Daimler has posted a record EUR10.9bn net profit (up 24% on 2016) but warned that further earnings growth in 2018 will be constrained by high spending on advanced technologies and new models.
For the Daimler vehicles unit including the Mercedes-Benz and Smart city car brands, Daimler expects earnings during 2018 at around the 2017 level, which compares with 2017’s 13% profit jump.
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Total unit sales for 2017 were also at a new record of 3.3m vehicles (+9% on 2016). Daimler group revenue was up by 7% to EUR164.3bn (2016: EUR153.3bn). Group EBIT was up 14% to EUR14.7bn and Daimler proposed a highest dividend to date of EUR3.65 per share.
In terms of the outlook for 2018, Daimler said it expected slight growth in unit sales and revenue, but ‘EBIT expected to be in the prior-year magnitude’.
CEO and chairman of the board Dieter Zetsche said: “We are acting from a position of strength. Our ambition is unchanged: Daimler belongs at the top.”
Bodo Uebber, Daimler finance chief also pointed out that Daimler has increased its pension funding. He said: “We have continued our trend of profitable growth and once again achieved record results for unit sales, revenue and earnings. In addition, we have increased the funding of our pension plans with a contribution of EUR3 billion.”
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By GlobalDataThe Mercedes-Benz Cars and Mercedes-Benz Vans divisions exceeded the forecasts made at the beginning of the year by recording significant growth (8% and 12% respectively). Daimler Trucks also posted a significant increase of 13% in unit sales. At the beginning of the year, the division had anticipated unit sales similar to those of the previous year. The sales forecast was successively adjusted as a result of ‘more favourable market developments in some important markets’.
The Mercedes-Benz Cars division increased its earnings due in particular to further growth in unit sales, ‘especially of the SUV models and the new E-Class’ Mercedes said. Daimler Trucks also significantly improved its earnings compared with the previous year, mainly due to increased unit sales in the NAFTA region and the sale of real estate in Japan.
The Mercedes-Benz Cars (which includes the Smart brand and the new EQ brand for electric mobility) increased unit sales by 8% to a new record annual level of 2,373,500 vehicles and revenue rise by 6% to EUR94.7bn. Mercedes-Benz Cars was also able to improve its market position in nearly all regions, Mercedes said. The division’s EBIT in 2017 of EUR9,207m compares with the prior-year result of EUR8,112m and its return on sales was 9.7% (2016: 9.1%).
The positive earnings development for Mercedes-Benz Car reflects the increased unit sales of new vehicles – especially SUVs and the new E-Class . Additional positive effects on EBIT resulted from exchange-rate effects and income of EUR183m in connection with the remeasurement of the investment in THERE Holding VV. Mercedes said negative effects resulted from ‘advance expenditure for new technologies and future vehicles and from expenses for the expansion of production capacities’. Higher expenses for raw materials also had a negative impact on EBIT.
Global markets outlook
In 2018, Daimler said worldwide demand for cars is likely to increase again from an already high level – by around 2%. Slight market growth is expected once again in Europe and China. The US market will be similar to its prior-year volume and the recovery of demand in the emerging markets should continue. In Europe, a slight increase in overall car sales is expected. As the market volume in Western Europe is now above average again, demand is expected to remain fairly stable, Mercedes said. In Eastern Europe, however, a significant increase in sales volumes is anticipated primarily due to the ongoing recovery of the Russian market. The US market for cars and light trucks should maintain its high level of approximately 17 million units sold, Mercedes maintains. Despite the favourable economic outlook, Daimler believes a further increase is unlikely because the market can be regarded as being ‘fairly saturated’ at this level.
The Chinese car market continues to be significantly affected by regulatory conditions. At the beginning of this year, the tax rate on purchases of cars with small engines (up to 1.6 litres) was raised back to its normal level of 10%. As this led to purchases being brought forward to late 2017, more moderate demand is to be expected in the first months of this year. In full-year 2018, the Chinese market should ‘expand slightly nonetheless’. In Japan, it is assumed that the car market will undergo a slight downward correction, but demand in India should continue to grow significantly.
Daimler says that thanks to the continuation of a positive investment climate worldwide, demand for medium- and heavy-duty trucks should increase significantly in most of the relevant regions. In the NAFTA region, a cyclical recovery of the truck market is to be expected and Daimler anticipates a significant increase in overall sales in weight classes 6-8. In an ongoing favourable economic environment, it is assumed that truck demand in the EU30 region will maintain the robust market volume of the previous year. After the long weakness of demand of recent years in Brazil, it is to be expected that a somewhat livelier economic recovery will also bring about significant growth of the truck market, although from a very low level. The Turkish market should also grow significantly from its present low level. In Russia, further significant growth in demand for trucks is expected.
The most important Asian markets from Daimler’s perspective are likely to present a varied picture in 2018. In the Japanese market for light-, medium- and heavy-duty trucks, a slight market correction at an ongoing solid level is anticipated. For the Indonesian truck market Daimler anticipates a positive development. In India, demand for medium- and heavy-duty trucks should ‘recover significantly from the market contraction of 2017’. In the Chinese market, a significant correction is to be expected following the extremely high volume of the previous year.
‘Slight increase’ to Mercedes car sales expected in 2018
Mercedes said that its car division will slightly increase its total unit sales in 2018 to a new record. Growth is ‘anticipated above all in China’. Mercedes-Benz will launch more than a dozen new and upgraded automobiles in 2018. Sales should be boosted in particular, it says, by the E-Class and C-Class model families. And the new generation of the compact cars, which will be launched with the A-Class this spring, ‘should have a positive impact on unit sales’. There will be a new CLS coupe, which had its premiere at the Los Angeles Auto Show. There is also a new G-Class.
Mid-term electrification goals reiterated
Mercedes-Benz also said it is ‘systematically expanding its worldwide production network for electric mobility’. Under the new EQ brand, ‘not only vehicles but also services will be offered in connection with electric mobility’. By the year 2022, the car division wants to electrify each segment across the entire model portfolio. The goal is to offer customers at least one electrified alternative in each segment – from the compact car to the large SUV. The division plans to have a total of more than 50 electrified models by the year 2022. This will include more than ten fully electric vehicles, the plug-in hybrids and the models with 48-volt technology.
By 2020, the Smart brand intends to sell solely cars with electric drive in Europe and North America, and other regions will follow.
Freight truck sales expected to be up in 2018
Daimler Trucks assumes that in 2018, its total unit sales will be significantly higher than in the previous year, primarily due to the ‘perceptible recovery of major markets’. In the NAFTA region, the division anticipates unit sales significantly higher than the prior-year level as a result of the ongoing market recovery apparent since the second half-year of 2017. In the EU30 region, unit sales are expected to be in the magnitude of the previous year. In Brazil, it is assumed that unit sales in 2018 will significantly surpass the low level of 2017. In India, Daimler Trucks expects to significantly increase its unit sales and to further strengthen its market position. Furthermore, with the expanded range of FUSO vehicles from Indian production, there is the opportunity to generate additional sales in Asia, Africa and Latin America, it says. Unit sales in Indonesia should grow significantly once again, and the truck division expects to sell a similar number of trucks in Japan as it did in 2017.
2018 financial prospects
Daimler anticipates slight revenue growth in 2018, as a result of the overall positive development of unit sales in the automotive divisions. Exchange-rate effects are likely to have a rather negative impact on the development of revenue in the year 2018. This applies ‘above all to the business in the NAFTA region’.
At Mercedes-Benz Cars, additional growth this year will be primarily driven by the E-Class models, the GLC SUV, the new convertible models and the new A-Class, Mercedes says. On the other hand, revenue growth will be dampened by the anticipated development of exchange rates and lifecycle effects from some car models, as well as by a changing sales structure. Mercedes-Benz Cars therefore anticipates revenue in 2018 only at the high prior-year level despite a slight increase in unit sales. Due to generally positive expectations for markets and unit sales, the Daimler Trucks division plans for slight revenue growth, while the Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services divisions anticipate significant increases in revenue.
In regional terms, Daimler expects further slight growth in revenue in Asia and Europe. In China, the ‘right conditions have been created for further growth with new sales outlets, additional production capacities and a broad product range’. However, it also says growth in unit sales in China will have a disproportionately low impact on revenue growth, as the share of local production will continue to increase.
The anticipated growth in unit sales and revenue will have a generally positive impact on earnings in 2018. The foundations, Daimler says, ‘have been laid for a lasting high level of earnings with various programs for improved profitability, which were already implemented in the years 2013 to 2015’. Since then, Daimler maintains it has continuously been taking further measures in all divisions for the long-term and structural optimisation of its business system. Daimler Trucks is also working continuously on efficiency improvements with its optimisation program. In combination with the cost optimizations so far planned and partially already implemented, Daimler Trucks aims to achieve profit-effective improvements in an amount of EUR1.4bn by the end of 2018. The goal is for these measures to become fully effective in the year 2019.
Daimler also says it is standardising and modularising its production processes throughout the Group. In this context, ‘intelligent use is being made of vehicle platforms, allowing further cost advantages to be achieved’. In parallel, Daimler is pushing forward with digital connectivity: in all divisions and at all stages of the value chain – from development to production to sales and service. This is opening up additional scope to become even faster, more flexible and more efficient – to the benefit of the customers.
However, Daimler acknowledged that ‘earnings will be reduced by the continuation of very high expenditure: for the model offensive, for innovative technologies (especially for reducing fuel consumption and for electrification), for the digitization of products and processes, and for the expansion and realignment of the worldwide production facilities’. As a result, the advance expenditure aimed at securing a successful future will once again be substantially higher in 2018 than in the previous year.
Daimler forecasts that overall group EBIT in 2018 will be of the magnitude of the previous year.
The individual divisions have the following expectations for EBIT in the year 2018:
- Mercedes-Benz Cars: at the prior-year level,
- Daimler Trucks: significantly above the prior-year level,
- Mercedes-Benz Vans: slightly below the prior-year level,
- Daimler Buses: significantly above the prior-year level, and
- Daimler Financial Services: at the prior-year level.
