Strong Operating Results in Q1 2003 Despite Difficult Markets

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April 30, 2003
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DaimlerChrysler: Strong Operating Results in Q1 2003 Despite Difficult Markets

Mercedes Car Group increases operating profit

Earnings improvement at Chrysler Group

Increased unit sales and earnings at Commercial Vehicles division

Services division improves earnings from ongoing operations

On a Group level for full year 2003 expectation of a higher ongoing operating profit maintained

Stuttgart/ Auburn Hills - DaimlerChrysler achieved an operating profit of EUR 1.4 billion in the first quarter of 2003, once again improving its earnings from ongoing businesses despite a difficult environment. Calculated on the same basis this represents an increase of EUR 386 million, or 38%, against Q1 2002. The operating profit of EUR 3.1 billion for the first quarter of 2002 included high one-time income (a gain of EUR 2.5 billion on the sale of shares in T-Systems ITS) and one-time expenses (structural expenditure of EUR 0.3 billion at Chrysler Group and expenditure of EUR 0.1 billion related to the economic and financial crisis in Argentina). All divisions contributed to the improvement. In view of the prevailing economic conditions, DaimlerChrysler's divisions and business units posted very good results in a difficult environment.

Starting with its reporting for the year 2003, DaimlerChrysler will depart from its previous practice of presenting earnings with and without one-time effects; in the future only one figure will be reported for operating profit, net income and earnings per share. In order to ensure comparability with the previous year's figures, references will be made to one-time effects included in the respective prior-year quarters.

With this change DaimlerChrysler is following the new rules adopted by the U.S. Securities and Exchange Commission (SEC), which must be applied for the 2003 financial year and which deal with the reporting of "one-time effects" much more restrictively.

First-quarter net income amounted to EUR 588 million (Q1 2002: EUR 2.5 billion). Net income for the first quarter of last year included one-time effects, in particular the tax-free income from the sale of shares in T-Systems ITS. Earnings per share amounted to EUR 0.58 (Q1 2002: EUR 2.49, including one-time effects of EUR 1.99).

1.0 million vehicles sold worldwide

DaimlerChrysler sold 1.0 million vehicles worldwide in the first quarter of 2003. This figure was 5% lower than in Q1 2002, due to weaker demand in major markets.

First-quarter revenues decreased to EUR 33.7 billion due to the appreciation of the euro against the U.S. dollar (Q1 2002: EUR 36.9 billion). Adjusted to exclude currency translation, there was an actual increase of 2%.

At the end of the first quarter of 2003, DaimlerChrysler employed 367,962 persons worldwide (Q1 2002: 372,084). The size of the workforce decreased slightly due to the sale of production facilities and the implementation of measures designed to reduce costs and improve efficiency at Chrysler Group. Due to the acquisition of dealerships, there was an increase in the number of employees in the sales organization for Mercedes-Benz passenger cars and commercial vehicles.

Details on the divisions in the first quarter of 2003

The Mercedes Car Group sold 291,200 vehicles in the first quarter, similar to the high figure for Q1 2002 although markets have become even more difficult. First-quarter revenues of EUR 12.4 billion surpassed last year's level by 4%.

The division's operating profit of EUR 688 million was even better than the high level of the prior year figure of EUR 653 million because of the full availability of the new E-Class. There were offsetting effects on earnings, however, due to expenditure for the launch costs of the E-Class station wagon and the CLK convertible. Both of these models were given an excellent reception by the market.

The Mercedes-Benz brand continued to strengthen its position in the premium segment worldwide. Unit sales of Mercedes-Benz passenger cars increased once again to 266,900 units (+1%). Resulting particularly from the success of the E-Class sedan, which was launched in 2002, Mercedes-Benz expanded its worldwide market share in the premium segment to around 38%.

As expected, unit sales of smart cars decreased to 24,200 units (Q1 2002: 28,400 units) in the first quarter. This was partly due to the significantly more intense competition for small cars in the European market, and partly to the fact that many customers postponed their purchases until the launch of the revised models of the smart city coupe and convertible in February. Incoming orders are developing very positively though.

Chrysler Group's worldwide retail sales totaled 615,700 vehicles in the first quarter (Q1 2002: 675,800). This result was primarily related to a softening of the U.S. market due to political and economic uncertainties. Factory shipments declined by 8% to 647,400 vehicles. At the end of the first quarter, dealer vehicle inventory levels in the United States were at 535,800 units, equivalent to a 69 day supply.

Revenues were 21% lower at EUR 12.7 billion, mainly due to the appreciation of the euro against the U.S. dollar and the lower shipments. Measured in U.S. dollars, revenues decreased by 3%.

In a difficult and intensely competitive U.S. market, operating profit rose to EUR 152 million (Q1 2002: operating loss of EUR 187 million). There were positive effects from cost-reduction efforts which were partially offset by lower unit sales and higher price incentives.

The Chrysler Pacifica and the Chrysler Crossfire, which are to be launched in the marketplace in May and June respectively, were extremely well received at their international press introductions.

The Commercial Vehicles division increased its unit sales by 5% to 107,000 vehicles in the first quarter this year. Revenues of EUR 6.1 billion were similar to those in the first quarter of 2002. As a result of higher unit sales and significant progress with the cost structures of all of its business units, the division achieved a strong improvement in its operating profit, to EUR 14 million (Q1 2002: operating loss of EUR 85 million).

Due to unexpectedly high demand for heavy trucks in the U.S. market, the Freightliner/Sterling/Thomas Built Buses business unit sold a total of 26,500 vehicles, 15% more than in the first quarter of last year. Unit sales by the Mercedes-Benz Trucks business unit of 21,800 vehicles were slightly lower than the number sold in the prior-year quarter (-2%). The Mercedes-Benz Vans business unit had sales of 52,400 vehicles in the first quarter (Q1 2002: 48,500). First-quarter unit sales of 5,400 units by the DaimlerChrysler Buses & Coaches business unit were lower than last year's level.

The new Actros truck began production in March and will be launched soon. Initial reactions from customers and the international press are very positive.

The Services division generated revenues of EUR 3.6 billion in the first quarter of this year (Q1 2002: EUR 3.9 billion). The decrease is primarily due to currency-translation effects; adjusted to exclude these effects, actual revenues are 5% higher.

Favorable refinancing conditions and lower provisions for risks in the United States than in Q1 2002 led to a significant increase in ongoing operating results. Operating profit was EUR 419 million. However, the figure of EUR 2.6 billion for the prior-year quarter included a gain of EUR 2.5 billion resulting from the sale of the Group's remaining shares in T-Systems ITS and an expense of EUR 0.1 billion due to the economic and financial crisis in Argentina.

The DaimlerChrysler Bank performed very well in the first quarter. By the end of March, more than 100,000 customers had entrusted DaimlerChrysler with deposits totaling EUR 2.2 billion.

The Other Activities segment achieved an operating profit of EUR 105 million (Q1 2002: EUR 158 million). First-quarter revenues of EUR 445 million generated by MTU Aero Engines were lower than in the prior year (Q1 2002: EUR 562 million), as was anticipated. Incoming orders of EUR 769 million were significantly higher than the EUR 583 million for Q1 2002. The European Aeronautic Defence and Space Company (EADS) will publish its figures for the first quarter of 2003 on May 6, 2003. In the financial year which ended on March 31, 2003, Mitsubishi Motors Corporation (MMC) increased unit sales over last year by 1% to 1,717,000 vehicles and made further progress with its restructuring. Due to its new product startups, MMC is confident that it will again improve its profitability in the current financial year. MMC will publish its complete year-end financial statements on May 26.

Outlook for full-year 2003

The economic situation remains very difficult and therefore DaimlerChrysler must still assume that uncertainty among consumers and investors will continue for some time.

Against this backdrop, in full-year 2003, Mercedes Car Group expects to match last year's strong results in terms of unit sales, revenues and earnings.

Given the difficult market conditions, Chrysler Group will further intensify its efforts to realize additional cost savings. However, during the last few weeks the market environment in the U.S. has become even more challenging. Thus it will be difficult to achieve the operating profit target of $2 billion before restructuring expenses.

The Commercial Vehicles division expects that the significant restructuring costs incurred in the past years will have a positive effect in 2003, leading to better earnings than in 2002.

In the Services division, favorable refinancing conditions, the major efforts taken in the field of cost reduction and more efficient risk controls should lead to a higher ongoing operating result than in 2002.

MTU Aero Engines expects it will achieve an operating profit in 2003 similar to last year. Mitsubishi Motors anticipates a further improvement in unit sales and earnings for the current financial year, which began on April 1. Its contribution to DaimlerChrysler's operating profit is therefore also expected to rise. At EADS, earnings in the year 2003 are likely to be lower than in 2002 due to the further weakening in demand for civil aircraft.

For the full year 2003, DaimlerChrysler anticipates Group revenues of approximately EUR 145 billion, probably lower than last year due to the appreciation of the euro against the U.S. dollar (2002: EUR 149.6 billion).

Although global economic conditions have continued to deteriorate, for Group earnings DaimlerChrysler maintains its target to achieve a higher ongoing operating profit than in 2002. However, a precondition for this result remains that there are no further negative effects in the markets relevant for DaimlerChrysler.

(April 24, 2003)

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