Volvo 2015 Annual Report Download - page 104

BALANCING THE REQUIREMENTS OF
DIFFERENT STAKEHOLDERS
A
long-term competitive business requires
access to capital to be able to invest. The
financial management secures that the capi-
tal is used in the best possible way through
well-defined 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 shareholders. The restric-
tions on net debt to equity for the Industrial Operations and equity
ratio for the Customer Finance Operations are to secure fi nancial
stability and flexibility for debt providers.
Steering principles to ensure financial flexibility over the
business cycle
To ensure financial stability and flexibility 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 funding and lending is in local cur-
rency and the customer finance portfolio is matched both from an
interest and a liquidity risk perspective, in accordance with the
Volvo Group policy. For further information, please see note 4 to
the Consolidated financial statements.
Diversified funding sources give flexibility and support
the global presence
The Volvo Group has centralized the portfolio man agement of all
financial assets and liabilities, funding operations and cash man-
agement through the internal bank, Volvo Treasury. The liability
portfolio is separated into two portfolios, one for Industrial Oper-
ations and one for Customer Finance, to correspond to the needs
in the different operations.
Volvo Treasury is increasing the possibility to access capital
markets at all times through diversified funding sources. Further-
more, the Volvo Group’s global presence is supported by bond
programs on all major debt capital markets in the world. Besides
the access to capital markets around the world, the Volvo Group
uses different instruments, such as bilateral bank funding, corpo-
rate bonds and certificates, hybrid bonds, agency funding as well
as securitization of assets in the Customer Finance portfolio. An
increasingly important part of the treasury work is also to manage
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 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
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 finance customers’ purchases
of the Group’s products and on the trust from suppliers. It also
gives access to more funding sources and lower cost of funds.
The Volvo Group has contractual relations with two global
Credit Rating Agencies (CRA’s) for solicited credit ratings; Stand-
ard & Poors’ Rating Services (S&P) and Moody’s Investors Ser-
vice (Moody’s). Both S&P and Moody’s changed their negative
outlook to stable during 2015. S&P’s long-term credit rating is
BBB, stable and Moody’s rating is Baa2, stable.
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.
CREDIT RATING, FEBRUARY 22, 2016
Short-term Long-term
Moody’s (Corporate Rating) P-2 Baa2, stable
S&P (Corporate Rating) A2 BBB, stable
DBRS (Canada) – BBB, (high)
R&I (Japan) a-1 A, stable
GEOGRAPHICALLY DIVERSIFIED MARKET PROGRAMS
Cash and cash equivalents
and marketable securities
Revolving credit
facilities
0
20
40
80
60
39.7
64.1
24.4
SEK bn
Volvo Group liquidity position, December 31, 2015
CNY
SEK
JPY
AUD
EUR
CNH
CAD
USD
BRL
GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2015
FINANCIAL MANAGEMENT
102