Annual Report 2019

Cash provided by operating activities (See table B.24) amounted to €7.9 billion in 2019 (2018: €0.3 billion). The increase was primarily due to effects from the leasing and sales-financing business. Those effects include a cash inflow of €0.9 billion at Daimler Mobility in connection with an off-balance-sheet ABS transaction carried out in July. Further overall positive effects resulted from working-capital management, in particular due to the positive development of inventories at all automotive segments. While the development of trade receivables also contributed to the positive development of working capital, changes in trade payables at all automotive segments had an opposing effect. Changes in lessee accounting also had a positive impact on cash provided by operating activities.

The lower profit before income taxes is primarily related to the non-cash-effective increases in provisions included in other operating assets and liabilities. Compared to the previous year, the lower operating profit led to lower income taxes paid, with a positive effect on the cash flow from operating activities. On the other hand, the fine of €870 million paid in conclusion of the administrative offense proceedings against Daimler AG had a negative effect.

Cash used for investing activities (see table B.24) amounted to €10.6 billion (2018: €9.9 billion). The change compared with the previous year primarily reflects cash outflows (net) of €0.7 billion relating to the merger of the mobility services of Daimler Group and BMW Group. The main effect resulted from capital increases at the joint ventures. Furthermore, increased investments in intangible assets also affected cash used for investing activities. However, positive effects resulted from the acquisition and sale of marketable debt securities and similar investments conducted in the context of liquidity management. Compared to the previous year, there were higher total cash inflows (net) in 2019.

Cash provided by financing activities (see table B.24) amounted to €5.6 billion (2018: €13.2 billion). The decrease was primarily caused by lower net cash inflows from financing liabilities, especially in the context of refinancing the leasing and sales-financing business. There was also an impact from the introduction of lessee accounting and the associated inclusion in the cash flow from financing activities of payments on outstanding leasing liabilities.

B.24 Condensed statement of cash flows

Cash and cash equivalents increased by €3.0 billion compared with December 31, 2018, after taking currency-translation effects into account. Total liquidity, which also includes marketable debt securities and similar investments, increased by €2.1 billion to €27.5 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 and similar investments 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 of the industrial business. In contrast, the recognition and measurement of right-of-use assets, which result from the change in lessee accounting and are largely non-cash items, are included in the free cash flow of the industrial business.

B.25 Free cash flow of the industrial business

Other adjustments mainly relate to the acquisitions and disposals of shareholdings within the Group resulting from “Project Future” and are reversed in the free cash flow of the industrial business. Furthermore, effects from the financing of dealerships and effects from internal deposits within the Group are adjusted. In addition, the calculation of the free cash flow includes the cash flows to be shown under cash provided by financing activities in connection with the acquisition or disposal of interests in subsidiaries without loss of control.

The free cash flow of the industrial business amounted to €1.4 billion in 2019 and was significantly lower than the prior-year figure of €2.9 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 second quarter of 2019. However, the target stated in the Outlook section of Annual Report 2018 that the free cash flow of the industrial business would probably be slightly higher than in the previous year was not met.

The decrease of €1.5 billion in the free cash flow of the industrial business to €1.4 billion resulted from a number of factors, primarily the fine paid in conclusion of the administrative offense proceedings against Daimler AG. As well as the negative effects relating to the recognition and measurement of right-of-use assets, additional effects on the free cash flow of the industrial business resulted from the negative development of operating leases and increased investments in intangible assets. Furthermore, increased cash outflows (net) for the acquisition and disposal of shareholdings also contributed negatively. On the other hand, the development of working capital and lower income tax payments had a positive impact.

Apart from derivation on the basis of cash flows from operating and investing activities, the free cash flow of the industrial business can be derived from the cash flows before interest and taxes (CFBIT) of the automotive segments. (See table B.26)

B.26 Reconciliation from CFBIT to the free cash flow of the industrial business

The CFBIT of the automotive segments is derived from EBIT and the change in net assets and includes additions to right-of-use assets.

The reconciliation from the CFBIT of the automotive segments to the free cash flow of the industrial business also includes income taxes and interest paid. Other reconciling items include eliminations between the segments and amounts allocated to the industrial business but for which the automotive segments are not accountable.

Starting from financial year 2020, apart from the free cash flow of the industrial business, the adjusted cash conversion rates of the automotive segments will also be forecast and reported.

Table B.27 shows for each of the automotive segments the reconciliation from CFBIT to adjusted CFBIT, as well as the adjusted cash conversion rate.

B.27 Reconciliation CFBIT to adjusted CFBIT of the automotive segments

The adjustments from legal proceedings include all payments by the automotive segments in connection with ongoing governmental and legal proceedings and related measures taken with regard to Mercedes-Benz diesel vehicles.

In 2019, the free cash flow of the Daimler Group led to a cash outflow of €4.8 billion (2018: €10.2 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 Mobility. Additional effects resulted from the cash outflows (net) relating to the merger of the mobility services of Daimler Group and BMW Group.

The net liquidity of the industrial business (See table B.28) is calculated as the total amount as shown in the statement of financial position of cash, cash equivalents and the marketable debt securities and similar investments included in liquidity management, less the currency-hedged nominal amounts of financing liabilities.

B.28 Net liquidity of the industrial business

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.

Due to the introduction of lessee accounting according to IFRS 16 and the associated recognition of leasing liabilities, the net liquidity of the industrial business decreased by €3.2 billion to €13.1 billion at January 1, 2019. Since the beginning of the year, net liquidity decreased by a further €2.1 billion to €11.0 billion. The main driver of the decrease in net liquidity was the dividend payment to Daimler AG shareholders, which was only partly offset by the positive free cash flow of the industrial business.

Net debt at Group level, which primarily results from refinancing the leasing and sales-financing business, increased compared with December 31, 2018 by €14.1 billion to €133.7 billion. The effect resulting from the introduction of lessee accounting is €3.4 billion. (See table B.29)

B.29 Net debt of the Daimler Group