilities
reflect a part of the Volvo Group’s risk exposure,
see note 24 for contingent liabilities.
Contractual conditions
related to take over bids
Some of AB Volvo’s long term loan agreements
contain conditions stipulating the right for a bond-
holder to request repayment in advance under
certain conditions following a change of the con-
trol of the company. In AB Volvo’s opinion it has
been necessary to accept those conditions in
order to receive financing on otherwise accept-
able terms. Provisions stipulating that an agree-
ment can be changed or terminated if the control
of the company is changed are also included in
some of the agreements whereby Renault Trucks’
has been given the right to sell Renault s.a.s.’ and
Nissan Motor Co. Ltd’s light-duty trucks as well as
in some of the Group’s purchasing agreements.
Further information
Note 27 Personnel contains information concerning
rules on severance payments applicable for the Group
Executive Team and certain other senior executives.
Note 4 and 30 contain information regarding
financial risks as well as goals and policies in
financial risk management.
Further risk information is provided in note 24.
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