Mercedes Benz Group Ag

Good morning, ladies and gentlemen. This is Stefan Hoffmann speaking. On behalf of Mercedes-Benz, I'd like to welcome you on both the telephone and the internet to our Q2 results conference call. I'm very happy to have with me today Ola Kellenius, our CEO, and Harald Wilhelm, our CFO. To give you maximum time for the questions, Ola and Harald will begin with a presentation directly followed by the Q&A session. The respective presentation can be found on the Mercedes-Benz IR website. And now, I would like to hand over to Ola.

Thank you, Stefan, and good morning, everybody. Welcome to this Mercedes-Benz Q2 call. In Q2, we have delivered both robust sales figures and also solid financial results against the backdrop of a macroeconomic environment that is quite tough And I think in tackling such challenges, we have demonstrated as a company that our flexibility but also our resilience is at work here. And I would like to start by thanking the whole Mercedes-Benz team for this first half of the year. To use a football analogy, the first 45 minutes of play have been solid, and we have now stepped onto the pitch for the second 45 minutes with energy. Let's have a look at the key messages. So if we go to page two in the deck, on the performance side, the car sales were robust in a challenging environment. You know, we had some restrictions in Q1 and we returned to a more normal sales pace in the second quarter. On the van side also, they've had some model changeovers, but also performed well in spite of these model changeovers. We have been busy launching new product. The electric G-Class has taken the world by storm and is now in the market. We have made an extensive upgrade to our EQS flagship limousine, which is also being launched as we speak. We've given our Mercedes-Benz fans a glimpse of the first Mythos series, something that we announced a couple of years ago, that for connoisseurs and collectors, we will from time to time put something special out there. And at the Monaco Grand Prix, Formula One Grand Prix, we invited Toppen Kastner to take a look at that and received a very warm welcome. And we are ramping up our complete technology and product offensive that will start next year with the CLA as the first derivative on the so-called MMA architecture. Profitability, double digit for cars, which is solid. Vans was exceptionally strong, whereas our mobility division is feeling a challenging environment at the moment. On the technology side, next to this unprecedented technology and product launch that is in the making, it feels like we're a little bit on the final stretch here for what's going to be kicked off in 2025. We have also laid some other groundwork. We opened our new E-Campus here in Stuttgart, which is where we have our headquarters and it's the heart of our powertrain development since forever. So we have all the tools from chemistry research up until manufacturing technologies to develop innovations in this field for the future. We've also launched over the air the automatic lane change, a level two plus feature for our vehicles. If you try it, mostly when I drive on the Autobahn in Germany, I am in assisted driving. And today you can initiate an automated change yourself by just tapping the stalk. Now the car does that for you. So it's even more convenient, even more safety for our customers. We started with that in the U.S. Now it's available here in Europe as well, a fantastic feature. But it just demonstrates that we keep on innovating. It kind of never stops, and you don't have to wait for the next generation vehicles. Over the air, we launch features all the time. The shareholder return, well, Q2, as usual, we paid our dividend, a robust $5.5 billion. Harold is going to go into that. But we also had share buybacks. in the amount of 2.8 billion, so that shareholder return is 8.6 and is equivalent to 11%. If we jump to page three to look at Mercedes-Benz Group headline key figures, so revenue is more or less in line with the sales. If you compare the EBIT number of 4 billion to the earnings per share, you see how those have developed from previous year to this year. You now can see this accretion effect at work and the share buybacks positively impacting the earnings per share. Free cash flow. Yes, we're holding a bit more inventory here at the end of Q2, which we need because we want to sell more cars in the second half of this year than in the first half. But in spite of that, 1.6 billion free cash flow is pretty decent. and that results in inept industrial liquidity after we pay the dividend, after we do the share buyback of a very healthy $28 billion. If we go to page four and look into a little bit more details on that sales structure, as I already mentioned, Q2 to Q2 in the same neighborhood, Q1 to Q2, obviously a growth, Those restrictions that we had on the supply side in Q1, they were solved during Q1 and into Q2. So now we have stable operations as far as that is concerned. On the top-end side, whereas we had better figures in Q2 than in Q1, we're below last year. The main reasons for this is, on the one hand, it's model changeover at AMG. Just to mention one model that we have just launched. that has hit the market in a very positive way is the E53 AMG plug-in hybrids, kind of the best of both worlds, an uncompromised performance vehicle. But at the same time, if you do want to drive electric from Monday through Friday to work, you can do that as well. That's one of the cars that is now ramping. But we've also seen in China, Asia, on the consumer sentiment, caution. I think this goes across industries for cars. expensive luxury goods, and in such a cautious consumer sentiment environment, you have to carefully manage also your stability, price stability and so on, which we continuously try to do. On the electric electrified vehicles, it's about the same as last year, but in a different structure. The plug-in hybrids have been very successful. Whereas on the BEV side, we can see in the markets, across the markets, more or less across the world, that there's been a slowdown in 2024 compared to the years before. In such an environment, you can choose to either push and gain market share by price, or you can take a little bit more careful, more stability-oriented approach. That is what we have done and will continue to do. as we are preparing for this unprecedented product launch of new electric vehicles and architectures starting in 2025. But literally from 2025 and the coming years, there will be one vehicle after the other. If we then jump to page five in the deck and we look at the same thing as Vans. Yes, Vans sits below last year. Last year Q2 was an exceptionally good year, one has to say. But also two effects here on vans. One is also model changeover. We've just launched the new V-Class. We have recently updated commercial versions of our mid and full-size vans. So that will ramp. But also for the van side, we have kind of the same philosophy that look for stability and price stability rather than push into a market. We made a decision a couple of years ago that we wanted to discontinue the Metris midsize van in the United States market because that segment is less interesting for us. And we see more opportunities on the Sprinter side in the United States. So that's in that number. And the last thing to say, the recreational vehicle business, which is a niche, but an important niche, That literally boomed during COVID and kind of at the back end of the pandemic. And it seems like many customers, they have their new RV now. And maybe we have a little bit of a quieter period on the RV side before the next replacement cycle starts. That is an introduction, high level on cars and vans. I would like to hand over to Harold, who will go into the financials.

Harold. Yeah, thanks, Ola, and hello, everybody. So let's have a look on the CARS financials. Revenues are lower in line with the volume. The ASP is at 71,000 euro due to a lighter mix and softer pricing. EBIT adjusted at 2.8 and the cash flow at 2.2, which is a decent cash conversion of 0.8. So let's dig a bit deeper into the EBIT walk on the page 7 on the return on sales adjusted. the second quarter of 10.2%. How did we get there? In essence, the bucket volume structure net pricing is driven by lower volumes, a mixed impact outlined by Olaf before due to the lighter top-end share, and a negative pricing versus a very high level of pricing in the second quarter, 2023. Additionally, the used car business normalized as we anticipated. And we also invested further into the product enhancement to keep them at the cutting edge. On the FX, we have basically the Turkish lira. On the industrial performance side, you can see that we're doing the homework and we're mitigating the impacts on the volume structure and the pricing by 400 million. Improvement in the industrial performance, which is basically positive net material cost, including tailwinds from raw materials. but also improved operational efficiencies. Also, the SG&A side, I mean, is slightly positive on the R&D and the non-capitalized development cost. We stay below the prior year level. So all in all, I think you can see that we're committed to do our homework on all on the cost angles. On the other bucket, some elements of information here. I mean, the majority of that is prior year effects, positive prior year one-time effects, some smaller valuation effects here sitting in the second quarter, 24, and a minor impact, I mean, on the BBAC at equity result from limited dealer support in China. So overall, 2.8 billion of EBIT adjusted, 10.2% return on sales, basically same numbers for the booked figures. And this 10.2, I would say, despite the items reflected in the other bucket. What is not on the chart, but what I really would like to highlight here is if you compare that quarter compared to quarter one, 2024, we see improvements on the volume and on the mixed side. As we're ramping up, I mean, E-class and the GLC, so with strong products. And I would say also, I mean, a pretty important piece of information that in the second quarter compared to quarter one, we could hold and defend the pricing level. Material costs and operations are basically a wash quarter over quarter, and the use is slightly negative. So I think that's information which might be valuable to you. Over on the page 8 on the cash flow at 2.2 with a conversion rate of 0.8. Had a headwind on the working capital as Ola already pointed out with a step up in inventories to prepare for higher level sales in H2. We have lower trade payables. You cut off between the first and the second quarter and receivables are also a bit higher. given higher delivery of parts to our GB in China. The financial investments are positive. They relate to some further retail outlet sales outside of Germany. The net investments in PPE and intangible assets exceed the depreciation as we guided for it. What else? In the other lines, basically, you can see the net of the BBAC divvy and the adjustment of the BBAC at equity result. On the van financials, I mean, page 9, revenues developed mean better than sales. And even so, sales are down. I mean, EBIT is up by 5% to $800 million. and the cash flow is at 600 million. So how did we get there? Page 10. On the walk to 17.5% return on sales, which I think is a remarkable number for Vance. So quite a lot of things. I tried to cut it short. As you see in the volume structure and that pricing, which is basically balanced, but within you have, I mean, the mix outweighing the lower volumes. Then you have positive FX effects, which compensate for the respective negative inflation, which sits in the industrial performance. All in all, that inflation is coming from Argentina, but the Argentina business is profitable as such. The net material costs are the main driver here in the bridge. And also I would say here you can see that the cost efforts are at work. So with this, 830 million EBIT reported as well, which is the same level also for the return on sales. On the cash side, 0.6 cash conversion, 0.7. Also a bit of working capital charge here. with an increase in vehicle stock with lower absolute amount of vehicles, but a heavier structure, and also some negative effects from trade payables, which we expect to reverse in the second half of the year. The net investments in PPE and intangible exceed the depreciation as we invest in our plants to make them ready for the future, in particular for the van EA generation to come. And same here in the other bucket, the net, the reversal of FBIC at equity and the dividend of FBIC being included. Looking on mobility, page 12, the new business decreased by 9%. That is mainly a function of the fierce banking competition in China. Portfolio is at about the same level, also as in Q1. 2024 with a continuously increasing share of XEV vehicles. So here, MBM basically finances more than every second EV vehicle sold by the group. Having a look on the page 13 on the return on equity walk, the EBIT adjusted came in at 0.3 billion. What's driving that year over year? Higher cost of credit risk, mainly driven by increased credit losses in the U.S. consumer segment. Overall, the cost of credit risk is at a similar level as in Q1. The portfolio margin remains, I mean, under pressure to the interest rate development and the competitive financial service sector. The profitability of the new acquisitions continue to stabilize on a healthy level. However, it takes time until this improvement materializes in the portfolio due to higher for longer interest rates and fierce competition in China. Additionally, efficiency measures may lead to cost improvements. That's how we all in all got to the 8.4%. On the group side, page 14, divisions are explained already. What's left, the recon, is positive mainly due to the equity result of Daimler Trucks. However, it was a minus 147, which was impacted by an impairment at Dynatrack participation, including effects from the PPA offset by central function-related effects. On the page 15, on the cash flow, same thing. Divisions explained already income taxes at a pretty high, 1.5 billion, which is driven by seasonality effects. So with this, I mean, we ended up with a free cash flow at 1.6 billion, which also includes the dividend from Daimler Truck in the second quarter. Page 16 on the nil, 28 billion by the end of the quarter, obviously driven by the free cash flow of 1.6, the divvy of 5 euro 30 a share with a total of 5.5 billion. cash outs on the share buyback in the second quarter of 2.8 billion. If we look back at the beginning of the program in March 2023, we bought back shares for around 5.1 billion by the end of the second quarter. That totals 10 billion of shareholder return in just one year, obviously without counting last year's dividend. Now let's turn to the outlook section on the page 18. First, as always, I mean, the assumption chart, I mean, is key. You can read it, I think, so I don't need it. You can see it on the page. I don't need to read it out. So let's move to the car division guidance on the sales side, sales guidance side. The total car unit sales we see at prior year level with overall sales expected to rise in H2 versus H1. driven by full availability of all new E-Class and GLC. Top end is expected to improve versus H1 levels supported by further market launches of new models. In Europe, we see the overall sentiment improving. The more detailed picture in Europe remains heterogeneous, however. In China, we have a cautious view on the macro sentiment and fierce competition in entry and to a certain extent also in core. In the top end in China, we target to successfully defend our leading position in a softer market environment. In the U.S., we continue to see a solid momentum for sales and demand and expect a positive year-on-year development for H2, driven also by the GLC. The XEV share we expect now between 19% to 20%. H2 XEV sales expected to increase in the plug-in segment driven by SUVs. and full availability of E-Class. Adjusted return on sales, CARS guidance is narrowed to 10 to 11%. What do we expect in the second half of the year? Volumes are expected to increase in the second half with full availability of the products. The mix is expected to improve thanks to top-end launches. The pricing we want to hold and defend on current levels. The ICE pricing is solid. The EV pricing is at the same time competitive. Additionally, we see normalization of the use business, but still an overall healthy level. Raw material cost, we expect further tailwinds. On the supply chain related cost, we expect headwinds with efficiencies being driven further, but some one-timers to come in the second half of the year. In China, we see H2 potentially some dealer support impacting the BBC at equity result. All in all, with H1 in the books, we narrow the guidance to 10% to 11% return on sales adjusted in demanding environment. And I think this is what you see as well, if I'm not mistaken. Important to note as well, if you look at the run rate in H2 compared to the H1, that this sits in the double-digit area and is going up even over the quarter two. PPE, R&D, and CCR adjusted for cars are unchanged. The corridor remains at 0.122, and with this, the cash generation is expected to continue. Looking at the VANS divisional guidance, so we had a very strong H1, as reflected, We continue to mean healthy pricing and favorable structure supported by comprehensive mean cost reductions. And therefore, we raise the guidance to 14% to 15% returns on sales adjusted. Vans is currently in a sweet spot with regard to lifecycle position and financials. We expect H2 in terms of return on sales healthy again, but influenced by increasing cost of our new VAN EA platform. Considering current macro developments and uncertainties with regard to H2, we stay prudent and take a cautious view. Market demand is expected to be softening in private and commercial land segments in H2. As the EV market eases, we see our XEV share now at 5% to 7%. For the full-year guidances on sales, R&D, PPE, and CCR, they are unchanged. On mobility, H1 was challenging with regards to the margin and the cost of credit risk. In H1, the new acquisitions improved, but the margin in the acquisition improved, but this takes time beyond the H2 to materialize due to the demanding market environment and higher for longer interest rate development. We expect the adjusted return on equity now in the range of 8.5 to 9.5 for the full year. Coming from 8.5% in H1, we expect in the second half of the year a flat portfolio margin, better cost of credit risk, partially outweighing further increasing ramp-up costs of our charging infrastructure, a challenging market environment, especially in China. But at the same time, we continue to work on cost efficiencies. On the group guidance, page 19, obviously, that follows the same premises. I mean, at the segment level, all guidances, I mean, are confirmed and therefore unchanged. And with this, I hand back to you, Ola.