IHS Global Insight Perspective | |
Significance | Daimler has posted a worse than expected full-year net loss of 2.6 billion euro in 2009, and has suspended its shareholder dividend as a result for the first time in 14 years. |
Implications | Daimler's involvement in the premium passenger car market through its Mercedes-Benz cars unit saw it hit hard by declining unit sales. The premium carmakers did not benefit from the various scrappage schemes that were introduced throughout 2009. |
Outlook | Daimler has bucked the trend by stating that it expects to post a 2-billion-euro profit in 2010 as it mounts a recovery following the implementation of a 5.3-billion-euro programme of cost savings. CEO Dieter Zetsche, who had his contract extended this week, faces a tough task in convincing investors the company is on the right track after the dividend cut. |
Daimler has presented financial results for the full year in 2009 which showed that the company made a net loss of 2.6 billion euro (US$3.53 billion) during the year in comparison to a 1.4-billion-euro net profit in 2008. The result was worse than most estimates and had led directly to Daimler suspending dividend payments to shareholders for the first time in 14 years. It posted EBIT of -1.513 million euro during the year although it managed to move into positive EBIT in the third and fourth quarters after posting billion-euro losses in the first and second quarters of the year. However, the difficult market conditions in 2009 for a company which is heavily involved the premium car segment and commercial vehicle market were reflected in Daimler's group revenue which fell by 19.9% to 78.9 billion euro during the year, down from 98.5 billion euro in 2009.
2009 Daimler Financial Results, Euro, bil.) | |||
2008 | 2009 | % Change | |
Net Profit | 1.41 | -2.6 | - |
EBIT | 2.73 | -1.51 | - |
Revenue | 98.5 | 78.9 | -19.9 |
As a result of the sizeable net loss, Daimler's management board recommended to the supervisory board that no dividend should be distributed for 2009's results. Daimler was keen to point out that this decision related purely to the company's performance in 2009 and was not related to the Group's expected performance going forward into 2010. Speaking about Daimler's 2009 financial performance chief executive Dieter Zetsche said, "Last year brought many great challenges also for Daimler. But as the year progressed, we made the Group significantly more efficient and laid the foundations not only to overcome the upheaval affecting our industry, but to lead from a strong position."
Daimler attributed its poor financial performance in 2009 to the simple fact that vehicle unit sales fell across all segments, but particularly in the segments in which Daimler is principally involved; namely the premium passenger car and commercial vehicle segments. The company also stated that EBIT was hit by a range of one-off charges including the reorganisation of its Mitsubishi Fuso subsidiary, which cost 245 million euro, and Daimler Trucks North America, which cost 95 million euro, as well as a further one-off write-down of 294 million euro as a result of its separation from Chrysler. However, these charges were relatively insignificant in comparison to the one-off charges of more than 3 billion euro incurred as a result of the Chrysler divestment in 2009.
In more positive news from the 2009 financial results, Daimler's free cash flow was significantly more positive at 2.7 billion euro despite the difficult financial situation, this compares to a figure of -3.9 billion euro in 2009, a figure which was heavily influenced by the high one-off charges the company incurred during the year. According to Daimler the main reason for the increase in the free cash flow in 2009 "was the development of inventories and trade receivables as well as investments in property, plant and equipment, which offset the negative effects from the divisions' earnings."
The net liquidity of the industrial business increased by 4.2 billion euro to 7.3 billion euro, partly as a result of Aabar Investment's acquisition of a 9.1% stake in the business in March 2009.
On a unit-by unit basis Mercedes-Benz Cars, comprising Mercedes-Benz, Maybach and Smart, sold 1,093,900 vehicles in 2009 in comparison to the 1,273,000 units the company sold in 2008. Mercedes-Benz contributed 974,700 vehicles to this total against a figure of 1,125,900 in 2008. Sales of the Smart ForTwo decreased to 113,900 units in the third year of the current model, down from 139,000 units in 2008. Revenue fell by 14% to 41.3 billion euro as a result of the decline in unit sales. After a difficult first half of the year, the division posted positive EBIT in the second half of the year. The company managed positive EBIT of 608 million euro in the fourth quarter, resulting in full-year EBIT of -500 million euro, compared to 2,117 million euro in 2008.
At Daimler Trucks, sales fell to 259,300 units due to the effect of the global financial and economic crisis on commercial vehicle sales. This compared to 2008 sales figures of 472,100 units. The sales decline affected core markets such as Europe, the United States, Latin America and Japan. Revenue decreased by 36% y/y to 18.4 billion euro. Daimler Trucks' EBIT of -1,001 million euro was significantly lower than the very strong result of the prior year of 1,607 million euro. Lower unit sales of commercial vehicles had a substantial impact on the development of earnings in 2009.
Outlook and Implications
In common with it main rival in the global premium car business, the BMW Group, Daimler engaged in a major efficiency drive and cost-cutting programme throughout 2009 in order to respond to the realities of the downturn in the global vehicle market, with a program of 5.3 billion euro in cuts. Commenting on the programme, Daimler's chief financial officer Bodo Uebber said, "We have increased the pace of our efficiency program once again, which will permanently improve our cost position." Daimler has been bold enough to give an estimate of its 2010 financial performance with an EBIT of 2.3 billion euro and a net profit of 2 billion euro. However, this figure has actually disappointed analysts, who were expecting a net profit in the region of 3 billion euro.
Chief executive officer Dieter Zetsche, who this week was this week had his contract extended, by a further three years now faces a tough task in convincing the company's shareholders, including the Abu Dhabi state investment fund Aabar Investment, that Daimler is on the right track and will return to positive long-term growth in an increasingly competitive global market. Daimler's cash position was shored up by the 1.95 billion euro that Aabar paid for its 9.1% stake in March 2009. There is no doubt that Daimler's executive and supervisory boards will have cleared the decision with Aabar to not pay a dividend for 2009 before making announcement, but Aabar and other institutional investors will no doubt expect a robust return to the black in 2010 and for this to reflect in next year's dividend. Zetsche also faces some difficult product strategy challenges, not least improving Mercedes-Benz cars' performance in the compact car arena, something which will be dictated by the success of the new generation of compact passenger cars to be built at Mercedes-Benz's new plant in Hungary from 2012. Together with the new head of production at premium car arm Mercedes, Wolfgang Bernhard, Zetsche will look to slash billions more in costs as they aim to lift the division's operating margin to 10%.