Annual Report 2016

Profitability

The development of profitability was affected in financial year 2016 by the decrease in operating profit by €0.7 billion to €1.9 billion, as well as by the increase in financial income by €3.4 billion to €5.4 billion. (See B.36)

B.36 Condensed income statement of Daimler AG

  2016 20151
In millions of euros    
     
Revenue 107,178 103,024
Cost of sales (including R&D expenses) -96,271 -92,080
Selling expenses -6,454 -6,695
General administrative expenses -1,844 -1,622
Other operating expense, net -749 -46
Operating profit 1,860 2,581
Financial income, net 5,430 2,074
Income taxes -1,422 -900
Net profit 5,868 3,755
     
Transfer to retained earnings -2,391 -278
     
Distributable profit 3,477 3,477

1 Information on reclassifications in 2015 is presented in the annual financial statements of Daimler AG.

Revenue increased due to higher unit sales of vehicles and components by €4.2 billion to €107.2 billion and was thus higher than our expectations as stated in the Outlook section of last year’s Annual Report. For the reasons stated above, revenue in the car business increased by 4 % to €81.8 billion. Also in the commercial-vehicles business, higher unit sales of vehicles and components caused revenue to grow by 5 % to €25.4 billion. Daimler AG significantly increased its unit sales in 2016, as forecast in the previous year.

The earnings achieved by the car business were lower than in the previous year, primarily due to increased expenditure for new products and technologies. On the other hand, ongoing growth of unit sales in Europe and China had a positive impact on earnings. Unit sales in the car business increased by 5 % to 1,807,000 vehicles1. The SUV segment was particularly successful in 2016, with a 24 % increase in sales to 553,000 units1. The C-Class segment recorded growth of 4 % to 375,000 units1. Due to the lifecycle of the S-Class, sales of 79,000 (2015: 110,000) units in this segment were lower than in the previous year.

Earnings from trucks and vans were higher than in 2015. Sales of trucks amounted to 101,000 (2015: 102,000) units1 and sales of vans increased by 15 % to 339,000 units1.

1 Unit sales relate solely to new vehicles. The unit sales of Daimler AG include vehicles invoiced to companies of the Group which have not yet been sold on to external customers by those companies. Vehicle sales by production companies of the Daimler Group to external customers and subsidiaries of Daimler AG are not counted in unit sales.

Cost of sales increased by 5 % to €96.3 billion. Increases in unit sales and expenses for new products and technologies led to higher cost of sales. Research and development expenses, which are included in cost of sales, were higher than in the previous year at €6.6 billion (2015: €5.6 billion); as a proportion of revenue, they amounted to 6.1 % (2015: 5.4 %). Research and development expenses were primarily related to the renewal and expansion of the product portfolio, especially with regard to the model series of the compact class, the SUVs and the successor model of the Sprinter. In addition, work is continuing on new generations of engines and alternative drive systems. At the end of the year, approximately 19,000 people were employed in the area of research and development.

Selling expenses decreased by €0.2 billion to €6.5 billion. This was primarily due to lower personnel expenses in connection with restructuring the sales-and-service centers and the associated workforce reductions. As a proportion of revenue, selling expenses decreased from 6.5 % to 6.0 %.

General administrative expenses of €1.8 billion were slightly above the prior-year level (2015: €1.6 billion). In relation to revenue, they amounted to 1.7 % (2015: 1.6 %).

Other operating expense amounted to €0.7 billion (2015: €0.0 billion). The change was mainly the result of expenses of €0.4 billion relating to legal proceedings. (See B.36)

Financial income increased by €3.4 billion to €5.4 billion, primarily due to improved interest income/expense, net. This is mainly a reflection of a lower interest expense from retirement benefit obligations, following a change in the law on calculating the discount rate as the average market interest rate for the past ten years instead of the past seven years. Financial income was also affected by higher income from special-purpose assets for the settlement of pension obligations. There were opposing effects from increased impairments of investments in subsidiaries and associated companies. This relates in particular to Mercedes-Benz do Brasil Ltda. and Daimler India Commercial Vehicles Private Limited.

The income tax expense amounts to €1.4 billion (2015: €0.9 billion). In 2015, the figure included high tax benefits in connection with the tax assessment of previous years. The increase in the tax expense compared with 2015 is due in particular to the decrease in these tax benefits from previous years.

Net profit increased from €3.8 billion to €5.9 billion, and was thus in line with the expectations stated in the Outlook section of last year’s Annual Report. The development primarily reflects the improved financial income, which was partially offset by lower operating profit.

The economic situation of Daimler primarily results from its business operations and those of its subsidiaries. Daimler AG participates in the operating results of its subsidiaries through profit distributions. The economic situation of Daimler AG is therefore fundamentally the same as that of the Daimler Group, which is described in the chapter “Overall Assessment of the Economic Situation.” (See Economic Situation)

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