Page 62

AAK Annual Report 2015

58 Derivatives classified as financial instruments The Group has three classes of financial instruments (hedging instruments): raw material hedge contracts, currency hedge contracts and interest rate hedge swaps. In December 2015 the Group only had derivative financial instruments that were measured at fair value. The fair value of the derivative financial instruments is measured using valuation methods and observable market data (methodology: level 2). The valuation methods applied are described in the accounting policy. The Group’s financial assets and liabilities measured at fair value As at December 31, 2015 Assets and liabilities measured at fair value through the income statement Derivatives held for hedging purposes Derivatives measured at fair value through equity SEK million Carrying amount Valuation level Carrying amount Valuation level Carrying amount Valuation level Total Sales and purchase contracts 256 2 256 Currency hedge contracts 103 2 103 Interest rate hedge swaps 3 2 3 Fair value of changes in inventories 102 2 102 Total assets - 461 3 464 Sales and purchase contracts 188 2 188 Currency hedge contracts 90 2 90 Interest rate hedge swaps 40 2 40 Fair value of changes in inventories -14 2 -14 Total liabilities - 264 40 304 The Group’s financial assets and liabilities measured at fair value As at December 31, 2014 Assets and liabilities measured at fair value through the income statement Derivatives held for hedging purposes Derivatives measured at fair value through equity SEK million Carrying amount Valuation level Carrying amount Valuation level Carrying amount Valuation level Total Sales and purchase contracts 329 2 329 Currency hedge contracts 152 2 152 Interest rate hedge swaps 2 2 2 Fair value of changes in inventories 20 2 20 Total assets - 501 2 503 Sales and purchase contracts 144 2 144 Currency hedge contracts 111 2 111 Interest rate hedge swaps 50 2 50 Fair value of changes in inventories -25 2 -25 Total liabilities - 230 50 280 Foreign currency contracts and the foreign currency components in sales and purchase contracts are valued at actual market foreign currency forward rates. The raw material price components in sales and purchase contracts are valued at actual market forward prices for identical or similar raw materials. Inventory is valued at actual market spot prices for identical or similar raw materials. Interest rate swap contracts are valued at actual market interest rates. Hedge accounting Inventory hedging at fair value Future contracts, and purchase and sales contracts not deemed to be assets for own use are used for hedging, which means that they cannot be exempted from derivative accounting. Since the quality of the underlying raw materials used for hedging differs from the quality of the hedged raw materials, some inefficiency is likely. AAK minimises this inefficiency by reducing the basis risk between hedged raw material risks and the underlying raw materials used as hedging contracts. Due to the basis risk involved, AAK uses the “dollar offset” method for testing the hedge efficiency of the fair value of raw materials. Hedge efficiency testing in 2015 confirmed that the fair-value hedge of raw materials qualifies for hedge accounting. Hedge efficiency for the 2015 full year was 106 percent (97). Fair-value hedge of currency risk on sales contracts qualifying for exemption under assets for own use The hedging instruments used are future contracts and purchase contracts. As the currency risk of the hedge instruments is identical to the currency risk of the hedged contracts, no material basic risk exists. AAK therefore only uses the “critical match” method to test the hedge efficiency of currency risk on sales contracts that qualify for own use exemption and that may consequently be exempted from derivative accounting. The hedge efficiency testing in 2015 confirmed a perfect critical match. Cash flow hedge of floating-rate loans The hedging instruments used are interest rate swaps, with AAK paying a fixed rate and receiving a floating rate. Some minor hedge inefficiency exists, as the fixing dates on the floating rate received on the hedge do not perfectly match the fixing dates on the floating rate paid on our loans. Due to this minor hedge inefficiency, AAK uses the dollar offset method for retrospective measuring of hedge efficiency of the cash flow hedge of floating-rate loans. Hedge efficiency testing in 2015 confirmed that the cash flow hedge of floating-rate loans qualifies for hedge accounting. At the 2015 year-end there was an unrealised loss of SEK 8 million (5) on hedge instruments.   The risk management procedures and net exposures relating to raw material and foreign currency are described in more detail under ‟Raw material price risk” and ‟Exposure to foreign currency”.


AAK Annual Report 2015
To see the actual publication please follow the link above