Mercedes 2009 Annual Report Download - page 81

Management Report |Profitability |77
The cost of equity is calculated according to the capital asset pric-
ing model (CAPM), using the interest rate for long-term risk-free
securities (such as government bonds) plus a risk premium reflect-
ing the specific risks of an investment in Daimler shares. The cost
of debt is derived from the required rate of return for obligations
entered into by the Group with external lenders. The cost of capi-
tal for pension obligations is calculated on the basis of discount
rates used in accordance with IFRS. The expected return on
liquidity is based on money market interest rates. The expected
return on plan assets of the pension funds is derived from the
tated by the plan assets, which are invested to cover the pension
obligations. The Group’s cost of capital is the weighted average
of the individually required or expected rates of return; in the re-
porting period, the cost of capital amounted to 8% after taxes.
For the industrial divisions, the cost of capital amounted to 12%
before taxes; for Daimler Financial Services, a cost of equity of
13% before taxes was applied.
Return on sales. As one of the main drivers of value added, the
return on sales (ROS) is of particular importance for the assess-
ment of the industrial divisions’ profitability. The profitability mea-
sure of Daimler Financial Services is not ROS, but return on equity
(ROE), in line with the usual practice in the banking business.
The Group’s value added decreased by €3.5 billion to minus
€4.6 billion, representing a return on net assets of minus 6.6%
(2008: plus 4.4%). Value added decreased primarily due to the
lower earn-ings achieved by the divisions (minus €6.9 billion), and
to a lesser extent also due to the increase in average net assets.
There were opposing effects from the lower charges relating to
Chrysler (€2.9 billion) and the lower income tax expense (€0.5
billion).
The Mercedes-Benz Cars division’s value added of minus €1.9
billion was significantly lower than the prior-year figure of plus
€0.9 billion. The main reasons for the sharp decline were the nega-
tive earnings resulting from the slump in demand for cars, and to
a lesser extent the higher average net assets. The slight increase
in average net assets was due to lower working capital which
only partially offset the increase in non-current assets.
The Daimler Trucks division posted a decrease in value added of
€2.7 billion to minus €1.8 billion, which mainly resulted from the
development of earnings following the worldwide fall in demand
for transport services. The expenses relating to the repositioning
of Mitsubishi Fuso Truck and Bus Corporation were an additional
factor for the decrease in earnings.
At the Mercedes-Benz Vans division, value added dropped from
€0.6 billion in 2008 to minus €0.2 billion last year, primarily
caused by falling earnings, which resulted from the market-related
decline in vehicle shipments. Net assets decreased mainly
because of reduced inventories.
The Daimler Buses division achieved positive value added despite
the difficult economic environment. However, due to the drop in
demand and the related lower earnings, value added was down by
€0.2 billion. Average net assets were reduced.
The value added of the Daimler Financial Services division fell by
€0.7 billion to minus €0.6 billion. This development was the result
of lower earnings, caused in particular by increased expenses for
credit risks.
in %
Cost of capital
8
12
13
8
12
13
2009 2008
Group, after taxes
Industrial divisions, before taxes
Financial Services, before taxes