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Status: October 23, 2014 – Interim Report Q3 2014
At the beginning of the
fourth quarter, the world economy
continues to develop at significantly below its long-term growth potential. Unfortunately, the available leading indicators currently do not suggest that a sustainable improvement can be expected by the end of the year. In particular, economic indicators in the European Monetary Union (EMU) point towards a rather difficult fourth quarter. The uncertainty caused by the tension between Russia and Ukraine is dampening business sentiment and is thus having a negative impact on investment. Another factor is that bank lending in the EMU is still restrained and deflationary fears have become established. Although the European Central Bank has already reacted with lower interest rates and additional expansive monetary policy, and is expected to continue with further measures, the impact on the real economy is likely to remain limited until the end of the year. Moreover, the considerable economic weakness of such important countries as Italy, France and recently also Germany is dampening the economic outlook. The EMU is likely to post overall growth of only about 0.7% this year, whereby the German economy should surpass the 1% mark. Within Western Europe, the British economy is currently an exception with a rate of expansion of approximately 3%. The US economy is one of the most important drivers of global growth. Following negative growth in the first quarter due to the severe winter, the economy has gained significant impetus and has been developing at a strong pace recently. As solid growth rates can be expected towards the end of 2014, expansion of rather more than 2% can be anticipated for the full year. Economic expectations for Japan have meanwhile settled at between 1% and 1.5%. The stabilization of overall economic growth in China at between 7% and 7.5% is of crucial importance for the world economy. Although concern generally continues about the stability of the Chinese financial system, the risk of a hard landing has decreased somewhat. While most Asian economies are now on a path of solid expansion, the outlook has worsened for South America, Eastern Europe and South Africa. Overall, the world economy should grow in the year 2014 by 2.7% – a similar rate to last year – but when compared with the long-term trend, it would be the third successive year with below-average growth. Particularly in view of the substantial geopolitical risks, the further development of the world economy remains very fragile and susceptible to disturbances.
Worldwide demand for cars
is likely to expand only moderately this year, with expected growth of around 3%. The Chinese and US markets continue to be the most important growth drivers. In China, growth in demand has slowed down somewhat recently, but a double-digit rise in car sales can be expected for the full year. The US market is profiting from the country’s booming economy and should expand by approximately 5% compared with last year. With a probable volume of significantly more than 16 million cars and light trucks, the market will return to a level that was last achieved before the financial crisis broke out. For the first time after many years of a negative market development, demand will expand once again also in Western Europe. But due to the region’s weak economic growth, the market recovery will be relatively moderate in spite of the very low starting point. The core markets of Western Europe present a disparate picture. Demand in the United Kingdom should expand significantly once again. Only moderate growth is to be expected in Germany, however, and the French market is unlikely to be much larger than its weak prior-year volume. In Japan, the negative effect of the increase in value-added tax has been less pronounced than expected, so from today’s perspective, it seems possible that this year’s market volume will match that of last year. The picture has become rather disparate in the major emerging markets (excluding China). In India, a stabilization of demand has become increasingly apparent, so we continue to forecast a moderate market recovery. In Russia, however, the number of cars sold has slumped recently due to the economic consequences of the Ukraine crisis, so market contraction at a double-digit rate is to be expected for the full year.
From today’s perspective, global demand for medium- and heavy-duty trucks
in the year 2014 is expected to be slightly below the level of last year. With the exception of North America and Japan, difficult market conditions are still to be observed in most of the major markets. In the NAFTA region, however, we expect an ongoing positive market development in the rest of 2014 and market growth of around 10% in the full year. In the European market, there are ongoing negative effects from the introduction of Euro VI emission regulations as well as from low economic growth rates. From today’s perspective, we anticipate market contraction in the magnitude of 10%. The Japanese market for light-, medium- and heavy-duty trucks was largely unaffected by the increase in value-added tax and should expand by approximately 10%. In Brazil, however, the market is likely to contract by around 15% due to the country’s ongoing weak economy. We expect the Indian market to continue stabilizing during the rest of 2014, but anticipate a drop in demand for the full year. The Russian market is severely affected by the Ukraine crisis and will contract significantly once again this year. In China, the repeated postponement of the introduction of new emission regulations is creating uncertainty and hindering the market’s development. Demand in China in 2014 is likely to be slightly below the level of 2013.
that overall demand for medium-sized and large vans
in Europe will recover slightly in 2014, although market developments are likely to differ greatly in the various countries. For small vans, we now anticipate a slightly larger market volume in Europe than in 2013. In the United States, we expect demand for large vans to increase significantly in the year 2014, and we anticipate a moderate revival of demand also in China. In Latin America, we now assume that the market for large vans will contract significantly in the full year.
a market volume for buses
in Western Europe in 2014 that is slightly above the level of the previous year. Due to the difficult economic situation in Brazil and Argentina, we assume that demand for buses will decrease significantly in Latin America.
After the strongest nine months
in the company’s history, Mercedes-Benz Cars
assumes that it will significantly increase its unit sales also in full-year 2014 and will set a new record. Following the market launch of the C-Class sedan in the highvolume markets of the United States and China in late August, this model series is providing additional growth impetus. That momentum is now being accelerated by the wagon version of the C-Class, which was launched in the major European markets in September. Further products will follow by the end of the year as we continue our product offensive. In November, we will launch the extensively upgraded B-Class, which will be available with fuel-efficient engines: four diesel and four gasoline. Also in November, the new smart fortwo and forfour will be delivered to dealerships. These new models maintain the proven smart concept, but offer even more variety than their predecessors.
assumes that it will achieve a slight increase in overall unit sales in the year 2014, but anticipates differing developments in the various regions. In Western Europe, the year 2013 was affected by purchases being brought forward because of the introduction of Euro VI emission regulations in 2014. Low economic growth rates are also dampening demand, so we expect a significant decrease in unit sales in this region in the full year. Demand in Eastern Europe is also likely to fall due to the ongoing difficult political and economic situation. The economic situation had a negative impact on unit sales also in Latin America. Against this backdrop, we anticipate another significant drop in demand in the Brazilian market. However, unit sales in the NAFTA region should be significantly higher than in 2013 due to the generally positive development of demand. In view of the excellent acceptance of our products, we assume that we will be able to successfully defend our market leadership in that region. In Asia, we assume that the expected growth in Japan, our core market, will have a positive effect on unit sales. In Indonesia, on the other hand, declining market demand is likely to have a negative impact on our unit sales. However, we anticipate a significant contribution to the division’s growth in unit sales from our steadily expanding BharatBenz model range.
assumes that its unit sales will increase significantly in full-year 2014. We expect significant growth in unit sales of mid-sized and large vans in Europe; the new Sprinter as well as the new Vito and the V-Class will stimulate additional demand. Unit sales in Latin America are likely to be significantly lower, however, due to the difficult economic situation there. We anticipate a further increase in unit sales of the Citan.
expects unit sales in 2014 to be slightly lower than in the previous year, although the proportion of complete buses should develop positively. In Western Europe, Daimler Buses anticipates significant expansion of its business with complete buses this year. Due to the critical economic situation in Brazil and Argentina, demand for bus chassis in Latin America is expected to be weaker also in the fourth quarter of 2014. We therefore now anticipate a significantly lower volume of unit sales in Latin America than in 2013.
Daimler Financial Services
anticipates significant expansion of its new business and contract volume in 2014. The key growth drivers are the product offensives and market developments in the automotive divisions, effective marketing directed at younger target groups, the expansion of business especially in Asia, the further development of our online sales channels and the expansion of innovative mobility services.
We assume that
the Daimler Group’s revenue
will increase significantly in the year 2014. In regional terms, we anticipate above-average growth rates in North America and China.
On the basis of the
anticipated market development, the aforementioned factors and the planning of our divisions, we assume that EBIT from the ongoing business
will increase significantly in the year 2014.
For the individual divisions, we aim to achieve the following EBIT targets from the ongoing business in full-year 2014:
Mercedes-Benz Cars: significantly above the prior-year level,
Daimler Trucks: significantly above the prior-year level,
Mercedes-Benz Vans: at the prior-year level,
Daimler Buses: significantly above the prior-year level, and
Daimler Financial Services: slightly above the prior-year level.
The remeasurement at fair value of our equity interest in Tesla Motors and the hedge of its share price resulted in an EBIT contribution of €0.5 billion in the first nine months. In addition, the sale of our shares in Rolls-Royce Power Systems Holding GmbH resulted in an EBIT effect of plus €1.0 billion in the third quarter. These profit contributions are not attributable to the ongoing business.
The anticipated development
of earnings in the automotive divisions will have a positive impact also on the free cash flow of the industrial business
When comparing with the prior-year figure, it is necessary to consider that the free cash flow of €4.8 billion in the year 2013 included a cash inflow of €2.2 billion from the successful EADS transaction and a cash outflow of €0.6 billion for the acquisition of a 12% equity interest in BAIC Motor. The free cash flow of the year 2014 includes a cash inflow of €2.43 billion from the sale of our shares in Rolls-Royce Power Systems Holding GmbH, which we concluded in the third quarter. In addition, we had a cash inflow in the fourth quarter of €0.6 billion from the sale of the shares in Tesla and the discontinuation of the related shareprice hedge. According to our current assessment, the free cash flow of the industrial business in 2014, adjusted for the effects of acquisitions and disposals of equity interests as well as special payments in connection with pension and healthcare benefits, will be significantly higher than in 2013.
In order to achieve our
ambitious growth targets, we plan to invest in property, plant and equipment
in the year 2014 in the magnitude of the previous year (€5.0 billion). In addition to capital expenditure, we are developing our position in the emerging markets by means of targeted financial investments in joint ventures and equity interests.
We expect our research and development expenditure
to be slightly higher than the prior-year figure of €5.5 billion. Key projects include the successor models of the E-Class and M-Class and our next generation of compact cars. In our car business, we are also investing substantial amounts in new economical engines with low emissions, alternative drive systems and innovative safety technologies. Increased fuel efficiency and further reductions in engine emissions are important areas of research and development also at the other automotive divisions.
From today’s perspective
, we assume that the number of employees
worldwide will slightly increase compared with the end of 2013.
These internet pages contain forward-looking statements that reflect our current views about future events. The words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “may,” ”can,” “could,” “plan,” “project,” “should” and similar expressions are used to identify forward-looking statements. These statements are subject to many risks and uncertainties, including an adverse development of global economic conditions, in particular a decline of demand in our most important markets; a worsening of the sovereign-debt crisis in the euro zone; an increase in political tension in Eastern Europe; a deterioration of our refinancing possibilities on the credit and financial markets; events of force majeure including natural disasters, epidemics, acts of terrorism, political unrest, industrial accidents and their effects on our sales, purchasing, production or financial services activities; changes in currency exchange rates; a shift in consumer preferences towards smaller, lowermargin vehicles; a possible lack of acceptance of our products or services which limits our ability to achieve prices and adequately utilize our production capacities; price increases for fuel or raw materials; disruption of production due to shortages of materials, labor strikes or supplier insolvencies; a decline in resale prices of used vehicles; the effective implementation of cost-reduction and efficiency-optimization measures; the business outlook for companies in which we hold a significant equity interest; the successful implementation of strategic cooperations and joint ventures; changes in laws, regulations and government policies, particularly those relating to vehicle emissions, fuel economy and safety; the resolution of pending government investigations and the conclusion of pending or threatened future legal proceedings; and other risks and uncertainties, some of which we describe under the heading “Risk and Opportunity Report” in the current Annual Report. If any of these risks and uncertainties materializes or if the assumptions underlying any of our forward-looking statements prove to be incorrect, the actual results may be materially different from those we express or imply by such statements. We do not intend or assume any obligation to update these forward-looking statements since they are based solely on the circumstances at the date of publication.
More detailed information can be found in the extensive Annual and Interim Reports as well as in additional data files and reporting formats more