Cash flows

Cash used for/provided by operating activities (see table B.24) resulted in a cash outflow of €1.3 billion in 2014 (2013: cash inflow of €3.3 billion). This decrease was mainly caused by the realization of the growth strategy. Working capital increased at a higher rate than in the prior-year period due to the higher inventory increase. Growth in new business in leasing and sales financing surpassed the high level of the prior-year period by €2.6 billion. An additional factor is that the positive business development in 2014 led to higher income-tax payments. Furthermore, there was a cash outflow of €2.5 billion for the extraordinary contribution to the German pension fund assets. These effects were partially offset by the higher result from ongoing business which did not include the lower measurement effects compared to the prior-year period. In 2014, they were related to RRPSH and Tesla with a total of €0,4 billion and in 2013 to EADS with €3,4 billion.

B.24

Condensed consolidated statement of cash flows
  2014 2013 14/13
In millions of euros     Change
       
Cash and cash equivalents at beginning of period 11,053 10,996  +57
Cash used for/provided by operating activities -1,274 3,285 -4,559
Cash used for investing activities -2,709 -6,829  +4,120
Cash provided by financing activities 2,274 3,855 -1,581
Effect of exchange-rate changes on cash and cash equivalents 323 -254  +577
Cash and cash equivalents at end of period 9,667 11,053 -1,386

Cash used for investing activities (see table B.24) amounted to €2.7 billion (2013: €6.8 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 2014, whereas acquisitions of securities significantly exceeded disposals in the previous year. In addition, lower 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 were slightly below the high level of recent years. Both years were affected by proceeds from the sale of equity interests. In August 2014, the sale of the shares in RRPSH was concluded and a capital gain of €2.4 billion was recognized. In October 2014, the sale of shares in Tesla and the termination of the related share-price hedge led to a cash inflow of €0.6 billion. In 2013, cash used for investing activities was significantly affected by the sale of the remaining shares in EADS (€2.3 billion); there were opposing, negative effects of €0.6 billion from the acquisition of a 12% equity interest in BAIC Motor Corporation Ltd. (BAIC Motor) and of €0.2 billion from the capital increase at Beijing Benz Automotive Co., Ltd. (BBAC).

Cash provided by financing activities (see table B.24) amounted to €2.3 billion (2013: €3.9 billion). The decrease resulted almost solely from the change in financing liabilities.

Cash and cash equivalents decreased compared with December 31, 2013 by €1.4 billion, after taking currency translation into account. Total liquidity, which also includes marketable debt securities, decreased by €1.8 billion to €16.3 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 B.25), 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.

B.25

Free cash flow of the industrial business
  2014 2013 14/13
In millions of euros     Change
       
Cash provided by operating activities 7,539 10,313 -2,774
Cash used for investing activities -2,887 -6,767  +3,880
Change in marketable debt securities -195 1,548 -1,743
Other adjustments1 1,022 -252  +1,274
Free cash flow of the industrial business 5,479 4,842  +637
The effects from the financing of the Group’s own dealerships, which are reflected in cash provided by operating activities, are eliminated under other adjustments.

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, 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 €5.5 billion in 2014. The sale of the shares in RRPSH and Tesla contributed €3.0 billion of that amount. On the other hand, the free cash flow of the industrial business was reduced by the cash outflows for the extraordinary contribution to the German pension fund assets of €2.5 billion and for the settlement of a healthcare plan in the United States. Adjusted for these special effects, the free cash flow of the industrial business amounted to €5.2 billion.

The positive contributions to earnings from the automotive divisions were reduced by the increase in working capital, defined as the net change in inventories, trade receivables and trade payables, in a total amount of €2.3 billion. This included positive effects from the sale of trade receivables to Daimler Financial Services by companies in the industrial business. The positive development of other operating assets and liabilities was related to the business expansion and is primarily due to payments received from sales with service and maintenance contracts and sales with residual-value guarantees. In addition, high expenses for dealer bonuses and provisions are considered. There were opposing, negative effects from ongoing high investments in property, plant and equipment and intangible assets, as well as from income taxes and interest payments.

At the beginning of 2014, we expected the free cash flow to be significantly below prior-year level. However, when comparing with the previous year, it is necessary to consider that the free cash flow in both years included effects from acquisitions and disposals of equity interests. In 2013, the sale of the shares in EADS led to a cash inflow of €2.3 billion while the acquisition of the equity interest in BAIC Motor resulted in a cash outflow of €0.6 billion. After adjusting for special effects, the free cash flow of the industrial business of €5.2 billion in the year 2014 was significantly higher than the previous year value of €3.2 billion, in line with our forecast as adjusted during the year.

The increase in the free cash flow adjusted for special effects of €2.0 billion to €5.2 billion reflects the positive business development and was primarily due to higher profit contributions from the automotive divisions. The higher inventory increase due to realization of the growth strategy was not offset by the development of trade receivables and payables. Positive effects resulted from the development of other operating assets and liabilities.

The net liquidity of the industrial business (see table B.26) 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.

B.26

Net liquidity of the industrial business
  Dec. 31, 2014 Dec. 31, 2013 14/13
In millions of euros   Change
       
Cash and cash equivalents 8,341 9,845 -1,504
Marketable debt securities 5,156 5,303 -147
Liquidity 13,497 15,148 -1,651
Financing liabilities 3,193 -1,324  +4,517
Market valuation and currency hedges for financing liabilities 263 10  +253
Financing liabilities (nominal) 3,456 -1,314  +4,770
Net liquidity 16,953 13,834  +3,119

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. At December 31, 2014, the Group’s internal refinancing was of a higher volume than the financing liabilities originally taken on in the industrial business due to the application of the industrial business’s own financial resources. This resulted in a positive value for the financing liabilities of the industrial business, thus increasing net liquidity, so the net liquidity of the industrial business exceeds the gross liquidity presented here.

Compared with December 31, 2013, the net liquidity of the industrial business increased from €13.8 billion to €17.0 billion. The increase mainly reflects the positive free cash flow. Dividend payments to the shareholders of Daimler AG and to minority interests of subsidiaries reduced net liquidity by €2.6 billion. The adoption of the refinancing of the Group’s own dealerships by the industrial business was offset by the positive currency effects.

Net debt at Group level, which primarily results from the refinancing of the leasing and sales-financing business, increased by €10.5 billion compared with December 31, 2013. (See table B.27)

B.27

Net debt of the Daimler Group
  Dec. 31, 2014 Dec. 31, 2013 14/13
In millions of euros   Change
       
Cash and cash equivalents 9,667 11,053 -1,386
Marketable debt securities 6,634 7,066 -432
Liquidity 16,301 18,119 -1,818
Financing liabilities -86,689 -77,738 -8,951
Market valuation and currency hedges for financing liabilities 270 -3  +273
Financing liabilities (nominal) -86,419 -77,741 -8,678
Net debt -70,118 -59,622 -10,496