AAK Annual Report 2020

AAK Annual Report 2020 81 Note 3 | Financial risk management and hedge accounting The Group’s financial assets and liabilities measured at fair value As at December 31, 2020 Derivatives held for hedging purposes SEK million Carrying amount Valuation level Sales and purchase contracts 573 2 Currency hedge contracts 223 2 Fair value of changes in inventories 569 2 Total assets 1,365 Sales and purchase contracts 928 2 Currency hedge contracts 191 2 Fair value of changes in inventories 28 2 Total liabilities 1,147 As at December 31, 2019 Derivatives held for hedging purposes SEK million Carrying amount Valuation level Sales and purchase contracts 813 2 Currency hedge contracts 152 2 Fair value of changes in inventories 426 2 Total assets 1,391 Sales and purchase contracts 801 2 Currency hedge contracts 122 2 Fair value of changes in inventories 175 2 Total liabilities 1,098 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 minimizes this inefficiency by reduc- ing 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 2020 confirmed that the fair-value hedge of raw materials qualifies for hedge accounting. 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 2020 confirmed a perfect critical match.