Mercedes Benz Group Ag

Welcome to the global conference call of Daimler. At our customer's 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 website. The short introduction will be directly followed by a Q&A session. If you want to ask a question, please press 0 and 1 on your telephone keypad. To remove the question, please press 0 and 2 on your telephone keypad. Again, for a question, please press 0 and 1 on your telephone keypad and 0 and 2 to withdraw. I would like to remind you that this teleconference is governed by the safe harbor wording that you find in our published results documents. Please note that our presentations contain 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. May I now hand over to Stefan Hoffmann, Head of Daimler Investor Relations. Thank you very much.

Good morning, ladies and gentlemen. This is Stefan Hoffmann speaking. On behalf of Daimler, I would like to welcome you to our Q1 results conference call. We're very happy to have with us today Harold Wilhelm, our CFO. In order to give you maximum time for your questions, Harold will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler IR website. Now, I would like to hand over to Harold.

Thanks a lot, Stefan, and hello, everybody. Good morning. to that Q1 call, and I would say which is maybe a bit more than a Q1 call. Let me call it a bit kind of a preview or testimony of luxury meets tech, of margin expansion, of value creation being ahead of us. That quarter gives us confidence to push ahead with our work, both on the strategic and the operational side. We already disclosed the figures last week, so today we'll go more into the details, but also talk about the outlook, obviously. Let's jump to the key messages on page two. First, the Q1 margin at cars and vans demonstrates, I would say, the strength of our portfolio and our ability to lower the break-even point. Cash-wise, we look at an excellent level of net industrial liquidity. The key drivers of that were an effective working capital management and a stringent capital allocation. On the project focus, I mean the spin-off and the listing of the Daimler truck by the end of this year, that work is well underway with a lot of preparation work, obviously, and it will be submitted to an extraordinary general meeting in autumn. where Daimler shareholders will be asked to prove this historic strategic step. Product-wise, we are very proud that lately we could present three full electric vehicles to the world, the EQS, the EQA, and the EQB. They underline our ambition to lead in electric drive and car software with high-tech luxury EVs. Recently, one of you called it Luxury meets tech. As you could see in the intro, I love it, and we are well prepared to deliver on that. Looking on the key figures, page three, in the first quarter, we sold 729,000 vehicles worldwide. That is a plus of 13%. The revenue grew by 10%. If you adjust it for FX, it's 15%. Abbott's cash flow, nil, reflects the impact of group-wide ongoing positive development on top-line side, as well as the cost measures paying off. The free cash flow of the industrial business was at $1.8 billion, including the payment made in connection with the settlements with U.S. authorities on diesel, adding to a net industrial liquidity of more than $20 billion. Now let's have a look at Mercedes-Benz cars. Well, we started well at cars and vans into the year, into 2021. I would say we could keep the positive momentum of the second half of 2020. With the new S-Class and also the attractive SUV portfolio, we have a fascinating product and favorable mix that drives pricing. The S-class sales and orders are very encouraging. The first quarter, we sold more than 15,000 units, and that means deliveries to customers. GLE and GLS remain top picks among our customers as well. Our global EV share increased further and was in that quarter already at about 10%. In Europe, that means one in four cars sold by Mercedes and Smart were electrified. Yet, we delivered on the margin. With this development, we're on track to achieve our 2021 EU CO2 targets. Internally, we drove our fixed cost reduction measures and cost discipline further and showed overall positive industrial performance. At our Stuttgart-Untertürkheim plant, we're gearing up for electric first future. That means the Mercedes-Benz Drive System campus will become a technology competence center with a campus focusing clearly on electric drive and battery technology. That means transformation is actually taking shape. Let's have a look at the EEQ product portfolio on the page six. In the first months of 2021, we presented three full electric EQ models, the EQA, the EQB, and our first Mercedes-Benz all-electric platform in form of the new luxury sedan EQS. The EQS is the first model in the Mercedes family to be based on an electric-only architecture for luxury and executive-class electric vehicles. It's the S-class of the EVs. and raises the bar for sustainable high-tech luxury with industry-leading range, aerodynamics, and refinement. It delights the driver with a full electric range of up to 770 km according to WLTP and an output of up to 385 kW, over-the-air updateability, the new and impressive MBUX hyperscreen, and so many more features. Furthermore, the EQS is recharged in just 15 minutes for up to another 300 kilometers. And in terms of aerodynamics, we achieved a new best value of 0.2. We're excited by the initial feedback that we have gathered so far for the EQS. Just to quote two media, the EQS sets a high bar for large luxury EVs, a really, really high bar. or stepping into the EQS is like stepping into a car from the future. We are delighted by that feedback. Launch to the market in Europe will be in August this year, to be followed by US and China by the end of this year, beginning of next year. On the EQA, we have already more than 20,000 orders for that compact vehicle with progressive design, extensive range, and intuitive operation based on MBUX. On the EQB, the seven-seater with a unique position among electric cars, compact on the outside, spacious on the inside, all electric through and through. There is more to come, the EQE and the SUVs on a fully electric platform in 2022. By the end of next year, a total of eight Mercedes EQ electric vehicles will therefore be produced at seven locations on three continents. So you see, we are serious to move on an all-electric world only. Page number seven on the market. We can see that China is running well above last year's level and above pre-COVID level. For Europe, After recovery in the course of 2020, we see a slow but encouraging start into 2021, back to about pre-COVID level. And in the U.S., with a slow start but a steady recovery, we are coming back to pre-COVID level. Note, however, that the underlying market demand is even stronger. However, the semiconductor availability refrained us from realizing that full potential. Now on the VAN, page 8, we continue to make progress on the turnaround which we started last year and to make that sustainable. The efforts are clearly paying off. We have a volume growth with strong profitability underpinned at the same time by a lower cost base. The sales performance is strong with best first quarter in the US and in China. The group sales of electric vans quadrupled compared to Q1 2020. And we drive a consistent implementation of the electric strategy at the vans division as well. The next generation eSprinter is based on a newly developed electric versatility platform coming to market in the second half of 2023. Now on the financials for Mercedes-Benz cars and vans. Q1 sales and revenues are ahead of last year. Sales increased by 15% to 627,000 units. Revenues increased by 16%. If we adjust for FX here, we were up around 20%, which demonstrates significant mix improvement. The EBIT adjusted grew to 3.8 billion. The CFBIT turned positive to 3.1, demonstrating the focus on the cash flow. Let's have a more detailed look at the margin bridge. The favorable sales momentum at Mercedes-Benz cars translated in a significant increase in volume, structure, and pricing, where main drivers were especially S-Class, GLE, and GLS, but also on the lower end of the portfolio of the GLA and GLB, they had also a very positive contribution. The overall pricing environment furthermore had a positive impact on discount levels and residual values continued to develop favorably. The ruble and the US dollar drove a negative FX result of about 130 million. The industrial performance developed significantly positively on the production and on the material cost side. Additionally, we extended the use for lice as explained in our last year's disclosure. We worked on the reduction of selling and marketing expenses, however, without compromising on the market appearance, as you can see with the EQS presentation. The same holds true for G&A, where we continue to hold a tight grip on cost. The R&D came in with about 120 million higher year over year, which reflects, as we guided for, a slight increase in our technology roadmap. In the other lines, the most prominent driver is the increase of the equity result of BBAC with a total of $480 million in the first quarter. Remember, first quarter 2020 showed a COVID impact in China. In addition, we had a positive impact from the re-measurement at fair value. of the charging infrastructure operate at charge point, resulting from its IPO and a smaller M&A real estate transaction. Both topics amount to about 1% point loss in Q1. The adjustments in the quarter include expenses for legal proceedings and personal cost optimization programs. Furthermore, income of $600 million in connection with establishment for the GV for fuel cells cell-centric resulted in a positive contribution. Looking at the cash flow, page 11, the change in working capital underpins uncontrolled inventory management given the increased sales volume and richer model mix. Due to the semiconductor shortage, we had to pre-produce some components. because we anticipate to recover part of the lost volumes by the end of the year. As you can see, the net investments in PPE and intangible assets versus depreciation, amortization, and impairment continues on an almost balanced level, reflecting our rigorous approach to capital allocation. The other line is straightforward. It includes the adjustment of the BBC at equity result, other non-cash book gains within the segment, i.e. the charge point, the self-centric, and cash out from provision consumption. Finally, the other bucket includes the payments in connection with the ongoing governmental and legal proceedings and measures taken with regard to Mercedes-Benz diesel vehicles. This relates in particular to the payments made in March 21 in settlement of civil and environmental claims made by several U.S. authorities in the prior year in connection with emission control systems used in certain vehicles. On the adjustments, we have diesel payments, the Volvo GV with a cash inflow of $310 million, and payments made in connection with the personal cost optimization program. Now let's move over to trucks and buses. Here we could drive a sales growth in the first quarter. The increase of truck sales came mainly from Europe and North America due to improved market conditions, but also from gains of market shares. However, at the bus side, especially the coach bus segment was hit strongly by the effects of COVID-19. Incoming truck orders in all regions were significantly above prior year's quarter. The impact from semiconductor shortage was not very material in the first quarter. The first quarter, we were able to further reduce our used vehicle stocks. Net pricing developed favorably. End of February, we announced our plan to cooperate with Cummins. We signed an MOU to establish a global strategic partnership for medium-duty engine systems. And we also could close in the quarter the fuel cell joint venture with Volvo, which we announced already before. Let me emphasize a few points on these. On the page 13, So for the fuel cell, Volvo Group acquired 50% interest in the existing company, Daimler Truck Fuel Cell, for approximately 600 million euros. Daimler Truck and Volvo Group have agreed to rename the company as Cellcentric. Together we aim to commence serious production during the second half of this decade. In February, on the Cummins side, we announced an MOU concerning the global strategic partnership for medium-duty engines. As part of the planned strategic partnership, Cummins will invest in the further development of the medium-duty engine platform and its global production supply for Daimler trucks and buses as of the second half of this decade. Cummins is about to establish an engine plant within the existing Mercedes-Benz Mannheim campus to localize medium-duty engines. What does that mean altogether? These moves allow us to focus on our investments and to allocate capital to those areas where our future lies. Daimler Trucks invests in the development of zero-emission drive technologies and the further development of our own heavy-duty engine platform. On the market side, page 14, I think that the chart impressively shows that in the key regions, we're already back on pre-COVID levels by the end of Q1. Especially January and February are historically low sales months because of the production shutdown in December and strong deliveries in the Q4. With the production pipeline built back, we saw a strong march. Incoming orders exceeded the prior year's figure by 63% significantly. Benefiting from the economic recovery, level of incoming orders increased by 58,000 units to 150,000 units in the first quarter of 2021. This development is impressive and should cover as well for the sales development in the coming quarters. Book to build, therefore, was at 150% coming in particular from Europe and the US as well as Asia. That means we're literally sold out in North America. And if you look at the incoming order levels, it's important to mention that we did not open the order book yet for the next year. On the financial side, The sales increased by 4% to 101,000 units. The revenue decreased slightly by 1% to 8.7%, but remains close to prior year level. Adjusted for FX, revenues increased by 5%. Adjusted EBIT more than doubled and amounted to 518 million euros. C-BIT turned positive to 435 million. Looking at the margin walk, higher truck unit sales, mainly in Europe and North America, resulted in positive volume, structure, and also net pricing, including a positive contribution from used trucks, business, and after sales. Pricing development is also favorable across all regions. FX results this quarter were slightly burdened by the U.S. dollar, translation effects that were offset with transactional effects from other currencies. Within the industrial performance, we see slightly higher costs for raw material as well as supply chain constraints and logistic costs. Bear in mind that quarter one 2020 was not yet hit by COVID-19. Overall, selling expenses stayed at about the same level as well as SG&A. In the positive other line, we have included, for example, a better equity result from our Chinese GV risk photon. That leads to The EBIT adjusted of 558 million, which equals a return on sales of 6%. Adjustments include the GV with Volvo and expenses for restructuring measures. The buses, on the other hand, is facing a very tough business environment. On the cash flow side, we can see that the working capital in Q1 was quite good. Even though we are operating at a higher market level, yet working capital grew under proportionate, used vehicle stock is on a record low level as well. The net financial investments reflect the cash contribution attributed to the Daimler trucks from the cell-centric GV with Volvo. Depreciation amortization exceeds net investment in PPE and intangible assets underlying our focused investment approach. The other line simply adjusts the EBIT effect from the cell-centric settlement, and that leads to a CFBIT of $620 million adjusted for restructuring measures and equity injection. So the CFBIT adjusted amounts to $435 million, which is a cash conversion rate of 0.8. Over to mobility, page 18. Compared to The first quarter last year, we could see a slight increase in new business, mainly driven by strong loyalty and customer retention, especially in China. Credit reserves are on a stable level with continuously low net credit losses. Also at Daimler Mobility, the execution of our efficiency measures shows a positive impact on earnings. Absolute OPEX figures go in the right direction. At our mobility services, we're further optimizing our shareholdings and improve our operative business. Let me pick a few examples. Recently, we announced the plan to sell the ParkNow group with 2EZ Park. At ChargeNow, we aim to gain a new partner, an investor with BP joining Daimler Mobility. and BMW Group as a third investor. At free now, we continue our growth plan. We will launch multi-mobility services in more than 30 new cities in 2021. And also in share now, we start worldwide the first reward program in 14 cities in Europe. On the financials, page 19, the new business was up by 4%. The contract volume amounted to 153 billion. That is 1% higher than at the end of 2020. However, the portfolio decreased in Europe and America, but could be overcompensated by FX effects. Adjusted EBIT increased significantly to 691. And page 820 shows you how we could get there. So that means that... 691 equals 18.7% return on equity adjusted. Let me briefly explain how we could get there. Small and negative FX effect. Key reason for the EBIT improvement compared to last year came from the lower credit risk provision and the higher interest rate margins. After an increase of credit reserves in the past year, we could see a further flattening of credit risk provision by the beginning of this year. Absolute net credit losses are below the long-term average. Cost of credit risk ratio is at 0.25% compared to 1.58% in the same period last year. Furthermore, positive operative business performance contributed to a higher EBIT. The adjustments of $54 million versus last quarter relate mainly to a one-time effect coming from the sale of shares in VR Inc. I have already explained on the group level, page 21, in the division walk. So the reconciliation includes costs for further cost efficiency measures at the group level and group project-related expenses. Therefore we can see that the group all in EBIT is at 5.7 and on an adjusted basis at 5. The adjustments amount to 778 million as we could see in the division part already. Page 22 on the free cash flow. We highlighted already the division sections, so what else? The cash taxes are at 355 million, which is, as usual, for first quarter, slightly below the average. Pension effects of 126 negative. That's mainly due to internal transfers between the entities. The reported free cash flow from the industrial business is at 1.8 billion and includes 0.9 for the payment made in the settlement with the U.S. authorities, as I explained already before. Free cash flow adjusted for legal proceedings, restructuring measures and M&A is at 2.8 and marks another step on our way towards a cash flow oriented culture. Page 23 on the net industrial liquidity, that stands at 20 billion, increased by 2.2 compared to year end 20. The increase is mainly due to the positive free cash flow of the industrial business and the slight positive FX effect. Invest and depreciation are basically balanced. As you can see on the chart, disposal of shareholdings adds to by 0.5 billion. Worthwhile to mention, three rating agencies upgraded their outlook in Q1, S&P and Moody's to stable and Fitch to positive outlook. Overall, I would say with that net cash position, that leaves us with a very significant financial flexibility. Now we jump to the outlook, page 25. So how do we see the guidance for the full year? Before I start on that, please note that all guidance are made under the assumption you see on the slide. meaning no further COVID-19 related setbacks. Our expectations for the development of business in 2021 are based on the assumption of a gradual normalization of economic conditions in the markets that are important to us. In particular, we assume that the world economy will be able to recover from the pandemic-related weakness of the year 2020, aided by, among other things, increasing availability of effective vaccines. Based on the expected global economic recovery, worldwide demand for cars and vans is expected to continue favorably this year, and significant growth in market volume is expected for 2021 as a whole. The Chinese car market, which performed better than most other major markets last year, should now grow significantly as well this year. This is a change to the market guidance we gave in February. The economic recovery should also result in improved demand in the major truck markets. That means that in North America and in the EU, we expect significant growth in demand for heavy-duty trucks. This is unchanged. Page 26, we expect continued positive stimulus from the economic recovery and good underlying demand for our products. We continue to expect the group revenue and EBIT in 2021 to be significantly above 2020. On the free cash flow reported, we keep our guidance that it will be below last year's figure due to the payments in the context of the settlement with U.S. regulators in civil law proceedings. At the full year disclosure, I also stated that we expect the free cash flow adjusted to be below last year's figure. As of today, however, we do expect free cash flow adjusted to be in the vicinity of the prior year level despite higher cash taxes. Our group guidance for Invest R&D and CO2 emissions remain unchanged. Page 27, on the divisional side, let me talk about unit sales and start with a general but important remark. The current worldwide shortage of supply in certain semiconductor components affected deliveries in the first quarter and could further impact sales in Q2. However, we assume some recovery in Q3 and Q4. At this stage, the visibility is limited. Unfortunately, two events occurred in February that posed further challenges for the industry. While our supply chains were already tight and our reserve stocks were low, there was an interruption of about four weeks in the supply of utilities in semiconductor factories relevant to us in Texas, as you know, due to the storm. as a result of which clean rooms were unable to operate. And in addition, as one is not bad enough, there was a fire in the semiconductor factory in Japan of one of our suppliers. We and all our partners in the supply chain are making great efforts and taking various measures to reduce the impact of these significant production losses. Obviously, we monitor the situation closely on a 24-7 basis and we are in constant exchanges with the suppliers. In terms of full-year sales, it is currently anticipated that lost volumes can be partly recovered by the end of the year. Based on those assumptions, or should I say despite those assumptions, the sales guidance for cars and trucks and buses is unchanged at significantly above prior year. The full year disclosure is, I clarified, that significantly means here more than 7.5%, or you could call that half sun or fair weather. From a customer demand perspective, we even would see more pull. However, opportunities beyond that level remain. are at risk due to the discussed semiconductor issues. For vans, we increase our sales guidance also to significantly above from slightly before. Now on the roster adjusted, cars and vans, based on the strong Q1 development, we now expect 10% to 12% for the full year. For trucks and buses, unchanged at 6% to 7%, confirmed by the good Q1 performance. And I think I made that comment, and I'll make it again. I still see it at the upper end of that range, despite the semiconductor issues. For DMO, based on the strong Q1 development, we now expect 14% to 15% for the full year. On the divisional guidance for adjusted CCR, they stay at the healthy levels we communicated before. So to wrap it up in terms of strategic priorities, page 28. We outlined them during the full year disclosure in February. I think we are making progress in the right direction. You can see that in Q1 we could increase, I mean, the performance. We focus on profitable growth. We can leverage, I mean, pricing power. We made significant progress on cost efficiencies. And on that basis, we uplifted, I mean, the guidance as you see here this morning. We want to further accelerate on the technology side. We already made important steps in terms of electrification and digitalization, and I think that has been powerfully demonstrated by the product launches, in particular the EQS in April. By implementing project focus, we aim to unlock the full potential of two strong independent businesses. The plan is to complete the listing of Daimler truck until the end of the year. The truck strategy update will take place on May 20th. Invitations will be sent soon. Please note the date. And we will have the EGM in fall for shareholder approval and another CMD in November. The Q1 showed we deliver on these priorities and we're looking ahead to make our efforts long-lasting and sustainable. And by creating the two pure play companies, we want to create Mercedes as the world's preeminent luxury and tech car business, leading in electric drive and car software with margins that reflect our luxury ambition. And with Daimler Trucks, We want to establish it as the world's largest truck and bus producer and technology leader towards zero emissions. This being said, now it's really time for Q&A, I would say.