47. Management of Financial Risks

To finance its business activities, the Group uses short, medium and long-term bank loans, finance leases and hire-purchase agreements, as well as cash and short-term deposits. The Group has access to various other financial assets and liabilities, such as trade payables and receivables which arise directly from its business.

The Group also enters into derivative transactions. Derivative financial instruments are most likely to include interest rate hedging instruments such as interest rate swaps, interest rate caps and currency futures. The purpose of these derivative financial instruments is to manage interest rate, currency and commodity price risks which result from the Group’s business activities and its sources of financing.

Derivative financial instruments are used to hedge existing transactions and planned transactions which are sufficiently likely to take place. Hedging transactions are only concluded with counterparties with very good credit ratings. HHLA also makes use of external ratings to assess its counterparties’ creditworthiness. The Group does not hold derivative financial instruments for speculative purposes.

Interest Rate and Market Price Risk

As a result of its financing activities, the Group is exposed to an interest rate risk, which principally stems from medium to long-term borrowing at floating rates of interest.

Managing the Group’s interest expenses involves a combination of fixed and floating-rate debt, depending on the market. It is Group policy to arrange the majority of interest-bearing debt at fixed rates of interest, either by agreeing fixed rates with the lenders or by taking out interest rate swaps. These are used in the HHLA Group to reduce interest rate risks and may also be used to a minor extent to reduce currency and commodity price risks. Derivatives reported in the Consolidated Financial Statements are carried at fair value based on the market prices posted by counterparties. Resulting gains and losses are recognised through profit and loss in the financial result unless the derivative financial instrument is part of a designated cash flow hedging relationship. The effective portion of unrealised gains and losses on cash flow hedges is recognised in equity without effect on profit and loss.

The consolidated companies did not hold any interest rate swaps as of the balance sheet date.

As of the balance sheet date, 61.8 % (previous year: 57.7 %) of the Group’s borrowing was at fixed interest rates.

The fixed-interest financial instruments are not held at fair value and are therefore not subject to market price risks on the balance sheet.

Market price risks can, however, affect securities and equity investments in particular. Due to the minor scope of these instruments, the risk is deemed insignificant.

A change in the variable interest rate affects the interest expenses arising from floating-rate loans, the interest income from overnight deposits and time deposit investments, and the income from interest rate hedges and their fair value.

If the variable interest rate had been 0.5 percentage points higher as of the balance sheet date, interest expenses arising from floating-rate loans would have been € 489 thousand p.a. higher (previous year: € 629 thousand p.a.) and interest income from overnight deposits and time deposit investments would have been € 1,377 thousand p.a. higher (previous year: € 1,211 thousand p.a.).

Exchange Rate Risk

Due to investments in countries outside the eurozone, changes in exchange rates can affect the balance sheet. Foreign currency risks on individual transactions are hedged by currency futures or currency options if a market analysis requires it. The hedging transactions are in the same currency as the hedged item. The Group only concludes currency futures contracts when specific claims or obligations exist.

On the balance sheet date, there were currency hedging instruments with a volume of € 37.5 million (previous year: € 0 million) and maturities of up to 25 months. The market value came to € 1,294 thousand on 31 December 2017.

Revenue in the HHLA Group is predominantly invoiced in euros or in the national currencies of the European affiliates. Investments in these countries are largely transacted in euros.

USD-denominated financial instruments are held in Ukraine, which are subject to an exchange risk. If the euro lost 10 % against the US dollar, this would have a negative impact of just under € 250 thousand on equity. Depending on the parallel performance of the Ukrainian hryvnia against the US dollar, this full amount could be recognised through profit and loss and reduce the result for the period accordingly by up to almost € 250 thousand.

For all other currencies, changes in exchange rates do not pose a material risk to the Group.

Commodity Price Risk

The Group is primarily exposed to a commodity price risk when purchasing fuel. Depending on the market situation, the Group can arrange price hedges for part of its fuel requirements. This was not the case at the balance sheet date or on 31 December 2016.

In addition to the market risks mentioned, there are also financial risks in the form of credit and liquidity risks.

Credit Risk/Default Risk

The Group only maintains customer relationships on a credit basis with recognised, creditworthy third parties. Clients who wish to complete transactions with the Group on a credit basis are subject to a credit-scoring procedure. Receivables are also monitored on an ongoing basis and impairment allowances are made if risks are identified, such that the Group is not exposed to any additional significant default risks on receivables. The maximum default risk for the trade receivables and other financial receivables is theoretically the carrying amount for the individual receivable. HHLA has also taken out loan loss insurance to minimise default risks. This covers key outstanding receivables as of the balance sheet date.

Structure of Trade Receivables

in € thousand

 

31.12.2017

 

31.12.2016

Receivables not due for payment and not written down

 

109,200

 

106,095

Overdue receivables not written down

 

39,915

 

54,345

thereof up to 30 days

 

32,882

 

44,139

thereof up to 31 to 90 days

 

5,640

 

8,056

thereof up to 91 days to one year

 

1,321

 

2,025

thereof over one year

 

72

 

125

 

 

149,115

 

160,440

Development of the Valuation Allowances on Trade Receivables

in € thousand

 

2017

 

2016

Valuation allowances as of 1 January

 

4,744

 

2,705

Additions (valuation allowances recognised as expenses)

 

532

 

3,550

Used

 

- 1,712

 

- 1,231

Reversals

 

- 741

 

- 280

Valuation allowances as of 31 December

 

2,823

 

4,744

The default risk in the case of derivative financial instruments and cash, cash equivalents and short-term deposits is, in theory, that of counterparty default and is therefore equivalent to the carrying amounts of the individual financial instruments. The risk of default can be considered to be very low, since the Group as a rule only conducts derivative financial transactions and liquid investments with counterparties with very good credit ratings. In addition, credit risks may arise if the contingent liabilities listed in Note 46 are incurred.

Liquidity Risk

The Group guarantees sufficient liquidity at all times with the help of medium-term liquidity planning, by diversifying the maturities of loans and finance leases, and by means of existing lines of credit and funding commitments. If covenants have been agreed for individual loans, they are monitored on an ongoing basis to make sure they are being complied with. HHLA will introduce measures it deems necessary to ensure that the covenants are met.

For details on bank loans and other loans, finance lease liabilities, financial liabilities towards employees and other financial liabilities, please refer to the table of residual maturities for financial liabilities in Note 38.

Expected Liquidity Outflows due to Future Interest Payments

 

 

Up to 1 year

 

1 to 5 years

 

Over 5 years

 

Total

in € thousand

 

31.12.2017

 

31.12.2016

 

31.12.2017

 

31.12.2016

 

31.12.2017

 

31.12.2016

 

31.12.2017

 

31.12.2016

Outflow of liquidity for future interest payments on fixed-interest loans

 

3,761

 

4,201

 

12,055

 

13,769

 

8,018

 

11,580

 

23,834

 

29,550

Outflow of liquidity for future interest payments on floating-rate loans

 

844

 

2,020

 

1,354

 

3,810

 

222

 

437

 

2,420

 

6,267

 

 

4,605

 

6,221

 

13,409

 

17,579

 

8,240

 

12,017

 

26,254

 

35,817

The consolidated companies did not hold any interest rate swaps as of the balance sheet date, so no interest outflows are anticipated in this regard.

Financial Instruments

Carrying Amounts and Fair Values

The tables below show the carrying amounts and fair value of financial assets and financial liabilities, as well as their level in the fair value hierarchy, see also Note 6 and Note 7.

They do not include any information on financial assets held at fair value or financial liabilities which have not been measured at fair value, where the carrying amount serves as a reasonable approximation of the fair value.

Financial Assets as of 31 December 2017

 

 

Carrying amount

 

Fair Value

in € thousand

 

Loans and receiv­ables

 

Available
for sale

 

Balance sheet
value

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets (securities)

 

 

 

6,227

 

6,227

 

6,227

 

 

 

 

 

6,227

 

 

0

 

6,227

 

6,227

 

 

 

 

 

 

 

 

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

12,451

 

2,901

 

15,352

 

 

 

 

 

 

 

 

Trade receivables

 

149,115

 

 

 

149,115

 

 

 

 

 

 

 

 

Receivables from related parties

 

81,527

 

 

 

81,527

 

 

 

 

 

 

 

 

Other financial receivables

 

2,651

 

 

 

2,651

 

 

 

 

 

 

 

 

Cash, cash equivalents and short-term deposits

 

201,514

 

 

 

201,514

 

 

 

 

 

 

 

 

 

 

447,258

 

2,901

 

450,159

 

 

 

 

 

 

 

 

Financial Liabilities as of 31 December 2017

 

 

Carrying amount

 

Fair Value

in € thousand

 

Held for trading

 

Fair value –
hedging instruments

 

Other financial
liabilities

 

Balance sheet
value

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial liabilities measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities (interest rate swaps used for hedging transactions)

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

0

 

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities
(liabilities from bank loans)

 

 

 

 

 

256,879

 

256,879

 

 

 

260,869

 

 

 

260,869

Financial liabilities
(finance lease liabilities)

 

 

 

 

 

37,422

 

37,422

 

 

 

37,422

 

 

 

37,422

Financial liabilities (settlement obligation, long-term)

 

 

 

 

 

22,620

 

22,620

 

 

 

22,620

 

 

 

22,620

Financial liabilities (settlement obligation, short-term)

 

 

 

 

 

30,900

 

30,900

 

 

 

 

 

 

 

 

Financial liabilities (other)

 

 

 

 

 

37,736

 

37,736

 

 

 

37,736

 

 

 

37,736

Trade liabilities

 

 

 

 

 

77,246

 

77,246

 

 

 

 

 

 

 

 

Liabilties to related parties
(finance lease liabilties)

 

 

 

 

 

105,914

 

105,914

 

 

 

141,722

 

 

 

141,722

Liabilities to related parties (other)

 

 

 

 

 

7,614

 

7,614

 

 

 

 

 

 

 

 

 

 

0

 

0

 

576,331

 

576,331

 

 

 

 

 

 

 

 

Financial Assets as of 31 December 2016

 

 

Carrying amount

 

Fair Value

in € thousand

 

Loans and receiv­ables

 

Available
for sale

 

Balance sheet
value

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets (securities)

 

 

 

3,940

 

3,940

 

3,940

 

 

 

 

 

3,940

 

 

0

 

3,940

 

3,940

 

 

 

 

 

 

 

 

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

14,434

 

2,896

 

17,330

 

 

 

 

 

 

 

 

Trade receivables

 

160,440

 

 

 

160,440

 

 

 

 

 

 

 

 

Receivables from related parties

 

81,736

 

 

 

81,736

 

 

 

 

 

 

 

 

Other financial receivables

 

2,172

 

 

 

2,172

 

 

 

 

 

 

 

 

Cash, cash equivalents and short-term deposits

 

177,192

 

 

 

177,192

 

 

 

 

 

 

 

 

 

 

435,974

 

2,896

 

438,870

 

 

 

 

 

 

 

 

Financial Liabilities as of 31 December 2016

 

 

Carrying amount

 

Fair Value

in € thousand

 

Held for trading

 

Fair value –
hedging instruments

 

Other financial
liabilities

 

Balance sheet
value

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial liabilities measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities (interest rate swaps used for hedging transactions)

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

0

 

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities
(liabilities from bank loans)

 

 

 

 

 

298,350

 

298,350

 

 

 

304,780

 

 

 

304,780

Financial liabilities
(finance lease liabilities)

 

 

 

 

 

39,043

 

39,043

 

 

 

39,043

 

 

 

39,043

Financial liabilities (settlement obligation, long-term)

 

 

 

 

 

18,045

 

18,045

 

 

 

18,045

 

 

 

18,045

Financial liabilities (settlement obligation, short-term)

 

 

 

 

 

22,603

 

22,603

 

 

 

 

 

 

 

 

Financial liabilities (other)

 

 

 

 

 

37,723

 

37,723

 

 

 

37,723

 

 

 

37,723

Trade liabilities

 

 

 

 

 

68,106

 

68,106

 

 

 

 

 

 

 

 

Liabilties to related parties
(finance lease liabilties)

 

 

 

 

 

106,304

 

106,304

 

 

 

149,820

 

 

 

149,820

Liabilities to related parties (other)

 

 

 

 

 

8,950

 

8,950

 

 

 

 

 

 

 

 

 

 

0

 

0

 

599,124

 

599,124

 

 

 

 

 

 

 

 

There are no material differences between the carrying amounts and fair values of the financial instruments reported under non-current financial liabilities with details of fair value. They are therefore recognised at their carrying amount. Otherwise, the fair value must be stated.

Valuation Methods and Key Unobservable Input Factors for Calculating Fair Value

The table below shows the valuation methods used for Level 2 and Level 3 fair value measurement and the key unobservable input factors utilised.

Financial Instruments Not Measured at Fair Value

Type

 

Valuation method

 

Key unobservable input factors

Financial liabilities
(liabilities from bank loans, finance lease liabilities, settlement obligations)

 

Discounted cash flows

 

Not applicable

Liabilities to related parties
(finance lease liabilities included in this item)

 

Discounted cash flows: The valuation model utilises the present value, taking into account contractually agreed increases in rent. Discount rates represent an adequate interest rate according to the current risk.

 

Not applicable

There was no reclassification between the individual valuation levels in the financial year under review.