Å kodaAuto ANNUAL REPORT 2006 - Skoda Auto

1.21 Financial risk management
The Group operating in the automotive industry in most countries around the world carries out activities that result in a variety of financial
risks. In 2006, operations of the Group in this sector experienced a significant turnover and sales volume increase the protection of which
makes it necessary to anticipate future developments and guard against potential risks.
The Board of Directors is regularly informed about the current positions of financial risks; whereas, the overall supervision is ensured by
periodical meetings on liquidity and the financial risks. The Group’s objective is to minimise these risks. This is carried out by a flexible
hedging strategy using diversified financial instruments. All the hedging activities are, in line with the concern guidelines, agreed and
executed in cooperation with the parent company VOLKSWAGEN AG.
Hedging of foreign currency risks
Risk exposure, resulting from the structure of cash inflows and outflows in foreign currencies is hedged based on foreign currency
cash-flow plan. Currency forwards and cross-currency swaps are used as hedge instruments. These are entered into in accordance with
time horizons available on financial markets and acceptable presumptions. In addition to the main trading currencies (EUR, USD, and GBP)
the Group hedges also the currencies of other European and non-European markets.
Hedging of interest risks
Exposure to interest rate fluctuations arises from the Group’s medium- and long-term liabilities resulting from issued bonds. In this area,
the Group hedges its cash flows using interest rate swaps.
Territorial and political risks
Export orders from countries with potential territorial and political risks are identified in advance and hedged in compliance with common
standards. Partners in that area are Czech and international banking institutions including EGAP.
Nominal amounts of derivatives
Remaining term Nominal Nominal
amount amount
total
total
CZK million < 1 year 1–5 years > 5 years 31.12.2006 31.12.2005
Interest rate swaps 3,000 2,000 – 5,000 5,000
Currency forwards 42,951 5,908 – 48,859 72,619
Currency swaps – – – – 525
1.22 Comparative information
Available for sale financial assets of CZK 159 million (31 December 2005: CZK 181 million) presented separately on the face of balance
sheet in the 2005 consolidated financial statement are presented within Other receivables and financial assets in these consolidated
financial statements.
75