Note Financial risk management and hedge accounting
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Interest rate risk
AAK’s policy on interest rate risk management is to minimize
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 interest-bearing debt can be fixed or capped.
AAK applies as a general principle cash flow hedging on
interest rate swaps.
At year-end 2019, the Group’s interest-bearing net debt,
including pensions, amounted to SEK 3,117 million (2,667).
Effective interest rate on debt to banks and credit
institutions at balance sheet date
% 2019 2018
SEK 2.0 1.5
DKK 1.5 1.5
USD 2.5 3.3
CNY 4.5 5.0
TRY 13.5 27.0
INR 6.5 7.0
Sensitivity analysis – interest rates
At the closing date, the Group had a floating-rate-based net
debt of SEK 2,950 million (2,274). A 1 percent change in
interest rates would therefore have a full-year effect of SEK
30 million (23) on the Group’s interest costs before tax.
Sensitivity analysis – transaction risk
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. As this is considered non-material
for AAK, no sensitivity analysis for transaction risk is shown.
Sensitivity analysis – translation risk
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 (120) 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 2,800 million (2,100) and Group net working capital by
SEK 510 million (390).