Mercedes Benz Group Ag

Welcome to the global conference call of Mercedes-Benz. 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 Mercedes-Benz website. This short introduction will be directly followed by a Q&A session. If you have difficulties during the conference, please press zero and the hash key on your telephone keypad for operator assistance. If you want to ask a question after the presentation, please press nine star on your telephone keypad and you will receive a confirmation that you are now in the queue. To remove the question, please press again nine star on your telephone keypad and you will hear a noise which confirms the removal from this queue. Please note that dialing nine star a second time during the call will automatically withdraw your question. Please refrain from pressing the key combination multiple times during the call. I would like to remind you that this telephone conference is governed by the safe harbor wording that you will 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 both the telephone and the Internet to our Q1 results conference call. I'm very happy to have with me today Harald Wilhelm, our CFO, 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 Mercedes-Benz IR website. Now, I'd like to hand over to Harold.

Thank you, Stefan, and good morning, everybody. Welcome to that Q1 call. Well, if I look at, I mean, this quarter, I would say this is a demanding quarter, looking at market evolution, supply chain, product transitioning. Therefore, I think it's important, I mean, that we all understand what are the temporary impacts in the quarter and what are the implications for the full year, in particular, I mean, for the guidance. With this being said, now let's have a look at the numbers at the group level, page two. Obviously, lower car sales mean lead to lower revenue. EBIT and EPS. So the EPA's reduction, however, is smaller, lower than the EBIT reduction. The net income is less impacted, and we have the accretion effect from the share buyback on EPS. We delivered a solid cash flow of $2.2 billion. So you see cash matters and is in the focus, and that supported a very comfortable net cash position with more than $33 billion by the end of the quarter. Before we turn to the numbers of the first quarter in more detail, I would like to highlight a few models, products which came into the market in Q1. I think this is also important to understand the Q1 sales and mixed evolution as these products are going to hit the market in the remainder of the year and obviously the time ahead of that. So what are they? First and foremost, the all-new GE. Cars on the ice. Next to it, we have the electric G-Class world premiere in U.S. and China last week. Simultaneously, you might have seen that this comes along with unique driving functions like the G-turn, the G-steering, and the intelligent off-road crawl functions. What else? We saw an extensive upgrade of the EQS with more than 800 kilometers range. new executive rear seats and a standing star in front of the hood, and lots of stuff on the AMG side with different E-Class variants of AMG, the 53, further GT Coupe variants in the first quarter. So, again, these products will hit the market in the remainder of the year, which will help, I mean, sales, but in particular, mixed and much more to come in the quarters and in the time ahead of us. Let's look at the sales evolution page four a bit more in detail. Total sales of cars were at 463,000 units, impacted by supply constraints, product transitioning, and market dynamics. So let's zoom a bit into the regional evolution. We could see basically a stable evolution in Europe and in the U.S. in the first quarter. If we zoom and deep dive a bit further into China, what happened here, the E-class availability was constrained in the first quarter. We also saw effects from the model year changeovers and the product launches. These product introductions, as just mentioned before, will support, say, H2 products. And overall, we have seen a market weakness in the first quarter. Also, our top-end vehicle products could not completely escape from that market weakness. If we look at the sales evolution from the segment structure, globally we can say that the first quarter was still constrained in terms of supply, but this is on the way to ease. The easing supply constraints had an immediate impact on the GLC in particular, which means the core segment increased by 8%. On the top end vehicle side, this is comparatively lower than last year, which was a pretty decent and high level. So the quarter one on the top end is a mixed bag of product transitioning, With 67,000 units, we saw the impact from the model changeovers at the G-class, the changeovers in high-volume vehicles like the AMG E-class and the GLCs, as well as supply chain bottlenecks. In the top end, as I just mentioned before, we also saw sales mean a bit lower. That also impacted mean on the F-class. However, F-class remains the undisputed leader in all regions. Overall, we see that sales should improve over the quarters. The top-end mix should also improve in H2 as well, while we continue to take a cautious view on the market overall. If you look on the best side of things, in the first quarter, the XEV share is at the prior year level. with EQC and Smart reaching the end of their life cycles in age one. We also see some slowdown in the EV adoption rate across the industry, and therefore we adapt our offerings to it. In this period of uncertainty, in terms of the EV transitioning, our top-notch plug-ins can play an important role in this transitioning. Cars financials, page 5, revenues down in line with the volume, ASP at 75,000 euro, EBIT at 2.3 adjusted, cash flow CFB at 2.3. Let's go through the EBIT walk in more detail on the page 6. So the return on sales adjusted is at 9% in the first quarter. How did we get there? Number one, the bucket volume structure net pricing is down, driven by the lower volume. The mixed impact, as I outlined before, a net pricing which is in total positive, and additional measures, investments into the product lifecycle to keep the product at the cutting edge. Furthermore, we see in the bridge FX negative due to the Turkish lira. whereas on the industrial performance side, we see a positive evolution. The main effects here are tailwinds from lower raw material prices and improved operational efficiencies, which suggests that we're doing our homework in terms of the efficiencies. The R&D spend is slightly below prior year level. Main effects in the other bucket of minus 200 are the BBC at equity results, and the absence of some prior year one-time effects. On the adjustment side, we see 133 million euro upside related to legal proceedings in the diesel. You might have heard the positive news for our company that the DOJ has closed the criminal inquiry into Mercedes-Benz related to diesel emissions in the United States. I would like to point out that the 133 million results from various developments and assessments and may not necessarily relate only to one specific proceeding or case. With this all together, the EBITDA is booked at 2.5, with the Roth at 9.6. Obviously, this is not the level where we want to be, and we'll talk later in terms of where we want it to be for quarter two and subsequent quarters. On the cash flow side, CARS, page seven, The CFBIT is at 2.3 with a cash conversion at 1. Slight tailwind from working capital at 0.3, more or less all in balance. Net investments are in PPE and intangible are lower than the depreciation, which means the investments are prioritized and stringently managed. The other line includes adjustments of the BBC at equity result in the absence of a divvy in the first quarter. So if you turn to the van side, a strong start into the year with regards to sales driven by the commercial vans, especially strong performance in the U.S. and in China. Our strong product portfolio, has been further supported with the launch of the new E-Sprinter and the midsize vans. That product substance and portfolio, the healthy mix, robust net pricing, and price premium combined with efficiency measures all in all resulted in another quarter with very good financial performance on the van side. At the same time, obviously, we continue to prepare for then EA, with a groundbreaking inventory of being the latest example. Sales numbers on the land side, total sales 7% up in all regions. As I just said before, the all new ED portfolio has been launched in the quarter one, therefore not leaving traces in the quarter one yet, so being available in the quarters to come. And with this, we obviously expect also the EV share to increase with the new eSprinter and the midsize EQV and EV2 once they're fully available. Key numbers on the page 10 for vans, all figures up, revenues up in line with the volume, EBIT adjusted up by 11% to $800 million, and also the cash conversion up by more than 50%. EBIT bridge on the page 11, so return on sales adjusted at 16.3%. Where is it coming from? Significant tailwind from the volume structure pricing bucket with increased volume with positive structure, healthy pricing supported by the product substance. On the industrial performance side, we have a bit of a headwind from higher inflation. and supply chain-related cost. With all of this, I mean, the EBIT adjusted is at $800 million. On the adjustments, same comment as for cars related to legal proceedings and diesel. On the cash flow side of things, the CEBIT reported 0.6, adjusted 0.7, cash conversion 0.9, moderate working capital uplift, The net investments exceed the depreciation, no surprise, as we've invested in our plans to make them ready for the recently announced models as well as the van EA generation to come. On the other buckets, same comment as on cars. On mobility, what can we see here in terms of the highlights in the first quarter? New business remained at the same level. We see in China penetration rates lower due to significant competition in the local banking sector. The XEVs see an increasing acquisition rate. Mobility continues to support the ramp-up of the EVs with every second vehicle being supported by MBM financing options. The profitability of the new acquisitions continues to improve. The increase in the cost of credit risk is mainly driven by the development in the U.S., and at the same time, we continue to develop them in our charging business, with more charging hubs already being up and running in the first quarter. On page 14, the key numbers. New business, as I just mentioned before, at the same level. Portfolio also roughly same level as at year end, 2023. And for the EBIT, we look on the next page on the walk, page 15. So as we guided for the quarter one, which would be in single-digit territory, That's what you can see here on the chart. How did we get there? Higher cost of credit risk, mainly driven by the U.S., due to increased credit losses in the consumer segment, were one of the key drivers. Besides the continued improved acquisition margin, we see a positive impact from the development of the portfolio versus in the first quarter. However, the overall portfolio margin is still under pressure, as it takes time for the improved acquisition margin to be reflected in the portfolio. At the same time, we also see an impact from a bit lower remarketing results at Atlon, and we also included in these numbers the investments in terms of the charging business for the first quarter. With all of that, I mean, this is at 8.5% return on equity. Group numbers, page 16, so cars, vans, mobility, I already explained, leaves the Racon, the consolation item. Here basically we find the equity result of Daimler trucks with a bit more than 200 million included. The EBIT adjusted at 3.6. After the adjustments I elaborated before, we see a group EBIT reported at 3.9. How did we turn that into cash? Page 17. Income taxes, and obviously division evolution, I mean, I explained already before. Income taxes at minus 0.7, a bit lower. That's the usual seasonality. And we have slightly negative impact due to interest received, seasonal pension effect, and a bit of others in the recon items. All in all, I mean, a pretty strong cash flow at 2.2 billion euro in the first quarter, and cash adjustments of 90 million for legal proceedings related to diesel. Looking at the nil evolution, page 18, so end of the quarter, we see a comfortable 33.6 billion. That has been supported by the cash flow, obviously, of 2.2 billion. At the same time, we bought back shares for around $300 million. Let me update you shortly on the capital allocation, page 19. On the chart, you see on the left-hand side what we announced in February in terms of our new capital allocation framework. How do we implement it now in May 2024? Right after the AGM, we will start with our already announced additional 3 billion euro share buyback program. From then onwards, and I think this is the piece of news here, both buyback programs, the remaining 4 billion and the new 3 billion, will run in parallel. They will be executed by an independent bank, which makes its trading decisions obviously without influence by ourselves. As a milestone, we expect buybacks to reach a total of around €4 billion by Q3 this year, and to finish with a total share of buybacks up to €7 billion all in all in Q1 2025 before the AGM. As of today, approximately 13 months after we started our initial share buyback, We have already acquired approximately 2.3 billion. This means in around 11 remaining months, we plan to buy back additional shares in the amount of up to 4.7 billion euros. Both share buybacks will be executed through the stock exchange with the purpose of redeeming the shares at the end of the program before AGM 2025. As we said, we intend to ask for a renewal of the authorization for SBBs in our AGM in 2025 to further continue share buybacks in line with the share buyback policy. With any share buyback, we'll keep, however, flexibility on the execution in case of unexpected market developments. So let me sum it up on this one here, I would say. Cash flow generation remains one of the key focus topics of the company, as you can see with the cash flow in the first quarter, and capital allocation, shareholder return, obviously equally important to us. With this, let's turn to the outlook on page 21. For the assumptions, please read the chart carefully. what is written there in terms of macroeconomic and global uncertainties. Let's jump to the car side in terms of the situation with regard to the supply. So we see that the current supply bottlenecks are on the way to ease on GLC and on E-Class and are expected to improve further. The Q1 is considered to mean to be the trough in terms of the sales. Quarter 2 should be better already. What does it mean for the sales guidance? Total car unit sales we expect at prior year level with all new E-Class and GLC expected to support the core segment development this year. and the top-end vehicle segment improving versus the first quarter level due to the product transitioning, which I emphasized before. Looking at the regions in Europe overall, we see a sentiment which is unchanged. The more detailed picture in Europe shows, however, a bit of a heterogeneous picture in the different markets. With regard to China, we do see the availability of products to improve, in particular on E-class. Here we see a very good product acceptance for this one and others, like the GLC. So from the product portfolio side and an availability perspective, we see growth potential. However, overall, in terms of market assessment, I mean, for China, we remain a cautious perspective. On the U.S., we still see a solid momentum for sales and demand with a positive year-on-year development. Positive effects come in particular on the SUV side, and here I would mention the GLC. On the XEV share, we confirmed the guidance at 19 to 21%. Be aware our consolidated smart sales are running out since the new smart is not part of the reported sales figures anymore. On the adjusted return on sales cars guidance, this is unchanged at 10 to 12%. So how do we want to get there with the 9% in the first quarter? Well, we do expect the volume to increase over the quarters. We clearly target the mix improvement in the second half of the year. We want to hold pricing and defend it at the current levels. We clearly see raw materials improving further, generating further tailwinds. At the same time, we see supply chain related costs generating further headwinds. However, all in all, material costs remain a net positive i.e., a further tailwind. So with this, all in all, we confirm 10% to 12% return on sales adjusted in a continued demanding environment. For PPE, R&D, cash conversion rate adjusted for cars, all unchanged. So with this, I would move to the van side. So here the guidance is unchanged. We had a strong quarter one, as we walked through before. With the start into the year, we have a comfortable cushion, I mean, for the remainder of the year. Considering current macro developments and uncertainties with regard to H2, we stay rather prudent and confirm full year guidance at 12% to 14% return on sales adjusted. We also expect a healthy quarter two in terms of return on sales. Market demand is expected to be softening in private and commercial land side. Full year guidance on all the other KPIs are unchanged. On mobility, the adjusted return on equity is also unchanged in the range of 10% to 12% for the full year. We see quarter one as the trough with improvements in the second half of the year, despite the further increase in the ramp-up costs of our charging infrastructure. So how do we get there from the 8.5% in the first quarter? Positive effects from the increased acquisition margins translating into the portfolio, as I emphasized before. and some improvements in the cost of credit risk compared to quarter one. On the group guidances, that follows page 22, follows the same premises as the segment guidance. All group guidances, KPIs are confirmed. With this, I would wrap it up here in terms of the summary, the takeaway from the first quarter. So we clearly expect the volumes, I mean, to come up. We do see quarter one as the trough. We have a great product lineup. We talked about the top end. Vehicle products, I mean, to come into the market in quarter two and beyond. In particular, I mean, in H2, we see a strong potential and momentum here from the products. And further on in 2025, obviously, I emphasize the G-Class, the GT, the E-Class, AMG versions, the GLC AMG versions, and a lot of products to come in 2025 and beyond. At the same time, we stay flexible on the transitioning from ICE to EVs. and do our homework in terms of efficiency while staying focused on the cash generation and on capital allocation. With this, I would now be happy to take your questions.