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 accumulated other comprehensive income (loss) 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 dispatched 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 2011 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 2011.
In total, foreign-currency cash flows of €263,109 thousand (2010: €199,554 thousand) were hedged and designated as hedged items, of which €187,298 thousand is expected to be settled by 30 September 2012 (2010: €161,820 thousand expected by 30 September 2011). The remaining cash flows designated as hedged items fall due in the period up to 19 December 2013.
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. Interest-rate derivatives denominated in various currencies were used to hedge the resulting interest-rate risk in 2011. Because the KION Group used interest-rate swaps to transform 51 per cent of its variable-rate exposure into fixed-rate obligations as at the reporting date, it is not fully benefiting from the low level of market interest rates. The individual hedges were designated at the time the swaps were entered into.
The effective portion of the hedges was recognised in other comprehensive income (loss). As in the previous year, the cumulative effectiveness of the hedging transactions was almost 100 per cent. Again, as in 2010, there were no ineffective portions.
In total, variable portions of future interest payments amounting to €27,196 thousand (2010: €54,999 thousand) were designated as hedged items, of which €8,126 thousand is expected to be paid by 30 September 2012 (2010: €14,196 thousand fell due by 30 September 2011). The remaining cash flows designated as hedged items fall due by 31 December 2014.