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 annual results global conference call. We are very happy to have with us today Karin Radström, our CEO, and Eva Scherer, our CFO. Karin and Eva 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 website. I would like to remind you that this telephone conference is governed by the safe harbor wording you will find in our published results documents. Please note, our presentation contains 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 might be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. With this, I would like to hand over to Karen.

Thank you, Christian, and good morning, everyone. Thank you for joining our results call for the full year 2024. Before jumping into the numbers, I wanted to start with an update on my strategic priorities that I shared in our third quarter call in November. Regarding the succession for my previous role, I'm really happy that Achim Puchert has taken over as CEO of Mercedes-Benz Trucks on December 1st. Achim is a great leader and has built a great team in Brazil that has really turned around the business there. He's also a brave leader who doesn't shy away from difficult decisions, and he has a very good business knowledge. So I'm sure that Achim is the right guy to take Mercedes-Benz trucks to the next level. My second priority was to review our business setup and market opportunities. Since November, we've already taken two important decisions. The first one is a reorganization of the Mercedes-Benz Trucks segment where we have merged our businesses in India and China into the Mercedes-Benz Trucks business effective from January 1st. Regarding India, this means that the Bharat Benz business is in the process of being integrated into Mercedes-Benz Trucks under Achim's leadership. Regarding China, we've already announced that we're assessing the future setup of our joint venture, and these activities are now also part of the Mercedes-Benz trucks segment. So why are we doing this? Well, I'm convinced that this new structure will improve the ability of MB trucks to push scale and commonality of parts and components. across several product platforms while still maximizing our regional strengths. It will also help us to fully leverage a global production and development network and improve our usage of best cost locations. And it enables Mercedes-Benz Trucks to even better leverage our global talent pool And finally, we also see opportunities to increase the export of Barat Benz trucks into our global markets. Going forward, the results of the Mercedes Benz truck segment will therefore also include the results from our operations in India and China. Further details can be found in the appendix to our presentation. I mentioned there were two important decisions already taken since November. The second one is our Cost Down Europe program. With this program, we're aiming to reduce our annual recurring costs in Europe by more than 1 billion euros at the latest until 2030. I want to say that we've already achieved a lot when it comes to cost reduction and performance improvement at Mercedes-Benz Trucks in the past years. and our Cost Down Europe program is the next step towards a leaner and more effective operating model in Europe. It will increase our resilience and give us more financial flexibility to invest in new technologies, products and services. In order to achieve this, we're going to reduce all types of costs, from material costs, research and development costs, to operations, sales, headquarters, and DNA as well as IT, and this also includes personnel costs. We started talks with the Works Council in February, and since these discussions are currently ongoing, we unfortunately cannot share details on specific measures in this call today. And we will get back to you as soon as we can. We are currently revisiting and adjusting the strategy and we will introduce a strategy update at a capital market day later this year. It will take place on July 8th in Charlotte, North Carolina. So please mark your calendars. The last priority is one that never stops. We are and will continue to work on our values and our culture to become even stronger as a global team. with the ambition to build the world's best truck and bus company. With this, let's move on to the results overview for 2024. The overall key message is that 2024 is another solid year for our group. Adjusted group EBIT comes to 4.7 billion euros and adjusted return on sales in our industrial business is 8.9%. Earnings per share amount to 3.64 euros. This includes negative non-cash one-time impacts of impairments on our joint venture, including related receivables in China and cell-centric, as well as additional provisions for legacy legal proceedings. Eva will give you more details on that. As I said, it's a solid year. However, 2024 varied across our segments. Daimler Trucks North America and Daimler Buses continued with their very strong results. At Mercedes-Benz Trucks, we've seen a mixed picture. In Brazil, performance was strong. It was based both on our successful restructuring as well as good market conditions. In Europe, however, the performance was impacted by lower demand in our central European core markets and by challenges in adjusting the cost base to these lower volumes. Performance and resilience were not satisfying, so we are addressing both issues with our Cost Down Europe program. TruX Asia showed an operationally solid result in ongoing weak markets. Free cash flow of the industrial business was very strong in Q4 and increased to 3.2 billion euros, resulting in a net industrial liquidity of 8.6 billion euros. We continue to be a highly cash generative business. Now let's look at key market developments in the past year. In North America, the heavy-duty Class 8 market was slightly above average level, despite the impact from the longest freight recession we've seen. In 2024, heavy-duty market volume came to 308,000 units. Our Class 8 market share is 39.8%, once again reaffirming our clear market leadership. In the important U.S. market, our share was 40.8%. Our vocational strategy is paying off. We've increased our vocational Class 8 unit sales by more than 35%, from 28,000 to 38,000 units, and with this, increased the resilience of our North American business by reducing our dependency on the on-highway market where we dominate. In Europe, heavy-duty total market has decreased by 8% to 315,000. 2024 was still above the historical average of 300,000. However, delayed registrations of vehicles sold in 2023 but registered in 2024 inflated the market while truck demand in Europe, especially in central European markets like Germany, was weak throughout the year. We are continuing our pricing discipline and prioritizing profitability over volume, which helps to understand why our market share declined to 16.9%. This strategy is backed by our new Actros L, with 3% improved fuel consumption and the new Aerodynamic Pro Cabin, which had their start of production in November and where we're now ramping up in the first quarter. Next are unit sales and order intake. Overall, the 2024 numbers are below prior year. Sales are down by 12%, orders are down only moderately by 2%, after a significant order increase in Q4 by almost 30,000 units or 31% versus Q3. Our book to bill ratio increased from 81% in 2023 to 91% in 2024. As in previous quarters, the picture varies across segments. In North America, sales for the full year 2024 are down by two percent or almost 5 000 units in 2024 the u.s freight recession significantly impacted the order behavior of large customers in the heavy duty on-highway segment however our strength and offering in vocational trucks continues to partly offset lower demand in the on-highway segment orders were consistent with 2023 levels Although Q4 orders increased from Q3, the current order cycle remains below last year's, predicting lower production for the first half of the year. Demand for our Western Star Trucks continues to be strong. At Mercedes-Benz Trucks, and these are now the figures before our segment reorganization as of January 1st, Unit sales dropped by 20% with a very different development in the two main regions. Sales were down by 35% in the EU30, with sales in Germany, our most important market, being down 36%, while sales were up by 35% in Latin America and even 55% in Brazil. Total incoming orders are almost flat. However, orders are down by 15% in EMEA and significantly up by 47% in Latin America. Order intake in the last weeks is in line with Q4, and if this trend continues, it would support better group sales starting in Q2. At TraxAsia, unit sales are 22% lower due to ongoing weak key markets like India and Indonesia, orders are down by 10%. At Daimler Buses, after a strong post-COVID recovery, sales and order volumes have stabilized on a very solid level. Now let's look at our progress with zero-emission vehicles. In 2024, we sold slightly more than 4,000 battery electric trucks and buses, 17% above prior year. Orders for our ZEVs amounted to 5,600 units, which is an increase by 22%. So the development is unchanged to previous quarters. There is still a significant ZEV growth, but it's more modest than it has been in the last years. Despite that, we keep pushing ahead with the transition to sustainable transportation. And as of today, Daimler Truck already has 11 battery electric truck and bus models in series production, including long haul applications. The major challenge on the road to zero emission transportation is not a lack of vehicles, it is a lack of infrastructure. Today, there's not even 1,000 public charging stations for battery electric trucks in Europe, and by 2030, 35,000 such charging stations will be needed. This is why we have the following expectations to politics. First, we have to bring forward the revision of the CO2 targets for commercial vehicle manufacturers to 2025. In this revision, we need to link the CO2 targets by law to infrastructure expansion, and we need to also link them to a Europe-wide CO2 toll for trucks. A toll relief for zero emission trucks is key for our customers because they're rational people running their businesses on low margins, so they need to see cost parity with diesel. In other words, if CO2 targets are not linked to infrastructure expansion and a Europe-wide CO2 toll, manufacturers like us will be penalized if we miss the CO2 targets, even though we are delivering what we're responsible for. In addition to revising the CO2 targets, it of course also remains important that the infrastructure expansion urgently picks up speed. With this, I'd now like to hand over to Eva for a more detailed look at our financials.

Thank you, Karin, and good morning, everyone. Now, let me walk you through our financial performance for the full year and the fourth quarter 2024. Let's start with the group. Group revenues declined by 3% in 2024, reaching 54.1 billion euros. Group EBIT fell by 31% to €3.6 billion, while EBIT adjusted declined by 15% to €4.7 billion. Free cash flow of the industrial business grew by 12% to €3.2 billion, resulting in a net industrial liquidity of €8.6 billion at the end of 2024. Group EBIT adjusted was negatively impacted by a lower gross profit of the industrial business. Main negative driver was a 12% decrease in unit sales, with a majority of the negative impact coming from Mercedes-Benz trucks. Higher variable overhead, mainly driven by production inefficiencies and material cost increases, further burdened gross profit. The significant positive impacts from pricing and lower functional costs could not offset this. Financial services impacted group EBIT with minus 79 million euros versus 2023. Total adjusted items for the full year amounted to minus 1.1 billion euros. Thereof, minus 152 million euros were related to additional provisions for legacy legal proceedings. minus €867 million classified in the M&A category with minus €376 million attributed to spin-off related costs, mainly IT with minus €328 million. A non-cash impact of minus €281 million resulted from the partial impairment of our joint venture self-centric in quarter four. Due to the delayed development of the infrastructure for green hydrogen in the core regions, Europe and the United States, as well as the current uncertainty regarding the framework conditions in the USA, the carrying amount of the investment in our fuel cells joint venture cell centric was impaired by that amount as of December 31st, 2024. We remain convinced that hydrogen powered vehicles are an essential part of the CO2 neutral transport of the future if the European fleet targets are to be achieved. Minus €189 million related to our Chinese operations, primarily driven by a minus €180 million valuation adjustment for receivables already reported in quarter three. Of the total adjustment, €156 million impacted Mercedes-Benz trucks and €33 million trucks Asia. The assessment of the future of our China operations is ongoing. We will update you once the decisions have been taken. Minus 55 million are linked to restructuring, with half of it driven by an optimization program at our Trucks North America segment, and the other half coming from a transformation and restructuring program in our financial services segment in North America. Industrial business revenue decreased by 5% from 53.2 billion euros in 2023 to 50.7 billion euros in 2024. EBIT adjusted for the industrial business declined by 14% to 4.5 billion euros, with return on sales adjusted decreasing year over year by 100 basis points to 8.9%. Main positive EBIT contributors were Daimler buses with 220 million and Trucks North America with 173 million euros compared to 2023. However, these gains could not compensate for the negative effects from Mercedes-Benz Trucks with minus 766 million euros and Trucks Asia with minus 224 million euros. 2024 was another successful year for Truxx North America, with an EBIT adjusted of 3.1 billion euros and return on sales adjusted of 12.9%, both up from the prior year level, despite the market contraction and lower unit sales. Year over year, the North American class 6 to 8 market declined by 5%, but our unit sales only contracted by 2%. The U.S. freight recession continued to impact the heavy-duty on-highway segment. Our continued strength in the vocational and medium-duty segments partly offset the on-highway weakness. A recovery of the market in the second half of this year is dependent on the resolution of the current regulatory uncertainties, including potential tariffs. Order intake for our vocational trucks maintained its momentum. For the full year 2024, positive pricing and a favorable customer mix offset cost increases from variable cost, labor, and material. The change in the product mix from on-highway to more vocational and medium-duty trucks resulted in a headwind. After sales and the used truck business had a lower contribution to EBIT due to the weak freight environment in 2024. Our strategy is paying off. we are reducing the dependency on the on-highway cycles with our vocational strategy. Together with stringent cost management, we clearly see increased resilience in North America. The fourth quarter in 2024 was impacted by lower volumes, increased material costs, and FX headwinds. This was offset by pricing and customer mix, resulting in a relatively stable EBIT adjusted of 737 million euros and a return on sales adjusted of 12.3%, comparable to quarter four in 2023. EBIT adjusted at Mercedes-Benz decreased year over year from 2.2 billion to 1.4 billion euros in 2024, resulting in a return on sales adjusted of 7.5%. Under the new segment composition, EBIT adjusted would have been 1.3 billion euros and return on sales adjusted 6.4%. While we see an improvement compared to similar low volume market conditions in the past, it is also clear that a total 7.5% return on sales adjusted does not meet our expectations. Our Latin American business is now accretive. It shows that the profitability and resilience of Mercedes-Benz in Europe is not yet at the level we aim for. This is why we are targeting a recurring cost reduction in Europe of more than 1 billion euros until latest 2030. As Karin mentioned, we will update you in the course of the year on specific measures and progress. Looking at the 2024 full year, EBIT adjusted was negatively impacted mainly by the lower volume, resulting in underutilization in production. Higher variable overhead costs and a normalization of the used truck business also weighed on EBIT. Positive pricing after sales as well as lower R&D expenses could not offset this. Also, overall R&D, that means capitalized and expensed, were on a comparable level a higher capitalization for transformation projects resulted in a positive impact of approximately 100 million euros. Quarter 4 2024 came in with a return on sales adjusted of 8.1%, with an EBIT adjusted of 430 million euros. Similarly to the full year, major headwinds in our quarter 4 results year over year came from the drop in volumes and higher manufacturing and material costs. whereas after-sales FX pricing and lower R&D costs contributed positively. Trucks Asia reported an EBIT adjusted for 2024 of 106 million euros, with a return on sales adjusted of 1.7%. Under the new segment composition, EBIT adjusted would have been 231 million euros and Roth adjusted 4.6%. With 125,000 units in 2024, total unit sales at Truxx Asia came in at minus 22% versus prior year. Excluding the impairment of our China joint venture, as well as the respective losses recorded as at equity income, the return on sales adjusted would have been almost 300 basis points higher, close to 5%. This highlights the improved resilience within our Trucks Asia segment, in a weak market environment across Asia. Both India and Indonesia experienced significant market declines in 2024 compared to 2023, driven by uncertainty around elections and restrained government spending in India. Also, the market in Japan remained weak, with only a slight increase of 4%. EBIT in 2024 was supported by strong pricing, growing after sales, and lower SG&A expenses driven by strict cost discipline. These effects only partially compensated negative impacts from significantly lower volume and FX headwinds. As disclosed already in quarter two, the EBIT adjusted also includes the full impairment of our China joint venture BFDA, which amounted to minus 120 million euros. In total, the negative impact from BFDAs at equity results burdened Truxx Asia's EBIT adjusted by minus 165 million euros. The fourth quarter in 2024 showed positive impacts on EBIT from improvements in pricing, especially in Japan and international markets, stronger after sales, as well as lower SG&A expenses year over year. However, this could not compensate negative effects from lower volume of minus 15%. Daimler Buses delivered strong results in 2024, more than doubling its EBIT compared to 2023, with an EBIT adjusted of €434 million and a return on sales adjusted of 8.3%. Market conditions improved across all segments, driven by strong customer demand and a continued recovery of the European coach market. 2024 marked the first year where SETI-Vs surpassed 50% share in the European city bus market. Daimler Buses maintained its market leadership in its core market, EU30, Brazil, Mexico, and Argentina. Unit sales grew by 2% year over year. with incoming orders trending on the same level as previous year. The strong EBIT performance in 2024 was fueled by an improved mix, mainly from a higher share of cold sales, improved pricing, increased contribution from the after-sales business, favorable FX developments, as well as the positive impact from the re-measurement and sale of non-core shareholdings, which had a positive impact of 25 million euros. Minor negative effects came from inflation-related cost increases, particularly in manufacturing and personnel expenses. Q4 EBIT was supported by higher sales, stronger mix, better pricing, and favorable FX effects, which more than offset inflation-related cost increases. Let's have a look at our financial services business. EBIT adjusted decreased year-over-year from 211 to 133 million euros and return on equity adjusted decreased from 9.1% to 5%. The result is highly impacted by the ongoing freight recession and additional risk provisions related to two specific customers in North America. Positive volume and margin development impacted profit positively, partially offsetting the negative credit cycle. In 2024, cash generation at all our industrial segments benefited from a significant improvement in working capital, primarily driven by a decrease in trade receivables and a reduction of inventories of finished and unfinished goods towards the year end. Reduction of trade payables due to lower production and purchasing volumes had an opposite effect, though to a much lesser extent. Overall, these factors contributed to a positive working capital impact of 897 million euros. As planned and in line with the ongoing transformation of the trucking industry, net investments in property, plant and equipment, intangible assets and financial investments had a negative cash effect, totaling 1.8 billion euros. The major drivers here were investments for our new global parts center in Germany, the amplified battery cell manufacturing joint venture in the United States, and investments into the ramp up of new components and vehicles like the E-Actros 600 at Mercedes-Benz Trucks. This resulted in a cash flow before interest and taxes for the industrial business of 4.4 billion euros and an increase in the cash conversion rate adjusted from 0.8 one year ago to 1.1 in 2024. Cash taxes came in with minus 1.6 billion euros, resulting in a free cash flow of the industrial business of 3.2 billion euros. Taking into account the adjustments from M&A transactions, restructuring measures and legal proceedings, adjusted free cash flow of the industrial business stood at 3.7 billion euros. Industrial net liquidity increased by 300 billion euros to 8.6 billion compared to prior year. Main drivers were the free cash flow with the aforementioned positive contribution of 3.2 billion and cash outs of 1.5 billion for the dividend payment in Q2 2024. 850 million euros on the ongoing share buyback program over the course of the year and 500 million euros for equity injections into the financial services segment. Net profit declined by 23% in 2024 from 4 to 3.1 billion euros. This includes non-cash one-time EBIT impacts from the impairment, as well as valuation adjustments related to our Chinese operations, and from the partial impairment of CERCENTRIC, of in total €590 million. As a result, earnings per share decreased by 21% to €3.64. Free cash flow of the industrial business came in at €3.2 billion. Considering the non-cash one-time impact in EPS and the strong free cash flow, we will propose an unchanged dividend of €1.90 per share to the annual general meeting on May 27, 2025. This proposal reaffirms our commitment to delivering consistent returns to shareholders, and it aligns fully with our capital allocation strategy with a target payout range of 40 to 60%. We remain dedicated to maintaining a strong balance sheet, prioritizing cash generation, and ensuring a value-driven capital allocation. This marks the third dividend payment of Daimler Truck as a standalone company. We will continue to maintain a strong balance sheet, focus on cash generation, and adhere to a value-creating capital allocation, investing in highest return on capital businesses and returning excess liquidity to shareholders. This remains a core principle of our capital allocation strategy, which is also supported by our ongoing share buyback program. Now let's come to the outlook for 2025. As usual, our outlook is subject to further macroeconomic and geopolitical developments, in particular, potential effects of tariffs or their impact on market demand. Depending on the outcome of the ongoing discussions on our China business with our partner, we expect further financial implications that are currently not included. Since discussions with the Works Council are ongoing, restructuring expenses from the Cost Down Euro program are not included. You will also notice that we harmonized all guidance metrics by shifting to quantitative guidance ranges moving away from a mix that previously included qualitative guidance statements. The key factors driving the 2025 outlook are the ongoing low freight rate environment in the U.S. is impacting on highway trucks. Major markets are expected to remain weak throughout 2025. So for the full year 2025, we anticipate unchanged from last year's guidance, a range of 280 to 320,000 units for the heavy-duty truck market in North America. For the European heavy-duty truck market, we expect a range of 270 to 310,000 units. Now let's move to the financial guidance for 2025. For our industrial business, we anticipate unit sales in a range of 460 to 480,000 vehicles and revenues from 52 to 54 billion euros. Return on sales adjusted of the industrial business is expected in a range of 8 to 10% and we anticipate free cash flow to decrease between 10 and 25%. All in all, we expect an operationally stable 2025 compared to 2024. The second half of the year, is assumed to be stronger than the first half, both in North America and at Mercedes-Benz Trucks. Moving on to our segment. For Trucks North America, we expect unit sales in the range of 180,000 to 200,000 units, in line with our heavy duty market guidance, which is also expected around prior year level. Return on sales adjusted is anticipated to come in between 11% and 13%. Looking at the first quarter, we expect profitability at the upper end of the guidance range. It is reasonable to expect that persisting uncertainty around or implementation of tariffs would have an adverse impact on our volume and profitability projections. The ongoing uncertainty has already impacted order intake in the last few weeks, which might lead to a softer quarter too. Given the limited visibility for the second half of the year, And considering the new segmentation, we guide unit sales in a range of 160,000 to 180,000 units and return on sales adjusted within a corridor of 5% to 7% for Mercedes-Benz trucks. This now follows our new segment structure and compares to 2024 pro forma unit sales of 160,000 units and a 2024 return on sales adjusted of 6.4%. The impact of the new segmentation for the full year 2025 amounts to approximately additional 30,000 units and a negative impact of 50 basis points in return on sales adjusted. Order intake has been improving since quarter four. However, given the low order intake in Q3 and before, we expect a slow start with regards to volume in quarter one. Together with the simultaneous ramp up of the Actros L with a Pro Cabin and the eActros 600, we expect Q1 return on sales in the lower half of the full year guidance range. For Truxx Asia, we expect unit sales between 95 and 115,000 units. This compares to pro forma unit sales in the new segment composition of 103,000 units in 2024. We anticipate a return on sales adjusted of 4 to 6%. For quarter one, we expect an adjusted return on sales towards the lower end of the full year guidance range. The guided unit sales range for Daimler buses lies between 25 and 30,000 units with European line markets expected to stay on a high level. The European coach market increasing further and also higher market levels in Brazil and Argentina. Return on sales adjusted is expected to come in between 8 and 10%. For the first quarter, we expect an adjusted margin at the midpoint of the full-year guidance corridor. For financial services, adjusted return on equity is anticipated to be in the range of 8 to 10%, with an increasing EBIT due to further margin recovery, ramp-up of European markets, and easing of the negative credit cycle towards the second half of the year. For Q1 2025, we expect a return on equity adjusted slightly below the guidance corridor. To conclude, I would like to invite you to our Capital Market Day on July 8th in Charlotte, North Carolina in the United States. Please save the date. We look forward to seeing you there. As Karen mentioned, we will introduce an update of our corporate strategy, which we are currently revisiting in our Board of Management. Our updated strategy will provide the framework for not only making Daimler trucks stronger, but for making it the world's best truck and bus company for our customers, for our shareholders, and for our employees. With this, I'd like to thank you very much, and we're now looking forward to your questions.