Mercedes 2012 Annual Report Download - page 99

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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 finan-
cial 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 organizationally separate from other financial functions
such as settlement, financial controlling, reporting and
accounting.
Capital structure management designs the capital structure
for the Group and its subsidiaries. Decisions regarding the
capitalization of financial services companies, as well as pro-
duction, sales and financing companies, are based on the
principles of cost-optimized and risk-optimized liquidity and
capital resources. In addition, 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
planning 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
instruments for liquidity management (e.g. bank credits, commer-
cial papers, notes); liquidity surpluses are invested in the
money market or the capital market to optimize risk and return.
Our goal is to ensure the level of liquidity regarded as necessary
at optimal costs. Besides operational liquidity, Daimler keeps
additional liquidity reserves which are available in the short term.
These additional financial resources include a pool of receiv-
ables from the financial services business which are available
for securitization in the credit market, as well as a contractu-
ally confirmed syndicated credit line in a volume of €7 billion.
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 standard-
ized 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 definition of hedging volumes
and corresponding periods as well as the selection of hedging
instruments. Decisions regarding the management of risks
resulting from fluctuations in foreign exchange rates and com-
modity prices, as well as decisions on asset/liability man-
agement (interest rates), are regularly made by the relevant
committees.
Management of pension assets includes the investment
of pension assets to cover the corresponding pension obliga-
tions. Pension assets are held in separate pension funds
and are thus not available for general business purposes.
The funds are allocated to different asset classes such as equi-
ties, 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 mea-
sured by comparing with defined reference indices. Local
custodians of the pension funds are responsible for the risk
management of the individual pension funds. The Global
Pension Committee limits these risks by means of a Group-wide
binding guideline with due consideration of applicable laws.
Additional information on pension plans and similar obligations
is provided in E Note 22 of the Notes to the Consolidated
Financial Statements.
Liquidity and Capital Resources