MAN SE to Slow Investments After Quarterly Earnings Drop

MAN SE, Europe’s third-largest maker of commercial vehicles, said it may slow investments and will work to cut spending this year as the region’s shrinking economies cause earnings to drop faster than sales.

The European truck market in the mid-term will probably remain “significantly below” the most recent peak of about 400,000 vehicles delivered in 2008, Chief Executive Officer Georg Pachta-Reyhofen said today at a Munich press conference. Fourth-quarter operating profit fell 23 percent from a year earlier to 308 million euros ($412 million) as revenue declined 6.3 percent, the company said in its annual report.

Management “is not satisfied with the results of the fiscal year and has therefore initiated appropriate improvement measures,” Pachta-Reyhofen said. “The focus will be on cutting costs and boosting efficiency,” as MAN expects “a slight decline in revenue and a disproportionately large drop in operating profit,” the company said.

The economy of the 17 nations sharing the euro went into a recession in the third quarter, and the European Central Bank is forecasting a 0.3 percent contraction in 2013. MAN, controlled by German carmaker Volkswagen AG, is scaling back production in response to the dropping demand. Peers including Daimler AG, the world’s largest truckmaker, and second-ranked Volvo AB have taken similar steps to prevent a build-up of inventory.

Stock Falls

MAN fell as much as 0.4 percent to 88.25 euros and was trading down 0.1 percent at 2:28 p.m. in Frankfurt. That pared the stock’s gain this year to 9.6 percent, valuing the truckmaker at 13 billion euros. VW is planning to buy full control of MAN.

The forecast for 2013 “is clearly disappointing,” Michael Punzet, a Frankfurt-based analyst at DZ Bank with a buy recommendation on the truckmaker’s stock, said in a report to investors. “Our positive view on MAN is mainly based on the upcoming domination of MAN” by Volkswagen.

European demand for commercial vehicles in December fell to the lowest level since October 2009, industry association ACEA said Jan. 28. Registrations of new heavy trucks in Europe dropped in all major markets, plunging 16 percent in France, 20 percent in Italy, 21 percent in the U.K., 27 percent in Germany and almost 40 percent in Spain.

“A negative trend is expected in the European truck market in 2013, despite purchases possibly being brought forward” because of stricter emissions rules taking effect next year, MAN said.

“But the second quarter could be slightly better than the first quarter,” said Anders Nielsen, MAN’s truck chief.

Dividend Cut

Measures to protect earnings may include reducing work shifts or production days and reorganizing parts procurement as well as expanding into emerging markets to reduce dependence on Europe, MAN said. The company plans to reduce the dividend by 57 percent to 1 euro a share.

Volkswagen, Europe’s biggest carmaker, is pushing for closer cooperation between MAN and Scania AB, the Swedish heavy-truck builder that the Wolfsburg, Germany-based manufacturer also controls. MAN said today that it plans to increase joint purchasing with VW and Scania to reduce supply costs, in addition to obtaining more parts locally in Brazil for operations there.

Legally Required

VW, which already owns 73.7 percent of MAN’s stock, has yet to submit a bid to shareholders. It’s legally required to look at MAN’s average stock price in the previous three months and the value of the stock based on an independent evaluation, and offer MAN investors the higher of the two figures. MAN owners who don’t accept the deal will have the right to keep their shares and receive a dividend instead.

Accounting firms KPMG and PricewaterhouseCoopers have been hired to do a valuation analysis for a domination agreement, a document that defines VW’s ties with MAN, the truckmaker said today.

Volkswagen rearranged its truck operations’ management in June as part of a six-year effort to get MAN and Scania to work together. Leif Oestling was promoted from his post as chief executive officer of Scania to join VW’s management board and help forge the alliance.

“Volkswagen’s strategy is focused on strong, individual brands, which have to compete on the market,” Pachta-Reyhofen said in response to a question about MAN’s role after Volkswagen completed the domination agreement.

Integration Steps

The CEO expects MAN to hold another annual earnings press conference next year, but declined to comment further on the planned integration steps or a possible delisting of the company from the stock exchange.

Volkswagen has “a clear commitment” to MAN as a whole, including its power engineering division, he said in response to a question about a possible sale of the business. MAN’s power engineering unit produces large diesel engines, which are used in ships and turbo machinery for power plants, for example.

MAN ranks fourth behind Porsche, Scania and Audi in terms of profitability within Volkswagen’s stable of 12 brands, Pachta-Reyhofen said, citing the respective 2011 results.

MAN’s return on sales was 9 percent in 2011. It fell to 6.1 percent in 2012.

The power engineering unit’s profit margins are “stabilizing MAN’s earnings,” he said. Return on sales at MAN’s power engineering unit fell to 11.8 percent in 2012 from 12.8 percent in the previous year.

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