Profitability weighed down by increasingly difficult market environment
Interim Report as of June 30, 2012 – Q2 2012
The MAN Group’s figures for the first six months of 2012 were below those for the prior-year period. This was due primarily to the continuing extremely muted state of the global economy and uncertainty among many customers in view of the European debt crisis. Many investments in new commercial vehicles and machinery are being postponed, while the financing conditions for major projects such as those in Power Engineering have become more difficult.
Demand for trucks and buses declined particularly clearly in Central and Southern Europe — key markets for the commercial vehicles business. For example, the overall commercial vehicles market in Spain and Italy, two states that have been hit hard by the euro crisis, contracted by 25% and 40% respectively. Clear buyer reluctance is also being felt in Germany — an extremely important market for MAN Truck & Bus.
The introduction of new emissions standards on the key Brazilian market was a further hurdle heavily influencing the drop in demand for trucks and buses, along with the decline in economic growth in this country as well. MAN, too, was not immune to these overall economic conditions.
Nevertheless, we managed to keep order intake in the Commercial Vehicles business area more or less constant in the first six months of the year. Although orders received by MAN Latin America in H1/2012 declined by 22% to €1.4 billion, MAN Truck & Bus recorded a 5% rise over the same period, to €5.0 billion. The market decline in Europe was offset by strong growth in Russia and other regions outside of Europe, although margins were lower in part. Nevertheless, this shows once again that the decision to systematically focus MAN on the international markets was the right one.
Order intake in the Power Engineering business area fell by 14% to €2.0 billion. Orders at MAN Diesel & Turbo declined by 16%, whereas Renk saw a 7% rise in order intake in the first half of the year. This results in an order intake of €8.3 billion at the level of the MAN Group in the first half of 2012, a drop of 6%.
The MAN Group’s revenue in the first six months of 2012 was almost stable. At €7.7 billion, it was down approximately 3% on the figure for the prior-year period. This is due to the 5% drop in revenue in the Commercial Vehicles business area to €5.8 billion; by contrast, Power Engineering revenue recorded a positive trend, rising 3% to €2.0 billion.
Operating profit in the first half of 2012 was unsatisfactory at €471 million, compared with €762 million in the prior-year period. This decrease was primarily due to the Commercial Vehicles business area, where operating profit dropped to €211 million in the first half of 2012.
The Power Engineering business area again proved to be a source of stability, generating operating profit of €239 million and a return on sales of 12%. The Power Engineering business area generated a double-digit return on sales for what is now the sixth time in a row, contributing significantly to the success of the Company as a whole.
We did not change our strategy of continual investment in the MAN Group’s international growth despite the difficult market situation. We established ourselves on new markets and expanded existing ones. This growth strategy is what now permits us to offset cyclical declines in unit sales in Europe with increased sales in other regions. We have made strategic investments in future growth opportunities in recent years, as can clearly be seen from our figures.
We are not satisfied with our operating result and have already taken the appropriate countermeasures. We have naturally adjusted production to match the decline in demand. For example, our flexible manufacturing structures allowed us to react extremely rapidly to changing market conditions in Brazil. Major investments throughout the Group are being spread over longer periods and we are focusing closely on cost management. At MAN Truck & Bus, we have resolved to implement a broad-based hiring freeze. We are convinced that we now have the right team on board to continue our success in the future.
To ensure that we achieve our goal, we are continuing our focus on innovation. We will present our latest truck and bus product highlights at the IAA. Among other things, we will unveil the new TG series with its innovative Euro VI technology, which is a standard-setter in the areas of reliability, efficiency, and performance. The Buses business will see the world premiere of the new NEOPLAN Jetliner. In addition, the MAN Metropolis presents our vision of a fully electric, zero-emissions hybrid truck for municipal use. The central importance that we attach to emissions can also be seen from our climate strategy. We aim to reduce CO2 emissions at MAN’s production facilities by 25% in the period up to 2020.
Turning back to the more immediate future and our key economic data, we are continuing to expect that revenue in the Commercial Vehicles business area will decline slightly by up to 5% in the current fiscal year, with the European commercial vehicles market contracting by 5% to 10%. This is set to continue being cushioned by higher sales in Russia and other regions outside of Europe among other things. In the Power Engineering business area, the medium- and long-term growth trends in the energy and industrial markets remain intact. As a result, we are continuing to expect 5% revenue growth year-on-year and a return on sales that is once again clearly in double digits. We are still anticipating a slight decline in revenue for the MAN Group as a whole, with the return on sales decreasing to approximately 6%.
Dr.-Ing. Georg Pachta-Reyhofen
Chief Executive Officer of MAN SE