Q1 2015 Daimler AG Earnings Call
Apr 28, 2015 AM EDT
DAI.DE - Daimler AG
Q1 2015 Daimler AG Earnings Call
Apr 28, 2015 / 12:00PM GMT
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Corporate Participants
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* Bjorn Scheib
Daimler AG - Head of Investor Relations
* Bodo Uebber
Daimler AG - CFO
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Conference Call Participants
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* Danny Schwarz
Commerzbank - Analyst
* Stuart Pearson
Exane BNP Paribas - Analyst
* Horst Schneider
HSBC Global Research - Analyst
* Arndt Ellinghorst
Evercore ISI - Analyst
* Jose Asumendi
JPMorgan - Analyst
* Philip Watkins
Citi Investment Research - Analyst
* Kristina Church
Barclays Capital - Analyst
* Charles Winston
Redburn Partners - Analyst
* Stephen Reitman
Societe Generale - Analyst
* Philippe Houchois
UBS - Analyst
* Marc-Rene Tonn
Warburg Research GMBH - Analyst
* Christian Ludwig
Bankhaus Lampe - Analyst
* Michael Punzet
DZ Bank - Analyst
* Fraser Hill
BofA Merrill Lynch - 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 also be available as an on demand audio webcast in the investor relations section of the Daimler website. The short introduction will be directly followed by a Q&A session.
(Operator Instructions)
I would like to remind you that this teleconference is governed by the Safe Harbor wording that you find our published results documents. Please note that our presentations contain forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties.
If the assumptions underlining 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.
I now hand over to Bjorn Scheib, Head of Daimler Investor Relations. Thank you very much.
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Bjorn Scheib, Daimler AG - Head of Investor Relations [2]
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Good afternoon. This is Bjorn Scheib of the Daimler Investor Relations team speaking. On behalf of Daimler and the entire management team, we would like to welcome you all on the Internet and here on the telephone, to our Q1 conference call.
Today, we are very happy to have with us our CFO, Bodo Uebber. We will -- he will be giving you a short introduction to give this conversation and Q&A session a framework. In order to give you maximum time for your questions, afterwards I would kindly ask you to structure your questions to that way; that we keep it to one or two questions. And please, make your introduction and the answering of your questions this time precise and not too long, in order to give everybody the opportunity to raise questions.
Now, with this, I would love to hand over to Bodo.
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Bodo Uebber, Daimler AG - CFO [3]
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Thank you, Bjorn, and good afternoon. We published our first-quarter figures this morning, and as you can see, Daimler had a strong start this year. As a result of the consequent execution of our strategy, we continue to progress further in terms of growth and profitability.
We achieved significantly higher sales, revenues, earnings, and industrial free cash flow. Daimler's unit sales grew by 13%. Profitability of the automotive divisions increased by 200 basis points. At the same time, we continue to invest in our future as R&D expenditures increased by 13%. Step by step, we are harvesting the rewards of our extended investments we have made over the past years.
The combination of a strong product portfolio and the disciplined continuation of our efficiency measures are enabling us to profitable expand our businesses. We are on track to achieve our full-year targets. Step by step, we are getting closer to our mid-term margin targets.
In the first quarter, we continued our product offensive with the premiere of the GLE Coupe, the debut of the Mercedes Maybach Pullman, the production start of the CLA Shooting Brake, and the premiere of the new Mercedes-Benz Metris midsize van for the North American market. We also confirmed our forerunner role in autonomous driving at the CES in Las Vegas, with our new autonomous F 015 Luxury in Motion research vehicle.
Moving on to the highlights of our financials. Group revenues increased by 16% and adjusted for foreign exchange effects by 9%. Group EBIT from ongoing business grew at much higher rate of over 40% to EUR 2.9 billion. Net profit reached EUR 2 billion, which translates to an EPS of EUR 1.83.
Industrial free cash flow rose to EUR 2.3 billion in the first quarter, mainly driven by the profit contribution from our industrial businesses. As a result, the net liquidity position of our industrial business reached EUR 20.5 billion at the end of the first quarter. Please keep in mind that we paid out EUR 2.6 billion in dividends in early April.
On the other hand, we intend to keep net liquidity at a comfortable level. To weather the risks resulting from volatile markets. To maintain a strong and solvent balance sheet. To support our [each] A rating. And, last but not least, to sustain the financial strength and flexibility to continue to invest in product, innovation, and technology.
To sum up, in the first quarter, we have continued to improve our performance, as well as our ability to sustain it. In combination with our disciplined financial policy, we further increased the robustness of our business. Let's take closer look at major developments in our single divisions.
Mercedes-Benz Cars increased sales by 18% in the first quarter. It was again the strongest growing premium brand. To this success with double-digit growth rates. Especially, the new C-Class and the compact class family showed very strong sales dynamic.
EBIT from ongoing business significantly increased to EUR 1.8 billion, and our margin reached 9.2%. In addition to higher volume, pricing also made a positive contribution to the EBIT development. At the same time, we continue to invest in new products, technology, and additional capacity. Foreign exchange was a burden in the first three months, but we expect it to become a positive over the course of the year.
Daimler truck sales grew by 4% in the first quarter in a very heterogeneous regional market environment. Sales in North America continued to grow dynamically by 18% in the first three months. Europe had a slow start, with sales developing around the low prior-year level. Emerging markets significantly weakened at the beginning of the year. The Brazilian market turned out to be more difficult than initially expected. Sales in Latin America were down by 29%. Sales in China and Indonesia also declined due to difficult market conditions.
The order intake in the first quarter supports a strong dynamic in North America and points toward a more positive outlook on Europe. Order intake in Brazil decreased significantly and reflects the weak economic development. In total, the order backlog of Daimler Trucks increased by around 40% compared to the end of March 2014, and confirms our full-year targets for Daimler Trucks.
EBIT from ongoing business increased by over 50% to EUR 563 million, while the margin improved to 6.4%. The main contributors were higher sales in NAFTA, positive foreign exchange effect, and further efficiency enhancements. Burdens arose from lower sales in Latin America and Indonesia, as well as higher warranty costs and expenses for additional capacity in NAFTA. Overall, the first quarter demonstrates the strength of our global truck business model, that allows us to more than balance a huge market deterioration in Brazil and Indonesia.
Furthermore, in February, we decided to sell Atlantis Foundries, which resulted in extraordinary burden of EUR 55 million. This decision is another proof point that we continue to improve the structure of our businesses to optimize the virtual integration where necessary.
Mercedes-Benz Vans increased sales by 4% and revenue by 9%. EBIT from ongoing business climbed strongly by 80% to EUR 221 million with a corresponding profit margin of 9.2%. The main driver here was a very strong development of our van product mix. Strong demand in Europe and NAFTA, along with benefits from efficiency improvements, contributed to the EBIT development. However, foreign exchange effects burdened the result.
Sales of Daimler Buses decreased in the first quarter, due to the very weak business in Latin America that could not be offset by stronger demand in Europe and Turkey. EBIT from ongoing business came in at EUR 35 million, which equals a profit margin of 4%. Positive EBIT effects resulting from strong demand for complete buses, a good product mix invest in Western Europe, and positive exchange rate effects could partially offset the weak business in Latin America.
At Daimler Financial Services, new contract volume increased by 34%. The portfolio grew by 10% to EUR 109 billion. In the first quarter, the division achieved an EBIT of EUR 409 million, which corresponds to a return of, on -- of equity of 20.4%. The main drivers were higher contract volumes and positive foreign exchange effects while we at the same time invested in the expansion of the business. Net credit losses decreased to a very low level of only 20 basis points.
After a good start into the year, let's turn to our expectations for the full year 2015. In line with the continuation of moderate economic dynamism, worldwide demand for cars is expected to increase by about 3% in 2015. We increased the truck market expectations for NAFTA to 10% to 15%, Europe to 5% to 10%, and Japan to around prior-year level. At the same time, due to significantly deteriorating conditions, we had to change our guidance for the Brazilian truck market to decline around 30%, and the Indonesian truck to drop around 20%. For the European van market, we now foresee a more positive development and expect the market to grow slightly. The forecast for the bus business in Brazil has been reduced to at least minus 20%.
Our guidance for Daimler Group remains unchanged. We continue to expect to significantly increase our group sales revenues and EBIT from ongoing business in 2015. At the division level, we expect to significantly grow ongoing EBIT in 2015 at Mercedes-Benz Cars, Daimler Trucks, and Mercedes-Benz Vans.
For Daimler Buses, we had to reduce our forecast because of weak market developments in Latin America. Now we expect ongoing EBIT significantly below last year's level. Daimler Financial Services continues to forecast ongoing EBIT slightly above the prior-year level. And, based on the current FX environment, we updated our guidance for the foreign exchange effect and now anticipate a positive impact on EBIT of around EUR 1 billion. This figure reflects headwinds from -- resulting from several emerging markets, currencies, and the Japanese yen. The key divisions benefiting from this effect are Mercedes-Benz Cars with around 60%, and Daimler Trucks with around 40%.
In the full year 2015, we expect a free cash flow from our industrial business to be significantly higher than the dividend payment in 2015 of EUR 2.6 billion. As we will continue and intensify our investment offensive, we assume that our free cash flow will be significantly lower than in 2015. And, based on our first-quarter results and developments, we are targeting the upper end of this range.
To sum up, we are on track for what we promised at the beginning of the year and we'll step-by-step approach our mid-term targets. Our strategy is paying off and Daimler continues to be a promising investment case.
We will renew and expand our SUV portfolio this year with the launch of the new GLC; the success of the GLK; the GLE, the new name of the facelifted M-Class; and a completely new model, the GLE Coupe. In China, we also expect to grow stronger than the overall premium market, thanks to our competing model portfolio and additional new products. Growth in China will be supported by local production and imports, but the lion's share of that growth will become from locally produced vehicles driven by the new GLA and the full availability of the new C-Class.
Daimler Trucks is benefiting from the strongest product portfolio in its history and at the same time continues with efficiency programs. Next week in Las Vegas, we will show the future of transportation technology and prove Daimler Trucks front runner role.
Finally, we are working to safeguard and further improve our current performance step-by-step by benchmark products, leadership and innovation, comprehensive financial discipline, and structural optimization. This will help us to further improve our performance and increase robustness of our business.
Now, I look forward to your questions. Thank you.
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Questions and Answers
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Bjorn Scheib, Daimler AG - Head of Investor Relations [1]
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Thank you very much, Bodo. Ladies and gentlemen, now we are coming to the Q&A session. The operator will identify the questioner by name. But, please also introduce yourself with your name and the name of the organization before asking your question.
One practical point, please avoid using mobile phones because this can distract the quality of this call. Before we start, the operator will again explain the procedure.
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Operator [2]
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(Operator Instructions)
Danny Schwarz, Commerzbank.
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Danny Schwarz, Commerzbank - Analyst [3]
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Yes. Thank you for taking my questions. First one would be on Mercedes.
I mean, you had a very decent or very strong first quarter. Despite the, somehow, weaker mix.
Does it, maybe imply, that mix effect is just not very important anymore? Due to the more profitable derivatives of the small cars? Or, is it more just overcompensated by the volume effect?
And, will the mix effect improve from here with the start of the new SUVs? Or, would you rather expect it flat? So, SUV is more compensating for weaker E-Class and S-Class sales?
And then, just one quick question. The increase in the currency guidance, the additional EUR 500 million. Is that right? Or, is that just mostly translation effects?
And, that triggered these -- this upgrade of the guidance? And, if its translation effect, is that -- a bigger part of that to be found in trucks rather than in Mercedes? Thank you.
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Bodo Uebber, Daimler AG - CFO [4]
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Okay. Thank you very much, Mr. Schwarz, for your questions.
The first question relates to the epic note on profitability and mix, as you asked. The main effect, we see of course, mix difference in the first quarter.
We had more compact cars, relatively spoken. And, of course, we had more smart cars, relatively spoken, to last year. But it was overcompensated, as you said, secondly, by volume and also by pricing in the first quarter.
We do expect the mix development from first quarter on to be slightly also worse, or to say, than in the first quarter. So, we have more compact car and smart cars share in the quarters to come. But, in -- as I've said before, we offsetted this effect in the first quarter.
Your question with regard to currency, I've updated you with a number. We expect now, EUR1 billion in currency, compared to 2004 -- 2014. Mainly, 60% is impacting Mercedes Car Group and 40% is Daimler Trucks.
And, Daimler Trucks is -- most of it is translation effects. Because, we are naturally hedged, almost, in every region. So, 90%, 95% is translation effects. And, that gives you the rough guideline for your question.
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Danny Schwarz, Commerzbank - Analyst [5]
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Okay. But, also the transaction effect is now bigger than you expected at the beginning?
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Bodo Uebber, Daimler AG - CFO [6]
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Of course. And, it's bigger than the -- of course, you have -- you see the currency developing. The spot rate of the dollar. I do think it was quite favorable in the last two months.
We have also seen that the -- some currencies in emerging markets got stronger. But, of course, the forecast, of course, not so easy to be made. These effects, in total, made a tip in that, we increased our guidance from EUR500 million to EUR1 billion.
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Danny Schwarz, Commerzbank - Analyst [7]
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Thank you
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Bodo Uebber, Daimler AG - CFO [8]
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You're welcome
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Operator [9]
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Stuart Pearson, Exane BNP Paribas.
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Stuart Pearson, Exane BNP Paribas - Analyst [10]
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Yes. Good afternoon. This is Stuart Pearson from Exane BNP.
So, two questions. Just, starting, maybe, on the China joint venture.
It appears the profitability steps up quite materially in Q1 and close the gap to a lot of the peers. Maybe you could talk a little bit about what went on there? Because, we've heard about weaker pricing in China. But, appears not the case for Mercedes. I guess the long will be C-Class helping.
Maybe, just on a technical point on that. If you could just confirm, the JV, when it's paying royalties to Daimler and buying parts from Daimler. Is not being invoiced in remnant deal or euros? So, that's the first question.
And, it kind of brings me on to the second. Which, is on the car business cost changes line. Which, is obviously positive and part of that was the China equity income.
But, even ex that, not as negative as it has been. I think you saw in the press corps, not to expect that to continue. Presumably, it will pick up again on the negative side as there's more launches.
But, maybe, just giving us a feel with the high triple-digit negative number about the right ballpark level for that this year? Or, just some kind of color around that? Thank you.
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Bodo Uebber, Daimler AG - CFO [11]
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Mr. Pearson, the question with regard to the joint venture, as you already pointed it by your own out. It's mainly based -- the JV development, mainly based on the -- on C-Class -- performance. We had a very good sales start with our locally produced C-Class. That is one effect.
And, the second one is of thirty. In general, we have, for the C-Class, also a good pricing start. So, price positioning is better than the old one, as you know. And, that has an impact in the JV.
On top of that, the currency developed favorably within the JV. And, that are the main effects, why the JV did very good. We are very pleased that developing -- development.
The second question you had were the cost changes. We had a very good first quarter, yes. Even if you exclude the JV impact in the cost changes, so to say. It was very favorable.
For the total year, we expect as we have also pointed out in the beginning of the year, a couple of hundred million negative, so to say. Which is, more or less, based on higher depreciation.
On the one hand, we have life cycle measures and product attractiveness, as you know. Some more G -- marketing costs, for example. And, that makes it a couple of hundred.
But, as you know, the numbers over the last years are very very favorable number. And, that points out to a very successful implementation of the "Fit for Leadership" program, which will be finalized in its first phase this year. And, you know we are working on structural effects on top of it. I do think that were the questions you had.
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Stuart Pearson, Exane BNP Paribas - Analyst [12]
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Yes. I mean, just, maybe you could very quickly clarify on that last point.
You say a couple of hundred million negative in that line item. That includes the impact of the China, the improved China equity income contribution? Or, you mean including that?
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Bodo Uebber, Daimler AG - CFO [13]
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Yes, that's right. It is in the cost changes, yes.
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Stuart Pearson, Exane BNP Paribas - Analyst [14]
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Okay. Thank you
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Bodo Uebber, Daimler AG - CFO [15]
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You're welcome.
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Operator [16]
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Horst Schneider, HSBC.
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Horst Schneider, HSBC Global Research - Analyst [17]
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Yes, good afternoon. It's Horst here from HSBC. Thanks for taking my questions.
First of all, I want to ask about the pricing. You just explained a little bit that you had a very good pricing in China on the new C-Class.
Maybe, you can also make some comments on the price trends in other regions? I -- as far as I understand that Mercedes, the price trend was not too bad. And, I remember that you guided at the analyst conference in March for flat pricing in 2015. So, I would be interested to know if now the price trend is developing a little bit better?
And, if there's any chance that this could continue basically, also in the next few quarters? Especially, having in mind that you launched in H2O, so more new models.
And then, again, as follow up on the currency effects. I want to know if you could, maybe, explain us a little bit more in detail if there are any currency effects also in the cash flow? Or, if there just feeds through from the earnings side then to the cash flow? And, if there is -- if there are more effects, maybe you can quantify them?
And then, I want to know on the hedging policy. Maybe, you can update us of what exposure, or what percent of the exposure, has been now hedged for 2015? And, also for 2016?
And, of course, it would be great to know what is now your assumption on the euro/US dollar rate that you take for 2015? Thank you.
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Bodo Uebber, Daimler AG - CFO [18]
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Mr. Schneider, thank you for your questions. With regard to pricing, of course we -- it's right that we have planned for stable development. And, what you're currently seeing is a very solid development in pricing.
That is mainly based on the -- on positive impacts on our young and attractive product family and the strong products. For example, C-Class, GLA, for example. And, that holds true for any, or, almost all the regions as a positive impact.
We have also positive impact, if you might say so, due to some emergent markets where we had very weak currency development. Where we also increased pricing. That is also included in this development.
Of course, you know, now to say one quarter is a whole year, you know we try to do best in terms of pricing. No doubt, first quarter was good and I expect that we doing a good job also in the quarters to come. In this direction.
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Horst Schneider, HSBC Global Research - Analyst [19]
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Yes. Is the individual --
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Bodo Uebber, Daimler AG - CFO [20]
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Escrow --
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Horst Schneider, HSBC Global Research - Analyst [21]
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Sorry to interrupt you. Is that in your individual outperformance? Or, is the price discipline in the premium segment all right and stable?
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Bodo Uebber, Daimler AG - CFO [22]
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I do think that there is a very good sales management, from my point of view. Which, balance volume and then and pricing and -- to reflect our strong product. Mainly, and I -- good management from my point of view.
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Horst Schneider, HSBC Global Research - Analyst [23]
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All right. So, individual outperformance, that's good. All right.
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Bodo Uebber, Daimler AG - CFO [24]
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So, of your cash flow question. Of course, currency has an impact. Because, currency is hitting with the exposure of the EBIT. And, EBIT is then impacting from an ongoing business, of course, the cash flow.
Then, what you're seeing here has also cash flow impact. Finally, of course, that holds not true for translation effect. Although there are also in -- finally, in cash flow.
In cash flow, I'm very pleased with the development in the first quarter. Of course, our operating performance has hit also the cash flow performance on the one hand.
And, we commented also on some positive cash tax effects we had from tax audit from the past. Which, were included in the first quarter.
On the other hand, also, our accounts payable, for example, were at a good level. All in all, we increased our cash flow guidance based on this development for the total year and increased by roughly EUR1 billion.
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Horst Schneider, HSBC Global Research - Analyst [25]
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All right. Thank you.
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Bodo Uebber, Daimler AG - CFO [26]
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Currency. Welcome.
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Horst Schneider, HSBC Global Research - Analyst [27]
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And, the hedging?
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Bodo Uebber, Daimler AG - CFO [28]
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We are at comb -- 80% this year, 60% next year. We are hedged for the dollar and mainly for the major currencies, directionally.
Of course, that is not true for currencies which are in very volatile markets. In emergent markets where the price for hedging might be too high. So, that you don't hedge on these kind of levels.
So, you're trying to optimize it when currencies are getting stronger in emergent markets. But, in general, this is true for all major currencies were looking into for exposures.
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Horst Schneider, HSBC Global Research - Analyst [29]
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All right. Thank you.
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Operator [30]
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Arndt Ellinghorst, Evercore ISI
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Arndt Ellinghorst, Evercore ISI - Analyst [31]
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Yes, hello, Bodo and Bjorn. It's Arndt Ellinghorst from Evercore ISI. Just one quick question for Bodo, really.
Looking at your net liquidity now and the projected cash performance for the rest of this year and hopefully also into next year. And, assuming that you're running a more stable ship now. And, that you're less intrigued to go for major M&A.
When would you be prepared to present to the market a balance sheet strategy? Or, a liquidity strategy?
Talking about your minimum cash requirements and why. And, what you're going to do with your actual excess liquidity on a more sustainable basis? I think that's really something that's missing in your equity story.
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Bodo Uebber, Daimler AG - CFO [32]
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Arndt, thank you for your question. I do think we pointed out some of this topics you are asking for in the past. One major element is, of course, based on this financial flexibility, we can sustain off -- or, to sustain to be able to invest in product innovation technology.
One example from my point of view, is a pick up truck, for example. Where we said, okay, yes, we are going into a separate segment which we were not in before. And, that is something you can afford when you have some liquidity and both very stable and very comfortable.
The second topic is that we have volatile markets, no doubt. When you see some these emergent markets where we need to keep some more liquidity on hand based on these volatilities.
Another topic, and that is more where you are asking for, is that we will keep our A rating. And, the A rating is asking us, so to say, or, the rating agencies to keep a financial flexibility of 12 months. And, this 12 month flexibility, in a growing industry, of course, gives us more or less, yes, nearly the level we have currently to meet this target.
And, therefore, you have to, of course, to adjust the dividend payment in April. So, you come down to EUR 17.5 billion. And, that is near to the number we need to do for the rating agencies. And, well, I've pointed out some volatile risk and so on, what we hedged.
No doubt, we will, at the end of year, again look into the financial liquidity as we did it last year. And, of course, there are two -- further on, two elements. So, one is, you have seen our pension -- underfunded position.
The discount rate went down to 1.5%, so our underfunded position went up, so to say. So, we will consider, as one option, of course, again pension contribution.
Finally, there's no decision about that -- It is one option. And, the second is, of course, the basis for divid -- talk about the dividend payout ratio for the percent we gave to the market. Is also a good one if you have a nice liquidity level on hand. So, that is, more or less, the reasons why we did this liquidity on this levels.
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Horst Schneider, HSBC Global Research - Analyst [33]
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Yes, that implies basically, that an OEM with a captive financial services organization, would never be able to return as much cash as other cyclicals or industrials, right?
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Bodo Uebber, Daimler AG - CFO [34]
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Yes, I -- as we -- I do think our cash flow performance, now in the last year improved. We had other different times where we are short of cash, so to say. I do think the finance organization made a very good job in a disciplined working capital management for the business. And, doing, really a good improvement.
As we are now talking about the company which is in the vicinity of EUR4 billion to EUR5 billion free cash flow. I do think now, the discussion, of course, we are to invest in what to do is of course a better one than we had before.
And therefore, I do think, now going forward of course, we will certainly look what we do with our liquidity. And, if you go forward and we are overachieving the dividend payments.
Of course, there are certainly, some measures even to pass it over to shareholders, on the one hand, by our dividend payments. Or, pension contribution and so on and so forth. It's a minor item, I would say, as even now.
But, years ago, not the financial services development. Because, financial services has a net income development, so to say. That it is able to, mainly, do their own liquidity and equity position with their financial performance.
So, what we need once in a while, is China contribution and other stuff. But, it might not be only this financial -- the liquidity from the industrial piece.
But, as I said before, A rating, of course, yes, is key from my point of view. Because, financial services is in the future more and more important. Because of the high penetration loyalty you can generate.
And, in the current environment, digitalization is the right path to go. Customer orientation, then, financial services has a higher importance as it ever had before. (multiple speakers) Sorry for this longer answer and, maybe we can discuss this also later.
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Horst Schneider, HSBC Global Research - Analyst [35]
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Thank you.
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Operator [36]
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Jose Asumendi, JPMorgan
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Jose Asumendi, JPMorgan - Analyst [37]
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Okay, thanks. Jose, JPMorgan. A couple of items, please.
The first one on the margin progression for the autos division for 2015. I believe you're guiding for EBIT to be stronger in the second half versus the first half? And, this obviously applies to the EBIT margin. So, I'm wondering if this guidance is still valid?
Also, when I compare this -- when I compare the EBIT progression on a quarterly basis last year, it was pretty much a straight line. So, I'm just thinking you're planning, whether you're expecting some seasonality in the third quarter. Or, is this not going to be the case again in 2015?
And, then the second item is on efficiency gains, this partnership. You have a big launch next year. I haven't heard of any specific comments around the efficiency gains in Q1.
When should we expect a bigger update? There must be, surely, some large cost savings that you can generate with the launch of the new E-Class in 2016? Thank you.
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Bodo Uebber, Daimler AG - CFO [38]
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Jose, thank you for your questions. I do think we have pointed out, our guidance for this year. That the first element is significantly higher than last -- than 2014. That is the one guide -- and, you're right, second half should be better than first half.
But, we don't comment on margin development. I do think it's also, I would say, at 9%. Maybe it makes, I do -- from my point of view, no sense, to do it. So, therefore we stayed with that measure, second half. And first half, and that's it.
The cost savings, you are right. In the first quarter, yes, we had too, cost saving based on our program.
Especially, I pointed out that we have our cost included higher depreciation and higher sales cost, for example. But also, lifecycle measures, as you know. So, they are included in this good development in the first quarter.
But, as I also have said. In the next quarters to come, this number will be negative, so to say. We have planned for a couple of hundred million negative to stay in this line item. Which is, of course, by far an improvement towards the years 2014 and 2013. So, therefore, very good development.
In trucks, you more or less, as you see the same development. It's slightly negative. But, here we were impacted by initiatives in the -- in warranty and good will on the one hand. And, capacity increase in NAFTA.
So, if you exclude these elements. Also, the efficiency in the truck area, I'm very pleased with in the first quarter.
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Jose Asumendi, JPMorgan - Analyst [39]
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Thank you.
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Operator [40]
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Philip Watkins, Citi.
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Philip Watkins, Citi Investment Research - Analyst [41]
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Yes, hello. Philip Watkins from Citi. Thanks for taking my questions. I just had two.
The first one was on trucks and Latin America. I completely understand the guidance. I don't know, is there any sort of visibility as to when things might turn around there? And, how is the pricing progressing in that market?
And then, on vans, it was a pretty good quarter, actually, in vans, it seems to me. Is there is any reason why that that fades at all? Were there any one offs in that division in the quarter? Thanks.
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Bodo Uebber, Daimler AG - CFO [42]
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So, yes, thank you for your questions. Brazil, visibility is pretty low, if you might say so. But, the current -- we forecast also the 30% currently, negative. And, there might be reasons to be even lower than this number. First quarter, I do think it was 40% down.
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Philip Watkins, Citi Investment Research - Analyst [43]
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Yes.
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Bodo Uebber, Daimler AG - CFO [44]
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So, the visibility is low and the need in the country is high in terms of -- the investments are low. There are political problems on the other hand, and so on and so forth. The phenoma program, the interest rates were increased or doubled.
The maturity of this -- the term was expanded, so therefore also, everything was heading into a negative. So, we can't tell you right now, really, where it's going to. Of course, our guidance is not -- is an element, but might be even worse than this number.
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Philip Watkins, Citi Investment Research - Analyst [45]
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Yes.
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Bodo Uebber, Daimler AG - CFO [46]
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In the van business, I wouldn't talk about one offs. It's a very successful business curving in the first quarter. Where mix had a higher impact. We were selling a lot of more splinter, relatively, to last year.
And the -- within the midsize van, we are very successful with sales of the V-Class. Therefore, the mix also in the midsize van was a very good one. And this, made, of course, a major contribution including efficiencies in the van business.
So we are very pleased here with the development. I don't expect to be at this high rate in the next quarters to come.
------------------------------
Philip Watkins, Citi Investment Research - Analyst [47]
------------------------------
Yes.
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Bodo Uebber, Daimler AG - CFO [48]
------------------------------
So, we will see impacts from the Latin America business more and more in the quarters to come. And, we will not stay at this high levels, margin wise, in the van business. But, anyway, good business, good quarter and well done.
------------------------------
Philip Watkins, Citi Investment Research - Analyst [49]
------------------------------
Thank you. And then, on the pricing in Latin America trucks?
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Bodo Uebber, Daimler AG - CFO [50]
------------------------------
Distressed. Distressed.
------------------------------
Philip Watkins, Citi Investment Research - Analyst [51]
------------------------------
Yes.
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Bodo Uebber, Daimler AG - CFO [52]
------------------------------
Of course, you can imagine that in this market, where, once in a while the monthly order intakes are so low.
------------------------------
Philip Watkins, Citi Investment Research - Analyst [53]
------------------------------
Yes.
------------------------------
Bodo Uebber, Daimler AG - CFO [54]
------------------------------
That there the pricing is under pressure. We -- you have seen us as we have lost a little bit of market share. That is also goes back that we don't to all of this deals within this competition. But, it is stressed in Brazil.
------------------------------
Philip Watkins, Citi Investment Research - Analyst [55]
------------------------------
Okay. Thanks.
------------------------------
Bodo Uebber, Daimler AG - CFO [56]
------------------------------
Welcome
------------------------------
Operator [57]
------------------------------
Kristina Church, Barclays.
------------------------------
Kristina Church, Barclays Capital - Analyst [58]
------------------------------
Oh hello, yes, Kristina Church from Barclays. My two questions are, first, the intensive cost. And, particularly, cost for CA2 compliance and 2020.
Do we start to see any ramp up as we get closer to 2020? Or, is it more of a linear progression? So, what we're seeing currently is a continued level for those costs?
And then, leading on from that, a question about your mid-term margin targets, particularly, in cars. The 10% target, oversea -- is through the cycle. So, clearly, you would want to be getting a higher margins in peak times.
What is there to do? Is it still a case of efficiency savings to -- coming through that should push the margins up to there? Or, is it more the product side ca -- when you get the full renew with the E-Class as well? Which is the most important driver to get to those medium-term targets? Thank you.
------------------------------
Bodo Uebber, Daimler AG - CFO [59]
------------------------------
Kristina, thank you for your question. So, yes, what you said in terms of CO2-related cost. Of course, you are right. They will increase over time.
We don't see major effect this year. But, over the years to come, of course there's a higher share in this kind of costs. You're right.
The second question. The 10% target, as we have pointed out, there will be a step-by-step increase in margins and progression to this target.
We are -- last year we were at 8%. We are starting another year with somewhat over 9% and we do everything what we can to make this sustainable and go further into the 10% region. And, that's our guidance.
------------------------------
Operator [60]
------------------------------
Charles Winston, Redburn Partners
------------------------------
Charles Winston, Redburn Partners - Analyst [61]
------------------------------
Yes, hello, good afternoon. Charles Winston here. Just two questions for me.
On pricing in Mercedes. Would you be able to offer any quantification? Perhaps, in the percentage at revenue?
Was it right -- the very least above or below a 1% increase in aggregate? Just to perhaps, get a little bit of a feel of the quantum there?
And then, secondly, on mix. We've talked about product mix. My understanding is that there was also a negative impact from regional mix in the first quarter. Which, I thought was a little bit strange, given the patterns of development we saw.
Can you confirm that? That regional mix is negative? And, if so, perhaps put a little bit of color as to why we saw that? And, what we could expect from regional mix as we go through the year? Thank you very much.
------------------------------
Bodo Uebber, Daimler AG - CFO [62]
------------------------------
Okay. Thank you for your questions.
Your second question, with regard to regional mix. Of course, there are some effectors.
For example, UK and other countries, which had more sales, but there -- in these countries we have, so to say, lower margins. We have also the fact that we have a higher share of the locally produced cars in China. Which, are included in this message and these are the effects we pointed out.
Your first question with regard to the pricing effect. I ask for your understanding that we do not quantify these effects for our competitive reasons.
------------------------------
Philip Watkins, Citi Investment Research - Analyst [63]
------------------------------
Thank you. Okay. Thank you.
------------------------------
Operator [64]
------------------------------
Stephen Reitman, Societe Generale.
------------------------------
Stephen Reitman, Societe Generale - Analyst [65]
------------------------------
Yes, good afternoon. Stephen Reitman from Societe Generale in London.
First of all, on restructuring charges for sales organization, there's still a quite a low figure, the EUR20 million on the past in cars and another EUR 4 million on trucks. When do you expect that to accelerate to get to around about the EUR500 million you're talking about for 2015 and 2016?
And secondly, could you comment about the market share development on Mercedes trucks in Germany which looked pretty low in the first quarter? What was going on there, in terms of, were you keeping away from certain contracts and pricing there?
And thirdly, on China, obviously we have seen an improvement in the results from BBAC. Could you give us some idea of the margin?
Or, and if you're not prepared to give the margin, how far away do you think you are from the benchmarks? As we have got some now, much better detail from some of the competitor companies like BMW and Volkswagen's joint ventures on the actual results. Thank you.
------------------------------
Bodo Uebber, Daimler AG - CFO [66]
------------------------------
Stephen, thank you for your questions. Your first question with regard, is maybe related, I think, to the restructuring of our retail network.
------------------------------
Stephen Reitman, Societe Generale - Analyst [67]
------------------------------
Yes.
------------------------------
Bodo Uebber, Daimler AG - CFO [68]
------------------------------
Which, we pointed out that we would have charges of around EUR 500 million over a two-year's period. The number, we'll pick out during the course of this year. So, we don't want to differentiate in this year and next year. I ask for your understanding because it is transaction-related.
The more transactions we are doing, so to say, at closing, the more effects we will see this year. And, therefore, I -- it will increase now over the quarters to come. The second question, if I got it right, the sound is very difficult to understand. Sorry to say so. I just think you were at the question with regard to market share in Germany.
------------------------------
Stephen Reitman, Societe Generale - Analyst [69]
------------------------------
That's correct
------------------------------
Bodo Uebber, Daimler AG - CFO [70]
------------------------------
Was it the case? And, there, it goes back to fourth quarter last year.
The market share development in the first quarter is, more or less, a result of order intake in the fourth quarter last year. Where price competitiveness was a very high one. And therefore, we did not do every deal. I expect the market share in Germany and Europe going up over the quarters to come.
Your third question was with regard to our BBAC development. I do think there is no -- we do not, so I can't -- the 10% share margin we have made now in BBAC is a good number. But, I can't tell you more in comparison to BMW or other joint ventures.
------------------------------
Stephen Reitman, Societe Generale - Analyst [71]
------------------------------
Thank you.
------------------------------
Bodo Uebber, Daimler AG - CFO [72]
------------------------------
Thank you.
------------------------------
Operator [73]
------------------------------
Philippe Houchois, UBS.
------------------------------
Philippe Houchois, UBS - Analyst [74]
------------------------------
Yes, good afternoon. Thank you. Two questions, please.
The first one, I don't think you answered Stuart Pearson's question about in which currency you invoice your joint venture? And, which currency you also receive royalties from your Chinese partner?
And, the second question is, you have, I think this is the record low for the cost of risk for Daimler Financial Services recent loss at 20 bips? Any particular explanation there? Should we, kind of, look forward to that consuming for a while?
------------------------------
Bodo Uebber, Daimler AG - CFO [75]
------------------------------
So, you are right. Sorry, I haven't answered this one question. The invoicing currency is euro.
------------------------------
Philippe Houchois, UBS - Analyst [76]
------------------------------
Euro, thank you.
------------------------------
Bodo Uebber, Daimler AG - CFO [77]
------------------------------
And, your second question, was? Can you repeat it please?
------------------------------
Philippe Houchois, UBS - Analyst [78]
------------------------------
At the last chart of your deck, you show as the net credit loss from the financial services at 20 bips. The lowest ever. And, is there a particular reason or should we look forward to the continuing?
------------------------------
Bodo Uebber, Daimler AG - CFO [79]
------------------------------
(laughter) So, I -- once in a while this number will increase we come to, it's a kind of normality.
------------------------------
Philippe Houchois, UBS - Analyst [80]
------------------------------
Sure.
------------------------------
Bodo Uebber, Daimler AG - CFO [81]
------------------------------
In many many aspects, of course, it's an all-time low. It's even includes some difficult markets like Russia, or Brazil, for example. It's included in this low number. So, it's difficult to foresee.
We expect it, every year, to increase. And, over the last two years, we were wrong. So, it went further down.
But, I don't think there is much leeway in this number downwards. So, it's difficult to assess.
If we get to some normality in the market, of course, this number will increase. But, it will be by far lower than the average over the years. Which, we were 60 basis points, 65 basis points, 70 basis points. So, we need a couple of years to get to this normal levels.
------------------------------
Philippe Houchois, UBS - Analyst [82]
------------------------------
Okay. If I can ask one more. Is -- now that you consolidate China in your financial services, is the cost of risk higher or lower than average in China?
------------------------------
Bodo Uebber, Daimler AG - CFO [83]
------------------------------
We have already, I do think, since the beginning of the China joint venture, we have consolidated this numbers, these companies into financial services. So, we don't have any consolidation effects. Other than, other competitors, I think they have consolidated now their Chinese joint ventures. And, therefore, they have effects, we don't have
------------------------------
Philippe Houchois, UBS - Analyst [84]
------------------------------
My question, I try to understand, if China is helping in general, the trend of improvement? Or, is it an issue?
------------------------------
Bodo Uebber, Daimler AG - CFO [85]
------------------------------
It's more or less in the same vicinity. So, the -- all the regions in financial services are in pretty low levels. So, I wouldn't see any difference between Europe, for example, and China currently. In terms of good levels of cost of risk.
There are other markets. As I said before, Brazil, Russia, and other emergent markets which are on higher levels. Everything else is on fan -- currently all-time lows.
------------------------------
Philippe Houchois, UBS - Analyst [86]
------------------------------
Okay. Thank you very much.
------------------------------
Bodo Uebber, Daimler AG - CFO [87]
------------------------------
Welcome
------------------------------
Operator [88]
------------------------------
Marc Tonn, Warburg.
------------------------------
Marc-Rene Tonn, Warburg Research GMBH - Analyst [89]
------------------------------
Yes, good afternoon. This is Marc Tonn from Warburg Research in Hamburg. Just two quick question.
One would be on the tailwind expected for the remaining three quarters from the foreign exchange, there, particularly at Mercedes-Benz? Whether, we should expect that to increase from quarter-to-quarter? Or, whether the, let's say, up to EUR600 million, EUR700 million positive is now, as they say, quite evenly distributed among the three remaining quarters.
And, the second question would be, I don't know whether you would give us some detail on that? On where we look at the improvement in the transaction rate expected for this year compared to last year? And you look forward to 2060 -- 2016, compared to this year. Where we should see the large improvement as a transaction rate with regard to major currencies? Thank you.
------------------------------
Bodo Uebber, Daimler AG - CFO [90]
------------------------------
So, to your first question, yes. We will see an increase or better situation, if you might say. So, in the car group over the quarters, it's right.
And, your second question. Of course, we will see also positive effect in 2016. But, we don't do any guidance on this topic now. Because, there's so much volatility in currencies that we do anything wrong today, we will update you in the fourth quarter of this year.
Then we have more stability in that we see further of how the currencies are developing. We have pointed out that we are hedged with roughly 60% in the major currencies and that is a guideline for you.
------------------------------
Marc-Rene Tonn, Warburg Research GMBH - Analyst [91]
------------------------------
Thank you.
------------------------------
Bodo Uebber, Daimler AG - CFO [92]
------------------------------
Welcome.
------------------------------
Operator [93]
------------------------------
Christian Ludwig, Bankhaus Lampe.
------------------------------
Christian Ludwig, Bankhaus Lampe - Analyst [94]
------------------------------
Yes, good afternoon. One question from my side left.
Looking at your R&D costs. The capitalization ratio has increased from roughly 20% as an average of last year to 26% in Q1. Is there something there that is just a one off or is it something that's going to be a structural? And, what is driving this?
------------------------------
Bodo Uebber, Daimler AG - CFO [95]
------------------------------
There's no specific. It's a normal level.
So, of course, we have some volatility. So, to say, in this number depends on whether major segments are in the development phase or not. And, therefore, that is a normal level of capitalization.
------------------------------
Christian Ludwig, Bankhaus Lampe - Analyst [96]
------------------------------
Okay. Thank you.
------------------------------
Operator [97]
------------------------------
Michael Punzet, DZ Bank.
------------------------------
Michael Punzet, DZ Bank - Analyst [98]
------------------------------
Yes, Michael Punzet, DZ Bank in Frankfurt. Good afternoon. I have only one question left. You have --
------------------------------
Operator [99]
------------------------------
I'm sorry, unfortunately, we've lost Mr. Punzet's line. The next line -- the next question is from Fraser Hill, Bank of America Merrill Lynch.
------------------------------
Fraser Hill, BofA Merrill Lynch - Analyst [100]
------------------------------
Hello, good afternoon. It's Fraser Hill from Bank of America Merrill Lynch. Just one question left for me. Which, was on China and the NDRC.
I think, with the full year disclosure and conference call then. You talked about some negotiations with the NDRC and expecting some conclusions to their investigations. Or, thoughts around new vehicle pricing.
I know you've had, I think, one small fine last week from a local province. Could you provide an update to that topic and your thoughts there? Thanks.
------------------------------
Bodo Uebber, Daimler AG - CFO [101]
------------------------------
Yes, Fraser, thank you for your questions. Of course, there's nothing to be added.
So, you know that we have cooperated with the authorities in this regard. And, you know that we've had an investigation in this topic. And, the decision of the authority was made.
And, we will do everything also in the past, but also, in the future to comply with law. That is our focus on. We have made the necessary provisions for this decision. And, there's nothing more to add.
------------------------------
Fraser Hill, BofA Merrill Lynch - Analyst [102]
------------------------------
Okay, thanks.
------------------------------
Bodo Uebber, Daimler AG - CFO [103]
------------------------------
You're welcome
------------------------------
Bjorn Scheib, Daimler AG - Head of Investor Relations [104]
------------------------------
Okay. So, ladies and gentlemen, as we can see from the list, it seems that we are fine. So, thank you very much for your questions and being with us today. Investor relations remains at your disposal to answer any additional or left open questions that you may have.
So, as a reminder, we're going to host our truck event in Las Vegas next week. And, we are very much looking forward to see you at one of our upcoming road shows or capital market events.
We'll hope to talk to you soon. And, thank you also to all participants on the Internet. Goodbye.
------------------------------
Operator [105]
------------------------------
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.
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