February 11, 2020 / 6:45 AM / 6 days ago

Daimler's Mercedes sales drive higher but charges put brakes on profit

STUTTGART, Germany (Reuters) - Daimler (DAIGn.DE) reported its biggest drop in annual profit in a decade on Tuesday, a 64% drop reflecting more than 5 billion euros in charges as well as investment as Mercedes-Benz pushes into electric and hybrid vehicles.

Mercedes saw record sales to retain its title as the world’s top-selling premium automaker but net profit fell to 2.7 billion euros from 7.6 billion hurt by 4.2 billion euros in charges related to diesel-related probes and legal proceedings.

To offset its extra costs Daimler is restructuring, scrapping its Mercedes-Benz X-Class pick-up truck and downsizing its mobility services unit last year, meaning further charges of 828 million and 405 million euros, respectively.

Alongside the hefty charges, the company slashed its dividend by 72% to 0.90 euros per share. The earnings had been flagged in preliminary figures on Jan. 22.

GETTING BACK ON TRACK

Kaellenius said restructuring at the vans division would deliver results this year but cautioned Daimler’s passenger car operations face a tough couple of years as the company launches electric and hybrid vehicles.

“We are going to restore the financial health of this company and take the measures we have to take to get back on track,” Kaellenius said. “Yes, it will take some time on some of the issues. There are no quick fixes.”

The 50-year-old Swede, formerly the company’s research and development chief, took over as CEO last May.

He said the carmaker was offering staff buyouts and working on next-generation models that will be less complex to produce.

Kaellenius is tasked with safeguarding Daimler’s success as the industry undergoes sweeping changes including tougher environmental rules and a costly shift to electric power.

A Mercedes-Benz "Vision URBANETIC" concept car is seen during the company's annual news conference in Stuttgart, Germany, February 6, 2019. REUTERS/Michael Dalder

That challenge is seen in Daimler’s share performance: its stock is down 12% year to date versus an 84% rise in electric car producer Tesla (TSLA.O), Refinitiv Eikon data shows.

“There is very little scope for optimism at Daimler. It will take years until margins recover to levels worthy of a premium manufacturer,” said Michael Muders, fund manager at Union Investment.

Mercedes-Benz is readying a major push into electric and hybrid cars, with the proportion of electrified vehicles in its fleet set to jump to 9% from 2% in 2020 with production of an electric A-Class, electric van and electric SUV.

Pressure is mounting on carmakers to build low emission vehicles to avert heavy European Union (EU) pollution fines as customers gravitate towards buying larger and heavier sports utility vehicles.

Mercedes-Benz’s push into electric and hybrid cars will see the proportion of electrified vehicles in its fleet jump to 9% from 2% in 2020 with the launch an electric A-Class and an electric van.

“In the medium term I am confident. 2020 and 2021 will be a challenge,” Kaellenius said about the prospect of EU fines.

FILE PHOTO: The logo of German car manufacturer Mercedes-Benz is seen at Brussels Motor Show, Belgium January 9, 2020. REUTERS/Francois Lenoir/File Photo

Mercedes-Benz is also working on developing its own software vehicle operating system, a project that will require significant investment and take up to four years to go into production, Kaellenius said.

The company said it aims to keep property, plants and equipment and R&D spending at roughly the same level as last year.

It will look for savings of more than 1.4 billion euros by the end of 2022 through cuts in administrative and personnel costs and expects a significant rise in operating profit and free cash flow this year.

“Our goal is to ensure solid net liquidity to protect the necessary investments, and at the same time to pay attractive dividends,” Chief Financial Officer Harald Wilhelm said.

Reporting by Edward Taylor and Ilona Wissenbach; editing by Michelle Martin and Jason Neely

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