[41] Hedge accounting

In accordance with the Corporate Treasury guideline, 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 critical terms of the hedging instruments and the hedged items are therefore matched. The hedge ratio for these hedges is 1:1. Because the hedges are highly effective, the change in the fair value of the cash flows from the hedged items corresponds to the change in the fair value of the hedging instruments.

The main currency hedges relate to pound sterling and the US dollar. The currency forwards in existence as at 31 December 2019 were entered into at average hedging rates of £0.8950 to €1 (2018: £0.8984 to €1) and US$ 1.1445 to €1 (2018: US$ 1.2077 to €1).

On account of the short-term nature of the Group’s payment terms, reclassifications to the income statement of fair value changes previously recognised in equity in the hedge reserve 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 currency forwards used as hedges will mature in 2021 at the latest. In total, foreign-currency cash flows of €366.4 million (2018: €392.1 million) were hedged and designated as hedged items, of which €343.2 million is expected by 31 December 2020 (2018: €372.4 million expected by 31 December 2019). The remaining cash flows designated as hedged items, which amount to €23.1 million (2018: €19.7 million), fall due in the period up to 31 December 2021 (2018: 31 December 2020).