Daimler Truck Hldg S/Adr

Good morning, ladies and gentlemen. This is Christian Herrmann speaking. On behalf of Daimler Truck, I'd like to welcome you on both telephone and the internet to our Q1 results global conference call. We are very happy to have you with us today and have Jochen Götz, our CFO, here to present our Q1 result. Jochen will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler Truck IR website. On our request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the investor relations section of the Daimler Truck website. I would like to remind you that this telephone conference is governed by the safe harbor wording you will find in our published result documents. Please note, our presentations contain forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. And with this, I would like to hand over to Johann.

Thanks, Christian. Good morning, ladies and gentlemen, and also a warm welcome from my side to our results call for the first quarter of 2023. You have already received the key financials for the first quarter with the pre-release two weeks ago. It was a strong and clean first quarter of 2023 without any material special effects. Results were supported by strong pricing, strong demand resulting in significantly higher sales volume and a strong after-sales performance. I'm happy with the start of the year and remain very confident for the remainder of the year. To all our employees at Daimler Truck around the globe, a big thank you for your relentless dedication and successful work. We started 2023 very well and can be proud of our achievements in the first three months. Now, let me first give you a short overview about the key highlights in the first quarter of 2023. Let's take a quick look at the key financials of the first quarter. Adjusted EBIT for the Coup came in at €1.2 billion, leading to an adjusted return on sales of the industrial business of 8.8%. Coup EBIT amounted to €1.1 billion. €168 million of free cash flow were generated in industrial business, leading to a stable level of net industrial liquidity compared to the end of last year of €7.5 billion. Earnings per share of 90 euro cents. The key highlights of the first quarter can be summarized as follows. Demand for trucks in every of our industrial segments remained on a very strong level as the pent-up demand in all our key regions continues to be high. This is clearly visible in the demand and sales of our products as well as in our still high order backlog. In our key regions, we are more or less sold out for this year. While the supply chain certainly has improved compared to last year, we still have challenges and we still expect some more periodic supplier shortages affecting production. However, we are converting our increasing unit sales into strong financials. I'm very pleased with the improved pricing and the strong after-sales business as it more than offsets higher material costs. Here we made significant progress versus the past. Let me also point out the latest operational highlights. We set the foundation for further growth of our parts business and decided to build a new global logistics site in northeast Germany. In the U.S., we achieved a big milestone and reached a billion revenue in online retail sales of DTNA parts since its launch in 2020 via our e-commerce platform. a platform accelerator, a comprehensive line of replacement parts, maintenance items, and accessories for medium and heavy-duty commercial trucks and buses. After starting sales for the new Kanta in various markets, Fuso now started the production of the truck at Mitsubishi Fuso's plant in Kawasaki in Japan. For the European markets, production will start soon. Diamond Truck Financial Services also started operations in France in Q1. With this final step, we have completed the initial rollout in 16 countries in record time and have made a good start. In North America, the heavy-duty truck market continues to show strong demand with a year-over-year increase in the first two months of 2023 of 32%. Our market share came in at a strong level of 33.5% during this period. Our on-highway performance continues to be strong, and we are seeing the first positive impact from sales of our new vocational truck. Also, the EU30 heavy-duty truck market showed an increase year-over-year by 26%. Our market share stood at 17.8% in the first two months of 2023. Unit sales at Daimler Trucks increased by 15% compared to the first quarter of last year. All segments contributed to this increase. Trucks North America with unit sales increased by 12%. Mercedes-Benz with 2% where significant higher European sales were partly offset by the expected decrease in Brazil after the implementation of Euro 6. Trucks Asia with a positive development of 34%, and Daimler buses with a significant increase of 55%, mainly coming from Latin America. 125,000 units is consistent with our full-year guidance corridor of 510,000 to 530,000 units, but also mirrors the typical Q1 seasonality. We expect further growth in the remaining quarters. Incoming quarters for Q1 of 2023 decreased by 11%, mainly driven by Mercedes-Benz and Trucks North America. However, we have a very strong backlog and are in principle sold out for this year. The decrease at Mercedes-Benz is driven by Brazil to the slow Euro 6 take-up. In North America, we are seeing decline in incoming orders as we are at the moment only filling the remaining but already allocated slots for the remainder of 2023. The overall incoming order decrease was partly offset by Truxx Asia, especially due to the order increase from Japan and India. And we can again confirm that we still not see any indication of any material cancellations or push-outs. Now, let's look at our progress in CO emissions. In the first quarter of 2023, we sold 287 zero-emission trucks and buses, 76% above prior year. We got orders of more than 700 zero-emission vehicles, 100 units of prior year. We are ready and prepared to produce many more zero-emission vehicles as soon as there is higher market demand and infrastructure is ready. I can therefore only repeat what we at Daimler Truck have been saying for some time. If policymakers want to accelerate sustainable transportation, they need to accelerate the development of charging infrastructure for battery and hydrogen, and we need to see the industry move to TCO parity. That's why, for example, I was at least somewhat happy to see the EU's announcement of the alternative fuel infrastructure regulation in March. It provides a minimum framework for the development of charging and hydrogen refueling stations for all vehicle segments across Europe. More importantly, we very much appreciate the decision of the German government on a CO2-based toll system to be introduced next year. This supports the approach of Daimler Truck regarding cost parity and could become a real game changer. So things are moving, but we need more of these initiatives. We need to gain more momentum. We at Daimler Truck keep rolling our comprehensive zero-emission product portfolio for all user cases of our customer. Now let's take a closer look at the financials for the first quarter to complete the picture you received with pre-released preliminary figures. Revenue on group level increased significantly from 10.6 billion euro in the first quarter of 2022 to 13.2 billion in the recent Q1. Coop EBIT increased by 133% to 1.1 billion euro, while adjusted coop EBIT rose by 78% to 1.2 billion euro. Q1 was a clean quarter, as we had only minor adjusted items from restructuring and M&A, with in the latter mainly follow-ups connected to the spinoff. Free cash flow for the industrial business reflects the typical seasonality with inventory build-up at the beginning of the year, but it is significantly above prior year and came in at €168 million. Net industrial liquidity in the first quarter stood with €7.5 billion at the same level as at the end of 2022. For our industrial segments, revenue increased significantly to €12.6 billion. EBITDA adjusted increased to 1.1 billion in the first quarter, leading to a return on sales adjusted of 8.8%. Trucks North America achieved an EBITDA adjusted of 724 million euro and a return on sales adjusted of 11.6%, despite the underlying seasonality. A more or less flat development compared to last Q4 and a significant improvement versus the first quarter of 2022. Recent Q1 unit sales increased significantly year-over-year, and DTNA continued to compensate rising material costs and inflationary effects in production with strong pricing. The continued strong after-sales business delivered material positive contribution as well. Material and manufacturing costs continued to increase, but overall price-cost mix for the first quarter was clearly positive, allowing us to catch up what we missed last year. Overall, Q1 showed again a very strong quarterly performance at Trucks North America, sitting as indicated within our 2023 target corridor of return on sales adjusted of 10% to 12%. We expect this to continue in the upper half of the guidance corridor in Q2. Mercedes-Benz came in with an EBIT adjusted to €440 million, with a loss adjusted of 8.8%. After a very challenging Q4 in 2022, also driven by non-recurring effects, the recent Q1 saw a significant improvement quarter over quarter as well as year over year. Compared to the first quarter of 2022 on the headwind side, material costs remained at a high level. Same holds true for inflationary cost pressure. Our Brazilian business recorded a weak quarter in terms of profitability as expected and did not contribute to the overall results. Regarding tailwinds, the major positive effect came from a strong realization of pricing measures, especially in Europe, to balance higher material costs. After sales continues to generate strong results. And to a small extent, tailwinds from a strong used truck business baked by strong market demand. All in all, Q1 shows that Mercedes-Benz is improving its clear EBIT performance, and we make significant progress. We expect further improvements in Q2. Truck Asia came in with a return on sales adjusted to 4.6% on the back of an EBIT adjust of €114 million. Year over year, positive contributors to the EBITs were significant price increases, mainly from India and international markets, positive sales growth, especially in Indonesia, Japan, and India, as well as a strong after-sales contribution in both Japan and international markets. Headwinds resulted from material costs and constraint costs, especially in Japan. Our Chinese joint venture, BFDA, contributed negatively with a contribution of minus 15 million euros. The Q1 results of Truck Asia of 4.6% is sitting within the Ross Adjusted Guidance Corridor of 3 to 5% for the full year 2023. We expect this also to be the case in Q2. Daimler Buses saw a slightly positive result in the first quarter with an EBIT adjusted of 9 million and a Ross adjusted of 1%. Year-over-year, Q1 saw significantly higher unit sales from strong demand in both of our key regions, Europe and Latin America. A significant positive impact came from net pricing. Also, the after-sales business delivered a strong contribution. FX was also a material positive EBIT contributor at the bust side. On the negative side, material inflationary costs continued to burden EBIT performance. Two things to highlight. Latin America made a strong contribution to the financial performance in Q1. In Europe, the coach market and sales respectively continue to recover for the full year, what will impact our results more in the second half of the year. However, the market, especially the coach market, remains on a low level. Following typical seasonality in our bus segment, Q1 should be the weakest quarter in 2023. with the following quarters showing a gradual improvement throughout the year. For the group Q1, EBITDA of 1.2 billion euros showed almost a double performance year over year. As explained for the segments, the major positive effects came from pricing, volume, mix, and after sales. FX, to a huge part from US dollar translation, made a positive contribution of 77 million euros. Industrial performance came in negative with 505 million euro, a big portion of it is coming from material cost increases. Net-net price-cost mix in Q1 was clearly positive. Selling and G&A expenses were higher year-over-year due to inflationary pressure and spin-off-related IT projects. We will continue to work on our fixed-cost situation to counter this development. Financial services achieved a positive EBIT contribution of 5 million euro. Adjustments to group EBIT include 41 million euro negative cost effects mainly related to the spin-off. Q1 EBIT performance of the industrial business was based on positive contributions from all our industrial segments. Trucks North America delivered the strongest contribution with 289 million euro versus Q1 last year. Mercedes-Benz contributed almost 100 million euros of EBIT, while TruckAsia and Daimler Buses delivered each around 50 million euros year-over-year. As a result, EBIT adjusted of the industrial business significantly increased to 1.1 billion euros with a return on sales adjusted of 8.8%. At financial services, new business was significantly up by 53% year-over-year, mainly due to the phase 2 market integration in Europe. Contract volume versus end of 2022 improved slightly and stood at 24.5 billion by the end of Q1. EBIT adjusted increased year-over-year slightly to €52 million in Q1, resulting in a lower return on equity adjusted of 9.2%, mainly due to the ramp-up of our European operations. The main burden to return on equity came from higher selling and GNN expenses due to our additional markets in Europe. Positive effects resulted from higher portfolio volume by those additional markets. In addition, we saw an improved microeconomic and cost of risk saturation compared to first quarter of last year when Russia started the war with Ukraine. And the underlying credit quality of our portfolio remained very strong with low credit losses. Cash generation in the first quarter was mainly affected by a minus 1.1 billion working capital effect that came almost completely from a significant but typical seasonal increase in inventories, mainly in North America and at Mercedes-Benz. Depreciation and amortization of 277 million euros were lower than net investments in PP&E and intangible assets of minus 370 million euros. Provision and others mainly came in from changes to ongoing provisions. With that, we end up at a cash flow before interest and tax of the industrial business of 178 million euro for the first quarter. Cash taxes amounted to minus 87 million euro, which leads to free cash flow of the industrial business without adjustment for M&A transaction and restructuring measures of 168 million euro. Adjusted free cash flow of the industrial business stood at €355 million, an increase of more than 70% versus the first quarter of 2022. As a result, industrial net liquidity remained high at €7.5 billion. Before we go through the outlook for the full year 2023, please let me give you the following remarks. The following outlook of Daimler Truck as at our last disclosure call is subject to an exceptional degree of uncertainty due to the further development of the war in Ukraine and its economic consequences, inflationary pressure and potential central bank increase in interest rates, as well as the further macroeconomic and geopolitical development. In addition, the recent turbulences in the U.S. and European banking sector brought additional new uncertainties. On the production side, we assume ongoing and further supply bottlenecks, but no major production downtime. We still expect global market demand for trucks to stay strong for 2023. The market guidance given at our last full year disclosure on March 10 remains unchanged at 280,000 to 320,000 units expected for both our major heavy-duty markets. We see strong demand, but a defining factor for the market size is still the restrained supply chain. We also confirm our full-year guidance for Coop and industrial business for all KPIs. For Coop, we expect full-year 2023 revenue to be in the range of 55 to 57 billion euro. EBIT adjusted as well as EBIT reported are expected to increase significantly in 2023. Investments in PP&E and R&D costs are expected to stay on prior year level. Guidance for our industrial business includes an expectation of unit sales in the range of 510 to 530,000 units and revenues in the range of 53 to 55 billion euro. We are confident that we will achieve and return was adjusted with a range of 7.5 to 9%. Free cash flow reported is expected to increase slightly, which means up to 25% versus 2022. Overall, no change compared to our last full year result conference in March. Regarding the outlook for 2023 on segment level, we also confirmed the complete guidance given on March 10th. For the second quarter, we expect a positive volume development and consequently ongoing strong performance from all segments. For North American Mercedes-Benz, we have now a more positive view and given the strong start into the year, we see both segments in the upper half of their respective guidance range. On a group level, if the supply chain situation further improves, we currently see more positives than risks for 2023. Let me conclude with the big picture. You know our two strategic ambitions to unlock our profit potential and to lead sustainable transportation. The entire Daimler truck team is dedicated to deliver on these ambitions. And we are making strong progress. 2022, our first year of independence, was already quite a success for our company. The first quarter of 2023 now is a solid start into what we expect to be an even more successful year with even stronger financial results. Regarding the transformation of our industry, we are also well on the way. In sum, we will already have 10 different zero-emission trucks and buses in our portfolio by the end of this year. And more battery and fuel cell vehicles will follow in the years to come, especially for long distances. So we at Dynatrack know exactly what to do going forward. We are very excited about our road ahead, and we're very confident about the rest of this year. Talking about excitement, I'm looking forward to seeing you at our upcoming capital market day on July 11th, which will take place in Boston. With that, I would like to thank you very much, and I'm now very much looking forward to your questions.

Johan, thank you very much. Ladies and gentlemen, you may ask your questions now. The operator will identify the questioner by name, but please also introduce yourself and the organization you are representing. A few practical points. As always, please ask your questions in English, and as a matter of fairness, please limit the amount of questions to a maximum of two. Now, before we start, the operator will explain the detailed procedure.