E_mg_GB_03_vorne-29_3_04

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136 Derivatives The fair value of forward exchange deals is determined using current balance sheet date reference rates that take account of forward premiums and discounts. The fair value of interest-rate instruments is determined using discounted anticipated future cash flows based on the market interest rates applicable to the residual maturities of these financial instruments. Options are valued using recognized option pricing models. The fair value of commodity derivatives is obtained by valuing all the contracts at the market terms prevailing at the valuation date, and thus corresponds to the actual value of the contract portfolio at the end of the fiscal year. The fair value of exchange-traded contracts is derived from their market price. The value of contracts not traded on an exchange is determined on the basis of market conditions. Continued operations Assets Original financial instruments 12/31/2003 12/31/2002 Nominal Fair Nominal Fair Value Value Value Value u ’000 u ’000 t ’000 t ’000 Capital lease receivable 39,680 39,680 44,257 44,257 Securities 15,641 15,641 66,009 66,011 Cash and cash equivalents Derivatives 171,952 171,952 165,291 165,291 Forward exchange deals 51,181 51,181 42,657 42,657 Interest-rate instruments 24 24 116 116 Commodity derivatives 232 232 707 707 Liabilities Original financial instruments Financial liabilities Derivatives 1,244,484 1,264,843 1,208,172 1,209,707 Forward exchange deals 5,580 5,580 5,606 5,606 Interest-rate instruments 9,413 9,413 14,545 14,545 Commodity derivatives 1,016 1,016 529 529 Discontinued operations Assets Original financial instruments Securities 1,606 1,606 1,789 1,789 Cash and cash equivalents Derivatives 10,654 10,654 12,305 12,305 Forward exchange deals –- – 577 577 Interest-rate instruments – – – – Commodity derivatives 21,914 21,914 25,322 25,322 Liabilities Original financial instruments Financial liabilities Derivatives 50,578 50,578 29,653 29,653 Forward exchange deals 2,968 2,968 2,427 2,427 Interest-rate instruments – – – – Commodity derivatives 23,485 23,485 39,051 39,051
MANAGEMENT SHARE STRATEGY SPECIAL SECTION MANAGEMENT REPORT FINANCIAL STATEMENTS FURTHER INFORMATION Consolidated Balance Sheets • Statements of Income • Statements of Cash Flows • Statements of Changes in shareholders’ Equity • Fixed Assets Schedule • Notes • Independent Auditors’ Report c) Nominal Values and Credit Risk The nominal value of derivatives is obtained by multiplying their contract volumes by the agreed contract prices. Some of the individual nominal values consist of countervailing buy and sell agreements. The Group is consequently exposed to a market price risk only with respect to the substantially lower volume representing the net difference between the buy and sell volumes. The hedged nominal values of derivatives are as follows: Continued operations 12/31/2003 12/31/2002 u ’000 t ’000 Forward exchange deals 884,987 923,703 Interest-rate instruments 412,578 537,713 Commodity derivatives (zinc) 42,865 49,903 Discontinued operations 1,340,430 1,511,319 Forward exchange deals 117,724 181,634 Interest-rate instruments – Commodity derivatives (tropical oils, rubber, latex) 294,587 323,970 412,311 505,604 Total 1,752,741 2,016,923 The mg Group is exposed to credit risk, which may arise if its counterparties fail to meet their contractual obligations. The mg Group’s counterparties for forward exchange deals and interest-rate instruments are all reputable banks with an investment-grade rating. The general credit risk related to forward exchange deals and interest-rate instruments is therefore not material. mg’s counterparties with respect to commodity derivatives are mainly suppliers resident outside Germany. mg makes adequate provision for this credit risk by making appropriate valuation allowances on the derivatives it reports. d) Management of Foreign-Exchange, Interest-Rate and Other Price Risks Management of foreign-exchange risk: The international dimension of the mg Group’s business gives rise to a foreign-exchange risk that impacts on its operating results and cash flows. Foreignexchange risk exists, for example, if sales are billed in a currency other than that of their related costs. In order to mitigate the impact of currency fluctuations, foreign-exchange risk is constantly evaluated and, where necessary, hedged through the use of derivatives, especially forward exchange deals. The Group’s foreign-exchange risk and its hedging are generally managed on a decentralized basis by mg’s various segments, which act in accordance with mg’s binding rules and procedures. Future cash flows from international projects denominated in foreign currency must be fully hedged. Management of interest-rate risk: The mg Group monitors its interest-rate risk on an ongoing basis by following changes in its net interest positions that could adversely impact its future cash flows and implementing suitable hedging strategies. Interest-rate instruments are used only by the treasury/ finance departments of mg technologies ag and the management holding companies of the various segments. 137
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“2003 was a year of transition fo
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Consolidated Key Figures 2003 RESUL
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Creating freedom for action CONTENT
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zation As the world’s population
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The pharmaceutical industry will co
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Milk Last year, over 160 million co
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The MODUL tablet press produced by
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For a technology-driven organizatio
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