Volvo 2013 Annual Report Download - page 86

portant part of the treasury work is also to man-
age increased funding needs in new growth
markets for the Group.
A strong and stable credit rating
is important
Being a large issuer with a growing customer
fi nancing 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 for a number of other stakeholders when it
comes to creating long-term relationships. A
strong credit rating has a positive effect on the
ability to attract and fi nance customers’ pur-
chases of the Group’s products and on the trust
from suppliers.
The Volvo Group has contractual relations
with two global Credit Rating Agencies (CRA’s)
for solicited credit ratings; Standard & Poors’
Rating Services (S&P) and Moody’s Investors
Service (Moody’s). In late September and early
October the outlook on the AB Volvo credit rat-
ing was changed from stable to negative, both
on the S&P BBB rating and on Moody’s Baa2
rating. There are also agreements with CRAs in
Canada and Japan for local credit ratings. The
CRA’s evaluate the Volvo Group’s 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, 2014
Short-term Long-term
Moody’s (Global) P-2 Baa2, negative
S&P Corporate Credit Rating A2 BBB, negative
S&P Nordic National Scale K-2 –
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 fi nancial management secures
that the capital is used in the best possible way
through well-defi ned ratios and objectives for
the Industrial Operations as well as for the Cus-
tomer Finance Operations. The objectives on net
sales growth and operating margins for the
Industrial Operations and return on equity for the
Customer Finance Operations are intended to
secure the return requirements from sharehold-
ers. The restrictions on net debt to equity for
the Industrial Operations and equity ratio for the
Customer Finance Operations are to secure fi -
nancial stability and fl exibility for debt providers.
Steering principles to ensure fi nancial
fl exibility over the business cycle
To ensure fi nancial stability and fl exibility
throughout the business cycle the Volvo Group
holds a strong liquidity position. Besides cash
and marketable securities the liquidity position is
built up of committed credit facilities. The fund-
ing and lending is in local currency and the cus-
tomer fi nance portfolio is matched both from an
interest and a liquidity risk perspective.
Diversifi ed funding sources give fl exibility
and support the global presence
The Volvo Group has centralized the portfolio
man agement of all fi nancial assets and liabili-
ties, 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 Cus-
tomer Finance, to correspond to the needs in the
different operations.
Volvo Treasury is increasing the possibility to
access capital markets at all times through diver-
sifi ed funding sources. Furthermore, the Volvo
Group’s global presence is supported by market
programs on all major debt capital markets in
the world. Besides the access to capital markets
around the world, the Volvo Group uses differ-
ent instruments, such as bilateral bank funding,
corporate bonds and certifi cates, agency fund-
ing as well as securitization of assets in the
Customer Finance portfolio. An increasingly im -
The objectives of the fi nancial management in the Volvo Group is to assure
shareholders long-term attractive and stable total return, and debt providers
the fi nancial strength and fl exibility to secure proceeds and repayment.
Volvo Group liquidity position, December 31, 2013
Cash and cash
equivalents and
marketable
securities
Revolving credit
facilities
0
20
40
60
31.9
29.6
SEK bn
Geographically diversifi ed market programs
CNY
SEK
JPY
AUD
EUR
CNH
CAD
USD
BRL
BOARD OF DIRECTORS’ REPORT 2013 GROUP PERFORMANCE
82