Mercedes Benz Group Ag

Good morning, ladies and gentlemen. This is Stefan Hoffmann speaking. On behalf of Daimler, I'd like to welcome you on both the telephone and the internet to our Q1 results conference call. We are very happy to have with us today Ola Kelenius, Chairman of the Board of Management of Daimler AG and Mercedes-Benz AG, and Harald Wilhelm, Member of the Board of Management Daimler AG, responsible for finance and controlling Daimler Mobility and of Mercedes-Benz AG, responsible for finance and controlling. In order to give you maximum time for your questions, the two gentlemen will begin with a short introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler IR website. One additional remark, We are divided up into groups as it is business as usual in the current time of Corona. So please bear with us that you may have to wait a second until you receive your answers as we might have to coordinate a bit more internally. Now I'd like to hand over to Ola.

Thank you, Stefan, and good morning, everybody. We certainly live in extraordinary times and are facing an, I would say, unprecedented situation with COVID-19. I'm sure that everybody on this call is enduring some complexities in both their professional and personal lives. But I hope you're well, given the circumstances, and I also thank you for joining us here today. COVID-19 is a challenge for almost all companies. But if you're a big manufacturing company like Daimler with substantial fixed costs, of course, a dedicated workforce and extensive global operations, we face all sorts of complexities in an environment where sales are down so significantly and when we're unable to produce as normal. This situation is certainly a tough test for the company, its decision-making and its people. But if I look at our actions so far, and also at the financial performance of Q1 that we're presenting here today, where we have ended the quarter with a positive result and controlled cash flow, I feel that we can be reasonably pleased with our reactions and focus. We were quick to take the proactive decision to stop production in March. And while, of course, circumstances in Europe meant that everyone in the automotive industry was required to stop plants and to keep people at home, I want to emphasize that we had already taken the decision to stop production in advance of the lockdowns, anticipating the slump in demand that we see now. It's not easy to just stop the industrial machine almost overnight, but we did it. And along with this production stoppage, we also moved very quickly into cash preservation and cost management across the company. Harold will talk more about this in a minute. We also moved quickly to bolster our balance sheet and now have a robust gross liquidity situation that gives us some comfort. The measures that we have taken with short time working, some redundancies and extensive spending cuts, they have not been made lightly. Many of our production people remain at home, unable to work. But we also need to support production in China where sales are recovering. And we also need to support customers such as emergency services and delivery companies who are using our products. So many employees continue to find a way to operate. And what we also do is to continue to ready new products and technologies for launch. This means that many of our engineers continue to work, again, in complex conditions. All in all, one has to say that it has been a difficult few months. It's likely to continue to be complicated, so I want to take this opportunity to thank all of our people for their work, commitment, and understanding as we manage our way through this unusual situation. We're now nearly at the end of April, and clearly the pressures on the business remain significant. It will be a difficult quarter in Q2. But I feel we have made the right decision so far and are well placed to weather this storm. I certainly don't want to sound triumphant at this stage. It is unclear how the COVID-19 situation will develop going forward. And we may face a prolonged downturn. And we need to prepare for this eventuality. If revenues are going to remain depressed for a protracted period, we may need to intensify our efforts. But I can assure you that we remain intensely focused on managing our way through this period, and we will make the decisions necessary to ensure that the company is well positioned for high performance on the other side of this crisis. This sometimes requires difficult tradeoffs, but we're intent on continuing to invest in the technologies of the future. Electrification, including the hybrids, and, of course, digitization and software architectures. These are the non-negotiable elements of our future. In the near term, our low-carbon product launches will continue as planned, both the latest generations of combustion engines with 48-volt systems. We have multiple plug-in hybrid launches this year, and we're launching the EQV in the summer and will present the EQA later in the fall. and, of course, several electrification projects also on the commercial vehicle side. In this context, I would like to highlight that last week we signed a preliminary non-binding agreement together with Volvo Group to form a 50-50 joint venture company that will engage in the development and large-scale production of fuel cells for heavy-duty truck applications and other use cases. So we remain focused on the future, and our strategic initiatives remain on track. But today, we're mainly here to talk about Q1, about our financial liquidity measures, and to give you a sense of how we will deal with the Q2 challenges. I will be available to take questions later in this call, but I'm going to hand over to Harold to run through the numbers. Harold, over to you.

Thanks, Ola, and for sure, hello to everybody. I hope you and your families are doing well. I'm on the page two of the deck now, the key topics for the first quarter. And it goes without saying that our first priority remains to protect our people from safety measures within Daimler to overarching solidarity actions, especially as we gradually ramp up production again. Looking at the Q1 results, all in all, I would say they are in line with our expectations in the context of COVID-19. CERTAINLY THE PANDEMIC CAUSED A SIGNIFICANT DECLINE IN ALL MARKETS. THIS SITUATION MEANS THAT WE INTENSELY FOCUS NOW ON CASH PRESERVATION AND COST MANAGEMENT. AS WE ALREADY MENTIONED IN OUR CALL A FEW WEEKS AGO, WE HAVE A FULLY FLEDGED SET OF COUNTERMEASURES IN PLACE. WHAT ARE THEY? FIRST AND MOST IMPORTANT, WE ADJUSTED THE PRODUCTION TO MANAGE OUR WORKING CAPITAL. For the time being, this affects the majority of production and work in selected admin areas in Europe, but also in many other locations, U.S., Latin America, Africa, and India. We introduced short-term labor and agreed on salary reduction for management. We initiated capex savings measures and actually cut back on non-pressing topics. We also cut back OPEX and general procurement spent rigorously. But on the other side, as Ola pointed out before, we continue with our key important strategic projects. And if we see the operating mode we had over the last couple of weeks, I think we can say that we shortened decision-making paths and streamlined the organization in the context of COVID-19 operating mode. Now, let's have a look on page three a bit more detail in terms of the key numbers and the net industrial liquidity. The total unit sales significantly decreased in the first quarter. We sold 644,000 units in terms of cars and commercial vehicles worldwide. The key driver for that reduction of the That was a key reason for the reduction of the first quarter EBIT down to €719 million. The free cash flow of the industrial business was minus €2.3 billion and, again, was particularly influenced by the global effects of the pandemic. The adjusted free cash flow of the industrial business was at minus €1.9 billion. We responded swiftly to the temporary drop in demand by taking extensive production stoppages in March and April to protect our cash. Let's have a look on the page four in terms of the net industrial liquidity. It decreased to 9.3 billion at the end of the first quarter compared to the opening of the year at 11 billion euro. The free cash flow of the industrial business is at minus 2.3 billion. What does it consist of? First, I would like to emphasize, I mean, a working capital of only minus 0.1 billion, which is, I would say, in the context of the COVID-19 circumstances, quite okay. The investments still outweigh the depreciation in brackets, but you know we are working on it. and the earnings and other cash flow impacts of minus €1.7 billion. Let me explain these shortly. What does it include in both in the automotive division? In the first quarter, we have some cash-outs from provisions created in 2019, such as the stop of the X-class, such as a boni payment, or product-related cash-outs. And at the same time in the Q1 2020 EBIT, we have some corresponding non-cash effects in the first quarter included in the EBIT, the example being the positive impact from bringing the smart brand into the joint venture with Geely. So this column, earnings and other cash flow impact, does not represent a full-year profile. Don't take it, therefore, as a run rate. The negative free cash flow of the industrial business was particularly compensated by the lower Daimler mobility portfolio. That's not what you see in the net cash, and that's not what you see in the free cash flow, but I think it's important to emphasize as it leads to a reduced funding requirement. So again, looking at the net liquidity, it remained as a comfortable level. I think that's what we said at the beginning of April. So we clearly confirmed that here. But in the current context, we're looking not only at the net liquidity, but in particular at the gross liquidity and how we can safeguard the financial flexibility. I would like to zoom on that quickly on the page five a bit. If you look at the total financial flexibility we have on the chart on the left-hand side, including the 12 billion facility we did in April, it's now close to 68 billion euro, which means we are well-funded to weather several months of shutdown of automotive production and sales. Our financial flexibility mitigates risk and volatility through a balanced mix of funding instruments. The financial management focus is on safeguarding our solid rating, the refinancing, and to provide solid refinancing conditions. This current liquidity position also protects us against volatile market environment, secures our future investment needs, and provides financial flexibility. We successfully accessed the debt capital markets despite a highly volatile market environment. For example, 3 billion bond issued in Q1 early March with mainly a U.S. dollar benchmark or at the end of March with a 1.5 billion euro benchmark issue. In early April, we further increased our financial flexibility with an additional loan facility in the amount of $12 billion. This is on top of the existing $11 billion revolving credit facility, which has not been utilized and has a term until 2025, including extension options. The additional loan facility was agreed with an international banking syndicate and can be utilized within a 12-month period with two extension options of six months. So far the group numbers. Ola, can you go ahead now with Mercedes-Benz and cars, please?