56 Earnings per share The calculation of earnings per share is based on the consolidated profit attributable to the Parent’s shareholders and the weighted average number of shares outstanding during the year. When determining earnings per share after dilution, a company must base its calculations on the company’s shares and stock options which could result in dilution being exercised. Compensation from these instruments will be deemed to have been received from the issuing of ordinary shares at the average market price for ordinary shares during the period. The difference between the number of issued ordinary shares and the number of ordinary shares that should have been issued at the average market price for ordinary shares during the period shall be treated as an issue of ordinary shares without consideration. According to paragraph 47 of IAS 33, options and stock options only have a dilutive effect when the average market price for ordinary shares during the period exceeds the exercise price for options or stock options. Transfer pricing Pricing between Group companies is carried out on market terms. Dividend The dividend to shareholders in the Parent is recognized as a liability in the consolidated financial statements in the period when the dividend was approved by the shareholders. Accounting policies – Parent The Parent company has prepared its financial statements in accordance with the Swedish Annual Accounts Act and the Swedish )LQDQFLDO5HSRUWLQJ%RDUG¶VUHFRPPHQGDWLRQ5)5µ$FFRXQWLQJIRUOHJDOHQWLWLHV¶1RGLIIHUHQFHVZLWKWKH*URXS¶VDFFRXQWLQJ policies have been identified. 127(±),1$1&,$/5,6.0$1$*(0(17$1'+('*($&&2817,1* Financial risk management The AAK Group’s operations are exposed to various financial risks, including market price risks (on raw materials, currencies and interest rates), liquidity risk and credit risk. Since our products are sold throughout the world, our sales revenues are exposed to market fluctuations in the exchange rates of the currencies involved. Moreover, the Group buys its raw materials on international markets, so its cost of raw materials is exposed to market fluctuations in both the price of the raw materials and the exchange rates of the currencies involved. Exposure to such significant financial risks makes managing these risks a significant factor in successful operations. We believe that we are largely successful in managing risks owing to the policies and procedures established for the Group. The Group’s management of price risk and other risks related to purchasing of raw materials is regulated by AAK’s policy and principles on the management of market risk for raw materials, while currency risks and other financial risks are regulated by AAK’s financial policy and principles. Policies and principles are established by AAK’s Board of Directors, which also monitors, evaluates and updates these policies and principles annually. Raw material price risks The Group’s annual costs for raw materials are two-thirds of the sales value of the finished products. AAK hedges both operational raw material price risk and the underlying operational currency risk when sales agreements are signed with customers. Raw material prices fluctuate, so the Group has assigned a high priority to raw material procurement and to managing this exposure. Raw material procurement is managed by the Group procurement organization, which continually monitors and controls raw material market exposure for the Group. However, to maintain an effective organization, the Group’s procurement organization is permitted to take limited price risks within the framework of our trading policy established by the Board of Directors. Since these raw material positions are managed appropriately, AAK’s profitability is affected only marginally by price changes. The effect on total sales and requirements for working capital is, however, significantly larger. Hedge contracts are used to hedge raw material price risk. We hedge inventory and sales contracts using standard commodity futures traded on commodity exchanges, or using OTC hedge contracts or physical purchase contracts. Exotic raw materials (of which shea is by far the most important) must be sourced when they are available right after the harvest season. No efficient hedge market exists for exotic raw materials. Therefore the Group is typically left with a significant unhedged volume of exotic raw materials in the months following the harvest season. The Group endeavours to limit this exposure by entering into new exotic-raw-material-based sales contracts during the months in which the exotic raw materials are sourced. AAK uses fair-value hedge accounting on stocks of oils and fats. Exposure to raw material price risk, December 31, 2016 (Thousand tons) Inventory Sales contracts Purchase contracts Net exposure Oils and fats 209 -1,250 1,047 6 (SRVXUHWRUDZPDWHULDOSULFHULVN'HFHPEHU (Thousand tons) Inventory Sales contracts Purchase contracts Net exposure Oils and fats 212 -873 666 5 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 1,640 million (1,500) and ± SEK 400 million (300) on working capital.
AAK Annual Report 2016
To see the actual publication please follow the link above