Daimler: growth in unit sales and revenue – EBIT and dividend at high levels
Group unit sales up by 2.4% to 3.4 million (2017: 3.3 million) vehicles
Growth in Group revenue of 2% to €167.4 billion (2017: €164.2 billion)
Group EBIT at high level of €11.1 billion (2017: €14.3 billion)
Net profit of €7.6 billion (2017: €10.6 billion)
Dividend proposed of €3.25 (2017: €3.65) per share
Outlook for 2019: slight growth in unit sales, revenue and EBIT expected
Countermeasures to improve efficiency in automotive divisions
Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars: “For Daimler, 2018 was a year of strong headwinds. This is also reflected in our financial results and our share price. Nonetheless, we faced those headwinds and made substantial progress on key areas for the future. That was not least the result of our strong core business. But for all the divisions, it applies: a profitable business is a prerequisite for continuing to invest in new technologies and products in the future.”
Bodo Uebber, Member of the Board of Management of Daimler AG for Finance & Controlling and Daimler Financial Services: “Daimler continues to have high net liquidity and a robust balance sheet. In order to be able to invest consequently in further growth and new technologies in the future, we have to improve efficiency. Preparations for our »Project Future« are also progressing well and are on schedule.”
Daimler AG (ticker symbol DAI) achieved further growth in unit sales and revenue despite difficult conditions in 2018. Group EBIT and net profit reached solid levels. For the current year, Daimler assumes that unit sales will increase slightly due to the attractive model portfolios in all divisions and the ongoing positive development of worldwide automotive markets. Based on the expected sales development, slight revenue growth is anticipated. Earnings will be adversely affected by ongoing high advance expenditure for the model offensives and innovative technologies. Additional factors will be a significant increase in raw-material costs and exchange-rate effects. In a still volatile environment, the Group anticipates a slight increase in Group EBIT for the full year.
“For Daimler, 2018 was a year of strong headwinds – with the ongoing diesel debate, the changeover to the new WLTP test method and the global trade dispute. All of this is reflected in our financial results and our share price. Nonetheless, we faced those headwinds and made substantial progress on key areas for the future. That was not least the result of our strong core business,” said Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars.
The Group achieved EBIT of €11.1 billion in 2018, which is significantly below the prior-year level (2017: €14.3 billion). Net profit decreased to €7.6 billion (2017: €10.6 billion). In the previous year, net profit was boosted by €1 billion due to the one-time effect of the US tax reform. Earnings per share decreased to €6.78 (2017: €9.61).
Daimler increased its unit sales in 2018 by 2.4% to 3.4 million vehicles, thus achieving its growth target. The Daimler Trucks division (+10%), Mercedes-Benz Vans (+5%) and Daimler Buses (+8%) confirmed the unit-sales forecasts made at the beginning of the year 2018. With a sales increase of 0.4% Mercedes-Benz Cars was setting a new record. Despite difficult conditions, the division sold a total of 2,382,800 vehicles (2017: 2,373,500). . With unit sales of 2,252,800 vehicles, the Mercedes-Benz brand was once again the strongest-selling premium brand in the automotive industry (2017: 2,238,000).
Due to difficult political and economic conditions as well as various extraordinary expenses in the divisions, the development of earnings in the year 2018 did not reflect the ongoing strong demand for vehicles. The significant increase in EBIT at the Daimler Trucks division did not offset significant decreases in earnings at the other divisions. Above all, the Mercedes-Benz Cars and Mercedes-Benz Vans divisions did not achieve their earnings of the previous year. In both divisions, earnings were reduced by, among other things, advance expenditure for new technologies and vehicles, increased raw-material prices, expenses in connection with ongoing legal proceedings and measures taken for diesel vehicles. At Daimler Trucks, higher unit sales in the NAFTA region were the main driver of the earnings improvement. On the other hand, an unfavorable product mix had a negative impact on earnings at Daimler Buses. Daimler Financial Services’ earnings were significantly lower than in the previous year mainly as a result of expenses from the conclusion of the Toll Collect arbitration proceedings.
“Our unit sales and revenue figures for both the Group and the divisions show that our product range is as attractive as ever and that customer demand remains high. Our core business is very well positioned despite the challenging conditions. We have therefore achieved a high level of earnings overall. But at the same time, we have to work hard to achieve our target margins on a sustainable basis,” said Bodo Uebber, Member of the Board of Management of Daimler AG responsible for Finance & Controlling and Daimler Financial Services.
At the Annual Shareholders’ Meeting on May 22, 2019, the Board of Management and the Supervisory Board will propose a dividend of €3.25 per share (2017: €3.65). The total payout will therefore amount to €3.5 billion (2017: €3.9 billion). The proposed dividend is the second highest in the company's history so far. In line of a sustainable dividend policy, the company bases its assessment of the dividend on a payout ratio of 40% of its net profit attributable to Daimler shareholders.
The net liquidity of the industrial business was almost unchanged at €16.3 billion at the end of 2018 (2017: €16.6 billion). The dividend distribution led to a decrease in net liquidity that was offset by the positive free cash flow and positive exchange-rate effects. The free cash flow of the industrial business of €2.9 billion was significantly higher than in the previous year (2017: €2.0 billion), but lower than the dividend payout in 2018 of €3.9 billion.
In 2018, Daimler was once again able to obtain financing at favorable conditions. This was based on unchanged credit ratings of “A” with a “stable” outlook.
Daimler agreed with a consortium of international banks last July on a syndicated credit facility of €11 billion. This provides the Group with financial flexibility into the year 2025. The credit line was agreed at significantly improved conditions. The broad-based consortium comprises more than 40 banks in Europe, Asia and America. The credit line serves to ensure sufficient financial flexibility at all times.
Slight workforce growth as expected
At December 31, 2018, the Daimler Group employed a total of 298,683 people, which is 3% more than a year earlier (2017: 289,321). The main reason for the workforce growth was the good business situation throughout the Group. Employee numbers increased at all divisions. The workforce in Germany grew to 174,663 people (2017: 172,089). The number of people employed in the United States grew in 2018 to 26,310 (2017: 23,513), while the Group’s consolidated companies in China employed 4,424 people at the end of the year
(2017: 4,099). The Group employed a total of 8,061 apprenticesworldwide at the end of 2018 (2017: 8,097). During last year, 1,265 young people started an apprenticeship at Daimler AG (2017: 1,278) and 1,191 young people were taken on in permanent employment upon completing their apprenticeships (2017: 1,197).
“How good a team is can be seen especially in difficult times. Daimler has an excellent team. That’s why I would like to thank all our employees – also on behalf of the entire Board of Management,” said Zetsche. It continues to be an important strategic goal for Daimler as a highly attractive employer to attract and retain sufficient specialist and management personnel with the appropriate qualifications in the competition for capable talent. Attractive and fair remuneration as well as a work culture that promotes the performance, motivation and satisfaction of employees and managers should contribute to this. Today’s living and working conditions require the flexible organization of working time according to individual needs. The aim is to further strengthen the performance of employees, especially with regard to the compatibility of work and private life. In addition, the company’s employees participate in the company’s financial success. In April 2019, Daimler AG will pay its eligible employees an amount of up to €4,965 for the 2018 financial year (2017: €5,700).
The divisions in detail
The Mercedes-Benz Cars division consists of the Mercedes-Benz brand with the sub-brands Mercedes-AMG, Mercedes-Maybach and Mercedes me, as well as the smart brand and the new EQ brand for electric mobility. The division performed respectably in a highly competitive environment in 2018: Unit sales increased to 2,382,800 vehicles despite difficult conditions, once again setting a new record (2017: 2,373,500). Revenue of €93.1 billion was close to the high prior-year level (2017: €94.4 billion). Following the record level of the previous year, EBIT decreased by 18% to €7,216 million (2017: €8,843 million). The division’s return on sales was 7.8% (2017: 9.4%).
“Mercedes-Benz achieved its eighth consecutive record year for unit sales, and we continue to be the leading premium brand – despite a highly competitive environment. Strong customer demand shows that we are on the right track with our model portfolio and strategic direction,” said Zetsche. The vehicles of the Mercedes-Benz brand continued to enjoy high demand in the year under review. The development of unit sales was significantly influenced by lifecycle effects in various model series. They included model changes in the compact class and the model upgrade in the high-volume C-Class. Added to this were increased tariffs on vehicles imported to China from the United States and delivery stoppages for individual diesel models. Vehicle certification also took longer than usual in some cases and had an impact on availability.
The negative earnings development reflects expenses in connection with ongoing governmental proceedings and measures relating to diesel vehicles. In addition, EBIT was also reduced by advance expenditure for new technologies and vehicles, as well as by weaker pricing. Unfavorable exchange-rate effects and higher expenses for raw materials also affected earnings adversely. On the other hand, a positive effect resulted from the remeasurement at fair value (€111 million) of the investment in Aston Martin Lagonda Global Holdings plc. In the prior year, EBIT had been reduced by expenses for voluntary service activities and expenses for a specific vehicle recall (€425 million). On the other hand, EBIT had been boosted in 2017 by income of €183 million in connection with a new investor in HERE.
Daimler Trucks increased its unit sales by a significant 10% to the record level of 517,300 vehicles in 2018, thus achieving its most successful year ever (2017: 470,700). Revenue of €38.3 billion was also significantly higher than in the previous year (2017: €35.8 billion). The division’s EBIT increased significantly by 16% to €2,753 million and its return on sales was 7.2% (2017: 6.7%).
The positive development of earnings was primarily the result of increased unit sales in the NAFTA region, as well as further efficiency enhancements. Higher expenses from exchange-rate effects and expenses for raw materials affected EBIT negatively in 2018. Additional costs, mainly resulting from supply-chain constraints, also had a negative impact on earnings. In the previous year, EBIT was boosted by €267 million due to a gain on the sale of real estate by Mitsubishi Fuso Truck and Bus Corporation in Japan. In addition, expenses related to fixed-cost optimization were included in the prior year (€172 million).
Mercedes-Benz Vans achieved its fifth consecutive sales record with unit sales of 421,400 vehicles, an increase of 5% compared with the previous year. Its revenue also increased to €13.6 billion (2017: €13.2 billion). The division’s EBIT in 2018 of €312 million was substantially lower than its prior-year earnings (2017: €1,147 million). Its return on sales was 2.3% (2017: 8.7%).
The positive development of unit sales, especially in the NAFTA region, China and Western Europe, had a positive impact on EBIT. However, earnings were reduced by advance expenditure for new technologies and future products and by expenses for the Sprinter model change. Furthermore, EBIT was reduced by expenses in connection with ongoing governmental proceedings and measures relating to diesel vehicles, by delivery delays and by the remeasurement of assets in connection with production capacities.