Mercedes 2012 Annual Report Download - page 243

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In southern European countries affected by the developments
in the Eurozone, special attention was placed on permanent close
monitoring of the risk situation and the adaptation of credit
and collection processes to the ongoing developments. Further
details on receivables from financial services and the balance
of the recorded impairments are also provided in Note 14.
Costs of credit risk have developed to a normal level in a globally
stable risk situation. The increase compared to the previous
year, when costs of credit risk were extraordinary low, is caused
by the fact that in 2011 the development of costs of credit
risk was still influenced by the effects of the financial crisis.
Trade receivables. Trade receivables are mostly receivables
from worldwide sales activities of vehicles and spare parts.
The credit risk from trade receivables encompasses the default
risk of customers, e.g. dealers and general distribution com-
panies, as well as other corporate and private customers. Daimler
manages its credit risk from trade receivables using appro-
priate IT applications and databases on the basis of internal
guidelines which have to be followed globally.
A significant part of the trade receivables from each country’s
domestic business is secured by various country-specific types
of collateral. This collateral includes conditional sales, guar-
antees and sureties as well as mortgages and cash deposits.
In addition, Group companies guard against credit risk via credit
assessments.
For trade receivables from export business, Daimler also
evaluates each general distribution company’s creditworthiness
by means of an internal rating process and its country risk.
In this context, the year-end financial statements and other
relevant information on the general distribution companies
such as payment history are used and assessed.
Depending on the creditworthiness of the general distribution
companies, Daimler usually establishes credit limits and limits
credit risks with the following types of collateral:
– credit insurances,
– first-class bank guarantees and
– letters of credit.
These procedures are defined in the export credit guidelines,
which have Group-wide validity.
Appropriate provisions are recognized for the risks inherent
in trade receivables. For this purpose, all receivables are regularly
reviewed and impairments are recognized if there is any
objective indication of non-performance or other contractual
violations. In general, substantial individual receivables and
receivables whose realizability is jeopardized are assessed indi-
vidually. In addition, taking country-specific risks and any
collateral into consideration, the other receivables are grouped
by similarity of contract and tested for impairment collec-
tively. One important factor for the definition of the provision’s
level is the immanent country risk.
The immanent country risk of a receivable is an important
factor for the determination of the impairment to be recognized.
Further information on trade receivables and the status
of impairments recognized is provided in Note 19.
Derivative financial instruments. The Group uses derivative
financial instruments exclusively for hedging of financial risks
that arise from its commercial business or refinancing activities.
Daimler manages the credit risk exposure in connection
with derivative financial instruments through a limit system,
which is based on the review of each counterparty’s financial
strength. This system limits and diversifies the credit risk.
As a result, Daimler is exposed to credit risk only to a small
extent with respect to its derivative financial instruments.
In accordance with the Group’s risk policy, most derivatives
are contracted with counterparties which have an external
rating of “A” or better.
Other receivables and financial assets. With respect
to other receivables and financial assets in 2012 and 2011,
Daimler is exposed to credit risk only to a small extent.
Liquidityrisk
Liquidity risk comprises the risk that a company cannot meet
its financial obligations in full.
Daimler manages its liquidity by holding adequate volumes
of liquid assets and by maintaining syndicated credit facilities
in addition to the cash inflows generated by its operating
business. Additionally, the possibility to securitize receivables
of financial services business (ABS transactions) also reduces
the Group’s liquidity risk. Liquid assets comprise cash and cash
equivalents as well as debt instruments classified as held
for sale. The Group can dispose of these liquid assets at short
notice.
In general, Daimler makes use of a broad spectrum of financial
instruments to cover its funding requirements. Depending
on funding requirements and market conditions, Daimler issues
commercial paper, bonds and financial instruments secured
by receivables in various currencies. In 2012, Daimler had good
access to the money and capital markets. Credit lines are
also used to cover financing requirements.
In addition, customer deposits at Mercedes-Benz Bank have
been used as a further source of refinancing.
The funds raised are primarily used to finance the cash
needs of the lease and financing business as well as working
capital and capital expenditure requirements. In accordance
with internal guidelines, the refunding of the lease and financing
business is generally carried out with matching maturities
so that financing liabilities have the same maturity profile as the
leased assets and the receivables from financial services.