Daimler AG (OTCPK:DDAIF) Q1 2017 Earnings Conference Call April 26, 2017 8:00 AM ET


Björn Scheib – Head of IR

Bodo Uebber – CFO


Patrick Hummel – UBS

Tim Rokossa – Deutsche Bank

Jose Asumendi – JP Morgan

Michael Tyndall – Citigroup

Arndt Ellinghorst – Evercore ISI

Horst Schneider – HSBC

Christian Ludwig – Bankhaus Lampe

Michael Punzet – DZ Bank

Stuart Pearson – Exane


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. This 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 in your published results documents. Please note that our presentation contain forward-looking statements that reflect management’s current view with respect to the 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.

May I now hand over to Björn Scheib, Head of Daimler Investor Relations. Thank you very much.

Björn Scheib

Good morning, 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 Q&A session. However before I hand over to Bodo, I would like to address the following comment on the diesel topic. We continued to fully cooperate with the authorities. Our conservative communication practice supports a constructive dialog in particular with the US 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.

Bodo Uebber

Thank you Björn and good afternoon. Let’s have a look at the first quarter results. Daimler 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 a newly redesigned Mercedes-Benz GLA, Compact SUV, the completion of the Mercedes-Benz E-Class family with a new E-Class Coupé and the E‑Class Cabriolet. 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 EUR38.8 billion, up 11%. EBIT increased significantly to EUR4 billion including 690 million of disclosed items, making it including and excluding those items, our best first quarter in the Company’s history. Net profits reached EUR2.8 billion equivalent to EUR2.53 per share. The industrial free cash flow was EUR1.9 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, Mitsubishi Fuso Truck and Bus Corporation.

As a result, the net liquidity position of our industrial business reached EUR21.1 billion at the end of the first quarter. First quarter net liquidity does not reflect the dividend payout of EUR3.5 billion which was actually paid in early April. We used a favorable market conditions to refinance our financial services business early in the year. To sum up, the increasing group earnings was driven by strong volumes, favorable foreign exchange effects, and continued efficiency enhancement.

This resulted into a return on sales in the automotive business of 10.6%. Let’s take a closer look 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-wheel base 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 EUR2.2 billion with a margin of 9.8%, including a positive valuation effect of EUR183 million in connection with the new partners in here.

The increase in earnings was mainly driven by strong sales, positive pricing, favorable foreign exchange effect and efficiency enhancement 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 for the year and our unit sales increased by 12%. More important, our order intake was very promising and indicates further growth potential in the book to bill ratio at Daimler Trucks in the first quarter reached 132% with all regions achieving a positive ratio except that in 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 EUR500 million mainly in 2017. Daimler Trucks EBITDA increased to EUR668 million and a margin of 8.4%. This includes income of EUR267 billion 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, it’s 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 to about the significant growth in unit sales in our position in China further improved where sales nearly tripled compared with the prior-year quarter. The van division posted first quarter EBITDA of EUR357 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 divisions EBITDA of EUR65 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 effect. This more than offset the decrease in unit sales in Turkey. At Daimler Financial Services, new business increased by 23% and contract volume reached EUR135 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 brokered by Daimler Financial Services in the first quarter.

In the first quarter of 2017, the Daimler Financial Services division achieved earnings of EUR524 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 US 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 to Daimler remains challenging and will likely stay at the level of the week 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. Nonetheless, we assume that the market will gradually stabilize as the year progresses. With support from the expected stronger second half of the year and added by our flagship the new Freightliner Cascadia, we expect our unit sales in the NAFTA region to be at the 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 in this challenging environment it’s total unit sales in 2017 will be in the magnitude of the previous year. For the end markets we foresee a stable development for small vans and a slight increase in demand for mid-size and large vans with further growth in Europe and China. The US market should remain fairly stable.

Towards the end of this year, we will enter the mid-sized pick-up 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 eight tonnes with innovative future oriented and high-quality products. We anticipate total units 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 full-year 2017 remains favorable. At current spot rates, we see additional opportunities for the group compared to the EUR500 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 [indiscernible]. The good start to 2017. Higher volume expectations at Mercedes-Benz Cars and the raised 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 2017 to be slightly below the prior 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 would be achieved by 2019. Mercedes-Benz Vans expected full-year EBIT to be slightly below the prior 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 the 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 our new product and technologies, the free cash flow from the industrial business should be slightly higher than in 2016 exceeding the dividend distribution in 2017. We have 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 serious production for more than ten new electric vehicles between know 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 [indiscernible] we are not only cooperating with our automotive peers but have also partnered with Intel, Tencent and GSE and are continuing to strengthen our digital mapping business. With regard to autonomous driving, we 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 milestone which elevate 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 Mercedes-Benz Urban eTruck and we are constantly setting standards in the field of telematics with about 4,000 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 strength 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.

Björn Scheib

Thank you very much Bodo. Ladies and gentlemen, you may ask your questions now. 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. A few practical points, please avoid using mobile phones as well as hand-free speaking systems in order to provide the best quality and please for sure ask your question in English. Last but not least, as a matter of fairness, please limit the amount of questions that you are about to raise to two, give everybody on this call the opportunity to ask questions. Now before we start, the operator will again explain the procedure.

Question-and-Answer Session


[Operator Instructions] The first question is from Patrick Hummel, UBS.

Patrick Hummel

Yes, Patrick Hummel, thanks for taking my question, good afternoon everybody. 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 more than 450 million contribution. Can you give us any guide on 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 flip side 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. Thank you.

Bodo Uebber

Thank you, Patrick for your questions. First of all, we are very proud about our performance in China. We have 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 has made 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 plant by also have huge increase in production and sales. For the quarters to come, we don’t do you know quarterly forecasts for the JVs but I can tell you that the BBAC results 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, where we are performing, I can tell you from my point of view, we had a very good start in the year and I can see as we are 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 the comparison with the pricing and sales, we had also a good start.

So by taking out Nokia here, you come to I just think levels of north of 8% or 9%. So I need to correct your 7% feature. All of the other stuff we look at the integrated business model on it even though locally produced business and when you look at the EBIT walk, you see a very strong volume sales contribution, you see strong of course effect from currencies and of course you see investment in R&D in CapEx and capacity expense and product, which is more or less future related. So from my perspective also seen strong cash flow, it’s a very good quality of earnings in the car group.

Patrick Hummel

Can I have my second question as well, regarding the plans to bring forward JV launches, you basically said at the AGM or Dr. Sanches that the [indiscernible] 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’d just gave us a couple of months ago for 2017 and 2018. Are these still valid or will it require more work upfront to bring those ten models into the market.

Bodo Uebber

Patrick, it’s basically unchanged.


Thank you. The next question is from Tim Rokossa, Deutsche Bank.

Tim Rokossa

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 statement. [indiscernible] 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 high R&D expenditure 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 would 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 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 should take into account? Thank you.

Bodo Uebber

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. 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 would 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 both comparable quarters with your analysis and on the other hand, don’t forget when you compare us 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, sort of our business model includes of course also the JV. From – of course our other cost changes, I do think is 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, with our strong product, we offset this cost increase on the one hand, but is investment into the future. Good news is for the total year, we plan not to exceed to 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 comparison to the quarters to come. That is of course some good news and will of course, yeah, 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, 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 facilities, but it’s too early to say and we will keep you updated in the next quarters.

Tim Rokossa

Great. Thank you. And then just two 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 three quarters, and then b, this below 1 billion other cost changes that you just said, is that comparable to the 458 million that I see in your EBIT bridge or is that including the here, 183?

Bodo Uebber



Thank you. The next question is from Jose Asumendi, JP Morgan.

Jose Asumendi

Hi, Bodo. Jose Asumendi, JP Morgan. Just a couple of questions please on – just going to come back to China. 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, well into April. Am I completely wrong in my assumption and can you just also maybe put this into the context of product cycle in China.

Second question, currency tailwind from expense, I’m sure you have a huge amount of visibility into the second quarter. So what kind of currency tailwinds should we assume for Q2? Or do you see upside to your currency guidance versus maybe two, three months ago. Thank you.

Bodo Uebber

Jose, thank you for your questions. Of course, I can confirm with your expectation about China that is 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 forward 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’ve seen in Q1, as commented on this, we are proud to see us first time that we have outgrown our competitors. We have to see whether that, where that will 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 the relevant currencies, we are guiding more than 500 million tailwind for the total year and of course to be significantly higher than 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’s a lot of volatility also in the market, especially in emerging markets, but there are opportunities even towards this guidance. What we need positively to state is that the average hedge rates we do had 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.


Thank you. The next question is from Michael Tyndall, Citigroup.

Michael Tyndall

Hi, gentlemen. It’s Mike Tyndall from Citi. A couple of 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 you orders were up very, very strongly as were others in Q1. So I’m kind of wondering what is the conservatism around North American truck, given the strength you’ve seen order intake. Thanks.

Bodo Uebber

First of all, Michael, sorry, forgot to push the button. First of all, 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 with the dealers, inventory also here 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 in support of our increased 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 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 with 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. Yeah. 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, even 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 three months. So it’s not conservative and I would say it is tough watching the market to see whether we have more opportunities.


Thank you. The next question is from Arndt Ellinghorst, Evercore ISI.

Arndt Ellinghorst

Yes. Good afternoon. 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 for 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 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? Thank you.

Bodo Uebber

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.

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


Thank you. The next question is from Horst Schneider, HSBC.

Horst Schneider

Yeah. Good afternoon and thanks for taking my question. I have got two questions. The first one is on the raw material price impact. Maybe you can specify what sort of burden you’ll 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 EUR1 billion on a full year basis. I think that was meant for the group and maybe you can split that on Mercedes and trucks, because I think in trucks, we get towards the 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? Thank you.

Bodo Uebber

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


Sorry, we cannot hear you anymore.

Bodo Uebber

Yeah. And excuse me. So 500 million of raw material effect this year headwind, two-thirds for car group, one third for trucks.

Your question, other cost changes, I refer to Mercedes car group only with my comment before. And then you had a question about the split of incoming orders.

Horst Schneider

No, the other cost changes for trucks?

Bodo Uebber

Trucks, of course trucks, when you exclude which we did the effect from the sale of the premise in Kawasaki, Japan, we had other cost changes compared to last year positively of the amount of EUR80 million that was mainly driven by material cost performance.

Horst Schneider

No. I mean the guidance for the full year of course for trucks in other cost changes?

Bodo Uebber

Excluding the special effect, it will stay negative. Roughly, 100 million and is mainly the raw material topic for the quarters to come.

Horst Schneider

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

Bodo Uebber

Was lower than the – if you would divide it by four, it was lower than the run rate of 500 million divided by 4.


Thank you. The next question is from Christian Ludwig, Bankhaus Lampe.

Christian Ludwig

Yes. Good afternoon. Thank you for taking my question. 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 to me that you expect the margin on 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?

Bodo Uebber

Christian, 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 structure we have in the business Secondly, we have always to keep in mind that the risk cost basis is a very good one, but we are right conservative and we had planned for a higher number for this year.

But I’m not yet there to raise so to say more of this credit risk development because the markets are pretty volatile and you have to keep in mind some development in some markets, where the markets are totally depressed. I cannot go through the world, where we have distressed market, but that is the reason why we also keep the guidance slightly against last year.

Christian Ludwig

Would it be fair to say if the markets stay that it was in Q1, there is a fair chance for a guidance increase?

Bodo Uebber

Well, in order 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 the guidance increase. If we see a fair chance to make it, then we will do it.


Thank you. The next question is from Michael Punzet, DZ Bank.

Michael Punzet

Yes. Good afternoon. I have two questions. First one is on special reported items. Could you give us an update on 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 US. Does this trend continue also in April and when the order intake will have a positive effect on your sales figures.

Bodo Uebber

Michael, to your first question, of course, we have disclosed in February 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 will have to up to 500 billion mainly in 2017 as a charge for this program that still holds true and it is also based 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 through these other 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 of course if we see that the market is developing better than our expectations of the market, of course, we certainly will yeah change our production expectation.

Michael Punzet

Yes. There was a question, as to, 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 revenue figure?

Bodo Uebber

It’s a good question. It’s more third and fourth quarter.


Thank you. The last question is from Stuart Pearson, Exane.

Stuart Pearson

Yeah. Good afternoon. A couple of question, maybe just to start with perhaps a more general question on how you see pricing power in Mercedes now, because the volumes have pretty much doubled since the peak of the last crisis and it’s interesting I mean looking at the margin development, obviously as Tim and other colleagues were pointing out at the start of the call that margins around 8% are 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 your 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 use in Mercedes that is going to be coming into the system, when your volumes today will be roughly around 1 million units higher than even five 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 car maker talking about raw material headwinds, something we would have usually just passed through to the consumer?

And then a much easier one on financial services, just the equity injection.

Bodo Uebber

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 also – maybe we stop here, I try to answer some of the stuff. Sorry to say so, but and then you go forward again. As for your understanding, it is very difficult to follow your Greek English.

Stuart Pearson

Apologies, Bodo. I’m also losing my voice. So that’s probably why I’m being too quick. Okay. I was just asking about the pricing power in Mercedes, because yeah, it just strikes me unusual that we hear with a premium car maker talking about significant headwinds from raw materials and that’s something in the past, probably 10 years ago, premium car makers would have just passed it through to the end kind of assume this.

So just a generic question on how you see pricing power in 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 in turning 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 volumes to try and just undersupply the market as we might expect more from a premium brand.

Bodo Uebber

Okay. Thank you for your question. First of all, we are very pleased with the performance in pricing, not only in 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 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, we are continuing with this path.

Our remarketing in some areas, of course, we have a lot of remarketing volume in the United States, in UK, Germany for example, but also there, of course we have 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 said, to see through the expectations are good. And I do think the last couple of years, we have shown that our approach is the right one.


Thank you. There are no further questions.

Björn Scheib

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, a lovely evening, wherever you have been listening. Thank you and bye-bye.

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