Annual Report 2001 - Bohler Uddeholm materializing visions

Notes to the Consolidated Financial Statements 2001
68 BÖHLER-UDDEHOLM Annual Report 2001
Exchange rate risk
Exchange rate risk is related in particular to receivables or liabilities denominated in a
currency other than the local currency of the company.
According to Group directives, production companies invoice mainly in the local currency
of the sales and distribution companies. Hedging arises initially on the basis of naturally closed
positions in which, for example, one or more equivalent liabilities are offset against trade
accounts receivable in the same currency. A further hedging possibility results from the use of
derivative financial instruments. Foreign exchange risk associated with operations is hedged
at a minimum rate of 50%.
Foreign exchange risk on assets is primarily associated with trade receivables denominated
in USD with a share of 21.1% (previous year: 21.4%), GBP at 8.6% (previous year: 7.1%)
and SEK at 4.9% (previous year: 5.7%). In the case of trade payables, 15.6% (previous year:
8.8%) of foreign exchange risks originate from USD, roughly 5.4% (previous year: 4.8%) from
GBP, and 12.3% (previous year: 12.5%) from SEK.
Deposits are made almost exclusively in the currency of the investing group company,
and therefore carry no foreign exchange risk. In the case of liabilities to banks, there is an unhedged
risk in USD of approximately 0.07% (previous year: 2.0%).
Where intercompany loans are subject to a foreign exchange risk, this is fully covered
by derivative financial instruments.
Commodity price risks
Fluctuations in the prices for certain raw materials can be partly passed on to the customer
by an alloy surcharge. For those cases where a surcharge can not be applied, the underlying
risk is hedged by commodity-based contracts as traded on the London Metal Exchange (LME).
These contracts must not have a maturity of more than twelve months.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used solely as a hedge against interest rate and foreign
exchange risks from operations and corresponding balance sheet items, and as a hedge
for budgeted sales and other cash flows. Derivative financial transactions are subject to continuous
risk checks and are conducted under a strict division of functions into trading, settlement,
documentation and control.
Hedging instruments are primarily comprised of foreign exchange futures and options
trades, interest swaps and interest options.
Nominal values are derived from the total of all put and call amounts of derivative financial
transactions. Market values are based on the amounts at which the financial transactions
were traded on the balance sheet date, ignoring any contradictory changes in value from the
underlying transactions. Outstanding futures transactions are valued at the appropriate future
prices, options at identical parameter premiums traded on the options market. The classification
as of the balance sheet date was as follows: