Saab 2011 Annual Report Download - page 128

Commodity risks
Price risks are divided into two parts:
t Commodity price risk refers to the risk that purchasing costs for
material will rise.
t 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  - (). Aer the introduction
of additional price areas in Sweden on  November , the name to was
changed to . 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 as a result of transactions with
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 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 maintaining bank-guaran-
teed security for any advances. Commercial credit risks consist of outstand-
ing 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 counter-
parties 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 unsatisfac-
tory, bank 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 2011 2010
Write-downs, 1 January -22 -32
Write-downs for calculated losses -5 -12
Reversal of previous write-downs 3 15
Actual credit losses 5 7
Write-downs, 31 December -19 -22
e following table shows an age analysis of the Group’s overdue receivables:
MSEK 31-12-2011 31-12-2010
<30 days 221 265
30 to 90 days 393 225
91 to 180 days 303 52
>181 days 125 102
Accounts receivable overdue 1,042 644
Accounts receivable not overdue 2,111 2,408
Total accounts receivable 3,153 3,052
Since accounts receivable are largely secured via bank or insurance guaran-
tees or are 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:
t 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
t Assign each nancial counterparty a credit limit based on its long-
term credit rating
t 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   ().
Hedge accounting
Hedge accounting to fair value is applied to foreign exchange contracts and
currency swaps, primarily for derivatives entered into before  December
. e market value of currency derivatives accounted for as fair value
hedges and the market value of hedged items are indicated in the table below.
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  Other operating
expenses.
Hedge accouting to fair value, MSEK 2011 2010
Foreign currency risk in order backlog (hedged item) -13 -7
Currency derivatives (hedging instrument) 13 7
Cash ow hedges are applied to forward exchange contracts and currency
swaps entered into aer  December  and to electricity derivatives.
Cash ows hedges are expected to aect prot and loss in the period
hedged cash ows occur, with the exception of those related to the manufac-
NOTE 41, CONT.
FINANCIAL INFORMATION > NOTES
124 SAAB ANNUAL REPORT 2011