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“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:
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