Kesko's Annual Report 2009
Kesko's Annual Report 2009
Kesko's Annual Report 2009
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124 Kesko financial statements <strong>2009</strong><br />
instruments. The percentage of hedging in commercial transactions<br />
is decided by each relevant subsidiary within the limits of<br />
documented hedging policies. The subsidiaries report their currency<br />
exposures to the Group Treasury on a monthly basis.<br />
In the main, the subsidiaries carry out their hedging operations<br />
together with the Group Treasury, which hedges risk positions<br />
by using market transactions within the limits confirmed<br />
for each currency. Intra-Group derivatives are allocated to the<br />
segments in segment reporting.<br />
The Group does not apply hedge accounting in accordance<br />
with IAS 39 to the hedging of currency risks relating to purchases<br />
and sales. In initial measurement, derivative instruments are<br />
recognised at cost and at subsequent measurement they are recognised<br />
at fair value. The value changes of currency derivatives<br />
used to hedge purchases and sales are recognised in 'Other operating<br />
income or expenses'.<br />
Kesko Corporation's USD-denominated private placement loan<br />
has been hedged against currency risk and interest rate risk by<br />
applying hedge accounting. Currency and interest rate swaps to<br />
the same amount and with the same maturity as the loan have<br />
been designated as the hedging instruments. Consequently, the<br />
loan is entirely hedged against currency and interest rate risk.<br />
During the period, no amount of ineffectiveness has been recognised<br />
in the income statement relating to this credit facility.<br />
Loan interest rate risk and sensitivity analysis<br />
Interest rate movements affect the Group's interest expense. The<br />
interest rate hedging policy is aimed at equalising the effects of<br />
interest rate movements on the profits for different accounting<br />
periods.<br />
Interest rate risks are centrally managed by the Group Treasury,<br />
which adjusts loan duration by interest rate derivative<br />
instruments. The target duration is three years which is allowed<br />
to vary between one and a half and four years. The realised<br />
duration during the period was 3.5 (3.2) years on average.<br />
A sensitivity analysis for commercial paper liabilities realised<br />
during the period used average balance values. At the balance<br />
sheet date of 31 December <strong>2009</strong>, the effect of interest-bearing<br />
variable rate liabilities on pre-tax profit would have been<br />
€-/+3.3 million, if the interest rate level had risen or fallen by<br />
1 percentage point (€-/+3.8 million).<br />
Liabilities to K-retailers consist of two types of interest-<br />
bearing receivables payable by the Kesko Group companies to<br />
K-retailers; retailers' prepayments to Kesko, and retailers' chain<br />
rebates. Chain rebates are subsequent discounts granted to<br />
retailers and their terms vary from one store chain to another.<br />
Private placement bonds and the aggregate amount of<br />
€170.6 million in loans from financial institutions have fixed<br />
rates, and the effective interest cost was 4.8%. At the end of the<br />
year, the average rate of variable-interest-rate loans from<br />
financial institutions, liabilities to retailers and other interestbearing<br />
liabilities was 7.7%. Some of the loans are eurodenominated,<br />
private placement bonds are USD-denominated,<br />
and loans from financial institutions and commercial paper liabilities<br />
include NOK-denominated loans corresponding to €24.1<br />
million (€20.5 million) and LVL-denominated loans corresponding<br />
to €21.1 million (€29.8 million).<br />
Group's transaction position at 31 Dec. <strong>2009</strong><br />
€ million USD SEK NOK EEK LVL LTL RUB BYR<br />
Group's transaction risk -4.5 69.7 43.5 -23.9 39.8 -20.4 32.1 -2.3<br />
Hedging derivatives 10.1 -68.9 -37.8 25.8 -13.5 -3.8 -38.8 0.0<br />
Hedging loans 0.0 0.0 -5.3 0.0 -18.3 0.0 0.0 0.0<br />
Open position 5.6 0.8 0.4 1.9 7.9 -24.2 -6.7 -2.3<br />
A sensitivity analysis of the transaction position shows how a 10% exchange rate change in receivables and liabilities denominated in<br />
foreign currencies would affect the Group's profit. The calculation does not include forecast future currency-denominated cash flows,<br />
but the currency derivatives used to hedge these exposures are included in the analysis.<br />
Sensitivity analysis, effect on pre-tax profit at 31 Dec. <strong>2009</strong><br />
€ million USD SEK NOK EEK LVL LTL RUB BYR<br />
Change +/-10% 0.6 0.1 0.0 0.2 0.8 -2.4 -0.7 -0.2