Arla Foods Annual Report 2020
Management Review
Our Strategy
Our Brands and Commercial Segments Our Responsibility Our Governance
Our Performance Review Our Consolidated Financial Statements Our Consolidated Environmental, Social and Governance Data
Funding
4.4 DERIVATIVE FINANCIAL INSTRUMENTS
Hedging of future cash flows
The group uses forward currency to hedge currency
risks on expected future net revenue and costs. Interest
rate swaps are used to hedge risks against movements
in expected future interest payments and commodity
swaps are used for energy hedging
Fair value of hedge instruments not qualifying for
hedge accounting (financial hedge)
The group uses currency options which hedge
forecasted sales and purchases. Some of these options
do not qualify for hedge accounting and hence, the fair
value adjustment is recognised directly in the income
statement.
Currency swaps are used as part of the daily liquidity
management. The objective of the currency swaps is to
match the timing of in- and outflow of foreign currency
cash flows.
Table 4.4.b Value adjustment of hedging instruments
(EURM)
Deferred gains and losses on cash flow hedges arising during the year
Value adjustments of hedging instruments reclassified to other operating income and costs
Value adjustments of hedging instruments reclassified to financial items
Total value adjustment of hedging instruments recognised in
other comprehensive income during the year
Table 4.4.a Hedging of future cash flow from highly probable forecast transactions
(EURM)
Expected recognition
Carrying
value
in income statement
Fair value
recognised
in other
comprehensive
After
income
2021
2022 2023
2024
2024
2020
Currency contracts
11
11
11
Interest rate contracts
-66
-66
-11
-10
-9
-8
-28
Commodity contracts
2
2
1
1
Hedging of future cash flow
-53
-53
1
-9
-9
-8
-28
Fair value
recognised
Expected recognition
in income statement
in other
Carrying
value
comprehensive
income
2020
2021
2022 2023
After
2023
2019
Currency contracts
-14
-14
-14
Interest rate contracts
-71
-71
-13
-12
-11
-9
-26
Commodity contracts
-4
-4
-4
Hedging of future cash flow
-89
-89
-31
-12
-11
-9
-26
105 ARLA FOODS ANNUAL REPORT 2020
2020
2019
38
80 5 00
-21
-5
8
41
-22
~~~
-22
21
Accounting policies
Derivative financial instruments are recognised from
the trade date and measured in the financial statement
at fair value. Positive and negative fair values of
derivative financial instruments are recognised as
separate line items in the balance sheet.
Fair value hedging
Changes in the fair value of derivative financial
instruments which meet the criteria for hedging the fair
value of recognised assets and liabilities, are recognised
alongside changes in the value of the hedged asset or
the hedged liability for the portion that is hedged.
Cash flow hedging
Changes in the fair value of derivative financial
instruments, that are classified as hedges of future cash
flows and effectively hedge changes in future cash
flows, are recognised in other comprehensive income
as a reserve for hedging transactions under equity, until
the hedged cash flows impact the income statement.
The reserve for hedging instruments under equity is
presented net of tax. The cumulative gains or losses
from hedging transactions that are retained in equity
are reclassified and recognised under the same line
item as the basic adjustment for the hedged item.
The accumulated change in value recognised in other
comprehensive income is recycled to the income
statement once the hedged cash flows affect the
income statement, or are no longer likely to be realised.
For derivative financial instruments that do not meet
the criteria for classification as hedging instruments,
changes in fair value are recognised as they occur in the
income statement, under financial income and costs.View entire presentation