MAN has reported a significant fall in earnings in Q3 as commercial vehicle markets in Europe and Latin America continue to be challenging and the VW Group company remains very cautious concerning developments in coming quarters.
In its outlook for the remainder of the year, MAN has acknowledged that the situation in the European commercial vehicles market remains difficult and that the company is currently expecting a contraction of up to 10%. According to the company, this has now been compounded by a slowdown in the markets outside of Europe that are relevant to MAN Truck & Bus. Profitability at MAN Truck & Bus is being weighed down by changes to the country and product mix, high pressure on margins, and increased costs. The introduction of the Euro V emission standard, worsening economic conditions, and tougher financing conditions are, in addition, dampening MAN Latin America’s revenue and earnings, although the region is continuing to make a positive contribution to profitability. Overall, MAN is expecting to see a decline in revenue in its Commercial Vehicles business area of somewhat more than 5% and margin of around 4% in the current year.
MAN has reported that its Commercial Vehicles (CV) unit, comprising the MAN Truck & Bus and MAN Latin America businesses, generated revenue of €2,868m in the quarter ended 30 September 2012, down 7.8% from the €3,111m seen in the same quarter of 2011. The latest year-to-date total was €8,664m, down 5.7% from the January-September 2011 total of €9,189m.
MAN Truck & Bus reported Q3 revenue of €2,187m, versus €2,158m, a decline of 1.3%, with vehicle sales down 2.5% at 20,035, compared with 20,548. Despite the Q3 fall, the January-September revenue total was €6,559m, versus €6,420m, an increase of 2.2%, with unit sales up 0.2% at 59,859 (59,751).
Revenue in the Trucks business in the year-to date period rose 4% to €5,638m (previous year: €5,409m) and unit sales increased slightly year-on-year to 56,474 vehicles (previous year: 55,781). Positive developments in Russia and in other regions outside of Europe offset the decline in the European commercial vehicles market in the first nine months of 2012. In particular, Germany, Turkey, and the UK saw a decline in unit sales. The Trucks business in Europe had a claimed market share of 17.3% (previous year: 17.9%) in the first nine months of the year.
Revenue in the Buses business declined by €90m (to €921m from €1,011m) in the period up to the end of September 2012 compared with the prior-year period. This mainly related to coaches in Turkey and the chassis business in France and Spain.
MAN Latin America reported Q3 2012 revenue of €681m, down 28.5% from the €953m reported in the same quarter of the previous year, with vehicle sales totalling 12,869 (18,660). The company acknowledged that the ongoing difficult economic environment worldwide and the introduction of the Euro V emission standard in Brazil negatively impacted the business. Vehicle sales by MAN Latin America dropped to 41,428 vehicles in the first three quarters of 2012, compared with 55,133 in the prior-year period, which was influenced by advance purchases of Euro III vehicles. The company noted that production volumes at the Resende plant were adjusted in line with this. Revenue in the first nine months of 2012 was €2,105m, down just under 24% from the Q3 2011 total of €2,769m.
MAN’s overall CV business saw a substantial fall in profitability in the latest quarter, operating earnings declining 56.2% to €96m (margin of 3.3%) from €219m (7.0%) in Q3 2011. Year-to-date operating profit was €307m (3.5%), down 55.8% from the January-September 2011 total of €694m (7.6%).
MAN Truck & Bus reported Q3 2012 operating profit of €51m (margin of 2.3%), down 56.4% from the €117m (5.4%) total seen in Q3 2011.
Operating profit in the first nine months of 2012 was also significantly lower than the prior-year figure, at €132m (€391m). This corresponded to a margin of 2.0% (6.1%). The Trucks business recorded an operating profit of €158m (€386m), a fall attributed to the weak European commercial vehicles market and the resulting pressure on margins. Declining unit sales figures in Europe were largely offset by increased sales in other regions. However, this led to changes in the country and product mix with lower margins on average – a development that continued in the third quarter. The year-to-date operating loss in the Buses business was €30m (profit of €5m) due to volume-related factors. In addition, MAN Truck & Bus expanded its sales and service, R&D, and quality functions, among others, leading to an increase in costs.
MAN Latin America saw operating profit in the latest quarter drop 55.9% year-on-year to €45m (6.6%) from €102m (10.7%), taking the total in the first nine months of 2012 to €175m (8.3%), from €303m (10.9%). The decline was mainly attributed to lower revenue and more intense pressure on margins.
The order intake at MAN Truck & Bus totalled 14,093 in Q3 2012, compared with 18,264 in Q3 2011, a drop of 23%, with truck orders down 24% at 12,877 and bus orders down 12% at 1,216. This overall drop in intake represented an acceleration in the order decline compared to preceding quarters, the year-to-date decline being just 3% (60,222, versus 61,810), with truck orders down 2% at 56,238 (57,391) and bus orders down 10% at 3,984 (4,419).
Specifically regarding the outlook for MAN Truck & Bus, MAN says the situation in the European commercial vehicles market remains difficult. In addition, the relevant markets for the business outside of Europe are now also showing signs of easing. The markets are not expected to recover in the short term. The management of MAN Truck & Bus expects revenue in fiscal 2012 to be on a level with the previous year but the margin will be significantly lower. The company added: “MAN Truck & Bus will systematically work on sustainably increasing its earnings quality in an increasingly difficult market environment with increasingly fierce competition. To achieve this, comprehensive measures have already been taken to cut costs, increase efficiency, and introduce more flexibility into production.”
The order intake at MAN Latin America totalled 12,869 units in Q3 2012, down from 18,660 in Q3 2011, taking the year-to-date total to 41,428 (55,133).
With regard to the outlook, the company has noted that the Brazilian government has introduced a variety of fiscal stimulation measures since the beginning of the year, with an investment support programme extended until the end of 2013. In addition, key interest rates have been cut further, and a plan announced to buy 8,000 trucks and 8,570 school buses. Additional incentives designed especially for the commercial vehicles sector, comprising subsidised finance and tax cuts, were introduced starting in mid-September and according to MAN these were already helping to stimulate a market recovery towards the end of Q3.
The management of MAN Latin America is expecting a significant decline in full-year revenue, in spite of more positive prospects for Q4. The margin is forecast to remain roughly at the level seen in the first nine months, assuming no significant change in exchange rates.
