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SAAB ANNUAL REPORT 2011 63
ADMINISTRATION REPORT > RISKS AND RISK MANAGEMENT
FINANCIAL RISKS
RISK
Foreign currency risk
Interest rate risk
Refinancing risk
Credit and counterparty risks
Commodity risk Pension obligations
MANAGEMENT
Management of financial risks is governed by the
Group Treasury Policy established by the Board of
Directors.
Learn more about financial risks in Note 41. See below.
FINANCIAL RISKS
In its operations, Saab is exposed to various nancial risks. Man-
agement of nancial risks is governed by the Group Treasury Policy
established by the Board of Directors. Moreover, detailed directives
and processes are in place for operating management of each area.
Overarching responsibility for managing nancial risks lies with
Group Treasury.
Pension obligations
e Group’s pension obligations are substantial, as indicated in
Note 37. In the calculation of pension obligations, future pension
obligations are discounted to present value. e size of the liability
is dependent on the choice of discount rate: a low interest rate pro-
duces a high liability, and vice versa. To manage the pension liabil-
ity, the Saab Pension Fund was established in 2006 and capitalised
with the corresponding PRI liability. e Group’s obligations are
calculated on an actuarial basis each year, aer which a comparison
is drawn with the fund’s assets. Decits according to such calcula-
tions may require Saab to contribute additional funds. e Saab
Pension Fund’s objective is a real annual return of at least 4 per cent
on invested capital. e fund invests in interest-bearing securities,
equities and hedge funds.
e accounting principle IAS 19 Employee Benets was
amended in June 2011, due to which the Group will stop applying
the “corridor approach” and instead recognise all actuarial gains
and losses in other comprehensive income when they arise. Past
service costs will be recognised immediately. Interest expenses and
the expected return on plan assets will be replaced by net interest
calculated with the help of the discount rate, based on the net
surplus or net decit in the dened benet plan. e Group intends
to apply the amended standard for nancial years beginning on or
aer 1 January 2013. If the new standard had been applied in the
annual accounts for 2011, retained earnings would have decreased
by MSEK 2,000 and the pension obligation increased by
MSEK2,700. e year’s actuarial loss amounted to MSEK 1,344,
which would have aected other comprehensive income negatively.
Application of the standard changes the recognition of yield tax and
special payroll tax. e eect of this change has not yet been
evaluated.
e standard has not been adopted yet by the EU.
OPERATING RISKS
A number of signicant areas have been identied with respect to
operating risks, which are important in assessing the Group’s results
and nancial position.
Develop and introduce new systems and products
e Group invests heavily in the research and development of its
own products and systems as well as acquisitions of technology. Its
biggest systems are the export version of Gripen, missile systems
and electronic warfare systems. One example of acquired technol-
ogy is the world-leading radar technology obtained through the ac-
quisition of Ericsson Microwave Systems AB in 2006. Investments
in new systems and products are made aer a strategic and nancial
analysis and assessment of future business opportunities.
Management of development and introduction of new systems
and products
Various measures were launched in 2011 to further improve ef-
ciencies in development processes, including the continued estab-
lishment of centres of excellence within Saab for dierent aspects of
development work. is means that we consolidate all development
within the same area in one location.
Certain development costs are capitalised in accordance with
established accounting principles. Amortisation of capitalised develop-
ment costs is scheduled over the estimated production volume or
an estimated period of use, though not more than ve to ten years.
If the estimated period of use is shorter than ve years, the costs are
amortised over the shorter period. Future business opportunities are
periodically reassessed, which can lead to impairment losses. Capital-
ised development costs are shown in Note 16.