Hedge accounting
Hedging currency risk
In accordance with its treasury risk policy, the KION Group applies hedge accounting in hedging the currency risks arising from highly probable future transactions 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 foreign-currency 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. 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 2013 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 2013.
In total, foreign-currency cash flows of €162.1 million (2012: €114.3 million) were hedged and designated as hedged items, of which €147.6 million is expected by 30 September 2014 (2012: €99.7 million by 30 September 2013). The remaining cash flows designated as hedged items fall due in the period up to 24 February 2015.
Hedging of interest-rate risk
The KION Group used hedge accounting in connection with the hedging of interest-rate risk in 2013.
The KION Group funded itself by, among other things, drawing down loans with variable interest rates in various currencies. Interest-rate derivatives denominated in various currencies were used to hedge the resultant interest-rate risk in 2013. These interest-rate derivatives were terminated in July 2013 when most of the floating-rate loans were repaid. Upon early termination of the interest-rate derivatives, the amounts totalling €14.4 million that were recognised in OCI as part of hedge accounting were derecognised and taken to income. Because the KION Group had used interest-rate swaps to transform 48 per cent of its variable-rate exposure into fixed-rate obligations in the previous year, it did not fully benefit from the low level of market interest rates. The individual hedges were designated at the time the swaps were transacted. The KION Group no longer had any material interest-rate derivatives as at 31 December 2013.
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 2012, there were no material ineffective portions.
In total, variable portions of future interest payments amounting to €6.3 million had been designated as hedged items in 2012. No material hedged items had been designated to hedge interest-rate risk as at 31 December 2013.