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Daimler-Benz returns to profit

Germany's limping giant Daimler-Benz has emerged from its huge restructuring with a healthy profit, propelled by soaring sales of its car division, Mercedes-Benz. Figures released yesterday showed that Daimler recovered from last year's slump with an operating profit of DM827m (pounds 360m) in the first half of 1996.

"After the heavy cuts the first results are beginning to show," said the company's chairman, Jurgen Schrempp. "The concern, whose portfolio has been cut from 35 divisions to 25, is now essentially profitable."

Last year the company recorded a loss of DM5.7bn, the biggest in German history. Mr Schrempp, whom shareholders hold responsible for over-extending Daimler's range of activities, set about ditching loss-making divisions early this year. Out went its investment in Fokker, the Dutch aircraft manufacturer, at a cost of DM2.3bn, while another recent acquisition, AEG, was pruned into near oblivion.

Despite the good results so far this year, Mr Schrempp conceded that some of the figures remain unsatisfactory. Overall profit margins are still slim, and turnover, up 9 per cent to DM49.1bn, may not match last year's annual figure of DM103.5bn.

Daimler's aeronautics division, Dasa, remains a drain even without Fokker. In the first half of this year Dasa lost DM700m, a considerable improvement on the DM1.6bn it cost the parent company in the previous six months but still large enough to make a huge dent in Daimler's earnings. Airbus orders are up by 35 per cent this year, but Mr Schrempp does not expect Dasa to return to the black until 1998. The restructuring programme Dolores, designed to make Dasa competitive on the world market, will continue at the expense of thousands of jobs.

This year's star performer, once again, is Mercedes-Benz, with a profit of DM1.4bn - up 3 per cent - on increased turnover. Earlier this week, Mercedes reported a 7.9 per cent increase in world-wide sales in the first half of this year, boosted by the outstanding performance of its heavy truck division in Europe and Latin America.

Apart from cars and trucks, Daimler made some money out of ADtranz, its joint venture with ABB, while its service branch, debis, increased its profit to DM212m. But the wreckage of AEG still lost DM132m, even after the sacking of most of its workers, and the micro-electronics subsidiary Temic remains in the red.

Ultimately Daimler's success or failure will be determined by its ability to rein in the subsidiaries that are bleeding Mercedes dry. Last year the group failed to pay a dividend for the first time in 45 years, and yesterday Mr Schrempp did not seem certain that it would be able to reward share-holders at the end of this one. Despite the favourable balance sheet, Daimler shares remained virtually unchanged.