DHL 2005 Annual Report Download - page 138

ere may be considerable variations in the fair value of such nan-
cial instruments due to future changes in interest rates, exchange rates
or commodity prices. ese changes in value may not be assessed in-
dividually, but only together with any osetting value developments
resulting from the underlying transactions.
e necessary universe of actions, responsibilities and controls have
been clearly established in internal guidelines. Suitable risk manage-
ment soware is used to record, assess and process hedging trans-
actions. e eectiveness of such transactions is monitored on an
ongoing basis. e Group only uses prime-rated banks as counter-
parties for such transactions, and it regularly monitors counterparty
limits and the extent to which these have been utilized.
Internally, the Group’s Board of Management receives regular infor-
mation on the existing risks and the hedging transactions eected on
this basis. e nancial instruments used are accounted for externally
in accordance with IAS 39.
Liquidity management
Deutsche Post World Net ensures a sucient supply of cash for
Group companies via a suitable liquidity management system. Avail-
able liquidity was substantially reduced in 2005 due to acquisitions.
However, together with existing Group credit lines extended by banks
in the amount of €4.2 billion (previous year: €4.1 billion) that were
not drawn down at the end of the year, the Group continues to have
sucient funds to nance further growth.
Currency risk and currency management
Deutsche Post World Net’s global activities expose it to currency risks
from planned and completed transactions in foreign currencies. All
Group companies report their foreign-currency risks to Corporate
Treasury, which calculates a consolidated position per currency from
these reports. ese risks are hedged centrally using currency for-
wards, currency options and swaps. As of December 31, 2005, the
notional amount of outstanding currency forwards and swaps was
€3,654 million (previous year: 3,104 million), and their fair value
amounted to €–48 million (previous year: €23 million). ese trans-
actions are used both to hedge planned and recorded operational
risks and to hedge internal and external nance and investments. For
reasons of simplication, fair value hedge accounting in accordance
with IAS 39 was not used for currency swaps.
e Group also held cross-currency swaps with a nominal value of
€2,448 million (previous year: €516 million) and a fair value of €–24
million (previous year: €–51 million) to hedge long-term foreign cur-
rency nancing and investments in foreign subsidiaries. In addition,
it held currency options with a nominal value of €443 million (pre-
vious year: €300 million) and a fair value of €3 million (previous year:
€2 million). ese options served exclusively to hedge planned future
operating foreign currency cash ows.
Currency forwards were measured on the basis of current market
prices, taking forward premiums and discounts into account. Cur-
rency options were measured using the “Black Scholes” pricing
model. Of the gains and losses from currency derivatives totaling
€–42 million (previous year: €–77 million) that were recognized in
equity as of December 31, 2005 in accordance with IAS 39, €-1 mil-
lion is expected to be recognized in income in the course of 2006.
Commodity price risk
Commodity price risks are hedged centrally in connection with the
purchase of kerosene. In addition, a proportion of commodity price
increases is passed on to customers via surcharges and contract claus-
es. Values measured by banks were used for hedges of commodity
price risks which cannot be measured using the treasury risk man-
agement system. ese values were calculated on the basis of current
market prices at month-end, taking forward curves based on the fair
value principle into account. Fuel worth €373 million was hedged at
the balance sheet date (previous year: €224 million).
Interest rate risk and interest rate management
Interest rate risk arises from changes in market interest rates for -
nancial assets and nancial liabilities. To quantify the risk prole, all
the Group’s interest-bearing receivables and liabilities are recorded,
interest rate analyses are regularly prepared, and the potential ef-
fects 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 diering interest rate posi-
tions in each portfolio irrespective of the liquidity tied up in indi-
vidual nancial contracts, and thus to manage and limit the interest
rate risk. e fair value of interest rate hedging instruments was ob-
tained on the basis of discounted expected future cash ows, using
the Group’s treasury risk management system.
At December 31, 2005, Deutsche Post World Net had entered into
interest rate swaps with a notional volume of €1,765 million (previous
year: €2,373 million). e fair value of this interest rate swap posi-
tion was €73 million (previous year: €134 million). e fair value of
interest rate options entered into was €–2 million (previous year: €–3
million) for a traded notional volume of €150 million (previous year:
€150 million).
e Group was able to benet from the low level of interest rates on
the nancial markets as nancing via both primary and derivative
instruments was generally short-term. However, the share of instru-
ments bearing long-term interest rates rose in the fourth quarter of
2005.
In the euro zone, Deutsche Post World Net expects interest rates
to rise slightly, but to remain clearly below the long-term average.
Although the potential negative impact of rising interest rates on the
nancial position strengthened as a result of cash ows from acquisi-
tions, it is still insignicant.
e following table provides an overview of the derivative nan-
cial instruments used by Deutsche Post World Net (excluding the
Deutsche Postbank group), and their fair values.
Annual Report 2005
134