Company said it will clamp down further on spending as it prepares to plow even more money into investing in new technologies

by BLOOMBERG

FRANKFURT • Daimler AG struck a cautious tone, forecasting a slight increase in pro t this year after 2018’s decline as the maker of luxury cars fights through a US-China trade spat, slowing demand in Europe and North America, and surging expenses to develop electric vehicles (EVs).

Group revenue and earnings before interest and tax will “rise slightly” this year, the Mercedes-Benz manufacturer said at its annual results press conference yesterday. After a 29% drop in 2018 net profit, Daimler cut its dividend for the first time in nine years. The company said it will clamp down further on spending as it prepares to plow even more money into investing in new technologies.

“For Daimler, 2018 was a year of strong headwinds,” said CEO Dieter Zetsche (picture). “The environment will remain extremely challenging in 2019.”

Remaining profitable, he said, “is a prerequisite for continuing to invest in new technologies and products in the future”.

Tough Year

The car industry has come through a difficult few months marred by trade tensions and declining sales in the world’s biggest market, China.

The pressures prompted two profit warnings by Daimler last year, partly due to China’s trade spat with the US, which led to added tariffs on its Alabama-made SUVs.

Since then, Mercedes car sales have proved resilient in China, and deliveries of its Freightliner heavy trucks in North America increased.

Daimler shares fell 1.9% to €51.90 as of 9:19am yesterday in Frankfurt, valuing the company at €55.4 billion (RM257.47 billion), after the sector suffered major declines last year.

Earnings declined in all divisions during 2018 except heavy trucks, Daimler said, while revenue rose 7% to €46.6 billion.

Profitability in the key MercedesBenz Cars unit narrowed to 7.8% from 9.4% a year ago, revealing the strains of investing in major technological shifts while also battling trade wars and volatile political and economic developments.

“In order to be able to invest consequently in further growth and new technologies in the future, we have to improve efficiency,” said CFO Bodo Uebber.

The Stuttgart-based company is the first European automaker to report fourth-quarter earnings and map out what might be another tough year.

Earlier yesterday, Toyota Motor Corp raised its global vehicle sales forecast for the year ending in March to 10.55 million vehicles, an increase of 50,000 vehicles, helped by higher sales in Japan and Europe.

For this year, Daimler forecast a profit margin of 6% to 8% for Mercedes cars, below target levels as lucrative SUVs get overhauled and spending on EVs dilute earnings.

Not Satisfied

“We cannot and will not be satisfied with this,” Zetsche said. “That’s why we have started to develop comprehensive countermeasures” with the goal of returning to target levels of 8% to 10% by 2021.

Daimler proposed a dividend of €3.25 per share, an 11% drop and its first since 2010, when the payout was omitted in the aftermath of the global financial crisis.

The company will also invest “a mid-three-digit million” euro amount in 2019 on creating the new group structure with three legally independent units.

Yesterday’s earnings are the last for veteran Zetsche, at the helm since 2006. Credited with a pivotal role during Daimler’s divorce from Chrysler and a successful product overhaul, ongoing investigations into diesel emissions practices have weighed on his tenure.

In May, shareholders will vote on a new corporate structure to give the cars, trucks and mobility services units more independence to accelerate decision-making. Investors have criticised the move as not going far enough to argue for a partial share sale of the trucks division. — Bloomberg