Saab 2015 Annual Report Download - page 111

FINANCIAL INFORMATION – FINANCIAL STATEMENTS
Note 38, cont.
The Group’s outstanding electricity derivatives
Electricity derivatives Fair value 2015 2014
Million
Mega-
watt
Asset
SEK
Liability
SEK Net
Mega-
watt Net
Maturity up to 1 year 19 4 15 -11 20 -4
Subtotal 4 15 -11 -4
Maturity 1 to 3 years 12 - 5 -5 11 -1
Subtotal - 5 -5 -1
Electricity derivati-
ves, total 1) 2) 4 20 -16 -5
1) Of which used for cash flow hedges MSEK -15 (-5).
2) Also corresponds to the interest derivatives in the Parent Company.
Credit and counterparty risks
Credit risk is the risk that the counterparty in a transaction will not be able to fulfil
the financial 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 financial players. The Group’s aggregate credit
risks consist of commercial credit risks and financial credit risks.
Commercial credit risks
Commercial credit risks consist of outstanding accounts receivable and advances
paid to suppliers. This type of credit risk is identified and managed on a case-by-
case basis. Credit risks that arise in customer contracts are managed by utilising
available banking or insurance products. In some cases export credit institutions
may be used as well. Commercial credit risks that arise through advances paid to
suppliers are managed by maintaining bank-guaranteed collateral. At 31 Decem-
ber 2015, the Group had paid advances to suppliers of MSEK 32 (35).
Accounts receivable represent a commercial credit risk. Where counterparties’ cre-
ditworthiness is deemed unsatisfactory, bank or insurance guarantees or guaran-
tees from EKN are secured to ensure that payment will be received. Since
accounts receivable are generally secured through bank or insurance guarantees
or are attributable to states, the commercial credit risk is low. For more information
on the Group’s accounts receivable, see note 28.
Financial credit risks
Financial credit risk consists of exposures to financial institutions through deposits,
securities investments and/or the market value of outstanding derivatives.
The Group’s policy for managing financial credit risks is to ensure that all financial
counterparties have a long-term credit rating of no lower than A- from Standard
and Poor’s or A3 from Moody’s.
Each financial counterparty is assigned a credit limit based on its long-term
credit rating.
Saab has entered into ISDA master agreements with financial counterparties to
net the positive and negative market values of outstanding derivatives; see the
tables below.
Market value of financial assets and liabilities subject to netting
arrangements
2015
Gross
amount Set-off
Net
amount in
balance
sheet
Master
netting
arrange-
ments
Collateral
received/
assets
pledged
Net
amount
Currency
derivatives 1,048 - 1,048 -893 - 155
Interest rate
derivatives 5 - 5 -5 - -
CCY1) 1 - 1 - - 1
Electricity
derivatives 4 - 4 - - 4
Assets 1,058 - 1,058 -898 - 160
Currency
derivatives 1,506 - 1,506 -893 - 613
Interest rate
derivatives 83 - 83 -5 - 78
CCY1) 5 - 5 - - 5
Electricity
derivatives 20 - 20 - - 20
Liabilities 1,614 - 1,614 -898 - 716
1) Cross currency basis swaps.
2014
Gross
amount
Set-
off
Net
amount in
balance
sheet
Master
netting
arrang-
ements
Collateral
received/
assets
pledged
Net
amount
Currency derivatives 507 - 507 -415 - 92
Interest rate derivatives - - - - - -
Electricity derivatives 2 - 2 - - 2
Assets 509 - 509 -415 - 94
Currency derivatives 1,310 - 1,310 -415 - 895
Interest rate derivatives 91 - 91 - - 91
Electricity derivatives 7 - 7 - - 7
Liabilities 1,408 - 1,408 -415 - 993
Credit risk is calculated on established and anticipated risks pursuant to the
recommendations of the Bank of International Settlements (BIS I). On 31 Decem-
ber 2015, credit risks amounted to MSEK 3,129 (2,356), of which deposits with
banks, mortgage institutions, companies and the Swedish government totalled
MSEK 3,079 (2,842).
Hedge reserve
The hedge reserve before tax amounted to MSEK -696 (-720), of which the unreali-
sed value of derivatives was MSEK -594 (-897) and the realised effects arising from
rollovers of derivatives was MSEK -102 (177).
The change in the hedge reserve in 2015 of MSEK 24 consists of a reversal to
profit or loss of MSEK 361, change in the value of existing derivatives of
MSEK-122, the market value of hedges obtained during the year of MSEK 139,
and change that arose due to derivative rollovers of MSEK -354. For information on
the amount recognised in other comprehensive income, see consolidated net
comprehensive income.
The inefficiency in cash flow hedges that affected net income for the year
amounted to MSEK 0 (0).
Trading
Proprietary trading is permitted to a limited extent in fixed income and currency
instruments. The main purpose of this trading is to gain access to qualitative mar-
ket information and maintain a high level of market expertise.
The Board of Directors has issued a risk mandate for trading in fixed income and
currency instruments. In 2015, 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 2015, trading income was MSEK 21 (17), which is reported as
other operating income. The average utilised risk mandate (VaR) during the year
was MSEK 2 (2).
Pension obligation
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 invest-
ment policy requires an asset distribution of a maximum of 55 per cent equities/alter-
native investments (hedge funds), 30-100 per cent interest-bearing instruments, and
15 per cent property. Investments are made in interest-bearing securities from issu-
ers 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, 51 per cent (50) was
invested in interest-bearing assets and the remaining 49 per cent (50) in equities and
alternative investments. The market value of the fund’s assets as of 31 December
2015 was MSEK 5,316 (5,091) and the annual return was 4 per cent (11). In 2015,
the fund was capitalised by MSEK 0 (194) and MSEK 0 (193) in refunds were paid.
The table below shows the solvency margin for the pension fund.
MSEK 31-12-2015 31-12-2014 31-12-2013 31-12-2012
Fair value of assets under
management 5,316 5,091 4,595 4,346
Present value of defined-
benefit obligations1) 7,006 7,416 5,785 6,485
Solvency margin 76% 69% 79% 67%
Pension obligation accor-
ding to PRI 5,237 5,106 4,736 4,615
Solvency margin 102% 100% 97% 94%
1) Refers to the pension obligation that the assets under management are designed to cover.
SAAB ANNUAL REPORT 2015– 107