Mercedes Benz Group Ag

Welcome to the analyst conference call of Mercedes-Benz. At the request of our customers, this conference call will be recorded. A replay of the call will be available as an on-demand audio webcast in the investor relations section of the Mercedes-Benz website. The short introduction will be followed directly by a Q&A session. If you experience any difficulties during the conference, please press zero and the pound key on your telephone keypad to reach the operator. If you wish to ask a question after the presentation, please press nine and the star key on your telephone keypad. You will then hear the message, thank you for your participation, your request to speak is registered. When it is your turn to ask a question, you will hear the message, you are now in talk mode. If you would like to withdraw your question, please dial three and the star key. You will then hear the message, Your request to speak has been removed. I would like to remind you that this teleconference is governed by the safe harbor wording included in our published results document. Please note that our presentation contains forward-looking statements which reflect management's current views with respect to future events. Such statements are subject to various risks and uncertainties. If any of the assumptions underlying these statements prove to be incorrect, Actual results might differ materially from those expressed or implied. Forward-looking statements speak only to the date on which they are made. With that, I would now like to hand over to Christina Schenk, Head of Mercedes-Benz Investor Relations, Digital and Communications.

Thank you. Good morning, ladies and gentlemen. This is Christina Schenk speaking. On behalf of Mercedes-Benz, I would like to welcome you both on the telephone and online to our Q1 results conference call. I'm very pleased to have with me today Harald Wilhelm, our CFO. To allow more time for your questions, Harald will give a brief introduction and walk you through our financials. We will then move directly into the Q&A session. The corresponding presentation is available on the Mercedes-Benz Investor Relations website. And with that, I will now hand over to Harald.

Thanks a lot, Christina, and welcome, everyone. So very happy to take you through the highlights of the first quarter, which was another eventful quarter, geopolitically and for us as well. Let me get started with the execution of our strategy before I move then to the financials and the outlook. Our product ramp-up is gaining momentum. As outlined, we're executing the most comprehensive renewal and expansion of our product portfolio. The new S-Class, you certainly didn't miss this one, remains a cornerstone of our top-end strategy. And we didn't stop there. We also unveiled the new Mercedes-Maybach S-Class in China, particularly important and very successful in the Chinese market. In 2025, every second S-Class sold in China was a Maybach. This was complemented by the new EQS, now offering an 800-volt system with fast charging capabilities, more than 900 kilometers of range, and steer-by-wire technology, which is really cool. We continued the S-Class story on the SUV side, presenting the new GLS in the U.S., alongside the GLE and the GLE Coupe. Last week, the all-new electric C-Class premiered in Seoul, following the GLC, which is seen very strong demand. It is the second vehicle on our MBEA architecture and our first electric C-Class, and frankly, it looks pretty stunning. On the land side, the all-new VLE had its world premiere. Built on our new, highly flexible van architecture, it marks the beginning of a new era for the Vans division. And we will take this even further. Besides the upcoming VLS, we announced the Mercedes-Maybach VLS, offering true luxury and expanding our top-end portfolio further. And by the way, all of these vehicles come with MBUS, our own operating system featuring the latest entertainment stack point-to-point assisted driving, and much more. By the way, talking about MBUS, as previously emphasized, MBUS enables us to partner globally with the leading tech companies. Level 2++ is already on the road in China and is coming to the U.S. later this year. And we also go beyond as we work with robo-taxis with partners. We are further strengthening also our local-for-local strategy. In China, the all-new GLC long-wheel-based with China-specific entertainment at level 2++ was unveiled at AutoChina. GLC is closing the BEV white spot in our portfolio. And in the U.S., alongside the presentation of the new key products for this market, we announced investments of more than $7 billion until 2030, The U.S. is a strategic growth market for us where we are further strengthening our footprint. And with this, I would now turn to the financials on page four, looking at the group KPIs. First, the group revenue developed broadly in line with the sales development at CARS in the first quarter. The EBIT came in at a solid 1.9 billion. EPS stands at €49 billion. Free cash flow healthy at 1.9 billion. That brings us to a strong net industrial liquidity of almost 34 billion before obviously paying the 3.3 billion which we did earlier this month. Looking at the car sales, we ended the quarter with 419 units in line with expectation. The sales development was impacted by China. If you look at China, total sales increased by 5%. And top-end sales, particularly resilient in China, maintaining a global sales share of 15%. Core and entry were lowered due to China, while growing by 7% ex-China. And the global batch sales developed well, up 9%. In Europe alone, we recorded a growth of 34%. This is largely driven by the CLA, and obviously the remainder of the portfolio is currently ramping up. There's more yet to come. Looking at the car financials, the sales I explained already, the ASP in the first quarter was lower, but slightly up compared to quarter four. This also drives the revenue development. The EBIT adjusted is at 900 million euros, as expected. And the CFBIT adjusted stands at 3.4. Now let's have a look at the EBIT evolution, the EBIT bridge on the page seven a bit more in detail. In the quarter one, CARS delivered an EBIT adjusted of around 900 million and the return on sales adjusted of 4.1%, well within our full year guidance range of 3 to 5%. What are the main puts and takes on the walk? The volume structure in the net pricing is actually slightly negative. However, the bucket is lower overall, mainly due to the tariffs, product enhancements, lower China contribution, and a lower fixed cost capitalization. The FX, I think, is self-explanatory on the chart. On the industrial performance side, the underlying industrial performance is positive, driven by continued efficiency improvements. that more than offset headwinds from raw mats and higher depreciation following our numerous product launches. However, on top, Q1 was impacted by several one-timers, with negative items in the industrial performance on product-related measures and positive items largely in the other bucket. Overall, one-timers, however, were awash in Q1. Then on the SG&A and the R&D side, you see they were positive, reflecting our further efficiencies and having left the funding peak behind us. Turning to the cash, cars achieved a strong adjusted CF bid of $3.4 billion. How did we get there? From the $800 million of the EBIT, we generated significant working capital tailwind. That reflects our continued effort to improve the working capital, including a favorable inventory structure and improved payables, mainly related to the production ramp-up. A part of this should unwind over the course of 2026. We further see proceeds from net financial investments. That's mainly due to the continued sale of our retail outlets in Germany. Depreciation exceeded investments as we have passed the investment peak. Total investments are lower in line with our plan as flagged in February. Overall, the level reflects our continued focus on investing in technology and competitive products on the R&D side while also demonstrating a highly disciplined total capex approach. These positive effects were partly offset by a negative other bucket, which cash-outs related to restructuring charges of around 800 million euros, dealer provisions, as well as the adjustment for the BBAC at Accuracy Result. As a result, we recorded the fit of 2.6 billion. Adjusting for the special items, it's at 3.4. Looking on the band side, Sales volume came in at 80,000 units. In China, we saw a softer consumer demand for mid-size vans. Excluding China, vans were able to grow year on year despite a particularly competitive environment in the U.S. and Europe. E-van sales increased by almost 30%, lifting the global EV share to 8%. Revenue development is broadly flat. And on the EBIT, we have a look on the next page before quickly on the cash flow. The main driver of the CLBIT were the planned investments into the new van architecture. Investments are expected to peak this year, strategically preparing vans for the future. This thing is a good moment to remind you that this represents the largest product investment program in the history of our vans business. It underpins a highly attractive and scalable product pipeline, including the all-new VLE, VLS, and VLS MABA, alongside a broad range of private and commercial derivatives built on a highly flexible modular architecture. At the same time, we are completely remodeling our global production footprint with investments in Vittoria, Charleston, and Yavor, to enhance flexibility, efficiency, and competitiveness. Working capital was a headwind driven by temporarily higher inventories, as well as a higher value of stock from events. Now looking on the EBIT walk for Vance, Vance achieved an EBIT adjusted of $450 million, and once again delivered a benchmark double-digit return on sales of 10.1%. Let me guide you through the buckets, the volume structure pricing, is lower, reflecting a lighter product and market mix, negative net pricing, hardly offset by positive effects from an increased leasing portfolio. FX is a headwind, mainly driven by Turkish Lira, which was largely offset through pricing. Industrial performance is flattish, SG&A, R&D, and others are awash. Looking on the financial services side, We have migrated to the new setup, which is working well and is enhancing our competitive offering in the market, which is also reflected in a higher penetration rate in the first quarter. At the same time, we continue to sharpen our focus on the core financial services business, as evidenced by the signing of the outloan agreement and the divestment from Black Lane, both expected to complete later this year. New business volume declined by 4% to $13.1 billion, reflecting sales development and adverse effects. The portfolio stood at $130 billion at the end of Q1, broadly unchanged versus year-end 2025. Financial services delivered a strong performance in Q1, with a return on equity of 13.3%. Average adjusted increased by 44%. supported by continued positive trend in portfolio margin, improved cost efficiency, while at the same time, the cost of credit risk remained elevated, reflecting a weaker global economic outlook. Let's have a look at the group numbers. On the EBIT side, cars, vans, financial services, I explained already, that results in a solid adjusted group EBIT of 1.8 billion. We had some adjustments in the first quarter. Additional restructuring charges of €175 million for our NLPP personal cost reduction program and M&A adjustments mainly related to Aton following its reclassification as assets held for sale. With this, the group EBIT booked sits at €1.9 billion. On the cash flow, cars and vans I covered already. Cash taxes are positive due to refund related to 2025. Interest paid is negative due to seasonality of coupon payments and higher interest environment. Interest in income was positive with more than 100 million euros. And on the free cash flow on the industrial side altogether, this is at 1.9 billion. The adjusted figure is significantly higher at 2.8, mainly due to the NLP cash outs of almost 1 billion euros in the first quarter. On the nil bridge, page 14, by the end of the first quarter, the nil increased to close to 34 billion. That is a pretty comfortable level. Of this nil, we paid 3.3 billion as a divvy to our shareholders last week. That's the status on our share buyback program, our 2 billion program. It's in full execution. In Q1, share buybacks totaled 470 million euros. In total, as of today, as we speak, we have bought back shares worth more than a billion since inception of the program. Following the AGM, share buyback has accelerated significantly. And with regard to the DT stake, we continue to monitor market development and capitalize on opportunities as they emerge. Now, turning to the outlook and the guidance, Getting started with the divisional guidance for 2025, please consider the disclaimer regarding forward-looking statements at the end of this presentation in the relation to the outlook. Important to note, the war in the Middle East adds further uncertainty to an already high level of uncertainty in the global economic environment and automotive markets. The outlook... assumes no prolonged conflict with respect to potential impacts on material, raw material and energy prices, inflation and sales trend. Assumptions are based on today's regulatory framework and on the US-EU tariff rate expected to be reduced to zero now effective August 2026. On the car side, the sales guidance for 2026 We retain an overall constructive view with targeted growth ex-China. Global sales volume is expected to remain at prior year level. Product transitioning is impacting the sales volume as expected, with sales in Q1 being the lowest and building momentum in H2. XED share is unchanged. And with quarter one well within the guidance range, we continue to see adjusted return on sales between 3% to 5% as guided. Equally, PPE, R&D, and CCR remain unchanged. On the VANS side, I can also make it pretty short. The sales guidance and the XEV share are unchanged. We continue to see Adjusted return on sales is guided between 8% and 10%. No change to PPE, R&D, and CCR. And also on the financial services side, short and sweet, given the current interest rate volatility, we continue to see the full year guidance unchanged in the range of 10% to 12%. Looking at the group guidance, page 16, it follows obviously the same premises as the segment guidance. in line with the unchanged divisional guidance, all group guidance remain unchanged. Equally, on the free cash flow industrial guidance, this remains unchanged before additional proceeds from major M&A activity. And now turning a bit more to the outlook for the remainder of the year, what's ahead. Well, the 2026 ramp-up is in full motion. We see strong demand for all new electric models in Europe. That order intake has more than doubled compared to prior year's quarter, up by 107%. New models resonate well with our customers. The order books for the new CLA, the GLB, and the GLC are filled well into the second half of the year. TLA and GLC production are running as free shifts and additional Saturday shifts for the GLC. The S-class is now available to order in Europe. First deliveries are starting in second quarter in U.S. and China. This will follow in quarter three. So we also reskinned completely our large SUV portfolio with the GLS, the GLE, the GLE coupe, including AMG versions, and the order books on these ones will open soon. On the VLE, the order book is open in Germany. The rest of Europe will follow soon. And with this, we are confident that we can build on that momentum as our model ramp-up continues in quarter two, with momentum being built in H2. And last page, page 18, well, one of my personal highlights, the all-new Mercedes-AMG GT Fordo Coupe, which will be introduced in Los Angeles on May 19th. You should really block this in your calendar. will be our first model on AMG's electric high-performance architecture, AMG EA. This car will set new benchmarks and embody true AMG DNA. So very much looking forward to that one. Thank you for now. And with this, I hand back to Christina.

Thank you very much, Harald. Ladies and gentlemen, we will now move on to the Q&A session. I will identify each questioner by name. However, before asking your question, please also state your name and the name of your organization that you represent. A few practical points. Please ask your question in English, and for reasons of fairness, please limit yourself to a maximum of two questions. Before we begin, the operator will briefly explain the procedure once again.

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Thank you very much.

We start the Q&A, and the first question goes to Tim from Deutsche Bank.

Yeah. Thank you very much. I think now you hear me. It's Tim from Deutsche Bank. Thank you, Christina. Thank you, Harold. Two questions, please. The first one, Harold, given there was quite a bit going on just for modeling and contextualizing your full-year guidances, how should we think about one-timers going forward? Is there anything material that you already have on your agenda that we should already think about in our modeling in the coming quarters with respect to cash and earnings? I'm also thinking about your restructuring program. Lots of outflows in Q1. Obviously, some performance improvements impacts that you already see in Q1 as well. Where do we stand on that side? And then secondly, you already quickly touched on this, but it is a big topic, obviously. How should we think about raw material inflation in the second half of the year? Is there anything that you're planning already? You said you start to see it a bit, but it's a bit uncertain. How should we think about this? Thank you.

Yeah, thanks a lot, Tim. So with regard to one-timer, as you mentioned then, number one, I would like to re-emphasize that globally in the first quarter, I mean, they are awash, as I outlined when going through the EBIT bridge a bit before. When I look at the full year in terms of the outlook, obviously, as we guide also the group level on an EBIT reported basis, everything which we have in mind, which we know is included in there. We could see a step up in the restructuring provision for our personal cost reduction program in the first quarter. I do not expect any further material addition in the restructuring provisioning on the EBIT side, nor any other material restructuring elements. Otherwise, I mean, we would have included them, obviously, in the group guidance outlook. On the cash side, I think we put it clear in the outlook as well on the cash flow reported for the group that this is before material M&A. So what is in our mind here? What is included in the guidance at this stage are minor M&A activities, smaller divestments in terms of our own retail divestments, larger ones to come to the extent they close in 2026 obviously would further support cash generation. What else comes to mind? Athlon closing is expected in 2026. However, that will not sit in free cash flow, but certainly it will enhance the net cash position, and we would consider that obviously also in capital allocation. And your favorite ones on DT, no material. Divestment is assumed in the number. That's why this guidance is before material M&A cash flow. So, in other words, I mean, if you take that guidance on the free cash flow as outlined before in terms of total cash generation, I would say there are some distinct opportunities to enhance cash generation further. And you know the capital allocation framework, what we are supposed to do with it. On the second question on the raw mats, well, you can see in the first quarter bridge already in the industrial performance that we face some raw mats headwinds, and we do expect raw mats to step up further in the remainder of the year, higher than what we anticipated at the beginning of the year. also driven by the Middle East crisis and the global macro situation. That is included, however, in the outlook for the full year in line with the 325 guidance which we confirmed here today.

Very clear. Thank you.

Thank you, Tim. We move on to the next question, and it goes to Mike Tindall from HSBC.

Yes. Morning, folks. Thanks for taking my questions. Mike Tindall from HSBC. I guess first question just around products, the new products specifically. And if I think about your capital markets day and the plan in terms of product cost savings, it feels like the big step is to come forward. And is that what we're going to see as these new products ramp? I'm just trying to think about very strong order intake. How does that translate in terms of And then I guess the second question, I guess in some ways it's self-explanatory, but Q1 is arguably the toughest quarter in terms of FX and tariff, and you've hit the middle of the range. Is the reason we haven't seen an upgrade simply because it's a pretty uncertain world out there? Because it does feel like you're well set up for the rest of the year now. Thanks.

Thanks, Mike. So, number one, yeah, on new products, we're very pleased to see the momentum. The order intake numbers are going up. I mentioned the best numbers in terms of order intake in Europe, 107% up. Obviously, you don't see that in sales yet, but it's a good indicator for what is to come. That's what we have been working for so hard. That's what you have been waiting for so patiently. That's what we want to bring to fruition in the course of 2026 and obviously beyond that. At the same time, we do know that the EV vehicles carry higher variable costs than their brothers and sisters on the ICE side. That's why we engage into significant cost savings over time. and that should help to improve the margins on these EV vehicles. I mean, over time, 27, 28, and during the CMD, we outlined that we see the possibility to go to break-even margin break even between ICE and EVs towards the end of the decade, oil costs, including CO2, being included. So we're exactly, I think, on that path. This is also a bit of an answer to your second question, as obviously as we're ramping up, I mean, deaths in the second half of the year, the volume goes up, but there's a bit of a dilution coming along with it. Then, no, quarter one is not the worst in terms of the tariffs. Actually, quarter one on tariffs is slightly mitigated due to the IEPA refund claim, which we included in the books and the records. So actually, in quarter one, tariff impact is around 100 pips, whereas we expect for the full year still 150 pips. So we'll have some headwind coming from the tariff side in the remainder of the year from higher raw mats, as I answered Tim's question before. And the third, I would say, is the best dilution I just mentioned before. And then obviously the depreciation, which kicks in with the new models coming off the production line. So that's why in terms of the remainder of the year, despite the momentum and some volume growth in H2, We see the guidance in the three to five corridor for now.

Got it. Thank you.

Thank you, Mike. We would move on to the next question, and it goes to Jose Acemunde from JP Morgan. JP Morgan, sorry. Jose, can you hear us? Okay, Jose, I'm sorry, we cannot hear you. We will try again. Then let's move on to the next one, and I will hand over to Stephen Reitman from Bernstein. Stephen, over to you.

Good morning. Two questions, please. First of all, on China, can you give us some idea of the timetable of the launch of the GRC Electric in terms of when you're going to be announcing the pricing on that vehicle? And obviously, it's very early days since you did the full unveiling of the ones on the waste version in China, but can you talk a little bit about the reaction you're seeing from your dealers and from any other relevant sources you can talk about And secondly, on BEV demand, are you noticing any impact? Are you seeing more feedback you're getting from the dealers about customer interest maybe moving more towards BEV because of high fuel prices? Thank you.

Thanks, Stephen. Yeah, on the timetable, the GLC long-wheelbase is expected to hit – China market in quarter three, the turn probably quarter three, quarter four, if my memory is correct. And we will set in the pricing at the right moment of time, I would say, not too early, not too late. And I think as you could see also in other products, we'll have a view that this is competitive. However, obviously protecting the brand and the product premium. The reaction, the feedback from dealers on the GLC, on the EV product line, on what is to come this year, but also, as you know, Time to time, you show a bit the jewelries which are yet to come. Also, beyond the 2026 is very encouraging. The tech motion which we kicked off with the CLA in terms of MBUS, in terms of Level 2++, now in CLA on the road in China with Level 2++. I think is gaining a good momentum in support of the entire product lineup to come. And that's why we are hopeful that the GLC, long-wheel-based, which was revealed last week during the auto show, will pick up momentum once it's going to be launched in the China market. The second question in terms of EV demand, I would say for Europe, definitely. We see that very recently with the Middle East crisis, the fuel price spike, the dependencies on fuel, there is definitely favorable momentum picking up. well I mean I cannot tell you how sustainable that is going to be in case the conflict settles but clearly the product in itself I think are considered as very attractive through Mercedes and that is supported I would say by the current macro and geopolitical circumstances okay I'll try one more time with Jose Jose are you online?

That's not the case. Then let's move on to Christian Freines from Goldman Sachs.

One moment. Sorry, here's the operator speaking. Josef. We can hear you, but not really well. Unfortunately, we can understand you. So maybe you could try dialing in one more time, and then we will. Unfortunately, we cannot understand you. We are very sorry. Something seems wrong with your line. We cannot understand you at all. We are very sorry. Please try dialing in again. Thank you.

Yes, let's move on to Christian. Christian, over to you.

Okay, hello. Can you hear me now?

Yes.

Okay, great. I don't know what happened there. Christian Frenes in Goldman Sachs. Two quick questions, please. Harold, you mentioned the tariff had a 100 basis point headwind in Q1. And I think you mentioned 150 basis points headwind for the full year. So just the cadence of this, I suppose, should Q2 be the peak tariff headwind then? And then with the reduction in the second half, could you just clarify, please? And then the second question, in your CARS profit bridge, there seems to be, you know, the other was obviously a benefit. You called that out. You said it was a wash. It looks like your other operating income and expense talks about a 350 million gain from a settlement from claims against suppliers. Could you just elaborate what that's about, please? Thanks.

Yeah. Thanks, Christian. So I would say probably the quarters to come should run at around 150 bps dilution from the tariffs. Well, I mean, obviously it depends a bit on the sales from the imports, I mean, into the U.S., but globally I would say take it as a kind of 150 pips per quarter to come, I would say, yeah. And that gives you not exactly maybe 150 pips, I mean, for the full year, but in the vicinity of, yeah. To your second question, I mean, in the bridge, as I explained, I mean, in the other bucket, we have some support in the industrial performance. We have some negatives. So all in all, I mean, there are a wash. What is in the other bucket? Yes, we have included in the quarter one profit claim. towards the suppliers, which we've been discussing and settling.

But you will understand that I will not outline any particular supplier relationships. So please understand.

Thank you.

Thank you, Christian. We will then move on to Patrick Huber from UBS.

Thank you, Christina. Hi, Harald. Good morning. Thanks for taking my questions. I'd like to first ask about China. I mean, your sales performance, obviously, in Q1 wasn't great, but listening to you, it sounds like it was more in line with your plans because you were not pushing too hard. Is it fair to say that Q1, according to your playbook at least, is going to be the weakest quarter for China, and we should see not just sales picking up and, you know, bearing in mind we're talking about also EV sales picking up in the second half, is it still fair to assume that also the profitability should improve despite the dilutive impact of EVs versus ICE cars, just to get a better handle on what you expect from China for the remainder of this year? And my second question is, You booked this booking on Athlon, about $300 million. That asset in itself is worth more than a billion, I think. Then you marked $2 billion worth of DTG shares as help for sale. That gets me to $3 billion M&A or potentially even more. In the plan you presented with a full year, you talked about $2 billion. I just wonder whether, you know, if you execute all the transactions, if that has any impact on cash returns or you would stick to basically the framework you presented and, you know, any further proceeds would just, you know, give you some buffer maybe for 2027 or so. Thank you.

Yeah, thanks, Patrick. First question on China and China sales. I would say, yeah, China sales first quarter evolution was roughly in line with what we did expect. We said at the beginning of the year in the full year outlook, as you remember, that we do expect China sales to be lower in 26 versus 25. What was in the year-on-year as well, I mean, elements, remember that. the banking commissions have come down significantly. That has a particular impact also on our side. You could also see that we adjusted in terms of go-to-market strategy. We did adjustment on MSRP. We did negotiate and discuss and settle with dealers in the first quarter. So, That had some temporary impact in the first quarter, but consciously as we were trying to protect as well profitability at our end as well as profitability on the dealer's side. That came at the expense of volume, but consciously. This is, I think, an important point. Now, as you say, exactly as we're building the momentum for H2 with all of the products to come, Once, I mean, I emphasize, I mean, the S-Class, S-Class Maybach, the GLS, the GLE localized, so really cool product. The GLC, GLC, I mean, electric, the C-Class to come. I think there is a fair expectation of this to create volume, momentum. Therefore, from today's point of view, I would say quarter one, I mean, should be the lowest in terms of the sales. Well, I mean, we're not outlining, I would say, the profit by region, but globally I would say that should also have a supportive effect in terms of margin generation in the second half of the year from China. However, as you can see also in the first quarter, in terms of China contribution applies to China, BBC result, it's a tough competitive market environment, and that's why we're Next to the product momentum, we're taking a lot of actions in terms of localization, in terms of sourcing, in terms of cost effort to mitigate the market situation. The second question in terms of M&A, well, I mean, on the Atlon side, you referred to the EBIT side of things, I would say. I mean, the gain included at the group level of 300 million, that is basically as we moved ATLON as an asset for sale. The intercompany margin, which has been stored at the group level during the period we hold ATLON, gets now released as the asset gets divested. So that's a bit more, I would say, a mechanical side of things, accounting side of things. I mean, on the EBIT, your question refers more to the cash side. Well, I mean, is there a potential to do more of a 2 billion of cash generation from M&A? I would say yes. I think you could count Atron in for maybe up to a billion or so. However, it will not hit free cash flow on the industrial side as it sits on financial services. But clearly, It adds to the net cash position, and I said it before, and I confirm, and we would consider, obviously, this amount also in the capital allocation framework, i.e., consider as cash-generated, next to the other assets in the own retail, as well as any potential move on DTC. So, Yeah, next to the underlying industrial free cash flow, which we confirmed as per the guidance today, I think there is a decent cash upside from M&A.

Thank you very much.

Thank you, Patrick. We will try one more time to connect José. José, can you hear us? Okay, it doesn't work, unfortunately. Okay, then we move on to Horst Schneider, Bank of America. Horst, over to you.

Good morning, Hera and team. Hope you can hear me. The first question that I have relates to EBIT Bridge for INCAS for 2026. I really liked the details you provided when you released the full year 25 results and to what extent the various drivers will impact results in 2026. I want to come back on that. Could you maybe repeat again what drives now EBIT in cars in 2026? I have here in my notes minus 0.5% from structure pricing, minus 1% FMIX, minus 0.5% raw material effect, plus 2% efficiency gains. I think you said already that the raw material is going to have a more negative effect. Maybe you can update us on these drivers for 2026. That's number one. Number two, I was surprised in Q1 that you had such a positive impact from the trade payables while inventories were also moving down. So I wonder why that was and Should we expect going forward some reversal of this trade payable effect? And I'm also not aware if you have provided the guidance for working capital for the full year, because I'm thinking, as you rightly say, you're going to increase sales in H2, should lead to an increase of inventories, but also trade payables. I'm not sure about the trade-off. To what extent working capital will be a positive driver in 2026 or not? Thank you.

So now it's on. So thanks also to remind us the Abbott Walker 2526 is outlined during the ARC and the CMD. I think you picked up on most of the elements, but for the benefit of everybody. I mean, if you depart from 2025, we said at the point in time, tariffs and FX is a minus one. Structure and pricing is a minus 0.5. Raw mix is a minus 0.5. Efficiency is a two. And the depreciation is an 0.7. Well, that's pretty precise now. Looking at it from a Q1 perspective, i.e. based on the quarter one performance, I mean, I will not make an update of each and every item, I would say, but... Globally, I would say Paris maybe is a bit better, as we included the IEPA refund in the quarter one, as commented a bit earlier. Structure and pricing would roughly see the same vicinity. Raw mats, maybe a bit more headwinds to come. Efficiencies, I think, I mean, we are on track. We're also on track in the first quarter. I hope the explanation I gave you in terms of reading material for the bridge helped. What sits inside is in sync with the 2% for the full year. And the depreciation is also, I think, in the same direction. order of magnitude as outlined during the ARC. So, which means all in all, I would say probably, yeah, a bit more raw mats and headwind, a bit less of a headwind on the terrace and then some puts and takes. But that's why all in all, we confirm the three to five. Point number two. On the trade payables, I mean, in the first quarter, I mean, on working capital, what is in there? In the first quarter, we increased inventory from the end of the year, 2025, which is usually the low point in terms of inventory. You get ready, obviously, to support the product ramp-up, the new products coming. So that's why inventory went up in the first quarter. However, the inventory is on the structure, on the mix, lighter, is improved. Also, the cost efficiencies have an impact. on the inventory. That's why you don't see in the cash flow chart, I mean, such a burden on the inventory side. So it's rather, you know, in light or awash. Whereas on the trade payables, you see, I mean, a more important amount. I mean, that is a function of the production ramp up. which is favorable, I mean, on the payable side. But obviously then, I mean, if you move throughout the year, you then will deliver, I mean, these vehicles as per the sales expectation and then come back down again in terms of the inventory towards the year end, towards our inventory targets. We did not set out any specific guidance on working capital. That's all included in the free cash flow guidances in the CCRs of the division and the cash flow of the group. But clearly, I mean, we have, I mean, very tight and stringent, I mean, working capital targets for all of the three elements, I mean, the DIO, the DSO, and the DPO. But next to it, I mean, we're also working on further improvements on all of the elements. In particular, here you see benefit kicking in the first quarter on the payable side, which should also last and be, therefore, permanent. So in a nutshell, a part of the payables will be temporary, a part will be permanent. I hope that helps.

No, that helps a lot. Thanks for that. Just a small follow-up on raw materials. Is the increase in raw materials not impacting also your suppliers so that it will be more difficult to cut the material costs as much as you want? I think it's an industry phenomenon. It's not just a fact, too, but your view on that would be interesting.

Well, with different contractual arrangements, some are fixed prices, obviously, and on some, you have more floating contracts. That's all in all. I mean, we included risk assessment in terms of raw material evolution for 2026. And that is included in the outlook, as I pointed out before.

Okay.

That's great.

Take care.

Thank you, Horst. We will now move on to Henning Kostmann from Barclays.

Yeah, hi, good morning, everybody. Thanks, Christina. Thanks, Harold. I wanted to come back on the operating free cash flow. I know we talked about this a lot, but I think we're bouncing around a little bit, whether there could be upsides to the operating free cash flow guidance. I understand there's upsides from the M&A piece, but if we think of the above $4 billion and some of the payability effects in Q1 being sustainable now, and the momentum that you hope to generate in the second half. Would you be prepared to maybe stay in it as a bit of upside? About $4 billion is obviously all demanded anyway, but any sort of additional color, if you could, would be great. In a related sort of question, also ultimately, cash flow, I suppose, you've called out quite prominently the investment in the U.S. in the press release, at least. Perhaps not so much in the federal march now. but I'm just wondering if there's anything incremental there, anything at all to do with a continued hope for more favorable tariffs, and eventually if there's still anything ongoing in terms of electoral conversations with the U.S. administration, but separately from that, even, is there anything incremental in terms of the effects of the investment plan that you're calling out for the U.S. today? Thank you very much.

Thanks, Henning. I had some difficulties, frankly, to understand some elements of your question, but from a voiceover, but the first one, if I get it right, was on the free cash flow side of things, the operational free cash flow side, the M&A side of things I commented already before, I would say. I think on the operational free cash flow as a good start of the year, as outlined before, supported by working capital, Yes, some element will reverse. I mean, in the course of the year, on the other side, well, I mean, you have a billion of NLPP cash out sitting in the first quarter, which should not repeat in the remainder of the year. So for the large chunk of cash out on the restructuring program, I mean, that is behind us. So obviously that will help the cash generation in the remainder of the year. Then, I mean, we'll focus on all of the other levers, I mean, in terms of efficiencies anyhow, but also then on the attempt to manage the inventory to target, which is always a bit more towards the year end. So, I mean, quarter two, quarter three, we are in the ramp-up mode, I mean, for the new products. So you will see some seasonality, obviously, here in the cash generation, as you can see also in previous years. probably more emphasized, more supported, I mean, given the high number of product launches we're doing. But, yeah, I would say based on the quarter one cash flow, therefore with the elements I outlined on working capital, on NLPP, I think that we feel good with the guidance of slightly below you know what the corridor is of slightly below compared to the 5.4 billion, which we printed in 2025. Your second question, in terms of further investments in the U.S. and favorable impact on tariffs or deals, well, I mean, we think we're at a Important event with the GLS and the GLE revealed in the U.S. in Tuscaloosa, Alabama in March. We celebrated at that moment in time the 50 million vehicle coming off the line. In the U.S., I think we could witness, I mean, with a lot of stakeholders being present during that event, that we are considered as a very good corporate citizen, I mean, over there. We continue to entertain, I think, therefore, constructive dialogue, but I would not speculate about, I mean, any link between the investment and the tariffs at this juncture. We are committed to continue to invest in the U.S. as outlined with the $7 billion investment for 2026. I don't think there's any particular thing to mention. That is a more mid- to long-term strategic statement we've been doing. And very clearly, I mean, we see the potential for further localization in the U.S., in particular in the SUV core segment. But that is not, I think, for 2026, that is a bit more in the midterm.

I hope that answered the questions to the extent I got them.

Oh, that's great. Thank you. And just to confirm, no more NLP payouts this year in the cash, but probably around another $1 billion or so in 2027 then, yeah?

Oh, I mean, we did already in 2025, from memory, a couple of hundred million. 300 million or so, I think, in 2025 cash outs, and then now a billion in 2026 first quarter. We will still have some cash out in 2026, the remainder, but obviously much lower than the billion in the first quarter. And then, from today's point of view, we should be done with that.

Very good. Thank you.

And obviously, the benefit kicking in, in terms of, I mean, the people have come off the payroll to a large extent by the end of the year, I mean, throughout, I mean, quarter one. And obviously, that will create, I mean, run rate benefit moving forward. I mean, that's why we did invest into it.

That's right. Thanks, Alex.

Thank you very much, Henning. We'll move on to Stuart Pearson from Oxcap Analytics.

Yeah, good morning. Thank you for taking my call. Stuart Pearson from Oxcap Analytics. So just following up just very quickly to check my understanding was right on the IEPA refund. Just from what you said, I guess it sounds like you're suggesting that was around 50 basis points. or in cars in the quarter. So just to check that that's correct and where that would sit in the bridge, I guess, in structure. But maybe just clarify on that. And then the second one is a slightly bigger picture. It's coming back to the U.S., more the demand side. I know coming into this year, it's a market you talked about growth, and I think the target to grow there to 400,000 retails by the end of the decade. But I think retails... Bit tougher than that in Q1. So just wondering what you're thinking on the U.S. opportunity. I guess you'll have a bit more supply from both GLE and maybe that poor SUV a little bit later on. So is that still a significant growth market that you're excited about? What are you seeing in April there? That would be interesting. And then the third one, just on financial services, obviously a very strong quarter. I noticed credit losses came down there a little bit. Is there also a bit of help from residual values improving a little bit in the U.S., just coming out of the end of that normalization process? So just any color on that strong financial services performance would be great. Thank you.

Yeah, thanks, Stuart. So, yeah, I mean, in the first quarter, in that refund following the Supreme Court ruling, and has been included in the first quarter results, and mitigated the tariff impact that sits in cars, but it sits also in vans. That makes basically, as is commented, the car solution limited to 100 basis points in the first quarter. I think we don't spell out the detailed amounts. Please understand. In terms of the U.S. market, very clearly we see that as a very important market. We see that also as a market with good growth opportunities. And when I say that, it means I'm not assuming the entire U.S. auto market to grow massively. Clearly, we have a tech plan to grab share in areas where we're in particular strong, such as the top end. U.S. market, we enjoy a top-end vehicle share of 30%. We owe. And if you look at the product pipeline, I mean, to come, I mean, with the new S-Class, with the GLS now, the new GLS and the GLE, which we revealed, and many more products, AMGs. I guess why we're doing the AMG event in Los Angeles in May. I think we can really create a good bus, and that's what we want to do despite the tariff challenge. So this is a distinct decision that we're not holding back. We are in a tech mode for the U.S. market, but based on great products which are in the pipeline. And a third point on financial services, yeah, I think a good quarter. but I would say it should also be decent quarters ahead. What's driving the improvement over the 13% in the first quarter? Definitely it is the interest margin improvement. We talked about the acquisition margin improvement in the last numerous quarters and said it will come through, so you need to be a bit patient. Here you go. So that is definitely the biggest lever in the profitability improvement. Number two, the efficiencies, which we continue to drive. The new structure also has significant cost savings and efficiencies, which we are able to pull off. Third, on cost of credit risk, we stepped up given the macro challenges, so it's a headwind. That has been nicely digested in the quarter one. As we update, obviously, that model based on the MACOS parameter each and every closing. And your point on the residual values, that sits on the industrial side, so that doesn't impact the financial services.

Okay, thank you.

Thank you very much, Stuart. Looking at the time, I think we are at the end of our call. Thank you all very much for your questions and for being with us today. And thank you very much, of course, to Harald for answering all of the questions. Now, Investor Relations remains at your disposal to answer any further questions you may have. And to all of you, have a great morning, a great afternoon, and a great evening. Thank you and goodbye.