Mercedes 2012 Annual Report Download - page 241

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31. Risk management
Generalinformationonfinancialrisk
As a result of its businesses and the global nature of operations,
Daimler is exposed in particular to market risks from changes
in foreign currency exchange rates and interest rates, while
commodity price risks arise from procurement. An equity price
risk results from investments in listed companies (including
EADS, Kamaz, Renault and Nissan). In addition, the Group
is exposed to credit risks from its lease and financing activities
and from its operating business (trade receivables). With
regard to the lease and financing activities credit risks arise
from operating lease contracts, finance lease contracts and
financing contracts. Furthermore, the Group is exposed to
liquidity risks relating to its credit and market risks or a deterio-
ration of its operating business or financial market distur-
bances. If these financial risks materialize, they could adversely
affect Daimler’s financial position, cash flows and profitability.
Daimler has established guidelines for risk controlling
procedures and for the use of financial instruments, including
a clear segregation of duties with regard to financial activities,
settlement, accounting and the related controlling. The guide-
lines upon which the Group’s risk management processes
are based are designed to identify and analyze these risks
throughout the Group, to set appropriate risk limits and controls
and to monitor the risks by means of reliable and up-to-date
administrative and information systems. The guidelines
and systems are regularly reviewed and adjusted to changes
in markets and products.
The Group manages and monitors these risks primarily through
its operating and financing activities and, if required, through
the use of derivative financial instruments. Daimler uses deriv-
ative financial instruments exclusively for hedging of financial
risks that arise from its commercial business or refinancing activ-
ities. Without these derivative financial instruments, the Group
would be exposed to higher financial risks (additional information
on financial instruments and especially on the nominal values
of the derivative financial instruments used is included in
Note30). Daimler regularly evaluates its financial risks with due
consideration of changes in key economic indicators and
up-to-date market information.
Any market sensitive instruments including equity and debt
securities that the funds hold to finance pension and other
post-employment health care benefits are not included in the
following quantitative and qualitative analysis. Please refer
to Note22 for additional information regarding Daimler’s pension
and other post-employment benefits.
Creditrisk
Credit risk is the risk of economic loss arising from counter-
party’s failure to repay or service debt in accordance with
the contractual terms. Credit risk encompasses both the direct
risk of default and the risk of a deterioration of creditworthi-
ness as well as concentration risks.
The maximum risk positions of financial assets which
are generally subject to credit risk are equal to their carrying
amounts (without consideration of collateral, if available).
Table  7.81 shows the maximum risk positions.
Liquid assets. Liquid assets consist of cash and cash equiva-
lents and marketable debt securities classified as available
for sale. With the investment of liquid assets, banks and issuers
of securities are selected very carefully and diversified in
accordance with a limit system. In the past years, the limit meth-
odology was continuously enhanced to oppose the increasing
decline of the creditworthiness of the banking sector and most
counterparty limits were reduced. Additionally, under consid-
eration of the European sovereign debt crisis, the liquid assets
are increasingly also held at financial institutions outside
of Europe with high creditworthiness. At the same time, the
Group increased the number of financial institutions with
which investments are made. In connection with investment
decisions, priority is placed on the borrower’s very high
creditworthiness and on balanced risk diversification. The limits
and their utilizations are reassessed continuously. In this
assessment Daimler also considers the credit risk assessment
of its counterparties by the capital markets. In line with the
Group’s risk policy, the principal portion of liquid assets is held
in investments with an external rating of “A” or better.
Receivables from financial services. Daimler’s financing and
leasing activities are primarily focused on supporting sales
of the Group’s automotive products. As a consequence of these
activities, the Group is exposed to credit risk, which is moni-
tored and managed based on defined standards, guidelines and
procedures. Daimler Financial Services manages its credit
risk irrespective of whether it is related to a financing contract
or to an operating lease or a finance lease contract. For this
reason, statements concerning the credit risk of Daimler Financial
Services refer to the entire financing and leasing business,
unless specified otherwise.
Exposure to credit risk from financing and lease activities
is monitored based on the portfolio subject to credit risk.
The portfolio subject to credit risk is an internal control quantity
that consists of wholesale and retail receivables from financial
services and the portion of the operating lease portfolio that
is subject to credit risk. Receivables from financial services com-
prise claims arising from finance lease contracts and repayment
claims from financing loans. The operating lease portfolio
is reported under “equipment on operating leases” in the Group’s
consolidated financial statements. Overdue lease payments
from operating lease contracts are recognized in trade receivable.