DHL 2004 Annual Report Download - page 72

We only enter into derivative transactions with prime-rated banks that we monitor
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. We established the universe of actions, responsibilities and controls neces-
sary in this context for Group companies in internal guidelines.
Management of currency risks is important for us, as a large proportion of our
international business is conducted in foreign currencies. The most important of those is
the US dollar, as the majority of the transactions are either executed directly in US dollars
or in currencies pegged to it. Other key foreign currencies are sterling, the Japanese yen,
the Korean won, the Chinese yuan and the Mexican peso. Currency management follows
a central strategy: Group companies are in principle obliged to notify Corporate Treasury
of all their foreign currency flows. The central position for each currency and risk period
is calculated at Group level, and hedged with banks, depending on market estimates.
Commodity price risks arise principally in the context of the purchase of kerosene,
diesel, petrol and fuel oil. We reduce our risk by hedging part of our fuel requirements in
advance. It is of special importance here that we can pass on some fuel price increases to
customers by levying surcharges or providing corresponding clauses in our master agree-
ments.
We respond to interest rate risks with active interest rate management. For this we
record all interest-bearing Group receivables and liabilities. We employ primary and deriv-
ative financial instruments to optimize financing costs and to limit interest rate risks,
which help us to manage the ratio between fixed and variable interest rate terms.
Controlling corporate division risks
The company and a number of its subsidiaries provide their services in a regulated envi-
ronment. This gives rise to risks.
For the MAIL Corporate Division, significant risks mainly arise from the regula-
tory framework described below.
On January 1, 2003, the EU directive on further deregulation of the European
postal markets was implemented into German law. Letters and addressed catalogs over
100g and/or three times the standard rate, and outgoing cross-border mail services, were
opened up to competition. From January 1, 2006, these ceilings will be cut to 50g and/or
two and a half times the standard rate. The change in the Postgesetz (German Postal Act *)
entails competition risks in Germany on the one hand; but on the other, deregulation of
other European mail markets opens up new opportunities for us.
On February 18, 2005, the Bundesrat (the upper house of the Federal German
Parliament) approved a proposal to amend the Postgesetz. This will allow competitors
to transport addressed catalogs, and extend regulatory price approval to include mail pro-
ducts outside of the monopoly with a minimum posting volume of 50 items. In addition,
it will permit downstream access to Deutsche Post’s network by mail consolidators. The
latter are companies that collect mailings from several senders, bundle them and hand
them over to Deutsche Post AG at a discounted rate.
The proposed amendment to the Postgesetz can only come into force with the
approval of the Bundestag (the lower house of the Federal German Parliament). At
present, this appears unlikely; however, if it is approved, negative effects on the Group’s
revenue and earnings cannot be ruled out.
* These terms are explained in the Glossary
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