Daimler Group investment in the future and outlook

Daimler Group investment in the future and outlook

25.10.2018: The Daimler Group invested €2.1 billion in property, plant and equipment in the third quarter (Q3 2017: €1.5 billion). Most of that investment, €1.6 billion, was at the Mercedes-Benz Cars division (Q3 2017: €1.0 billion).

The Daimler Group invested €2.1 billion in property, plant and equipment in the third quarter (Q3 2017: €1.5 billion). Most of that investment, €1.6 billion, was at the Mercedes-Benz Cars division (Q3 2017: €1.0 billion).

The Group’s research and development expenditure in the third quarter amounted to €2.4 billion (Q3 2017: €2.3 billion). Approximately three quarters, €1.8 billion, of the research and development spending was at the Mercedes-Benz Cars division (Q3 2017: €1.7 billion).

Outlook for the divisions

On the basis of the assumptions on the development of the markets important for the Group and of the divisions’ current assessments, Daimler expects to slightly increase its total unit sales in the year 2018.

In full-year 2018, Mercedes-Benz Cars plans to achieve unit sales in the magnitude of the previous year. The development of unit sales is influenced to a certain extent by the lifecycle effects of certain model series.

They include the ramp-up of the new A-Class, the model upgrade of the C-Class and the upcoming replacement of the B-Class, which has been on the market since 2011, with its next generation.

Additional factors are increased import duties for US vehicles in the Chinese market and the previously announced suspension of deliveries of individual diesel models. Vehicle certification is in some cases taking longer than usual and is also impacting availability.

The car division continues to expect sales impetus from the SUVs. In Europe, the new A-Class has been available since May as a precursor of the next generation of compact cars. The four-door sedan model of the A-Class will provide new stimulus towards the end of the year. Further sales drivers include the families of the E- and of the S-Class.

Sales growth of the S-Class family will continue, due among other things to the particularly strong increase in unit sales of the Mercedes-Maybach luxury brand. Furthermore, Mercedes-Benz Cars is continually launching new models worldwide.

For example, the Mercedes-AMG performance brand now offers the new “53” models of the CLS and the E-Class family. And with the launch of the Mercedes-AMG GT 4-door, another model has been added to the AMG sports car family.

Daimler Trucks continues to assume that its total unit sales in the year 2018 will be significantly higher than in the previous year. In the NAFTA region, the truck division expects a significant sales increase compared with 2017 as a result of the market recovery there. In the EU30 region, a slight increase in unit sales is now anticipated.

 In Brazil, unit sales in 2018 are expected to be significantly higher than the low level of 2017. Daimler Trucks anticipates significant sales growth also in India and Indonesia. In Japan, unit sales are expected to be at about the prior-year level.

Mercedes-Benz Vans plans to increase its unit sales significantly in the year 2018. Growth is expected to be particularly strong in China and the United States. In the EU30 region, the division now anticipates unit sales at the prior-year level.

 As part of the »Mercedes-Benz Vans goes global« business strategy, the product portfolio has been expanded with the Mercedes-Benz X-Class, a premium pickup for markets in Europe, South Africa, Australia and New Zealand. Market launch is planned also for Brazil and Argentina in the year 2019.

Daimler Buses continues to expect total unit sales in 2018 to be significantly above the prior-year level. The bus division assumes that unit sales in the EU30 region will increase perceptibly. After the significant growth in unit sales in Latin America last year, a further increase in that region is anticipated in 2018, although with significantly less dynamism. A positive development of unit sales is expected also in India.

Daimler Financial Services anticipates further growth in contract volume in the year 2018. New business is expected to be in the magnitude of the previous year. The division will utilize new market potential through new and digital possibilities for customer contacts – in particular by systematically further developing its online sales channels.

Outlook for the Daimler Group

Based on the generally positive development of unit sales, Daimler assumes that Group revenue will increase slightly in the year 2018. Significant revenue growth is anticipated for the Daimler Trucks and Daimler Financial Services divisions, while only a slight increase is now expected at Mercedes-Benz Vans.

At Mercedes-Benz Cars, the expected exchange-rate developments and lifecycle effects of some models will dampen the development of revenue, so the division is expected to post full-year revenue at the high level of 2017. Daimler now anticipates revenue in the magnitude of the previous year also for the Daimler Buses division.

In late March 2018, Daimler and the BMW Group announced their intention, subject to review and approval by the relevant competition authorities, to combine and strategically expand their existing services for on-demand mobility in the areas of car sharing, ride hailing, parking, charging and multimodality.

To those ends, the two companies signed an agreement on the merger of their business units for mobility services. Each company will hold 50% of the shares in the planned joint ventures for the mobility services of both companies.

Subject to the approval of the competition authorities, the establishment of the joint ventures would lead to significant positive changes to net assets and earnings at Daimler Financial Services, which are taken into consideration in the following EBIT outlook.

Due to several factors, some temporary restrictions occurred in the availability of Mercedes-Benz Cars vehicles in the third quarter and will also partially affect the fourth quarter. These factors include, among others, the previously announced suspension of delivery for some diesel models.

Furthermore, the certification of vehicles in Europe and some international markets currently requires longer than usual. For a longer time period, Daimler has been working intensively on software updates, the changeover to the new European test standard WLTP, as well as the technical and legal clarification of open questions.

Inventories have increased temporarily. Based on high demand for Mercedes-Benz vehicles, Daimler continues to expect, however, that the situation will return to normal in the fourth quarter and that inventories can be reduced again by the end of this year.

The described factors apply in the same way to Mercedes-Benz Vans and thus also affect the business development of the van division.

On October 19, 2018, as a result of current developments, Daimler reassessed its earnings outlook for the year 2018 for the Mercedes-Benz Cars and Daimler Buses divisions and for the Daimler Group. The main factor is an increase in expected expenses in connection with ongoing governmental proceedings and measures taken in various regions with regard to Mercedes-Benz diesel vehicles.

In addition, Mercedes-Benz Vans is posting lower unit sales due to delays in vehicle deliveries. Furthermore, against the backdrop of a recent ruling by the European Court of Justice, provisions have been recognized for the possible need to take action on certain vehicles still operating with the previously used refrigerant R134a. Additionally, Daimler Buses is facing decreasing demand in some markets.

On the basis of these effects as well as expected market developments and the current assessments of the divisions, Daimler now assumes that Group EBIT in 2018 will be significantly lower than in the previous year.

The individual divisions have the following expectations for EBIT in the year 2018:

– Mercedes-Benz Cars: significantly below the prior-year level,

– Daimler Trucks: significantly above the prior-year level,

– Mercedes-Benz Vans: significantly below the prior-year level,

– Daimler Buses: significantly below the prior-year level and

– Daimler Financial Services: in the magnitude of the prior year.

Despite a further increase in advance expenditure for new products and technologies, the free cash flow of the industrial business should be significantly higher than in 2017 and also higher than the dividend distribution in 2018. It must be taken into consideration, however, that the free cash flow of the industrial business in 2017 was reduced by an extraordinary contribution of €3 billion to the German pension plan assets of Daimler AG.

In order to achieve its ambitious growth targets, the Group will slightly increase its already very high investment in property, plant and equipment in the year 2018 (2017: €6.7 billion).

Capital expenditure in 2018 at both Mercedes-Benz Cars and Daimler Trucks will be primarily for successor generations for existing products, new products, global component projects, the expansion of production capacities and the optimization of the international production network. Another focus at Mercedes-Benz Cars will be on the expansion of the worldwide production network for electric mobility.

With research and development activities, a total volume is anticipated slightly above last year’s spending of €8.7 billion. Key projects at Mercedes-Benz Cars include successor models for the current S-Class and C-Class. In addition, the division is investing in new, more efficient engines, alternative drive systems and vehicles, autonomous driving and connectivity.

At Daimler Trucks, the main areas of investment are for improved fuel efficiency and emission reductions, as well as for tailored products and technologies for important growth markets. In addition, the future technologies of electric mobility, connectivity and automated driving continue to gain importance.

Against the backdrop of further efficiency improvements in the context of the medium- and long-term programs for the structural improvement of business processes, Daimler assumes that its ambitious growth targets can be achieved with only a slight increase in the size of the workforce.

    Jörg Howe,    Hendrik Sackmann  photo  Oliver Astrologo

Permanent-URL: http://www.automobilsport.com/daimler-group-investment-future-outlook---182604.html

25.10.2018 / MaP

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