Mercedes 2012 Annual Report Download - page 247

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Interest rate risk. Daimler uses a variety of interest rate
sensitive financial instruments to manage the liquidity and
cash needs of its day-to-day operations. A substantial volume
of interest rate sensitive assets and liabilities results from
the leasing and sales financing business operated by the Daimler
Financial Services segment. The Daimler Financial Services
companies enter into transactions with customers that primar-
ily result in fixed-rate receivables. Daimler’s general policy
is to match funding in terms of maturities and interest rates wher-
ever economically feasible. However, for a limited portion
of the receivables portfolio in selected and developed markets,
the Group does not match funding in terms of maturities
in order to take advantage of market opportunities. As a result,
Daimler is exposed to risks due to changes in interest rates.
In this regard, the Group is not exposed to any liquidity risks.
An asset/liability committee consisting of members of the
Daimler Financial Services segment, the Corporate Treasury
department and the Corporate Controlling department manages
the interest rate risk relating to Daimler’s leasing and financing
activities by setting targets for the interest rate risk position.
The Treasury Risk Management department and the local Daimler
Financial Services companies are jointly responsible for achiev-
ing these targets. As a separate function, the Daimler Financial
Services Risk Management department monitors target
achievement on a monthly basis. In order to achieve the targeted
interest rate risk positions in terms of maturities and interest
rate fixing periods, Daimler also uses derivative financial instru-
ments, such as interest rate swaps. Daimler assesses its interest
rate risk position by comparing assets and liabilities for
corresponding maturities, including the impact of the relevant
derivative financial instruments.
Derivative financial instruments are also used in conjunction with
the refinancing related to the industrial business. Daimler
coordinates the funding activities of the industrial and financial
services businesses at the Group level.
Table  7.8 4 shows the period-end, high, low and average
value at risk figures for the 2012 and 2011 portfolio of interest
rate sensitive financial instruments and derivative financial
instruments of the Group, including the derivative financial
instruments of the leasing and sales financing business. In this
respect, the table shows the interest rate risk regarding
the unhedged position of interest rate sensitive financial instru-
ments. The average values have been computed on an end-
of-quarter basis.
In the course of last year the development of the value at risk
for interest rate sensitive financial instruments was primarily
determined by the development of interest rate volatilities for
the euro and US dollar currency areas.
Commodity price risk. Daimler is exposed to the risk
of changes in commodity prices in connection with procuring
raw materials and manufacturing supplies used in production.
A not insignificant share of the raw material price risk, primarily
relating to forecasted procurement of certain metals, is
mitigated with the use of derivative financial instruments.
For precious metals, central commodity management shows
an unhedged position of 29% of the forecasted commodity
purchases at year-end 2012 for calendar year 2013. The corre-
sponding figure at year-end 2011 was 24% for calendar year 2012.
Table  7.85 shows the period-end, high, low and average
value at risk figures for the 2012 and 2011 portfolio of derivative
financial instruments used to hedge raw material price risk.
Average exposure has been computed on an end-of-quarter basis.
The offsetting transactions underlying the derivative financial
instruments are not included in the following value at risk presen-
tation. See also table  7.80 for the nominal volumes on
the balance sheet date of derivative commodity price hedges.
Compared to the previous year the value at risk has been
reduced. The main reason for this development was the declining
volatility in the respective commodities.
Equity price risk. Daimler predominantly holds investments
in shares of companies, such as EADS, Kamaz, Renault and
Nissan, which are classified as long-term investments or which
are accounted for using the equity method. Therefore, the
Group does not include these investments in its equity price
risk assessment.
In connection with the takeover of Tognum AG by Engine
Holding GmbH (Engine Holding), Rolls-Royce has granted
Daimler AG the right to exercise a put option on the shares
it holds in Engine Holding (see also Note 13). As this option
hedges the value of Daimler’s investment in Engine Holding,
this derivative financial instrument is also excluded from
the analysis of market risk.