Mercedes 2008 Annual Report Download - page 70

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Principles and objectives of financial management
Financial management at Daimler consists of capital structure
management, cash and liquidity management, pension asset
management, market price risk management (foreign exchange
rates, interest rates, commodity prices) and credit and financial
country risk management.
Worldwide financial management is performed within the scope of
legal requirements for all Group entities by Treasury. Financial
management operates within a framework of guidelines, limits and
benchmarks, and is organizationally separated from other finan-
cial functions such as settlement, financial controlling, reporting
and accounting.
Capital structure management designs the capital structure for
the Group and its subsidiaries. Decisions regarding the capita-
lization of financial services companies, production, distribution
and financing companies are based on the principles of cost-
optimized liquidity and capital resources. The levels of equity of
Group companies also depend on refinancing conditions in local
banking markets. In addition, it is necessary to adhere to the pro-
visions of applicable law, including the so-called thin-capitali-
zation rules in the tax legislation of certain countries, as well as
various restrictions on capital transactions and on the transfer
of capital and currencies.
Cash management determines the Group’s cash requirements
and surpluses. The number of external bank transactions is mini-
mized by the Group’s internal netting of cash requirements
and surpluses. Netting is done by means of cash-concentration or
cash-pooling procedures. Daimler has established standardized
processes and systems in order to control its bank accounts, inter-
nal cash clearing accounts and the execution of automated
payment transactions.
Liquidity management secures the Group’s ability to meet its
payment obligations at any time. For this purpose, liquidity
planning provides information about all cash flows from operating
and financial activities in a rolling plan. The resulting financial
requirements are covered by the use of appropriate instruments
for liquidity management (e.g. bank credit, commercial paper,
loans); liquidity surpluses are invested in the money market or the
capital market to optimize risk and return. Besides operational
liquidity, Daimler keeps additional liquidity reserves, which are
available on a short-term basis. These additional financial re-
sources include a pool of receivables from the financial services
business that are available for securitization in the credit mar-
ket, as well as two contractually confirmed syndicated credit lines.
Management of market price risks aims to minimize the
impact of fluctuations in foreign exchange rates, interest rates
and commodity prices on the results of the divisions and the
Group. The Group’s overall exposure to these market-price risks
is determined to provide the basis for hedging decisions, which
include the selection of hedging instruments and the definition
of hedging volumes and the corresponding periods. Decisions
regarding the management of risks resulting from fluctuations in
foreign exchange rates, interest rates and commodity prices
as well as decisions on asset/liability management are regularly
made by the relevant committees.
Management of pension funds comprises the investment of pen-
sion assets to cover the corresponding pension obligations.
Pension assets are held in separate pension funds and are thus
not available for general business purposes. The funds are
allocated to different asset classes such as equities, fixed-interest
securities, alternative investments and real estate, depending
on the expected development of pension obligations and with the
help of a process for risk-return optimization. The performance
of asset management is measured by comparing with defined
benchmark indices. Decisions on ordinary and extraordinary
capital contributions to the pension funds are centralized world-
wide in the Global Pension Committee and subsequently appro-
ved by the Group’s Board of Management. Additional information
on pension plans and similar obligations is provided in Note 21
of the Notes to the Consolidated Financial Statements.
Liquidity and Capital Resources