(new: sales and profit 2023 and dividend proposal)

STUTTGART (dpa-AFX) - The car manufacturer Mercedes-Benz expects less lucrative business in the new year due to burdens in the supply chain and higher investments. Despite relief on raw materials, high inflation already had an impact in 2023 and resulted in lower profits. However, Group CEO Ola Källenius wants to keep investors happy thanks to the good cash position with a new share buyback worth billions, the prospect of further such programs and a slightly higher dividend. The Stuttgart-based company's share price rose significantly on Thursday.

The stock had already recovered to some extent since November from the weak performance of the previous months. In the afternoon, it rose 5.8 percent to 72.04 euros at the top of the Dax. This puts the share at a high since August. The share price was driven by the new share buyback, wrote analyst Daniel Schwarz from the investment bank Stifel.

In future, Mercedes intends to pay out around 40 percent of the net profit as a dividend, not just as before. If the free cash flow generated by the industrial business in a given year - i.e. excluding financial services - exceeds this, these additional funds are to be regularly invested in a share buyback. CFO Harald Wilhelm justified the program with the intention of continuously increasing earnings per share and the dividend.

Mercedes' new guideline for dividends and share buybacks is bold, but is also in line with the Group's efforts to attract luxury-oriented investors, wrote Jefferies expert Philippe Houchois. It is underpinned by the stable cash inflow that Mercedes generates. The future direction of share buybacks is attractive, UBS expert Patrick Hummel assessed the announcement.

The company had already decided to buy back up to 4 billion euros last year. Of this amount, 2.1 billion has been spent and the program could be completed by the third quarter. The new buyback would then start.

Share buybacks are a popular way of boosting share prices: additional demand from the company is used to cancel shares, which mathematically increases the proportion of the remaining shares in the profit to be distributed. This usually leads to a rise in the share price when announced. Critics, on the other hand, accuse managers of apparently no longer finding a profitable use for the money generated. In addition, investments could be neglected in order to conserve cash and finance buybacks.

In recent years, Mercedes had benefited significantly from the fact that supply bottlenecks disrupted production throughout the industry: when demand was high, this drove up the prices of new cars and used cars from leasing returns. In 2023, for example, the average sales price per car in the Passenger Cars division was 46% higher than in 2019. In addition, the cost-cutting measures introduced by Group CEO Källenius in the Passenger Cars division took effect. The number of employees (full-time equivalents) fell by 7 percent to around 129,900 during this period.

With the weaker economic situation, industry experts had already expected that the Swabians would not be able to maintain their very good performance. Källenius is expecting a profit margin before interest and taxes adjusted for special effects of 10 to 12 percent of sales in the most important division with passenger car construction this year with passenger car sales at the previous year's level. Last year, the Stuttgart-based company achieved an operating margin of 12.6 percent - two percentage points less than in 2022. Analysts had previously forecast an average margin of just over 11 percent for the new year.

Källenius wants to invest more money in property, plant and equipment for the new MMA platform this year, in addition to burdens from higher wages and the current significant problems with the supply of 48-volt batteries. This is the electric car architecture for compact and mid-range cars, on which combustion engines can also be built.

As the Group is also bringing forward product planning for the medium-sized and large electric cars on the MB.EA platform, the medium-term goal of reducing investments in research and development and property, plant and equipment by a fifth compared to 2019 will not be achieved by 2025. This is only likely to be achieved in the second half of the decade.

Källenius recently dampened the still high growth expectations for electric cars. The Group has now also revised its strategic outlook to this effect: electrified cars are expected to account for up to half of total sales in the second half of the decade. Previously, Mercedes had stated much more aggressively that it wanted to be ready for a 100 percent share of electric cars by 2030, wherever demand would allow. However, Mercedes is sticking to its planned investments in e-drives, CFO Wilhelm clarified.

The Group is also expecting less profitability this year in the recently very successful delivery van division. Here, the operating margin is expected to land between 12 and 14 percent after 15.1 percent in the very strong previous year. The adjusted return on equity for financial services and mobility offerings is also likely to fall slightly. Overall, Mercedes expects Group sales to remain at the previous year's level, but earnings before interest and taxes to fall slightly.

At 153.2 billion euros, the company generated a good two percent more turnover in 2023. However, earnings before interest and taxes adjusted for special effects fell by a good three percent to 20 billion euros, mainly because the important passenger car division was less profitable. Group profit fell by just under two percent to 14.5 billion euros. Nevertheless, shareholders are to receive a dividend increased by ten cents to 5.30 euros per share.

Around 91,000 Mercedes employees in Germany are to receive a bonus of up to 7300 euros again this year, regardless of their pay grade. The employees are to receive the bonus with their pay in April./men/rwi/niw/jha/