Nevertheless, our net US dollar cash flow exposure after natural hedges calculated for 2011 was roughly € 3.3 billion at year-end 2010, which we hedged using forward contracts, currency options and currency swaps see 05. Our Group’s Treasury Policy allows us to utilise hedging instruments, such as currency options or option combinations, which provide protection while – at the same time – retaining the potential to benefit from future favourable exchange rate developments in the financial markets.
As 2011 hedging has almost been completed, it is clear that conversion rates on major currencies will be slightly less favourable compared to those of 2010. Volume forecast variances, greater currency volatility and an increasing portion of our business in emerging markets will expose the adidas Group to additional currency risks in 2011. Furthermore, translation impacts from the conversion of non-euro-denominated results into our Group’s functional currency, the euro, might lead to a material negative impact on our Group’s financial performance. As a consequence, the assessment of currency risks has increased. We now believe the likelihood of currency risks is highly probable and we regard the possible financial impact of currency risks as major.
Changes in global market interest rates affect future interest payments for variable-interest liabilities. As a result, significant interest rate increases can have an adverse effect 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 re-calculated based on the hypothetical market interest rates as at December 31, 2010. 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. The fair value interest rate risk from private placements that are hedged with fair value hedges was also taken into consideration.
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:
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 2009 and 2010. A 100 basis point increase in interest rates at December 31, 2010 would have increased shareholders’ equity by € 0.04 million (2009: € 0.50 million) and decreased net income by € 0.22 million (2009: € 0.65 million). A 100 basis point decrease of the interest rates at December 31, 2010 would have resulted in a € 0.04 million decrease in shareholders’ equity (2009: € 0.05 million) and a € 0.22 million increase in net income (2009: € 0.63 million).
Sensitivity analysis of foreign exchange rate changes
€ in millions
|As at December 31, 2010|
|EUR +10%||USD +10%||EUR +10%||EUR +10%|
|EUR –10%||USD –10%||EUR –10%||EUR –10%|
|As at December 31, 2009|
|EUR +10%||USD +10%||EUR +10%||USD +10%|
|EUR –10%||USD –10%||EUR –10%||USD –10%|