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 Q2 results global conference call. We're 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 Daimler Truck website. As always, 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 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. With this, I would like to hand over to you, Karen.

Thanks, Christian, and good morning, everyone. Also from my side, thanks for joining. Of course, we're here to deep dive Q2 and the numbers and the outlook. But before that, I wanted to give you a quick update on our big picture. As you know, at Daimler Truck, it's our ambition to build the best truck and bus company in the world. And I think we got a lot done in the last couple of months to support that journey. We finalized the definitive agreement to integrate Mitsubishi, Fuso, and Hino in June to form a strong Japanese global company. And we plan to hold a 25% equity stake in this company and will continue to collaborate to share technology and investments. Another highlight in July, we celebrated the opening of our global parts center in Halberstadt. In this new facility, we will be able to set global standards for availability of spare parts. And we are investing 500 million euros in this global parts center, which I think is a clear sign of our commitment to Germany, where we also plan to invest over 2 billion euros in our production network until 2030. In June, we also launched Cortura, our new software joint venture with Volvo Group to develop software-defined vehicle platforms. This will allow Daimler Truck to build on that foundation and deliver distinctive vehicle applications to our customers. A highlight from the defense business, which is a growth area for us, we did secure a big contract with the Bundeswehr, the German Armed Forces. By May 2026, will deliver a mid three-digit number of mercedes-benz arocs logistics vehicles and during the last months we've had lots of interest in this business we've also signed a letter of intent for local assembly of mercedes-benz trucks in the republic of senegal where we will deliver vehicles for defense for the fire brigade and for the police in brazil we launched our new extra heavy Mercedes-Benz AXOR, which has been a product gap that we had in the last two years. We see huge market potential for this truck, not just in Brazil, but also across our export markets in Latin America. And a highlight from India, where we reached an important milestone, we delivered our 200,000th Barrett-Benz vehicle. This is a brand that we established in 2012, which is tailored to the Indian commercial vehicle market and where we also see a lot of export potential. Now, strategy is nice, but it's all about execution. And I think here we have kept the momentum very high. Going forward, what's ahead for the rest of the year is to operationalize our strategy, which we presented just a few weeks back at our capital market day. and to become a simpler, faster, and stronger company. So there is a long list of things to do, but of course, I really look forward to checkmarking the last box on achieving industry-leading margins. Now let's turn to the results for the second quarter. The key takeaway is that we delivered a strong performance in the second quarter. As you know, we're facing an economic environment that's quite volatile, mainly due to the international trade and tariff negotiations and their unclear effects. This creates uncertainty for our customers, especially in the North American market, and makes it harder for them to take longer-term investment decisions. In these challenging conditions, we kept our profitability at prior year level with 1.1 billion euros adjusted group EBIT and the 9.3% adjusted return on sales in our industrial business. Our earnings per share were 36 cents, which does not reflect the strong operational results since they are impacted by one-time adjusted items. This includes the provision for restructuring measures in Europe and the impairment of capitalized development costs related to the delayed transformation of ZEV technology in the US. Once again, Trax North America was a strong contributor to our results, delivering 12.9% return on sales despite a 20% drop in unit sales. Daimler Buses, also delivered a double digit return on sales. Mercedes-Benz Trucks, Trucks Asia and Financial Services improved their profitability on adjusted levels compared to the same quarter last year. And Eva will take a deep dive with you in a minute. The takeaway message for me is that we have a strong first half, which gives us a solid foundation for the full year result, but we do expect more headwinds during the second half of the year. With that, let's take a closer look at the markets. In North America, the Class 8 market reached 135,000 units in the first half of 2025, which is a 7% decline year over year, mainly due to the increased uncertainty in the economy. The Mexican truck market was also weak following the transition to Euro 6 emission standards at the start of the year and pre-buy activities back in 2024. Our Class 8 market share was at 41.1%, underscoring our clear leadership position and showing that our vocational strategy continues to deliver good results. In Europe, the heavy-duty truck market declined by 15% to 149,000 units. Our heavy duty market share in Europe was 15.3%, which is an improvement. We were at 14.2% in the first quarter, so we are improving month over month. We remain focused on our profitability, but we're still confident that we can continue to grow market share, especially as we continue to roll out our new products like the Actros L with improved fuel efficiency. Next, let's look at unit sales and order intake. At group level, both sales and orders declined by 5% compared to the same period last year. At Truxx North America, sales declined by 20% and orders for Q2 are down by more than 50%. This reflects the current market environment in North America, where, as I mentioned, customers lack the certainty they need to make investment decisions. And this doesn't just affect Daimler Truck, it affects the entire industry. And we'll come back to this when we walk you through our outlook for the rest of the year. despite these uncertainties we are confident that the strength of our products will help us maintain our strong market position we're continuing our successful vocational strategy and have further increased our unit sales in the heavy vocational segment about order intake very recently in july we have seen better order intake And it remains to be seen whether or not this could be the start of a trend. At Mercedes-Benz trucks, unit sales remained flat, but orders grew significantly by more than 20%. In the EU30 regions, sales for Mercedes-Benz vehicles were up by 9% and orders increased by 30%. However, order intake momentum has slowed somewhat in quarter two after a very strong increase in the first quarter. The reason for this is that the general uncertainty around future tariffs and economic developments have spilled over somehow to Europe, which makes some customers more cautious with their investments. And even though activity is high, we also see that customers take longer to decide. At Trax Asia, sales rose by 13% and orders increased by 2%. At Daimler Buses, sales were up by 5% and orders increased by 35%, which gives us a very strong momentum in the bus business. Production slots are largely filled for 2025. Now, let's take a look at our ZEV volumes. For the first half of 2025, we sold nearly 2,000 battery electric trucks and buses, up from around 1,500 in the same period last year. In the city bus market, we sold more e-Citaros than diesel Citaros in the past quarter for the first time. So this marks a bit of a shift that cities are then increasingly opting for zero-emission solutions. However, order intake for zero emission vehicles declined from around 3,200 in 2024 to roughly 2,100 this year. And here I want to say that our most important products like the E-Axtros 600 continue to develop positively. For the first time in Q2, we are the market share leader in the heavy duty electric truck segment in Europe. As you'll see in these figures, they once again reflect that the shift to zero emission not only depends on the right vehicles, but also on achieving cost parity with diesel and building comprehensive charging infrastructure. This is still not moving fast enough, and a lot of work still needs to get done. With that, I'll hand over to Eva for a closer look at our financials.

Thank you, Karen, and good morning, everyone. Let's take a closer look at our financial performance for the second quarter. Please note that all figures presented include both continued and discontinued operations. The group delivered a strong result with an adjusted EBIT of 1.1 billion euros, remaining in line with the previous year despite lower unit sales and ongoing macroeconomic uncertainties. Looking at the performance by segment, Mercedes-Benz Trucks, Daimler Buses, and Trucks Asia and Financial Services all made positive contributions to the overall result. Given tough year-over-year comparisons, Truxx North America was the only segment with a negative EBIT impact, primarily due to the economic uncertainty in the US, which led to reduced sales volumes. For the industrial business, adjusted EBIT declined by 5% year-over-year, also totaling 1.1 billion euros in the second quarter. In line with our commitment to moving at the speed of light when it comes to technology adaption, we recorded an impairment of €218 million as an adjusted item. This reflects the non-cash derecognition of previously capitalized development costs due to the delayed transformation pace of battery electric vehicles, particularly in the U.S. market. Related to provisions for restructuring measures under our Cost on Euro program, we booked an adjusted item at Mercedes-Benz Trucks in the amount of €339 million. In the M&A category, €64 million were adjusted, with a majority related to IT carve-out costs. Trucks North America delivered an adjusted EBIT of €657 million and an adjusted return on sales of 12.9%. A strong result, particularly on tough comps compared to the second quarter of 2024. Unit sales in Q2 were down by 20%, as customers remained cautious amid ongoing uncertainty. Additionally, the Mexican market has been significantly weaker in 2025, following the Euro 6 pre-buy in 2024. Key drivers behind the strong EBIT and return on sales were disciplined pricing, as well as a continued favorable customer mix. Unfavorable tariff developments put upward pressure on material costs, and a labor agreement that took effect in June last year increased manufacturing costs year over year. However, we were able to partially offset these impacts through our continued focus on operational efficiency initiatives. Our Western Star heavy vocational trucks also made a positive contribution, delivering significant margin improvements compared to previous years. Finally, we achieved notable reductions in SG&A expenses, largely driven by headcount reduction efforts initiated in Q1 as part of the segment's resilience program. Mercedes-Benz trucks delivered improved results in the second quarter compared to the previous year, which included a €120 million impairment from our Chinese joint venture. Adjusted EBIT amounted to €283 million, resulting in an adjusted return on sales of 5.9%. The EMEA region continued its positive momentum. Also, overall results were still impacted by the ramp-up challenges in production of the new e-Actros 600 and Actros L models. Unit sales were broadly in line with Q2 last year, but a favorable sales mix provided some uplift. Additionally, the after-sales business continued its positive trajectory. In Latin America, we gained market share while maintaining strong profitability and continuing to be accretive to the group. Trucks Asia posted an adjusted EBIT of 64 million euros in Q2, with an adjusted return on sales of 5.4%. Both KPIs improved year over year, highlighting the further improved financial resilience in a challenging market environment. The Japanese market remained subdued, declining by 7%, while Indonesia saw a significant 12% drop, primarily due to uncertainties from governmental policies. Key tailwinds for Truxx Asia included higher sales volumes, sustained net pricing, lower quality-related costs, and continued SG&A discipline. These factors more than offset headwinds from unfavorable foreign exchange rates and mix effects. Daimler Buses delivered a very strong second quarter, posting an adjusted EBIT of 147 million euros and achieving an impressive adjusted return on sales of 10%. Supported by generally improving market conditions, Daimler Buses maintained its market leadership across core regions, including EU30, Brazil, Mexico and Argentina. The positive development in Q2 was primarily driven by higher sales volumes, along with favorable effects from both sales mix and net pricing. Smaller negative impacts resulted from increased material costs due to new emission legislation in Mexico and manufacturing costs, mainly driven by high inflation in Turkey, which were overcompensated by the devaluation of the Turkish lira. Let's turn to our financial services segment. Adjusted EBIT increased year over year from 12 to 23 million euros. This improvement was driven by stronger margins. which more than offset the impact of lower sales and higher cost of risk, mainly due to the ongoing freight recession in North America and negative currency effects. As a result, adjusted return on equity increased from 1.8 to 3.1% in the quarter. Now let's take a look at our cash performance in the second quarter. As expected, working capital effects weighed on cash conversions. primarily driven by the new product ramp-ups at Mercedes-Benz Trucks and pre-stocking at our new global parts distribution center in Halberstadt, Germany. This resulted in a total effect of minus 460 million euros. Net investments in property, plant and equipment as well as intangible assets totaled minus 297 million euros. These investments reflect our strategic focus on future growth and innovation including initiatives such as the Cortura joint venture with Volvo Group. As a result, cash flow before interest and taxes for the industrial business totaled €344 million. After accounting for €345 million in cash taxes, along with interest payments, pension contributions and other reconciling items, free cash flow for the industrial business came in at €20 million. On an adjusted basis, free cash flow stood at 96 million euros. At the end of Q2, net industrial liquidity stood at 5.9 billion euros, down from 7.9 billion at the end of Q1 and 7.2 billion at the end of Q2 2024. Over the past 12 months, the group has returned 1.5 billion euros in dividends and 1.1 billion through share buybacks. The current program will be completed today and will soon begin the next one. As you can see, we remain firmly committed to our strong shareholder return policy. With strong cash generation expected in the second half of the year, we are confident that net industrial liquidity will exceed our 6 billion target by the end of the year. Let's take a look at what we expect for the rest of 2025. As always, Our outlook is subject to further macroeconomic and geopolitical developments. The guidance is based on the assumption that we will be able to operate under the current USMCA framework, and it is subject to revision should there be changes in the tariff landscape or in the resulting macroeconomic conditions. As we mentioned during our Q1 disclosure, potential financial impacts regarding the way forward for our China business are not included. They are contingent on the outcome, of ongoing discussions with our joint venture partner. Due to the continued uncertainty in North America, we've adjusted our market outlook for the heavy-duty segment, now expecting between 250,000 and 280,000 units. Our guidance for the EU30 heavy-duty market remains unchanged. Our segment level guidance KPIs for 2025 remain unchanged except for trucks North America. Alongside our updated market guidance, we've also lowered our full year unit sales expectations for North America. We've seen a pickup in order activity in July. Assuming this positive trend continues, we now expect 135,000 to 155,000 units for trucks North America. Because of lower unit sales, we now expect full-year profitability to land between 10% and 12%. Our top priority remains serving our customers in the best way possible. With ongoing uncertainty around tariffs and the Section 232 investigation, in the first half of the year, our clear focus was on getting trucks to our customers. In Quarter 3, we expect truck volumes in North America to drop by around 20%, compared to the second quarter. Profitability is expected to come in below the lower end of our updated full-year margin corridor. For all other segments, the full-year 2025 guidance remains unchanged. For the third quarter, we expect group sales at Mercedes-Benz trucks to increase by 15% to 20% compared to quarter two. Despite ongoing challenges in Latin America, including inflation, higher interest rates, and unfavorable exchange rates, Profitability is expected to come in slightly above second quarter levels. For Truxx Asia, we expect Q3 group sales to be about the same as in quarter two, with profitability anticipated to be around the midpoint of the full year guidance range. Daimler Buses is expected to deliver Q3 sales and profitability around the level of quarter two. For financial services, we expect Q3 EBIT to be around the Q1 level. As a result of the new guidance for Trucks North America, our KPIs at both group and industrial business have been updated as follows. Adjusted EBIT for the group is now expected at 3.6 to 4.1 billion euros. Unit sales are now projected in the range of 410 to 440,000 units. Revenue guidance for the industrial business has been revised to a range of 44 to 47 billion euros. Adjusted ROS for the industrial business is now expected between 7 and 9%. And finally, free cash flow is expected to land between 1.5 and 2 billion euros. As mentioned earlier, cash generation will be back-end loaded, with stronger performance in particular expected in the fourth quarter. As we demonstrated last year, Daimler Truck has a track record of converting cash effectively towards the end of the year, following our usual seasonal patterns. These updates reflect our commitment to transparency and our focus on long-term value creation, even in a dynamic or uncertain environment. With that, we'll wrap up the presentation. Before we move to Q&A, I would like to take a moment to acknowledge that this is Christian Herrmann's final earnings call as head of investor relations at Daimler Truck. Christian, thank you for your outstanding work and dedication. We look forward to continuing our collaboration with you in your new role as head of corporate development. Thank you for your attention. We're happy to take your questions now.