Scania is exposed to various financial risks. Those of the greatest importance are currency, interest rate, refinancing and credit risks. Financial risks are managed in accordance with the Financial Policy adopted by Scania’s Board of Directors.
During 2013, 95 percent of Scania’s sales occurred in countries outside Sweden. Since a large proportion of production occurs in Sweden, at costs denominated in Swedish kronor, this means that Scania has large net inflows of foreign currencies. During 2013, total currency exposure in Scania’s operating income amounted to about SEK 30,600 m. The largest currencies in this flow were EUR, BRL and GBP.
Based on revenue and expenses in foreign currencies during 2013, a one percentage point change in the Swedish krona against other currencies, excluding currency hedges, has an impact on operating income of about SEK 306 m. on an annual basis. In Vehicles and Services, compared to 2012, the total negative currency rate effects amounted to about SEK 1,735 m. According to Scania’s policy, Scania’s Management may hedge future currency flows with a hedging period varying between 0 and 12 months. Maturity over 12 months is decided by the Board of Directors. When currency risks are hedged, currencies are mainly sold by means of forward contracts, but currency options may also be used. During 2013, no future currency flows were hedged.
At the end of 2013, Scania’s net assets in foreign currencies amounted to SEK 21,350 m. The net foreign assets of subsidiaries are normally not hedged. To the extent subsidiaries have significant net monetary assets in functional currencies, however, they may be hedged. At year-end 2013 no foreign net assets were hedged.
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. Scania’s policy regarding interest rate risks in the Financial Services segment is that lending and borrowing should match in terms of interest rates and maturity periods. Scania’s total borrowing portfolio amounted to SEK 43,833 m. at year-end 2013.
An overwhelming share of the credit risk for Scania is related to receivables from customers. Scania sales are distributed among a large number of end customers with a large geographic dispersion, which limits the concentration of credit risk. To maintain a controlled level of credit risk in the segment Financial Services, the process of issuing credit is supported by a credit policy as well as credit instructions.
Borrowing and refinancing risk
Scania applies a conservative policy concerning refinancing risk. For Vehicles and Services, there shall be a liquidity reserve consisting of available cash and cash equivalents as well as unutilised credit facilities which exceeds the funding needs for the next two years. For Financial Services, there shall be dedicated funding that covers the estimated demand for funding during the next year. There shall also always be borrowings that safeguard the refinancing of the existing portfolio. At the end of 2013, Scania’s liquidity reserve, consisting of unutilised credit facilities, cash and cash equivalents and short-term investments, amounted to SEK 37,694 m. Scania’s credit facilities include customary change in control clauses, which means that the counterparty could demand early payment in case of significant changes in ownership involving a change in control of the company.