Corporate Germany turns in solid results

8 December 2003

BERLIN – Germany’s key third-quarter company reporting season has drawn to a close with the Premier League of the nation’s industry turning in a solid set of results as business grows more confident about the economic outlook.

While the Ifo business confidence survey posted its seventh consecutive monthly rise in Novmber, quarterly earnings reports from the nation’s corporate leaders such as electronics giant Siemens AG, phone company Deutsche Telekom AG and power group RWE AG have added to optimism that Europe’s biggest economy is now firmly on course to recovery.

Even those companies posting more downbeat earnings offered some hope that three years of economic stagnation in the country was coming to an end, consequently helping to confirm forecasts that Germany could look forward to modest growth in 2004 underpinned by weak inflation.

“The latest figures for our ongoing business give grounds for hope that we have now reached the bottom of the downturn,” said Juergen Hambrecht, who is the chief executive of Bayer AG, the world biggest chemical maker by sales.

That said, however, analysts still remain somewhat cautious about the strength of Germany’s widely expected economic rebound, noting that for many companies the revenue side of their balance sheets still remains somewhat lacklustre. Indeed, rigorous cost savings and strict measures to eliminate corporate debt have been the key factors in driving corporate earnings in Germany, allowing several companies to chalk up profits in the quarter to the end of September, which in many cases beat analysts’ forecasts.

This includes Germany’s third biggest industrial group, Siemens, which reported net earnings soaring in the latest quarter to EUR724 million from EUR53 million a year earlier and forecast that profit will rise more than 10 percent in 2004.

“I believe that altogether we can be very pleased,” said Siemens’ chief Heinrich von Pierer which has moved to eliminate 20,000 jobs and has turned around its fixed line business after two years of losses.

Siemens’ somewhat promising set of figures was repeated across several key sectors of German business with the nation’s retailing powerhouse Metro AG also beating analysts’ projections by reporting a 12.4 percent increase in third-quarter earnings before interest and tax.

Combined with a pickup in financial markets, strenuous cost cutting and falling loan loss ratios have also helped Germany’s big banks – Deutsche Bank AG and HVB AG – to leave the tough times behind them.

Likewise the nation’s leading sportswear-to-fashion-wear groups, Puma AG and Adidas AG both notched up further gains in earnings with Puma more than doubling its pre-tax third-quarter profit and Adidas reporting a 15 percent rise in quarterly net income.

At the same time, Germany’s biggest commercial broadcaster, ProSiebenSat1, which has been battling against an advertising slump and the uncertainty created by moves to sell the group off, reported a narrowing of its third-quarter loss on the back of improved advertising markets and cost cutting.

While Europe’s biggest phone company, Deutsche Telekom surprised analysts with a 12 percent gain in third-quarter earnings after disposing of assets to reduce debt and cutting investments, costs and jobs investments, RWE raised its 2003 earnings forecast in the wake of a successful drive to reduce debt.

Certainly, the brighter business outlook emerging in the nation has been reflected in a raft of recent economic sentiment surveys with the section of the Ifo November business confidence survey measuring current business assessment now at its highest level since just before the 11 September terrorist attacks.