Dax-30 Companies Upbeat, Though True Turnaround Still Remote

The majority of Germany's leading corporations have identified positive early signs of an economic upturn but do not yet see any definite signals of a turnaround, a Handelsblatt survey of companies included in the Dax-30 blue-chip index found.

After a difficult 2001, the economic weakness continues to be reflected in companies' order books in the first few months of the current year. But on balance, the majority of Dax-30 companies are upbeat about their prospects for 2002, even though their current situation remains difficult.

"A discrepancy between expectations and assessment of the current situation typically marks a turning point in economic trends," said Gernot Nerb, chief economist at the Ifo economic research institute.

So far, 29 of the Dax-30 companies have presented figures for the last quarter of 2001, and only in six cases did the actual figures exceed the expectations of analysts. Some 18 companies' results were in line with expectations, while those of five came in below forecasts.

Profits fall

The decline in profit that first became apparent at the start of 2001 accelerated in the last quarter of the year. Earnings in the third quarter (July to Sept.) fell by 70 percent on average from the year-ago period.

By the last three months of the year, the average year-on-year decline had accelerated to 90 percent, though here the sample is restricted to the 25 Dax-30 companies for which comparable quarterly figures were available.

In the first half of 2001, profit on average fell by a relatively modest 32 percent, though write-downs and special effects will in some cases have made it difficult to compare the developments over the course of the year.

Aviation, industry, chemicals suffered

The aviation, technology and chemicals sectors were hit hardest by the economic downturn. In the last quarter of 2001, some companies in these sectors even slid into the red, including national airline Lufthansa, chip maker Infineon and chemicals giant BASF.

But utilities, retailers and most of the car manufacturers fared relatively well in the last quarter. Degussa, Schering and Linde were also able to lift earnings from the year-ago quarter.

Economists continue to forecast an upturn in the economy for the second half of 2002. "The next quarter is already likely to show growth in the companies' interim figures," said Kai Franke at BHF-Bank.

Turnaround, at least in numbers

But a major reason why the results can be expected to start showing annual growth soon is that they'll be compared with year-ago figures that already bear the scars of economic downturn. Furthermore, analysts warned that companies' profit growth will fail to meet the expectations of investors, who have driven up share prices in anticipation of an economic recovery.

"Expectations are factored into share prices early on," said Georg Elsäßer at HSBC Trinkaus & Burkhardt. "That's why the share price can quickly run too far ahead of profit developments."

Ifo's Nerb said that despite the rise in the Ifo business-climate index in March a true recovery will only come once companies start giving a more positive assessment of their current business conditions. But he said that this could be the case as early as April.