Currency and interest rate risks are the significant market risks Wincor Nixdorf Group is exposed to.
Currency Risks.
At Wincor Nixdorf Group, both sales and purchases are also transacted in foreign currency. WINCOR NIXDORF International GmbH is the Group’s currency management center. The entire currency risks are identified, quantified and controlled. Furthermore, it provides foreign currencies if necessary. Currency risks arise from sales and purchases in various foreign currencies. At Wincor Nixdorf, these are mainly U.S. dollars and pounds sterling. The risk is considerably reduced by natural hedging, i.e., management of sales and purchases by choice of location and suppliers.
The nominal sum of the forward currency transactions amounts to €181,789k (2006/2007: €154,356k). The risk is hedged for a period of twelve months in advance by external monthly due forward currency transactions with banks. Since the hedge is classified as highly effective, a cash flow hedge is accounted for according to IAS 39 “Financial Instruments: Recognition and Measurement.” The corresponding market values, which are determined by market prices, amount to €1,524k and –€7,046k, respectively (2006/2007: €4,848k and –€46k), at the balance sheet date and have been recorded without any impact on profit and loss in the revaluation reserve within equity, having taken into account deferred taxes (Glossary) . The market values are presented under other assets or other liabilities, respectively. Market prices have been obtained by the respective quotations of banks. The forward currency transactions will affect profit and loss at maturity date. During this fiscal year, €4,802k (2006/2007: €385k) have been released from revaluation reserves and recorded in profit and loss under cost of sales.
The remaining net currency risk not hedged by forward currency transactions amounts to approximately USD 67 million (2006/2007: approximately USD 39 million) as well as approximately GBP 7 million (2006/2007: approximately GBP 7 million) and may be, overall, regarded as minor. The flows of foreign currency are recorded centrally for the entire Group and, where feasible, equalized out. No foreign currency options were transacted during the fiscal year.
If the euro had been revalued (devalued) by 10% against the U.S. dollar as of September 30, 2008, the revaluation reserve for forward currency transactions in equity (before deferred taxes) and the present value of forward currency transactions would have been €7,363k higher, and €21,752k lower, respectively (2006/2007: €14,105k higher, and €6,817k lower, respectively). If the euro had been revalued (devalued) by 10% against the pound sterling as of September 30, 2008, the revaluation reserve for forward currency transactions in equity (before deferred taxes) and the present value of forward currency transactions would have been €4,104k higher, and €2,450k lower, respectively (2006/2007: €4,251 higher, and €3,281k lower, respectively).
Interest Rate Risks.
In order to reduce the risk of interest rate changes, Wincor Nixdorf entered into agreements for three collars with a nominal sum of €150,000k, with a variety of different banks. Two of the three collars run until December 31, 2010. The third collar expired on December 31, 2007.
A collar is a combination of interest rate cap and interest rate floor. An interest rate cap is taken to mean an agreement between buyer and seller under which the seller pays the buyer the difference between the agreed upper interest rate limit and the reference rate (if higher) on an agreed nominal sum over a set term. An interest rate floor, on the other hand, is the description given to an agreement between buyer and seller stipulating that the seller will pay the buyer the difference between the agreed lower interest rate limit and the reference rate (if lower) on an agreed nominal sum over a set period. Wincor Nixdorf has secured an upper interest rate limit of 5.00% (as buyer of the interest rate caps) and a lower interest rate limit of 1.75% (as seller of the interest rate floors). The underlying reference rate is the 3-month EURIBOR. Due to the collar, Wincor Nixdorf is not only protected against rising interest rates but is also able to benefit from falling rates down to the lower limit of 1.75%.
The interest rate caps and floors performed as follows up to the balance sheet date:
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|
|
€k |
|
|
Sept. 30, 2008 |
Sept. 30, 2007 |
|
Market value: interest rate caps |
357 |
258 |
|
Nominal sum: interest rate caps |
100,000 |
150,000 |
|
Market value: interest rate floors |
–19 |
–7 |
|
Nominal sum: interest rate floors |
100,000 |
150,000 |
The market value is arrived at by taking the value of outstanding positions at market prices without adjusting for adverse movements in the value of the underlying transactions. It shows the effect that smoothing of interest rate caps and floors had on profit as of the year-end. The market values were arrived at based upon corresponding quotations obtained from banks using internal mark-to-market models. As the underlying contract was entered into with banks of impeccable financial standing, there remains no credit risks associated with this financial instrument.
The positive market value of the interest rate caps as of September 30, 2008, is shown as relevant under other non-current assets. The negative market value of the interest rate floors is shown under other non-current liabilities. The changes in value are included under finance income and finance costs. The impact of the changes in value on profit and loss is €87k (2006/2007: €25k).
The following residual terms apply:
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€k | ||
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|
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Residual term | ||||
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|
Nominal sum |
less than |
between |
more than | ||
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Residual terms of the interest rate caps Sept. 30, 2008 |
100,000 |
0 |
100,000 |
0 | ||
|
Residual terms of the interest rate floors Sept. 30, 2008 |
100,000 |
0 |
100,000 |
0 | ||
Last year’s equivalent figures are shown in brackets.
In addition, since September 27, 2006, Wincor Nixdorf has effected an interest rate swap for a nominal sum of €50,000k at a secured interest rate of 3.797% until July 31, 2012. The interest rate swap commits Wincor Nixdorf to pay a fixed interest rate for a specified duration and an agreed volume. In return, Wincor Nixdorf receives payment at the actual short-term interest rate (EURIBOR) from the counterparty of the interest swap. Hereby, Wincor Nixdorf hedges the interest level to the amount of the secured interest rate of 3.797% p.a. The interest rate swap transforms interest payables from short-term borrowings (e.g., in the context of the revolving facility) into interest payables with a fixed interest rate. Therefore, the Company is protected against a rise in short-term interest rates, but does not benefit from a fall of these. As the hedge relationship is determined to be highly effective, it is accounted for as a cash flow hedge in accordance with IAS 39 “Financial Instruments: Recognition and Measurement.” At the balance sheet date, the fair value, which is measured at market prices, is €1,288k (2006/2007: €1,556k) and has been directly recognized in the revaluation reserve in equity, having taken into account deferred taxes (Glossary) . The fair value is presented in other non-current assets. The market price is determined on the basis of price quotations provided by banks. The interest adjustment takes place at the end of each quarter.
Furthermore, an interest swap for a nominal sum of €50,000k with a term from March 31, 2008, until March 31, 2009, has been concluded in the current fiscal year. The fair value, which is measured at market prices, is –€44k and has been directly recognized in the revaluation reserve in equity, having taken into account deferred taxes. For this interest swap, the 1-month EURIBOR is received and the 3-month EURIBOR minus 14 basis points is paid.
An increase/decrease of 100 basis points of the interest rates on balance sheet date would result in the following changes: the financial result would be €904k higher, and €325k lower, respectively (2006/2007: €1,202k higher, and €276k lower, respectively. The revaluation reserve (before deferred taxes) would have been increased by €1,671k/decreased by €1,740k (2006/2007: increased by €1,985k/decreased by €2,090k).
