Outlook
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Status: July 23, 2014 - Interim Report Q2 2014
At the beginning of the third quarter, the prospects of a continuation of the world economic upswing are generally still intact. However, the available leading indicators give no cause to expect significant acceleration. In combination with the rather moderate economic development in the first half of the year, the anticipated growth rate for global economic output in fullyear 2014 has decreased slightly. At the beginning of the year, a rate of well above 3% was expected; meanwhile, it has become less likely that this magnitude will be achieved. It must therefore be assumed that the economies of the industrialized countries will grow faster than last year, while the developing economies in the emerging markets will generally post lower growth rates. The surprisingly significant contraction of the US economy in the first quarter reduced the starting level so much that even with the assumed lively domestic demand in the next quarters, GDP is likely to grow at just under 2% in 2014. For the European Monetary Union, the economic outlook is largely unchanged with expected growth of approximately 1% this year. Regional developments will differ significantly, however. The outlook for the German economy of about 2% growth is very positive, but forecasts for Spain and Portugal have also improved perceptibly. Growth prospects for countries such as Italy or France are significantly less favorable, however. It is highly likely that the economy of the United Kingdom will enjoy the strongest growth in Western Europe, with a rate approaching 3%. Despite ongoing concern about the stability of the financial market, the Chinese economy should be able to achieve growth of 7-7.5% this year. In the other emerging markets, overall economic growth rates should improve again slightly in the second half of the year. But major economies such as Brazil, India, South Africa and Turkey remain well below their growth potential. For the Russian economy, an unfavorable development could even lead to recession. In view of the existing risks, the further development of the world economy remains fragile and susceptible to external disturbances.
According to current assessments, worldwide demand for cars is likely to grow by approximately 4% in 2014. Once again, the most important growth driver will be the Chinese market, which is expected to expand at a double-digit rate also this year. The US market will also deliver significant contribution to growth, although it will not expand at the same rate as in recent years. But with a probable market volume of just over 16 million cars and light trucks, the market will return to the level that it last achieved before the financial crisis occurred. Demand in Western Europe will also increase, after several years of a contracting overall market, but this growth will be only moderate despite the low starting point. Developments are varied in the key markets of Western Europe. Demand in the United Kingdom should increase again significantly. Only moderate growth is anticipated in Germany, however, and the French market is likely to remain at its weak prior-year level. In Japan, the negative effect of the increase in value-added tax was considerably less pronounced than had been assumed, so from today’s perspective, this year’s market volume should in fact equal the prioryear level. In the major emerging markets (excluding China), we continue to assume that the lack of economic dynamism will also have an impact on the development of demand for cars. The Russian market is likely to contract perceptibly, although the premium segment should continue to develop better than the overall market. In India, risks have decreased recently, so we maintain our forecast of a moderate market recovery.
From today’s perspective, global demand for medium- and heavy-duty trucks in the year 2014 can only be expected at around the level of last year. With the exception of the North American market, difficult market conditions are still anticipated for most of the major markets. In the NAFTA region, we expect an ongoing positive market development in the second half of 2014 and market growth of around 10% in the full year. In the European market, demand has weakened as expected after the end of purchases brought forward because of the new Euro VI emission limits. A crucial factor for the second half of the year will be the extent to which the moderate economic recovery can offset this negative effect. From today’s perspective, we expect market contraction of at least 5% in 2014. The Japanese market for light-, medium- and heavy-duty trucks should expand by around 5% in the full year, despite the increase in value-added tax. In Brazil, however, the market is likely to contract by at least 10% due to the country’s ongoing weak economy. Despite the recent stabilization in India, we expect demand for trucks to decrease perceptibly again also in that market. And according to current assessments, the Russian market will also contract significantly once again this year. In China, new emission regulations are hindering the market’s development. Demand this year should be only around the level of 2013.
We assume that overall demand in Europe for medium-sized and large vans will recover slightly in 2014, although market developments are likely to differ greatly in the various countries. For small vans, we anticipate a market volume in Europe in the magnitude of the previous year. In the United States, we expect demand for large vans to increase significantly in the year 2014, and we anticipate a further revival of demand also in China. In Latin America, we assume that the market for large vans will contract in the full year.
We anticipate 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.
On the basis of the divisions’ planning, Daimler expects its total unit sales to increase significantly in the year 2014.
After the strongest half year 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 in Europe of the C-Class sedan and the GLA, a compact SUV, the division will continue its model offensive in the coming months. In the fall, the market launch of the C-Class sedan in the high-volume markets of the United States and China will provide a significant growth boost. The wagon version of the C-Class will accelerate this momentum as soon as it is launched on the important European market in September. Mercedes-Benz is setting another milestone on the way to emission-free mobility with the S 500 PLUG-IN HYBRID, which is based on the modular hybrid system. The hybrid version of the S-Class will be launched in September. Also in the fall, the S-Class Coupé will further expand the Mercedes-Benz luxury segment. In July, the new smart fortwo and smart forfour had their world premieres; the first of those models will be available on the market as of November.
Daimler Trucks anticipates a slight increase in overall unit sales in the year 2014. In Western Europe, we expect a negative impact on the full year from the purchases brought forward to the year 2013 due to the introduction of the new Euro VI emission regulations. We therefore assume that the demand situation will not normalize before the end of the year and will be lower than in 2013. But we intend to further strengthen our very good market position with the new Mercedes-Benz model range. In Eastern Europe, the politically tense situation entails sales risks for the rest of the year. In the Brazilian market, we anticipate a further significant drop in demand due to the current economic situation. The extensive optimization measures we are taking, which involve the investment of approximately €300 million mainly in our production facilities and new products by the end of 2015, should further strengthen our market position. We anticipate a negative economic development also in some neighboring countries. Our unit sales in the NAFTA region should develop positively in view of the expected market growth and should be significantly higher than in the year 2013. In Japan, we will participate in the anticipated market growth. Our expanded BharatBenz model range in India should also make an important contribution to our growth in unit sales. Additional growth opportunities will result from our integrated Asia Business Model. For example, our vehicles of the FUSO brand from India will increasingly be sold in the upcoming markets of Africa and Southeast Asia in the future.
Mercedes-Benz Vans 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 lower, however, due to the difficult economic situation there. We anticipate a further increase in unit sales of the Citan.
Daimler Buses now expects unit sales in the year 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 worsening economic situation in Brazil and Argentina, unit sales of bus chassis in Latin America are expected to be slightly below the prior-year level.
Daimler Financial Services anticipates significant growth in 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. We expect EBIT from the ongoing business to be higher in the second half of the year than in the first.
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 €0.65 billion in the second quarter, which is not attributable to the ongoing business. Furthermore, we expect the sale of our shares in Rolls-Royce Power Systems Holding GmbH to result in a contribution to earnings of €1.0 billion in the second half of the year.
The anticipated development of earnings in the automotive divisions will also have a positive impact on the free cash flow of the industrial business in 2014. When comparing with the prior-year figure, however, it is necessary to consider the fact 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. Furthermore, reporting-date effects positively affected the free cash flow in 2013; these will be partially offset during 2014. In combination with ongoing high investment and research and development spending, we expect the free cash flow of the industrial business adjusted for the effects of acquisitions and disposals of equity interests to be significantly lower in 2014 than in 2013. Subject to the approval of the relevant authorities, we anticipate a cash inflow of €2.43 billion from the sale of our shares in Rolls-Royce Power Systems Holding GmbH in 2014.
In order to achieve our ambitious growth targets, we will once again slightly increase our already very high investment in property, plant and equipment in the year 2014 (2013: €5.0 billion). All the automotive divisions will contribute to this increase. 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 also 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 cars 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 remain stable compared with the end of 2013.
Forward-looking statements:
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, 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, lower-margin 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.
 
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