Mercedes Benz passenger car 2012 Q2 sales, B-Class compact-car segment orders, and India growth opportunities

Daimler has seen a slump in sales in the Chinese market, but it’s not worried and is keeping a focused attitude to maintain its earnings this year. Sources in the company have confirmed that the risks that have been undertaken in the first half of the year will rise during the second half based on the market response in Europe, United States and China.

Daimler is keeping an open mind and has assured itself of profits this year consider the slump in sales. The profit target was set in the start of the year when the economy was stronger as compared to now. This debt crisis in Europe is helping to make the largely German cost base more competitive in international markets. In the first half of the year, Daimler has already collected 400 million Euros, a figure it has envisioned for the whole year. If the dollar stays stable the company hopes to collect another 300 million Euros. Daimler shares closed at 4.1 percent, outperforming all other blue chips in the DAX index.

Considering fears substantiated by individuals based on goals envisioned by the company for 2012, Daimler Chief Executive Dieter Zetsche negated these concerns by expressing confidence in Daimlers analysts to work on and rectify these problems.Daimler aims to begin closing the gap to BMW and Audi in terms of global volumes, with the help of a massive overhaul of its line of Mercedes compact cars.In view of this development, not only has the new A-Class received a different, sportier design, but it will also spawn an SUV derivative that can compete with the BMW X1 and Audi Q3 offroaders. A trendy coupe is also planned, based on the Concept Style Coupe that premiered at the Beijing auto show in April.

News release: Daimler posts high level of earnings: EBIT of €2,243 million in Q2 2012
Net profit of €1,515 million (Q2 2011: €1,704 million)
Group revenue grows by 10% to €28.9 billion (Q2 2011: €26.3 billion)
Total unit sales increase by 8% to 570,300 vehicles

Confirmation of forecast for 2012: target of Group EBIT from ongoing business in the magnitude of last year
Stuttgart, Germany – Daimler AG (stock-market symbol DAI) achieved very good earnings in the second quarter of 2012. The Daimler Group’s EBIT amounted to €2,243 million (Q2 2011: €2,581 million) and net profit for the period was €1,515 million (Q2 2011: €1,704 million). This led to earnings per share of €1.34 (Q2 2011: €1.51).

“Despite the high expenses as previously announced for new products and technologies, our company was once again very profitable in the second quarter. We achieved strong growth in unit sales and revenue,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars.

With regard to the second half of the year, Dr. Zetsche said: “On the basis of current market expectations and the divisions’ planning, we aim for Daimler to achieve EBIT from the ongoing business in full-year 2012 that is in the magnitude of the prior year. However, economic uncertainty and risks exist in nearly all regions. We therefore remain vigilant in our monitoring of general economic developments and the volatile markets.”

Despite more difficult conditions in some markets, the good level of earnings reflects the ongoing growth in unit sales at Mercedes-Benz Cars, Daimler Trucks and Mercedes-Benz Vans. Unit sales at Daimler Buses decreased, however. The Group’s EBIT was also affected by a partially less favorable model mix as well as higher expenses relating to the expansion of the product portfolio at Mercedes-Benz Cars and the current product offensive at Daimler Trucks. Exchange-rate effects had a positive impact on earnings.

In addition, EBIT includes slightly higher charges for the compounding of non-current provisions as well as effects relating to lower discount factors (Q2 2012: €84 million).
The decision made in the first quarter of 2012 to reposition the European and North American business of Daimler Buses resulted in charges of €46 million in the second quarter of this year.
The special items shown in the table on page 8 affected EBIT in the second quarters of the years 2012 and 2011.
Second-quarter unit sales up by 8%

In the second quarter of 2012, Daimler sold 570,300 cars and commercial vehicles worldwide, surpassing the prior-year total by 8%.
The Daimler Group’s second-quarter revenue increased by 10% to €28.9 billion. Adjusted for exchange-rate effects, revenue grew by 4%.
The free cash flow amounted to €1.0 billion in the second quarter of 2012. At June 30, 2012, the net liquidity of the industrial business amounted to €8.4 billion.

At the end of the second quarter of 2012, Daimler employed 273,749 people worldwide (end of Q2 2011: 266,114). Of that total, 166,477 were employed in Germany (end of Q2 2011: 166,840).

Details of the divisions
Mercedes-Benz Cars once again set a new record for unit sales in the second quarter of 2012, with total sales by the car division rising by 4% to 370,400 units. Revenue increased by 5% to €15.4 billion. With EBIT of €1,314 million in the second quarter of 2012, Mercedes-Benz Cars did not quite match the very good earnings of the prior-year period (Q2 2011: €1,566 million). The division’s return on sales was 8.6% (Q2 2011: 10.7%).
The development of earnings was primarily driven by ongoing growth in unit sales, especially in the United States and Asia. Mercedes-Benz Cars achieved particularly high growth rates in the compact-car segment and with SUVs. Exchange-rate effects also had a positive impact on earnings. Against the backdrop of a more difficult economic situation in Europe, negative effects on earnings resulted for example from a less favorable model mix and a shift in the regional sales structure. In addition, there were expenses connected with the expansion of production facilities, as well as higher advance expenditure for new technologies and vehicles and ongoing increases in material costs.

Daimler Trucks increased its unit sales in the second quarter of 2012 by 34% to 122,200 units. Revenue grew by 22% to €8.1 billion. The division posted EBIT of €524 million (Q2 2011: €486 million). Return on sales was 6.4%, compared with 7.3% in the prior-year period.

Daimler Trucks continued its good sales and revenue development in the NAFTA region and Asia. Positive exchange-rate effects also contributed to earnings. There was an opposing, negative effect on earnings from generally declining demand in Brazil; this was related to the weaker economy as well as the introduced new emission standards. Second-quarter EBIT was also impacted by expenditure for the current product offensive.

Unit sales by Mercedes-Benz Vans increased to 69,300 vehicles (Q2 2011: 68,000). Revenue of €2.4 billion was also higher than in the prior-year period (Q2 2011: €2.2 billion). The division’s EBIT of €197 million was slightly lower than in the prior-year period (Q2 2011: €206 million). Earnings were primarily affected by weaker pricing. There was an opposing, positive impact on the division’s earnings from exchange-rate effects. Return on sales was 8.1% (Q2 2011: 9.2%).

Daimler Busessold 8,400 buses and bus chassis worldwide (Q2 2011: 10,600). As in the first quarter, the decrease in unit sales was caused by weaker demand for bus chassis in Latin America, while the business with complete buses was at the prior-year level. Revenue amounted to €1.0 billion (Q2 2011: €1.2 billion). The division posted EBIT of minus €57 million (Q2 2011: plus €61 million) and a return on sales of minus 5.6% (Q2 2011: plus 5.2%).

The development of earnings was primarily caused by the difficult business situation in Latin America, which was mainly reflected by an anticipated decrease in unit sales of bus chassis. There was also an effect from expenses of €46 million for the repositioning of the European and North American business. Exchange-rate effects had a positive influence on earnings, however.

Daimler Financial Services’ business continued to develop positively in the second quarter. Worldwide, approximately 267,000 new leasing and financing contracts worth a total of €9.4 billion were concluded (+12%). Contract volume reached €76.1 billion at the end of June, which is 6% higher than at the end of 2011. Adjusted for exchange-rate effects, there was an increase of 5%.

EBIT of €338 million was at the level of the prior-year quarter (Q2 2011: €340 million). A higher contract volume positively impacted earnings. On the other hand, there was an impact from a slight increase in cost of risk, which had been at an unusually low level last year.

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.

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 achieved 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. Unit sales in each of the remaining quarters of 2012 are expected to be higher than in the respective prior-year periods. The division will profit from the continuation of strong demand for its cars in the C-Class segment. Further growth is anticipated for the SUVs, due to the full availability of the new M-Class and other new models.
The new generations of the GLK compact SUV and the G-Class have been available since June 2012, and the new GL will be launched in September.

The new models in the high-volume compact-car segment are also contributing towards growth in unit sales: The new B-Class was launched in November 2011 with the new A-Class to follow this September; within just a few weeks, orders for more than 40,000 units of the new A-Class have already been received. And a completely new automobile concept will come onto the market in October: the CLS Shooting Brake. In regional terms, further growth opportunities for 2012 are seen 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 will make use of its competitive advantages with the new Actros. It is assumed that Daimler Trucks’ sales will develop better than the European market as a whole, facilitating the further extension of market leadership. In Brazil, the market environment remains very difficult due to the introduction of stricter emission standards. On the basis of the products’ popularity in that country, however, Daimler Trucks intends to maintain its strong market position. Rising demand for Euro V vehicles is anticipated in the second half of the year. Strong demand is expected in the NAFTA region in the full year, along with a good development of unit sales for Trucks NAFTA. As before, the main driver will be the high average age of the trucks on the road and the resulting need to invest in replacements.

High growth rates are also anticipated in Asia. Demand in Japan continues to be driven by the work of reconstruction following the natural disaster in connection with state subsidies, and is leading to increasing unit sales by Trucks Asia.

Mercedes-Benz Vans expects to further increase its unit sales in 2012. The launch of the new Citan in the small-van segment will help to boost unit sales in Europe. Overall, the division intends to maintain the 2011 level of unit sales in Europe. Furthermore, Mercedes-Benz Vans assumes that it will sell more vehicles than in the prior year in the United States. It should also be able to profit from the launch in Latin American markets of the current model generation of the Sprinter.

Daimler Buses assumes that unit sales in the year 2012 will be lower than in 2011. The division expects weaker demand this year above all in Latin America due to the introduction of Euro V emission regulations, which led to purchases being brought forward in 2011. Due to the upcoming implementation of state incentives in Brazil, demand is expected to revive in the second half of the year. A slight recovery of the business with complete buses in Europe is anticipated.

Later this year, Daimler Buses anticipates expenses of approximately €45 million from the repositioning of the European bus business and of approximately €20 million from the repositioning of the North American bus business.

Daimler Financial Services expects to achieve renewed growth in contract volume and new business in 2012. A normalization of credit risks is anticipated – 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 total 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 targets have been set for the divisions’ EBIT from the ongoing business:

Mercedes-Benz Cars: in the magnitude of the prior year
Daimler Trucks: at least at the prior-year level
Mercedes-Benz Vans: in the magnitude of the prior year
Daimler Buses: below the prior-year level
Daimler Financial Services: slightly below the prior-year level

Economic uncertainty and risks exist in nearly all regions. Daimler therefore remains vigilant in its monitoring of general economic developments and the volatile markets.

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 should achieve its targeted return on sales of 6%. 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 second quarters of 2012 and 2011:

Special items affecting EBIT
In millions of euros
Q2 2012
Q2 2011
Daimler Trucks
Natural disaster in Japan (mainly insurance compensation)
Daimler Buses

Business repositioning