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 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. 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 2014 are shown in the consolidated statement of comprehensive income. There were no significant ineffective portions in 2014, as had been the case in the previous year.
In total, foreign-currency cash flows of €248.7 million (2013: €162.1 million) were hedged and designated as hedged items, of which €184.0 million is expected by 30 September 2015 (2013: €147.6 million by 30 September 2014). The remaining cash flows designated as hedged items essentially fall due in the period up to 31 December 2015.
Hedging of interest-rate risk
The KION Group did not have any material interest-rate derivatives in 2014.
In the previous year, the KION Group funded itself by, among other things, drawing down loans with variable interest rates in various currencies. Interest-rate derivatives 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 cash flow hedge accounting were derecognised and taken to income. The KION Group no longer had any material interest-rate derivatives as at 31 December 2013.