Hedges

Hedge accounting pursuant to IAS 39 is applied primarily for hedges of currency risks from net investments in foreign entities with foreign functional currencies, for hedges of foreign-currency liabilities and interest rate risks from non-current liabilities, as well as for hedging price risks from sales and purchase transactions.

Fair value hedges are mainly used to hedge fixed-interest loans and liabilities against market price risks. The objective of the hedge is to transform fixed-interest instruments into variable-rate instruments, thereby hedging their fair value. Instruments used are interest rate swaps and interest rate currency swaps. In the case of fair value hedges, both the derivative as well as the underlying transaction regarding the hedged risk are measured at fair value with an effect on income. As of the reporting date, the fair value of instruments used as fair value hedges amounted to €50 million (previous year: -€25 million).

In the year under review, a loss of €67 million (previous year: €2 million) was recognized in the financial result from adjustment of the carrying amount of the underlying transactions; a gain of €65 million (previous year: €0 million) stemming from changes in the fair value of the hedges was recognized in the financial result.

Cash flow hedges are primarily used to hedge against foreign currency and price risks from future sales and purchase transactions. Hedging instruments consist of foreign exchange forwards and options, and commodity Glossary forwards, options, futures and swaps. Changes in the fair value of the hedges are disclosed under other comprehensive income until the underlying transaction is realized. The hedge’s contribution to income is transferred from other comprehensive income to the income statement when the underlying transaction is realized. As of the reporting date, the recognized fair value of instruments used as cash flow hedges amounted to -€409 million (previous year: €426 million).

The future sales and purchase transactions hedged by cash flow hedges are expected to be realized in the following five years.

In the year under review, €1,794 million in changes in the fair values of instruments used for cash flow hedges (previous year: €157 million) were disclosed under accumulated other comprehensive income without an effect on income. These changes in value reflect the effective portion of the hedges.

An expense of €1 million was recognized with an effect on income in relation to the ineffective portions of cash flow hedges (previous year: income of €14 million).

Above and beyond this, €1,244 million in changes in the value of cash flow hedges which had originally been recognized without an effect on income were realized as income (previous year: expense of €219 million) during the reporting period.

Hedges of net investment in a foreign entity are used to hedge against the foreign currency risks of net investment in foreign entities with foreign functional currencies. Bonds with various terms in the appropriate currencies and interest rate currency swaps are used as hedging instruments. Exchange rate changes from bonds used for hedging purposes and changes in the fair value of interest rate currency swaps are recognized under foreign currency translation adjustments in other comprehensive income. As of the reporting date, the fair value of instruments used to hedge net investment in foreign entities amounted to €1,255 million (previous year: €2,548 million).

During the year under review, an expense of €4 million (previous year: income of €36 million) was recognized with an effect on income in relation to the ineffective portions of hedges of net investment in foreign entities.