Mercedes 2009 Annual Report Download - page 92

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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 organi-
zationally separate from other financial functions such as settle-
ment, financial controlling, reporting and accounting.
Capital structure management designs the capital structure for
the Group and its subsidiaries. Decisions regarding the capi-
talization of financial services companies, as well as production,
sales and financing companies are based on the principles of
cost- and risk-optimized liquidity and capital resources. In addi-
tion, it is necessary to adhere to various restrictions on capital
transactions and on the transfer of capital and currencies.
Liquidity management secures the Group’s ability to meet its
payment obligations at any time. For this purpose, liquidity plan-
ning 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 instru-
ments for liquidity management (e.g. bank credit, commercial
paper, notes); 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 finan-
cial resources include a pool of receivables from the financial
services business which are available for securitization in the
credit market, as well as two contractually confirmed syndi-
cated credit lines.
Cash management determines the Group’s cash requirements
and surpluses. The number of external bank transactions is
minimized 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 to manage its bank accounts, internal
cash clearing accounts and the execution of automated payment
transactions.
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 a basis for hedging decisions, which include
the selection of hedging instruments and the definition of hedg-
ing volumes and the corresponding periods. Decisions regarding
the management of risks resulting from fluctuations in foreign
exchange rates and commodity prices, as well as decisions on
asset/liability management (interest rates), are regularly made
by the relevant committees.
The management of pension assets includes the investment
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f pension 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 allocat-
ed 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
reference indices. The Global Pension Committee at headquarters
is responsible for the management of worldwide pension-asset
risks. Additional information on pension plans and similar obliga-
tions is provided in Note 21 of the Notes to the Consolidated
Financial Statements.
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 management
of these credit risks is mainly based on an internal limit system
that reflects the creditworthiness of the respective financial insti-
tution 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-
Liquidity and Capital Resources