On the basis of the anticipated market development and the current assessments of the divisions, Daimler assumes that Group EBIT in 2019 will be significantly lower than in the previous year.
On the basis of the assumptions for the development of the markets important for us and of the divisions’ current assessments, Daimler expects its total unit sales to be in the magnitude of the year 2018.
We assume that Group revenue will grow slightly in 2019.
At Mercedes-Benz Cars, revenue should be positively impacted in 2019 above all by the new A-Class and B-Class, as well as by the G-Class and the GLE. On the other hand, expected exchange-rate developments and lifecycle effects for some car models as well as a changed sales structure will have a dampening effect on revenue. Against this background, Mercedes-Benz Cars anticipates a revenue at the prior-year level.
Due to generally favorable market conditions and positive sales expectations, the divisions Daimler Trucks and Mercedes-Benz Vans anticipate slight revenue growth. Daimler Buses expects a significant growth in revenue. Daimler Financial Services anticipates a slight increase.
The expected decrease in earnings will be partially reflected in the free cash flow of the industrial business. There will also be a negative effect from continuing high advance expenditure for new products and technologies. In addition, there will be costs for Project Future for the implementation of the new Group structure. Under these conditions, we now assume that the free cash flow of the industrial business will be significantly below the previous year.
On June 23 and July 12, 2019, Daimler AG reassessed its earnings expectations for the 2019 financial year for the Mercedes-Benz Vans and Mercedes-Benz Cars divisions and for the Group. The main reasons for the reassessment are an increase in the expenses anticipated for various ongoing governmental and court proceedings and for measures taken with regard to Mercedes-Benz diesel vehicles, an updated risk
assessment relating to provisions for an extended recall of Takata airbags in Europe and other parts of the world, and a decision to review and prioritize the product portfolio of the Mercedes-Benz Vans division. In addition, the earnings outlook has been reassessed due to slower production ramp-ups in 2019 and lower-than-expected growth in automotive markets.
Our second quarter results were mainly impacted by exceptional items of 4.2 billion euros. Therefore, our focus for the second half of this year is on improving our operating performance and cash-flow generation. In general, we are intensifying the Group-wide performance programs and reviewing our product portfolio in order to safeguard future success. At the same time, we are continuing consistently our company transformation.
The individual divisions have the following expectations for returns in the year 2019:
- Mercedes-Benz Cars: return on sales of 3% to 5%
- Daimler Trucks: return on sales of 7% to 9%
- Mercedes-Benz Vans: return on sales of minus 15% to minus 17%
- Daimler Buses: return on sales of 5% to 7%
- Daimler Financial Services: return on equity of 17% to 19% expected return on sales for the current financial year.
Our sales development will be significantly affected by the lifecycles of certain model series. Overall, Mercedes-Benz Cars intends to launch more than a dozen new and upgraded models in 2019. There should be a positive impact on unit sales above all from our new compact cars, including the new B-Class, the A-Class sedan and the new GLB, which is the eighth model in the compact-car segment.
We continue to expect sales stimulus also in the high-growth segment of SUVs. Contributions are likely to come from the new GLE and the new GLS, as well as from the upgrade of the popular GLC. Mercedes-AMG should continue to be a guarantee for our success in the high-performance segment in 2019: More and more customers are enthusiastic about the attractive and wide range of vehicles offered by our sports-car and performance brand, which we are continuously developing further.
The battery-powered smart models make entry into electric mobility more attractive than ever before. They combine the agility of the smart with local emission-free driving – the ideal combination for urban mobility.
In the NAFTA region, we expect to slightly increase our unit sales compared with 2018. In the EU30 region and Japan, we assume that our sales will be roughly at the prior-year level.
In Brazil, we expect our sales volumes to significantly surpass the low level of the previous year. We expect our unit sales in India also to exceed the prior-year level.
The anticipated significant decline in unit sales in Turkey will continue to reflect the considerable economic uncertainty in the country. We expect our unit sales to decrease also in Indonesia.
Growth in unit sales in the EU30 region and the United States is offsetting decreases in other regions such as Russia and Turkey. Sales are developing positively in particular of the new Sprinter, which was launched in mid-2018.
Daimler Buses expects to maintain its market leadership in its most important traditional core markets for buses above eight tons. For the year 2019, we anticipate significant growth in total unit sales. We assume that unit sales will increase slightly in the EU30 region and significantly in India. In Latin America (excluding Mexico), unit sales are expected to be slightly higher than in 2018.
This will be driven primarily by the development of unit sales in the vehicle divisions. In addition, we will utilize new market potential through efficiency enhancements in the traditional sales channels and the development of new digital possibilities for customer contacts and in fleet management.
Investment, R&D expenditures and size of the workforce
In order to achieve our ambitious growth targets, our investment in property, plant and equipment should once again be at a very high level, although slightly lower than in the previous year (2018: €7.5 billion). Mercedes-Benz Cars is continuing its product offensive in 2019. Extensive investment is also planned for the realignment of our German production sites, the expansion of our international production network, and the worldwide production network for electric mobility. In addition, the division is investing in the technological fields of the future.
Daimler Trucks’ capital expenditure in 2019 is primarily for new products and successor generations of existing products, global component projects and the optimization of the worldwide production and sales network.
With our research and development activities, we will once again slightly increase the high expenditure of the previous year (2018: €9.1 billion). At Mercedes-Benz Cars, a large proportion of this is being invested in the renewal of the product portfolio. The most important individual projects here are the successor models for the C-Class and S-Class, the new compact cars, and the expansion of the model range of the EQ product and technology brand. We are also working intensively on new, low-emission combustion engines, electric mobility, the connectivity of our vehicles, and innovative safety technologies for automated and autonomous driving.
Automated driving, electric mobility and connectivity also play an important role at Daimler Trucks. Further important areas are the successor generations for existing products, fuel efficiency and emission reductions, as well as tailored products and technologies for important growth markets.
Against the backdrop of further efficiency progress within the framework of the medium- and long-term measures for structural improvements in our business processes, we assume that our growth targets can be achieved with only a slight increase in the size of the workforce.
With the guidance for the 2019 financial year, for forecasting the profitability of the divisions, Daimler changed over to using return on sales instead of EBIT for the automotive divisions and return on equity for Daimler Financial Services. This creates a link between our expectations for the current financial year and our strategic targets.
Divisional return on sales and return on equity are forecast on the basis of bandwidths.
For the Daimler Group’s EBIT, we retain the current method of a comparative forecast; however, we adjusted the forecast sensitivities:
- The forecast “at the prior-year level” represents a change compared with the prior-year figure of -5% to +5%.
- The forecast “slightly above/below the prior-year level” represents a change compared with the prior-year figure of > +/-5%.
- The forecast “significantly above/below the prior-year level” represents a change compared with the prior-year figure of > +/-15%.
In addition, for both the Group and the divisions, we adjusted the forecast sensitivities for the less volatile reporting parameters unit sales and revenue as follows:
- The forecast “at the prior-year level” represents a change compared with the prior-year figure of -2% to +2%.
- The forecast “slightly above/below the prior-year level” represents a change compared with the prior-year figure of > +/-2%.
- The forecast “significantly above/below the prior-year level” represents a change compared with the prior-year figure of > +/-7.5%.