Mercedes 2013 Annual Report Download - page 135

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C | Combined Management Report | Risk and Opportunity Report
Equity price risks and opportunities. Daimler holds invest-
ments in shares of companies, which are predominantly classified
as long-term investments (especially Nissan and Renault)
or which are included in the consolidated financial statements
using the equity method (primarily Kamaz and Tesla). There-
fore, the Group does not include these investments in an equity
price risk analysis.
Commodity price risks and opportunities. Associated with
Daimler’s business operations, the Group is exposed to changes
in the prices of consignments and commodities. The Group
addresses these procurement risks by means of concerted com-
modity and supplier risk management. To a minor magnitude,
derivative commodity instruments are used to reduce some of
the Group’s commodity risks, primarily the risks associated
with the purchase of metals.
Liquidity risks. In the normal course of business, we make
use of bonds, commercial paper and securitized transactions
as well as bank credits in various currencies, primarily to
refinance the leasing and sales-financing business. A negative
development of the capital markets could increase the Group’s
financing costs. More expensive refinancing would also have a
negative effect on the competitiveness and profitability of
our financial services business if we were unable to pass on the
higher refinancing costs to our customers; a limitation of
the financial services business would have a negative impact
on the automotive business.
Credit risks. The Group is exposed to credit risks which result
primarily from its financial services activities and from its
operating business. In addition, credit risks also arise from the
Group’s liquid assets. Should defaults occur, this would nega-
tively affect the Group’s financial position, cash flows and prof-
itability. In recent years, the limit methodology has been
continually further developed in order to counteract the ever
worsening creditworthiness of the banking sector. In con-
nection with investment decisions, priority is placed on the
borrower’s very high creditworthiness and on balanced
risk diversification. Most liquid assets are held in investments
with an external rating of A or better.
Further information on financial risks, risk-limiting measures
and the management of these risks is provided in E
Note 32
of the Notes to the Consolidated Financial Statements.
Information on the Group’s financial instruments is provided
in E
Note 31.
Risks and opportunities relating to the pension plans.
Daimler has pension benefit obligations, and to a smaller mag-
nitude obligations relating to healthcare benefits, which are
largely covered by plan assets. The balance of obligations less
plan assets constitutes the funded status for these employee
benefit plans. Even small changes in the assumptions used for
the valuation of the benefit plans such as a change in the
discount rate could have a negative or positive effect on the
funded status of our pension and health-care plans or could
lead to changes in the periodic net pension expense in the follow-
ing financial year. The market value of plan assets is deter-
mined to a large degree by developments in the capital markets.
Unfavorable or favorable developments, especially relating
to equity prices and fixed-interest securities, could reduce or
increase that market value. Plan assets at December 31,
2013 did not include significant investments in government
bonds that are currently affected by the European sovereign
debt crisis; all government bonds denominated in euros have
a rating of at least AA on the balance sheet date. Further
information on the pension plans is provided in E Note 22
of the Notes to the Consolidated Financial Statements.
Risks and opportunities from changes in credit ratings.
Daimler’s creditworthiness is assessed by the rating agencies
Standard & Poor’s Rating Services, Moody’s Investors Service,
Fitch Ratings and DBRS.
There are risks in connection with potential downgrades,
which could have a negative impact on the Group’s financing.
Advance investment expenditures related to the Group’s
growth strategy are also connected with risks for our credit
ratings if the earnings and cash flows anticipated from
the growth cannot be realized.
Opportunities exist in connection with upgrades of the credit
ratings issued by the rating agencies, because this could lead
to lower borrowing costs for the Group. If, with the help of the
new products in the automotive divisions, the Group’s business
development should significantly surpass the expectations
of the rating agencies, opportunities could arise for the ratings.