Financial Management

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Balancing the requirements of different stakeholders

Geographically diversified market programs

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.

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 are intended to secure the return requirements from shareholders. The restrictions on net debt to equity for the Industrial Operations and equity ratio for the Customer Finance Operations are to secure financial 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 currency and the customer 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 centralized the portfolio management 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 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. 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 different instruments, such as bilateral bank funding, corporate bonds and certificates, 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.

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 rating 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.