Cash flows

 

Cash provided by operating activities (see table C.05) of €1.6 billion in the first half of 2014 was at the level of the prior-year period. Profit before income taxes included a non-cash gain on the remeasurement and an expense from hedging the price of Tesla shares in a net amount of €0.5 billion in the first half of 2014; in the first half of 2013, it included a non-cash gain of €3.4 billion on the remeasurement of the EADS shares. Adjusted for these effects, profit before income taxes improved compared with the prior-year period. The development of working capital had an opposing effect. The comparatively higher inventory increase and the lower increase in trade payables was not fully offset by the development of trade receivables. Growth in new business in leasing and sales financing once again surpassed the high level of the prior-year period. Another factor was that the positive business development in the first half of 2014 led to higher income-tax payments.

C.05

Condensed consolidated statement of cash flows
In millions of euros Q1-2 2014 Q1-2 2013 Change
       
Cash and cash equivalents at beginning of period 11,053 10,996 +57
Cash provided by operating activities 1,641 1,570 +71
Cash used for investing activities -1,758 -2,716 +958
Cash provided by/used for financing activities -163 1,807 -1,970
Effect of exchange-rate changes on cash and cash equivalents 21 -50 +71
Cash and cash equivalents at end of period 10,794 11,607 -813

Cash used for investing activities (see table C.05) amounted to €1.8 billion (Q1-2 2013: €2.7 billion). The change compared with the prior-year period resulted primarily from acquisitions and disposals of securities in the context of liquidity management. Those transactions resulted in a net cash inflow in the reporting period, whereas acquisitions of securities significantly exceeded disposals in the prior-year period. In addition, the slight decrease in investments in intangible assets had a positive impact. Investments in property, plant and equipment for the ramp-up of new products and for the expansion of production capacities remained at the high level of the previous years. While the sale of the remaining EADS shares (€2.2 billion) and the capital increase at Beijing Benz Automotive Co., Ltd. (BBAC) (€0.2 billion) had a major impact on cash used for investing activities in the first half of 2013, there were only small cash outflows for investments in equity interests in the first half of 2014.

Cash provided by/used for financing activities (see table C.05) resulted in a cash outflow of €0.2 billion (Q1-2 2013: cash inflow of €1.8 billion). The change resulted almost solely from the reduction in financing liabilities (net). Increased dividend payments to minority shareholders of subsidiaries and to the shareholders of Daimler AG were another factor.

Cash and cash equivalents decreased compared with December 31, 2013 by €0.3 billion, after taking currency translation into account. Total liquidity, which also includes marketable debt securities, decreased by €1.2 billion to €16.9 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 table C.06), 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.

C.06

Free cash flow of the industrial business
In millions of euros Q1-2 2014 Q1-2 2013 Change
       
Cash provided by operating activities 4,082 3,430 +652
Cash used for investing activities -1,957 -2,640 +683
Change in marketable debt securities -722 1,639 -2,361
Other adjustments 44 -127 +171
Free cash flow of the industrial business 1,447 2,302 -855

Other adjustments relate to 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, effects from the financing of dealerships within the Group are adjusted. 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 the loss of control.

The free cash flow amounted to €1.4 billion in the first half of 2014. The positive profit contributions of the automotive divisions were offset by the increase in working capital, defined as the net change in inventories, trade receivables and trade payables, in a total amount of €0.7 billion. Positive effects resulted from the sale of trade receivables of companies in the industrial business to Daimler Financial Services. There were negative effects on the free cash flow of the industrial business from high investments in property, plant and equipment and intangible assets, income-tax payments and interest payments.

The decrease in free cash flow of €0.9 billion was mainly due to the proceeds of €2.2 billion in the prior-year period from the sale of the remaining EADS shares. Furthermore, income-tax payments and interest payments increased. On the other hand, higher profit contributions from the automotive divisions and lower investments in intangible assets had positive effects.

The net liquidity of the industrial business (see table C.07) is calculated as the total amount as shown in the statement of financial position of cash, cash equivalents and marketable debt securities included in liquidity management, less the currency-hedged nominal amounts of financing liabilities.

C.07

Net liquidity of the industrial business
In millions of euros June 30,
2014
Dec. 31,
2013
Change
       
Cash and cash equivalents 9,487 9,845 -358
Marketable debt securities 4,597 5,303 -706
Liquidity 14,084 15,148 -1,064
Financing liabilities -1,688 -1,324 -364
Market valuation and currency hedges for financing liabilities 300 10 +290
Financing liabilities (nominal) -1,388 -1,314 -74
Net liquidity 12,696 13,834 -1,138

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, 2013, the net liquidity of the industrial business decreased by €1.1 billion to €12.7 billion. The decrease mainly reflects the dividend payments to the shareholders of Daimler AG (€2.4 billion) and to the minority interest of subsidiaries (€0.2 billion). On the other hand, the free cash flow of €1.4 billion had a positive effect on net liquidity.

Net debt at Group level, which primarily results from the refinancing of the leasing and sales financing business, decreased by €4.6 billion compared with December 31, 2013. (See table C.08)

C.08

Net debt of the Daimler Group
In millions of euros June 30,
2014
Dec. 31,
2013
Change
       
Cash and cash equivalents 10,794 11,053 -259
Marketable debt securities 6,115 7,066 -951
Liquidity 16,909 18,119 -1,210
Financing liabilities -81,453 -77,738 -3,715
Market valuation and currency hedges for financing liabilities 289 -3 +292
Financing liabilities (nominal) -81,164 -77,741 -3,423
Net liquidity -64,255 -59,622 -4,633

The Daimler Group once again utilized the attractive conditions in the international money and capital markets in the first half of 2014 for refinancing.

In the first two quarters of 2014, Daimler had a cash inflow of €6.8 billion from the issuance of bonds (Q1-2 2013: €6.7 billion). Outflows for the redemption of maturing bonds amounted to €5.8 billion (Q1-2 2013: €3.0 billion). (See table C.09)

C.09

Benchmark emissions
Issuer Volume Month of emission Maturity
       
Daimler AG €750 million Jan. 2014 Jan. 2022
Daimler Finance North America $1,500 million Mar. 2014 Mar. 2017
Daimler Finance North America $650 million Mar. 2014 Mar. 2021
Daimler AG £400 million May 2014 Dec. 2016

In addition to the emissions shown in the table C.09, we undertook multiple smaller emissions in various countries and currencies. In particular, favorable conditions in the sterling market were utilized in the second quarter of 2014.

In addition, Daimler AG issued a ten-year bond in a volume of €500 million in the euro market in early July.

In April and July 2014, asset-backed securities (ABS) transactions were conducted in the United States in volumes of approximately $2.0 billion and $1.1 billion respectively, due to the very favorable market environment there.

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