Mercedes 1998 Annual Report Download - page 68

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ANALYSIS OF THE FINANCIAL SITUATION
64
table. The table demonstrates the negative effect of a 10% up-
ward revaluation of the euro on expected cash flows before
taxes in the years 1999 and 2000, after considering hedging
actions which have been taken until December 31, 1998.
1) On cash flow before taxes, in consideration of existing hedging contracts
Gross amount of foreign
currency exposure
Gross amount of foreign
currency netting
Net currency exposure
Negative effect of a 10%
appreciation of the euro
after hedging1)
Exchange Rate
Sensitivities in 2000
in Billions of €
11. 6
6.0
5.6
0.24
USD CAD GBP JPY Other Total
5.7
5.9
(0.2)
–
3.3
0.3
3.0
0.13
1.7
0.3
1.4
0.06
3.4
1.3
2.1
0.16
25.7
13.8
11.9
0.59
Gross amount of foreign
currency exposure
Gross amount of foreign
currency netting
Net currency exposure
Negative effect of a 10%
appreciation of the euro
after hedging1)
Exchange Rate
Sensitivities in 1999
in Billions of €
11.5
4.3
7.2
0.11
USD CAD GBP JPY Other Total
5.5
5.7
(0.2)
–
3.1
0.2
2.9
0.05
1.8
0.6
1.2
–
2.1
0.4
1.7
0.03
24.0
11.2
12.8
0.19
As a result of the introduction of the euro on January 1, 1999,
risks associated with the currencies of the countries participat-
ing in the euro will no longer exist. Henceforth, the Group will
be subject to exchange rate exposure from transactions
denominated primarily in the currencies listed in the following
FUTURE RISKS. As a globally active company, DaimlerChrysler
is subject to a number of risks intrinsic to its corporate activi-
ties. Above, we have described the risks resulting from the
development of currency exchange rates, including the steps
we take to insure ourselves against them. Additional uncertain-
ties result from the further economic development of the
national economies important to us, which are further re-
inforced by the strongly cyclical nature of demand in some
of our relevant markets. In particular, the automotive sector is
characterized by strong competition, which should intensify
over time due to worldwide excess capacities. Like all auto-
motive manufacturers, the DaimlerChrysler Group is affected
by increasingly strict emissions and fuel consumption require-
ments and safety standards in the sales markets for the
vehicles it produces. However, we believe that due to the
merger of two strong partners and the targeted promotion of
our innovative strength, we are well prepared to address these
risks and uncertainties. We are confident that we will also be
able to offer our customers attractive and highly competitive
products and services in the future.
We utilize effective internal control systems to determine and
deal with existing risks. These involve the use of group-wide
standardized guidelines, running reliable software, selecting
and training qualified personnel and ongoing checks by our
internal auditors. As part of the merger, the existing internal
control systems will be combined into a risk management
system that meets the requirements of the German Business
Monitoring and Transparency Act (KonTraG). This will enable
the Board of Management to identify potential risks at an early
stage and to initiate appropriate countermeasures.