Philips 2014 Annual Report Download - page 172

Group nancial statements 12.9
172 Annual Report 2014
change clauses and can be used for general group
purposes. As of December 31, 2014, Philips did not have
any amounts outstanding under any of these facilities.
Additionally Philips also held EUR 75 million of equity
investments in available-for-sale nancial assets (fair
value at December 31, 2014).
Currency risk
Currency risk is the risk that the fair value or future cash
ows of a nancial instrument will uctuate because of
changes in foreign exchange rates. Currency
uctuations may impact Philips’ nancial results.
Philips is exposed to currency risk in the following
areas:
• Transaction exposures, related to 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 foreign-currency-
denominated equity invested in consolidated
companies
• Translation exposure to equity interests in non-
functional-currency investments in associates and
available-for-sale nancial assets.
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 amount hedged as a proportion of the total
anticipated exposure identied varies per business and
is a function of the ability to project cash ows, the time
horizon for the cash ows and the way in which the
businesses can adapt to changing levels of foreign-
currency exchange rates. As a result, hedging activities
cannot and will not eliminate all currency risks for these
anticipated 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 consolidated as of December 31, 2014:
Philips Group
Estimated transaction exposure and related hedges
in millions of euros
2014
maturity 0-60 days maturity over 60 days
exposure hedges exposure hedges
Balance as of
December 31,
2014
Receivables
Functional vs. exposure currency
EUR vs. USD 584 (564) 1,887 (1,295)
USD vs. EUR 161 (145) 737 (378)
EUR vs. GBP 80 (63) 372 (192)
USD vs. JPY 37 (35) 173 (106)
EUR vs. JPY 40 (39) 173 (122)
EUR vs. CNY 44 (41) 107 (81)
GBP vs. USD 16 (16) 95 (71)
EUR vs. PLN 45 (43) 82 (44)
EUR vs. RON 14 (11) 74 (31)
EUR vs. CHF 14 (12) 68 (33)
Others 193 (176) 561 (302)
Total 2014 1,228 (1,145) 4,329 (2,655)
Total 2013 971 (874) 3,691 (2,239)
Payables
Functional vs. exposure currency
EUR vs. USD (281) 269 (1,069) 603
USD vs. CNY (75) 72 (141) 96
EUR vs. PLN (43) 34 (38) 19
BRL vs. USD (33) 24 (27) 14
EUR vs. GBP (32) 26 (147) 76
USD vs. EUR (28) 18 (78) 31
IDR vs. USD (26) 16 – –
INR vs. USD (21) 21 (18) 18
USD vs. SGD (13) 12 (21) 17
USD vs. MYR (12) 12 (10) 10
Others (52) 48 (112) 56
Total 2014 (616) 552 (1,661) 940
Total 2013 (457) 502 (1,397) 831
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 costs of sales. Hedges related
to forecasted transactions, where hedge accounting is
applied, are accounted for as cash ow hedges. The
results from such hedges are deferred in other
comprehensive income within equity to the extent that
the hedge is eective. As of December 31, 2014, a loss
of EUR 13 million was deferred in equity as a result of
these hedges. The result deferred in equity will be
released to earnings mostly during 2015 at the time
when the related hedged transactions aect the