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Daimler-Benz Group
*) For purposes of comparison, figures were adjusted to take account of significant changes in consolidation at AEG Daimler-Benz Industrie and Daimler-Benz Aerospace.
DM amounts in millions 1. half 1995 1. half 1994 *) Revenues 48,037 47,416 EU market 28,583 27,803 Germany 17,483 17,365 EU excluding Germany 11,100 10,438 U.S.A. 8,267 9,097 Other markets 11,187 10,516 Employees (6/30) 330,247 335,261 Germany 249,988 255,851 Foreign 80,259 79,410 Profit Operating profit (loss) acc. to German GAAP (1,154) 926 Net income (Loss) acc. to German GAAP (1,567) 462 Earnings (Loss) per share acc. to US GAAP DM (30.66) DM 7.82
- Expansion of Business primarily in Europe
- Group Revenues Up only slightly
- The Weakness of the U.S. Dollar and European Countries
- is Curbing Growth
- is the Primary Cause of Negative Result
Revenues of the Daimler-Benz Group, at DM 48.0 billion, were up 1% compared to the same period in the previous year. In Germany (+1%) and in the member countries of the European Union (+6%), we were able to further increase our business after the strong growth in the previous year. In the U.S. market, however, despite increased sales of passenger cars, we faced a 9% drop in revenues caused by the development of the dollar exchange rate. Revenues in the other markets continued to rise (+6%). The expansion of business was primarily driven by Mercedes-Benz and debis. While AEG Daimler-Benz Industrie nearly reached the revenues of the previous year, DASA's sales volume was down because of currency developments and the persistently difficult situation in the aircraft industry. Overall, Mercedes-Benz contributed 70% of Group sales, DASA 11%, debis 10% and AEG Daimler-Benz Industrie 9%.
At the end of June 1995, the Daimler-Benz Group had 330,247 employees worldwide. While DASA and AEG Daimler-Benz Industrie have continued to reduce their workforce, the number of employees has gone up again at debis and - as a result of the integration of Kässbohrer within EvoBus GmbH - at Mercedes-Benz.
In the consolidated balance sheet, the balance sheet total has increased over year-end 1994 by DM 0.7 billion. On the assets side, the growth is exclusively related to increased inventories resulting from the normally higher mid-year stock of finished goods and work in process. The growth was partially offset by decreases in non-current assets and receivables. Stockholders' equity was down by DM 3.0 billion to DM 17.3 billion. In addition to the half-year loss, the translation of net assets of foreign companies in the Group has also had an effect due to the lower exchange rates as compared to year-end 1994. At the same time, pension provisions were higher as a result of certain adjustments of pension benefits to salary increases. Moreover, provisions for the risks in the order backlog increased due to the weak U.S. dollar. The higher outstanding liabilities are a result of the marked increase of financial debts.
At DM -1.0 billion, the result from ordinary business activities in the consolidated statement of income is DM 1.8 billion lower than the comparable figure for the same period in the previous year. However, last year's result included non-recurrent income of approximately DM 1.0 billion from the deconsolidation of a domestic leasing company and from gains on disposal of non-current assets. In addition to the burdens on current operations associated with the strong German mark, the lower result is largely related to loss provisions on open contracts at DASA which are due to the weak dollar. However, pending resolution of the necessary decisions, the result does not yet contain any significant effects from restructuring measures in this area. Overall, the restructuring costs for the first six months are roughly equivalent to the same period in the previous year. The consolidated result after taxes fell sharply from DM 462 million to DM -1.567 million.
At DM -1.2 billion, the operating result, too, was significantly lower than in the first six months of 1994, which was DM 0.9 billion. While Mercedes-Benz was again able to increase considerably its positive contribution to results, the contributions from AEG Daimler-Benz Industrie and Daimler-Benz Aerospace were negative.
Cash flow from operating activities was also lower. The drop from DM 8.6 billion to DM 1.3 billion reflects the poor result, but above all the changes in current assets and the lower increase in liabilities as compared to the previous year. With cash used for investing activities at DM 2.6 billion, the amount not covered by cash flow from operating activities is DM 1.3 billion, which was compensated by increased borrowing.
While consolidated net loss in accordance with U.S. GAAP, at DM -1.573 million, is roughly equivalent to net loss according to German GAAP, there are considerable differences between individual items contained in the two results. The different treatment of goodwill and deferred taxes under U.S. GAAP causes the most significant divergence from the German accounting principles, and the U.S. result is diminished by these factors. At the same time, positive impacts resulted from adjustments to other provisions and from unrealized gains on forward exchange contracts which, according to U.S. GAAP, are marked to market.
At DM 26.6 billion, stockholders' equity in accordance with U.S. GAAP is DM 9.3 billion higher than the equivalent position in the German statement. Out of this difference, DM 6.5 billion relate to appropriated retained earnings. Another DM 2.9 billion are based on deferred tax assets recognized under U.S. GAAP which result from U.S. GAAP adjustments and on tax losses carried forward.
Mercedes-Benz
DM amounts in millions 1. half 1995 1. half 1994 Revenues 35,595 34,675 Empolyees (6/30) 203,992 200,528 Passenger Cars Revenues 20,155 21,164 Production (units) 308,445 302,076 Sales (units) 294,467 296,770 Commercial vehicles Revenues 15,440 13,511 Production (units) 169,146 140,011 Sales (units) 156,319 135,113
Unlike the commercial vehicle industry, the demand for passenger cars has to an extent stagnated in recent months. In certain industrial countries in particular, passenger car sales were clearly down or flat.
On the whole, Mercedes-Benz was able to continue its positive trend and increase its revenues over the first half of 1994 by 3% to DM 35.6 billion. There was significant growth above all in Western Europe outside of Germany (+10%), in South America (+40%), South Africa (+55%) and the Far East (+12%). In Germany, revenues increased by only 1%, to DM 13.6 billion. While the commercial vehicle sector increased its revenues by 14%, the passenger car sector did not reach the high level of the previous year, which was largely related to foreign exchange factors.
Nonetheless, with 294,500 passenger cars sold worldwide, unit sales were close to the record volume of the previous year. The German passenger car market, which is important for Mercedes-Benz, remained weak. Sales in Germany were 11% lower than the high volume of the previous year because of the model change in the E-Class. Unit sales in the export markets, at 178,500 passenger cars, were up 7%, breaking the record set in 1994. We were particularly successful in Japan and Great Britain, where we achieved 39% and 35% growth respectively. In the U.S., we were able to increase sales by 3%, notwithstanding the weakened market. Other strong growth areas were the emerging markets of South East Asia, Latin America and South Africa.
The C-Class continued to strengthen its market position worldwide, and sales of the S-Class also increased noticeably. The E-Class, which with some 2.7 million cars sold since its introduction is the most successful Mercedes-Benz model ever, reached satisfactory sales figures in comparison to direct competitors despite the fact that it reached the end of its production run. The new E-Class was introduced in June and was very favorably received by both the public and the media. The very pleasing increase in orders confirms the innovative and attractive concept of the vehicle.
Because of the satisfactory sales situation on the whole, we have increased production by 2% to a new record of 308,400 passenger cars.
With total sales of 156,300 units (+16%), the commercial vehicle division sold more vehicles Group-wide than ever before in the first six months of 1995. The record result predominantly reflects the recovering economies in important commercial vehicle markets, particularly in the European Union since the late summer of 1994. Moreover, the market success of the Sprinter, newly introduced in the market in January, contributed to 15% higher sales of vans, which reached 55,000 units. An even greater expansion was in the truck sector, where sales were up 17% to 88,100 units. Buses and Unimogs also achieved noticeable growth as compared to the previous year.
Sales of the production companies outside of Europe were extraordinarily favorable. Particularly high sales were achieved with the products of our U.S. subsidiary Freightliner (+25% to 36,400 units), of Mercedes-Benz do Brasil (+44% to 23,000 units) and Mercedes-Benz of South Africa (+29% to 1,600 units). At the same time, economic uncertainties in Mexico resulted in a 79% drop in sales for Mercedes-Benz Mexico, to 900 commercial vehicles. The newly founded EvoBus GmbH had a successful start and sold 2,900 Mercedes-Benz and Setra buses in the first half of 1995.
At 169,100 units (+21%), Mercedes-Benz produced more commercial vehicles than ever before in the first six months of a year. The plants in Germany and abroad contributed equally to this growth, at 82,400 units (+20%) and 86,700 units (+22%) respectively.
AEG Daimler-Benz Industrie
DM amounts in millions 1. half 1995 1. half 1994 *) Revenues 4,386 4,425 Incoming orders 6,492 5,364 Employees (6/30) 51,366 53,259 *) Adjusted to take account of significant changes in consolidation.
At DM 4.4 billion, revenues of AEG Daimler-Benz Industrie were slightly lower than the figure for the same period in the previous year. While revenues in foreign countries were up by 7%, there was a 9% drop in the German market. Within the individual divisions, microelectronics achieved double-digit growth (+16%). Other pleasing developments were reported by the TEMIC business units semi-conductors, airbags and commercial vehicle electronics. Automation technology booked a slight drop in revenues, by 1%. The 4% drop in energy technology was primarily the result of lower invoicing in the energy systems technology sector. Revenues of diesel engines were down 7% due to the lower delivery volume in the first half of the year for program reasons, and down 11% in rail systems because of lower invoicing.
In the period under review, new orders for AEG Daimler-Benz Industrie were up 21%, reflecting more active ordering activities both in Germany (+10%) and in the foreign markets (+34%). The largest share in growth, at 32%, was contributed by the rail systems sector, thanks to the S-Bahn contract in Berlin and the BART rapid transit system in San Francisco among other projects. Incoming orders in the other business units were equally favorable. In automation technology, new orders increased by 28%, which is due to the first-time consolidation of the American postal automation subsidiary ElectroCom Automation Inc. and higher new orders in industrial automation technology. The division of energy systems division technology reported a 24% increase, largely contributed by the energy distribution, low voltage technology and electrical equipment sectors. Orders for microelectronics, up 15%, continued to develop positively, and orders for diesel engines were 7% higher than in the previous year.
Daimler-Benz Aerospace (DASA)
DM amounts in millions 1. half 1995 1. half 1994 *) Revenues 5,496 5,959 Incoming orders 6,266 6,499 Employees (6/30) 61,588 68,515 *) Adjusted to take account of significant changes in consolidation.
The business development at DASA was significantly affected by exchange-rate fluctuations. The U.S. dollar, which is crucial for the civil aircraft business, experienced a 14% devaluation against the German mark as compared to the first half of 1994. Moreover, product demand from the aircraft market continued to be unsatisfactory.
In the period under review, revenues were down 8% over 1994, at DM 5.5 billion. While the previous year's figures were almost reached in Germany (-1%), foreign revenues were down 10%. Revenues in the aircraft division, which contributed 63% of DASA's total revenues, decreased by 14% - due almost exclusively to currency exchange factors - and by 12% in propulsion systems. The space systems and defense and civil systems divisions posted increases of 8% and 16% respectively as a result of invoicing.
At DM 6.3 billion, new orders were 4% lower than in the same period in the previous year. Noticeably higher new orders in space systems were insufficient to offset the decreases in the other divisions, which were largely caused by exchange-rate trends.
Daimler-Benz InterServices (debis)
DM amounts in millions 1. half 1995 1. half 1994 Revenues 5,492 5,219 Employees (6/30) 9,759 8,925 The business development at DASA was significantly affected by exchange-rate fluctuations. The U.S. dollar, which is crucial for the civil aircraft business, experienced a 14% devaluation against the German mark as compared to the first half of 1994. Moreover, product demand from the aircraft market continued to be unsatisfactory.
In the period under review, revenues were down 8% over 1994, at DM 5.5 billion. While the previous year's figures were almost reached in Germany (-1%), foreign revenues were down 10%. Revenues in the aircraft division, which contributed 63% of DASA's total revenues, decreased by 14% - due almost exclusively to currency exchange factors - and by 12% in propulsion systems. The space systems and defense and civil systems divisions posted increases of 8% and 16% respectively as a result of invoicing.
At DM 6.3 billion, new orders were 4% lower than in the same period in the previous year. Noticeably higher new orders in space systems were insufficient to offset the decreases in the other divisions, which were largely caused by exchange-rate trends.
Outlook
In the second half of 1995, the devaluation of major currencies with respect to the German mark is likely to continue to have a negative effect on business. The weak dollar in particular will affect DASA's revenues as well as passenger car revenues in the important North American market. Nonetheless, positive stimuli associated above all with the model change in the E-Class and with the commercial vehicle sector are expected to prevail at Mercedes-Benz. On the whole we expect total revenues for 1995 to surpass the previous year's figure.
Our investments in property, plant and equipment, which in 1995 will increase to over DM 6.0 billion, are concentrated on product innovations, the introduction of new production technologies and other rationalization strategies. The focus will again be on capital expenditures at Mercedes-Benz, predominantly for new products and successor models, but also for the continued internationalization of business.
Research and development expenditures, at DM 9.0 billion, will approximate the amount expended in the previous year. About one half is related to contract-dependent development services at DASA.
Because of the favorable response to the new E-Class and the brisk demand for the S- and C-Class we expect the sales volume in the passenger car sector to reach the previous year's level, despite the weakening of some of the important markets. On the basis of the continued positive development of the commercial vehicle markets, Mercedes-Benz should be able to sell well over 300,000 commercial vehicles in 1995.
In March 1995 AEG Daimler-Benz Industrie and ABB announced their plans to merge their worldwide activities in the rail systems sector. Negotiations on the joint venture ABB Daimler-Benz Transportation have since advanced significantly. We expect that the relevant EU authority will approve of the venture by the end of October.
DASA is still vigorously pursuing its goal to assert its competitive edge in the European aircraft and space systems industries through increased cooperation with international partners. Important progress has been made in the negotiations with Aerospatiale to establish two joint ventures combining the satellite and guided missile activities of both companies. In the aircraft sector, DASA commenced a feasibility study for a 120-seater jet aircraft with the Chinese aircraft industry and the South Korean Samsung Aerospace Industries in May 1995. The study also encompasses the possibility of involving other European partners in the project. In consideration of the serious currency fluctuations, DASA is investigating within the context of the Dolores Project (Dollar Low Rescue) appropriate measures to make the division less dependent on currency developments in the future.
In the course of the further internationalization of its businesses, debis Systemhaus has taken over the majority of ATAG debis Informatik AG, Switzerland. The marketing services sector is expected to develop positively as a result of the new customers gained in the first half of the year. The mobile communications services division will continue its highly satisfactory growth.
In the second half of the year, the earnings trend will continue to be affected by the high German mark against major currencies and the necessary provisions for structural measures in DASA's aircraft sector. At the same time, the ongoing cost-reduction programs in all corporate units and the persistently favorable increase in business at Mercedes-Benz and debis will have a positive impact on income. Another factor that should be taken into consideration is that we already formed provisions for the risks in the order backlog at DASA in the first half of the year in anticipation of losses related to the weak dollar (DM 1.38 per dollar as of June 30, 1995). Accordingly, we will not be faced with additional material financial burdens out of these risks unless the dollar exchange rate on December 31, 1995 should be lower than this value. We expect a net loss for the Group for the second half of the year as well, but from the present perspective it will be significantly lower than the loss in the first half of the year.
*
This interim report contains all the information relating to AEG required under stock exchange law. Under the terms of the profit transfer agreement, the net income of AEG Aktiengesellschaft is transferred to Daimler-Benz AG; the minority shareholders in AEG receive a guaranteed dividend. This report thus simultaneously serves as an interim report of AEG.
September 1995
Daimler-Benz Aktiengesellschaft
The Board of Management
Half-Year Financial Statements of the Daimler-Benz Group
Reconciliation of Consolidated Net Income and Stockholders'Equity to U.S. GAAP
© 1995 Daimler-Benz
