Mercedes 1998 Annual Report Download - page 66

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ANALYSIS OF THE FINANCIAL SITUATION
62
CONTINUED GROWTH IN THE FINANCIAL SERVICES BUSINESS.
In 1998, the leasing and sales financing activities in the
DaimlerChrysler Group were performed mainly by Chrysler
Financial Services and debis Financial Services. In 1999, these
two business units will be merged within DaimlerChrysler
Services (debis) AG. In order to make the influence of this
rapidly growing business on the consolidated financial state-
ments more transparent, we have presented in the consolidated
balance sheet and statements of income and cash flow the con-
solidated figures for our leasing and sales financing activities
in addition to the figures for the whole Group. In the interest of
comparability with other financial services companies, we have
presented the financial services activities as if they were per-
formed by an independent company (stand alone approach).
Consequently, the vehicles included under equipment on
operating leases are, for example, reported at market value and
not at the Group’s manufacturing costs; the funds which are
loaned within the DaimlerChrysler Group (inter-company
loans) are presented as financial liabilities.
Overall, the financial services business shows an income be-
fore financial income and income taxes of € 936 million (1997:
792 million). This increase in income is largely due to the con-
tinuing very brisk business in Germany and the USA, where
we were able to enjoy in particular the benefits of greater sales
volumes of our cars and at the same time greater market pen-
etration. The balance sheet total of the leasing and sales financ-
ing business increased by 18% to € 47.9 billion. The largest
share continued to be receivables from financial services at
€ 26.5 billion (1997: € 21.7 billion). This is balanced on the
liabilities side mainly by financial liabilities, which in the year
under review increased by € 5.4 billion to € 36.8 billion as
a result of the continuing growth in volume. Stockholders’
equity used in the financial services business amounted to
€ 4.6 billion at year-end and represents approximately 10% of
the balance sheet total.
HIGHER CASH FLOW FROM OPERATING ACTIVITIES. In 1998,
cash flow provided by operating activities adjusted for changes
in the consolidated group and currency effects grew by 35%
and reached € 16.7 billion (1997: € 12.3 billion). This was
primarily caused by improved financial results (before non-
cash expenses and income). Cash used for investing activities
in the amount of € 23.4 billion (1997: € 14.5 billion) was
influenced by the ongoing expansion of the leasing and
sales financing business. Additions to equipment on operating
leases increased by € 2.1 billion to € 5.3 billion net. At the
same time capital tied up with respect to receivables from
financial services grew by € 2.8 billion. In addition, we further
increased our investments in the money and capital markets.
In comparison to 1997, cash provided by financing activities
more than doubled and reached € 6.8 billion. This resulted
primarily from higher net borrowings in the amount of
€ 7.9 billion (1997: € 6.2 billion). In 1997, cash flow from
financing activities was impacted by Chrysler Corporation’s
acquisition of € 1.9 billion of its common stock as part of a
share repurchase program. The special distribution of Daimler-
Benz AG in connection with the tax refund and the subsequent
capital increase caused substantial flows of capital which,
however, level off in the calculation of cash flow from financing
activities. Overall, development of individual cash flows caused
a € 0.4 billion reduction in cash and cash equivalents with
initial maturity of less than 3 months to € 6.3 billion. At the
same time liquid assets which also include investments and
securities with longer maturities increased from € 17.3 billion
to € 19.1 billion.
Balance Sheet Structure of the Financial Services Business
In Billions of €
Non-Current Assets
of which:
Equipment on
operating Leases
25% (1997: 24%)
Current Assets
of which:
Receivables from
Financial Services
Stockholders’ Equity
Accrued Liabilities
of which:
Financial Liabilities
Liabilities
Deferred Taxes
and Income
48
41 41
48
27%
25% 11%
10%
73%
75%
1%
1%
81%
77%
82%
77%
8% 7% 7%
98 97 97 98
53%
55%
Cash Flow
In Billions of €
–25
–20
–15
–10
–5
5
10
15
1996 1997 1998
Cash Provided by
Operating Activities
Cash Used for
Investing Activities
Cash Provided by
Financing Activities