Mercedes 2008 Annual Report Download - page 71

Management Report |Liquidity and Capital Resources |67
The risk volume that is subject to credit risk management
includes all of Daimler’s worldwide creditor positions with financial
institutions, issuers of securities and customers. Credit risks
with financial institutions and issuers of securities arise primarily
from investments executed as part of our liquidity management
and from trading in derivative financial instruments. The manage-
ment of these credit risks is mainly based on an internal limit
system that reflects the creditworthiness of the respective financial
institution or issuer. The credit risk with customers results from
granting them a payment period for goods delivered or services
provided and includes the risk of default by contracted dealer-
ships and general agencies, other corporate customers and retail
customers. In connection with the export business, general
agencies that do not have sufficient creditworthiness are generally
required to provide collateral such as first-class bank guaran-
tees. The credit risk with end customers in the financial services
business is managed by Daimler Financial Services on the basis
of a standardized risk management process. In this process, mini-
mum requirements are defined for the sales financing and
leasing business and standards are set for credit processes as well
as for the identification, measurement and management of risks.
Material elements for the management of credit risks are appro-
priate creditworthiness assessments, supported by statistical
analyses and evaluation methods, as well as structured portfolio
analysis and monitoring.
Financial country risk management includes various aspects:
the risk from investments in subsidiaries and joint ventures,
the risk from the cross-border financing of Group companies in
risk countries and the risk from direct sales to customers in
those countries. Daimler has an internal rating system that divides
all countries in which it operates into risk categories. Equity
capital transactions in risk countries are hedged against political
risks with the use of investment-protection insurance such as
the German government’s investment guarantees. Some cross-
border receivables due from customers are protected with
the use of export-credit insurance, first-class bank guarantees and
letters of credit. In addition, a committee sets and restricts
the level of hard-currency credits granted to financial services
companies in risk countries.
Additional information on the management of market price
risks, credit defaults and liquidity risks is provided in Note 30
of the Notes to the Consolidated Financial Statements.
Cash flows
The presentation of cash flows is unchanged from the prior
year, and for the year 2007 also includes the cash flows of the
discontinued Chrysler activities.
Cash provided by operating activities amounted to €3.2 billion
(2007: €13.1 billion). €3.1 billion of the prior-year figure was
accounted for by discontinued operations. Without the discon-
tinued operations, cash provided by operating activities would
have decreased by €6.8 billion. The decrease was primarily the
result of falling net profit and a larger increase in inventories
than in the prior year. The increased inventories were primarily
related to the development of sales and were only partially offset
by the adjustments in production volumes that took place in the
second half of the year. Cash provided by operating activities
was also reduced by the development of trade receivables and
trade payables. Positive effects compared with 2007 resulted
mainly from lower payments related to staff reduction actions and
lower tax payments in Germany. And for the continuing oper-
ations, cash provided by operating activities improved due to a
smaller increase in inventory-related receivables from financial
services (€1.0 billion) in connection with dealer floorplan financing.
The cash flows from investing activities resulted in a net
cash outflow of €8.8 billion in 2008, compared with a net cash
inflow of €20.5 billion in 2007. The figure for 2007 includes a
cash inflow of €22.6 billion relating to the disposal of the Chrysler
business and a cash outflow of €2.9 billion from the disconti-
nued operations, as well as cash inflows from the transfer of EADS
shares (€3.6 billion) and the sale of real estate by Mitsubishi
Fuso Truck and Bus Corporation (€1.0 billion). The year 2008 was
generally less affected by unusual transactions; cash inflows
totaling €1.7 billion from the sale of real estate at Potsdamer Platz
and additional shares in EADS were offset by outflows for the
acquisition of equity interests in Tognum (€0.7 billion) and Kamaz
Net increase (decrease) in cash and cash equivalents
in billions of €
Cash
and cash
equivalents
12/31/2007
Cash
provided by
operating
activities
Cash
used for
investing
activities
Cash
used for
financing
activities
Effect of
foreign
exchange
rate changes
Cash
and cash
equivalents
12/31/2008
(maturing within 3 months or less)
15.6
6.9
3.2
-0.2
-8.8
-2.9