Mercedes Benz Group Ag

Welcome to the global conference call of Mercedes-Benz. At our customer's 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 Mercedes-Benz website. The short introduction will be directly followed by a Q&A session. If you have difficulties during this conference, please press zero and rhombus on your telephone keypad for operator assistance. If you want to ask a question after the presentation, please press 9 star on your telephone keypad. To remove the question, please press again 9 star on your telephone keypad. Please note that dialing 9 star a second time during the call will automatically withdraw your question. Please refrain from pressing the key combination multiple times during this call. I would like to remind you that this telephone conference 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 Steffen Hoffmann, head of Mercedes-Benz Investor Relations and Treasury. Thank you very much.

Good morning, ladies and gentlemen. This is Steffen Hoffmann speaking. On behalf of Mercedes-Benz, I'd like to welcome you on the telephone and the Internet to our Q3 results conference call. I'm very happy to have with me today Harald Wilhelm, our CFO. To give you maximum time for your questions, as always, Harald will begin with an introduction. directly followed by a Q&A session. The respective presentation can be found on the Mercedes-Benz IR website. Now, I'd like to hand over to Harald.

Hi, everybody, and thanks, Stefan. So, let's jump right into it. Quarter three, I would say, we once again delivered the mean solid financial results. Despite a subdued market environment, despite intensified competition, especially on the EV side, despite high inflation with unprecedented spikes. All in all, according to our weather chart, this would rather call for a rainy macro scenario. And looking at our results, I would say they look rather fair, between fair and sunny, let's say. So in other words, I mean, Q3 underscores the resilience in a subdued market environment. Let's have a look at the numbers on the page three on the group level, stable revenues. Group EBIT at 4.8, solid cash flow at 2.3, and a strong nil of 28. What are the highlights on the car side? Page 4, in terms of the performance, I would like to highlight, I mean, the Maybach sales up 26% in the quarter, the G-Class up 11% in the quarter. On the other side, the G, C, and E-Class, I would say this is pretty much the theme of the day. have been constrained by the 48-volt supply. On the profitability, we see solid results, in particular supported by improved mid-net pricing. On the products, I mean, we had the highlights during the IAA, the auto show, represented in the concept CLA. We also presented this year, I mean, in the quarter, the AMG GT, and all new E-classes stayed in all terrain as well as facelift of EQA and EQB. We also started to mean the sales of the new E-class in Europe and got excellent market feedback on the product. On the technology side, you can see with the concept CLA that this with a range of 750 kilometers, you know, that really manifests some segment leading efficiency. with around 12 kilowatt hours per 100 kilometer and with 800 volt systems charging up to 400 kilometer in 15 minutes. Also, lots of interesting stuff on the customer and experiencing side in terms of over-the-air updates on MBUX to more than 700,000 vehicles. Jumping to page five in terms of more details on the sales side, Q3, Sales at cars, 511,000 units. So year to date, that's a 2% up and therefore, I mean, fully in line with the full year guidance. In essence, I would really like to say we lost around 5% volume in the quarter. And if I look at the full year, probably we could have done 5% volume more overall on sales. However, due to the 48-volt, we are constrained on the GLC and the ECAS. Year-on-year sales in the quarter, lower mainly in China, but the quarter-over-quarter is a positive trend. If you look on the segments, on the entry side, you see our strategy prioritization, prioritizing value over volume at work in a very competitive market environment. The core is flat. That is mainly a result of the supply chain bottleneck on the 48 volts. And the top end, clearly we are in defending, in a leadership position in all markets. Combined, there is a healthy margin and very disciplined pricing. Top end year-to-date is up 6%. And we do expect it to grow on a full-year basis over last year, consistent with our story. Let me give you a few more data points on the top end in the Q3. On the AMG, you see a bit of a lower number, but that is mainly due to model changes like the AMGE class, GLC, and some positions, I mean, on the AMGE. So these models will come in in Q4 and then in 2024. On the S-class, the S-class clearly continues to lead in the segment everywhere in the world. In the S-class, you see a bit lower due to temporarily smaller certification topics, in particular in the US, usual seasonality and a bit of macro. In China, the S-class holds more than 50% of the market share, and are up there in China by 9% year over year in the quarter. And also in the U.S., if you don't look at the group sales, but rather at the retail sales numbers, you see that it's 48% up in the third quarter. I hope this explains that what you see in the quarter three is of temporary nature. Looking on the electric side of things, the transformation into the EV world continues. We can see the XEV share now at 20%. On the best side, the quarter is up 66%. And if you look more specifically to the EQS SUV sales, they more than doubled in the quarter. In total, in this quarter, we had EQE and EQS sedans and SUVs of around 24,000 units. I think that's a good number for a brand-new platform. In the U.S., the BEFs are growing nicely with year-to-date EQS registrations ahead of the relevant top-end competitors. And in China, we were ranked number one in terms of customer experience satisfaction in the survey of NEFs. by the Chinese arm of GD Power. Looking at the financials, page six, revenues are minus four in line with the sales. Year-to-date, revenues are up by 3%. ASP is almost flat year-over-year and slightly up quarter-over-quarter. EBIT adjusted at 3.4 and the CAC EBIT at 2.2. Let's have a look at page seven on the EBIT evolution. coming from 4.1 billion in last year's quarter. The bucket volume structure net pricing net looks small, but what happened behind is a much bigger thing. The arrows on the chart are roughly proportional to real numbers. So what does it mean? Year-on-year net pricing further improved. Net pricing was on similar level as the second quarter, 23%. and overall at a very healthy level. Pricing almost outweighs the slightly lower volume and the Q3 lighter mix effect. Volume and mix, I've explained already before, some on the AMG and the S-Class effect, and the non-availability of the 48 was on GLCs. Used car business was slightly negative year-on-year, coming from a very high level as we guided before. FX very briefly, 330 negative. chiefly from the Turkish lira, which is compensated in pricing, and the remainder is a translation effect from the RMB. Industrial performance minus 400. I mean, here we have now tailwinds from lower raw material prices, but they are outweighed by disproportionate inflation charges and supply chain-related costs compared to previous quarters. This is the main reason for lower profitability in the third quarter compared to H1. And I would like to explain what does disproportionate mean. That means that the charges in the quarter three relate to the first nine months of the year, so to the year-to-date timeframe and performance. Selling expenses are slightly better due to lower marketing expenses. G&A is slightly positive. And in the others, we have on the upside the proceeds from the sale of our operations in Indonesia, and on the other side, the positive impact we had last year on the interest rates, which we don't have anymore. So that leaves us with EBIT at 3.4, return on sales adjusted to 12.4. On the walk, page 8, from EBIT to cash, what can we see? Cash conversion rate, I mean, of 0.7. Working capital is negative around 500. Heavier finished vehicles sitting in the inventory, which I think that underpins, I mean, the softer Q3 top-end sales mix. And therefore, I mean, that should improve in the fourth quarter. So the vehicles are there. I think that explains that the mix in the quarter three is temporary. What else? On the other side, we had a bit of favorable trade payables, which is offsetting the inventory effect in the third quarter. Net financial investments refer to the sale of the operations in Indonesia. The net investments in PPE and intangible assets compared to depreciation are stepping up in line with the guidance, and that refers obviously to the investments in our legal architectures and future technologies. On the other bucket, I mean, you see basically the BVC at equity result and no DV in the third quarter. On the adjustments, these refer to the legal proceedings and M&A. Page 9 on the VANS, on the sales side in terms of the performance at the same level, However, on the profitability side, I would say, I mean, a very strong set of results with solid net pricing, good product mix, balancing supply chain-related costs. On the product side, we had a preview of a new lineup on the EQV, V-Class and V-Class Marco Polo, with more luxurious character, and on the eVito and Vito, a sharpened premium character. Looking at the sales of the vans, page 10, as I said, flat, in particular strong in the NAFTA region. And here the EV sales also doubled, however, coming from a low base. Page 11, in terms of the financials, all numbers are up. Big thanks and kudos to the van team. Outstanding results, I would say. So with flat sales, I mean, the revenues are 15% up. So you can see pricing and mix at work, EBIT adjusted 700 million, and the cash generation of a billion. On the walk, on the van, page 12, volume structure, pricing bucket increased by more than 500 million. That is coming mainly from the strong pricing and the better mix. Industrial performance is negative due to higher inflation supply chain-related costs despite raw material tailwind. In the interest of time, I would say I jump over the remainder. Going to the cash side of things, page 13, we see a $1 billion mean free CFBIT on the vent side. The adjusted cash conversion rate at 1.4. Working capital, I mean, slightly positive with 130. Lower finished vehicle inventories, favorable trade. Payables and receivables. Higher investments as guided in PPE and intangible. That refers to the ramp up of our investment into the VAN EA platform. And in the other buckets, you have several small effects, which are adding up to 160 million. On mobility, key messages, market environment is challenging, remains challenging. In particular, increased competition in China. The overall penetration rates, I mean, are under pressure with a positive trend. However, on the EV side, in particular in the U.S., thanks to the IRA, On the performance side, we see the impact in the margins from higher refinancing rates and intensified competition. In addition, we also see the cost of credit risk stepping up by weakening macroeconomic environment. At the same time, we also ramped up our charging activities, and you might have seen that we opened the first site on the 16th of October, and more will come in Germany and the U.S. in a couple of weeks. Page 15, key numbers, I think I mentioned already, new business increase in Q3, portfolio remains stable, a bit adjusted, decreased. Why? Let's have a look on the page 16. So how did we get there to 360 million and 10% return on equity adjusted, a bit of negative FX, negative cost of credit risk driven by more challenging macro environment. And then the big one is the lower interest margin, which is impacted by the higher refinancing cost and a higher level of competition. On top of that, we see investments for the charging unit in the third quarter. And I would say then a bit of favorable impact from our portfolio on mobility services. Page 17, what does it mean on the group side? The business side, I explained, there leaves the RECON, the reconciliation item, positive with the Dynatruck at equity result. And that gives us an EBIT adjusted of 4.9 reported 4.8. In between, you have the adjustments for legal proceedings. On the cash flow bridge, same thing. Business side, I mean, I explained income taxes are roughly minus 1.1 billion. Cash taxes are going up year over year, also due to lower offset tax loss carry forwards. We've significantly improved interest result due to the higher interest rate levels. And other than that, the recon item includes mainly central function-related topics. The free cash flow, therefore, on the industrial side of the business is at 2.3 billion. And I think with this number year-to-date, 7.9 billion. which is, from memory, I think, almost the level of full year 2022. On the NIL, page 19, 28.5 at the end of the quarter, starting from 26 at the beginning of the quarter. Solid cash flow, as commented before. We bought back shares in line with our share buyback program. of 0.5 billion. And as we speak, or I mean, as of today, we brought all in all roughly 1.3 billion back. That means we are well on track for the 4 billion program, which runs within the up to two years. So I think in terms of timing, we are front loaded. On the other side, FX and also dividend payment from MBM. Now, let's turn to the outlook. First, on the division side, the division guidance, I really would like to invite you to read the assumption charts carefully. In the interest of time, however, I jump over it and go to the CARS division guidance. First, on the sales side, we expect the pace from the first three quarters of 2023 to continue for the remainder of the year. As the 48-volt supply constraints on GLC and E-Class continue, we expect the mean Q4 sales at the same level as Q3 level. Without this supply issue, we would have expected a higher quarter four and the full year of approximately 5% higher. Quarter four expected top end share is expected to be higher than quarter three. And with that all together, we continue to see the full year sales level 23 at prior year level. Looking on the return on sales guidance for cars, for return on sales adjusted cars, we confirmed the 12 to 14% full year range. At the Q2 disclosure, we said that we see ourselves at the upper half of this corridor. What happened since then? The BEV pricing competition has intensified. We have defined our red lines here, but I cannot stay out of it completely. The GLC ramp-up continues to be limited due to the 48-volt supply issues. The GLC is a hot car, an important volume and margin contributor, and we would love to be able to hand over more of these fascinating cars to our customers. Also, the 48-volt supply issue now limits the ramp-up of the new E-Class, the 214. The new E-Class is a great car with fantastic product substance, enjoying great initial customer feedback. We just can't ramp up as planned at the moment. Last but not least, we see inflation-related supplier costs sitting at a higher level than at the beginning of the year and at H1 level. Despite all of these headwinds, we confirm our full-year guidance of 12% to 14% return on sales adjusted, but now see ourselves at the lower half of this range. The remainder cash conversion rate, PPE, as well as R&D remains unchanged. On the VANS side, the sales guidance is confirmed. The margin guidance was a strong margin year-to-date. We see the van adjusted return on sales, I mean, at the upper end of the 13 to 15% guidance range. We continue to see good sales performance, but some higher ramp up project related expenses by the end of the quarter for the van EA. The adjusted CDCR is also confirmed at 0.7 to 0.9. Invest PPE R&D is unchanged. On the mobility side, We're coming from a 12.9% year to date. We see the quarter four at a similar level than Q3. The effects of the deteriorating interest rate margin is likely to see a low point in the fourth quarter. Furthermore, we continue to see OPEX for our branded high power charging network. In the full year, we confirm our guidance, however, at the lower end of the range of 12 to 14%. Without the increased OPEX for charging, Probably we would expect for full year rather at the mid of the range. On the group guidance, page 22, based on the Q3 results and our outlook as provided before on the segments that we confirm all KPIs as before. And with this, let me turn to the last page of the presentation, 23. We are not only defending our leadership position on the top end segment. I think I made it clear that what you saw in the third quarter should be temporary in nature. And if I allow me to have a look into the product momentum for 2024, we see great stuff coming up. What is it I'm talking about? Definitely we'll see the world premiere of the electric G-Class. We see the start of the AMG GT sales, a real cool car. The AMG E53 hybrid, the CL E53 63. So tons of great stuff to fuel momentum in the top end.