Audi 2014 Annual Report Download - page 269

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ADDITIONAL DISCLOSURES
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The AUDI Group additionally concludes hedging transactions
of its own to a limited extent, where this helps to simplify
current operations.
The hedging transactions are effected by means of marketable
derivative financial instruments (contracts for foreign exchange
futures, contracts for foreign exchange options and currency
swaps). Contracts are concluded exclusively with first-rate
national and international banks whose creditworthiness is
regularly examined by leading rating agencies and Central Risk
Management at Volkswagen AG.
For the purpose of managing currency risks, exchange rate
hedging in the 2014 fiscal year focused on the US dollar, the
Chinese renminbi, the British pound and the Japanese yen.
Currency risks pursuant to IFRS 7 arise as a result of financial
instruments that are of a monetary nature and that are de-
nominated in a currency other than the functional currency.
Exchange rate differences from the translation of financial
statements into the Group currency (translation risk) are dis-
regarded. Within the Audi Group, the principal non-derivative
financial instruments (cash, receivables, securities held and
debt instruments held, interest-bearing liabilities, interest-free
liabilities) are either denominated directly in the functional
currency or substantially transferred to the functional currency
through the use of derivatives. Above all, the generally short
maturity of the instruments also means that potential exchange
rate movements have only a very minor impact on profit or
equity.
Currency risks are measured using sensitivity analyses, during
which the impact on profit after tax and equity of hypothetical
changes to relevant risk variables is assessed. All non-functional
currencies in which the Audi Group enters into financial in-
struments are fundamentally treated as relevant risk variables.
The periodic effects are determined by applying the hypothet-
ical changes in the risk variables to the inventory of financial
instruments on the reporting date. It is assumed for this pur-
pose that the inventory on the reporting date is representative
of the entire year. Movements in the exchange rates of the
underlying currencies for the hedged transactions affect the
fair value of these hedging transactions and the cash flow
hedge reserve in equity.
/// FUND PRICE RISKS
The securities funds created using surplus liquidity are exposed,
in particular, to an equity and bond price risk that may arise
from fluctuations in stock market prices and indices, and market
interest rates. Changes in bond prices resulting from a change
in market interest rates, and the measurement of currency risks
and other interest rate risks from the securities funds, are
quantified separately in the corresponding notes on “Currency
risks” and “Interest rate risks.”
Risks from securities funds are generally countered by main-
taining a broad mix of products, issuers and regional markets
when making investments, as stipulated in the investment
guidelines. Where necessitated by the market situation, cur-
rency hedges are also used. Such measures are coordinated
by AUDI AG in agreement with the Group Treasury of
Volkswagen AG and implemented at operational level by the
securities funds’ risk management teams.
Fund price risks are measured within the Audi Group in accord-
ance with IFRS 7 using sensitivity analyses. Hypothetical
changes to risk variables on the balance sheet date are exam-
ined to calculate their impact on the prices of the financial
instruments in the funds. Stock prices, exchange rates and
interest rates are particularly relevant risk variables in the case
of fund price risks.
/// COMMODITY PRICE RISKS
Commodities are subject to the risk of fluctuating prices given
the volatile nature of the commodity markets. Commodity
futures are used to limit these risks. The hedging measures are
coordinated regularly between AUDI AG and Volkswagen AG in
accordance with the existing Volkswagen organizational guide-
line. The hedging transactions are performed centrally for
AUDI AG by Volkswagen AG on the basis of an agency agree-
ment. The results from hedging contracts are credited or deb-
ited to the Audi Group on maturity.
Hedging relates principally to significant quantities of the
commodities aluminum and copper. Contracts are concluded
exclusively with first-rate national and international banks
whose creditworthiness is regularly examined by leading rating
agencies and Central Risk Management at Volkswagen AG.
Commodity price risks are also calculated using sensitivity
analyses. Hypothetical changes in listed prices are used to
quantify the impact of changes in value of the hedging trans-
actions on equity and on profit after income tax.