Opportunity and risk management
Our business activities go hand in hand with both opportunities and risks, which we continuously monitor using our Group-wide risk management system. This system helps management to identify and assess developments involving opportunities and risks at an early stage. Information on the early warning system and the significant risks affecting our net assets, financial position and results of operations is contained in the 2007 Annual Report and in the interim report on the first quarter of 2008. Further information on the risk position of Postbank can be found in the 2007 Annual Report of Deutsche Postbank AG and in its interim reports.
General business environment and industry-specific risks
On 1 July 2008, the European Court of First Instance annulled the June 2002 decision of the European Commission ordering Deutsche Post AG to repay purported state aid. Based on the European Commission’s decision, Deutsche Post AG had been forced to repay a total of €907 million (€572 in allegedly misused public funds plus interest) to the Federal Republic of Germany in January 2003, even though it had appealed the decision immediately. Following the decision of the European Court, Deutsche Post AG will receive some €1,065 million back from the German government, equalling the amount originally repaid plus interest. The European Commission and its interveners have two months in which to file an appeal with the European Court of Justice.
The 23 July 2008 ruling of the European Commission concluded the formal proceedings opened on 22 November 2006 concerning the possibility of state aid having been misused in connection with construction of the DHL European air hub at Leipzig/Halle airport. In its ruling, the Commission reached the conclusion that the use of public funds of around €350 million for the new southern runway was in compliance with the European law relating to state aid. The Commission also ruled that the financial guarantees endorsed by the state of Saxony for the benefit of DHL were impermissible. The Commission is of the opinion that any unlawfully granted state aid must be repaid by DHL. Deutsche Post AG and DHL will review the decision. DHL’s daily operations will not be affected by the invalidity of the guarantees or the possibility of having to make a limited repayment.
Risks arise from the purchase of fuels and fuel oil, most of which are passed on to customers via surcharges and contract clauses. In view of the current trend in the price of oil, however, it cannot be ruled out that our customers will increasingly request more economical ground transport options rather than air freight products, especially in the express business.
In addition, the further development of the slackening US economy can influence the domestic and international transport volume, in particular express shipment volumes.
Business strategy risks
On 28 May 2008, the Board of Management and the Supervisory Board adopted a programme to realign the US express business. The plan focuses on reducing ground infrastructure costs and finding an agreement with UPS on air transport. The restructuring will cost a total of up to US$2 billion. As a result, we expect the financial situation of DHL Express USA to see a lasting improvement starting in 2010. The goal is to achieve cost savings of around US$1 billion annually. However a final decision on the outcome of the current negotiations is expected in the near future.
The risks specified here are not necessarily the only risks to which the Group is exposed. Risks of which we are currently unaware or which we do not yet consider to be material could also affect our business activities.
Overall assessment of the Group’s risk position
We are not aware of any significant risks other than those described in the 2007 Annual Report, the interim report on the first quarter of 2008 and this section detailing risks. We do not believe that the existing risks, either individually or collectively, represent a threat to the company’s ability to continue as a going concern.