Record annual sales, revenue and profits, and Mercedes-Benz grabbing the global sales luxury crown from BMW – last year truly belonged to Daimler.
Dieter Zetsche, who has often been a target of criticism during his 11-year term as CEO, even had his “I told you so” moment when he reminded reporters at the company's annual news conference on Thursday about how he achieved his 2020 goal to be the No. 1 premium automaker four years early. In 2011, when Zetsche set the target few experts put stock in the announcement, not with Audi zooming past Mercedes to win the No. 2 spot behind BMW.
So why ruin his moment in the sun on Thursday with a flat dividend?
The proposed 3.25 euros per share, for a grand total of 3.48 billion euros, pales in comparison to the 19.7-billion-euro cash reserves Daimler amassed by the end of the year. Minus a cartel fine, Daimler’s business was able to generate nearly 5 billion in fresh cash in 2016.
Few indicators give a better idea about the confidence of management in the new year than how much cash they are willing to splash out on shareholders to keep them happy. Unlike the often overly conservative earnings forecasts designed to be ratcheted higher as the year goes on to impress investors, the payout is immutable.
And here the distribution ratio measured as a percentage of net profit actually declined 50 basis points to 40.8 percent – not the most reassuring of signals.
The announcement did not go unnoticed. “A flat dividend is disappointing” Morgan Stanley wrote. Sure enough Daimler's shares fell as unhappy investors punished Zetsche's proposal. Only the future counts on the stock exchange, 2016 is already ancient history.
To be fair, Daimler does need to invest to develop fully digital factories, electrified cars and innovative mobility services – all eventually to be linked intelligently with one another for added synergies across the portfolio.
Capital expenditure investment and r&d expenditure are slated to rise by 13 percent to 15.2 billion euros on average over the next two years, against the backdrop of a tepid forecast for slight growth in volumes, revenue and operating profit.
“For us it is particularly important that we are making this investment from a position of financial strength, against the backdrop of our solid balance sheet ratios,” finance chief Bodo Uebber told reporters.
Zetsche has proven his critics wrong but the company still has plenty of challenges ahead. Whereas once the goal was to overtake BMW and Audi, now Daimler has to find its way in a confusing world where friends are enemies and enemies are friends (or “frenemies” as Zetsche likes to call them) – companies such as Uber, Didi, Google, Apple and perhaps even an Amazon. Now the goal is to transform Daimler into a major mobility player in the digital age. And that won’t come cheap.