Hedging currency risk
In accordance with its treasury risk policy, the KION Group applies hedge accounting in hedging the exchange rate risks arising from highly probable future revenues in various currencies. Foreign-currency derivatives with settlement dates in the same month as the expected cash flows from the Group's operating activities are used as hedges.
The effectiveness of the Group's hedging transactions is assessed on the basis of forward rates using the hypothetical derivative approach under the cumulative dollar-offset method. The effective portion of the changes in the fair value of foreign-currency derivatives is recognised in other comprehensive income and only reversed when the corresponding hedged item is recognised in income.
Because of the short-term nature of the Group's payment terms, reclassifications to the income statement and the recognition of the corresponding cash flows generally take place in the same reporting period. A foreign-currency receivable or liability is recognised when goods are despatched or received. Hedge accounting continues until the corresponding payment is received, with the changes in the fair value of the derivative being recognised in the income statement, thereby largely offsetting the effect of the measurement of the receivable at the reporting date.
The changes in fair value recognised and reclassified in other comprehensive income in 2010 are shown in the consolidated statement of comprehensive income. The ineffective portion of the changes in the fair value of the hedging transactions is recognised directly in the income statement. There were no significant ineffective portions in 2010.
In total, foreign currency cash flows of €199,554 thousand (2009: €124,842 thousand) were hedged and designated as a hedged item, of which €161,820 thousand is expected to be settled by 30 September 2011 (2009: €91,222 thousand expected by 30 September 2010). The other cash flows designated as hedged items are due in the period up to 31 March 2012.
Hedging of interest rate risk
The KION Group uses hedge accounting in connection with the hedging of interest rate risk.
The KION Group is essentially financed by the utilisation of loans with variable interest rates and in different currencies. The resulting interest rate risk has been hedged using interest rate derivatives, interest rate swaps and interest rate caps denominated in various currencies. As at the reporting date, the weighted average interest rate for liabilities to banks was 4.6 per cent (31 December 2009: 4.3 per cent). Due to the fact that approximately 40 per cent of the variable interest exposure had been converted into fixed-rate interest obligations by way of interest rate swaps the KION Group was not able to fully benefit from the low market interest rates in 2010. An additional 44 per cent of the interest rate exposure is hedged by means of interest rate caps against one-month Euribor rising above 1.75 per cent per annum. The individual hedges were designated when the swaps were entered into.
The effective portion of the hedges was recognised in other comprehensive income. As in the previous year, the cumulative effectiveness of the hedging transactions was almost 100 per cent. Again, as in 2009, there were no ineffective portions.
In total, future variable interest payments of €402,275 thousand (2009: €200,207 thousand) were designated as hedged items, of which €63,713 thousand fall due before 30 September 2011 (2009: €62,290 thousand fell due by 30 September 2009). The remaining cash flows designated as hedged items fall due by 31 December 2013.