Why the Dax companies are skeptical about the future

Dusseldorf Germany’s largest listed companies are presenting strong balance sheets these days. With almost 120 billion euros, the 40 Dax companies earned almost as much in 2022 as in the record year 2021. But that is in the past. “The trend in corporate profits is clearly falling,” warns Norbert Frey, Head of Fund Management at Fürst Fugger Privatbank.

Persistently rising prices and interest rates, but also the phasing out of profitable special booms, make it increasingly difficult for the corporations to repeat or even top the good results, according to their own forecasts. This is reflected in the annual balance sheets and the associated outlook.

The growth prospects for the USA and especially China, where the tough corona restrictions were abruptly ended, have recently improved. Therefore, “in the short term, the prospects for the development of sales and profits of the Dax companies are brightening,” says Andreas Hürkamp from Commerzbank. But he assumes that profits will fall by around ten percent this financial year, also because some special factors will no longer apply and new burdens will be added.

On average, specialist analysts expect that the Dax companies will earn 118 billion euros net in 2023, i.e. a good one percent less than in 2022. This is remarkable: in the past, increasing profits were always forecast at the beginning of the year. According to a Handelsblatt analysis, five negative trends are emerging for 2023:

1. High purchase prices, falling sales prices

“2022 was a record year for Puma,” announced CEO Arne Freundt recently at the presentation of the sporting goods group’s annual figures. The successor to Björn Gulden, who switched to rival Adidas, only described the past. Freundt will be cautious for 2023.

The reasons for this are higher procurement prices on the one hand and increasing inventories on the other hand since autumn. Because sales prices are falling at the same time, profits and profitability are coming under pressure.

In addition, according to Puma, the sharply rising prices and higher interest rates are causing uncertainty and fluctuating demand among many consumers and retailers. Against this background, the sporting goods manufacturer expects earnings before taxes and interest in a broad range of between 590 and 670 million euros in the current year. In the past year it was 641 million euros.

Bayer is similarly skeptical about prices and expenses. “The expected sales increases and contributions from our efficiency programs will not be sufficient to compensate for the headwind of cost increases and price declines,” said the outgoing CEO Werner Baumann at the presentation of the annual figures.

Bayer expects falling prices for weed killers in agriculture and falling revenues in the pharmaceuticals division. In terms of earnings before taxes, interest, depreciation and special items, the group calculates at 12.5 to 13 billion euros, after 13.5 billion euros in the previous year.

2. Wages are rising

Companies with strong European and especially German business will feel the effects of the higher wage agreements in 2023. Deutsche Post is particularly affected. A few days ago, the collective bargaining parties agreed on an average wage increase of 11.5 percent for 160,000 employees. The additional costs are in the higher three-digit million range.

Significantly higher wage settlements than in the past can be expected in many sectors, especially in industry.

New Puma boss Arne Freundt

After a record year, the situation for the sporting goods group is becoming more difficult.

(Photo: dpa)

With a view to the sharp rise in prices and the resulting wage demands, the Bundesbank warns in its monthly report: “Noticeable second-round effects on prices are foreseeable.” percent will remain for the euro area”.

>> Read also: Are wage demands always driving inflation? Three measures to prevent this

The consequence is a chain reaction of rising prices, interest rates and wages. According to the Bundesbank, the labor shortage and the decision of the governing coalition to increase the minimum wage by 25 percent to twelve euros compared to the previous year also contribute to this.

3. Expensive energy is also a problem for DAX companies

The chemical industry is more affected by increased energy costs than any other sector. At BASF, energy costs had risen by 3.2 billion euros in 2022 – by 2 billion euros at the Ludwigshafen main plant alone, although gas consumption was reduced by a third here.

BASF assumes that the high energy prices and the uncertainties surrounding the war and rising interest rates will persist. After an operating profit of 6.9 billion euros, the group only expects 4.8 to 5.4 billion euros in the current year.


Savings should reduce fixed production costs by 200 million euros a year, and the group wants to save a total of 500 million euros a year. This will also be achieved by cutting 2,600 jobs and closing particularly energy-intensive plants in Ludwigshafen, such as ammonia production.

The plastics manufacturer Covestro has set its shareholders on a significantly lower profit before interest, taxes, depreciation and amortization for 2023. In the case of basic chemicals in particular, Covestro finds it difficult to pass on higher costs to customers. In 2022, energy costs totaled 1.8 billion euros, 800 million euros more than the year before.

>> Read also: Chemical companies expect a drop in profits – Covestro cancels dividends and bonuses

In the current quarter, Covestro only expects earnings before taxes, interest, depreciation and amortization of 100 to 150 million euros. In the previous year it was 806 million euros.

4. Catch-up effects are being phased out

At Covestro, rising energy costs are met with weaker customer demand because catch-up effects are fading out. In 2022, sales prices had risen sharply, pushing up margins and profits. The reason for this was pent-up demand as a result of the previous standstill during the corona pandemic and global supply chain problems.

This special boom is also coming to an end for Deutsche Post, which had long benefited from global transport bottlenecks and the flood of parcels as a result of the pandemic. In 2022, this still ensured an operating profit before interest and taxes (EBIT) of 8.4 billion euros – more than ever before.

Business has since cooled off, and the group expects an EBIT gain of between six and seven billion euros, depending on the economic trend. The strong result of the previous year will not be reached again until “the middle of the decade”.

DHL shipping center near Dresden

160,000 employees of the group receive significantly higher wages.

(Photo: Reuters)

Classic corona profiteers like Hellofresh are suffering even more from the weaker demand. The meal box mail order company does not want to pass on significantly higher costs for food and logistics to its customers in order to position itself better in the competition.

5. Rising interest rates and the end of the euro weakness

In 2022, the euro exchange rate against the dollar was on average 13 cents lower than in the previous year. Just by converting the income generated in the dollar area, which also includes large parts of Asia, the DAX companies calculated additional profits before taxes, interest and depreciation of around 20 billion euros.

Above all, companies with a high proportion of sales in the dollar area, such as the specialty chemicals group Merck, benefited from a significantly weaker euro exchange rate in 2022. This effect is unlikely to occur in 2023. In the first two and a half months, the euro was worth an average of two cents more than in the previous year. So far, companies have suffered slight currency losses.


In addition, rising interest rates are increasingly eating away at profits. The downside of the absence of a recession is that the central banks will probably continue their rate hikes longer and more drastically than expected in view of the high inflation rates. Economists are now assuming that key interest rates will rise to 5.5 percent in the USA and 3.5 percent in the euro zone – and the trend has been rising for weeks.

This not only makes future bank loans and bonds more expensive, but also existing debts as soon as companies have to refinance expiring bonds and loans.

Highly indebted companies are particularly affected. With 142 billion euros, Deutsche Telekom has accumulated such high total debts minus existing cash holdings as no other Dax group.


The chemical giant is reacting to the high energy costs by cutting jobs.

(Photo: dpa)

Bayer, Fresenius and Eon are also heavily indebted, especially in the important ratio to adjusted profit. In view of their high liabilities, the interest burden will increase at an above-average rate in the coming years.

Automakers expect higher sales

The automotive industry is a major exception. In 2023 there will be catch-up effects that have already expired in most other companies. The Volkswagen Group plans to deliver 9.5 million vehicles, after 8.7 million last year.

In 2022, supply chains were disrupted and there were not enough semiconductors, so demand has been pent up. The situation is now easing, and there is also a high order backlog that is being processed. As a result, sales this year will be ten to fifteen percent higher than last year, VW expects.

BMW could also have sold more cars in 2022 if there had been enough semiconductors. That is why the order books for 2023 are well filled, said CFO Nicolas Peter on Wednesday.

Merck production in Darmstadt

The specialty chemicals group benefited from a significantly weaker euro exchange rate in 2022.

(Photo: Tobi Bohn Photography/Merck)

The news from the automotive industry is an important signal for the Dax: With a net profit of 51.5 billion euros in the past year, BMW, Mercedes-Benz, Volkswagen and Daimler Truck account for 45 percent of the profits of all 40 Dax companies.

More: More profit every year – six Dax companies stand out

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