DHL 2004 Annual Report Download - page 124

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45.2 Risks and fair values of financial instruments
in other Deutsche Post World Net companies
Derivatives
Deutsche Post World Net’s business activities entail financial risks
that arise from changes in exchange rates, commodity prices and
interest rates. Primary and derivative financial instruments are
used to reduce existing risks. Apart from the financial transactions
of the Deutsche Postbank group, which manages its risks using its
own risk control system, the group’s financial transactions are
recorded in treasury risk management software.
Derivative financial transactions are only entered into with
prime-rated banks that are monitored on a regular basis. The Board
of Management is informed regularly and in a timely manner
about hedging measures. Financial instruments are accounted for
in accordance with IAS 39. The universe of actions, responsibilities
and controls necessary in this context for the Group companies
have been established in internal guidelines.
Liquidity management
Deutsche Post World Net’s liquidity management functions ensure
a sufficient supply of liquidity for Group companies.
In June 2004, Deutsche Post AG received income of around
€1.6 billion from Deutsche Postbank AG’s IPO. In addition, the
exchangeable bond on shares of Deutsche Postbank AG issued as
part of the IPO had a volume of €1.08 billion (2.65%, expiring in
2007). Together with the existing cash funds and the Group credit
lines extended by banks in the amount of € 4.1 billion that were
unused as of the end of the year, the Group has sufficient funds to
finance its planned growth and investments.
Currency risk and currency management
The global presence of the Group companies results in currency
risks from planned and completed transactions in foreign currencies.
At Deutsche Post World Net, foreign currency cash flows are
centralized and matched by maturities. Currency risks are hedged
centrally using currency forwards, currency options, currency
swaps and cross-currency swaps.
At the end of 2004, the notional amount of currency options
was € 0.3 billion, and the fair value was € 2 million. Currency
options are used exclusively to hedge planned foreign currency
transactions in operational business.
Currency forwards and currency swaps for planned and
binding contracts for future transactions relating to the supply
of goods and services and for hedging currencies in intragroup
financing and investments totaled €1.1 billion and € 2.3 billion,
respectively. The fair values amounted to € –67 million and € 90
million, respectively.
As of December 31, 2004, Deutsche Post World Net also held
cross-currency swaps amounting to € 0.5 billion with a fair value of
€ –51 million; these are used exclusively to hedge currencies in
long-term foreign currency financing.
Commodity price risk
Commodity price risks arise principally in the context of the
purchase of kerosene, diesel, petrol and fuel oil. The risk is reduced
by hedging part of the fuel requirements in advance. It should be
noted in particular that some fuel price increases can be passed on
to customers by levying surcharges or providing corresponding
clauses in master agreements. Fuel worth € 224 million was hedged
at the balance sheet date.
Interest rate risk and interest rate management
Interest rate risk arises from changes in market interest rates
for financial assets and financial liabilities. To quantify the risk
profile, all the Group’s interest-bearing receivables and liabilities
are recorded, interest rate analyses are regularly prepared, and the
potential effects on the Group’s net interest income are examined.
Deutsche Post World Net uses interest rate derivatives, such
as interest rate swaps and options, to achieve a balanced mix of
differing interest rate terms in each portfolio irrespective of the
liquidity tied up in individual financial contracts, and thus limit
the interest rate risk.
At December 31, 2004, Deutsche Post World Net had entered
into interest rate swaps with a notional volume of € 2,373 million.
The fair value of this interest rate swap position at the reporting
date was €134 million. The fair value of interest rate options
entered into was € –3 million for a traded notional volume of €150
million.