Borrowing and refinancing risk
Scania’s borrowings primarily consist of bonds issued under capital market programmes, and to some extent of other borrowing mainly via the banking system. In addition, Scania secures a certain portion of its borrowing needs via four committed credit facilities: two in the international borrowing market and two in the Swedish market.
At year-end 2010, borrowings amounted to SEK 34.4 (46.4) billion. In addition to utilised borrowing, Scania had unutilised committed credit facilities equivalent to SEK 27.0 (25.7) billion.
Interest rate risk
Scania’s policy concerning interest rate risks in Vehicles and Services is that the interest rate refixing period on its net debt should normally be 6 months, but divergences may be allowed within the 0–24 month range. In Financial Services the interest rate refixing period on borrowings shall be matched with the interest rate refixing period on assets. To manage interest rate risks in the Scania Group, derivative instruments are used.
Currency transaction exposure in operating income during 2010 totalled about SEK 26 (20) billion. The largest currency flows were in Brazilian real, euros and US dollars. Based on 2010 revenue and expenses in foreign currencies, a one percentage point change in the Swedish krona against other currencies would affect operating income by about SEK 258 m. (198) on an annual basis.
According to Scania’s policy, future cash flows may be hedged during a period that is allowed to vary between 0 and 12 months. The Board of Directors approves maturities of more than 12 months. At the end of 2010, no future cash flows were hedged.
At the end of 2010, Scania’s net assets in foreign currencies amounted to SEK 13,150 m. (12,250). Net assets outside Sweden of Scania’s subsidiaries are not hedged under normal circumstances. However, to the extent a foreign subsidiary has significant net monetary assets in local currency, they may be hedged. At the end of 2010, no foreign net assets were hedged.
The management of credit risks in Vehicles and Services is regulated by a credit policy. In Vehicles and Services, credit exposure consists mainly of receivables from independent dealers as well as end customers.
Provisions for credit losses amounted to SEK 581 m. (725), equivalent to 8.0 (9.9) percent of total receivables. The year’s bad debt expenses amounted to SEK 55 m. (188).
To maintain a controlled level of credit risk in Financial Services, the process of issuing credit is supported by a credit policy as well as credit instructions. In Financial Services, the year’s expenses for actual and potential credit losses totalled SEK 493 m. (833), equivalent to 1.29 (1.90) percent of the average portfolio. The year’s actual credit losses amounted
to SEK 500 m. (517).
At year-end, the total reserve for bad debt expenses in Financial Services amounted to SEK 817 m. (924), equivalent to 2.2 (2.2) percent of the portfolio at the close of 2010.
The year-end credit portfolio amounted to SEK 36,137 m. (40,404), allocated among about 22,000 customers, of which 98.7 percent were customers with lower credit exposure per customer than SEK 15 m.
The management of the credit risks that arise in Scania’s treasury operations, among other things in investment of cash and cash equivalents and derivatives trading, is regulated in Scania’s Financial Policy document. Transactions occur only within established limits and with selected creditworthy counterparties.