Blue-chip results

DAX the Way to Do It

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Adidas and Siemens (r) are enjoying a very good 2016, while Deutsche Post and Daimler have been battling stagnation and export losses.
  • Why it matters

    Why it matters

    Overall, first-half results show the 30 DAX firms are more than weathering the economic storm despite exports being badly hit.

  • Facts


    DAX firms increased their operating profits by €38 billion ($42.5 billion) to €65.8 billion in the first half of the year.

    The improvement in profits at several firms such ThyssenKrupp and Siemens has attributed to drastic restructuring measures.

    But many firms, such as Deutsche Bank, Daimler and BASF have been hit by falling exchange rates and exports.

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It’s been a tough summer for German firms. The weak global economy, the dismal void left by the Brexit vote and unfavorable currency effects have been making things difficult for weeks.

Several geopolitical crises and terrorist attacks in major European cities have only added more angst. Yet managers at German corporations are showing no signs of gloom.

A number of groups have recently raised their annual forecasts, including pharmaceuticals giant Bayer, health care specialist Fresenius, automotive supplier Continental and electronics titan Siemens. They were followed on Thursday by Henkel, the consumer products and industrial group.

These upward revisions have been made possible by lengthy and costly restructuring measures that have ultimately proved successful as well as a focus on lucrative and high-margin areas of business.

Half-year results from all of Germany’s 30 biggest listed companies, the behemoths that make up the blue-chip DAX index, are now in. They show that the firms increased their operating profits slightly by €38 billion ($42.5 billion) to €65.8 billion in the first half of the year. At the same time, total sales fell by about 1 percent to €326 billion. That means a little more quality for a little less quantity, with the operating margin rising to 9.7 percent.

“We're on top form, 2016 will be a record year.”

Herbert Hainer, CEO, Adidas

“DAX companies held up well in the second quarter,” said Mathieu Meyer, a senior executive at management consultancy EY. Thanks to the economic recovery in Europe and the continuing positive market situation in North America, most companies performed extremely well in their operating business, although very low interest rates are placing a strain on banks and insurers. Germany’s two biggest banks, Deutsche Bank and Commerzbank, and insurance companies Allianz and Munich Re reported a drop in profits.

The positive effect of this is that extremely low interest rates are likely to boost consumer spending and thus ensure strong domestic demand in the coming months not just in Germany, but around the world. In all highly developed industrial nations where German companies sell their products, central banks are cutting interest rates close to zero.

Companies such as Bayer, Continental, Fresenius and software specialist SAP, which have been growing for years and have posted one record profit after another, are benefiting from the fact that a large proportion of their sales come from booming foreign markets.

However, a greater surprise has come from companies that have often simply stagnated in recent years or have suffered a decline due to competitive pressure, such as postal operator Deutsche Post, building materials group HeidelbergCement, industrial gases specialist Linde, airline Lufthansa, sports goods company Adidas and semiconductor manufacturer Infineon. All of these companies saw a year-on-year increase in profit in the first two quarters of 2016.

“We’re in top form; 2016 will be a record year,” said Adidas chief executive Herbert Hainer, who has raised his forecast four times in the past six months. The group’s operating profit grew almost 60 percent to €904 million in the first half of this year, with sales climbing in all major markets, including a rise of more than 30 percent in China, North America and Western Europe.

This robust profit development is all the more astonishing in view of fluctuating and unfavorable exchange rates. The euro gained almost 10 percent year-on-year against sterling and the Chinese yuan in the second quarter, while rising 5 percent against the Swiss franc and 2 percent against the U.S. dollar.

This has a detrimental impact on companies that depend heavily on exports. Carmaker Daimler lost almost €800 million in sales in the second quarter due to the strong euro, while chemicals giant BASF saw sales decline by €570 million and Bayer recorded a drop of €460 million.

However, increasing volatility in many sales markets and in currencies and raw material prices, coupled with rapid technological progress, are prompting more companies to implement drastic restructuring programs.

German personal-care products manufacturer Beiersdorf, for example, has revamped its cosmetics division, selling off individual brands and focusing on a few high-margin skincare products. Steel and industrial group ThyssenKrupp is seeking a partnership with Indian rival Tata in its European steel business to reduce surplus capacity in a market where prices continue to fall.

“We’re starting to see the first improvements in commodities and materials prices,” ThyssenKrupp chief Heinrich Hiesinger said on Thursday. “That will have a positive impact on the further development of profits.”

Meanwhile, chemicals and pharmaceuticals group Merck is busy integrating the biggest acquisition in the company’s history, U.S. laboratory equipment manufacturer Sigma-Aldrich. The Life Science division in particular is enjoying strong demand from the biotech industry, prompting Merck to raise its annual forecast for its operating profit, which it now expects to be up around 20 percent year-on-year.

Siemens recorded EBIT growth of 18 percent to €1.85 billion in the second quarter, while the order intake for the first nine months of the group’s financial year, which runs to September, rose by 12 percent to a record level of €116 billion. Joe Kaeser, head of the group, has raised his profit forecast for the second time this year.

This is due not only to the company’s good results but also to the success of the restructuring program it launched in 2014, which involves a move toward more streamlined structures and the sale of divisions no longer regarded as core business.

However, restructuring is far from complete at many companies. “There is a clear trend away from conglomerates and towards more focused business models,” said EY’s Mr. Meyer. To achieve this, many companies are willing and able to spend large sums on acquisitions.

Henkel, for example, recently paid €3.6 billion for Sun Products, a U.S. detergent manufacturer. The deal has pushed the Düsseldorf-based group up to second place on the North American detergent market and has reduced its dependence on its adhesives business. Henkel revised its 2016 profit forecast upwards slightly on Thursday.

To top it all, DAX-listed companies still have ample finances available to fund further acquisitions. At the end of the second quarter they had more than €100 billion in liquid funds, a record figure.

Ulf Sommer reports for Handelsblatt on companies and financial markets. To contact the author:

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