Annual Report 2017

Cash flows

Cash used for investing activities (See table B.23) amounted to €9.5 billion (2016: €14.7 billion). The change compared with the prior-year period resulted primarily from lower cash outflows for investments in shareholdings. The reporting period was affected by the acquisition of an interest in LSH Auto International Limited (LSHAI). In the prior-year period, the acquisition of 100 % of the shares of Athlon Car Lease International B.V. (Athlon) and the settlement of financing liabilities of Athlon led to cash outflows. Positive effects resulted from acquisitions and disposals of securities in the context of liquidity management. Those transactions led to a net cash inflow in 2017, whereas acquisitions exceeded disposals in the previous year. The sale of real estate in Japan led to a cash inflow of €0.3 billion. Cash used for investing activities also reflects increased investments in property, plant and equipment and intangible assets.

Cash used for investing activities (See table B.23) amounted to €9.5 billion (2016: €14.7 billion). The change compared with the prior-year period resulted primarily from lower cash outflows for investments in shareholdings. The reporting period was affected by the acquisition of an interest in LSH Auto International Limited (LSHAI). In the prior-year period, the acquisition of 100% of the shares of Athlon Car Lease International B.V. (Athlon) and the settlement off financing liabilities of Athlon led to cash outflows. Positive effects resulted from acquisitions and disposals of securities in the context of liquidity management. Those transactions led to a net cash inflow in 2017, whereas acquisitions exceeded disposals in the previous year. The sale of real estate in Japan led to a cash infloow of €0.3 billion. Cash used for investing activities also reflects increased investments in property, plant and equipment and intangible assets.

B.23 Condensed statement of cash flows¹

  Consolidated Industrial Business2 Daimler Financial Services
  2017 2016 2017 2016 2017 2016
In millions of euros            
             
Cash and cash equivalents at beginning of period 10,981 9,936 8,751 8,369 2,230 1,567
Profit before income taxes 14,301 12,574 12,336 10,840 1,965 1,734
Depreciation and amortization/impairments 5,676 5,478 5,521 5,398 155 80
Other non-cash expense and income and gains/losses on disposals of assets -1,960 -1,110 -2,028 -1,141 68 31
Change in operating assets and liabilities            
Inventories -1,455 -1,272 -1,264 -1,356 -191 84
Trade receivables -1,592 -962 -1,082 -697 -510 -265
Trade payables 1,288 757 1,159 581 129 176
Receivables from financial services -11,145 -6,848 200 194 -11,345 -7,042
Vehicles on operating leases -3,681 -4,209 642 -132 -4,323 -4,077
Other operating assets and liabilities - 48 2,150 -644 1,650 596 500
Dividends received from equity-method investments 843 103 842 103 1
Income taxes paid -3,879 -2,950 -3,715 -2,797 -164 -153
Cash used for/provided by operating activities -1,652 3,711 11,967 12,643 -13,619 -8,932
Additions to property, plant and equipment and intangible assets -10,158 -8,833 -10,025 -8,720 -133 -113
Investments in and disposals of shareholdings -687 -3,905 -626 -216 -61 -3,689
Acquisitions and sales of marketable debt securities 537 -2,330 435 -2,311 102 -19
Other 790 402 791 344 -1 58
Cash used for investing activities -9,518 -14,666 -9,425 -10,903 -93 -3,763
Change in financing liabilities 16,794 15,763 8,976 9,876 7,818 5,887
Dividends paid -3,727 -3,678 -3,723 -3,674 -4 -4
Other transactions with shareholders 62 -76 -20 -111 82 35
Internal equity and financing transactions -6,233 -7,444 6,233 7,444
Cash used for/provided by financing activities 13,129 12,009 -1,000 -1,353 14,129 13,362
Effect of foreign exchange rate changes on cash and cash equivalents -868 -9 -778 -5 -90 -4
Cash and cash equivalents at end of period 12,072 10,981 9,515 8,751 2,557 2,230

1 The columns “Industrial business" and "Daimler Financial Services” represent a business point of view.

2 The industrial business comprises the vehicle segments Mercedes-Benz Cars, Mercedes-Benz Trucks, Mercedes-Benz Vans and Daimler Buses. Intra-group eliminations between the industrial business and Daimler Financial Services are generally allocated to the industrial business.

B.24 Free cash flow of the industrial business

  2017 2016 17/16
In millions of euros     Change
       
Cash provided by operating activities 11,967 12,643 -676
Cash used for investing activities -9,425 -10,903 +1,478
Change in marketable debt securities -435 2,311 -2,746
Other adjustments -102 -177 +75
Free cash flow of the industrial business 2,005 3,874 -1,869

Cash provided by financing activities (See table B.23) amounted to €13.1 billion (2016: €12.0 billion). The increase was primarily caused by higher net cash inflows from financing liabilities in the context of refinancing the leasing and sales-financing business.

Cash and cash equivalents increased by €1.1 billion compared with December 31, 2016, after taking currency-translation effects into account. Total liquidity, which also includes marketable debt securities, increased by €0.4 billion to €22.1 billion.

The parameter used by Daimler to measure the financial capability of the Group’s industrial business is the free cash flow of the industrial business (See B.24), which is derived from the reported cash flows from operating and investing activities. The cash flows from the acquisition and sale of marketable debt securities included in cash flows from investing activities are deducted, as those securities are allocated to liquidity and changes in them are thus not a part of the free cash flow.

Other adjustments relate to non-cash additions to property, plant and equipment that are allocated to the Group as their beneficial owner due to the form of their underlying lease contracts. Furthermore, adjustments are made for the effects of financing dealerships within the Group. In addition, the calculation of the free cash flow includes those cash flows to be shown under cash from financing activities in connection with the acquisition or sale of interests in subsidiaries without loss of control.

The free cash flow of the industrial business amounted to €2.0 billion in 2017 and was lower than the prior-year level of €3.9 billion. The free cash flow of the industrial business was thus in line with the adjusted forecast made in the Outlook section of the Interim Report on the third quarter of 2017, and was primarily influenced by the cash outflow of €3.0 billion for the extraordinary contribution to the German pension plan assets. Excluding this payment, which was announced in the Outlook section of the Interim Report on the third quarter of 2017, the free cash flow of the industrial business was significantly higher than in the previous year and thus significantly surpassed our forecast as adjusted during the year.

B.25 Net liquidity of the industrial business

  Dec. 31, 2017 Dec. 31, 2016 17/16
In millions of euros   Change
       
Cash and cash equivalents 9,515 8,751 +764
Marketable debt securities 8,894 9,498 -604
Liquidity 18,409 18,249 +160
Financing liabilities -1,600 1,451 -3,051
Market valuation and currency hedges for financing liabilities -212 37 -249
Financing liabilities (nominal) -1,812 1,488 -3,300
Net liquidity 16,597 19,737 -3,140

B.26 Net debt of the Daimler Group

  Dec. 31, 2017 Dec. 31, 2016 17/16
In millions of euros   Change
       
Cash and cash equivalents 12,072 10,981 +1,091
Marketable debt securities 10,063 10,748 -685
Liquidity 22,135 21,729 +406
Financing liabilities -127,124 -117,686 -9,438
Market valuation and currency hedges for financing liabilities -229 61 -290
Financing liabilities (nominal) -127,353 -117,625 -9,728
Net debt -105,218 -95,896 -9,322

The €1.9 billion decrease in the free cash flow to €2.0 billion resulted primarily from the cash outflow for the extraordinary contribution to the pension plan assets and the higher income taxes paid. In addition, the free cash flow of the industrial business was affected by increased investments in property, plant and equipment and intangible assets and the acquisition of an interest in LSHAI. Opposing effects were due to the positive business performance and the development of operating leases in the industrial business. A cash inflow of €0.8 billion resulted from the dividend distributed by Beijing Benz Automotive Co., Ltd. and the sale of real estate in Japan led to a cash inflow of €0.3 billion. The payment of the fine of €1.0 billion imposed on Daimler by the European Commission in the context of the settlement in the truck antitrust proceedings led to a cash outflow in the prior-year period.

In 2017, the free cash flow of the Daimler Group led to a cash outflow of €11.9 billion (2016: €9.3 billion). Besides the effects of the free cash flow of the industrial business, the free cash flow of the Daimler Group is mainly affected by the leasing and sales-financing business of Daimler Financial Services. In the prior-year period, there was an additional effect due to the acquisition of 100 % of the shares of Athlon, including the settlement and assumption of Athlon’s financing liabilities.

The net liquidity of the industrial business is calculated as the total amount as shown in the statement of financial position of cash, cash equivalents and the marketable debt securities included in liquidity management, less the currency-hedged nominal amounts of financing liabilities.

To the extent that the Group’s internal refinancing of the financial services business is provided by the companies of the industrial business, this amount is deducted in the calculation of the net debt of the industrial business.

Compared with December 31, 2016, the net liquidity of the industrial business decreased from €19.7 billion to €16.6 billion. The dividend payment to the shareholders of Daimler AG and negative exchange-rate effects led to a decrease in net liquidity that was only partially offset by the positive free cash flow.

Net debt at Group level, which primarily results from refinancing the leasing and sales-financing business, increased compared with December 31, 2016 from €95.9 billion to €105.2 billion. (See table B.26)

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