Annual Report 2007 - hci hammonia shipping ag

NotesThe USD is the functional currency for the shipping limited partnerships. Currency risks mainly concernthe measurement of cash and cash equivalents held in EUR as well as trade payables denominated inEUR. Both risk exposures exist to only a limited degree at the shipping limited partnerships.The functional currency of HCI HAMMONIA SHIPPING AG is the euro (EUR). Administrative costs and,above all, payouts made to shareholders of HCI HAMMONIA SHIPPING AG, are made in EUR. Significantcurrency risks exist for the Group on the one hand with respect to the transformation of equity capitalraised on the level of HCI HAMMONIA SHIPPING AG by way of capital increases into USD to beused as own funds within the context of the purchase of seagoing vessels. On the other hand, currencyrisks exist with respect to the surpluses generated in USD on the level of the shipping limited partnerships,which have to be transformed into EUR when used by HCI HAMMONIA SHIPPING AG to payown costs as well as to make payouts to shareholders. The Group generally uses currency hedginginstruments to limit these risks. There were no such instruments in the Group as at the balance sheetdate.As at the balance sheet date, the recognised financial assets and liabilities were subject to only a moderateforeign exchange risk. Therefore, we elected not to determine the effects of interest rate changesdeemed possible, due to lack of materiality.Interest rate riskRisks resulting from interest rate changes exist for the HCI HAMMONIA SHIPPING Group generally inconnection with loans taken out to refinance the purchase of seagoing vessels. The purchase of seagoingvessels acquired in the year under review was initially financed by the Group’s own funds. Loans forrefinancing purposes will be taken out only upon the purchase of further seagoing vessels in 2008.As at the balance sheet date, loan agreements had been concluded in connection with the purchase ofa total of eight seagoing vessels (including the refinancing of the purchase of the three vessels alreadypurchased in 2007).The loan agreements include arrangements on variable interest rates for future loans payable for certainportions of the loans. In order to reduce the risk from interest rate changes resulting from the portions ofthe contractually agreed loans subject to variable interest rates, the Group entered into interest ratehedges (interest rate swaps) during the financial year 2007. The interest rate hedges are designated ascash flow hedges, and are deemed fully effective as at the balance sheet date.Overall, the Group was not exposed to interest rate risks as no loans had been drawn as at the balancesheet date.(ii) Credit riskThe Group is exposed to the risk that business partners, mainly charterers of the seagoing vessels, maynot be able to fulfil their obligations to the Group. These obligations mainly exist in the settlement ofreceivables from charter revenues. The maximum risk exposure corresponds to the nominal amounts ofthe financial assets as reported for the relevant categories.Identifiable default risks, which exist in particular for trade receivables, are generally taken into accountby appropriate valuation allowances.63