Daimler Truck Hldg S/Adr

Good morning, ladies and gentlemen. This is Markus Poppe speaking. On behalf of Daimler Truck, I would like to welcome you on both telephone and the internet to our Q3 results global conference call. We are very happy to have with us today Eva Scherer, our CFO. 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 call 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 teleconference is governed by the safe harbor wording we'll find on 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. Now, I would like to hand over to Eva.

Thank you, Markus, and good morning, everyone. And thank you for joining our earnings call for the third quarter of 2025. As the results show, quarter three was shaped by a sharp downturn in North America and a slow-paced recovery across European markets. Industrial business revenue totaled 10.6 billion euros, driven by 98,000 units sold. Adjusted group EBIT totaled 716 million. Adjusted return on sales for the industrial business came in at 6.3%, with earnings per share at 57 cents. Free cash flow was 24 million, bringing our net industrial liquidity to 5.9 billion at quarter end. In a volatile global environment, we are focused on what we can control. Improving structural efficiency through disciplined cost management and targeted resource allocation to have the best value proposition to our customers. At our capital market day in July, we outlined our path to becoming a more resilient and profitable company, and we are executing on this. Product highlights in quarter three include the launch of the e-Actros 400 and the new Barrett-Benz HX series. The e-Actros 400 is part of a large electric truck portfolio extension based on the technology of our e-Actros 600 and further strengthens our market leadership in electric trucks. We call it the second generation of our e-Actros. It offers more than 40 possible combinations of the basic vehicle, depending on the application and requirements for range, payload and comfort. The new Bharat Benz HX series is tailored to meet specific needs in India's growing construction and mining segment even better, offering significant improvements in operational efficiency. Another highlight is our new cooperation with Accus, which aims to develop products and processes to better meet the needs of customers in the defense sector, with Mercedes-Benz providing the trusted Cetros and thereby contributing to the future modernization of the French Army's logistics truck fleet. Furthermore, we have signed an agreement with Autocar, which adds cost-effective manufacturing capacity to meet strong demand for the Mercedes-Benz Connecto city bus, further strengthening Daimler Bus' market position. Let me now turn to the developments in our key markets in the third quarter. In North America, the Class 8 market totaled 200,000 units for the first nine months, representing a 12% decline year over year. In the third quarter, the decline accelerated to minus 20% year over year. The drop reflects ongoing economic uncertainty and a weak US freight market. Our Class 8 market share held steady at 40% through September, confirming our leadership position. In Mexico, the heavy duty market declined 45% year over year. This was driven by the Euro 6 transition early in the year, compounded by economic weakness in quarter three. In Europe, the heavy-duty market declined 8% year-to-date, totaling 217,000 units. On the positive side, however, the third quarter saw 6% year-over-year recovery. Our European heavy-duty market share rose to 16.5% year-to-date and 19.1% in quarter three. This represents an increase from 16.2% in quarter two and 14.2% in quarter one. We have steadily improved our position, supported by strong demand for the Actros L. This confirms that our product investments are paying off. Let's take a closer look at unit sales and order intake in the third quarter. At group level, the book-to-bill ratio was 96%. Unit sales fell 15%. to 98,000 units, while incoming orders declined by less than 1% year-over-year to 93,900 units. At Truxx North America, unit sales dropped 39% and incoming orders 29%, reflecting the sharp contraction in the U.S. market. Considering tariff uncertainties, our effort to accelerate deliveries in Quarter 2 ahead of potential tariff changes amplified the sequential decline in unit sales. On a positive note, our current order backlog covers the 2025 unit sales guidance. At Mercedes-Benz Trucks, stronger order intake is now converting into higher unit sales, up 8% year over year in quarter three. Volumes rose compared to the third quarter, but were lower than planned due to continued ramp-up issues in our plant in Wörth, Germany, as well as a more muted market environment in India and Brazil. Despite tariff uncertainty and a slow-paced recovery in Europe, EU30 orders rose by 56% for Mercedes-Benz vehicles, with strong demand for our Actros L, leading to a book-to-bill ratio of 102% in Europe. Orders in Germany improved slightly by 5% for Mercedes-Benz vehicles. Latin America unit sales rose by 10%. A 6% decline in Brazil due to a weaker heavy duty market, high interest rates, inflation and political uncertainty was offset by stronger sales in Argentina and market share gains in the medium duty segment in Brazil. Order intake for Latin America increased by 6%. In India, unit sales rose slightly despite a market shift towards the 16 to 19 ton segment, where we have a lower presence and quarter four sales push out due to the VAT reduction, which became effective on September 22nd, 2025. Trucks Asia delivered around 26,000 units in the third quarter, an 8% decrease year over year. This decline was driven by weaker sales in Indonesia. Order intake rose 12% year over year, mainly attributable to growth in Japan and Indonesia. Daimler buses unit sales fell 4% year over year, mainly due to a weak Mexican market. Auto intake was down 12%, driven by softer demand from Brazil. Let's look at our SETI-V volumes. In the first nine months of 2025, we sold over 3,800 battery electric trucks and buses, up from 2,100 units in the same period last year. order intake for zero-emission vehicles remained flat at around 4,200 units. Our zero-emission vehicle data highlights that the transition to zero emissions depends not just on the right vehicles, but also on achieving cost parity with diesel and a robust charging infrastructure, areas where stronger government support is still needed. The transition has faced headwinds in both the US and Europe, Adoption in the US has slowed significantly and progress in Europe remains below expectations. On a positive note, our zero emission vehicle range continues to resonate with our customers, achieving a 56% share of the European heavy duty market in September and bringing our year to date market share to 33%, making us the market leader in electric trucks. Now let's have a look at our financial performance for the quarter. At group level, revenue declined 13% year-over-year to 11.5 billion euros, and adjusted EBIT fell 40% to 716 million. From a segment perspective, Mercedes-Benz Trucks and Financial Services contributed positively, while Daimler Buses and Trucks Asia saw modest year-over-year declines. Trucks North America profitability dropped over 60%, driving a 42% year-over-year decline in the industrial business EBIT to 668 million in quarter three. Trucks North America revenue declined 33% year-over-year to slightly below 4 billion euros, leading to an adjusted EBIT of 257 million and an adjusted return on sales of 6.4%. In addition to lower fixed cost absorption, the profitability was affected by higher R&D spending and expenses related to capacity adjustments. The tariff impact was in a double-digit million range in the third quarter. Pricing remained positive in quarter three. However, the product mix generated a headwind with fewer Cascadia and Western Star vocational trucks and a higher medium duty share with lower captive powertrain penetration. Following significant production adjustment, our dealer inventory was reduced by approximately 15% in the third quarter, in line with the overall industry decline. This normalized inventory will benefit us once the market rebounds. Mercedes-Benz Trucks revenue rose 3% year over year to almost 4.9 billion euros, with an adjusted return on sales of 6.5%, and adjusted EBIT of 319 million. While a significant improvement was anticipated in the third quarter, stronger than expected demand for the Actros Pro Cabin combined with ongoing supply chain constraints have continued to limit our production volumes. In EMEA, profitability improved on higher volumes, a favorable mix, and a release of previously accrued bonus provisions. partially offset by increased R&D spend and selective pricing measures. As expected, in a competitive European market, we remained focused on executing the cost reduction initiatives that we outlined at our Capital Market Day in July. In Latin America, business was impacted by a 7% market decline in Brazil. driven by a significant drop in the extra heavy on-road segment and a mixed shift towards medium duty vehicles with lower contribution margins. Volumes in India rose slightly year over year. Looking ahead, we expect demand to pick up following the implementation of a more favorable tax rate as many customers had delayed purchases in anticipation. Trucks Asia reported an adjusted EBIT of 67 million euros in quarter three. with an adjusted return on sales of 5.7% on revenues of almost 1.2 billion. The market environment in Asia remains challenging, with persistently low demand in key markets such as Japan and Indonesia. Despite weaker volumes, an unfavorable regional mix and FX headwinds, the segment delivered a solid performance by maintaining strong prices and exercising SG&A cost discipline. While we expect stronger new vehicle unit sales in the fourth quarter, TruX Asia's profitability will be impacted by increased headwinds from FX and significant seasonal increase in R&D expenditure. Daimler Buses delivered another strong quarter, reporting an adjusted EBIT of €137 million and revenues of over €1.4 billion, resulting in an adjusted return on sales of 9.8%. The segment maintains its market leadership across its core markets, including EU30, Brazil and Mexico. Adjusted EBIT was slightly lower year-over-year, as Q3 2024 included a €26 million gain from the measurement and sale of a non-core shareholding. Sorry, €26 million gain from the re-measurement and sale of a non-core shareholding. Q3 performance was supported by a favourable mix and strong net pricing. Adjusted EBIT for financial services rose year over year from 39 to 48 million euros. The improvement was resulting from stronger portfolio margins and lower SG&A. These gains more than offset FX headwinds and elevated cost of risk, which remained driven by the ongoing freight recession and macroeconomic uncertainty in North America. As a result, adjusted return on equity increased from 5.7 to 6.5% in the third quarter. Now let's look at our quarter three cash performance. Working capital had a negative impact of 121 million euros driven by higher inventories at Mercedes-Benz due to ramp up challenges in our German assembly plant, initial stocking at the new Halberstadt distribution center and the after effects on the North American production network following the fire at our Cleveland plant. Net investments in property, plant and equipment and intangible assets totaled €415 million. As a result, cash flow before interest and taxes for the industrial business was €202 million. After deducting €156 million in cash taxes plus interest, pension contributions and other items, free cash flow for the industrial business came in at €24 million. On an adjusted basis, free cash flow was 116 million. Net industrial liquidity was at 5.9 billion at quarter end, unchanged from quarter two. As in previous years, we expect cash generation to be concentrated in the fourth quarter. Let's turn to the key drivers for the remainder of 2025. Our guidance. for the two major regions remains unchanged. We continue to expect the North American heavy duty truck market to land between 250,000 and 280,000 units and the EU 30 market between 270,000 and 310,000 units. All segment level guidance KPIs for 2025 remain unchanged. Since November 1st, we've been operating under a new tariff environment. Some specifics remain unsolved and a full evaluation of the implications will require more time. For Truxx North America, we remain confident in our ability to mitigate the impact of additional tariff costs for 2025 and expect to land at the lower end of both the 2025 unit sales range of 135,000 to 155,000 units and the return on sales corridor of 10 to 12%. In the fourth quarter, we expect Trax North America unit sales roughly in line with third quarter levels, but profitability to be sequentially weaker due to an ongoing unfavorable mix, a fading pricing tailwind, increased tariff costs, and seasonally higher R&D and SG&A expenses. Full-year profitability. Mercedes-Benz Trucks is expected to land at the midpoint of the 5% to 7% guidance range. We expect Q4 unit sales for Mercedes-Benz Trucks to be approximately 20% higher than Q3, contingent on timely resolution of current supplier challenges. Q4 profitability is expected on Q3 level. Dax Asia profitability in quarter four is anticipated to be lower than in the third quarter due to further FX headwinds and seasonality in R&D expenditure, despite higher quarter over quarter unit sales. Daimler Buses is expected to deliver a significant sequential increase in unit sales in quarter four, with profitability slightly above quarter three levels. For financial services, we expect adjusted EBIT in the fourth quarter to be on a similar level as in the third quarter. We confirm our group and industrial business guidance. Given the heightened uncertainty stemming from the tariff situation in the US, we have not yet started our recently announced share buyback. We intend to start the buyback program once we have better visibility and we remain highly committed to a shareholder-friendly capital allocation policy. As you can see, Numerous dynamics are currently at play, many of which are externally driven. That's why we are focused on what lies within our control, enhancing efficiency and delivering value to our customers. Our results for the first nine months show that we are on the right track. That concludes our presentation. Thank you for participating. We're now happy to take your questions.

Thank you very much, Eva. Ladies and gentlemen, you may ask your questions now. The operator will identify the questioners by name, but please also introduce yourself and the organization you are representing. A few practical points. 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 procedure.