Volvo 2015 Annual Report Download - page 123

GROUP PERFORMANCE 2015 NOTES
LIQUIDITY RISKS
Liquidity risk is defined as the risk that the Volvo Group would be unable
to finance or refinance its assets or fulfill its payment obligations.
POLICY
The Volvo Group assures itself of sound financial preparedness by always
having liquid funds and committed facilities to cover the Volvo Group’s
expected liquidity needs for a period of 12–18 months in a scenario with
no access to capital markets.
The Volvo Group’s liquid funds, i.e. cash and cash equivalents and market-
able securities combined, amounted to SEK 24.4 billion on December 31,
2015. In addition to this, granted but unutilized credit facilities amounted
to SEK 39.7 billion. The liquidity preparedness is therefore sufficient to
cover the expected liquidity needs for the Volvo Group for more than 18
months in a scenario with no access to capital markets.
The adjacent graph 4:9 discloses expected future cash flows including
derivatives related to financial liabilities. Capital flow refers to expected
payments of loans and derivatives, see note 22. Expected interest flow
refers to the future interest payments on loans and derivatives based on
interest rates expected by the market. The interest flow is recognized
within cash flow from operating activities.
In addition to derivatives included in capital flow in the adjacent graph
4:9 there are also derivatives related to financial liabilities recognized as
assets, which are expected to give a future capital flow of SEK 1.4 billion
and a future interest flow of SEK 1.6 billion.
POLICY
Changes in commodity prices are included in the product cost calculation.
Increased commodity prices are therefore reflected in the sales price of
the Volvo Group’s final products. Purchasing agreements with commodity
suppliers may also be long-term in nature or structured in a way that short
term volatility in commodity prices have less direct effect on Volvo Group’s
cost base. Financial hedging is performed in order to reduce short-term
volatility of electricity cost in Sweden.
INTEREST-RATE RISKS CURRENCY RISKS CREDIT RISKS
FINANCIAL RISKS
OTHER PRICE RISKSLIQUIDITY RISKS
INTEREST-RATE RISKS CURRENCY RISKS CREDIT RISKS
FINANCIAL RISKS
OTHER PRICE RISKSLIQUIDITY RISKS
OTHER PRICE RISKS
Commodity risks
Commodity risks refer to the risk that changed commodity prices will
affect the consolidated earnings within the Volvo Group. Procurement of
commodities such as steel, precious metals and electricity are made on a
regular basis where prices are set in the global markets.
The predominant part of expected future cash-flows that expires within
2016 and 2017 is an effect of the Volvo Group’s normal business cycle,
with shorter duration in the Customer Finance portfolio compared to
Industrial Operations.
A hybrid bond was issued in 2014 amounting to EUR 1.5 billion in order
to further strengthen the Volvo Group’s balance sheet and prolong the
maturity structure of the debt portfolio. The hybrid bond is classified as a
loan with duration of 61.6 years, subordinated to all other financial liabili-
ties currently outstanding.
Read more about contractual term analysis of the Volvo Group’s future
payments from non-annullable financial and operational lease contracts in
Note 14.
4:9
Future cash-flow including derivatives related to
non-current and current financial liabilities
2019
–12.4
–1.2
2020
–1.6
–0.8
2021
–0.1
–0.4
2017
–35.6
–2.6
2018
–9.2
–1.6
2016
–57.3
–3.7
–70
–60
–50
0
–40
–30
–20
–10
2022 or later
–16.4
–0.9
Capital flow, SEK bn
Interest flow, SEK bn
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