[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 commitments 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, which is derived from the volume of hedged items and the hedging instruments used, is 1:1 for these hedges. 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, 2021 were entered into at average hedging rates of £0.8608 to €1 (2020: £0.6464 to €1) and US$1.1909 to €1 (2020: US$1.1389 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 2023 at the latest. In total, foreign-currency cash flows of €644.2 million (2020: €385.9 million) were hedged and designated as hedged items, of which €553.7 million is expected by December 31, 2022 (2020: €350.2 million expected by December 31, 2021). The remaining cash flows designated as hedged items, which amount to €90.5 million (2020: €35.7 million), fall due in the period up to December 31, 2023 (2020: December 31, 2022).
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, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Foreign-currency forwards (assets) |
Cash flow hedge |
5.5 |
9.3 |
270.1 |
216.5 |
|
Held for trading |
3.5 |
5.7 |
487.3 |
369.3 |
|
|
Foreign-currency forwards (liabilities) |
Cash flow hedge |
10.1 |
4.6 |
374.1 |
169.4 |
|
Held for trading |
4.8 |
1.8 |
499.5 |
320.3 |
|
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]). It hedges 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 using an interest-rate swap, thereby creating a Euribor-based variable-rate obligation. This is accounted for as a fair value hedge. The hedge ratio, which is derived from the volume of hedged items and the hedging instruments used, is 1:1. The critical terms of the hedging instrument and the hedged item are matched. The interest-rate swap used as a hedge reflects the maturity profile of the hedged item and will mature in 2025. Because the hedge is highly effective, the change in the fair value of the hedged item (fair value hedge) corresponds to the change in the fair value of the hedging instrument. The carrying amount of the hedged promissory note tranche (€79.5 million), which is recognized under financial liabilities, included an adjustment of €1.9 million as at December 31, 2021 (December 31, 2020: €6.8 million) that was attributable to the change in fair value resulting from the hedged risk.
In 2020, interest-rate risks arising on variable-rate tranches of the promissory note had been hedged by entering into a number of interest-rate swaps (cash flow hedge), thereby transforming the variable interest-rate exposure into fixed-rate obligations. The weighted, hedged, and risk-free fixed interest rate was 0.658 percent.
In addition, the KION Group uses amortizing interest-rate swaps to hedge the risk of a change in the fair value of certain lease receivables (fair value hedges at portfolio level).
The following table provides an overview of the interest-rate derivatives used by the KION Group.
|
|
|
Fair value |
Notional amount |
||
|---|---|---|---|---|---|
|
in € million |
|
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
Interest-rate swaps (assets) |
Fair value hedge |
3.8 |
2.6 |
973.4 |
79.5 |
|
Held for trading |
0.5 |
– |
150.0 |
– |
|
|
Interest-rate swaps (liabilities) |
Fair value hedge |
1.7 |
– |
456.3 |
– |
|
Cash flow hedge |
– |
3.6 |
– |
160.0 |
|
|
Held for trading |
– |
6.7 |
– |
1,149.1 |
|
Development of the hedge reserve
The change in the hedge reserves within accumulated other comprehensive income (loss) is presented in the following tables.
|
in € million |
Currency risk |
Interest-rate risk |
Total |
|---|---|---|---|
|
Balance as at Jan. 1, 2021 |
2.9 |
–4.1 |
–1.2 |
|
Changes in unrealized gains and losses |
–12.1 |
0.9 |
–11.2 |
|
Changes in gains (–) and losses (+) to revenue |
–2.8 |
– |
–2.8 |
|
Changes in gains (–) and losses (+) to cost of sales |
4.7 |
– |
4.7 |
|
Changes in gains (–) and losses (+) to financial expenses |
– |
5.2 |
5.2 |
|
Tax effect of changes in reserves |
2.8 |
–2.0 |
0.8 |
|
Balance as at Dec. 31, 2021 |
–4.5 |
– |
–4.5 |
|
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 |