Mercedes 2013 Annual Report Download - page 252

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Effects of currency translation. For purposes of Daimler’s
consolidated financial statements, the income and expenses
and the assets and liabilities of subsidiaries located outside
the euro zone are converted into euros. Therefore, period-to-
period changes in average exchange rates may cause trans-
lation effects that have a significant impact on, for example, reve-
nue, segment results (EBIT) and assets and liabilities of the
Group. Unlike exchange rate transaction risk, exchange rate trans-
lation risk does not necessarily affect future cash flows. The
Group’s equity position reflects changes in book values caused
by exchange rates. In general Daimler does not hedge against
exchange rate translation risk.
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 com-
panies enter into transactions with customers that primarily
result in fixed-rate receivables. Daimler’s general policy is to
match funding in terms of maturities and interest rates wherever
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 achieving these targets. As separate functions,
the Daimler Financial Services Risk Management and the
Daimler Financial Services Controlling & Reporting 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 instruments 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  F.91 shows the period-end, high, low and average
value at risk figures of the interest rate risk for the 2013 and
2012 portfolio of interest rate sensitive financial instruments
and derivative financial instruments of the Group, including the
derivative financial instruments of the leasing and sales financ-
ing business. In this respect, the table shows the interest rate
risk regarding the unhedged position of interest rate sensitive
financial instruments. The average values have been computed
on an end-of-quarter basis.
In the course of 2013, the development of the value at risk
for interest rate sensitive financial instruments was primarily
determined by the development of interest rate volatilities.
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 small portion 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 27% of the forecasted commodity
purchases at year-end 2013 for calendar year 2014. The corre-
sponding figure at year-end 2012 was 29% for calendar year
2013.
Table  F.91 shows the period-end, high, low and average
value at risk figures of the commodity price risk for the 2013
and 2012 portfolio of derivative financial instruments used
to hedge raw material price risk. Average exposure has been
computed on an end-of-quarter basis. The transactions
underlying the derivative financial instruments are not included
in the value at risk presentation. See also table  F.88 for
the nominal values of derivative commodity price hedges at
the balance sheet date.
Compared to the previous year the value at risk has been
reduced. Main reasons for this development were the declining
volatilities and the lower price levels of the respective com-
modities.
Equity price risk. Daimler predominantly holds investments
in shares of companies, which are classified as long-term
investments, such as Nissan or Renault or which are accounted
for using the equity method, such as Kamaz or Tesla. There-
fore, the Group does not include these investments in its equity
price risk assessment.
In connection with investment in RRPS by RRPSH, Rolls-Royce
has granted Daimler AG the right to exercise a put option
on the shares it holds in RRPSH (see also Note 13). Furthermore,
Daimler has hedged the equity price risk respectively limited
the equity price chance of its equity interest in Tesla through
a combination of put options purchased and call options
sold. Derivative financial instruments that hedge Daimler’s
investments are also not included in a market risk analysis.