[42] Hedge accounting
Hedging currency risk
The KION Group applies cash flow hedge accounting in hedging the exchange rate risks arising (in various currencies) from highly probable future transactions and firm obligations not reported in the statement of financial position. 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 foreign-currency forwards in existence as at December 31, 2020 were entered into at average hedging rates of £0.6464 to €1 / (2019: £0.8950 to €1) and US$ 1.1389 to €1 (2019: US$ 1.1445 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 recognized 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 recognized when goods are dispatched or received. Until the corresponding payment is received, changes in the fair value of the derivative are recognized 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 foreign-currency forwards used as hedges will mature in 2022 at the latest. In total, foreign-currency cash flows of €385.9 million (2019: €366.4 million) were hedged and designated as hedged items, of which €350.2 million is expected by December 31, 2021 (2019: €343.2 million expected by December 31, 2020). The remaining cash flows designated as hedged items, which amount to €35.7 million (2019: €23.1 million), fall due in the period up to December 31, 2022 (2019: December 31, 2021).
The following table provides an overview of the foreign-currency forwards entered into by the KION Group.
|
|
Fair value |
Notional amount |
||
|---|---|---|---|---|---|
in € million |
|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Foreign-currency forwards (assets) |
Cash flow hedge |
9.3 |
2.5 |
216.5 |
116.0 |
Held for trading |
5.7 |
6.7 |
369.3 |
509.1 |
|
Foreign-currency forwards (liabilities) |
Cash flow hedge |
4.6 |
9.5 |
169.4 |
250.4 |
Held for trading |
1.8 |
3.4 |
320.3 |
144.9 |
|
Hedging of interest-rate risk
The KION Group has issued variable-rate and fixed-rate promissory notes as part of its financing (see note [30]). The KION Group uses cash flow hedge accounting in connection with the hedging of interest-rate risk. It also uses a fair value hedge to hedge the risk of a change in the fair value of fixed-rate promissory notes. The hedge ratio used in both cases is 1:1. The critical terms of the hedging instruments and the hedged items are matched. The interest-rate swaps used as hedges reflect the maturity profile of the hedged items and will mature in 2025. Because the hedges are highly effective, the change in the fair value of the cash flows from the hedged items (cash flow hedge) and the change in the fair value of the hedged items (fair value hedge), corresponds to the change in the fair value of the hedging instruments.
Interest-rate risks arising on the variable-rate tranches of the promissory note were hedged by entering into a number of interest-rate swaps, thereby transforming the variable interest-rate exposure into fixed-rate obligations. In 2020, the weighted, hedged risk-free fixed interest rate stood at 0.658 percent (2019: 0.5 percent). In total, variable cash flows of €0.0 million (2019: €0.1 million) were hedged and designated as hedged items, all of which are cash flows expected in 2021.
Moreover, the risk of a change in the fair value of a fixed-rate tranche of the promissory note that was issued in 2018 and will mature in 2025 is hedged using an interest-rate swap, thereby creating a Euribor-based variable-rate obligation. The carrying amount of the hedged promissory note tranche (€79.5 million), which is recognized under financial liabilities, included an adjustment of €6.8 million as at December 31, 2020 (December 31, 2019: €9.3 million) that was attributable to the change in fair value resulting from the hedged risk.
The following table provides an overview of the interest-rate derivatives used by the KION Group.
|
|
Fair value |
Notional amount |
||
|---|---|---|---|---|---|
in Mio. € |
|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Interest-rate swaps (assets) |
Fair value hedge |
2.6 |
2.4 |
79.5 |
79.5 |
Held for trading |
– |
0.5 |
– |
557.9 |
|
Interest-rate swaps (liabilities) |
Cash flow hedge |
3.6 |
9.7 |
160.0 |
760.0 |
Held for trading |
6.7 |
1.9 |
1,149.1 |
229.7 |
|
Change in the hedge reserve
The change in the hedge reserves within accumulated other comprehensive income (loss) is presented in the following table.
in € million |
Currency risk |
Interest-rate risk |
Total |
|---|---|---|---|
Balance as at Jan. 1, 2019 |
–2.2 |
–8.3 |
–10.4 |
Changes in unrealized gains and losses |
–11.9 |
–3.2 |
–15.1 |
Changes in gains (–) and losses (+) to revenue |
3.4 |
– |
3.4 |
Changes in gains (–) and losses (+) to cost of sales |
3.8 |
– |
3.8 |
Tax effect of changes in reserves |
0.6 |
1.0 |
1.5 |
Balance as at Dec. 31, 2019 |
–6.3 |
–10.5 |
–16.8 |
|
|
|
|
in € million |
Currency risk |
Interest-rate risk |
Total |
Balance as at Jan. 1, 2020 |
–6.3 |
–10.5 |
–16.8 |
Changes in unrealized gains and losses |
10.2 |
9.2 |
19.4 |
Changes in gains (–) and losses (+) to revenue |
–0.5 |
– |
–0.5 |
Changes in gains (–) and losses (+) to cost of sales |
2.3 |
– |
2.3 |
Tax effect of changes in reserves |
–2.7 |
–2.8 |
–5.5 |
Balance as at Dec. 31, 2020 |
2.9 |
–4.1 |
–1.2 |