55 Exposure to raw material price risk, December 31, 2015 (Thousand tons) Inventory Sales contracts Purchase contracts Net exposure Oils and fats 212 -873 666 5 Exposure to raw material price risk, December 31, 2014 (Thousand tons) Inventory Sales contracts Purchase contracts Net exposure Oils and fats 188 -870 688 6 Sensitivity analysis – raw materials (excluding exotic raw materials) With the stocks and commercial contracts hedged by raw material hedge contracts, leaving a very limited net exposure, changes in raw material prices have no significant effect on the Group’s profit margin. A 10 percent change in all raw material prices would therefore have a negligible effect on Group operating profit, even though the annual effect on net sales is ± SEK 1,500 million (1,370) and ± SEK 300 million (300) on working capital. Gross contribution for rapeseed As explained above, our policies and procedures for risk management in general imply that our profit margin is not affected by changes in raw material prices. However, AAK cannot eliminate its exposure to market price fluctuations in relation to rapeseed crushing. The crushing margin (oil plus meal value less seed price) can vary over time and can thereby directly affect profitability within the Technical Products & Feed business area. Exposure to foreign currency A significant portion of the Group’s buying and selling of raw materials is denominated in foreign currency. Moreover, most of the Group’s operational subsidiaries are located outside Sweden. Changes in exchange rates therefore affect AAK in several ways: Sales contracts and raw material contracts in foreign currency give rise to transaction risk. Profits for our foreign subsidiaries are affected by changes in currency rates, when they are translated to SEK. The Group’s equity is affected when equity in our foreign subsidiaries is translated to SEK. AAK hedges all its currency transaction risks. Payment for all sales contracts is thus hedged in the local currency of the subsidiaries that have entered into such sales contracts. Exchange rate risk related to translating equity and profit/loss in our foreign subsidiaries to SEK is not hedged. Exposure to transaction risk, December 31, 2015 SEK million Assets Liabilities Sales contracts Purchase contracts Currency contracts Net Sold Bought exposure USD 1,770 -2,726 785 -235 -1,765 2,143 -28 EUR 1,087 -985 1,236 -150 -1,515 366 38 Other 826 -833 359 -20 -3,616 3,305 22 Total 3,683 -4,544 2,380 -405 -6,896 5,814 32 Exposure to transaction risk, December 31, 2014 SEK million Assets Liabilities Sales contracts Purchase contracts Currency contracts Net Sold Bought exposure USD 1,735 -2,538 1,317 -948 -1,299 1,747 14 EUR 916 -882 1,179 -384 -1,131 274 -27 Other 376 -125 520 -9 -4,150 3,442 54 Total 3,027 -3,544 3,016 -1,341 -6,580 5,464 41 Sensitivity analysis – Currency With all foreign currency transaction risk hedged by currency hedge contracts, leaving a very limited net exposure, changes in foreign currencies will have an insignificant effect on each subsidiary’s profit margin. However, changes in foreign currencies relative to SEK do affect Group profit when the profit of each foreign subsidiary is translated into SEK. A 10 percent change in the exchange rates of all foreign currencies relative to SEK would have an effect of ± SEK 150 million (100) on Group operating profit. Furthermore, a 10 percent change in the exchange rates of all foreign currencies relative to SEK would affect Group net sales by SEK 1,400 million (1,200) and Group net working capital by SEK 300 million (290). Interest rate risk AAK’s policy on interest rate risk management is to minimise volatility in cash flow and net profit caused by fluctuations in interest rates. However, during abnormal market conditions – e.g. a financial crisis – short-term interest rates can rise to extreme levels. In order to protect the Group’s interest costs against such abnormal scenarios, the interest rate on part of the Group’s net interestbearing debt can be fixed or capped. At year-end 2015, the Group’s interest-bearing net debt, including pensions, amounted to SEK 2,083 million (2,508). AAK has applied cash flow hedging with interest rate swaps since October 1, 2011.
AAK Annual Report 2015
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