[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 with each other. 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, 2022 were entered into at average hedging rates of £0.8607 to €1 (2021: £0.8608 to €1) and US$ 1.1004 to €1 (2021: US$ 1.1909 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 2024 at the latest. In total, foreign-currency cash flows of €414.0 million (2021: €644.2 million) were hedged and designated as hedged items, of which € 365.0 million is expected by December 31, 2023 (2021: €553.7 million expected by December 31, 2022). The remaining cash flows designated as hedged items, which amount to €49.0 million (2021: €90.5 million), fall due in the period up to December 31, 2024 (2021: December 31, 2023).

The following table provides an overview of the foreign-currency forwards entered into by the KION Group.

Hedging 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 with each other. 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 minus €5.1 million as at December 31, 2022 (December 31, 2021: €1.9 million) that was attributable to the change in fair value resulting from the hedged risk.

In addition, the KION Group uses amortizing payer interest-rate swaps in the same currency to hedge the risk of a change in the fair value of certain lease receivables. These hedges are accounted for as portfolio fair value hedges in accordance with IAS 39. The interest-rate swaps used as hedges reflect the notional amount and the maturity profile of the hedged portfolio and will mature in 2029. Overall, this results in a variable interest rate for the lease portfolio that is in line with the benchmark rate for the currency area in question; the variable interest rate thus equates to the variable rate used for the financing of the lease portfolio from an economic perspective. The carrying amount of the lease receivables, which stood at €1,890.3 million as at December 31, 2022 (December 31, 2021: €1,784.0 million), included a fair value hedge adjustment of minus €47.8 million (December 31, 2021: minus €5.7 million). The total volume of the corresponding interest-rate swaps of €1,684.6 million (December 31, 2021: €1,500.2 million) relative to the carrying amount of the lease portfolio gave a hedge ratio of 89.1 percent as at the reporting date (December 31, 2021: 84.1 percent). The total hedge gain from hedging amounted to €77.5 million in 2022 (2021: €10.6 million), while the hedge loss from the hedged items / lease portfolio amounted to €42.8 million (2021: €5.6 million). The resulting ineffectiveness of €34.7 million (2021: €5.0 million) mainly arose because there was no opportunity to designate operating leases as hedged items in portfolio fair value hedges in accordance with IAS 39.

The following table provides an overview of the interest-rate derivatives used by the KION Group.

Change in the hedge reserves

The change in the hedge reserves within accumulated other comprehensive income (loss) is presented in the following tables.