AAK Annual Report 2017

62 Derivatives classified as financial instruments 7KH *URXS KDG WZR FODVVHV RI ILQDQFLDO LQVWUXPHQWV KHGJLQJ LQVWUXPHQWV UDZ PDWHULDO KHGJH FRQWUDFWV DQG FXUUHQF\ KHGJH contracts, all measured at fair value. The fair value of the derivative financial instruments is measured using valuation methods DQG REVHUYDEOH PDUNHW GDWD PHWKRGRORJ\ OHYHO 7KH YDOXDWLRQ PHWKRGV DSSOLHG DUH GHVFULEHG LQ WKH DFFRXQWLQJ SROLF\ The Group’s financial assets and liabilities measured at fair value As at December 31, 2017 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 380 2 380 Currency hedge contracts 122 2 122 Fair value of changes in inventories 54 2 54 Total assets - 556 - 556 Sales and purchase contracts 238 2 238 Currency hedge contracts 147 2 147 Fair value of changes in inventories 41 2 41 Total liabilities - 426 - 426 As at December 31, 2016 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 246 2 246 Currency hedge contracts 223 2 223 Fair value of changes in inventories 246 2 246 Total assets - 715 - 715 Sales and purchase contracts 525 2 525 Currency hedge contracts 198 2 198 Fair value of changes in inventories 1 2 1 Total liabilities - 724 - 724 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. +HGJH DFFRXQWLQJ 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 minimizes 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, $$. XVHV WKH ³GROODU RIIVHW´ PHWKRG IRU WHVWLQJ WKH KHGJH HIILFLHQF\ RI WKH IDLU YDOXH RI UDZ PDWHULDOV +HGJH HIILFLHQF\ WHVWLQJ LQ FRQILUPHG WKDW WKH IDLU YDOXH KHGJH RI UDZ PDWHULDOV TXDOLILHV IRU KHGJH DFFRXQWLQJ +HGJH HIILFLHQF\ IRU WKH IXOO \HDU was 86 percent (100). Fair-value hedge of currency risk on sales contracts qualifying for exemption under assets for own use The hedging instruments used are future contracts and purchase contracts. As the currency risk of the hedge instruments is LGHQWLFDO WR WKH FXUUHQF\ ULVN RI WKH KHGJHG FRQWUDFWV QR PDWHULDO EDVLF ULVN H[LVWV $$. WKHUHIRUH RQO\ XVHV WKH ³FULWLFDO PDWFK´ method to test the hedge efficiency of currency risk on sales contracts that qualify for own use exemption and that may conse- quently be exempted from derivative accounting. The hedge efficiency testing in 2017 confirmed a perfect critical match.