Saab 2015 Annual Report Download - page 48

All businesses entail risk. Saab’s operations primarily involve the devel-
opment, production and supply of technologically advanced hardware
and soware to customers around the world. e risks described in the
annual report are the risks that Saab considers most material to its busi-
ness. Each of these risks can have a signicant impact on the company’s
operations.
e key risk areas are market risks as well as political, nancial and
operating risks.
Risk management
Signicant identied risks are managed continuously at all levels of the
organisation and in the strategic planning process. Control processes in
the form of guidelines, policies and tools govern the management of
risks. Saab’s internal audit unit is responsible for independently review-
ing the eectiveness of a sample of internal control processes each year.
Risks are also managed by procuring insurance. Saab has a Group-wide
programme where insurance is obtained on the market or through the
Group’s own insurer, Lansen Försäkrings AB.
MARKET RISKS
Regulations can change and adversely affect Saab’s business
and growth opportunities
e ability to establish and maintain long-term customer relationships
is vital for Saab, as some projects extend over decades. e sale of
defence materiel, which represents the large part of Saab’s sales, is
regulated by national laws and ordinances that also include interna-
tional agreements. Access to vital components and systems may be sub-
ject to export restrictions and various types of regulations. In Saab’s
case, it is closely aected by Sweden's defence policy and regulations on
the export of defence materiel. e risk to Saab’s business is that laws,
regulations or ordinances are amended in a way that impacts Saab’s
relationship with a customer.
e Swedish state – through the Armed Forces and FMV – has
traditionally accounted for a large percentage of Saab’s product renewal.
As Saab’s business outside Sweden grows, the share of product develop-
ment conducted collaboratively with nations other than Sweden is
increasing. In spite of this, Saab expects Sweden to account for the
largest share of its development expenditures for many years to come.
In 2015, development of products and systems together with customers
corresponded to 19 per cent of sales.
Market risks can affect a customer in a way that it cannot fulfil
its current contracts
Natural disasters, economic crises, shis in political power, and embar-
gos are examples of market risks that could adversely impact Saab’s cus-
tomers in such a way that the delivery schedule for a project changes,
the details of a project change, or the customer lacks the ability to full
the agreement. is could mean that Saab does not get paid for prod-
ucts and systems it has delivered or that the company has to break o a
project aer major investments have already been made. A large share
of Saab’s order backlog contains contracts with an order value over
SEK1 billion which will be delivered over many years. Consequently,
the impact on Saab could be signicant if a major contract is broken or
amended and renegotiated.
Management of market risks
By monitoring legal developments, Saab ensures that it always has
access to information on changes that are being made or could be made
in the future. In this way Saab can adapt its business to the changes that
are made.
Saab also manages market risks through various types of export
guarantees, insurance solutions and other instruments. It is impossible,
however, to completely avoid losing business opportunities or incurring
damage if market risks are realised.
FINANCIAL RISKS
In its operations, Saab is exposed to various nancial risks. Management
of nancial risks is governed by the Group Treasury Policy established
by the Board of Directors. Saab also has an extensive pension obligation
managed by the Saab Pension Fund. Detailed directives and processes
are in place for the operational management of each area related to
nancial risks. Overarching responsibility for managing nancial risks
lies with Group Treasury.
Pension obligations
e Group’s pension obligations are substantial, as indicated in note 34.
To calculate the pension obligations, future obligations are discounted
to present value. e size of the liability depends on assumptions
regarding discount rate, ination and life expectancy.
Management of pension liability
e predominant plan in Sweden is the ITP plan under the collective
agreement between the Confederation of Swedish Enterprise and the
Negotiation Cartel for Salaried Employees in the Private Business Sector
(PTK). Saab Sweden has three dierent ways to secure its dened-benet
plans: as liabilities on the balance sheet, in pension funds or funded
through insurance mainly with Alecta. e Saab Pension Fund, which
secures part of the ITP plan, had assets of MSEK 5,316 (5,091) as of
31December 2015, compared to an obligation of MSEK 7,019 (7,428)
according to IAS 19, or a solvency margin of 76 per cent (69).
e Saab Pension Fund was established in 2006 and capitalised with
the corresponding PRI liability. Actuarial calculations of the Group’s
obligations are performed each year, which are then compared to the
fund’s assets. Decits may require Saab to contribute additional funds.
e objective of the Saab Pension Fund is a real annual return on
invested capital of at least 4 per cent. e fund invests in interest-
bearing securities, equities and hedge funds.
ADMINISTRATION REPORT
RISKS AND RISK MANAGEMENT
Saab has business operations around the world and projects delivered over
long periods of time. Many projects entail high-tech development and product
refinement. In addition, Saab runs various research and innovation programmes
and offers technology transfers as part of its business.
Financial risks
Risk Foreign currency risks
Interest rate risks
Liquidity and refinancing risks
Credit and counterparty risks
Commodity risks
Pension
obligation
Risk
manage-
ment
Management of financial risks is
governed by a Group Treasury Policy
established by the Board of Directors.
See note 38 for further information.
See below
44 – SAAB ANNUAL REPORT 2015