Daimler AG (ticker symbol DAI) continued along its profitable growth path and posted record levels of unit sales, revenue and earnings for the second quarter and the first half of 2015. With total sales of 714,800 passenger cars and commercial vehicles, the company sold 14% more vehicles in the months of April through June than in the second quarter of last year. Mercedes-Benz Cars had its best quarter so far for unit sales, with growth of 20% to 500,700 vehicles sold. Group revenue increased by 19% to €37.5 billion in the second quarter. Adjusted for the effects of exchange-rate changes, revenue growth amounted to 11%. Group EBIT increased by 20% to €3,718 million. Group EBIT from the ongoing business improved by a substantial 54% to €3,784 million while net profit rose by 8% to €2,372 million. Prior year’s second quarter’s net profit was positively affected from the remeasurement of the Tesla shares. Net profit attributable to the shareholders of Daimler AG amounted to €2,269 million (Q2 2014: €2,104 million) and earnings per share increased to €2.12 (Q2 2014: €1.97).

“We achieved the targeted margin for Mercedes-Benz Cars in the first half of the year. In all other automotive divisions, we are about to achieve our margin targets,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars. “We will systematically continue along the path we have taken, in order to fully utilize Daimler’s potential. We will keep our product portfolio young and attractive with further expansion of our model range.”
The significant growth in Group EBIT in the period under review was primarily driven by the biggest division, Mercedes-Benz Cars, as a result of its ongoing growth in unit sales and the systematic implementation of its »Fit for Leadership« efficiency program. Daimler Trucks also achieved significant earnings growth. Mercedes-Benz Vans achieved second-quarter earnings at the level of the prior-year period, while Daimler Buses also increased its earnings. At Daimler Financial Services, earnings grew in particular as a result of the increased contract volume. The implemented efficiency actions and changes in currency exchange rates also had a positive impact on the Group’s operating profit.

Furthermore, the special items shown in the table on page 10 affected EBIT in the second quarter of 2015 and 2014.
“As a result of the course we set in the past, we continue to grow profitably and are on the right track to fulfill our forecasts for fiscal year 2015,” stated Bodo Uebber, Member of the Board of Management of Daimler AG for Finance & Controlling and Daimler Financial Services. “The level of margins we have meanwhile reached in the industrial business is clear evidence of the success of our growth strategy. In order to further increase our company value, we will continuously invest in products as well as innovations and technologies. Our efficiency programs will be systematically continued.”

The free cash flow of the industrial business rose in the first half of 2015 by €1.9 billion to €3.4 billion. This strong increase was primarily due to the higher profit contributions from the automotive divisions. There was an opposing effect from the higher increase in working capital – in anticipation of further growth in unit sales – in a total amount of €0.6 billion. Increased investment in intangible assets and the capital increases carried out at the Chinese associated companies also reduced the free cash flow.

The net liquidity of the industrial business increased from €17.0 billion at December 31, 2014 to €18.4 billion at June 30, 2015. The increase mainly reflects the free cash flow of €3.4 billion and positive exchange-rate effects. The net liquidity of the industrial business was reduced by the dividend payments to the shareholders of Daimler AG (€2.6 billion). The Daimler Group once again utilized attractive conditions in the international money and capital markets for refinancing in the first half of 2015.

At the end of the second quarter of 2015, Daimler employed 284,441 people worldwide (end of June 2014: 280,829). Of that total, 171,603 were employed in Germany (end of June 2014: 170,649)
Details of the divisions
Mercedes-Benz Cars’ second-quarter unit sales increased by 20% to 500,700 vehicles. This makes the past three months the best-selling quarter so far. Unit sales in Western Europe were boosted significantly by Italy (+37%) and the United Kingdom (+28%); unit sales in Germany rose by 7%. In the United States, the car division achieved a new high with growth in unit sales of 10%. Mercedes-Benz Cars recorded strong growth rates also in Asia, with 34% in China, 54% in Japan and 71% in South Korea.
Revenue grew by 19% to €21.1 billion. The division’s EBIT for the second quarter of €2,227 million was substantially higher than the prior-year figure of €1,409 million. Return on sales amounted to 10.5% (Q2 2014: 7.9%). The development of earnings primarily reflects the further growth in unit sales in all regions. Strong contributions came from the new C-Class and the expanded range of compact cars. Mercedes-Benz Cars achieved earnings growth also as a result of the efficiency measures initiated in the context of »Fit for Leadership«. Changes in exchange rates and interest rates had an additional positive impact on EBIT. There were negative effects on earnings from the sales structure, expenses for capacity expansions and advance expenditure for new technologies and vehicles.

Daimler Trucks’ unit sales of 125,100 vehicles in the second quarter were close to the level of the prior-year period, whereby lower unit sales in Latin America and Indonesia were mainly offset by increased sales in the NAFTA region and Western Europe. In the NAFTA region, Daimler Trucks reached a sales record of 49,400 vehicles (+20%). Sales of 15,200 units in Western Europe were 15% higher than in the second quarter of last year; although Mercedes-Benz Trucks’ market share contracted, it defended its market leadership in an environment of aggressive pricing. In Latin America, demand for trucks continued to be impacted by the difficult economic conditions, and unit sales decreased by 28%. Unit sales in Asia were 17% lower than in the second quarter of last year, almost solely due to a market-related slump of 51% in Indonesia to 9,500 vehicles. In Japan and India, Daimler Trucks increased its unit sales by 16% and 14% respectively.

The division’s revenue rose to €9.4 billion (+19%) and its EBIT climbed to a new high of €682 million (Q2 2014: €455 million). Return on sales was 7.2% (Q2 2014: 5.7%). The positive development of earnings was mainly driven by increased unit sales in the NAFTA region and Western Europe, positive exchange-rate and interest-rate effects and the utilization of further efficiency improvements. There were opposing effects from lower unit sales in Latin America and Indonesia. Expenses for capacity expansions also had a negative impact on EBIT. As in the prior-year quarter, EBIT was additionally reduced by workforce adjustments in the context of the ongoing optimization programs in Brazil.

Mercedes-Benz Vans increased its unit sales by 7% to a new second-quarter high of 81,600 vehicles. In its core region of Western Europe, the van division achieved significant growth of 9% to sales of 54,300 units, with particularly strong growth in demand in Italy (+31%), Spain (+19%) and France (+9%). Unit sales continued their positive development in the NAFTA region with growth of 46% in Canada and 12% in the United States. The market environment in Latin America remained difficult and unit sales there were 6% below the prior-year level.

Revenue rose by 13% to €2.8 billion (Q2 2014: €2.5 billion). The division’s second-quarter operating profit of €234 million was slightly lower than in the same period of last year (€242 million). Earnings for the prior-year period included a gain of €61 million on the reversal of an impairment of Daimler’s investment in the Chinese joint venture Fujian Benz Automotive Corporation. Return on sales amounted to 8.3% (Q2 2014: 9.7%). Mercedes-Benz Vans’ revenue and earnings were affected by the very good development of demand in Europe and the NAFTA region as well as a positive product mix.

Daimler Buses’ second quarter unit sales of 7,300 buses and bus chassis were below the prior-year figure of 8,100 units. Growth in Western Europe and Turkey due to increased demand for complete buses partially compensated for the drop in sales of chassis in Latin America.

The division’s revenue of €1.0 billion was at the prior-year level (Q2 2014: €1.0 billion). Its EBIT of €57 million was higher than in the second quarter of last year (€50 million) and its return on sales rose from 4.8% to 5.5%. The continuation of strong demand for complete buses, a favorable product mix in Western Europe, further efficiency improvements and positive exchange-rate effects more than offset the decrease in unit sales in Latin America. The difficult economic situation in Latin America and the resulting drop in demand for bus chassis had a negative impact on earnings also in the past quarter.

The automotive divisions were also negatively affected by the restructuring of the Group’s own sales organization in Germany.
Daimler Financial Services increased its new business once again. In the second quarter of this year, 382,000 new leasing and sales-financing contracts were concluded in a total amount of €14.8 billion, 28% more than in the prior-year period. Contract volume reached €110.6 billion at the end of June, which is 12% higher than at the end of 2014. Adjusted for exchange-rate effects, contract volume increased by 7%. With EBIT of €445 million in the second quarter of 2015, the division significantly surpassed its earnings of €336 million in the prior-year period. The strong earnings were mainly the result of increased contract volume in all regions and the positive development of exchange-rates. Higher expenses for the expansion of business activities reduced earnings, however.

The reconciliation of the divisions’ EBIT to Group EBIT comprises gains and/or losses at the corporate level and the effects on earnings of eliminating intra-group transactions between the divisions. Other items at the corporate level resulted in income of €66 million in the second quarter of 2015 (Q2 2014: €594 million). In the second quarter of 2014, there was income at the corporate level in particular from the gain on the remeasurement of the Tesla shares of €718 million, and an expense of €68 million from hedging the price of those shares. The elimination of intra-group transactions resulted in income of €7 million in the second quarter of 2015 (Q2 2014: €9 million).

Investments in the future
The Daimler Group invested €2.1 billion in property, plant and equipment in the first half of 2015 (Q1-2 2014: €2.1 billion). The Mercedes-Benz Cars division accounted for most of that total: €1.6 billion, as in the first half of 2014. The main area of capital expenditure was for production preparations for new models, especially the new E-Class and its derivatives, the additional derivatives of the C-Class and investments for new transmissions and engine versions. Another area of capital expenditure was for the ongoing expansion of the Group’s international production and component plants.
The Daimler Group’s research and development spending in the first half of the year amounted to €3.1 billion (Q1-2 2014: €2.7 billion). More than two thirds of the research and development spending was at the Mercedes-Benz Cars segment. The main areas were new vehicle models, particularly fuel-efficient and environmentally friendly drive systems and new safety technologies.

Outlook for the markets
At the beginning of the third quarter, there are still good prospects that the world economy will continue its expansion. But global indicators of business sentiment suggest that the currently rather moderate growth rate will hardly change. Overall, Daimler expects global GDP to expand this year by only about 2.7% for full-year 2015.

Due to the continuation of rather moderate global growth rates and the pronounced market weakness of some major emerging economies, worldwide demand for cars is likely to rise by only about 2% according to current estimates. Demand in China, the world’s biggest car market, should grow again significantly and make by far the biggest contribution to global growth. The US market should also show solid development. Although total unit sales in the US have meanwhile returned to the pre-crisis level and are thus close to market saturation, slight growth to up to 17 million units is to be expected once again in 2015. This means that as many cars and light trucks will probably be sold as in 2005. In Western Europe, an ongoing demand revival is to be expected, taking place on an increasingly broad base. In Germany and France, growth is likely to be moderate in relation to the comparatively weak prior-year level. The Japanese market has been at an artificially high level for several years as a result of various special effects. For the year 2015, a correction is therefore expected with a lower level of demand. The picture for the major emerging markets excluding China remains varied in 2015. A recovery of demand for cars is anticipated in India. In Russia, however, a drastic fall in car sales must be expected due to the country’s severe economic crisis. As demand has continued to weaken also for premium automobiles, a substantial decrease in total sales must be expected also in that segment.

In the worldwide market for medium- and heavy-duty trucks, another drop in demand is expected in 2015 following last year’s significant decrease. Furthermore, the situation will remain varied from one region to another. Market prospects are the most promising in the NAFTA region and Europe. In North America, the main economic indicators suggest that demand for trucks will remain favorable despite a slight cooling off, so the market should expand by between 10 and 15%. Thanks to the increasingly robust economic recovery in Europe, Daimler meanwhile anticipates market growth of between 10 and 15% also in that region. Market conditions in Brazil are extremely unfavorable, however. Starting from a low level, it must now be assumed that demand will fall again severely by about 40%. The Japanese market for light-, medium- and heavy-duty trucks appears to be relatively robust despite the country’s sluggish economy, so a market volume in 2015 in the magnitude of the previous year is expected. But following a very weak start to the year in Indonesia, it must be assumed that demand there will be about 20% lower than in 2014. The deep recession in Russia will continue to affect the market, so demand is likely to fall sharply once again. But a significant market recovery is anticipated in India, thanks to the slightly improved economic prospects there. Demand for trucks in China is currently under pressure due to the introduction of the CN4 emissions standards (similar to Euro IV). Daimler therefore expects the market to contract significantly compared with its prior-year level.

Daimler now assumes that the market for mid-sized and large vans in Europe will grow significantly in 2015, as will the market for small vans. Significant growth is anticipated in the US market for large vans, while in China, demand is expected to be at the level of the previous year in the market addressed there. In Latin America, Daimler expects significant contraction in the market for large vans.

Daimler anticipates a market volume for buses in Europe in 2015 that is slightly above the very low level of the previous year. In Brazil, demand for buses is likely to decrease by at least 25% this year.

Outlook for the divisions
On the basis of the divisions’ planning, Daimler expects its total unit sales to increase significantly in 2015.
After the best-ever first half of a year for Mercedes-Benz Cars, unit sales should grow significantly also in full-year 2015. This will be driven in part by the new member of the compact-car family, the new generation of the A-Class. It can be ordered as of July and will be in the showrooms as of September. Another highlight in the third quarter will be the world premiere of the new C-Class Coupe in August. As part of the SUV offensive, the GLE Coupe will be followed in September by another two models: the new generation of the GLE and the GLC. The two smart models will also contribute to a significant increase in unit sales; they will be available in all key markets this year and can also be ordered with the twinamic double-clutch transmission.
Daimler Trucks anticipates a significant increase in unit sales in full-year 2015. In Western Europe, further growth is expected in investment activity, accompanied by rising demand for trucks to replace older models. The division therefore anticipates a significant positive development of unit sales in this region. Because of the coming introduction of Euro VI emission standards in Turkey in 2016, a significant number of purchases should be brought forward to the year 2015. However, the general economic situation and unfavorable financing conditions in Brazil are still depressing investment activity, so Daimler Trucks expects a significant decrease in unit sales there also in the coming months. On the other hand, along with a positive development of the overall market in the NAFTA region, unit sales in that market should be significantly higher than in 2014. The successful products should also continue to ensure market leadership in the region. In Asia, overall unit sales should be at about the same level as last year. The division expects unit sales in Japan to increase slightly. In India, due to the steadily growing BharatBenz model range and the further expansion of the dealer network, Daimler Trucks anticipates significant growth in unit sales. Furthermore, the expanded range of FUSO vehicles from Chennai should stimulate additional sales growth outside India. In Indonesia, weak demand in the market as a whole is also reflected in unit sales, which are therefore expected to continue decreasing in the full year.

Mercedes-Benz Vans plans to achieve significant growth in unit sales in 2015. In Europe, the core market, the division anticipates significant increases in sales of medium-sized and large vans. This development is likely to be primarily driven by the new Vito for commercial use and the V-Class multipurpose vehicle for private use. Both those models are now fully available following their launch in 2014. A significant increase in unit sales is anticipated also in the NAFTA region. In the context of the »Mercedes-Benz Vans goes global« strategy for the division, the Vito will be launched in North and South America this year, stimulating additional demand there. The van division aims to achieve further growth in those markets also with the Sprinter, which will be produced also in North America in the future.

Daimler Buses assumes that it will be able to defend its market leadership in its core markets for buses above 8 tons. For the year 2015, a significant decrease in total unit sales is now anticipated for market-related reasons. Unit sales are expected to fall significantly in Latin America, while we anticipate a stable development in Europe.

Daimler Financial Services anticipates significant growth in both new business and contract volume in the year 2015. This will result from the growth offensives of the automotive divisions, the specific targeting of younger customers, the expansion of business especially in Asia, and the further development of online sales channels. The division will also systematically expand its range of mobility services.

Outlook for the Group
Daimler assumes that Group revenue will increase significantly in 2015. In regional terms, the strongest growth is expected to be in Asia and North America. On the basis of the anticipated market development and the planning of the divisions, Daimler assumes that EBIT from the ongoing business will increase significantly in 2015.

For the individual divisions, the Group expects to achieve the following EBIT from the ongoing business in full-year 2015:
– Mercedes-Benz Cars: significantly above the prior-year level,
– Daimler Trucks: significantly above the prior-year level,
– Mercedes-Benz Vans: significantly above the prior-year level,
– Daimler Buses: significantly below the prior-year level, and
– Daimler Financial Services: significantly above the prior-year level.

“The development of earnings expected for the automotive divisions will also have a positive impact on the free cash flow of the industrial business in 2015,” stated Board of Management Member for Finance Bodo Uebber. Although the product and growth offensive will be continued with high levels of expenditure for property, plant and equipment and research and development, Daimler assumes that the free cash flow of the industrial business will be of the magnitude of the previous year and thus significantly higher than the dividend payment in 2015.

In order to achieve the ambitious growth targets, the already very high investment in property, plant and equipment (2014: €4.8 billion) will be increased again slightly in 2015. In addition to capital expenditure, Daimler’s position in the emerging markets will be further developed by means of targeted financial investments in joint ventures and equity interests.
With its research and development activities, the Group anticipates a total volume significantly above the previous year’s spending of €5.7 billion. Key projects include the successor models of the E-Class and the GL and GLE SUVs. In addition, Daimler is investing in all automotive divisions in new, low-emission and fuel-efficient engines, alternative drive systems, innovative safety technologies, autonomous driving and digital connectivity.

From today’s perspective, Daimler assumes that the number of employees worldwide will increase slightly compared with year-end 2014.

Special items
The special items shown in the table below affected EBIT in the second quarter of 2015 and 2014:

Source: Daimler AG