Reebok 2014 Annual Report Download - page 180

176
2014
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03.5
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adidas Group
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2014 Annual Report
Group Management Report – Financial Review
Risk and Opportunity Report
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Financial Risks
Interest rate risks
Changes in global market interest rates affect future interest payments for variable-interest
liabilities. As the Group does not have material variable-interest liabilities, significant interest rate
increases should have only slight adverse effects on the Group’s profitability, liquidity and financial
position.
In line with IFRS 7 requirements, we have analysed the impact of changes in the Group’s most
important interest rates on net income and shareholders’ equity. The effect of interest rate changes
on future cash flows is excluded from this analysis. Nevertheless, accrued interest, which is
recognised as a liability, has been recalculated based on the hypothetical market interest rates as at
December 31, 2014. Fair values for derivative interest rate instruments accounted for as cash flow
hedges were then re-evaluated based on the hypothetical market interest rates with the resulting
effects on net income and equity included in the sensitivity analysis.
However, the effect on the income statement from changes in the fair values of hedged items and
hedging instruments attributable to interest rate changes was not material. Exclusions from this
analysis are as follows:
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Some fixed-rate financial instruments, such as certificates of deposit, which we value at ‘fair
value through profit or loss’ due to the short-term maturity of these instruments. Potential
effects due to changes in interest rates are considered immaterial and are not recognised in the
sensitivity analysis.
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Other fixed-rate financial instruments are measured at amortised cost. Since a change in
interest rates would not change the carrying amount of this category of instruments, there is no
net income impact and they are excluded from this analysis.
The interest rate sensitivity analysis assumes a parallel shift of the interest yield curve for all
currencies and was performed on the same basis for both 2013 and 2014. As in the prior year, a
100 basis point increase or decrease in interest rates at December 31, 2014 would have had no
major impact on shareholders’ equity and net income.
To reduce interest rate risks and maintain financial flexibility, a core tenet of our Group’s financial
strategy is to continue to use surplus cash flow from operations to reduce gross borrowings. Beyond
that, the adidas Group is constantly looking for adequate hedging strategies through interest rate
derivatives in order to mitigate interest rate risks.
In 2014, interest rates in Europe and North America remained at low levels. Given the central banks’
current interest rate policies and macroeconomic uncertainty, we do not foresee any major interest
rate increases in Europe in 2015. Due to the positive macroeconomic development in the USA,
however, we believe a slight increase in US interest rates is likely. At December 31, 2014, 80% of the
Group’s financing was denominated in euros.
see Treasury, p. 121