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?

Thank you, Harold. Yes. I will go relatively swiftly through this to give you more time for questions at the end and repeat everything I said at the beginning. But maybe to highlight one thing, before we went into COVID, in the month of January, we had a robust demand for our products, especially driven by good availability of our SUVs, GLE and GLS. So we felt cautiously optimistic at the end of January before COVID hit in China in February and then came to Europe, United States and other markets in March. If we now look at how this is progressing, as Europe and North America is down, we see positive signs in China. And as I mentioned, even though we're very focused on managing through this situation, we look at the long game at the same time with the new products and projects that we have in the pipeline. Going to page seven, I just wanted to show some numbers here on China, and these are wholesale and production that you see here. Wholesale always leads retail. So obviously down in February, wholesale came back in March, retail not quite yet, but we see now as we go through April that that's moving in the right direction. I don't want to overemphasize the positivism around this, but it is a green shoot in this COVID-19 crisis. And let's hope that other markets will not have a protracted period of sales being done, but maybe find a way to recover as well. Going to page eight, the number specifically for cars and vans, of course, a bit heavily hit by the lost volume. and I will get to the cash flow here on one of the following slides. Going to page nine, you can see here that the overall effect of volume and structure and net pricing was 571. If we would have looked at volume only, that drop would have been much bigger, but a relatively robust structure, especially carried by the SUVs, led to a better picture than if it would have been volume-driven alone. We know that in the industrial performance that we are still in investing mode and we are increasing depreciation from investments that we have made in the past. Harold made a comment about getting that into balance. We are working on it and we are progressing according to the plan that we presented before Christmas. We had an extraordinary event with bringing the smart brand into the joint venture with Geely, where we took 150 million benefit out of that. But on the other side, we're starting to manage cost. And of course, we're in cash management mode. You can see it, especially on the selling expenses. The adjustments are associated with legal proceedings. If I continue to page 10, on the cash flow side, You can see here that we ended up with minus 1.7 billion, which is the major part of the overall group result. But as was mentioned by Harold as well, we have been able to manage the working capital well in an unusual market situation. And the adjustment is also, of course, related to one-time events where we're paying out more money for accruals made previously. And thus, the cash flow adjusted ends up being minus 1.3 billion. Moving over to trucks on page 11, we knew already when we came into the year 2020 that the truck markets were on their way down. In North America, I would say normalizing after having been high, very high for a couple of years, and Europe coming down as well. This downturn has now, of course, unfortunately, been accentuated by COVID-19 as well. So the actions that we have initiated on the truck side, both on cost and now cash management, are very important, and we're proactively going through this restructuring and cost management. In terms of production, it follows a similar pattern as we see it on the cars and vans side. that we manage a balance between the demand and the production to not run up inventories. And as I mentioned, we remain focused on investing into technologies into the future, which includes the new joint venture with Volvo. On page 12, if you see this then in terms of numbers, the EBIT adjusted compared to last year more than halfed. On the cash flow side, we were okay. Here we have a more, I would say, proportional relationship between incoming orders, unit sales, and revenue drop, so not quite the structure effect that we saw on the passenger car side. On page 13, it's very evident that the volume drop, greater than planned volume drop in Q1 as an effect of COVID hit us hard, almost wiping out the EBIT of last year. And we have worked on the cost side and of course with cash management to counteract this and ended up with a profit of around 250 million euro. And if we look at on the cash flow side, other same comment as Harold made previously, In this case, on the truck side, we actually have a positive balance between net investments and depreciation. And in terms of the working capital, it's actually normal, quote-unquote normal, to build up some working capital in Q1 of the year. And we have tried to manage this cautiously. And it's not out of whack, but we see a small buildup here. I hand over to you, Harold, to talk a little bit about Daimler Mobility. Thanks, Ola.

With pleasure. So, obviously, Daimler Mobility was also affected by the far-reaching effects of COVID-19. We can clearly see that looking at the new business demand, which decreased compared to the level prior year by 7%, down to $16.2 billion. Therefore, the contract volume amounted to $260 billion at the end of March, which is 2% down compared to 2019. So we have been implementing measures to withstand the significant headwinds. What are they? Firstly, most important, temporarily support to our high-quality customer base, if necessary, with some payment holidays. Payment holidays and other restructuring measures are available at request for customers, but good payment record is a CP to that. We want to safeguard customers' loyalty and obviously retain them throughout the crisis. That will be a cornerstone to strengthen our market position as we exit the crisis. Secondly, we support also our dealer network with flexible solutions. Maintaining the full coverage of our distribution network via our strategic partners will also be crucial to ramp up sales during the recovery phase. If we look at page 16 in terms of the key figures, I commented the new business and the contract volume. So what can we see on the EBIT side despite the significant charge on expected credit risk? The Q1 margin is positive. On the page 17, if we look a bit more detailed, I mean into the bridge, obviously the adjustment on credit risk stands out. In order to take early account of the deterioration in forecasts by economic institutes and anticipated rising delinquencies as a result of COVID-19, we adjusted the credit reserves according to IFRS 9. That reduces the EBITDA significantly as we can see. At the current point of time, actual credit losses, however, remain at the normal level. We will continue to monitor that situation as we go out throughout 2020. At the same time, we reduced the OPEX run rate in DMO in the first quarter compared to 2019 respective quarter. Page 18, we Outlined earlier, the group EBIT came in and reported at 617. The adjusted EBIT was 719. We explained, I think, the adjustments in the division sections already before. So the only point left, I think, to explain here is the recon. And inside the recon, there is an adjustment on our investment in Bike Motor Corporation, which amounts to $150 million. Page 19 on the cash flow side, again, same thing. We talked about the cash flow evolution, which is now, I hope you appreciate, on the division side. Therefore, the only point to commend is the reconciliation from the CFBIT to the free cash flow at the group level, which is chiefly about the cash taxes. Cash taxes were impacted by cash tax cash tax payments in the first quarter relating to previous years. At the same time, the adjustment of prepayments will only take effect in the second quarter. Now let's look forward in terms of the outlook on the page 20. At this stage, as we said I think already earlier in March and in April, it's difficult to make any projection at this point in time. What can we say? However, I mean, global passenger car demand is expected to be significantly affected by COVID-19 across most important regions, even so some might stabilize in the course of the year. From today's perspective, we expect a significant decrease of the global passenger vehicle market. The European market should decrease significantly. The same applies to demand in Western Europe. U.S. passenger car and light commercial vehicle market should also decline significantly. The Chinese market most likely will return first to The recovery, as we could see already in the presentation before, first quarter weakness is unlikely to be compensated for its entirety by the year end. That statement applies to the total passenger vehicle market. Important truck markets, based on today's assessment, will develop unfavorably. North American market for Class A, demand for Class 8 is expected to decrease significantly. The same applies to EU30, Brazil, and Japan. On the page 21, from today's perspective, we see a significant decline in global economic mean output. That's what we need to anticipate for the year 2020 as a whole. Under the conditions of the virus pandemic, there is an exceptionally high level of uncertainty about ongoing business developments. The effects of the COVID-19 pandemic will hit customer demand, supply chains, and vehicle production. But all of that cannot be assessed with the usual degree of detail and certainty, making the re-evaluation of the forecast for the fiscal year 2020 complex. What we have communicated last week and what you see on this chart basically says we see all listed KPIs for 2020 below last year's level. The scope of KPIs for which we give this full year guidance reflects the uncertainty around COVID-19 and is in line with regulatory requirements. Maybe for the second quarter, we see the full impact of the lockdown situation with lower sales volumes, and therefore significantly reduced production volume for the second quarter. As a consequence of that, based on our current view, we expect Q2 adjusted EBIT on a group level to be negative. Also, as of today, we expect the free cash flow of the industrial business to be negative in the second quarter. However, with our cash preservation measures being implemented, And if I look into my cash position as of today as we speak, we should be able to contain the cash drain. We feel comfortable with the financial flexibility, which is protected by the countermeasures we have been talking about earlier, the gross and the net cash position, as well as the additional credit facility of $12 billion. So far from my side. Ola, you want to wrap up?

Thank you, Harald, for taking us through our guidance. As a short summary, we have taken measures and we remain focused on managing very thoughtfully through this crisis. One thing that I didn't mention before that I want to emphasize, if the markets turn back up again, we are ready to ramp up and capture opportunities. And contrary to some of the things that you have perhaps read, the supply chains in our case have been remarkably robust. So don't want to be overly confident in terms of market rebound, but if and when it comes, we're ready to go. And as I also mentioned, for future projects, especially in terms of focus on electrification, the road to CO2 neutral mobility, digitization, software architectures, those projects remain in full focus. And of course, the transformation plan that we presented to you before Christmas, we're fully committed to that. And we look at whatever measures we need to take to make sure that we come out on the other side in a robust fashion. So with that, I will hand over to Stefan. to guide us through the Q&A.

until the end of the second quarter.

And then secondly, how do you get out of this crisis? Ola, you said you're ready once the market comes back. How shall we envision a ramp up? Is this something that you are back in Europe to about 80% or so? I'm throwing a number at you here by the end of Q2. Or will this take longer to really come back there? Thank you.

Maybe I get started, Tim. Good morning. Thanks for your comments. So how do we look into Q2? No, I will not give you a number for April and Q2. I think I went already pretty far. Yes, we see Q2 EBIT and free cash flow negative. Why? The sales drop, which we could see already in the first quarter, however, will take full effect in April as basically most of the market's been locked down. This is what we mitigate by the production stop, which we initiated already by mid-March. However, you need to take into account that the implementation of measures and in particular the payment terms make the cash impact to come in only a bit later. What does it mean, therefore? Probably within the Q2, April should be the worst months. then the effects come in and may, should therefore be better months. Now, what else can I tell you? I alluded to looking into my cash position, my gross cash position as of today as we speak, as I think we're looking at that not only at the month's end, but we're doing that day by day. We have a cash war room into place. I can say that I feel comfortable with the gross cash position I have. I cannot quantify or I cannot, I know it, but I cannot give it to you right now. But I feel comfortable. And if you remember, I think I made the same statement at the beginning of April when we had the pre-call for the Q1. I hope that helps you a bit.

Second question to Ola, how do we get out of the crisis? Good morning, Tim. How would we ramp up? If I start with China, we are practically back to what I would call normal production, the old plan again. After having been down for the large part of February, we started in a one-shift operation and we used the month of March and beginning of April to get back up again, work very well with our suppliers, and of course, always look at this balance between demand and supply. In the European and North American operations and some of the other regions that we're in, we will use the same role model, if you will, and we're in constant conversations with our suppliers. Some production we have kept going, such as battery production, some of the components that we need now to feed China and make sure that we take advantage of the demand coming back there. And we are relatively flexible, both in our German plans, as is the case around the world, that we can more or less decide that we want to go a week with one shift and then the next week go to two and then eventually three. So we have the level of flexibility to be able to respond here. And as I mentioned, so far, supply chains have been robust. We have changed processes in our plants, needless to say, to protect our people, wearing masks where necessary, creating more situations where people are distanced from each other, disinfectants, you name it. So it's a new level, a new way of producing, but a way that is still practical and can protect the volumes that we need once the market returns.

If I can just follow up on that comment, Ola, thank you. Will those measures that you have now implemented, masks, your shifts probably not meeting each other and so on and so forth, prevent you from actually coming back to a reasonable productivity level, even if demand should come back relatively quickly? Or is that not a limitation?

The short answer is no. Of course, it is a little bit different than what you're used to where you didn't have any restrictions. But what we can see from China so far that the agility of the organization and how people adapt to this is remarkable. That's why I don't see it as a big threat, the fact that we have to take measures to protect our people. It's not a big threat against our ability to produce the volume that we need this year.

Thank you.

The next question is from Jose Asumendi of JP Morgan. Your line is now open.

Thank you very much. Good morning, Jose, JP Morgan. Maybe the first question for Ola. Ola, can you speak a little bit around the introduction of 48-volt technology across the portfolio in Europe? Any data points you may have there with regards to the penetration of 48-volt across the portfolio and the reception so far in the market? I think an important technology to meet the CO2 standards. And then, Harold, I'm sure you mentioned it during the presentation, but so slide 10 and slide 14, would you mind just going back again on those two slides to the other bucket? I think on slide 10, the other bucket is about $1.7 billion and that adjustment of $4.48. And then on slide 14, the other bucket as well, could you just explain again what are those figures, please? Thank you.

So first question to Ola on electric vehicles in Europe.

Of course, Jose. Even in this significant down market, we have our eye on the ball as far as CO2 compliance in Europe is concerned. Throughout the first quarter, I would say we are on track. It is our goal to be CO2 compliant in Europe. As I mentioned several times before, it will be a challenge, and you're not 100% master of what happens in the market in terms of the demand situation with the customers. But throughout the first quarter of this year, we are on the plan that we had set out in that plan we're executing. And I don't see any major reason, even if the market is down, why there should be – significant changes in terms of customer preference. So first quarter, so far so good. The challenge remains, but we're very focused on this.

Yeah, it was a page 10 and I think you said 14. I suggest I do it all together. It's the same basically at the truck as well as passenger cars in terms of the other cash flow. So basically the minus of $1.7 billion contains earnings, let's call it from the normal running business on a cash term basis, which is significantly positive, but then compensated by on a pre-tax basis by the cash taxes, $400 million. You could see that on the cash flow reconciliation chart. Then we have payments related to the utilization of provisions. That's mainly product-related issues which lead to cash out, again, which have been provisioned in the periods before, personal costs. Then we also have one-time payment for the discontinuation of the X class. and also net payment for bonuses of dealerships in the first quarter, which have been accrued for in the previous periods, value-added taxes, and imported duties. So it's really about cash-outs related to provisioning, and the profiling obviously is not totally balanced between EBIT and cash flow in the first quarter. That will balance out over the year as you then accrue for this type of stuff in the course of 2020. In total, probably at a bit lower level, I mean, given the reduced business volume. But that's why I said don't take the minus 1.7 as a run rate.

Thank you very much. Thank you.

The next question is from Patrick Hummel of UBS. Your line is now open.

Thank you. Good morning, Olan, Harald, and team. Two questions, please, from my side. First, to Harald, the 448 million provision you took in the FinCo, I understand that's the credit risk that's reflected here. Can we talk a little bit about the residual value risk? I think it would have to be reported in the cars and vans division rather than in the Finco. Has there anything been booked in the first quarter, actually? And it doesn't look like. And if not, why is that the case? Because it's quite likely that we're going to see a substantial negative impact on used car values. So any more color on that would be much appreciated. And second question to Ola, it's going to be difficult to answer, but even if only on a qualitative level, how do you see the world post-COVID-19, thinking about 2021 here in terms of how you're planning for the fixed cost base and the investments? Do you think that the world will be back fully to normal and 2021 could be a year with similar levels as in 2019, let's say? Or do you think that it's quite likely that 2021 would be substantially below 2019 and therefore you would have to be much more disciplined when it comes to cost and capex also not just for the months ahead but also in the medium term? Thank you.

Yeah, Patrick. You're right. The 448 is for expected credit losses. I really want to emphasize this is expected credit losses. As we speak at the Q1, we have a normal run rate of actual credit losses. The other point you alluded to is the risk on residual values with regard to leasing portfolio. Any adjustment necessary would not sit in the DMO books, but in the ones of MB and TRAC. So in the Q1, we also had a look into that, and we recorded some adjustment on it for the MB side. It's a two-digit number based on our current perspective, but certainly we continue to monitor that as well.

Patrick, with regard to your second question, of course, at this high level of uncertainty, it's difficult to say what's going to happen in the aftermath of COVID. Right now, we're focused on managing through this intense phase of the crisis. And we get constant updates from our chief economist based upon assessments that are gathered around the world. I would have to say one must take a prudent stance with regard to this. and not be too optimistic. So the plan that we presented in the fall, that was a very robust plan. We were delivering against that plan up until COVID-19. Now we will focus on cash management and getting through the crisis. But needless to say, in parallel, we will take a look at what a scenario could look like in the aftermath and then come back to you with more detail around that And I believe it's prudent not to be too optimistic at this stage because the significant impact on the economy could be something that lingers around for a longer period of time.

Thank you very much.

The next question is from Steven Reitman of . Your line is now open.

Yes, good morning. I'm Steven Reitman of Societe Generale in London. My question was about demand. You highlighted that you're seeing a recovery in China. When do you expect your retail sales to match the recovery you're seeing in your wholesale? I think you were down at the retail level about 24% still in March. What is the situation looking like in April for Mercedes in China? And also, looking at the rest of the world, what indications are you getting from your corporate customers? Obviously, when the restart happens, Have you had any significant cancellations or does the order book look relatively firm in the circumstances? Thank you.

Ola, would you take the question on China in recovery?

Yes. That kind of lead time between wholesale and retail is usually about a month, month and a half. We have not closed the month of April yet. We have today and one more day of selling. So in April and May, we should be back in balance as far as that is concerned. With regard to cancellations, that is too early to say on the passenger car side. On the commercial vehicle side, however, we can see that these bigger business customers are moving orders to the right. So you have a bigger effect on the commercial vehicle sales in terms of companies being more cautious than perhaps on the passenger car side. Having said that, during this lockdown here in Europe and also kind of lockdown in North America, the market really fell hard starting at the end of March and now through April. And how the sentiment will be once that quote-unquote lockdown starts easing up, it's too early to tell. Thank you.

The next question is from . The line is now open.

Thank you for taking my question. The first question, Harold, just on the cash flow statement on page 12, the other operating assets and liabilities was a minus 1.6 billion. Does this in part relate to the X-class actions, or could you perhaps just help us understand what the moving pieces are within that? And then the second question is, I think you've been very clear that you've continued to invest in key products through Q1 despite the disturbance in the marketplace. However, can you just confirm that at this point there is no expected delay to key product launches, including the S-class? as we get towards the end of this year, given potentially pressure around getting vehicles homologated and completing the final stages of testing. Thank you.

George, not sure, I mean, I'm getting the reference to the page, but I think you're referring to the other CFBIT and other assets and liabilities. which I explained before, and that actually includes cash out related to the X-Class. I hope that answers your question. In case not, the team is happy to come back to you.

Thank you. Maybe I pick up the one with the product projects. All the important product projects, such as the S-Class, even though we have had home office and sent an extensive part of our team into short working, All of these strategic product projects throughout these last weeks, we have tried to manage to stay on track. So a large portion, especially of our engineering group, has continued to work, again, as I mentioned, using new processes, but in an agile way, maneuvering through this complex situation. So as we sit here today, with regard to the S-Class, we are... Great.

Thank you very much.

The next question is from Horst Schneider of Bank of America. Your line is now open.

Yeah, thanks for taking my questions too. I actually, what I've got a lot I tried to constrain myself. First of all, I mean, when we look at , I know you are unable to give a more specific guidance now. I just want to know if you maybe could explain under which scenario you could be still positive in earnings and in free cash flow in 2020. What requirements would have to be met? Is it just that maybe you see a quick pickup, a V-shaped recovery? Would that mean that you can generate positive earnings? And then the other question that I had that was on trucks again. I mean, we know that this Actros is being launched in Europe. Do you see that in a weak market you can generate some outperformance in terms of orders? And then also, what is your exposure to the U.S. oil industry, for example? And the last question that I have is just technically. When we look at the DNA increases in Q1 that Mercedes cars invent, we can just take this signal times four, or will the level of DNA increase, I mean, will it rather accelerate in the coming quarters? Thank you.

Well, I think you really mean, as we discussed before, it's difficult to make any prediction at this juncture. and therefore I want to stay absent from making any indication here. I think I alluded to the profile as we see the second quarter, April and May, and what that means for cash flow and EBIT. Maybe if you combine what we were saying and the Q1 numbers, I mean, you see the impact of the measures we had been taking in Q1. You will see more in the Q2. If you take somehow the volume, which is coming through in the first and the second quarter, and you gross that up, maybe that can help you to give a view. Definitely, our target is to get through this crisis, protecting our financial flexibility, the cash position, and to protect, I mean, a healthy gross cash and net cash position for the full year 2020. Is it in a more aggressive scenario in terms of recovery or, I mean, a softer scenario? a scenario in terms of recovery. But I don't want to go beyond that at this juncture. With regard to the DNA step up, yes, we could see that in the first quarter in the Mercedes EBIT walk that sits in the industrial performance. I think that's definitely in line with what we had been saying in fall during the CMD. where we said all in all it's around, I mean, a 1% loss dilution. I think that's approximately the number in the Q1 if you do the math. So that should be the run rate, therefore, as well for the full year 2020. In absolute terms, right?

I mean, now the sales are much lower, right? So therefore this 1% guy, it should be now higher. Yeah.

That should be the 1% Ross dilution impact, yes. Okay.

So with regard to trucks, in the first quarter, I wouldn't pay too much attention to market shares because when you have a situation where perhaps a few big customers move some orders to the right, that could skew market share numbers in the first quarter. quarter of this year, so I wouldn't pay too much attention to that. Our product pipeline is very strong. We have extremely positive feedback from our customers, both on the North American side and also on the European side with regard to the new Actros. A bright spot has been actually also a recovery of Fuso in Japan. But I repeat, I would not read too much into market shares in a market that is as volatile as this. It's something that we have to look at more towards the end of the year. The oil industry, of course, fracking industry, they buy trucks as well. So depressed earnings in this sector is not good for commercial vehicles. And some other markets will be affected by this, especially the countries that heavily rely on oil. So a too low oil price in general is not good news. A more balanced oil price would be better for the industry as a whole.

And what is the exposure to the oil industry? I mean, Freightliner sales and percentage of sales to the oil industry?

I don't have an exact number, and honestly, I don't think it's that big of a number, but it's more of the economic effect of an industry that generates a lot of profitability that then has a ripple effect on the rest of the economy.

All right. Thank you.

The next question is from Tom Narayan of RBC. Your line is now open.

Yes, Tom Noren, RBC. Thanks for taking the question. A quick follow-up on the last one on trucks. I know Volvo reported March net order intake on trucks down 75%. Just curious if you had something similar. My two questions are, you know, some OEMs this quarter have reported high sales volumes versus customer deliveries, suggesting maybe inventory buildup at the dealerships. Just seeing if you had any comments on Mercedes-Benz cars vis-a-vis the dealership inventory levels. And I know dealerships open in Germany on April 20th. Just curious if you're seeing any customer appetite there. And auto suppliers have been reporting strong outperformance this quarter versus the market. And, you know, they delivered components to OEMs, I think, for future periods. You know, I was curious if you were, if you think they were seeing, if there were some pre-stocking happening at the OEMs in Q1. Thanks.

So, Ola, would you take this one? Yes. With regard to incoming orders, in the first quarter it was not as dramatic as you just described, but it was accelerated in April. I don't have, because the month has not closed yet, the April numbers. But it's fair to say that Q2, as is the case for passenger cars, will be significantly more difficult than was the fact in Q1. But I don't want to give a specific number at this stage. With regard to, you know, how did the dealers act and what's going on there, as I mentioned, when we started the year and we went into January, our retail sales were higher than our wholesale sales. So we were in a quite good situation by the end of January. And then we put on the brakes in China first, as we know, and then Europe and North America. So we haven't done anything unusual. And the dealers have also not done anything unusual. And we certainly haven't pushed cars onto our dealers in an unusual way. We have together with them tried to to break in the most sensible way. And we made the decision to suspend production relatively early. And it's also important when you come back on the other side that you don't overstock the dealers on the other side either. We're not going to push them into a situation where they have too much stock, but let them run down their lot and then start filling up. So all in all, there's not something extraordinary or unusual going on here, and certainly not something that has been initiated by us.

Ladies and gentlemen, thank you for your questions and for being with us today. Also, thank you very much to Ola and to Harold for answering all questions. Now, Investor Relations remains at your disposal to answer any further questions you might have. To all of you listening in from the Internet and from the phone, have a great morning, great afternoon, or a great evening, and we look forward to talking to you soon. Thanks and goodbye.