Daimler-Benz News from April 12, 1995

Strong Turnaround
at Daimler-Benz

Annual Report 1994

Sales revenue up 7 % to over DM 104 billion - Improved operating profit of DM 2.7 billion - unfavourable foreign exchange trends cloud outlook for 1995

Stuttgart, April 12, 1995
"Looking back, 1994 was a satisfactory year. The strategies we initiated to update our products, streamline and rationalize all processes, and broaden our international presence have proceeded as planned. The reversal we achieved in the development of our earnings was more than remarkable, and not only in comparison to 1993", commented Edzard Reuter, Chairman of Daimler-Benz, in the company´s Annual Report just presented.

In 1994, despite the continuing weakness of major foreign currencies against the German mark, Daimler-Benz increased consolidated sales revenues to DM 104.1 billion, 7 % more than the comparably calculated value for the previous year. Revenue in the European Union rose by 4 % to DM 59.9 billion, business in Germany by 3 % to DM 39 billion. Daimler-Benz posted an above-average rise of 13 % to DM 18.3 billion in the USA, and of 11 % to DM 25.9 billion in the other markets. Excluding inter-group business, Mercedes-Benz contributed 66 %, AEG Daimler-Benz Industrie 10 %, Daimler-Benz Aerospace 16% and Daimler-Benz InterServices (debis) 8 % to consolidated revenues.

The net income of the Daimler-Benz group increased in 1994 to DM 0.9 (1993 0.6) billion. This increase does not fully reflect the improved profit from operating activities however, since the previous year's figure was strongly influenced by exceptional factors. The turnaround in earnings is expressed most clearly in the operating result, which climbed from a loss of DM 3.3 to an operating profit of DM 2.7 billion. The increase of DM 6 billion contains one-off income of DM 1.4 billion arising from the deconsolidation of MBL FahrzeugLeasing GmbH & Co. KG and from gains on the sale of parts of AEG Daimler-Benz Industrie and intangible assets at Fokker. Structural expenditure of DM 1.1 (1993: 3.5) billion was incurred during the year under review.

Once again in 1994, the vigorous cost-cutting programmes are reflected in the size of the workforce. At the end of 1994, the Daimler-Benz group employed 330,551 people, substantially below the level one year before (366,736). The largest reductions were in Germany, where numbers declined from 284,576 to 251,254. At the end of 1994, Mercedes-Benz employed 197,568 people, AEG Daimler-Benz Industrie 44,769, Dasa 75,581, debis 9,226 and Daimler-Benz AG 3,407. Just under 500 people were employed in group management functions at the executive holding company.

The shedding of 25,800 jobs in 1994 largely took place by mutual agreement, redundancies were the exception. Some parts of the company were hived off and sold, which also contributed to the contraction in the workforce, while large parts of AEG Daimler-Benz Industrie and Dasa were affected by short-time working.

1995 affected by unfavourable foreign exchange trends

In the first months of 1995, the Daimler-Benz group made good progress in all its fields of activity. According to the figures at present available, from January to March 1995 the trend at Mercedes-Benz remained positive both in passenger cars and in the commercial vehicle sector.

At AEG Daimler-Benz Industrie the foundation is now in place for a positive future trend in business. On present estimates - i.e. not taking into account the recently agreed joint venture - the company expects business to grow in 1995 in all divisions, particularly Microelectronics.

Following decreased revenues in the past financial year, the weak demand in the civil aviation market continued to create problems for Daimler-Benz Aerospace in the first months of this year. The fall in the value of the dollar made further cutbacks necessary. Adjusted for changes in consolidation, Dasa expects a slight increase in sales revenue for the coming year, although much will depend on developments in the foreign exchange markets.

Daimler-Benz InterServices is expected to maintain its positive business trend of 1994.

According to present estimates, consolidated sales revenue increased in the first three months of the year to DM 22.3 billion, slightly above the level for the same period of last year. For the year as a whole, the company's present expectation, according to Edzard Reuter, is for a continuation of this trend, with sales revenue slightly exceeding that of last year. However, the uncertain outlook on the foreign exchange markets makes it very difficult to make predictions about sales revenue and results. The corporate units in 1994 Mercedes-Benz

Sales revenue of Mercedes-Benz increased in 1994 by 9 % to DM 70.7 (1993: 64.7) billion. The Passenger Car and Commercial Vehicle divisions contributed equally to this increase. The main impetus came from North America, West European markets outside Germany and South East Asia. Revenue of the Passenger Car division totalled DM 42.1 billion, that of the Commercial Vehicle division DM 28.6 billion.

In a year in which the car market started to become more dynamic once again, 592,400 Mercedes-Benz cars were sold, with above-average rates of growth recorded in almost all the key regions. Even in the static German market, Mercedes-Benz new-car registrations increased by 19 % to 249,800, taking the market share from 7 to 8.2 %. Outside Germany, Mercedes-Benz sold a record total of 341,300 cars, an increase of 18 % on the previous year's performance. Due to the generally favourable market conditions, Mercedes-Benz stepped up car production by 23 % to more than 590,000 units, which stretched capacity nearly to the limit.

The trend in the commercial vehicle markets too was largely positive. Sales of Mercedes-Benz commercial vehicles increased in 1994 by 14 % to 290,400 units. The main impetus came from North America, West European markets outside Germany and Latin America. In Germany on the other hand, new-vehicle registrations declined by 4 % to 79,000 due to difficult market conditions which affected the entire industry. The foreign subsidiaries recorded a new production record of almost 148,900 vehicles. At the 46 German and foreign production sites, 291,900 commercial vehicles left the assembly lines.

Once again, the Freightliner subsidiary played a prominent part in the positive trend in overseas business. It increased its sales in the United States by 25 % to 51,400 vehicles, and extended its leading position in the US market for Class 8 trucks to 25 % (1993: 24 %).

AEG Daimler-Benz Industrie

In the capital goods relevant for AEG Daimler-Benz Industrie, 1994 saw an overall fall in orders received and sales revenues, although the Rail Systems and Microelectronics divisions in particular developed positively. Orders received by AEG Daimler-Benz Industrie totalled DM 11.5 billion. Comparably calculated, that is to say if adjustment is made for the sale of the lighting systems, power meters and domestic appliances activities, growth of 6 % was recorded. Both the German market (+ 4 %) and foreign markets (+ 8 %) contributed to this. In the year under review, sales revenue totalled DM 10.3 billion, calculated on a comparable basis to the previous year, it increased by 5 % to DM 8.5 billion. Sales revenue in foreign markets increased by 13 %, while revenues in Germany fell by 2 %.

The largest contributions to this development were made by the Rail Systems and Microelectronics divisions. The growth in the Rail Systems division was spurred chiefly by high invoicing for projects in Germany and the USA. In the Microelectronics division, TEMIC TELEFUNKEN made the principal contribution to growth.

After approval for the sale of the Domestic Appliances division to Electrolux was granted by the EU authorities, the AEG group withdrew from this sector on September 30, 1994. The income statement of AEG Hausgeräte for the first nine months of the year has been included in the consolidation of AEG.

The results of AEG Daimler-Benz Industrie in 1994 were adversely affected in 1994 by the delay in the economic recovery. Under utilised capacity resulted in considerably fiercer competition on prices. The implementation of the structural measures and far-reaching rationalization programmes made it possible to absorb these burdens however, along with cost increases and to keep the operating loss at around the previous year's level, approximately DM 500 million.

Daimler-Benz Aerospace (Dasa)

Dasa, which changed its name on January 1 1995 to Daimler-Benz Aerospace, once again had to contend with weak demand in the aircraft market and reduced public spending on space and defence. Above all as a result of decreased sales revenue in the Aircraft division, which contributes about 50 % to Dasa's total volume of business, sales revenue fell by 7 % to DM 17.4 billion. Orders received on the other hand grew by 5 % to DM 16.4 billion, due to a substantial increase in the Aircraft division, although in other divisions a fall was recorded. Against the backdrop of the difficult economic conditions, Dasa pressed ahead with the capacity adjustments and structural optimization already underway. In addition, a number of joint ventures between Dasa and various international partners were formed during the year under review, with the aim of improving Dasa's worldwide competitiveness. An agreement was reached with Thomson-CSR to combine both companies' high explosives activities into the new company TDA. Activities in the field of missile propulsion systems now came under the umbrella of Bayern Chemie. At the turn of 1994/95, Dasa reduced its holding in TEMIC TELEFUNKEN microelectronic to 49 %.

Dasa continued its worldwide market offensive in key markets of the future, founding locally based companies responsible for the markets in Greece, Italy, Mexico, Austria, Singapore, Spain, Turkey, the United Arab Emirates and the People's Republic of China. Daimler-Benz Aerospace thereby created the basis for safeguarding jobs in its core businesses and for future healthy growth in the company.

Daimler-Benz InterServices (debis)

The services for industry in which the corporate unit Daimler-Benz InterServices (debis) is active contributed disproportionately to the general economic recovery in Germany in 1994. debis increased its sales revenue during the year under review by 14 % to DM 10.8 billion. Although further companies were acquired in the course of business expansion, the continuing growth at debis was largely generated from the company's existing base. Expansion was particularly sharp in the mobile communication services division, not least due to the acquisition of Bosch Telecom Service. Revenue of the Systemhaus division increased by 9 % to DM 1.8 billion, that of the Financial Services division by 13 % to DM 7.6 billion. At debis, as at other corporate units, internationalisation of business activities proceeded. By region, Germany accounted for 55 % of sales revenue in 1994, the partner countries in the European Union for 7 %, the US market for 29 % and other markets for 9 %.

Investment to safeguard the future

Investment in fixed assets totalled DM 4.7 (1993: 5.4) billion in the Daimler-Benz group in 1994. If the effects, especially of the first-time inclusion of Fokker, are taken into account, investment matched the previous year's level. The additions to intangible assets totalled DM 0.6 billion. Depreciation and disposals on fixed assets and intangible assets totalled DM 5.9 billion. The largest share of the investment in new production technologies, product range expansion and rationalization measures was at Mercedes-Benz, which accounted for DM 2.9 (1993: 2.6) billion of the total. The Passenger Car division's investment of DM 1.5 billion was spent mainly on preparations for production of the new E-class, the new engine plant in Bad Cannstatt, Stuttgart, and continuing introduction of water-based painting technology. The most important foreign project in 1994 was the new plant in Tuscaloosa, Alabama, where the "all activity vehicle" (AAV) is due to go into production in 1997. DM 1.3 billion was invested worldwide in the Commercial Vehicle division. In Europe, the focus was on preparations for the two new van families, the "Sprinter" and the "city van".

Investment in fixed assets totalled DM 0.6 billion at AEG Daimler-Benz Industrie, DM 0.7 billion at Dasa, DM 0.2 billion at debis and DM 0.1 billion at the holding company. Additions to leased equipment totalled DM 5.6 (1993: 5.9) billion.

Daimler-Benz spent a total of DM 8.7 (1993: 9.0) billion on research and development in 1994. Commissioned development, almost exclusively in the Dasa corporate unit, accounted for DM 3.5 billion of this figure. Spending on environmental protection totalled more than DM 680 million.

The consolidated statements in detail

All the corporate units made contributions to the improvement in the group operating result from DM - 3.3 billion to DM + 2.7 billion. The contribution of Mercedes-Benz increased to DM 2.2 (1993: - 1.3) billion. Increased revenue from car and commercial vehicle sales in Germany and major foreign markets was principally responsible for this. Cost-cutting measures also made a considerable contribution.

AEG Daimler-Benz Industrie made a contribution of DM - 0.1 (1993: - 0.9) billion to the operating profit of the group. This improvement was connected partly with the sale of the Domestic Appliances division and of the power meters and lighting systems activities, on which a total profit of DM 0.4 billion was made and partly with reduced structural expenses.

The contribution of Daimler-Benz Aerospace to the operating result improved to DM - 0.5 (1993: - 1.0) billion. The persistently difficult conditions in the market for commercial aircraft and reduced state spending on defence and space, resulting in under-utilisation of existing capacity, prevented a better result. A positive impact was exerted by a decrease in structural expenses.

Daimler-Benz InterServices (debis) made a contribution of DM 0.4 billion to the operating profit of the group in 1994. The strongest earner was the Financial Services division, which once again recorded a positive trend in business.

The financial income shown in the income statement of the group fell sharply by DM 2.0 billion to DM 0.2 billion. The main reason for this was a decrease of DM 1.4 billion in income from the sale of securities and write-downs of DM 0.6 billion (1993: 0.3) on financial assets and securities.

The balance sheet total increased, by DM 2.6 to DM 93.5 billion, due to the additional liquidity provided by the two capital increases. Liabilities from the expanding leasing and sales financing business increased by DM 0.9 billion to DM 14.5 billion, while an opposite effect on the balance sheet was exerted by the deconsolidation of MBL Fahrzeug-Leasing GmbH & Co. KG and the sale of the power meters, lighting systems and domestic appliances activities of the AEG Daimler-Benz Industrie corporate unit.

Excluding the financial services business, which is largely financed by borrowing, the equity ratio increased from 26 % to 28 %. Coverage of non-current assets by stockholders' equity fell from 78 to 76 %. As in the previous year, long-term and medium-term capital accounted for 60 % of the balance sheet total.

The net income of Daimler-Benz AG increased to DM 565 (1993: 390) million. Improved results from operating activities and declining structural expenses meant that Mercedes-Benz AG - after the losses in the previous year - once again contributed a profit; debis too contributed a positive result. There was a considerable reduction in the losses assumed from AEG Aktiengesellschaft and Daimler-Benz Luft- und Raumfahrtholding AG, the parent company of the Dasa group.

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