Mercedes 2010 Annual Report Download - page 94

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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 in the financial
services and automotive businesses. Credit risks with financial
institutions and issuers of securities arise primarily from invest-
ments executed as part of our liquidity management and from
using 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 institu -
tion or issuer. The credit risk with customers of our automotive
businesses results from granting them a payment period and
includes the risk of default by contracted dealerships and general
distributors, other corporate customers and retail customers.
In connection with the export business, general distributors that
according to our creditworthiness analysis are not sufficiently
creditworthy are generally required to provide collateral such
as first-class bank guarantees. The credit risk with end custom-
ers in the financial services business is managed by Daimler
Financial Services on the basis of a standardized risk manage-
ment process. In this process, minimum requirements are defined
for the sales financing and leasing business and standards are
set for credit processes as well as for the identification, measure-
ment and management of risks. Key elements for the manage-
ment of credit risks are appropriate 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 com-
panies in risk countries.
Additional information on the management of market price risks,
credit defaults and liquidity risks is provided in Note 31 of the
Notes to the Consolidated Financial Statements.
Cash flows
Condensed consolidated statement of cash flows
2010 2009 10/09
In millions of euros Change
Cash and cash equivalents
at the beginning of the year
9,800 6,912 2,888
Cash provided by
operating activities
8,544 10,961 -2,417
Cash provided by / used for
investing activities
-313 -8,950 8,637
Cash provided by / used for
financing activities
-7,551 1,057 -8,608
Effect of exchange-rate changes
on cash and cash equivalents
423 -180 603
Cash and cash equivalents
at the end of the year
10,903 9,800 1,103
Cash provided by operating activities amounted to €8.5 billion
in 2010 (2009: €11.0 billion). The positive effect from the signifi-
cant improvement in net profit was partially offset by the devel-
opment of inventories, which increased in 2010 due to the higher
production volumes but decreased substantially in the prior year.
Compared with 2009, additional factors reducing cash provided
by operating activities were the increased new leasing and sales
financing business and the reduction in proceeds from the sale
of parts of the non-automotive portfolio in the financial services
business. In addition, the negative effects from increased trade
receivables resulting from higher unit sales were only partially
offset by an increase in trade payables. Furthermore, income-
tax payments of €1.2 billion were higher than in the prior year
(2009: €0.4 billion), but due to the utilization of tax-loss carry-
forwards, they increased at a lower rate than operating result.
Cash flows from investing activities resulted in a net cash out-
flow of €0.3 billion (2009: €9.0 billion). The reduced cash outflow
compared with the prior year was primarily the result of acquisi-
tions and sales of securities carried out in the context of liquidity
management, which led to a net cash inflow of €4.3 billion last
year compared with a net cash outflow of €5.4 billion in the prior
year. The reporting period was also affected by proceeds from
the sale of shares in Tata Motors (€0.3 billion). There were higher
cash outflows for substantially increased investments in property,
plant and equipment and intangible assets, as well as for the pay-
ment made in connection with the cross-shareholding with the
Renault-Nissan Alliance (€0.1 billion).