Opportunity and risk management
Our Group-wide risk management system ensures that opportunities and risks are identified, measured and managed at an early stage. Information on the fundamentals of this 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 2008 interim reports. With regard to the risks of Postbank, we refer to the 2007 Annual Report of Deutsche Postbank AG as well as its 2008 interim reports.
General business environment and industry-specific risks
On 24 September 2008, the German cabinet approved a draft bill to limit the VAT-exempt status of Deutsche Post AG starting 1 January 2010. Under the bill, VAT exemption will apply only to certain universal postal services pursuant to the EU Postal Directive that are not rendered on the basis of individual agreements or under special conditions, such as rebates. Any enterprise that offers all of these services nationwide in Germany will qualify for the VAT exemption. The draft bill must still be approved by the German Bundestag and the Bundesrat.
Concurring with Deutsche Post AG, the regulatory authority is of the opinion that the prices it approved are net prices not including VAT. VAT could therefore be added to the approved prices. However, it cannot be ruled out that the application of VAT would lead to a decrease in revenue and earnings.
On 1 July 2008, the European Court of First Instance decreed the decision of the European Commission ordering Deutsche Post AG to repay purported state aid to be null and void. As a result, on 1 August 2008 the German government repaid the sum of €1.067 billion to Deutsche Post AG. The European Commission has filed an appeal against the decision with the European Court of Justice.
On 23 July 2008, the European Commission concluded the formal proceedings concerning the allegation that state aid had been misused in connection with construction of the DHL air hub at Leipzig/Halle Airport. According to the Commission ruling, the use of public funds is in compliance with European law relating to state aid; however, the financial guarantees endorsed by the Free State of Saxony are in breach of EU state-aid regulations. DHL, Leipzig/Halle Airport and Saxony have appealed the decision to the European Court of First Instance.
If the global financial markets remain turbulent and the economy softens as a result, the economic situation of our customers and demand for our services could be negatively impacted. Our revenue and earnings could be accordingly at risk.
The escalating crisis of confidence in the financial sector has led to numerous takeovers at national and international level as well as government rescue plans for banks. Credit spreads have widened again significantly for all asset classes and in some market segments trading has halted entirely. The equity markets have also reacted to the heightening financial market crisis and increasingly gloomy economic prospects with significant price declines. Deutsche Postbank AG, like other companies, was not able to escape the effects of these developments. Postbank’s detailed risk report describes the effects of the financial market crisis on its net assets, financial position and results of operations as well as its risk-bearing capacity.
Business strategy risks
We are continuing with the restructuring of our US express business. Even though our current efforts are proceeding according to plan, the adverse economic situation has led us to take more drastic measures. Therefore, on 10 November 2008 we announced that we will exit the US domestic express business and clearly focus on our core international business in the US. This plan will allow us to reduce our cost basis in the US by more than 80% and thereby limit our risk exposure in the 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 substantial risks other than those described in the 2007 Annual Report, the 2008 interim reports and this section detailing risks. In our estimation, neither the sum of all risks nor any individual risk represents a threat to the company’s ability to continue as a going concern.