Shares in Daimler-Benz tumbled yesterday as Europe's biggest industrial conglomerate forecast a severe loss for 1995 because of the strength of the mark.
Analysts downgraded en masse their stock recommendation to sell as they were caught out by the unexpected severity of the profits warning.
Company sources indicated Daimler would be making a one-off provision against 1995 results of close to DM2bn (pounds 940m) to cover restructuring and lay-offs.
Daimler said it would be looking at all its 35 business sectors with a view to transferring production out of Germany, boosting purchases abroad and reappraising its portfolio of shareholdings.
Company sources suggested the loss-making aerospace division, Dasa, which has 74 per cent of its turnover in the dollar zone, was considering a large-scale switch of production out of Germany. The UK was mentioned as a possibility.
"The impact of the currency movements, which the Daimler-Benz management believes can no longer be regarded as short-term and temporary, will lead to a severe loss in the group's results for 1995," Daimler said.
NatWest Securities in London immediately switched Daimler to its sell list. "This has clearly caught the markets by surprise," said analyst Graham Moynes, underlining the significance of the large provision. Daimler shares closed yesterday down DM46 to DM639.
Joachim Bernsdorff, analyst at Bank Julius Bar in Frankurt, revised his 1995 earnings estimate to a loss of DM750m from a previous profit forecast of DM1.3bn.
He said the main imperative for the company was now to reorganise its aerospace operation to be profitable at a dollar level of DM1.40. "The company is going to take this year all the provisions needed for a large- scale restructuring, which in aerospace notably could see the closure of works in Germany and the switch of production to elsewhere in Europe or the dollar zone," he said.
Yesterday's company statement indicated that Dasa and AEG, the heavy engineering and power division, will continue to make big losses, while Mercedes Benz, the luxury car division, will record even better results than last year.
Daimler posted a group net profit of DM1.05bn in 1994 under the US accounting rules it adopted with its listing in New York, after having slumped to a record DM1.8bn loss in 1993. It has cut some 80,000 jobs during 1992- 1995, most of them in Germany. The company said the restructuring would "make it highly probable that the group accounts in 1996 once again will show a clearly positive profit".Reuse content