Booming German profits add to economic hopes
Profits for Germany's 30 leading blue-chip companies climbed by about 12 percent last year.
Berlin -- Corporate Germany's annual reporting season has drawn to an end, with the top companies in Europe's biggest economy unveiling booming profits on the back of solid growth and the nation's business sector increasing global competitiveness.
Despite signs that the world economy has been losing momentum and the euro springing from all-time high to all-time high, profits for Germany's 30 leading blue-chip companies climbed by about 12 percent last year to hit a new record in 2007.
This includes a big jump in earnings reported by German companies in the key car sector such as Volkswagen AG and Daimler AG along with energy giants such as E.ON AG as well leading chemicals and drug groups such as BASF AG and Bayer AG.
"Our operating performance exceeded both the previous year's record levels and the earnings target we had set for 2007," Bayer chief Werner Wenning said announcing the company's results for last year.
German fashion powerhouse Hugo Boss AG expects 2008 to be a record year after it reported an 18-per-cent rise in 2007 pre-tax earnings, with travel giant TUI AG saying its 2007 core earnings jumped by 47 percent.
In the meantime, sporting-goods maker Adidas AG predicted 2008 earnings would top last year's 14-per-cent gain as a result of this year's European soccer championships.
However, analysts expect German corporate earnings to come under pressure this year as the euro's rise starts to hit foreign orders and the nation's workers look likely to secure higher pay settlements.
This comes in the wake of a protracted period of wage stagnation that helped to shore up the competitiveness of the country's leading companies.
Indeed, several of the nation's major companies marked the end of the 2007 reporting season by announcing plans for a new round of restructuring and by layoffs.
That said, however, the healthy state of German company balance sheets is the latest sign that the nation will withstand this year's slump in global growth, with surveys showing the mood among investors and business leaders remaining cautiously optimistic.
This is particularly the case as a result of signs continuing of strong demand from the world's leading emerging economies, such as in Asia, the Middle East as well as Central and Eastern Europe.
Data released Monday showed German exports rising by a bigger- than-forecast 3.8 percent in January, with industrial production also rising more than predicted and corporate insolvencies dropping by 14.6 percent in 2007.
Moreover, the nation's big financial houses, such as Deutsche Bank AG and Allianz AG, have also unveiled a convincing rise in earnings and, as a consequence, appear to have emerged relatively unscathed from the global credit crunch unleashed by the US mortgage industry crisis.
Allianz chief Michael Diekmann said Europe's largest insurer had achieved good results "despite a turbulent financial market environment."
"If we are spared significant negative surprises, we will again be able to reach our good 2007 results. If markets allow, we can even exceed these results," said Commerzbank AG chief Klaus-Peter Mueller after the Frankfurt-based bank said it was raising its dividend after 2007 profits jumped 20 percent.
But reports released by the nation's leading industry representative associations have also added to expectations that business conditions could be tougher for German corporations this year.
Germany's chemicals industry, which is one of the nation's major exporters, expects revenue growth will slow to 4.5 percent in 2008 after posting a 7.1-per-cent gain last year.
Having been hit by last year's hefty rise in value-added tax, the rebound in German car sales in the first months of this year had been "the best start to a new year since 2003," VDA German car association president Matthias Wissman said, with foreign demand boosting sales.
But Wissman warned with the euro last week hitting an all-time high topping 1.54 against the dollar the car industry was facing "a growing headwind."
New orders for machinery and plants rose 7 percent year on year in January, Germany's VDMA industry association also said Monday.
However, commenting on the data, VDMA chief economist Ralph Wiechers said that despite several big orders, "a weakening growth dynamic is also visible for foreign orders."
DPA with Expatica