Strong first quarter: Daimler increases Group EBIT to €2.1 billion

Daimler AG (stock-market symbol DAI) achieved EBIT of €2,130 million in the first quarter of 2012, which is slightly higher than the high prior-year level (Q1 2011: €2,031 million). Net profit increased by 20% to €1,416 million (Q1 2011: €1,180 million) and earnings per share rose to €1.25 from €0.99 in the first quarter of 2011.

“We have started the year with a strong first quarter. Despite higher investment in future growth and a challenging market environment, we succeeded in surpassing the very good prior-year results in terms of unit sales, revenue, EBIT and net profit,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars. “We are on schedule to meet our targets for this year as well as our medium-term targets.”

The development of earnings is primarily a reflection of the ongoing growth of unit sales at Mercedes-Benz Cars and Daimler Trucks. There were opposing, negative effects on earnings mainly in connection with the expansion of the product portfolio, including the current product offensive at Daimler Trucks. Exchange-rate movements had a positive effect on earnings.
The decision to reposition the European business of Daimler Buses resulted in charges of €36 million.

The special items affecting EBIT in the first quarters of 2012 and 2011 are shown in the table at the botton of this page. 

First-quarter unit sales up by 9%

In the first quarter of 2012, the Daimler Group sold a total of 502,100 cars and commercial vehicles worldwide, surpassing the prior-year number by 9%.

Daimler’s first-quarter revenue increased by 9% to €27.0 billion. Adjusted for exchange-rate effects, revenue grew by 7%.

The free cash flow of the industrial business decreased compared with the first quarter of 2011 to minus €2.0 billion, due to the normal seasonal development of working capital and in particular to increased inventories. Higher levels of stocks are related to the start of the peak selling season in spring at Mercedes-Benz Cars and the market launch of new products such as the B-Class, the SL and the SUVs. At Daimler Trucks, inventories increased towards the end of the first quarter in anticipation of stronger demand in the NAFTA region and in Asia. Additional factors reducing the free cash flow were the higher level of investment in property, plant and equipment and intangible assets as well as capital contributions in connection with the transfer of the Bergen business to Engine Holding (a joint venture of Daimler and Rolls-Royce relating to Tognum) and the joint venture between Daimler Trucks and Foton in China.

Compared with December 31, 2011, the net liquidity of the industrial business decreased by €1.9 billion to €10.1 billion. This was primarily due to the negative free cash flow.

At the end of the first quarter of 2012, Daimler employed 274,127 people worldwide (end of Q1 2011: 261,718). Of that total, 168,017 were employed in Germany (end of Q1 2011: 164,131).

Details of the divisions

Mercedes-Benz Cars achieved a new record for unit sales in the first quarter of 2012. Total sales by the car division rose by 9% to 338,300 units (Q1 2011: 310,700). First-quarter revenue increased by 8% to €14.9 billion.

With EBIT of €1,252 million, Mercedes-Benz Cars achieved earnings close to the level of the prior-year period (Q1 2011: €1,288 million). The division’s return on sales was 8.4% (Q1 2011: 9.3%).
The development of earnings was primarily driven by ongoing growth in unit sales, especially in Europe and the United States. Mercedes-Benz Cars achieved particularly high growth rates in the C-Class segment and with SUVs. Positive exchange-rate effects also boosted earnings. One of the reasons for the reduction in earnings was the temporarily weaker pricing in China. In addition, there were expenses in connection with the expansion of production capacities as well as higher advance expenditures for new vehicles and technologies.

Daimler Trucks increased its unit sales by 21% to 107,700 vehicles. Revenue rose by 18% to €7.4 billion (Q1 2011: €6.2 billion).

The division’s EBIT of €383 million was lower than in the prior-year period (Q1 2011: €413 million). Return on sales was 5.2% (Q1 2011: 6.6%).

Earnings were affected on the one hand by the positive development of unit sales and revenue in the NAFTA region and Asia. On the other hand, there were expenses relating to the current product offensive. There was another negative impact on earnings from falling unit sales in a difficult market environment in Latin America.

Unit sales by Mercedes-Benz Vans decreased in the first quarter of this year to 51,200 vehicles, primarily due to the market weakness in Western Europe (Q1 2011: 54,000). Revenue of €2.1 billion was above the prior-year level (Q1 2011: €2.0 billion).

The division achieved an operating profit of €168 million (Q1 2011: €173 million). Return on sales amounted to 8.0%, compared with 8.8% in the first quarter of last year.

Despite the lower unit sales, an unfavorable model mix and higher expenditure for research and development, Mercedes-Benz Vans was able to maintain a high level of earnings. This was due in particular to lower warranty costs.

Worldwide unit sales of 4,900 buses and bus chassis by Daimler Buses were below the prior-year number of 7,700 units. The decrease was primarily due to weaker demand for bus chassis in Latin America. The business with complete buses in Europe and the United States remained at a low level. In line with the development of unit sales, revenue of €730 million was lower than in the prior-year period (Q1 2011: €831 million).

The division’s EBIT was minus €103 million (Q1 2011: minus €33 million), primarily due to the decline in unit sales of 37%. Shipments decreased compared with the high levels of the prior-year quarter especially in Latin America. Furthermore, the repositioning of the European business decided upon in the first quarter of 2012 led to charges of €36 million.

As a major element of its strategy, Daimler Buses has started its “GLOBE 2013” growth-and-efficiency offensive. The program is designed to achieve the targeted 6% return on sales in the coming years, and is being rolled out over the entire value chain and at all of the division’s sites. One goal is the more intensive networking of all the plants in the European production network. Within the context of “GLOBE 2013,” Daimler Buses will also utilize existing growth potential in its traditional markets while further expanding its business in new markets.

Daimler Financial Services’ business continued to develop positively in the first quarter. Worldwide, approximately 234,000 new leasing and financing contracts worth a total of €8.3 billion were concluded, representing growth of 20% compared with the prior-year period. Contract volume amounted to €71.6 billion at the end of the first quarter of 2012, remaining stable compared with the end of 2011. Adjusted for exchange-rate effects, there was an increase of 1%. 

The division achieved earnings of €344 million, thus surpassing the prior-year figure of €321 million. The main reason for this positive development was the increased contract volume compared with the first quarter of last year. There was an opposing effect from lower interest margins.

The reconciliation of the divisions’ EBIT to Group EBIT primarily reflects the proportionate share of the results of Daimler’s equity-method investment in EADS, as well as other gains and losses at the corporate level.

Daimler’s proportionate share of the net profit of EADS in the first quarter of 2012 amounted to €133 million (Q1 2011: €74 million). The reconciliation alsoincludes an expense at the corporate level of €35 million (Q1 2011: expense of €189 million).

Outlook

On the basis of the divisions’ planning, Daimler expects its total unit sales in the year 2012 to be higher than the figure of 2.1 million vehicles sold in the year 2011.

Mercedes-Benz Cars assumes that it will further increase its unit sales this year and will grow faster than the market as a whole. The division expects its unit sales in each of the remaining quarters of 2012 to be higher than in the respective prior-year period. Mercedes-Benz Cars will profit from the continuation of strong demand for its cars in the C-Class segment. At the end of March, it launched a new model of the SL, the icon in the sports-car sector. The division anticipates further growth for its SUVs, primarily due to the full availability of the new M-Class and as of September 2012 also of the new GL. In addition, the new generations of the GLK compact SUV and of the G-Class will be launched in June 2012. The new models in the high-volume compact-car segment will also contribute towards growth in unit sales; the new B-Class was launched in November 2011 with the new A-Class to follow this September. And a completely new automobile concept will come onto the market in September: the CLS Shooting Brake.

In regional terms, further growth opportunities are seen for 2012 above all in North America, as well as in China, India and Russia. For the smart brand, an ongoing stable level of unit sales is expected.

Daimler Trucks anticipates another rise in unit sales this year. In Europe, the division intends to develop better than the market as a whole, thus further extending its market leadership. The most important model in this respect is the new Actros. Market effects connected with the introduction of stricter emission regulations in Brazil mean that the sales situation there will be difficult, but Daimler Trucks expects to maintain its good market position. Because the average age of trucks is still very high in the NAFTA region, there is a high demand for replacement vehicles and a renewed increase in unit sales is therefore expected in that market. Growth in unit sales is also anticipated in Japan – driven by the reconstruction work following the natural disaster.

Daimler Trucks is about to take another major step in the development of new sales markets: In India, the division will start production of trucks under the BharatBenz brand in the third quarter. In the world’s biggest truck market, China, Daimler Trucks is pursuing a dual strategy: the sale of high-value Mercedes-Benz trucks for the premium segment in parallel with the sale of trucks in the lower-priced volume market through its cooperation with Foton. The joint venture will begin producing trucks to be sold under the Auman brand in the third quarter. Together with the strategic partner Kamaz, Daimler Trucks is developing the growing Russian market through two joint ventures and is thus further expanding its global presence.

Mercedes-Benz Vans assumes that it will further increase its unit sales in 2012. The launch of the new Citan in the small-van segment will help to revive unit sales in Europe. Overall, the division expects to maintain the level of unit sales in Europe that it achieved in the year 2011. Furthermore, Mercedes-Benz Vans expects to sell more vehicles than in the prior year in the United States. And it should be able to participate in the positive development of the Latin American markets due to the launch there of the current model generation of the Sprinter.

Daimler Buses anticipates a decrease in unit sales in the year 2012, whereby complete buses should account for a larger proportion of total unit sales. Weaker demand is expected this year above all in Latin America due to the introduction of the Euro V emission regulations, which led to purchases being brought forward in 2011. A slight recovery of the business with complete buses in Europe is anticipated.

Daimler Financial Services expects to achieve renewed growth in contract volume and new business in 2012. A normalization of credit risks is to be expected – and thus a moderate increase compared with the unusually low level of the year 2011.

Following the significant growth of the year 2011, the Daimler Group assumes that its revenue will increase again in the year 2012. In regional terms, above-average growth rates are expected in the emerging markets and in North America.

On the basis of current market expectations and the planning of the divisions, Daimler aims to achieve Group EBIT from the ongoing business in 2012 that is in the magnitude of the prior year. This target is based on the assumption of currency exchange rates close to their present levels.
The following EBIT targets from the ongoing business have been set for the individual divisions:

- Mercedes-Benz Cars: at the prior-year level 

- Daimler Trucks: at least at the prior-year level 

- Mercedes-Benz Vans: at least at the prior-year level

- Daimler Buses: below the prior-year level

- Daimler Financial Services: slightly below the prior-year level

Later this year, Daimler Buses anticipates expenses of up to €50 million from the repositioning of the European bus business and of approximately €60 million from the repositioning of the North American bus business.

Due to strong demand for its products, Daimler assumes that its worldwide workforce will expand compared with the end of 2011.

For the automotive business, Daimler aims to achieve an annual average return on sales of 9% across market and product cycles. This is based on targeted returns on sales for the individual divisions, to be achieved on a sustained basis as of the year 2013, of 10% for Mercedes-Benz Cars, 8% for Daimler Trucks and 9% for Mercedes-Benz Vans. Daimler Buses has the target of 6% to be reached in the coming years. The target for the Daimler Financial Services division is a return on equity of 17%.

The special items shown in the following table affected EBIT in the first quarters of 2012 and 2011:

Credits: Daimler AG

Copyright © 2012, Mercedes-Benz-Blog. All rights reserved.

Daimler Trucks Aims to Increase Unit Sales and Market Share in 2012

In 2012 Daimler Trucks aims to build on the successes it posted last year. After sales and revenues had each increased by 20% in 2011, and the results even increased by twice this amount, the division aims to boost its unit sales further this year and achieve Earnings before Interest and Taxes (EBIT) that are at least as high as 2011.


Although the markets in NAFTA and Asia did very well in the first months of 2012, the market situation is rather difficult in Europe and in particular in Latin America. Daimler Trucks expects conditions to improve in the second half of the year. Daimler Trucks is on track to reach its strategic return on sales target of 8% as measured across the business cycle. The target figure is a sustainable average that the division aims to achieve from 2013 on.

“In 2012 we will once again prove that our Global Excellence Strategy is working well. We operate worldwide, our by now five truck brands offer the right products for every region, and we are now just hitting our stride in the growth markets of India and China”, said Andreas Renschler, the Daimler Board of Management member responsible for Daimler Trucks and Daimler Buses, in Stuttgart. The division aims to increase its market share in all regions.

A few weeks ago Daimler Trucks presented the wide range of products offered by the new truck brand BharatBenz in India. These “Made in India” trucks are manufactured in Chennai in the southern part of the country. A total of €700 million was invested in the facility, where the first series-produced vehicles will begin leaving the plant this fall. In the medium term up to 70,000 units can be produced in India each year, and the brand’s product lineup will cover the entire range of vehicles, from light-duty to heavy-duty trucks. At the same time as the subsidiary Daimler India Commercial Vehicles (DICV) makes its preparations for the launch of series production, it is also setting up a sales network, which will consist of around 70 dealerships this year.

In December 2011 the Chinese government gave its final approval for the Beijing Foton Daimler Automotive Co., Ltd., Daimler’s joint venture with the local truck manufacturer Foton. The two companies will cooperate on producing medium and heavy-duty trucks for the world’s largest commercial vehicle market. These trucks will be sold under the well-established Auman brand. The joint venture will have an annual production capacity of 160,000 units, and the first jointly manufactured truck is scheduled to roll off the assembly line in the third quarter of the year. The Chinese market for medium and heavy-duty trucks is expected to grow to around 1.5 million units by 2020, compared to around 1.2 million units in 2010.

The outlook for the Indian and Chinese truck markets is therefore very promising for the years ahead. This applies especially to the modern domestic segment, in which both BharatBenz and Auman trucks are offered. According to experts, this segment will account for around half of the global truck market in 2020. The quality of modern domestic trucks is much higher than that of the “low cost” vehicles that are still common in many growth markets. Although the new trucks are more robust than these “low cost” vehicles, their technology is not comparable to that of the premium vehicles from the triad markets. “The rise in truck standards in the growth markets is opening up new opportunities for us — not only for our existing vehicles and components, but also for our new, locally manufactured products,” Renschler said.

The product offensive in the modern domestic segment is meant to help Daimler Trucks attain its medium-term sales targets, amounting to about 500,000 trucks worldwide in 2013 and more than 700,000 units per year by the end of the decade.
In another BRIC country, Russia, the cooperation between Daimler Trucks and the local market leader for heavy-duty trucks, Kamaz, is going well. Sales of Mercedes-Benz truck and Fuso Canter models rose sharply in Russia after the Chelny plant in the Russian republic of Tatarstan began assembling these vehicles in 2010. As a result, more than 1,200 Fuso Canter and around 2,800 Mercedes-Benz trucks had been sold in Russia by the end of 2011.

In order to offer customers in Europe’s largest truck market a customized product bearing the familiar Kamaz brand, the partners presented their first joint truck in Moscow last fall. The vehicle is a Kamaz that contains Daimler components which enable it to comply with the Euro V emissions standard. The truck will be launched on the Russian market in 2014.

The expansion of the division’s global presence and the massive increase in local manufacturing operations are rounding out Daimler’s global truck organization, and the advantages of this arrangement are becoming more apparent day by day. An example of this is the division’s new Global Powertrain, Procurement and Manufacturing Engineering Trucks unit, which bundles the worldwide activities in these fields.

Because the powertrain accounts for more than half of the total costs of a truck, the synergy benefits are obvious. An example of this is the new heavy-duty engine family, in which Daimler invested more than €1 billion. This new generation of engines has streamlined the previous portfolio of four engine families from four plants down to just one global engine platform for four displacement variants, which is manufactured at two locations.

After the engines were introduced at Fuso in Japan and Daimler Trucks North America (DTNA), a European adaptation of this engine is now also used to power the new Actros. Mercedes-Benz’ new OM47x engine generation, which is already available in the new Actros, meets the Euro VI emissions standard, which will go into effect in 2014. The engines share more than 80% of their components worldwide. This results in corresponding benefits due to economies of scale.

The division’s platform and module strategy will extend beyond the powertrain, affecting many more components than just the engines, transmissions, axles, and exhaust treatment systems. The Axor cab, for example, will also be installed in the Indian BharatBenz models in the future.

Daimler Trucks’ platform and module strategy allows it to generate extensive synergies, which will help the division to reach its margin goals. “The message is clear: We aim to become the regional champion wherever we enter the market, and thus also become Number 1 worldwide in our industry,” said Renschler. “Ultimately we want to achieve a sustained average return on sales of 8% per year beginning in 2013 and extending across the business cycle.”

In 2011 Daimler Trucks made considerable progress toward achieving this goal. The return on sales rose to 6.5% from 5.5% in 2010. The return on sales would have even risen to 6.9% had it not been for €32 million in write-offs from the involvement in Kamaz and one-time expenses of €70 million caused by the natural disaster in Japan.

However, Daimler Trucks significantly increased sales, revenues, and earnings compared to the prior year. Vehicle sales substantially exceeded the prior year’s figures in the division’s core regions (NAFTA, Europe, Asia, and Latin America). Total sales worldwide rose by 20% to 425,800 units. Revenues also increased by 20%, to €28.8 billion, while earnings before interest and taxes (EBIT) jumped twice as much, or over 40%, to €1.9 billion.

All of the division’s operating units contributed to these good results, with Daimler Trucks North America (DTNA) providing the biggest boost. DTNA’s sales skyrocketed by 50% to 118,800 units last year. Demand was particulary driven by the need to renew the aged truck fleets. For the past three decades, the average age of trucks in North America has not been as high as it is today. Thanks to the outstanding market response to its product lineup, DTNA was able to further strengthen its leading position in the segment of vehicles in Classes 6 to 8, where it now has a market share of 31.9% (2010: 31.6%).

Total sales of Trucks Europe/Latin America rose substantially once again, climbing to 159,300 units (2010: 135,200). Sales were therefore back up to the high pre-crisis level achieved in 2007. Western Europe contributed considerably to sales growth. Daimler Trucks once again led the market for medium and heavy-duty trucks there, boosting sales by 14% to 57,100 units. Although the division’s market share dropped slightly in Europe, the full availability of the new Actros “Truck of the Year 2012” in all of the key markets will once again push up market share this year.

Fuso’s performance is particularly impressive. Contrary to the expectations that still prevailed in mid-2011, Fuso was able to increase sales throughout the year by 5% to 147,700 units, despite the disruptions resulting from the natural disaster in Japan in March 2011. The increase was due to the rapid progress of reconstruction work in Japan after the natural disaster, which led to increased transportation needs and thus to a greater demand for commercial vehicles. In Japan itself, Fuso increased truck sales by 9% to 27,000 units.

At 61,900 vehicles, Daimler Trucks achieved a new sales record in Latin America. Despite intense competition, sales remained at the previous year’s high level of 44,100 vehicles in the region’s biggest market, Brazil. Vehicle production in the region was also at a record level.

Daimler Trucks has no intention to slacken its efforts after achieving these successes. The division’s Shaping Future Transportation initiative brings together a wide range of technologies and services that not only make commercial vehicles safer, more economical, and more environmentally friendly, but will also contribute substantially to Daimler Trucks’ future success. The CleanDrive concepts, for example, help to drastically reduce commercial vehicles’ fuel consumption and exhaust gas emissions.

Daimler Trucks has already put more than 500,000 environmentally friendly BlueTec trucks featuring SCR technology on the road. In addition, it has delivered more than 8,000 vehicles with alternative drive systems, including around 2,700 hybrid trucks. What’s more, the new, fourth generation of the Mercedes-Benz Actros is the world’s first long-haulage truck to rigorously meet the future Euro VI emissions standard. Despite the fact that this standard represents a big technological challenge, the new truck also consumes far less fuel than its predecessor.

Fuel consumption isn’t the only important issue for truck customers, however; the total cost of ownership is also a primary concern. These costs can be reduced by a number of truck-related services, including customized financing offers (Daimler Trucks Financial), the renting of trucks at short notice to cover peaks in transportation demand (Mercedes-Benz CharterWay), electronic assistance systems that make workshop stays as short as possible, and technology for managing entire truck fleets (FleetBoard).

These services become especially important for customers in times of economic uncertainty. Services, after-sales activities, and telematics systems now account for around 20% of Daimler Trucks’ revenues.

Credits: Daimler AG

Copyright © 2012, Mercedes-Benz-Blog. All rights reserved.