Global growth

German blue chips post record profits, thanks to Trump and China

Mercedes-Benz steigert Absatz in der EU
Profits keep rolling off the assembly line, Source: DPA

You could almost hear the sound of champagne corks popping in executive suites all over Germany.

For the 30 companies in the blue-chip DAX stock index, 2017 was a terrific year. The 30 firms increased profits by 17 percent, had record-setting sales and managed to hire 135,000 more workers. And most of them have Donald Trump to thank.

According to an analysis by auditing firm EY, the DAX-listed companies had combined sales of €1.3 trillion ($1.6 trillion) last year, 5 percent more than in 2016, and the highest revenue total ever recorded. Although net profits were still being calculated, earnings before interest and taxes rose to €133 billion, also a record for German companies.

“For most German companies, operations are going well to very well.”

Mathieu Meyer, head of audit for EY

“For most German companies, operations are going well to very well,” said Mathieu Meyer, head of audit for EY in Germany. “This is the result of good economic developments in Germany and neighboring European countries, but also from rising demand in North America and China.”

In addition, President Donald Trump gave most of the 30 companies a huge Christmas gift in the form of a late-year tax cut, with corporate tax falling from 35 to 21 percent for those firms with businesses in the US.

As a result, carmaker Daimler saved around €1 billion in taxes, while Deutsche Telekom, majority owner of the highly profitable T-Mobile cellphone service, saved €1.7 billion.

In addition to the Trump tax cuts, the strong global economy helped power the entire DAX 30 ahead, thanks to the fact that most big German companies derive the bulk of their earnings from exports. The DAX index gained 12 percent in 2017.

Business in Asia performed the best, with sales up 9 percent. Companies now have about 20 percent of their sales in Asia, while Europe accounts for just over half of all sales. Sales increased about 6 percent in Europe and in North America. In fact, it’s been a decade since all three regions grew at the same time.

Despite a widening scandal in Germany over diesel exhausts, the car industry was Germany’s biggest profit machine. Daimler, the maker of Mercedes-Benz cars, was the most profitable, with EBIT of €14.7 billion, followed by Volkswagen at €13.8 billion and insurer Allianz at €11.1 billion.

One outstanding performer was Lufthansa, Germany’s flag carrier. The airline’s pre-tax profits soared by 70 percent to nearly €3 billion, thanks in part to the midyear declaration of bankruptcy by its main German rival, Air Berlin. Lufthansa ended up taking over many of Air Berlin’s aircraft and routes.

Ulf Sommer covers finance and business news for Handelsblatt. This article was adapted into English by Charles Wallace, an editor at Handelsblatt Global in New York. To contact the author: sommer@handelsblatt.com.

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