E6. Derivatives and hedge accounting
AP Accounting principles
Accounting for derivatives used for hedging purposes
All derivatives are initially and continuously recognized at fair value in the balance sheet. Gains and losses on remeasurement of derivatives used for hedging purposes are recognized as described below. When using hedge accounting, the relationship between the hedge instrument and the hedged item is documented. Assessment of the effectiveness of the hedge is also documented, both when the transaction is initially executed and on an ongoing basis. Hedge effectiveness is the extent to which the hedging instrument offsets changes in value in a hedged item’s fair value or cash flow. The ineffective portion is recognized directly in profit or loss.
Cash flow hedges
Gains and losses on remeasurement of derivatives intended for cash flow hedging are recognized in equity under other comprehensive income and reversed to profit or loss at the rate at which the hedged cash flow affects profit or loss. If a hedge relationship is interrupted and cash flow is still expected, the result is recognized in equity under other comprehensive income until the cash flow affects the result. If the hedge pertains to a balance sheet item, the result is transferred from equity to the asset or liability to which the hedge relates when the value of the asset or liability is determined for the first time. In cases in which the forecast cash flow that forms the basis of the hedging transaction is no longer assessed as probable, the cumulative gain or loss that is recognized in equity under other comprehensive income is transferred directly to profit or loss. Cash flow hedges relating to energy affect the energy costs, that is, cost of goods sold. Transaction exposure’s cash flow hedges affect consolidated net sales and expenses. Cash flow hedges relating to interest expenses affect net financial items.
Hedges of net investments in foreign operations
Gains and losses on remeasurement of derivatives intended to hedge SCA’s net investments in foreign operations are recognized in equity under other comprehensive income. The cumulative gain or loss in equity is recognized in profit or loss in the event of divestment of the foreign operation.
Fair value hedges
The gain or loss from remeasurement of a derivative relating to fair value hedges is recognized in profit or loss with changes in fair value of the asset or liability exposed to the hedged risk. For SCA, this means that non-current loans with fixed interest rates that are subject to hedge accounting are discounted without a credit spread to the market interest rate and meet inherent interest rate derivatives’ discounted cash flows at the same interest rate.
Financial hedges
When SCA conducts hedges and the transactions do not meet requirements for hedge accounting according to IAS 39, changes in fair value of the hedging instrument are recognized directly in profit or loss.
SEKm |
Total |
of which currency 1) |
Interest rate |
Energy |
||
|
||||||
2015 |
|
|
|
|
||
Nominal |
84,713 |
64,639 |
18,133 |
1,941 |
||
Asset |
1,225 |
660 |
538 |
27 |
||
Liability |
1,090 |
516 |
121 |
453 |
||
|
|
|
|
|
||
2014 |
|
|
|
|
||
Nominal |
64,773 |
44,793 |
17,718 |
2,262 |
||
Asset |
1,839 |
893 |
931 |
15 |
||
Liability |
1,082 |
575 |
207 |
300 |
||
|
|
|
|
|
||
2013 |
|
|
|
|
||
Nominal |
47,371 |
26,762 |
18,061 |
2,548 |
||
Asset |
1,082 |
293 |
758 |
31 |
||
Liability |
647 |
178 |
307 |
162 |
SEKm |
Assets |
Liabilities |
December 31, 2015 |
|
|
Gross amount |
2,236 |
2,101 |
Offsettable amount |
–1,011 |
–1,011 |
Net amount recognized in the balance sheet |
1,225 |
1,090 |
ISDA agreements whose transactions are not offset in the balance sheet |
–472 |
–472 |
Net after offsetting in accordance with ISDA agreements |
753 |
618 |
|
|
|
December 31, 2014 |
|
|
Gross amount |
3,163 |
2,406 |
Offsettable amount |
–1,324 |
–1,324 |
Net amount recognized in the balance sheet |
1,839 |
1,082 |
ISDA agreements whose transactions are not offset in the balance sheet |
–567 |
–567 |
Net after offsetting in accordance with ISDA agreements |
1,272 |
515 |
|
|
|
December 31, 2013 |
|
|
Gross amount |
1,641 |
1,206 |
Offsettable amount |
–559 |
–559 |
Net amount recognized in the balance sheet |
1,082 |
647 |
ISDA agreements whose transactions are not offset in the balance sheet |
–451 |
–451 |
Net after offsetting in accordance with ISDA agreements |
631 |
196 |
Balance sheet
SCA uses financial derivatives to manage currency, interest rate and energy price risks. For a description of how SCA manages these risks, refer to the Board of Directors’ Report. The table above shows the derivatives that impacted the Group’s balance sheet on December 31, 2015. For more information relating to derivatives in the balance sheet, see Note E1 Financial instruments by category.
Income statement
Hedges pertaining to transaction exposure had an impact of SEK 54m (–158; 48) on operating profit for the period. At year-end, the net market value amounted to SEK 28m (–77; –61). Currency hedges impacted the cost of non-current assets in an amount of SEK 0m (increased: 3; increased: 26). At year-end, the net market value amounted to SEK –17m (4; –6).
Energy derivatives had an impact of SEK –360m (–288; –91) on operating profit for the period. Energy derivatives had an outstanding market value of SEK –426m (–286; –131) at year-end. Derivatives impacted net interest items in an amount of SEK 16m (175; 188). The net market value on outstanding interest rate derivatives amounted to SEK 417m (724; 451) at year-end. For further information relating to net financial items, see Note E7 Financial income and expenses.
Sensitivity analysis
SCA has performed sensitivity analysis calculations on the financial instruments’ risk at December 31, 2015 using assumptions on market movements that are regarded as reasonably possible in one year’s time. If the Swedish krona had unilaterally weakened/strengthened by 5% against all currencies, outstanding financial hedges as well as trade payables and trade receivables would have decreased/increased profit for the period before tax by SEK 26m (4; 78).
If the Swedish krona had unilaterally weakened/strengthened by 5%, currency hedges relating to the cost of non-current assets would have increased/decreased equity by SEK 63m (7; 0). If energy prices had increased/decreased by 20%, outstanding financial hedges relating to natural gas and electricity, all other things being equal, would have decreased/increased energy costs for the period by SEK 187m (237; 251). In addition to the earnings impact, equity would have increased/decreased by SEK 73m (89; 104). However, the total energy cost for the Group would have been affected differently if the price risk related to supply contracts was taken into account.
SEKm |
Assets |
Liabilities |
Net |
Tax |
Hedge reserve after tax |
||||
|
|||||||||
2015 |
|
|
|
|
|
||||
Derivatives with hedge accounting in hedge reserve |
|
|
|
|
|
||||
Cash flow hedges |
|
|
|
|
|
||||
Energy risk |
2 |
–393 |
–391 |
102 |
–289 |
||||
Currency risk |
1 |
–18 |
–17 |
–4 |
–21 |
||||
Total |
3 |
–411 |
–408 |
98 |
–310 |
||||
Derivatives with hedge accounting without hedge reserve |
|
|
|
|
|
||||
Hedges of net investments in foreign operations |
|
|
|
|
|
||||
Currency risk 2) |
860 |
–259 |
601 |
|
|
||||
Fair value hedges |
|
|
|
|
|
||||
Interest rate risk |
538 |
–115 |
423 |
|
|
||||
Total |
1,401 |
–785 |
616 |
|
|
||||
|
|
|
|
|
|
||||
2014 |
|
|
|
|
|
||||
Derivatives with hedge accounting in hedge reserve |
|
|
|
|
|
||||
Cash flow hedges |
|
|
|
|
|
||||
Energy risk |
4 |
–261 |
–257 |
72 |
–185 |
||||
Interest rate risk |
– |
–8 |
–8 |
2 |
–6 |
||||
Currency risk |
17 |
–9 |
8 |
–5 |
3 |
||||
Total |
21 |
–278 |
–257 |
69 |
–188 |
||||
Derivatives with hedge accounting without hedge reserve |
|
|
|
|
|
||||
Hedges of net investments in foreign operations |
|
|
|
|
|
||||
Currency risk 2) |
281 |
–1,263 |
–982 |
|
|
||||
Fair value hedges |
|
|
|
|
|
||||
Interest rate risk |
920 |
–171 |
749 |
|
|
||||
Total |
1,222 |
–1,712 |
–490 |
|
|
||||
|
|
|
|
|
|
||||
2013 |
|
|
|
|
|
||||
Derivatives with hedge accounting in hedge reserve |
|
|
|
|
|
||||
Cash flow hedges |
|
|
|
|
|
||||
Energy risk |
19 |
–111 |
–92 |
20 |
–72 |
||||
Interest rate risk |
– |
–33 |
–33 |
8 |
–25 |
||||
Currency risk |
8 |
–47 |
–39 |
8 |
–31 |
||||
Total |
27 |
–191 |
–164 |
36 |
–128 |
||||
Derivatives with hedge accounting without hedge reserve |
|
|
|
|
|
||||
Hedges of net investments in foreign operations |
|
|
|
|
|
||||
Currency risk 2) |
119 |
–471 |
–352 |
|
|
||||
Fair value hedges |
|
|
|
|
|
||||
Interest rate risk |
757 |
–263 |
494 |
|
|
||||
Total |
903 |
–925 |
–22 |
|
|
The results from hedging of net investments in foreign operations are recognized in the translation reserve on page 115. The results from fair value hedges are recognized directly in profit or loss.
Hedge reserve in equity
Currency derivatives relating to hedging of transaction exposure mature during the first quarter of 2016. With unchanged exchange rates, profit after tax will be affected in an amount of SEK 0m (0; neg: 26). Currency derivatives relating to hedging of the cost of non-current assets have a maturity spread until June 2019. With unchanged exchange rates, the cost of non-current assets will increase by SEK 21m (decrease: 3; increase: 5) after tax.
Derivatives pertaining to hedging of interest expenses were concluded in 2015. The derivatives intended to hedge energy costs in the Group mature during 2016 and 2017. With unchanged prices, the Group’s profit after tax will be affected negatively in an amount of SEK –289m (neg: 185; neg: 72).
Hedging of net investments
SCA has hedged net investments in a number of selected legal entities in order to achieve the desired hedging level for foreign capital employed. The result of hedging positions affected equity in 2015 by a total of SEK 58m (–1,497; –423). This result is largely due to hedges of net investments in USD. The total market value of outstanding hedging transactions at the end of the period was SEK 601m (–982; –352). In total at year-end, SCA hedged net investments outside Sweden amounting to SEK –19,062m. SCA’s total foreign net investments at year-end amounted to SEK 62,196m.