All business operations involve risk – managed risk-taking is a condition of maintaining a sustained favorable profitability. Risk may be due to events in the world and can affect a given industry or market. Risk can be specific to a single company. Volvo works continuously to identify, measure and manage risk, and in some cases Volvo can influence the likelihood that a risk-related event will occur. In cases in which such events are beyond Volvo’s control, the aim is to minimize the consequences.
The risks to which the Volvo Group are exposed are classified into three main categories:
External-related risks – such as the cyclical nature of the commercial vehicles business, intense competition, changes in prices for commercial vehicles and government regulations;
Financial risks – such as currency fluctuations, interest levels fluctuations, valuations of shares or similar instruments, credit risk and liquidity risk and;
Operational risks – such as market reception of new products, reliance on suppliers, protection and maintenance of intangible assets, complaints and legal actions by customers and other third parties and risk related to human capital.
For a more elaborated account for these risks, please refer to the Risk Management section on pages 72-73 in the 2012 Annual Report for the Volvo Group. The Annual Report is available at www.volvogroup.com.
Risk updates for the period
Short-term risks, when applicable, are also described in the respective report per business area of this report.
Uncertainty regarding customers’ access to the financing of products might have a negative impact on demand.
Due to the present market conditions Volvo sees increased supplier risks where some suppliers are under financial pressure or have capacity constraints. Consequences thereof could be increased cost for Volvo or disruptions in production.
Volvo verifies annually, or more frequently if necessary, the goodwill value of its business areas 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. This is the case for Rents, included in segment Group functions and Other. Instability in the business recovery and volatility in interest and currency rates may lead to indications of impairment.The reported amounts for contingent liabilities reflect a part of Volvo’s risk exposure. Note 24 of the Volvo Group Annual Report 2012, describes the legal proceedings and investigations the Group is currently involved in and subject to, which are of such nature that the Group could not exclude that they may affect the Group’s result and cash flow with an amount that may be material. The on-going legal proceedings and investigations are progressing but during the first six months no material change has occurred in these matters compared to the description provided in note 24 of the Volvo Group Annual Report 2012. Total contingent liabilities as of June 30, 2013, amounted to SEK 18.5 billion, an increase of SEK 0.8 billion compared to December 31, 2012. A major part of the total contingent liabilities is related to credit guarantees issued as a result of sales in emerging markets.