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3.6 Consolidated financial statements Notes to the consolidated financial statements 3.6 Consolidated financial statements Notes to the consolidated financial statements maturity. Financial transactions and the transactions undertaken by our subsidiaries outside the Euro zone are hedged in close cooperation with central Group management. Compliance with the Group’s requirements is regularly ascertained by our Corporate Center Internal Auditing. Foreign currency hedging is used to fix prices on the basis of hedging rates as protection against any unfavorable exchange rate fluctuations in the future. When hedging anticipated production-related ore, coal and coke purchases, favorable developments in the Euro/US dollar exchange rate are also systematically exploited. Hedging periods are generally based on the maturities of underlying transactions. Foreign currency derivative contracts usually have maturities of twelve months or less, but can also be significantly longer in exceptional cases. The hedging periods for forecasted ore, coal and coke purchases have been established on the basis of a theoretical fair exchange rate (based on purchasing power parity) and the margin of fluctuation between the US dollar and the Euro based on historical data. In accordance with a set pattern, purchases forecasted for a specific period are hedged whenever defined hedging rates are reached. The US dollar is the only relevant risk variable for sensitivity analyses under IFRS 7, as the vast majority of foreign currency cash flows occurs in US dollars. As hedging transactions are generally used to hedge underlying transactions, opposite effects in underlying and hedging transactions are almost entirely offset over the total period. Thus, the currency risk exposure described here results from hedging relationships with off-balance sheet underlying transactions, i.e. hedges of firm commitments and forecasted sales. Based on our analysis, the US dollar exposure as of September 30, 2011 was as follows: If the Euro had been 10% stronger against the US dollar as of September 30, 2011, the hedge reserve in equity and fair value of hedging transactions would have been €170 million (2010: €118 million) lower and earnings resulting from the measurement as of the balance sheet date €88 million (2009/2010: €125 million) higher. If the Euro had been 10% weaker against the US dollar as of September 30, 2011, the hedge reserve in equity and fair value of hedging transactions would have been €206 million (2010: €145 million) higher and earnings resulting from the measurement as of the balance sheet date €106 million (2009/2010: €151 million) lower. Interest rate risk Due to the international focus of ThyssenKrupp’s business activities, the Group procures liquidity to cover its financial needs in international money and capital markets in different currencies and with various maturities. Some of the resulting financial debt and financial investments are exposed to interest rate risk. The Group’s central interest rate management manages and optimizes interest rate risk. This includes regular interest analyses. In some cases, the Group uses derivatives to hedge interest rate risk. These instruments are contracted with the objective of minimizing interest rate volatilities and finance costs for underlying transactions. The major part of the interest derivatives is immediately and directly allocated to particular financings as cash flow or fair value hedges. These are derivatives that qualify for hedge accounting. A small part of the interest derivatives is not specifically allocated to an individual financing but hedges a portfolio of individual loans using a macro hedge approach. Cross currency swaps have been contracted primarily in connection with the US dollar financing activities. Interest rate instruments can result in cash flow risks, opportunity effects, as well as interest rate risks affecting the balance sheet and earnings. Refinancing and variable-rate financial instruments are subject to cash flow risk which expresses the uncertainty of future interest payments. Cash flow risk is measured by means of cash flow sensitivity. Opportunity effects arise from non-derivatives, as these are measured at amortized cost rather than fair value, in contrast to interest derivatives. This difference, the so-called opportunity effect, affects neither the balance sheet nor the statement of income. Onbalance sheet interest rate risks affecting equity result from the measurement of interest derivatives qualifying as cash flow hedges. Interest rate risks affecting earnings arise from the remaining interest rate derivatives not qualifying for hedge accounting. Opportunity effects and interest rate risks affecting the balance sheet and earnings are determined by calculating fair value sensitivity analyses and changes. As of September 30, 2011, a +100/(20) basis point parallel shift in yield curves is assumed for all currencies in interest analyses. In fiscal year 2008/2009 the parallel downward shift was reduced to (20) basis points to consider the reduced interest level as a result of the financial crisis and to avoid negative interest rates. Due to the still relatively low 184
3.6 Consolidated financial statements Notes to the consolidated financial statements interest level this approach is also maintained for the current analysis. The analysis results in the opportunities (positive values) and risks (negative values) shown in the following table: million € Changes in all yield curves as of Sept. 30, 2011 by + 100 basis points (20) basis points Cash flow risk 26 (5) Opportunity effects Interest rate risks resulting from interest rate 164 (34) derivatives affecting balance sheet Interest rate risks resulting from interest rate (1) 0 derivatives affecting earnings 0 0 In the previous year the analysis resulted in the opportunities (positive values) and risks (negative values) shown in the following table: million € Changes in all yield curves as of Sept. 30, 2010 by + 100 basis points (20) basis points Cash flow risk 27 (5) Opportunity effects Interest rate risks resulting from interest rate 203 (42) derivatives affecting balance sheet Interest rate risks resulting from interest rate 2 0 derivatives affecting earnings 0 0 If, as of September 30, 2011, all yield curves combined had been 100 basis points higher, the hedge reserve in equity and fair value of the relevant interest derivatives would have been €1 million lower (2010: €2 million higher) and earnings resulting from the measurement as of the balance sheet date €26 million (2009/2010: €27 million) higher. If, as of September 30, 2011, all yield curves combined had been 20 basis points lower, the hedge reserve in equity and fair value of the relevant interest derivatives would have been unchanged as in the previous year and earnings resulting from the measurement as of the balance sheet date €5 million (2009/2010: €5 million) lower. Commodity price risks The Group uses various nonferrous metals, especially nickel, as well as commodities such as ore, coal, coke and energy, for different production processes. Purchase prices for commodities and energy can vary significantly depending on market conditions. Consolidated financial statements 184 | 185 This causes commodity price risks which can affect income, equity and cash flow. We react with adjusted selling prices and alternative purchasing resources to ensure our competitiveness. To minimize risks arising from commodity price volatilities, the Group also uses derivatives, especially for nickel and copper. The contracting of such financial derivatives is subject to strict guidelines which are checked for compliance by internal auditing. The nonferrous metals are generally hedged by a central system. Only marketable instruments are used, as there are mainly commodity forward contracts. Commodity forward contracts are measured at fair value. Fluctuations in fair value are recognized predominately in profit or loss under sales revenue or cost of sales. Sometimes cash flow hedge accounting is used when commodity derivatives are immediately and directly allocated to a particular firm commitment. In some cases, fair value hedges are used to hedge the exposure to changes in fair value of a firm commitment and exposure to inventory price risks. Risks resulting from rising energy prices are limited by structuring procurement on the electricity market and concluding or extending long-term natural gas contracts. These contracts are subject to the socalled “own use exemption” and therefore not carried as derivatives. Only hypothetical changes in market prices for derivatives are included in scenario analysis, required for financial instruments under IFRS 7. Offsetting effects from underlying transactions are not taken into account and would reduce their effect significantly. As of September 30, 2011 a +20/(20)% shift in market prices for commodities is assumed. The prior year assumptions of market prices at production cost level of important manufacturers respectively historical peak market prices have been replaced by this shift in market prices which seems to be more probable. If an increase of 20% (2009/2010: 142%) in market prices for said commodities is assumed, the estimated hypothetical impact on profit or loss resulting from the measurement as of the balance sheet date is 0 (2009/2010: €(200) million), and on equity €(9) million (2010: €113 million). If a decrease of 20% (2009/2010: 78%) in market prices for said commodities is assumed, the estimated hypothetical impact on profit or loss resulting from the measurement as of the balance sheet date is €65 million (2009/2010: €142 million), and on equity €(46) million (2010: €(50) million).
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Annual Report 2010/2011 At the cent
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Our mission statement We are Thysse
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Our capabilities Material We combin
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Making tomorrow possible Our engine
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Letter to shareholders Dr.-Ing. Hei
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