Mercedes 2006 Annual Report Download - page 81

Management Report | Overall Assessment of the Economic Situation | 65
On its way to sustained profitable growth, DaimlerChrysler AG
made good progress during the year under review. Nonetheless,
at the time of preparing the Group Management Report, the
Board of Management’s assessment of the Group’s economic
situation is not entirely satisfactory.
Revenues increased by 1% to €151.6 billion, which was a stronger
rise than we had forecast at the beginning of 2006. On the other
hand, total unit sales of 4.7 million vehicles were lower than
in the prior year and lower than our target for 2006. Stronger unit
sales by the Mercedes Car Group and the Truck Group were
more than offset by the declining development of unit sales at the
Chrysler Group. Our operating profit of €5.5 billion was lower
than our target of more than €6 billion, and value added for the
year under review was still slightly negative. The Group’s
operating profit was therefore insufficient to cover the cost of
capital employed. The reason for this unsatisfactory situation
was the unexpectedly difficult market and competitive situation in
the United States and the resulting losses at the Chrysler Group.
However, the other divisions surpassed their earnings targets.
The Mercedes Car Group recorded a particularly sharp increase in
profits in the year 2006. The Truck Group achieved record
earnings, and Financial Services posted a repeated increase in
operating profit. With the introduction of the new management
model in our administrative departments, we are creating lean and
stable processes to allow us to become faster, more flexible,
more cost effective and thus also more competitive and profitable
at all levels of the Group. The Chrysler Group’s “Recovery and
Transformation Plan”, which was presented in February 2007,
is a comprehensive program that should enable the Chrysler
Group to generate sustained profits in the future, even under
difficult market conditions.
The Group’s liquidity was burdened during the reporting period
by the negative earnings trend at the Chrysler Group and the
payments related to the restructuring of smart and the head-
count reduction measures in connection with CORE and the new
management model. However, cash flow from operating activities
increased to €14.0 billion (2005: €12.4 billion). The free cash
flow from the industrial business, the parameter used at Daimler-
Chrysler to assess our financial strength, decreased by €0.2
billion to €1.9 billion, and the net liquidity of the industrial business
fell by €0.9 billion to €6.4 billion.
The DaimlerChrysler Group’s financial position was nearly
unchanged compared with the prior year. Adjusted for the proposed
dividend distribution for the year 2006 of €1.5 billion, the Group’s
equity ratio at the end of the year was 17.2% (2005: 17.3%).
The equity ratio for the industrial business rose from 24.8% to 25.1%.
Overall Assessment of the Economic Situation