Aabar stake in Daimler pays off as profit leaps

Aabar Investment's stake in Daimler looks to have paid off handsomely after the German car manufacturer reported a dramatic rise in second-quarter profits.

Daimler's share price has risen more than 150 per cent since Aabar Investments bought a 9.1 per cent stake in the German car maker in 2009. Thomas Kienzle / AP Photo

Aabar Investments' stake in Daimler paid off handsomely yesterday as the German car maker reported a dramatic rise in second-quarter profit.

"We now assume that [full-year profit] will develop more positively than we previously expected and will very significantly exceed the level of 2010," said Dieter Zetsche, the chief executive of Daimler.

The company reported a second-quarter profit of €1.7 billion (Dh9.03bn), a 30 per cent increase on the same period last year.

Aabar bought a 9.1 per cent stake in Daimler in March 2009 when the car maker was struggling amid the global financial crisis. The value of Daimler shares has increased more than 150 per cent since Aabar made its investment. Yesterday, the stock was slightly lower at €51.30 in midday trading in Germany. Given that the shares have underperformed peers in recent months, some analysts believe they can rise higher still.

"We have a positive view on Daimler. We believe the market is still negative, especially given the sales performance," said Daniel Schwartz, an analyst at Commerzbank Securities in Frankfurt.

In the second quarter of this year, Daimler sold 527,600 cars and commercial vehicles worldwide, up 6 per cent on the same period last year.

The company, owner of the Mercedes-Benz brand, which earns most of the group's profit, experienced surging demand in emerging markets, particularly China.

Sales of Mercedes cars in China increased 34 per cent in the period, while worldwide sales were up 4 per cent to 357,600.

"Going forward, we will not see the 100 per cent growth rates we used to, and the Chinese car market has slowed down," said Mr Schwartz. "But the pace of the luxury sector seems decoupled from the overall market. We do not see a deterioration in demand."

In the UAE, sales of luxury cars have been strong so far this year, with many brands reporting double-digit growth over last year.

Emirates Motor Company (EMC), the exclusive distributor of Mercedes cars in Abu Dhabi, said yesterday that its overall sales had increased 8 per cent in the first half of this year compared with the same period last year.

"Over the first six months of 2011, EMC's sport utility vehicle sales have seen a noticeable rise, reaching an increase of 71 per cent from the first quarter to the second quarter," said Kamal Rafih, the general manager at EMC, the flagship company in Al Fahim Group.

Daimler is one of the biggest car makers in the world and now expects full-year revenue to be significantly more than €100bn.

The company indicated that its performance could have been even stronger in the second quarter but that global growth had been hurt when oil prices went above US$120 per barrel and did not fall until late in the quarter.

"The main reason for the slowdown was the global deceleration of industrial production, which was negatively affected by supply-chain disturbances caused by the threefold disaster in Japan," the company said in a statement, referring to the earthquake and tsunami in March and the ensuing nuclear emergency.

Daimler cautioned that there would be a serious setback for global growth and the US economy if a political agreement on raising the federal debt ceiling was not reached quickly in Washington.

Aabar recently sold €750 million of bonds that are convertible into Daimler shares. If those bonds were converted, they would account for about 1.1 per cent of the car maker's total share capital and dilute Aabar's holding.