Saab 2010 Annual Report Download - page 119

Financing (refers to utilised credit facilities)
Sensitivity analysis of financial risk
MSEK
Maturities
Fixed
interest
Effect of
market in-
terest rate,
1%
Tied-up
capital
Effect of
credit
spread,
1%
Effect on
financial
costs
1 year -1,709 -17 -1,409 -14 -31
2 years -400 -4 - - -4
3 years -250 -3 -1,100 -11 -14
4 years -100 -1 - - -1
5 years and for-
ward -50 - - - -1
Total -2,509 -25 -2,509 -25 -51
Commodity risks
Price risks are divided into two parts:
• Commodity price risk refers to the risk that purchasing costs for
material will rise.
• Electricity price risk refers to the risk that Saab could be negatively
aected by changes in electricity prices .
According to the Group’s policy, commodity risk is minimised and managed
primarily through contract clauses with customers/suppliers. To minimise
the risk to Saab’s operating margin, future electricity consumption is hedged.
is is done by hedging projected consumption according to a model where
 per cent of the next quarter’s consumption is hedged. e hedging level
then drops on a straight-line basis to  per cent in quarter . Swedish units
consume around  GWh per year with a spot price risk of  . per
every time the price of electricity changes by  .. Electricity directives
are managed through a discretionary management mandate, where the man-
ager has the mandate to accept risks in relation to benchmarks (hedging
strategy) at the equivalent of   () expressed in VaR. e market value of
electricity derivatives as of year-end was   (-). Since  January ,
electricity derivatives are used as cash ow hedges for the Stockholm price
area. e ineectiveness that aected net income for the year amounted to
 -.
Credit and counterparty risks
Credit risk is the risk that the counterparty in a transaction will not be able to
fulll the nancial obligations of a contract. In the course of its day-to-day
operations, Saab is exposed to credit risks related to counterparties in the
form of customers, suppliers and nancial players. e Group’s aggregate
credit risks consist of commercial credit risks and nancial credit risks.
Commercial credit risks
According to the Group’s policy, commercial credit risks are identied and
actively managed on a case-by-case basis. Credit risks that arise in customer
contracts with lengthy terms are managed by utilising available banking,
insurance or export credit institutions. According to the policy, credit risks
that arise through advances paid to suppliers are managed by always main-
taining bank-guaranteed security for any advances. Commercial credit risks
consist of outstanding accounts receivable and advances paid to suppliers.
Accounts receivable
On  December , the Group’s outstanding accounts receivable amounted
to  , (,). e Receivables Financing Programme reduced
accounts receivable at year-end by approximately  , (). Defence-
related sales accounted for  per cent () of total sales, where the counterpar-
ties in most accounts receivable are nations with high creditworthiness. e
Group’s receivables are mainly in the EU, which accounted for  per cent ()
of the total. Where counterparties’ creditworthiness is deemed unsatisfactory,
bank and/or insurance guarantees or guarantees from  are secured.
In connection with cash transactions, Saab generally requires that a letter
of credit is opened in its name to ensure that payment is received.
Write-downs of accounts receivable amounted to   (), corre-
sponding to . per cent (.) of total accounts receivable. Write-downs of
accounts receivable have changed as follows.
MSEK 2010 2009
Write-downs, 1 January -32 -27
Write-downs for calculated losses -12 -19
Reversal of previous write-downs 15 12
Actual credit losses 7 2
Write-downs, 31 December -22 -32
e following table shows an age analysis of the Group’s overdue receivables:
MSEK 31-12-2010 31-12-2009
<30 days 265 466
30 to 90 days 225 194
91 to 180 days 52 87
>181 days 102 147
Accounts receivable overdue 644 894
Accounts receivable not overdue 2,408 1,943
Total accounts receivable 3,052 2,837
Since accounts receivable are either secured via bank and/or insurance com-
pany guarantees or receivables from states, the commercial credit risk is low
despite overdue receivables.
Advances paid to suppliers
Advances paid to suppliers constitute a credit risk, since the counterparty’s
services have not been fully rendered. As of  December , the Group had
paid its suppliers advances of   (). As the Group’s policy is to
maintain bank-guaranteed security for any advances it pays, the commercial
supplier credit risk is considered low.
Financial credit risks
Financial credit risk consists of exposures to banks through deposits, securi-
ties investments and/ or the market value of outstanding derivatives.
e Group’s policy for managing nancial credit risks is to:
• Ensure that all nancial counterparties have a long-term credit rating
of no lower than A from Standard and Poor’s or A from Moody’s
• Assign each nancial counterparty a credit limit based on its long-
term credit rating
• Enter into  master agreements with nancial counterparties to
net the positive and negative market values of outstanding derivatives
Credit risk is calculated on established and anticipated risks according to the
recommendations of the Bank of International Settlements ( I). On 
December , counterparty risks amounted to  , (,), of which
deposits with banks, mortgage institutions, companies and the Swedish state
totalled  , (,).
Trading
e Board has given Saab Treasury a risk mandate for trading in currency
and money market instruments. During the year,   was allocated to
trading expressed according to VaR. If the cumulative result for the year is
negative, the mandate is reduced correspondingly. In , trading income
was   (), which is reported as other operating income. e average
utilised risk mandate (VaR) during the year was   ().
Valuation methods for financial assets and liabilities
e fair value of listed nancial assets is determined using market prices.
Furthermore, Saab applies various valuation methods to determine the fair
value of nancial assets that are managed on an inactive market. ese valua-
tion methods are based on the valuation of similar instruments, discounted
cash ows or customary valuation methods such as Black-Scholes.
NOTE 41, CONT.
FINANCIAL INFORMATION > NOTES
116 SAAB ANNUAL REPORT 2010