German Industry

Secrets of a Boom Year

  • Why it matters

    Why it matters

    After quite a few relatively stagnant years for profits amid Europe’s debt crisis, this could be the year that German listed companies finally break through. That could offer opportunities for investors, too.

  • Facts

    Facts

    • An unexpected boost has come from the euro zone, which grew more than twice as fast as the US economy in the first quarter.
    • Europe is still the main sales market for German export-oriented companies, accounting for about 50 percent of earnings on average.
    • Some chief executives have been reluctant to raise their forecasts anyway, pointing to macroeconomic and political uncertainties.
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    Audio

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festal night
Fireworks over Germany's industrial heartland. Source: Getty Images

Matthias Zachert couldn’t believe his eyes when he saw the numbers. The head of German special chemicals group Lanxess had rarely seen such rapid growth. He reported that demand was “abnormally high in some cases, as in Asia.” This resulted in a record quarter for Lanxess, with sales up 25 percent to €2.5 billion ($2.78 billion), while pre-tax profit soared by 72 percent to €160 million.

The Cologne-based company’s experience is similar to many other German corporations this year. Business is booming: Handelsblatt has calculated that the 30 companies listed on the blue-chip DAX stock index have recorded average sales growth of 10 percent, while pre-tax profits have risen by an average of 16 percent. If banks and insurers such as Deutsche Bank and Allianz are included, profits of DAX-listed companies were up about 10 percent on average. In total, the 30 companies on the index earned €37 billion before interest and taxes in the first quarter, an record figure.

Part of the explanation lies in some suprisingly strong growth numbers that are propping up German exporters: “DAX companies are currently benefiting from the economic recovery in Europe and the positive developments in the Chinese market,” said Mathieu Meyer, a managing partner at accounting firm EY.

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