Mercedes 2013 Annual Report Download - page 134

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The possible risks include negative financial developments
for the equity interests of the Daimler Group. If cooperations
(joint ventures) do not develop as desired or if the develop-
ment of companies does not meet expectations, growth targets
can be negatively impacted. Risks exist in connection with
equity interests in the segments Mercedes-Benz Cars and
Daimler Trucks. The cases involved are subject to a conti-
nuous monitoring process so that a company can be quickly
supported if required and its profitability can be protected.
The development of production facilities and joint ventures
in the Chinese market is exposed to risks. Efficient production
processes are established to deal with and reduce those
risks. Furthermore, dependencies between contracting parties
and possible changes in the framework conditions in China,
in which the danger of increased costs is inherent, must be
included in the local decision processes.
Financial risks and opportunities
The following section deals with the financial risks and
opportunities of the Daimler Group. A quantification
of these risks and opportunities is shown in table
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In principle, the Group’s operating and financial risk expo-
sures underlying the financial risks and opportunities can
be divided into in symmetrical and asymmetrical risk and oppor-
tunity profiles. With the symmetrical risk and opportunity
profiles (e.g. currency exposures), risks and opportunities exist
equally, while with the asymmetrical risk and opportunity
profiles (e.g. credit and liquidity exposures), risks outweigh
the opportunities. Daimler is generally exposed to risks and
opportunities from changes in market prices such as currency
exchange rates, interest rates, commodity prices and share
prices. Market-price changes can have a negative or positive
influence on the Group’s profitability, cash flows and financial
position. Daimler manages and monitors market-price risks
and opportunities primarily in the context of its operational busi-
ness and financing activities, and applies derivative financial
instruments for hedging purposes, whereby both market-price
risks and opportunities are limited.
In addition, the Group is exposed to credit and liquidity risks.
As part of the risk management process, Daimler regularly
assesses these risks by considering changes in key economic
indicators and market information. Market-sensitive instru-
ments held in funds set up to cover pension and health-care
benefits, including equities and interest-bearing securities,
are not included in the following analysis.
Exchange rate risks and opportunities. The Daimler Group’s
global reach means that its business operations and financial
transactions are connected with risks arising from fluctuations
of foreign exchange rates, especially of the US dollar and
other important currencies against the euro. An exchange rate
risk or opportunity arises in the operating business primarily
when revenue is generated in a currency different from that of
the related costs (transaction risk). This applies in particular
to the Mercedes-Benz Cars division, as a major portion of its
revenue is generated in foreign currencies while most of its
production costs are incurred in euros. The Daimler Trucks divi-
sion is also exposed to such transaction risks, but only to
a minor degree because of its worldwide production network.
Currency exposures are gradually hedged with suitable finan-
cial instruments (predominantly foreign exchange forwards and
currency options) in accordance with exchange rate expecta-
tions, which are constantly reviewed. Exchange rate risks also
exist in connection with the translation into euros of the net
assets, revenues and expenses of the companies of the Group
outside the euro-zone (translation risk); these risks are not
generally hedged.
Interest rate risks and opportunities. Daimler holds a variety
of interest rate sensitive financial instruments to manage the
cash requirements of its business operations on a day-to-day
basis. Most of these financial instruments are held in connection
with the financial services business of Daimler Financial
Services, whose policy is generally to match funding in terms
of maturities and interest rates. However, to a limited mag-
nitude, the funding does not match in terms of maturities and
interest rates, which gives rise to the risk of changes in
interest rates. The funding activities of the industrial business
and the financial services business are coordinated at Group
level. Derivative interest rate instruments such as interest rate
swaps and forward rate agreements are used to achieve the
desired interest rate maturities and asset/liability structures
(asset and liability management).
Financial risks and opportunities
Risk category Probability of occurrence Impact Opportunity category Impact
Exchange rate risks Low High Exchange rate opportunities High
Interest rate risks Low Low Interest rate opportunities Low
Share price risks Low Low Share price opportunities Low
Commodity price risks Low Low Commodity price opportunities Low
Liquidity risks Low High Liquidity opportunities -
Credit risks Low Low Credit opportunities -
Risks relating to pension plans Low High Opportunities relating to pension plans High
Risks from changes in credit ratings Low Low Opportunities from changes in credit ratings Low
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