Scania annual report 2006 58 Credit risk The management of credit risk in Vehicles and Service is regulated by a credit policy. In Vehicles and Service, credit exposure consists mainly of receivables from independent dealers as well as end customers. Provisions for credit losses amounted to SEK 626 m. (642), equivalent to 6.5 (6.4) percent of total receivables. The year’s bad debt expenses amounted to SEK 125 m. (196). To maintain a controlled level of credit risk in Customer Finance, the process of issuing credit is supported by a credit policy as well as credit instructions. In Customer Finance, the year’s bad debt expenses totalled SEK 63 m. (80), equivalent to 0.20 (0.29) percent of the average portfolio. The year’s actual credit losses amounted to SEK 59 m. (80). At year-end, the total reserve for bad debt expenses in Customer Finance totalled SEK 521 m. (532), equivalent to 1.6 (1.8) percent of the portfolio at the close of 2006. The year-end portfolio amounted to SEK 31,841 m. (29,634), divided among about 21,600 customers, of whom 98.8 percent were small 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. OTHER CONTRACTUAL RISKS Residual value exposure Some of Scania’s sales occur with repurchase obligations or guaranteed residual value. The value of all obligations outstanding at year-end was SEK 6,084 m. (6,223). Obligations outstanding decreased somewhat, mainly due to currency rate effects. During 2006, the volume of new contracts was about 5,200 (5,200). Service contracts A large proportion of Scania’s sales of parts and workshop hours occur through repair and service contracts. Selling a service contract involves a commitment by Scania to provide servicing to customers during the contractual period in exchange for a predetermined fee. The cost of the contract is allocated over the contractual period according to estimated consumption of service, and actual divergences from this are recognised in the accounts during the period. From a portfolio perspective, Scania continually estimates possible future divergences from the expected cost curve. Negative divergences from this result in a provision, which affects earnings for the period. The number of contracts rose during 2006 by 7,500 and totalled 64,000 at year-end. Most of these are in the European market. THE PARENT COMPANY The Parent Company, Scania AB, is a public company whose assets consist of the shares in Scania CV AB. Otherwise the Parent Company runs no operations. Scania CV AB is a public company and parent company of the Scania CV Group, which includes all production, sales and service and finance companies in the Scania Group. Ainax AB, which was owned by Scania AB, was liquidated during 2006. According to a resolution approved by the Annual General Meeting of Scania and implemented through a decision of the Swedish Companies Registration Office, during 2006 Scania’s share capital was reduced by SEK 262,965,080 through a withdrawal of 26,296,508 Series A shares in Scania that were owned by Scania. Scania’s share capital was thus restored to what it was before the offer for Ainax was implemented.