d. Interest Risk
In June 2002, the Company issued a bond, for a nominal value of MEUR 100 with a repayment period of 6 years and a nominal interest rate of 6% p.a. For this bond an interest swap has been used to hedge the risk arising from the fixed interest rate of the bond. The interest swap changes the fixed interest rate for the whole period to a variable interest rate based on 1 month’s Euribor. Therefore, there is the risk of a changing interest rate concerning the cash flows but the fair value of the bond is hedged and hedge accounting in the sense of IAS 39 was applied.
In June 2006, the Company issued another bond for a nominal value of MEUR 200 with a repayment period of 7 years and a nominal interest rate of 4.5% p.a. For this bond interest swaps have been used to hedge the risk arising from the fixed interest rate of the bond. The interest swaps change the fixed interest rate for the whole period to a variable interest rate based on the 1 month’s Euribor. Therefore, there is the risk of a changing interest rate concerning the cash flows but the fair value of the bond is hedged and hedge accounting in the sense of IAS 39 was applied.
The contractual basic parameters of the swaps are similar to the ones of the bonds and therefore the hedges were 100% effective in hedging the fair value exposure to interest rate movements during the period. By applying the rules for hedge accounting, the gain or loss from the swaps to fair value was recognized through profit or loss. The gain or loss attributable to the changes of the hedged interest rate risk caused an adjustment of the bonds’ carrying amounts and was also recognized through profit or loss. Therefore, the gains and losses resulting from the changes in fair value of the swaps and the bonds offset each other.
The details to the change of the fair value of the swaps designated as fair value hedge are as follows:
| (in TEUR) | 2007 | 2006 | ||
| Fair value swap end of previous period | (2,647) | 4,024 | ||
| Fair value swap end of current period | (7,737) | (2,647) | ||
| Gain/loss recognized through profit or loss | (5,090) | (6,671) |
Fair value swap (Download size 24 KB)
The Executive Board believes that the exposure to interest rate risk of remaining financial assets and liabilities is negligible. Consequently, additional material derivative instruments for hedging these interest risks are not used within the Group.
The weighted average interest rates at the balance sheet date were as follows:
| (in %) | 2007 | 2006 |
| Cash on current accounts | 2.1 | 1.9 |
| Short-term deposits | 4.6 | 3.4 |
| Securities, short-term | 4.6 | 7.0 |
| Securities, long-term | 3.1 | 2.8 |
| Overdraft on current accounts | 5 | 5.2 |
| Short-term loans | 10.7 | 10.7 |
| Long-term loans | 3.6 | 5.3 |
| Bond | 4.9 | 4.3 |
Average interest rates (Download size 21 KB)