48.2.1 Risk management system
Deutsche Post World Net’s operating activities result in financial risks that may arise from changes in exchange risks, commodity prices and interest rates. The Group uses both primary and derivative financial instruments to manage these risks. The use of derivatives is limited to the management of primary risks. Any use for speculative purposes is not permitted under Deutsche Post World Net’s internal guidelines.
The fair values of the derivatives used may be subject to substantial fluctuations depending on future changes in exchange rates, interest rates or commodity prices. These fluctuations in fair values are not to be viewed in isolation from the underlying transactions to be hedged. Derivatives and hedged transactions form a unity with regard to their offsetting value development.
Internal guidelines govern the universe of actions, responsibilities and controls necessary for using derivatives. Suitable risk management software is used to record, assess and process hedging transactions. It is also used to regularly assess the effectiveness of the hedging relationships. Deutsche Post World Net only enters into hedging transactions with prime-rated banks. Each bank is assigned a counterparty limit, the use of which is regularly monitored.
The Group’s Board of Management receives regular internal information on the existing financial risks and the hedging instruments deployed to limit them. The financial instruments used are accounted for in accordance with IAS 39.
Liquidity management
Deutsche Post World Net ensures a sufficient supply of cash for Group companies at all times via a largely centralised liquidity management system. Along with bilateral credit lines committed by banks in the amount of €4.2 billion (previous year: €4.2 billion), the Group issued a commercial paper programme in December 2007 in the amount of €1 billion as another liquidity reserve. Thus, Deutsche Post World Net continues to have sufficient funds to finance necessary investments.
The maturity structure of primary financial liabilities to be applied within the scope of IFRS 7 based on cash flows is as follows:
|
Maturity structure – remaining maturities |
| |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
€m |
Less than 1 year |
1 to 2 years |
2 to 3 years |
3 to 4 years |
4 to 5 years |
More than 5 years | ||||||
|
|
|
|
|
|
|
| ||||||
|
As at 31 December 2007 |
|
|
|
|
|
| ||||||
|
Financial liabilities |
–189 |
–371 |
–448 |
–319 |
–851 |
–2,275 | ||||||
|
Other liabilities |
0 |
–106 |
–10 |
–14 |
–9 |
–85 | ||||||
|
Non-current liabilities |
–189 |
–477 |
–458 |
–333 |
–860 |
–2,360 | ||||||
|
Financial liabilities |
–928 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Trade payables |
–5,210 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Other liabilities |
–355 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Current liabilities |
–6,493 |
0 |
0 |
0 |
0 |
0 | ||||||
|
|
|
|
|
|
|
| ||||||
|
As at 31 December 2006 |
|
|
|
|
|
| ||||||
|
Financial liabilities |
–313 |
–264 |
–239 |
–214 |
–171 |
–2,990 | ||||||
|
Other liabilities |
–2 |
–9 |
–8 |
–8 |
–7 |
–71 | ||||||
|
Non-current liabilities |
–315 |
–273 |
–247 |
–222 |
–178 |
–3,061 | ||||||
|
Financial liabilities |
–1,988 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Trade payables |
–4,930 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Other liabilities |
–338 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Current liabilities |
–7,256 |
0 |
0 |
0 |
0 |
0 | ||||||
Cash flows which do not fall under the scope of IFRS 7 were not included in the table.
Derivative financial instruments entail both rights and obligations. The contractual arrangement defines whether these rights and obligations can be offset against each other, thus leading to a net settlement, or whether both parties to the contract will have to fully fulfil their obligations (gross settlement). The maturity structure of payments under derivative financial instruments is as follows:
|
Maturity structure – remaining maturities |
| |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
€m |
Less than 1 year |
1 to |
2 to |
3 to |
4 to |
More than 5 years | ||||||
|
|
|
|
|
|
|
| ||||||
|
As at 31 December 2007 |
|
|
|
|
|
| ||||||
|
Derivative receivables - gross settlement |
|
|
|
|
|
| ||||||
|
Cash outflows |
–1,685 |
–16 |
–15 |
–15 |
–16 |
–160 | ||||||
|
Cash inflows |
1,730 |
16 |
16 |
16 |
16 |
191 | ||||||
|
Net settlement |
|
|
|
|
|
| ||||||
|
Cash inflows |
7 |
2 |
0 |
0 |
0 |
0 | ||||||
|
Derivative liabilities - gross settlement |
|
|
|
|
|
| ||||||
|
Cash outflows |
–1,810 |
–116 |
–185 |
–113 |
–91 |
–212 | ||||||
|
Cash inflows |
1,739 |
97 |
166 |
94 |
77 |
180 | ||||||
|
Net settlement |
|
|
|
|
|
| ||||||
|
Cash outflows |
–6 |
–7 |
0 |
0 |
0 |
0 | ||||||
|
|
|
|
|
|
|
| ||||||
|
As at 31 December 2006 |
|
|
|
|
|
| ||||||
|
Derivative receivables - gross settlement |
|
|
|
|
|
| ||||||
|
Cash outflows |
–2,280 |
–204 |
–48 |
–47 |
–47 |
–223 | ||||||
|
Cash inflows |
2,337 |
203 |
51 |
50 |
50 |
241 | ||||||
|
Net settlement |
|
|
|
|
|
| ||||||
|
Cash inflows |
3 |
0 |
0 |
0 |
0 |
0 | ||||||
|
Derivative liabilities - gross settlement |
|
|
|
|
|
| ||||||
|
Cash outflows |
–2,874 |
–125 |
–74 |
–72 |
–69 |
–64 | ||||||
|
Cash inflows |
2,801 |
111 |
60 |
59 |
57 |
55 | ||||||
|
Net settlement |
|
|
|
|
|
| ||||||
|
Cash outflows |
–33 |
0 |
0 |
0 |
0 |
0 | ||||||
Currency risk and currency management
The Group’s global activities expose it to currency risks from planned and completed transactions in foreign currencies. Corporate Treasury is responsible for the central recognition and management of these risks. The Group companies report their foreign-currency risks to Corporate Treasury, which calculates a net position per currency on the basis of these figures and hedges this position externally, where applicable. Currency forwards, currency swaps and currency options are used for this purpose. The notional amount of outstanding currency forwards and swaps was €3,745 million as at the reporting date (previous year: €5,499 million). The corresponding fair value was €–31 million (previous year: €–37 million). These transactions were used to hedge planned and recorded operational risks and to hedge internal and external finance and investments. For reasons of simplification, fair value hedge accounting in accordance with IAS 39 was not used for currency forwards and swaps.
In addition, currency options with a nominal value of €460 million (previous year: €162 million) and a fair value of €–11 million (previous year: €3 million) were used to hedge operational currency risks and risks arising from investing activities. The Group also held cross-currency swaps with a nominal value of €299 million (previous year: €328 million) and a fair value of €–12 million (previous year €–19 million) to hedge long-term foreign currency financing.
Currency risks resulting from translating assets and liabilities of foreign operations into the Group’s currency (translation risk) were not hedged as at 31 December 2007. The net investment hedge recognised as at 31 December 2006 ceased to be accounted for in 2007. The fair value of currency forwards was measured on the basis of current market prices, taking forward premiums and discounts into account. The currency options were measured using the Black & Scholes option pricing model. Of the unrealised losses from currency derivatives that were recognised in equity as at 31 December 2007 in accordance with IAS 39, a loss of €–17 million (previous year: €–8 million) is expected to be recognised in income in the course of 2008.
IFRS 7 requires a company to disclose a sensitivity analysis, showing how profit or loss and equity are affected by hypothetical changes in exchange rates at the reporting date. In this process, the hypothetical changes in exchange rates are analysed in relation to the portfolio of financial instruments not denominated in their functional currency and being of a monetary nature. It is assumed that the portfolio as at the reporting date is representative for the whole year.
Effects of hypothetical changes in exchange rates on the translation risk do not fall within the scope of IFRS 7. The following assumptions are taken as a basis for the sensitivity analysis:
Primary monetary financial instruments used by Group companies are either denominated directly in the functional currency or the currency risk was transferred to Deutsche Post AG at the exchange rates Deutsche Post AG has guaranteed. Exchange-rate-induced changes have therefore no effect on the profit or loss and equity of the Group companies.
Some isolated Group companies are legally not entitled to participate in inhouse banking. These companies hedge their currency risks from primary monetary financial instruments linked with Deutsche Post AG by using derivatives. The internal derivatives are consolidated in the Group. The risk remaining at Group level is taken into account when computing the net position.
Hypothetical changes in exchange rates affect the fair values of the external derivatives used by Deutsche Post AG with changes in fair value reported in profit or loss; they also affect the currency results from the measurement at closing date of the inhouse bank balances denominated in foreign currency, the balances of external bank accounts as well as internal and external loans of Deutsche Post AG.
In addition, hypothetical changes in exchange rates affect equity and the fair values of those derivatives used to hedge firm off-balance sheet obligations and highly probable future currency transactions – designated as cash flow hedges.
A 10% appreciation of the euro against all currencies as at 31 December 2007 would have reduced profit by €–8 million (previous year: €–13 million). These hypothetical effects on profit or loss are mainly the result of a sensitivity to changes in the euro against US$ (€–18 million; previous year: €–8 million), GBP (€2 million; previous year: €–5 million), BHD (€5 million; previous year: €0.1 million) and CNY (€4 million; previous year: €2 million). A devaluation of the euro would lead to exactly the opposite sensitivities.
A 10% appreciation of the euro would have changed the hedging reserve accounted for in equity by €–25 million (previous year: €40 million). The hypothetical change in equity is mainly the result of the euro’s sensitivity to the US$ (€–76 million; previous year: €–29 million) and the GBP (€14 million; previous year: €49 million). A devaluation of the euro would mainly have had the opposite effect on equity .
Commodity risk
Most of the risks arising from the purchase of fuels and fuel oil are passed on to customers via surcharges and contract clauses. There was no additional hedging using derivatives at the reporting date (nominal amount in the previous year: €374 million/fair value: €–31 million).
A hypothetical increase in fuel prices by 10% would have changed the hedging reserve recognised in equity by €0 million (previous year: €19 million); a fair-value decline by 10% would have led to a change by €0 million (previous year: €–21 million).
Interest rate risk and interest rate management
The Group’s primary debt currency is the euro. Euro funds are transformed into foreign currencies using derivative financial instruments, to cover the liquidity needs of the respective operations. Taking into account these transactions, the euro’s portion in the Group’s net debt was 60% (previous year: 40%), the portion of the US dollar stood at 28% (previous year: 27%). The increase in the euro’s share is mainly accounted for by adjusting the foreign-currency loan portfolio.
The fair value of interest rate hedging instruments was calculated on the basis of the discounted expected future cash flows, using the Group’s treasury risk management system.
At 31 December 2007, Deutsche Post World Net had entered into interest rate swaps with a notional volume of €1,209 million (previous year: €1,764 million). The fair value of this interest rate swap position was €–24 million (previous year: €11 million). The Group had not engaged in interest-rate options as at the reporting date (notional amount in the previous year: €150 million).
Deutsche Post World Net moderately increased the proportion of instruments with long-term interest-rate lock-in in the first half of 2007. To take appropriate account of the unsteadiness in the financial markets in the second half of 2007, the proportion between instruments with short-term and with long-term interest-rate lock-ins was well balanced. Forecasts for 2008 are difficult to make, given the very volatile capital markets at the beginning of the year; Deutsche Post World Net anticipates slightly falling interest rates in the euro zone, in particular for instruments with shorter maturities. The effect of interest rate changes on the Group’s financial position continues to be immaterial.
To present the interest-rate risks in accordance with IFRS 7, a sensitivity analysis is performed. This method is used to determine the effects hypothetical changes in market interest rates have on interest income, interest expense and on equity at the reporting date. The following assumptions are taken as a basis for the sensitivity analysis:
Primary variable-interest financial instruments are subject to interest rate risks and will therefore have to be included in the sensitivity analysis. Primary variable-interest financial instruments which were transformed into fixed-income financial instruments in a cash-flow hedge are not included. Changes in market interest rates in derivative financial instruments used as a cash flow hedge affect equity by a change in fair values and must therefore be included in the sensitivity analysis.
Fixed-interest financial instruments measured at amortised cost are not subject to interest rate risk.
Designated fair value hedges of interest rate exposures are not included in the sensitivity analysis because the interest-related changes in the fair-value of the hedged item and the hedging transaction almost fully offset each other in the profit or loss for the period. Only the variable portion of the hedging instrument affects net finance costs or financial income and is to be included in the sensitivity analysis.
Interest-rate derivatives outside the scope of a hedging relationship which would affect net finance costs or net financial income due to changes in market rates were not to be recognised as at 31 December 2007. There were such interest rate derivatives as at 31 December 2006 which were to be accounted for in the 2006 analysis.
If the interest rate level on the market as at 31 December 2007 had been higher by 100 basis points, profit would have decreased by €13 million (previous year: €15 million). A lowering of the market rate level by 100 basis points would have had the opposite effect. A change of the market interest rate level by 100 basis points would affect the fair values of the interest rate derivatives recognised in equity. A rise in interest rates would have resulted in unrecognised gains in equity of €16 million (previous year: €1 million); a reduction would have had the opposite effect.
Credit risk
The credit risk incurred by the Group is the risk that counterparties fail to meet their obligations arising from operating activities and from financial transactions. To minimise credit risk from financial transactions, the Group only enters into transactions with prime-rated counterparties. Default risks are continuously monitored in the operating business. The aggregate carrying amounts of financial assets represent the maximum default risk.
Trade receivables amounting to €6,377 million (previous year: €6,395 million) are due within one year. The following table provides an overview of past-due receivables:
|
|
| |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
€m |
Carrying amount before impairment loss |
Neither impaired nor due at reporting date |
Past due at reporting date | |||||||||||||||
|
|
Less than 30 days |
31 to 60 days |
61 to 90 days |
91 to 120 days |
121 to 150 days |
151 to 180 days |
> 180 days | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
As at 31 December 2007 |
|
|
|
|
|
|
|
| ||||||||||
|
Trade receivables |
6,595 |
4,373 |
1,168 |
361 |
152 |
80 |
43 |
28 |
65 | |||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
As at 31 December 2006 |
|
|
|
|
|
|
|
| ||||||||||
|
Trade receivables |
6,651 |
4,167 |
1,227 |
371 |
184 |
101 |
64 |
46 |
88 | |||||||||
Trade receivables developed as follows:
|
|
| |||
|---|---|---|---|---|
|
€m |
2006 |
2007 | ||
|
|
|
| ||
|
Gross receivable |
|
| ||
|
As at 1 January |
6,371 |
6,651 | ||
|
Changes |
280 |
–56 | ||
|
As at 31 December |
6,651 |
6,595 | ||
|
|
|
| ||
|
Valuation allowances |
|
| ||
|
As at 1 January |
–221 |
–256 | ||
|
Changes |
–35 |
38 | ||
|
As at 31 December |
–256 |
–218 | ||
|
Carrying amount as at 31 December |
6,395 |
6,377 | ||
All other financial assets are neither past due nor impaired. These assets are expected to be collectible at any time.
48.2.2 Derivatives
The following table gives an overview of the derivatives used within Deutsche Post World Net (excluding Deutsche Postbank Group) and their fair values. Derivatives with amortising notional volumes are reported in the full amount at maturity:
 |
|
Derivate financial instruments |
| |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
€m |
|
|
|
|
|
|
Fair values 2007 according to maturity | |||||||||||||||||||||||||||||
|
|
2006 |
2007 |
Assets |
Liabilities | ||||||||||||||||||||||||||||||||
|
|
Notion- al a- mount |
Fair value |
Notion- al a- mount |
Fair value of as- sets |
Fair value of liabil-ities |
Total fair value |
Up to 1 year |
Up to 2 years |
Up to 3 years |
Up to 4 years |
Up to 5 years |
> 5 years |
Up to 1 year |
Up to 2 years |
Up to 3 years |
Up to 4 years |
Up to 5 years |
> 5 years | ||||||||||||||||||
|
Interest rate products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
Interest rate swaps |
1,764 |
11 |
1,209 |
2 |
–26 |
–24 |
0 |
0 |
0 |
0 |
0 |
2 |
0 |
0 |
0 |
0 |
–2 |
–24 | ||||||||||||||||||
|
of which cash flow hedges |
186 |
6 |
367 |
2 |
–15 |
–13 |
0 |
0 |
0 |
0 |
0 |
2 |
0 |
0 |
0 |
0 |
0 |
–15 | ||||||||||||||||||
|
of which fair value hedges |
1,478 |
9 |
842 |
0 |
–11 |
–11 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
–2 |
–9 | ||||||||||||||||||
|
of which held for trading |
100 |
–4 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
FRAs |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
Interest rate options |
150 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which cash flow hedges |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which held for trading |
150 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
|
1,914 |
11 |
1,209 |
2 |
–26 |
–24 |
0 |
0 |
0 |
0 |
0 |
2 |
0 |
0 |
0 |
0 |
–2 |
–24 | ||||||||||||||||||
|
Currency derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
Currency forwards |
1,603 |
–63 |
1,768 |
23 |
–63 |
–40 |
23 |
0 |
0 |
0 |
0 |
0 |
–35 |
–8 |
–8 |
–7 |
–4 |
–1 | ||||||||||||||||||
|
of which cash flow hedges |
557 |
–38 |
1,063 |
18 |
–59 |
–41 |
18 |
0 |
0 |
0 |
0 |
0 |
–31 |
–8 |
–8 |
–7 |
–4 |
–1 | ||||||||||||||||||
|
of which net investment hedges |
315 |
–16 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which held for trading |
731 |
–9 |
705 |
5 |
–4 |
1 |
5 |
0 |
0 |
0 |
0 |
0 |
–4 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
Currency options |
162 |
3 |
460 |
1 |
–12 |
–11 |
0 |
1 |
0 |
0 |
0 |
0 |
–5 |
–7 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which cash flow hedges |
162 |
3 |
460 |
1 |
–12 |
–11 |
0 |
1 |
0 |
0 |
0 |
0 |
–5 |
–7 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
Currency swaps |
3,896 |
26 |
1,977 |
28 |
–19 |
9 |
28 |
0 |
0 |
0 |
0 |
0 |
–19 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which cash flow hedges |
62 |
–1 |
311 |
8 |
–7 |
1 |
8 |
0 |
0 |
0 |
0 |
0 |
–7 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which held for trading |
3,834 |
27 |
1,666 |
20 |
–12 |
8 |
20 |
0 |
0 |
0 |
0 |
0 |
–12 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
Cross-currency swaps |
328 |
–19 |
299 |
24 |
–36 |
–12 |
0 |
0 |
0 |
0 |
0 |
24 |
0 |
0 |
0 |
–7 |
–29 |
0 | ||||||||||||||||||
|
of which cash flow hedges |
214 |
7 |
203 |
24 |
–7 |
17 |
0 |
0 |
0 |
0 |
0 |
24 |
0 |
0 |
0 |
–7 |
0 |
0 | ||||||||||||||||||
|
of which fair value hedges |
114 |
–26 |
95 |
0 |
–29 |
–29 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
–29 |
0 | ||||||||||||||||||
|
of which held for trading |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
|
5,989 |
–53 |
4,505 |
76 |
–130 |
–54 |
51 |
1 |
0 |
0 |
0 |
24 |
–59 |
–15 |
–8 |
–14 |
–33 |
–1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
Transactions based on commodity prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
Fuel hedging programme |
374 |
–31 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which cash flow hedges |
374 |
–31 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
|
of which held for trading |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 | ||||||||||||||||||
Fair value hedges
Interest rate swaps were used to hedge the fair value risk of fixed-interest euro-denominated liabilities. The fair values of these interest rate swaps amount to €–11 million (previous year: €9 million). The sharp reduction in fair value in 2007 is due to interest rate movements. As at 31 December 2007, there was also a €35 million (previous year: €40 million) adjustment to the carrying amount of the underlying arising from an interest rate swap unwound in the past. The adjustment to the carrying amount is amortised over the remaining term of the liability using the effective interest method, and reduces future interest expense.
In addition, cross-currency swaps were used to hedge liabilities in foreign currency against negative changes in the market, with the liability being transformed into a variable interest euro-denominated liability. This hedged the fair value risk of the interest and currency component. The fair value of these cross-currency swaps as at 31 December 2007 is €–29 million (previous year: €–26 million).
The following table provides an overview of the gains and losses arising from the hedged items and the respective hedging transactions:
|
Ineffective portion of fair value hedges |
| |||
|---|---|---|---|---|
|
€m |
2006 |
2007 | ||
|
Gains (–)/losses (+) on hedged items |
–57 |
–20 | ||
|
Gains (–)/losses (+) on hedging transactions |
57 |
19 | ||
|
Balance (ineffective portion) |
0 |
–1 | ||
Cash flow hedges
The Group uses currency forwards and currency swaps to hedge the future cash flow risks from foreign currency revenue and expenses relating to the Group’s operating business. The fair values of the currency forwards and swaps amount to €–2 million (previous year: €–4 million). There were no currency options used to hedge operating risks at the reporting date (fair value in the previous year: €3 million). The underlyings will be recognised in the income statement in 2008.
Currency forwards with a fair value of €–37 million (previous year: €–35 million) as at the reporting date were entered into to hedge the currency risk of future lease payments and annuities denominated in foreign currencies. The payments for the underlyings are made in instalments, with the final payment due in 2013.
Cash flow risks arise for the Group from contracted aircraft purchases in connection with future payments in US dollars. These risks were hedged in 2007 using forwards and options. The fair value of these cash flow hedges as at 31 December 2007 amounted to €–11 million for currency options and €–1 million for currency forwards. The aircraft will be added in 2009 and 2010. Gains or losses on hedges are offset against cost and recognised in profit or loss upon the amortisation of the asset.
Risks arising from fixed-interest foreign currency investments were hedged using synthetic cross-currency swaps, with the investments being transformed into fixed-interest euro investments. These synthetic cross-currency swaps hedge the currency risk, and their fair values at the balance sheet date amounted to €26 million (previous year: €13 million). The investments relate to internal Group loans which mature in 2014.
The Group is exposed to cash flow risks arising from variable-interest liabilities. These risks were hedged using interest rate swaps which offset the interest rate risk in the underlying. The respective cash flow hedges had a fair value of €–15 million as at 31 December 2007 (previous year: €–1 million). The hedged currency liabilities are due in 2020 and/or in 2037. In addition, a fixed-interest currency liability was transformed into a fixed-interest euro-denominated liability using a cross-currency swap. The fair value of the derivative was €–7 million (previous year: €–6 million) at the reporting date.
Aircraft kerosene ceased to be hedged in 2007. Negative fair values amounting to €–31 million were recognised in the accounts as at 31 December 2006.
Net investment hedges
Foreign currency investments in foreign subsidiaries may result in risks to the Group’s equity. These risks ceased to be hedged at the reporting date (fair value in the previous year: €–16 million).
