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Edited Transcript of DAI.DE earnings conference call or presentation 26-Apr-17 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Daimler AG Earnings Call

Stuttgart Apr 27, 2017 (Thomson StreetEvents) -- Edited Transcript of Daimler AG earnings conference call or presentation Wednesday, April 26, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Björn Scheib

Daimler AG - Head of IR and VP

* Bodo K. Uebber

Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board

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Conference Call Participants

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* Arndt Alexander Ellinghorst

Evercore ISI, Research Division - Senior MD, Head of the Global Automotive Research and Fundamental Research Analyst

* Christian Ludwig

Bankhaus Lampe KG, Research Division - Analyst

* Horst Schneider

HSBC, Research Division - Global Head of Automotive Research and Analyst

* José Maria Asumendi

JP Morgan Chase & Co, Research Division - Head of the European Automotive Team

* Michael J Tyndall

Citigroup Inc, Research Division - Director

* Michael Punzet

DZ Bank AG, Research Division - Analyst

* Patrick Hummel

UBS Investment Bank, Research Division - Executive Director and Lead Analyst of European Autos

* Stuart Pearson

Exane BNP Paribas, Research Division - Research Analyst

* Tim Rokossa

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the Global Conference Call of Daimler.

At our customer's request, this conference will be recorded. The replay of the conference call will be also available as an on-demand audio webcast in the Investor Relations section of the Daimler website. (Operator Instructions)

I would like to remind you that this teleconference is governed by the safe harbor wording that you find in our published results documents.

Please note that our presentations contain forward-looking statements that reflect management's current views with respect to the 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 Björn Scheib, head of Daimler Investor Relations. Thank you very much.

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Björn Scheib, Daimler AG - Head of IR and VP [2]

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Good afternoon. This is Björn Scheib speaking. On behalf of Daimler, I would like to welcome you on both the telephone and the Internet to our Q1 Results Conference Call.

Today, we are very happy to have with us our CFO of Daimler, Bodo Uebber. In order to give you maximum time for your questions, Bodo will begin with a short introduction directly followed by the Q&A session. However, before I hand over to Bodo, I would like to address the following comment on the diesel topic.

We continue to fully cooperate with the authorities. Our conservative communication practice supports the constructive dialogue, in particular with the U.S. authorities. I would like to refer to our first quarter interim report and ask for your understanding that we do not comment on any of the ongoing proceedings.

Now, I would like to hand over to Bodo.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [3]

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Thank you, Björn. And good afternoon. Let's have a look at the first quarter results.

Daimler's unit sales grew by 10% to over 750,000 units, driven by passenger cars, vans and buses. In the first quarter, we continued our product offensive with the newly redesigned Mercedes-Benz GLA compact SUV, the completion of the Mercedes-Benz E-Class family with the new E-Class Coupé and the E-Class convertible. And at the Geneva Motor Show, we presented the Mercedes-AMG GT concept hybrid show car and once again, the new premium Mercedes-Benz Concept X-CLASS pickup.

And now to our group financial results. Group revenue increased to EUR 38.8 billion, up 11%. EBIT increased significantly to EUR 4 billion, including EUR 690 million of disclosed items, making it, including and excluding those items, our best first quarter in the company's history. Net profit reached EUR 2.8 billion, equivalent to EUR 2.53 per share.

The industrial free cash flow was EUR 1.9 billion in the first quarter, which is significantly higher than last year. This very strong number also includes the cash flow from the sale of real estate at Mitsubishi Fuso Truck and Bus Corporation. As a result, the net liquidity position of our industrial business reached EUR 21.1 billion at the end of the first quarter. First quarter net liquidity does not reflect the dividend payout of EUR 3.5 billion which was actually paid in early April. We used the favorable market conditions to refinance our Financial Services business early in the year.

To sum up, the increase in group earnings was driven by strong volumes, favorable foreign exchange effects and continued efficiency enhancements. This resulted into a return on sales in the automotive business of 10.6%.

Let's take a closer looks at major developments in our divisions. Mercedes-Benz Cars increased its unit sales by 14% in the first quarter and was again the strongest-growing premium brand. The E-Class family continued its market success and reported a significant increase compared to the prior year period. And the SUVs are the segment with the highest volume, with unit sales increasing by 19%. In China, Mercedes-Benz increased its unit sales by more than 40%, supported by very strong demand for locally produced vehicles, in particular the long-wheelbase version of the E-Class sedan. Europe set a new record with an 8% growth rate. And the NAFTA region achieved 4% growth in unit sales.

The division's EBIT increased significantly to EUR 2.2 billion with a margin of 9.8%, including a positive valuation effect of EUR 183 million in connection with the new partners in HERE. The increase in earnings was mainly driven by strong sales, positive pricing, favorable foreign exchange effects and efficiency enhancements, but was partially offset by higher investments in new products, future technologies and innovation.

Daimler Trucks unit sales decreased by 11% in the first quarter. Sales decreased by 11% in the first quarter as a result of a still very weak market in the NAFTA region, especially in the class 8 segment, and the ongoing weak market environment in Brazil and Turkey. At the same time, the European truck business got off to a good start to -- for the year, and our unit sales increased by 12%. More important, our order intake was very promising and indicates further growth potential. And the book-to-bill ratio at Daimler Trucks in the first quarter reached 132%, with all regions achieving a positive ratio, except Latin America. In order to improve our profitability at Daimler Trucks, we introduced an efficiency program last year designed to save a total of EUR 1.4 billion by the end of 2018. We expect an expense from this program of up to EUR 500 million mainly in 2017.

Daimler Trucks EBIT increased to EUR 668 million and a margin of 8.4%. This includes income of EUR 267 million from the sale of real estate at Mitsubishi Fuso Truck and Bus Corporation. While weak markets reduced our earnings, efficiency improvements and currency translation had positive effects.

Mercedes-Benz Vans also had a very strong start this year. Its unit sales increased by 13%. Sales increased by double digits in all regions, with the exception of the NAFTA region. Mercedes-Benz Vans' entire product range contributed towards a significant growth in unit sales. And our position in China further improved, where sales nearly tripled compared with the prior year quarter. The van division posted first quarter EBIT of EUR 357 million, with a corresponding profit margin of 11.9%. The main drivers here were higher unit sales and favorable foreign exchange rates, offset by higher expenses for new technologies and future products.

Unit sales at Daimler Buses increased by 12% in the first quarter, driven by higher sales in Latin America. The division's EBIT of EUR 65 million was also substantially higher than in the prior year period. The return on sales was 7.2%. Earnings were supported by a better mix in Europe and positive exchange rate effects. This more than offset the decrease in unit sales in Turkey.

At Daimler Financial Services, new business increased by 23%. And contract volume reached EUR 135 billion at the end of March, which is slightly higher than at the end of 2016. Adjusted for exchange rate effects, contract volume increased by 2%. The insurance business also continued to develop very positively with an increase of 21%. Worldwide, around 468,000 insurance contracts were brokered by Daimler Financial Services in the first quarter. In the first quarter of 2017, the Daimler Financial Services division achieved earnings of EUR 524 million with a return on equity of 19.3%. This positive development was mainly the result of increased contract volume and the continuation of disciplined risk management, resulting in an unchanged low cost of risk, with net credit losses of just 25 basis points. At the same time, we continued to invest in mobility services.

Now let's look at our expectations for the full year 2017. Global demand for cars is likely to grow from its high level by 1% to 2% this year. We continue to expect slight growth in Europe and in China. The passenger car market in the United States should remain at last year's remarkable high level of more than 17 million units sold. Driven by the SUV segment, the complete E-Class family and the recently presented new S-Class, Mercedes-Benz Cars assumes a significant increase in its unit sales, continuing its successful past and aiming to defend its leadership in the premium segment.

Moving to the global truck market. The demand for medium- and heavy-duty trucks in the regions important for -- to Daimler remains challenging and will likely stay at the level of the weak prior year. In the NAFTA region, we expect an overall decrease in the magnitude of 5% in class 6 to 8, and we anticipate an even more substantial weakening of demand in the segment of heavy-duty trucks. Nevertheless, we assume that the market will gradually stabilize as the year progresses. With support from the expected stronger second half of the year and aided by our flagship, the new Freightliner Cascadia, we expect our unit sales in the NAFTA region to be at about the same level as in 2016. Based on our current assessment, we expect demand in Europe at about the prior year level, while we had to adjust our projections for Brazil downwards as we assume the market will remain at the very low level of the previous year. Following the dramatic slump in demand in Turkey last year, we foresee another decrease, but unit sales in India and Indonesia are expected to be slightly higher than in 2016. Overall, Daimler Trucks assumes that in this challenging environment its total unit sales in 2017 will be in the magnitude of the previous year.

For van markets, we foresee a stable development for small vans and a slight increase in demand for midsize and large vans, with further growth in Europe and China. The U.S. market should remain fairly stable. Towards the end of this year, we will enter the midsize pickup segment with the X-Class, enabling Mercedes-Benz Vans to increase its worldwide unit sales significantly.

Daimler Buses assumes that it will be able to defend its market leadership in its traditional core markets for buses above 8 tons with innovative future-oriented and high-quality products. We anticipate total unit sales in 2017 significantly above the prior year level.

Daimler Financial Services anticipates significant growth in new business and further growth in contract volume in the year 2017. This will be driven by the sales development of the automotive divisions, especially Mercedes-Benz Cars.

We continue to see good growth opportunities also in the field of innovative mobility services.

Based on the various market assumptions, at Daimler Group level we now expect significantly higher unit sales, resulting in group revenue significantly higher than last year.

Our FX guidance for our full year 2017 remains favorable. At current spot rates, we see additional opportunities for the group compared to the EUR 500 million stated earlier. However, this is strongly dependent on the further development of the currencies which are relevant to us. At the same time, raw material prices at group level are expected to be considerably higher than in 2016. This means that raw materials will create a significant headwind for EBIT in 2017.

We are raising our guidance for revenue and EBIT for the Daimler Group to significantly above the prior year level, reflecting the additional earnings effects from HERE and BAIC, the good start to 2017, higher volume expectations at Mercedes-Benz Cars and the raise in Mercedes-Benz Vans' and Daimler Financial Services' expectations. Driven by the strong product portfolio, significantly higher car sales, ongoing favorable pricing, favorable hedge rates and the positive onetime earnings effect in the first quarter, Mercedes-Benz Cars expect EBIT for full year 2017 to be significantly above the last year's level. At Daimler Trucks, based on our current assumptions, we expect EBIT for 2070 -- 2017 to be slightly below the prior year level, reflecting better business in the NAFTA region in the second half of the year and further efficiency improvements.

There's a net special expense for the European restructuring program, offset by the sale of real estate in the first quarter. The benefits of the program will be achieved by 2019.

Mercedes-Benz Vans expects its full year EBIT to be slightly below the prior year level, as its higher unit sales will be more than offset by higher spending for future products. At Daimler Buses, EBIT will be slightly above the prior year level. And at Daimler Financial Services, we expect EBIT to be slightly above the prior year due to the ongoing low cost of risk.

The anticipated earnings development and the growth for our automotive business will be positively reflected in our industrial free cash flow in 2017. In view of our expenditure for new products and technologies, the free cash flow from the industrial business should be slightly higher than in 2016, exceeding the dividend distribution in 2017.

We are working to safeguard and further improve our current performance step by step with the continuation of our product offensive in all divisions and transformation of the entire Daimler Group with a focus on structural optimization, efficiency improvements and increasing operational flexibility. While we continue with our comprehensive financial discipline, we are working and investing in future technologies: connectivity, autonomous driving, shared and emission-free driving. At Mercedes-Benz Cars, we are moving ahead in the field of electric mobility. We are accelerating the launch of series production for more than 10 new electric vehicles between now and 2022. At the same time, we are increasing flexibility in our production facilities and are able to deal with the demand fluctuations.

Another example for our efficient spending policy is our cooperation at HERE. At HERE, we are not only cooperating with our automotive peers but have also partnered with Intel, Tencent and GIC; and are continuing to strengthen our digital mapping business. With regard to autonomous driving, we have expanded our partnership with Bosch and plan to facilitate the use of fully automated, driverless vehicles from as early as the start of the next decade.

Furthermore, we are focusing on our strong products and the portfolio renewal. The upcoming new generation of the S-Class is one of the key milestones which elevates Intelligent Drive to the next level.

With the introduced efficiency program, we are bringing Daimler Trucks up to its target level of profitability. Daimler Trucks is pushing forward with electrification, as can be seen with the new FUSO eCanter and the Mercedes-Benz Urban eTruck. And we are constantly setting standards in the field of telematics. With about 400,000 connected vehicles worldwide, Daimler Trucks is by far the industry leader in connectivity. Our collaboration with technology leaders such as AT&T and Microsoft further enhance our ability to provide connectivity solutions to our customers in North America.

To sum up. The combination of financial strengths and innovativeness is stronger than ever at Daimler. Our strategy continues to pay off, and Daimler continues to make a promising investment case.

I now look forward to your questions. Thank you very much.

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Björn Scheib, Daimler AG - Head of IR and VP [4]

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Thank you very much, Bodo. Ladies and gentlemen, you may ask your questions now. (Operator Instructions) Now, before we start, the operator will again explain the procedure.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Patrick Hummel, UBS.

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Patrick Hummel, UBS Investment Bank, Research Division - Executive Director and Lead Analyst of European Autos [2]

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Yes, Patrick Hummel, UBS. My first question relates to Mercedes Car Group, the segment result. If we look into the split between China associates or JV and consolidated business, the JV had a very, very strong quarter with a more than EUR 450 million contribution. Can you give us any guidance how that's going to evolve in the coming quarters? Was there anything with sort of a one-off character included in there? And on the flipside of this, the consolidated business margin was -- if we strip out the HERE disposal effect or new investor effect, the underlying margin was only 7% for the consolidated business in MCG. What's the driver behind this? I've seen, of course, R&D is up, but still, the 7% looks a bit weak. Has there been any revaluation of residuals or something going on? Any color would be much appreciated.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [3]

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Thank you, Patrick, for your questions. First of all, you had the question of -- we are very proud about our performance in China. We have a strong sales increase; compared to last year's quarter, all-time high. And we are a bit ahead of competition, which is first time the case, based on strong products not only on the locally produced side but also on the imported sales. Our BBAC joint venture together with BAIC is -- had a very promising start. We had very good returns. And we are also very proud of this development, which is based on -- of course, on sales but also further efficiencies in the plants, by also huge increase in production and sales. For the quarters to come, we don't do quarterly forecasts for JVs, but I can tell you that the BBAC result will stay strong for the quarters to come. Then on the other hand, of course, you do some analysis and, of course, to find out where we are performing. I can tell you from my point of view, we had a very good start in the year. And you -- I can see us performing in all aspects. So when you look at the European part of our business, we have strong sales increase. When you look at the car lines, the mix, the SUV segment but also United States in comparison with pricing and sales, we had also a good start. So by taking out Nokia HERE, you come to, I do think, levels of north of 8% or 9%. 9%, so I think to correct your 7% feature. All of the other stuff, we look at the integrated business model on it, even our locally produced business and when you look at the -- our EBIT walk, you see a very strong volume sales contribution. You see a strong, of course, effect from currencies. And of course, you see investments in R&D, in CapEx, in capacity expansion and products, which is more or less future related. So from my perspective, also seeing our strong cash flow, it's a very good quality of earnings in the car group, yes.

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Patrick Hummel, UBS Investment Bank, Research Division - Executive Director and Lead Analyst of European Autos [4]

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Can I ask my second question as well? Regarding the plans to bring forward the EV launches, you basically said at the AGM, or Dr. Zetsche said, that 10 EVs will be launched now by 2022 instead of 2025. So I'm wondering, what does it mean to the CapEx and R&D budget you just gave us a couple of months ago for 2017 and '18? Are these still valid? Or will it require more work upfront to bring those 10 models into the market?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [5]

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Patrick, it's basically unchanged.

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Operator [6]

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The next question is from Tim Rokossa, Deutsche Bank.

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Tim Rokossa, Deutsche Bank AG, Research Division - Research Analyst [7]

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I'd like to come back to, I think, Patrick's point also on the underlying margin of the consolidated units. I think that was the main question actually. That should be about 8%, according to my numbers, if you adjust for the BBAC stake. There is a worry this morning, and I think that is also reflected in the stock price, that your underlying profitability of the consolidated unit, despite being also very successful there, is not really showing much signs of any improvement in profitability. Obviously, I know you look at this differently. I know you take out the dynamic that you see in this very strong Chinese market, but could you perhaps give us some guidance on what you see for the operating number for the consolidated units, so outside of BBAC, going forward? Will that margin remain under pressure from the higher R&D expansion that you have going forward because you're investing in future technology? Or do you also see that number growing? And then my second question will just be on your free cash flow. You made about 50% of your last year's free cash flow number already in the first quarter. There was the EUR 300 million one-off in there obviously, but you're only guiding for a slightly better result in the full year. Is there any substantial investment need still to come, or just the usual CapEx development, that we shall take into account?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [8]

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Tim, thank you for your question. First of all, I need to point out, of course, you know our target margin is 10%. That is what we are aiming for this year. And we are in line with this development, so for the next quarters to come, you can expect us to develop on a very high margin level to make this 10% come true. The -- when you look -- if you, of course, separate, which you could do, of course, the equity joint ventures from this year, please do it also for the last year. And then you will see that we have a strong performance increase. So having in mind this performance increase, I do think we will go forward with this momentum in the quarters to come. So please, if -- you need to separate in 2 -- in both comparable quarters with your analysis. And on the other hand, don't forget, when you compare ourself also with other companies, there are other definitions. Our EBIT definition is including JVs. And of course, it makes sense because we have an integrated steering model, so we can't separate our BBAC joint venture from steering China, so to say. And, therefore, it includes our management business model, so to say our business model includes, of course, also the JV. From a -- of course, our other costs changes, I do think it's good news. So we are investing further into R&D, CapEx, capacities and so on and so forth. And for the last couple of years and going forward, of course, we -- with our strong product, we offset this cost increase, on the one hand, but it's investment into the future. Good news is, for the total year, we plan not to exceed EUR 1 billion of cost changes, so that means the major part of the cost changes are in first quarter, so the run rate should be lower in comparisons -- comparison to the quarters to come. That is, of course, some good news and will -- of course, yes, will have some, so to say, EBIT impact in the quarters to come compared to the first quarter. Your last question was about free cash flow. Free cash flow, of course, we expect normal pattern of CapEx spending. You know that we have increased our CapEx budgets and R&D budgets. We have disclosed that in the beginning of the year. So we expect, of course, more CapEx spend in the quarters to come, especially third and fourth quarter. And therefore, we are a bit careful with our cash flow guidance. We have increased it, yes, yes, because of the strong cash flow in Q1. There were some trade payables also in this quarter which might bounce back, so we gave a positive outlook. There might be some more opportunities, but it's too early to say, and we will keep you updated in the next quarters.

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Tim Rokossa, Deutsche Bank AG, Research Division - Research Analyst [9]

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Great. And then just 2 clarifications on what you just said on the first question. So a, that basically means you expect the momentum of the underlying margin outside of China also to continue going forward in the next 3 quarters?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [10]

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Yes.

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Tim Rokossa, Deutsche Bank AG, Research Division - Research Analyst [11]

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And then b, this below EUR 1 billion other cost changes that you just said, is that comparable to the EUR 458 million that I see in your EBIT bridge, or is that including the HERE EUR 183 million?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [12]

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Yes.

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Operator [13]

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The next question is from José Asumendi, JP Morgan.

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José Maria Asumendi, JP Morgan Chase & Co, Research Division - Head of the European Automotive Team [14]

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Bodo, José Asumendi, JP Morgan. Just a couple of questions, please, on -- I just want to come back to China. I mean, look, I'm getting to an estimate of around maybe 18% to 20% growth in China, on your joint venture, in 2017. You've had a phenomenal start of the year in Q1. Q2, I don't see any reasons for a major slowdown. You're well into April. Am I completely wrong in my assumptions? And can you just also maybe put this into the context of product cycle in China? Second question, currency tailwind for Mercedes-Benz: I'm sure you have a huge amount of visibility into the second quarter, so what kind of, at least, currency tailwinds should we assume for Q2? Or if you see upside to your currency guidance versus maybe 2 or 3 months ago.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [15]

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José, thank you for your questions. Of course, I can concur with your expectation about China, that it's a base plan we do have in mind. We don't see a slowdown, but, of course, yes, we need to watch all the markets worldwide, whether they go further with the growth plan. But our assumption for China is positive. There are different outlooks for the markets, of course, but all of them, I do think, are positive. And we have a momentum based on our product on E-Class, C-Class, GLC, SUVs, new S-Class upcoming in the second half so that we, of course, should be -- we should grow, of course, more than the market. As you have seen in Q1, I have commented on this, we are proud to see us -- first time that we have outgrown our competitors. We have to see whether that -- where does this go. Of course, there are special topics also with our main competitors, but we are proud to have this very good start into the year. Currency tailwind from today, of course, you know our guidance for currency. For all the relevant currencies, we are guiding more than EUR 500 million tailwind for the total year and, of course, the -- to be significantly higher than EUR 500 million. And we do see some further opportunities. It's a bit too early to say how much of this will materialize because there is a lot of volatility also in the market, especially in emerging markets, but there are opportunities even towards this guidance. What is very -- what we need positively to state is that the average hedge rate we do have in Q1 will be followed up in Q2, Q3, Q4 by better hedge rates. And therefore, that will support our earnings developments compared to the first quarter. I do think, yes, that's it, José.

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Björn Scheib, Daimler AG - Head of IR and VP [16]

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Yes.

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Operator [17]

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The next question is from Michael Tyndall, Citigroup.

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Michael J Tyndall, Citigroup Inc, Research Division - Director [18]

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It's Mike Tyndall from Citi. A couple ones, if I may. Just looking at production versus sales, there was a very big shortfall in Q4. And you seem to have caught up a little bit in Q1, but we seem to still be very much in deficit, so I'm just wondering. Is there going to be a continued catch-up throughout the rest of the year? Are we going to see, I guess, production in excess of sales by more than what we saw last year potentially helping you with operating leverage? And then the second question, just in relation to North American truck. You haven't changed your guidance there at all, but your orders were up very, very strongly, as were others, in Q1. So I'm kind of wondering why the conservatism around North American truck given the strength you've seen in order intake.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [19]

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First of all, Mike, sorry. I forgot to push the button. So I don't get your first question right. First of all, we had a very good retail situation in the -- especially March, but also in January, February so that we sold a lot of more. And our inventory went down, of course, in -- with the dealers. And our own inventory also here, it increased but less than we have planned for. So retail was very good. We have to see in the upcoming months, of course, how this will further develop, but this is in-line. Of course, it supports our increased sales guide -- well, our sales guidance of significantly better than last year. So we had a very strong start into the year. We have to see how this further develop and how will we cope with the strong demand. We have even to look into our capacities and where we can do more than we have planned for in terms of capacity restrictions, but, of course, it's a good situation for the start to the year. Your second question was related to your -- the North American truck business. We haven't changed our guidance, that is right, for the market. We...

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Björn Scheib, Daimler AG - Head of IR and VP [20]

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(inaudible)

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [21]

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Yes, we confirm our guidance, market guidance, we had given in February, so we have no change in our guidance. The order intake, of course, is developing very, very good. You have seen our numbers. The book-to-bill ratio is quite high. The order intakes are quite high. And, of course, we are watching the market very closely. If that holds on, of course, there are some opportunities going forward, if the order intake will stay as positively as we have seen it now in the first 3 months. So it's not conservatism. I would say it is just watching the markets to see whether we have more opportunities.

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Operator [22]

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The next question is from Arndt Ellinghorst, Evercore ISI.

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Arndt Alexander Ellinghorst, Evercore ISI, Research Division - Senior MD, Head of the Global Automotive Research and Fundamental Research Analyst [23]

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Arndt Ellinghorst from Evercore. One quick one on Mercedes and the currency effect, Bodo, if I may. On your internal planning, would you expect to increase the clean EBIT from Mercedes this year, excluding currency effect? So if you take it on the same transaction rates on the currencies. And the second one is on your disclosure. There was a bit of a worry this morning that you added some new disclosure concerning the diesel situation. I don't want you to dive into this, the diesel situation, but just on your risk disclosure, just to clarify, has anything changed? I didn't go through all of your annual report. Sorry for that. But if anything has changed, could you please elaborate why?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [24]

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Arndt, to your first question, most probably yes. That is the answer to your first question. So excluding the currency effect, most probably would have increased our underlying performance run rate.

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Arndt Alexander Ellinghorst, Evercore ISI, Research Division - Senior MD, Head of the Global Automotive Research and Fundamental Research Analyst [25]

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That's clear.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [26]

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Second, I need to ask you, please read the risk report for any clarification. I can't go further into details.

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Arndt Alexander Ellinghorst, Evercore ISI, Research Division - Senior MD, Head of the Global Automotive Research and Fundamental Research Analyst [27]

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All right, I'll do that.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [28]

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I ask for your understanding.

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Arndt Alexander Ellinghorst, Evercore ISI, Research Division - Senior MD, Head of the Global Automotive Research and Fundamental Research Analyst [29]

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Okay.

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Operator [30]

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The next question is from Horst Schneider, HSBC.

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Horst Schneider, HSBC, Research Division - Global Head of Automotive Research and Analyst [31]

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I have got 2 questions. The first one is on the raw material price impact. Maybe you can specify what sort of burden you expect for this year. And then, I want to know, what was the burden in Q1? Then the second question that I have, that relates again to these other cost changes, where you said that it's going to be EUR 1 billion on a full year basis: I think that was meant for the group. And maybe you can split that then on Mercedes and trucks because I think in trucks, we get towards end of the year already some cost savings from the restructuring. And I just want to know what is the sort of development that we should expect for Mercedes cars but also for trucks.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [32]

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First of all, to your raw material question, of course, raw material is a headwind for this year. We expect more than…

(technical difficulty)

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Operator [33]

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Sorry. We cannot hear you anymore.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [34]

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Yes. And excuse me. So EUR 500 million of raw material effects this year, headwind, 2/3 for the car group, 1/3 for trucks. Your second question, other cost changes, I refer to Mercedes Car Group only with my comment I did for -- before. And then you had a question about the split of incoming orders?

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Horst Schneider, HSBC, Research Division - Global Head of Automotive Research and Analyst [35]

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No, the other cost changes for trucks then.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [36]

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Trucks, of course. Trucks, when you exclude, which we did, the effect from the sale of the premises in Kawasaki, Japan, we had other cost changes compared to last year positively of the amount of EUR 80 million. That was mainly driven by material costs performance.

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Horst Schneider, HSBC, Research Division - Global Head of Automotive Research and Analyst [37]

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No, I mean the guidance for the full year for trucks in other cost changes.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [38]

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It was -- excluding the special effects, it will stay negative, roughly EUR 100 million. And it's mainly this raw material topic for the quarters to come.

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Horst Schneider, HSBC, Research Division - Global Head of Automotive Research and Analyst [39]

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Okay. And the raw mat impact for Q1 was how high for the group?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [40]

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Was lower than the -- if you will divide it by 4, it was lower than this run rate of EUR 500 million divided by 4.

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Operator [41]

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The next question is from Christian Ludwig, Bankhaus Lampe.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [42]

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One question only from my side. Very quickly, on your Financial Services division, you have upgraded the guidance on EBIT slightly, but basically, that means, if I look at the numbers, you just need to be flat for the rest of the year to fulfill the guidance. Why are you so conservative here? Because that implies for me that you expect the margin of Financial Services to go down in the rest of the year. Are you seeing anything already on the horizon that we should be aware of?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [43]

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Christian, that is -- your question with Financial Services, we have every year a pattern of a more higher first half, and the second half is lower EBIT. That is also a cost development topic and others. So it's a normal course of -- a normal structure we have in the business. Secondly, we have always to keep in mind that the risk cost base is a very good one, but we are, right-conservative. And we had planned for a higher number for this year but are not yet there to raise, so to say, more of this credit risk development because the markets are very volatile. And you have to keep in mind some developments in some markets where the markets are totally depressed. I cannot go through the world where we have depressed markets, but that is the reason why we also keep the guidance here on slightly against last year.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [44]

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So would it be fair to say, if the market stays as it was in Q1, there is a fair chance for a guidance increase?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [45]

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No. Between slightly and significantly is the way to go. So we'll keep you updated in the second quarter and the third quarter. Of course, we are not against a guidance increase. If we see a fair chance to make it, then we will do it.

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Operator [46]

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The next question is from Michael Punzet, DZ Bank.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [47]

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I have 2 questions. First one is on special reported items. Could you give us an update, what are your expectations for the remainder of the year? And what is included in your guidance? And the second question is with regard to the order intake, especially in the U.S. Is this -- has this trend continued also in April? And when the order intake will have a positive effect on your sales figures?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [48]

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Michael, to your first questions -- question, of course, we have disclosed in February our -- the disclosed items. One of this was the Kawasaki effect. The second one is our project stream in the truck group, the fixed-cost program, where we announced that we'll have to up to EUR 500 million mainly in 2017 as a charge for this program. That still holds true, and it's also a basis of our guidance. Other than this, of course, you know the disclosed items in the first quarter. Other than this, I can't report to you. So these are the expectations in this area. The second question, April was as strong as the March was, so that is good news. As I said before, we will watch the market, the order intakes. And if -- of course, if we see that the market is developing better than our expectations of the markets, of course, we certainly will, yes, change our production expectation.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [49]

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Yes, but the question is will we have also a positive effect from the strong order intake already in Q2. Or is that more related to Q3 and Q4 with regard to revenues figure?

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [50]

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Yes, it's a good question. It's more third and fourth quarter.

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Operator [51]

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The last question is from Stuart Pearson, Exane.

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Stuart Pearson, Exane BNP Paribas, Research Division - Research Analyst [52]

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A couple of questions. Maybe just to start with perhaps a more general question on how you see pricing power of Mercedes now. Because the volumes have pretty much doubled since the peak of the last crisis, and it is interesting. I mean, looking at the margin development, obviously, as Tim and my colleagues were pointing out at the start of the call, that margins around 8% was a bit less; and ex FX, would have been more like 6%, at a time when you've got probably the freshest product out there and growing the top line significantly. So I wonder have you thought about perhaps selling less cars and pricing up at this stage rather than pushing volume. Or is there a reason in terms of the capacity planning that we need to see such strong volume growth? And how do you think about managing that over the next couple of years when we think about the off-lease supply, the used Mercedes that are going to be coming into the system, when your volumes today will be roughly around 1 million units higher than even 5 years ago? So just a generic question perhaps on how you see pricing power going forward for Mercedes. Because it doesn't seem to be a lot of it in Q1 given that we hear a premium carmaker talking about raw material headwind, something we would have usually just passed through to the consumer. And then a much easier one, on Financial Services. It's just the equity injection...

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [53]

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I just ask for your understanding. You are so quick. And I do my best to understand you, so if you could slow down a little bit. And then just to hand over, so maybe we stop here. I try to answer some of the stuff. Sorry to say so, but -- and then you go forward again. I ask for your understanding. It is very difficult to follow your quick English, yes.

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Stuart Pearson, Exane BNP Paribas, Research Division - Research Analyst [54]

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No, apologies, Bodo. I'm also losing my voice, so that's probably why I'm being too quick.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [55]

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Okay.

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Stuart Pearson, Exane BNP Paribas, Research Division - Research Analyst [56]

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I was just asking about the pricing power in Mercedes. Because yes, just it strikes me as unusual that we're here with a premium carmaker talking about significant headwinds from raw materials. And that's something in the past, certainly 10 years ago, premium carmakers would have just passed it through to the end consumer. So just a generic question on how you see pricing power at Mercedes. Because the margins without FX would have been closer to 6% in this quarter, at a time when your product is very strong. So is there a debate internally about starting to hold back on volume? We're seeing, instead of seeing these phenomenal top line growth rates, perhaps pricing higher and holding back on volume to try and just undersupply the market, as we might expect more from a premium brand.

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Bodo K. Uebber, Daimler AG - Head of Finance & Controlling - Daimler Financial Services and Member of Management Board [57]

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Okay, thank you for your question. First of all, we are very pleased with the performance in pricing not only the first quarter. Last year, I do think we had also very good news. And that is based on continued product renewal, which gives us a good position, and that will hold on. You see that in almost all regions, that we have a very good position in our transaction price studies. And therefore, we continue with this path. Our remarketing, in some areas, of course, we have a lot of remarketing volume in the United States, in U.K., Germany, for example, but also there, of course, we have a positive stand due to this renewal and due to the development in residual values. And that makes also the remarketing, so to say, a good business. So that's it to see. So the expectations are good. And I do think the last couple of years, we have shown that our approach is the right one.

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Operator [58]

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Thank you. There are no further questions.

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Björn Scheib, Daimler AG - Head of IR and VP [59]

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So thank you very much, ladies and gentlemen, for your questions and being with us today. Also, thank you very much to Bodo for answering all your questions. Now, as always, Investor Relations remains at your disposal to answer any of the further questions that you may have. Have a lovely afternoon, lovely morning or lovely evening, wherever you have been listening. Thank you and bye-bye.