Philips 2007 Annual Report Download - page 99

Philips Annual Report 2007 105
This Treasury section up to “Other insurable risks”
forms an integral part of the IFRS  nancial statements.
Currency risk
Currency  uctuations may impact Philips’  nancial results.
Philips is exposed to currency risk in the following areas:
Transaction exposures, such as forecasted sales and •
purchases and on-balance-sheet receivables/payables
resulting from such transactions;
Translation exposure of net income in foreign entities;•
Translation exposure of foreign-currency intercompany •
and external debt and deposits;
Translation exposure of equity invested in consolidated •
foreign entities;
Exposure to equity interests in non-functional-•
currency equity-accounted investees and available-
for-sale investments.
It is Philips’ policy that signi cant transaction exposures
are hedged by the businesses. Accordingly, all businesses
are required to identify and measure their exposures
resulting from material transactions denominated in
currencies other than their own functional-currency.
Philips’ policy generally requires committed foreign
currency exposures to be fully hedged using forwards.
Anticipated transactions may be hedged using forwards
or options or a combination thereof. The hedge tenor
varies per business and is a function of the ability to
forecast cash  ows and the way in which the businesses
can adapt to changed levels of foreign-currency exchange
rates. As a result, hedging activities may not eliminate all
currency risks for these transaction exposures. Generally,
the maximum tenor of these hedges is 18 months.
The following table outlines the estimated nominal value
in millions of euros for transaction exposure and related
hedges for Philips most signi cant currency exposures as
of December 31, 2007:
Estimated transaction exposure and related hedges
in millions of euros
maturity 0-60 days maturity over 60 days
exposure hedges exposure hedges
Hedges of receivables
USD vs EUR 425 (379) 1,615 (1,014)
JPY vs EUR 32 (31) 118 (101)
GBP vs EUR 83 (81) 105 (72)
PLN vs EUR 56 (53) 110 (69)
EUR vs SEK 33 (33) 33 (21)
USD vs AED 8 (5) 61 (31)
EUR vs USD 155 (138) 606 (127)
Hedges of payables
USD vs CAD (20) 18 (52) 40
PLN vs EUR (49) 38 (285) 163
USD vs EUR (696) 649 (1,477) 969
EUR vs GBP (18) 16 (77) 67
MYR vs USD (12) 8 (51) 26
MXN vs USD (19) 15 (67) 36
EUR vs SEK (48) 48 (81) 49
The  rst currency displayed is the exposure that is being hedged followed by
the functional currency of the hedging entity.
The derivatives related to transactions are, for hedge
accounting purposes, split into hedges of on-balance-
sheet accounts receivable/payable and forecasted sales
and purchases. Changes in the value of on-balance-sheet
foreign-currency accounts receivable/payable, as well as
the changes in the fair value of the hedges related to
these exposures, are reported in the income statement
under cost of sales. Hedges related to forecasted
transactions are accounted for as cash  ow hedges.
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Corporate Governance
Philips Business Control Framework
Philips General Business Principles
98 Risk management 112 Our leadership 116 Report of the Supervisory Board 126 Financial Statements