Profitability. EBIT The Daimler Group achieved EBIT of 1.8 billion in 214 (213: 1.8 billion), with significant increases across all divisions in total. Compared to the previous year, there was a negative impact on Group EBIT, however, caused by a lower contribution from the reconciliation of segment EBIT to Group EBIT. B.12 B.13 This result was positively affected in particular by the new S-Class in its first full year, the expanded range of compact automobiles and better pricing at Mercedes-Benz Cars. At Daimler Trucks, increased unit sales in the NAFTA region were the main factor contributing to the significant earnings improvement in 214. The earnings posted by Mercedes-Benz Vans were also significantly higher than in the previous year, due in particular to the very positive development of unit sales. Daimler Buses achieved significantly improved earnings primarily due to strong unit sales of complete buses and a positive product mix in Western Europe. Daimler Financial Services was also able to significantly surpass its prior-year earnings as a result of increased contract volume. In all divisions, the increasing impact of the implemented efficiency programs had a positive impact on operating profit. The development of currency exchange rates had a negative impact on earnings, however. Gains recognized on the disposal of shares in Rolls-Royce Power Systems Holding GmbH (RRPSH) and on the remeasurement and sale of shares in Tesla Motors Inc. (Tesla) (less the loss on the related share-price hedges) boosted earnings by a total of 1,482 million. Expenses connected with the EU Commission s ongoing antitrust investigation of European manufacturers of commercial vehicles reduced earnings by 6 million. In the previous year, the remeasurement and sale of the remaining 7.4% of EADS shares resulted in a gain of 3,223 million. Due to the favorable business development in all divisions, Daimler was able to significantly exceed its prior-year EBIT from the ongoing business of 8. billion, achieving 1.1 billion in 214, which is in line with our expectations as stated in the Outlook section of Annual Report 213. B.12 The Mercedes-Benz Cars and Daimler Trucks divisions significantly increased their EBIT from the ongoing business in 214 and thus met the forecasts made in Annual Report 213. The same applies to the Mercedes-Benz Vans division, which achieved EBIT from the ongoing business at the prior-year level. However, the earnings of the Daimler Buses and Daimler Financial Services divisions developed better than we had expected at the beginning of 214. We had anticipated a slight improvement at Daimler Buses and stabilization at the prioryear level at Daimler Financial Services. We adjusted those assessments upwards as the year progressed in the context of our quarterly reporting. B.12 EBIT by segment EBIT EBIT from ongoing business 214 213 14/13 214 213 14/13 Mercedes-Benz Cars 5,853 4,6 +46 5,964 4,18 +43 Daimler Trucks 1,878 1,637 +15 2,73 1,753 +18 Mercedes-Benz Vans 682 631 +8 638 631 +1 Daimler Buses 197 124 +59 211 163 +29 Daimler Financial Services 1,387 1,268 +9 1,387 1,268 +9 Reconciliation 755 3,149-76 -127 9. Daimler Group 1,752 1,815-1 1,146 8,4 +27 82
B Combined Management Report Profitability The significant earnings improvement at Daimler Buses resulted primarily from increased unit sales of complete buses. The main factor behind the increased earnings at Daimler Financial Services was the very positive development of new business in combination with lower risk costs. The special items affecting earnings in the years 214 and 213 are listed in table B.14. Mercedes-Benz Cars posted EBIT of 5,853 million, which is significantly higher than the prior-year figure of 4,6 million. The division s return on sales was 8.% (213: 6.2%). B.15 The development of earnings primarily reflects the ongoing growth in unit sales, especially in Asia, Europe and the United States. This was due in particular to the new S-Class in its first full year and the expanded range of compact automobiles. Mercedes-Benz Cars also improved its earnings as a result of better pricing and the efficiency program Fit for Leadership. Adverse effects on earnings resulted from expenses for the enhancement of products attractiveness, capacity expansions and advance expenditure for new technologies and vehicles. In addition, currency translation had a negative impact. EBIT also include impairments of 3 million recognized on investments in the area of alternative drive systems. All the automotive divisions were also affected by the restructuring of Daimler s own sales organization in Germany by a total of 116 million. In this context, we refer to the information provided in E Note 5 of the Notes to the Con solidated Financial Statements. Daimler Trucks achieved EBIT of 1,878 million (213: 1,637 million), which is significantly higher than the prior-year figure. The division s return on sales was 5.8% (213: 5.2%). B.15 Significantly higher unit sales in the NAFTA region and Japan made a major contribution to the earnings improvement in 214. Lower warranty costs and the successful efficiency and growth program Daimler Trucks #1 also had positive effects. Unit sales and EBIT were adversely influenced in 214 by the weak economic situation in Latin America and Europe, as well as by the after-effects of the introduction of Euro VI emission regulations at the beginning of 214. Currency effects and expenses of 149 million for workforce adjustments in the context of optimization programs in Brazil and Germany also had a negative impact. EBIT also includes an expense of 3 million from the impairment of the carrying value of the investment in Kamaz. An additional factor is that there was no longer a contribution to earnings from RRPSH following the execution of the put option. B.13 Development of earnings In billions of euros 12 1 8 6 4 2 B.14 B.15 Return on sales In % 21 211 212 213 214 Special items affecting EBIT 21 211 EBIT Net profit (loss) 214 213 Mercedes-Benz Cars Impairment of investments in the area of alternative drive systems -3-174 Restructuring of sales organization in Germany -81 Daimler Trucks Workforce adjustments -149-116 Impairment of investment in Kamaz -3 Restructuring of sales organization in Germany -16 Mercedes-Benz Vans Reversal of impairment of investment in Fujian Benz Automotive Corp. Ltd. +61 Restructuring of sales organization in Germany -17 Daimler Buses Business repositioning -12-39 Restructuring of sales organization in Germany -2 Reconciliation Sale of shares in RRPSH +1,6 Measurement of put option for RRPSH -118-6 Remeasurement of Tesla shares +718 Sale of Tesla shares and hedge of Tesla share price -124-23 Expenses related to EU antitrust proceedings -6 Remeasurement and sale of remaining shares in EADS +3,223 212 214 213 12 9 6 3-3 -6-9 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 83
B.16 Return on equity Daimler Financial Services In % Mercedes-Benz Vans posted EBIT of 682 million in 214, a significant improvement on its prior-year earnings of 631 million. The division s return on sales increased to 6.8% from 6.7% in 213. B.15 3 25 2 15 1 5 21 211 212 213 214 Operating profit reflects the very positive development of unit sales, especially in Europe and the NAFTA region. Earnings were negatively impacted, however, by research and development expenditure for new products and by expenses for the market launch of the new V-Class multipurpose vehicle and the new Vito; currency effects had an additional negative impact on earnings. EBIT increased by 61 million following the reversal of an impairment previously recognized on an investment in the joint venture Fujian Benz Automotive Corporation (FBAC). B.17 Consolidated statement of income 214 213 1 14/13 Revenue 129,872 117,982 +1 Cost of sales -11,688-92,855 +1 Gross profit 28,184 25,127 +12 Selling expenses -11,534-11,5 +4 General administrative expenses -3,329-3,188 +4 Research and non-capitalized development costs -4,532-4,25 +8 Other operating income 1,759 1,53 +15 Other operating expense -1,16-399 +191 Share of profit from equity-method investments, net 897 3,345-73 Other financial expense, net 458-349. Interest income 145 212-32 Interest expense -715-884 -19 Profit before income taxes 1,173 1,139 + Income taxes -2,883-1,419 +13 Net profit 7,29 8,72-16 thereof attributable to non-controlling interests 328 1,878-83 thereof attributable to shareholders of Daimler AG 6,962 6,842 +2 1 The figures for 213 have been adjusted due to restructuring within functional costs. Further information is provided in Note 1 of the Notes to the Consolidated Financial Statements. B.18 Reconciliation of Group EBIT to profit before income taxes 214 213 Group EBIT 1,752 1,815 Amortization of capitalized borrowing costs 1-9 -4 Interest income 145 212 Interest expense -715-884 Profit before income taxes 1,173 1,139 1 Amortization of capitalized borrowing costs is not included in the internal performance measure EBIT, but is a component of cost of sales. Daimler Buses significantly increased its EBIT to 197 million in 214 (213: 124 million). The division s return on sales was 4.7% (213: 3.%). B.15 This earnings improvement resulted primarily from increased unit sales of complete buses and a positive product mix in Western Europe, as well as from further efficiency progress with GLOBE 213 and positive exchange rate effects. There was an opposing, negative impact from lower unit sales of bus chassis in Latin America. Although the economic situation in Brazil and Argentina was difficult and, as had been expected, the Turkish market contracted, profitability improved significantly compared with the previous year. Expenses for repositioning the division s business amounted to 12 million in 214 (213: 39 million). Daimler Financial Services posted EBIT of 1,387 million, significantly surpassing its prior-year earnings (213: 1,268 million). The division s return on equity was 19.4% (213: 19.2%). B.16 This development was primarily due to the increased contract volume and the ongoing positive development of risk costs, whereby currency effects and additional expenses in connection with business expansion were more than offset. 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. Items at the corporate level resulted in income of 713 million (213: 3,67 million), primarily related to our equity interests in RRPSH and Tesla in 214. The sale of Daimler s shares in RRPSH resulted in a gain of 1,6 million while the remeasurement of the put option resulted in an expense of 118 million. In connection with our investment in Tesla, the loss of significant influence on that company meant that the Tesla shares had to be remeasured, resulting in a gain of 718 million. The hedge of Tesla s share price and the sale of those shares resulted in total expenses of 124 million. Items at the corporate level also include expenses of 6 million related to the ongoing antitrust investigations of European manufacturers of commercial vehicles by the EU Commission. In 213, earnings were impacted in particular by Daimler s exit from the former EADS shareholder pact in April 213. This resulted in a gain of 84
B Combined Management Report Profitability 3.2 billion, mainly due to the remeasurement of the shares following the loss of significant influence on EADS ( 3.4 billion). In addition, until that date, items at the corporate level also included the proportionate earnings of the equity-method investment in EADS. Further information on the sale of the shares in RRPSH and Tesla and of the EADS shares in 213 is provided in E Note 13 of the Notes to the Consolidated Financial Statements. The elimination of intra-group transactions resulted in income of 42 million in 214 (213: 82 million). The reconciliation of Group EBIT to profit before income taxes is shown in table B.18. Consolidated statement of income The Group s total revenue increased by 1.1% to 129.9 billion in 214; adjusted for exchange rate effects, it increased by 12.1%. The revenue growth primarily reflects the strong demand for the products of Mercedes-Benz Cars, especially in Asia, Europe and the United States. Further information on the development of revenue is provided in the E Business development section of this Management Report. B.17 Cost of sales amounted to 11.7 billion in 214, increasing by approximately 9.5% compared with the previous year. The rise in cost of sales was caused by higher business volumes and consequentially higher material expenses. Personnel expenses and depreciation of leased equipment and property, plant and equipment also increased. Overall, cost of sales increased at a lower rate than revenue, so gross profit in relation to revenue increased to 21.7% (213: 21.3%). Further information on cost of sales is provided in E Note 5 of the Notes to the Consolidated Financial Statements. B.17 Due to the growth in unit sales, selling expenses increased by.5 billion to 11.5 billion. The main factors here were higher expenses for marketing and personnel. As a percentage of revenue, selling expenses decreased from 9.4% to 8.9%. B.17 General administrative expenses of 3.3 billion were slightly above the level of the previous year (213: 3.2 billion), mainly driven by higher IT and personnel expenses. As a percentage of revenue, general administrative expenses decreased slightly to 2.6% (213: 2.7%). B.17 Research and non-capitalized development costs increased by.3 billion to 4.5 billion in 214. They were mainly related to the development of new models, advance expenditure for the renewal of existing models and the further development of fuel-efficient and environmentally friendly drive systems and safety technologies. As a proportion of revenue, research and non-capitalized development costs slightly decreased from 3.6% to 3.5%. Further information on the Group s research and development costs is provided in the Research and development section of the E Sustainability chapter of this Management Report. B.17 Other operating income increased to 1.8 billion (213: 1.5 billion) and other operating expense rose significantly this year to 1.2 billion (213:.4 billion), due in particular to expenses of.6 billion related to the ongoing antitrust investigations of European manufacturers of commercial vehicles by the EU Commission. Further information on the composition of other operating income and expense is provided in E Note 6 of the Notes to the Consolidated Financial Statements. B.17 In 214, our share of profit from equity-method investments decreased to.9 billion (213: 3.3 billion). Both years were affected by large gains relating to the loss of significant influence on companies which were previously accounted for using the equity method. In 214, Daimler lost its significant influence on Tesla; the subsequent remeasurement of our Tesla shares resulted in a gain of.7 billion. In 213, Daimler lost its significant influence on EADS, which resulted in a gain of 3.4 billion. B.17 Other financial expense/income improved from an expense of.3 billion to income of.5 billion. This was primarily due to the disposal of the RRPSH shares, which resulted in a gain of 1. billion in 214. B.17 Net interest expense improved to.6 billion (213:.7 billion). Expenses in connection with pension and healthcare benefits were at the prior-year level. Other interest expense improved due to lower costs of maintaining adequate liquidity following the successive expiry of refinancing at high interest rates. There was an opposing effect from lower income from cash deposits and from the remeasurement of interest-rate hedges. B.17 The tax expense of 2.9 billion entered under income-tax expense is 1.5 billion higher than in 213. The effective tax rate for 214 was 28.3% (213: 14.%). In 214, a gain was recognized on the sale of the RRPSH shares that was largely tax free. In connection with the ongoing antitrust investigations of European manufacturers of commercial vehicles by the EU Commission, expenses arose that were not tax deductible. In 213, the gain on the remeasurement and sale of Daimler s EADS shares was largely tax free. Adjusted for those gains and losses, earnings subject to normal income taxes increased in 214 compared with the previous year, which led to a correspondingly higher tax expense. Additional factors were that gains were recognized on the reversal of impairments of deferred tax assets in 214 and that there were high tax benefits in connection with the tax assessment of previous years in 213. B.17 85
B.19 Dividend per share In euros 2.2 2.2 2.25 2.45 2.5 1.85 2. 1.5 1..5 21 211 212 213 214 Net profit for the year amounts to 7.3 billion (213: 8.7 billion). Net profit of.3 billion is attributable to non-controlling interests (213: 1.9 billion); a large portion of the prior-year amount is related to the remeasurement of the EADS shares. Net profit attributable to the shareholders of Daimler AG amounts to 7. billion (213: 6.8 billion), representing earnings per share of 6.51 (213: 6.4). B.17 The calculation of earnings per share (basic) is based on an average number of outstanding shares of 1,69.8 million (213: 1,68.8 million). B.2 Reconciliation to net operating profit 214 213 14/13 Mercedes-Benz Cars 5,853 4,6 +46 Daimler Trucks 1,878 1,637 +15 Mercedes-Benz Vans 682 631 +8 Daimler Buses 197 124 +59 Daimler Financial Services 1,387 1,268 +9 EBIT of the divisions 9,997 7,666 +3 Dividend At the Annual Shareholders Meeting on April 1, 215, the Board of Management and the Supervisory Board will propose an increase in the dividend to 2.45 per share (prior year: 2.25). With this proposal, we are letting our shareholders participate in the Company s success while expressing our confidence about the ongoing course of business. The total dividend will thus amount to 2,621 million (prior year: 2,47 million) and the distribution ratio will be 37.6% of the net profit attributable to the Daimler shareholders (prior year: 35.2%). B.19 Income taxes 1-3,74-1,642 +87 Other reconciliation 755 3,149-76 Net operating profit 7,678 9,173-16 1 Adjusted for tax effects on interest income/expense and amortization of capitalized borrowing costs. B.21 Value added 214 213 14/13 Daimler Group 4,416 5,921-25 Mercedes-Benz Cars 3,799 2,7 +89 Daimler Trucks 761 369 +16 Mercedes-Benz Vans 473 445 +6 Daimler Buses 79-4. Daimler Financial Services 457 49 +12 Net operating profit Table B.2 shows the reconciliation of the EBIT of the divisions to net operating profit. In addition to the EBIT of the divisions, net operating profit also includes earnings effects for which the divisions are not accountable such as income taxes and other reconciliation items. Value added As described in the Performance measurement system section of the E Corporate Profile chapter in table B.3, the cost of capital is the result of net assets and cost of capital expressed as a percentage, which is subtracted from earnings in order to calculate value added. The tables B.21 and B.22 show value added and net assets for the Group and for the individual divisions. Table B.23 shows how net assets are derived from the consolidated statement of financial position. The Group s value added amounted to 4.4 billion in 214 (213: 5.9 billion), representing a return on net assets of 18.8% (213: 22.6%). This was once again substantially higher than the minimum required rate of return of 8%. Value added in the previous year was influenced in particular by the remeasurement and the sale of the remaining EADS shares. 214 was also affected by special items from the sale of the 5% equity interest in RRPSH and from the remeasurement and sale of the Tesla shares. Adjusted for these one-time effects, the Group s value added increased in 214 primarily due to the favorable business development of all divisions. 86
B Combined Management Report Profitability The value added of Mercedes-Benz Cars increased by 1.8 billion to 3.8 billion. This was mainly the result of the positive development of earnings caused by the ongoing growth in unit sales, the expanded product range and the positive efficiency measures of the Fit for Leadership program. There were opposing, negative effects on value added from expenses relating to the enhancement of products attractiveness, capacity expansions and advance expenditure for new technologies and vehicles. The division s average net assets increased only slightly by.5 billion. Value added at Daimler Trucks more than doubled compared with the previous year and reached.8 billion. This was due not only to higher earnings resulting from significant growth in unit sales in the NAFTA region and Japan, lower warranty costs and the successful implementation of the Daimler Trucks #1 growth and efficiency program, but also to the reduction in average net assets following the sale of the 5% equity interest in the associated company RRPSH. Mercedes-Benz Vans value added of.5 billion was slightly higher than in 213. Higher earnings were achieved due in particular to the very positive development of unit sales. On the other hand, average net assets increased by.2 billion to 1.7 billion, primarily as a result of increased fixed assets and the rise in the carrying value of Daimler s interest in the Chinese joint venture FBAC following the reversal of a previous impairment. The Daimler Buses division achieved positive value added of 79 million in 214 (213: negative 4 million). This was mainly the result of improved earnings due to increased unit sales of complete buses and the positive product mix, as well as ongoing efficiency progress. Average net assets slightly decreased by 86 million and made a minor contribution to the increase in value added. Daimler Financial Services value added of.5 billion was higher than in 213. The division s return on equity amounted to 19.4% (213: 19.2%). The development of value added primarily reflects the increase in EBIT due to the growth in contract volume and the ongoing positive development of risk costs. Average equity rose by.5 billion to 7.2 billion. B.22 Net assets (average) 214 213 14/13 Mercedes-Benz Cars 17,114 16,658 +3 Daimler Trucks 9,313 1,571-12 Mercedes-Benz Vans 1,742 1,547 +13 Daimler Buses 982 1,68-8 Daimler Financial Services 1 7,154 6,67 +8 Net assets of the divisions 36,35 36,451 - Equity-method investments 2 618 638-3 Assets and liabilities from income taxes 3 2,7 2,479 +9 Other reconciliation 3 1,156 1,8 +7 Daimler Group 4,779 4,648 + 1 Total equity 2 To the extent not allocated to the segments 3 Industrial business B.23 Net assets of the Daimler Group at year-end 214 213 14/13 Net assets of the industrial business Intangible assets 9,144 9,228-1 Property, plant and equipment 23,125 21,732 +6 Leased assets 14,374 13,27 +9 Inventories 2,4 16,648 +2 Trade receivables 7,824 7,28 +9 Less provisions for other risks -13,42-11,382 +18 Less trade payables -9,852-8,778 +12 Less other assets and liabilities -22,438-15,983 +4 Assets and liabilities from income taxes 3,981 1,878 +112 Total equity of Daimler Financial Services 7,617 6,596 +15 Net assets 4,359 4,354 + 87