Mercedes 2015 Annual Report Download - page 142

B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 149
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 business and financing
activities, and applies derivative financial instruments for
hedging purposes where needed, whereby both market-price
risks and opportunities are limited.
In addition, the Group is exposed to credit and country-related
risks. As part of the risk management process, Daimler regularly
assesses these risks by considering changes in key economic
indicators and market information. Pension plan assets to cover
retirement and healthcare benefits (market sensitive invest-
ments including equities and interest-bearing securities) are not
included in the following analysis.
Exchange rate risks and opportunities
The Daimler Group’s global orientation implies that its business
operations and financial transactions are connected with risks
and opportunities of foreign exchange rates against the euro,
especially for the US dollar, the Chinese renminbi, the British
pound and other currencies such as currencies of growth markets.
An exchange rate risk or opportunity arises in business opera-
tions 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 denominated in euros. The Daimler
Trucks division is also exposed to such transaction risks, but
to a lesser degree because of its worldwide production network.
Currency risk exposures are successively hedged with suitable
financial instruments (predominantly currency-forwards and
options) in accordance with exchange rate expectations, which
are constantly reviewed, whereby both risks and opportunities
are limited. Exchange rate risks and opportunities 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 employs 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 gener-
ally to perform term-congruent refinancing. However, to a limited
extent, 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 are used to achieve the desired interest rate maturities
and asset/liability structures (asset and liability management).
Equity price risks and opportunities
The Group is subject to equity price risks in connection
withits listed associated companies and joint ventures. As of
December 31, 2015, the only shares that Daimler holds are
shares that are classified as long-term investments (especially
Nissan and Renault) or that are included in the consolidated
financial statements using the equity method (primarily BAIC
Motor). The Group does not include these investments in a
market-price risk analysis. The section “Risks and opportunities
related to associated companies, joint ventures and joint
operations” provides more information on equity risks and
opportunities.
Commodity price risks and opportunities
As already described in the section “Procurement market
risks and opportunities”, the Group’s business operations are
exposed to changes in the prices of consignments and raw
materials. The Group addresses these procurement risks by
means of concerted commodity and supplier risk management.
To a minor degree, derivative financial instruments are used
to reduce the Group’s market-price risks related to the purchase
of certain metals.
Credit risks
The Group is exposed to credit risks which result primarily from
its financial services activities and from the operations of its
vehicle business. Credit risks also arise from the Group’s liquid
assets. The following statements pertain to risks arising from
the Group’s liquid assets; risks related to leasing and sales financ-
ing are addressed on E page 144. Should defaults occur,
this would negatively affect the Group’s financial position, cash
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
Commodity price risks Low Low Commodity price opportunities Low
Credit risks Low Low Credit opportunities –
Country risks Low Low Country 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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