The Group faces financial risks from its operating activities that may arise from changes in exchange risks, commodity prices and interest rates. The Group uses both primary and derivative financial instruments to manage these financial risks. The use of derivatives is limited to the management of primary financial risks. Any use for speculative purposes is therefore not intended under the Group’s internal guidelines.
The fair values of the derivatives used may be subject to significant fluctuations depending on changes in exchange rates, interest rates or commodity prices. These fluctuations in fair value should not be assessed separately from the hedged underlying transactions, since derivatives and hedged transactions form a unity with regard to their offsetting value development.
The range of actions, responsibilities and controls necessary for using derivatives has been clearly established in the Group’s internal guidelines. Suitable risk management software is used to record, assess and process financing transactions as well as to regularly assess the effectiveness of the hedging relationships. To limit counterparty risk from financial transactions, the Group only enters into transactions with prime-rated banks. Each counterparty is assigned a counterparty limit, the use of which is regularly monitored. The Group’s Board of Management receives regular internal information on the existing financial risks and the hedging instruments deployed to limit them. The financial instruments used are accounted for in accordance with IAS 39.
Liquidity in the Group is managed in a largely centralised system to ensure a continuous supply of cash for the Group companies. Central liquidity reserves consist of central short-term money market investments and money market funds in a total volume of €3.5 billion (previous year: €0 billion). There are also bilateral credit lines committed by banks in the amount of €2.7 billion (previous year: €3.1 billion), of which a mere €200 million had been used by the balance sheet date. In addition, the Group issued an unused commercial paper programme in the amount of €1 billion. Thus, the Group continues to have sufficient funds to finance necessary investments.