Hedge accounting
Hedging currency risk
In accordance with its treasury risk policy, the KION Group applies cash flow hedge accounting in hedging the currency risks arising from highly probable future transactions and firm obligations not reported in the statement of financial position in various currencies. Foreign-currency forwards 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 foreigncurrency forwards is recognised in accumulated other comprehensive income (loss) and only reversed when the corresponding hedged item is recognised in income.
On account 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. Until the corresponding payment is received, changes in the fair value of the derivative are recognised in the income statement such that they largely offset the effect of the measurement of the foreign-currency receivable or liability at the reporting date.
The changes in fair value recognised and reclassified in other comprehensive income in 2015 are shown in the consolidated statement of comprehensive income. There were no significant ineffective portions in 2015, as had been the case in the previous year.
In total, foreign-currency cash flows of €323.6 million (2014: €248.7 million) were hedged and designated as hedged items, of which €188.0 million is expected by 30 September 2016 (2014: €184.0 million by 30 September 2015). The remaining cash flows designated as hedged items essentially fall due in the period up to 31 December 2016.
In addition, the KION Group hedges currency risk arising on translation of a foreign subsidiary’s financial statements into the Group’s reporting currency using a foreign-currency forward. For this purpose, it applies net investment hedge accounting, in which only the spot rate element of the foreign-currency forward is designated as the hedging instrument. The effectiveness of the Group’s hedging transaction is determined 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 the foreign-currency forward is recognised in accumulated other comprehensive income (loss) and is not reversed and recognised in the income statement until the foreign operation is sold.
The spot rate element of the foreign-currency forward designated as the hedging instrument had a fair value of minus €4.5 million as at 31 December 2015 (31 December 2014: €0.0 million) and, in the reporting year, resulted in an unrealised loss of €4.5 million (2014: €0.0 million) that was recognised in other comprehensive income (loss). There were no ineffective portions of the net investment hedge in 2015. In 2015, an expense of €0.3 million (2014: €0.0 million) arising in connection with the interest element of the foreign-currency forward was recognised under financial expenses.
Hedging of interest-rate risk
The KION Group did not have any interest-rate derivatives as at 31 December 2015. In the previous year, interest-rate swaps had been used on an insignificant scale to hedge the interest-rate risk.