Saab 2014 Annual Report Download - page 125

FINANCIAL INFORMATION – NOTES
Trading
The Board has given Saab Treasury a risk mandate for trading in interest rate and
currency instruments. During 2014, MSEK 15 was allocated to trading expressed
as VaR. If the cumulative result for the year is negative, the mandate is reduced cor-
respondingly. In 2014, trading income was MSEK 17 (21), which is reported as
other operating income. The average utilised risk mandate (VaR) during the year
amounted to MSEK 2 (2).
Hedge accounting
Hedge accounting to fair value is applied to foreign exchange contracts and cur-
rency swaps. The market value of currency derivatives accounted for as fair value
hedges (hedging instruments) amounts to MSEK 3 (4), market value of currency
risk in order backlog (hedged items) amounts to MSEK -3 (-4). For information on
the impact on net income for the year of gains and losses on derivatives accounted
for as fair value hedges, see note 6, Other operating expenses.
Certain forward exchange contracts and currency swaps (hedge instruments)
entered into to hedge future receipts and disbursements against currency risks are
accounted for according to the rules for cash flow hedging. These cash flow hed-
ges relate primarily to contractual sales volumes. In the event the cash flow is far in
the future, an extension strategy can be applied, the currency hedge can be shifted
to an earlier date than when the cash flow is expected and hedge accounting for
that time period is then applied to changes in the spot price.
Derivatives that protect future receipts and disbursements are recognised in the
statement of financial position at fair value. Changes in value are recognised in
other comprehensive income and separately recognised in the hedge reserve in
equity until the hedged cash flow meets the operating profit or loss, at which point
the cumulative changes in value of the hedging instrument are transferred to profit
or loss to meet and match the effects on earnings of the hedge transaction. The
hedge reserve before tax amounted to MSEK -720 (440), of which the unrealised
value of derivatives was MSEK -897 (91) and the realised effects arising from rollo-
vers of derivatives was MSEK 177 (349).
The change in the hedge reserve in 2014 of MSEK -1,160 consists of a reversal
to profit or loss of MSEK -23, the change in the value of existing derivatives of
MSEK -804, the market value of hedges obtained during the year of MSEK -167,
and the change that arose due to the rollovers of derivatives of MSEK -166. For
information on the amount recognised in other comprehensive income, see conso-
lidated net comprehensive income.
The inefficiency in cash flow hedges that affected net income for the year
amounted to MSEK 0 (2).
Valuation methods for financial assets and liabilities
The fair value of listed financial assets is determined using market prices. Saab also
applies various valuation methods to determine the fair value of financial assets that
are traded on an inactive market or are unlisted holdings. These valuation methods
are based on the valuation of similar instruments, discounted cash flows or custo-
mary valuation methods such as Black-Scholes.
The following instruments were valued at fair value according to listed (unadjusted)
prices on an active market on the closing date (Level 1):
• Bonds
• Electricity derivatives
• Interest derivatives
The following instruments were valued at fair value according to accepted valuation
models based on observable market data (Level 2):
• Forward exchange contracts: Future payment flows in each currency are dis-
counted by current market rates to the valuation day and valued to SEK at year-
end exchange rates
• Options: The Black-Scholes option pricing model is used in the market valuation
of all options
• Interest swaps: Future variable interest rates are calculated with the help of cur-
rent forward rates. These implicit interest payments are discounted on the valua-
tion date using current market rates. The market value of interest rate swaps is
obtained by contrasting the discounted variable interest payments with the
discounted present value of fixed interest payments
Unlisted shares and participations: Valued according to accepted principles; e.g.,
for venture capital firms (Level 3).
As of 31 December 2014, the Group had the following financial assets and
liabilities at fair value:
Assets at fair value
MSEK 2014 Level 1 Level 2 Level 3
Bonds and interest-bearing
securities 1,270 1,270 - -
Forward exchange contracts 422 - 422 -
Currency options 45 - 45 -
Interest rate swaps - - - -
Electricity derivatives 2 2 - -
Shares and participations 150 121 - 29
Total 1,889 1,393 467 29
Liabilities at fair value
MSEK 2014 Level 1 Level 2 Level 3
Forward exchange contracts 1,258 - 1,258 -
Currency options 48 - 48 -
Interest rate swaps 87 - 87 -
Electricity derivatives 7 7 - -
Total 1,400 7 1,393 -
Pension fund
The Saab Pension Fund was established in 2006 to secure the main part of the
Group’s pension obligation and is not consolidated in the Group.
The fund has a long-term real yield requirement of 3 per cent per year. The
investment policy requires an asset distribution of a maximum of 50.5 per cent
equities/alternative investments (hedge funds) and 49.5-100 per cent interest-bea-
ring instruments. Investments are made in interest-bearing securities from issuers
with a credit rating of no lower than BBB according to Standard & Poor’s and Baa
according to Moody’s. Of the fund’s capital at year-end, 50 per cent (50) was
invested in interest-bearing assets and the remaining 50 per cent (50) in equities
and alternative investments. The market value of the fund’s assets as of 31 Decem-
ber 2014 was MSEK 5,091 (4,595) and the annual return was 11 per cent (6). In
2014, the fund was capitalised by MSEK 194 (0) and MSEK 193 (0) in refunds were
paid. The table below shows the solvency margin for the pension fund.
MSEK 31-12-2014 31-12-2013 31-12-2012 31-12-2011
Fair value of assets under
management 5,091 4,595 4,346 4,050
Present value of defined-
benefit obligations1) 7,416 5,785 6,485 5,866
Solvency margin 69% 79% 67% 69%
Pension obligation
according to PRI 5,106 4,736 4,615 4,489
Solvency margin 100% 97% 94% 90%
1) Refers to the pension obligation that the assets under management are designed to cover.
Note 41, cont.
SAAB ANNUAL REPORT 2014 – 121