Daimler Ag (ADR) (DDAIY.PK) CEO Discusses Q2 2013 Results - Earnings Call Transcript

Jul.24.13 | About: Daimler AG (DDAIY)

Daimler Ag Adr (OTCPK:DDAIY) Q2 2013 Results Earnings Call July 24, 2013 8:00 AM ET

Executives

Dr. Mike Mühlbayer - Head of Daimler Investor Relations and Treasury

Dr. Dieter Zetsche - Chairman, and Head, Mercedes-Benz Cars

Bodo Uebber - Chief Financial Officer

Dr. Wolfgang Bernhard - Head, Daimler Trucks

Analysts

Horst Schneider - HSBC

Fraser Hill - Banks of America

Jose Asumendi - Kepler Chevreux

Daniel Schwarz - Creative Global Investments

Charles Winston - Redburn Partners

Philippe Houchois - UBS Limited

Jochen Gehrke - DZ Bank AG

Stephen Reitman - Societe Generale

Frank Biller - LBBW

Michael Tyndall - Barclays

Philip Watkins - Citi

Operator

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 in our published result document. Please note, that our presentations contain forward-looking statements that reflect management's current views with respect to future events.

These forward-looking statements can be identified by expressions such as assumed, anticipate, believe, estimate, expect, intend, may, plan, project and should. Such statements are subject to many risks and uncertainties, examples of which are set out in the Safe Harbor wording in our disclosure documents.

If the assumptions underlying any of these statements prove incorrect then actual results maybe 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 you over to Dr. Michael Mühlbayer, Head of Daimler Investor Relations and Treasury. Thank you very much.

Dr. Mike Mühlbayer

Good afternoon. This is Mike Mühlbayer speaking. On behalf of Daimler, I would like to welcome you on both the telephone and internet to our Half Year Results Conference Call. We are happy to have with us today the Chairman of the Board of Management and Head of Mercedes-Benz Cars, Dr. Dieter Zetsche; our CFO, Bodo Uebber; and the Head of Daimler Trucks, Dr. Wolfgang Bernhard. In order to give you maximum time for your questions, Dr. Zetsche will begin with a short introduction directly followed by Q&A.

Now I would like to hand over to Dr. Zetsche.

Dr. Dieter Zetsche

Thank you, Michael, and good afternoon from me too. We already informed you in last part 12 days ago. In the second quarter Group EBIT, as well as EBIT from ongoing business were significantly better than the consensus yet largely in line with our internal expectations.

So, today, I’d like to briefly complete the picture with additional details on our second quarter performance. Then I’ll provide an outlook of our expectations for the second half of 2013.

Let's start with the key figures for the second quarter. Our Automotive divisions increased their total unit sales by 6% to 606,000 vehicles in the second quarter. Mercedes-Benz Cars had our best sales quarter ever, selling 405,000 units.

At Daimler Trucks, our sales were up 1% compared to the second quarter of last year, largely drive by the recovery in Brazil and the ramp-up in India. Plus, many of our key markets who have gained market share, speed cars or commercial vehicles. Our revenue for the period reached €29.7 billion, 3% more than the second quarter of last year, adjusted for exchange rate effects, revenue even increased by 5%.

As announced earlier, we achieved Group EBIT of €5.2 billion very much supported by the re-measurement and the sale of our remaining shares in EADS. This special item contributed €3.2 billion to our second quarter EBIT. Our EBIT from ongoing business came to €2.1 billion.

Net profit was €4.6 billion in the second quarter, excluding the EADS effect Daimler recorded the net profit of €1.4 billion, €1.25 per share.

Industrial free cash flow in the second quarter amounted to €3.5 billion, ongoing industrial business excluding the proceeds of the EADS transaction and other M&A contributed to €1.4 billion. Net liquidity stood at €11.3 billion as of June this year, slightly below the level we had at the end of 2012.

So much for the second quarter, now what do we expect for the second half of 2013? Looking ahead, we see three key drivers further improving our earnings from ongoing business compared to the first half of 2013. These are slightly recovering markets, the renewal of our product portfolio and increasing benefits from our efficiency programs. Let me give you some more details on these issues for our two largest divisions, Benz Cars and Trucks, respectively.

First markets, obviously, this is an external factor we can't control. But our current expectation is to see some improvement in the global market environment in the second half of this year.

For passenger cars, we still expect global growth for the total year of 2% to 4%. The main drivers of this growth will be U.S. and China. In Western Europe, sales should finally stabilize and the market should slowly start to recover in the second half of this year.

The same goes for Truck markets. In Western Europe and in NAFTA we expect the current decline to ease. Brazil is recovering after it’s year's downswing in 2012. In Japan, government incentive has had only a limited impact on the Truck market so far.

The next two factors, products and efficiency programs are in our hands and we are diligently working on their full implementation. Let us start with our product portfolio.

At Mercedes-Benz Cars, our product offensive is gaining traction. We continue the regional rollout of our new products at full speeds during the second half of 2013. That includes the marked launch of new E-Class long version in China in September, which will be decisive in improving our sales and pricing there. The CLA hitting our U.S. dealer showrooms in September as a ground breaking entry model in that key market.

Most importantly, the reception of our all new S-Class continues to be very encouraging. Even before market introduction we already had more than 20,000 orders in our books. Hence, we expect significant growth in the luxury segment for the second half of 2013. Market launch in Europe was last weekend, U.S. and China will follow in autumn. We should see the full sales contribution from the S-Class in 2014.

Our offensive in the compact segment continues as well. In September, we will introduce the new GLA Series model at the International Motor Show in Frankfurt. To satisfy the high global demand for our new cars as quickly as possible, we will have no summer breaks at most of our Mercedes-Benz plants.

To sum up prospects of Mercedes-Benz Cars, we plan to further increase our total unit sales and to outpace overall market growth in 2013. From today's perspective we assume that unit sales in the second half of this year will be above the level of the first half.

China will contribute to that. Thanks to the rollout of our new products, the increasing benefits from the retail network expansion and the integrated sales company, we expect sales of passenger cars in China to grow further during the second half of 2013.

Now, let us turn to the commercial vehicle side of our business. At Daimler Trucks, our product offensive is now largely complete. With Actros, Antos, Arocs and Atego, we have renewed our entire European portfolio for medium and heavy-duty trucks.

In short, this is our strongest fleet ever. All trucks come with Euro VI technology and with best-in-class fuel economy. A book-to-bill ratio of 120% invested in Europe reflects the strength of this product portfolio.

Almost 50% of the orders for our new Actros and Euro VI customers understand the added value, of the total cost of ownership equation of Euro VI technology and are willing to pay premium for it.

In order to satisfy demand, we are adding additional production shifts on Saturdays and work for the second half of this year. We also have best-in-class Truck products in other regions.

NAFTA our new Cascadia evolution is another benchmark for fuel efficiency. Consumes 7% less compared to its predecessor which itself is a very efficient Truck. Our customers appreciate that. As of today, we have roughly 15,000 firm orders on our books.

In India, our new BharatBenz fleet rollout is well underway. Despite of difficult market environment and with an all-new brand, we took fourth place in India’s ranking of new truck registrations in the second quarter.

We’ve already sold more than 3,100 trucks and have another 3,200 orders booked. We will also exploit additional growth opportunities in new and established markets. For this purpose, Daimler Trucks has launched the new integrated Asia business model.

The model is designed to realize as much growth and synergy potential as possible in procurement, production, sales and our product range. For that end, we started manufacturing Fuso trucks in our plant in Chennai, India. These trucks are designed for export markets in Asia and Africa. First batch was delivered to customers in Sri Lanka at the end of June.

With an overall book-to-bill ratio for Daimler Trucks of 102% in the second quarter, we’re confident to slightly increase unit sales for the current year. While improving our top line with new products, we continue to take strong actions for bottom line improvements with our efficiency programs. These programs will ensure that growth from new products will turn into a higher profitability.

As you know, we have programs in place across all our divisions. At passenger cars, Fit for Leadership aims at cost reductions of €2 billion by the end of 2014. At trucks, we plan to achieve benefits of €1.6 billion by the end of 2014, with Daimler Trucks number one.

Within each of these two programs, we aim to reach 30% of the total amount by the end of 2013. So far, through June, 30% of this year’s planned cost savings has been booked in each division. With expected acceleration in the second half of 2013, we are confident we will achieve the benefits targeted for this year.

So what does all this mean for expected 2013 earnings? The current EBIT forecast for the Daimler Group and its divisions remain unchanged. On the basis of our key market forecast, the continued rollout of our new products and the increasing effects of our efficiency programs, we expect our earnings to improve significantly in the second half of 2013 compared with the first half.

We target maintaining a stable dividend supported by the proceeds from the EADS transaction and earnings from ongoing business. In the coming years, we will continue to target a payout ratio of 40% of net profit attributable to shareholders.

In closing, let me outline our expectations for the years beyond 2013. For 2014, we expect continued improvement in EBIT in all of our automotive divisions and for the group as a whole. We expect a stable development of revenue and earnings for Daimler Financial Services.

What are the main reasons for this? First and foremost, we’ll fully benefit from the younger, stronger, and expanded model line-up and Mercedes-Benz Cars as well as at Daimler Trucks.

Then, we have rising benefits from our efficiency programs, plus our business model in China will be further improved to benefit more strongly from this market’s large potential.

And now we’ll be happy to take your questions. Thank you.

Dr. Michael Mühlbayer

Thank you Dr. Zetsche. Ladies and gentlemen, you may ask your questions now. I will identify few questionnaire by name, but please also introduce yourselves with your name and the name of your organization. Two practical points, please firstly avoid using mobile phones and secondly, please ask your question in English. Before we start, the operator will explain the procedure.

Question-and-Answer Session

Operator

(Operator Instructions)

Dr. Michael Mühlbayer

So, we take the first question from Horst Schneider.

Horst Schneider - HSBC

Yeah. Hello, it’s Howard Schneider from HSBC. I have got three questions and the first one is regarding your free cash flow outlook, especially for H213. I mean, after we have seen in Q2 this good cash flow result even if we strip out the EADS. As for proceed, I would like to know then why are you relatively cautious on the cash flow outlook then for the second half?

Then the second question that I have is I mean you say that the EBIT will increase in H2 versus H1. I would be glad to get some more details on the quarterly pattern. So what should we expect that Q3 is already above Q2 or are we expecting a normal seasonally weaker Q3 and then a very strong fourth quarter?

And the last question that I have is on currencies. I think in the last two conference calls you reiterated your guidance of minus €200 million currency effect in 2013. And after H1, you have realized the gain and also €150 million. So do you stick to that negative currency impact forecast or have you changed that by now? Thank you.

Bodo Uebber

Schneider, thank you for your question. So for the free cash flow question, we have not changed our guidance which we have released end of first quarter. So we’re remaining our free cash flow guidance with €1 billion to €2 billion for this year that includes the M&A activities which are not only EADS on the positive side but also we have an investment in the second half into bike, as you know, we have mentioned that I do think a couple of months ago, is around €600 million but we are investing in the second half.

Why is the second half somewhat lower in free cash flow? As I said, the investment on the one hand but also our CapEx development is somewhat second -- lies in the second half. Almost 60% are in the second half, 40% in the first half. And on the other hand, we’ve also some more tax payments in the second half than in the first half.

So everything is unchanged and we stick to our cash flow guidance from the first quarter. One element I have also to tell you, the working capital development in accounts payables is positively in the first half and of course, it is pretty volatile and will bounce back somewhat in the second half. So with that explanation, I do think you see that the cash flow guidance of first quarter is stable.

Your second question to earnings developments, we have given a guidance, a clear guidance. I do think for all the divisions and we have remaining guidance which means that in the second half we are better than in the first half. So let us stick to that message. We don’t want to discuss now quarterly developments of returns. The only thing is that the sales development in the third quarter will be less than in the fourth quarter in cars. In trucks, it will be steadily somewhat increasing over the quarter.

So with that guidance, I do think I have told you enough for the currency outlook. On the basis of one study, we will see more or less no change in currency for the total year. So that has changed a bit to the positive. We had some favorable developments. Even when the dollar is underneath at 130, we try to do some more hedging.

Having said this, we are 90% hedged and therefore I don’t expect much fluctuation. If we have fluctuation, for example, with yen, the Japanese yen which is bouncing back and forth, so to say, and there we have also the currency in trucks which is mainly related to the Japanese yen which we see also in the revenue development which was negatively affected by the Japanese yen in trucks. I do think I covered all your questions.

Horst Schneider - HSBC

Okay. Just two follow-up. Just that I got it right for Mercedes cars, you meant that the sales will be probably in Q3 below Q2?

Dr. Dieter Zetsche

Yeah.

Bodo Uebber

Yeah. And in Q4, higher.

Horst Schneider - HSBC

All right. Okay. And with regard to currencies, is currency development also the reason that the revenues per unit has come down at cars but also at trucks and is that development that is likely to continue?

Dr. Dieter Zetsche

On the one hand, we have mix development of course compared to last year but also it’s a part-by-part business to China which has effect on the revenue per unit.

Horst Schneider - HSBC

All right. Okay.

Dr. Dieter Zetsche

On the truck side, when you adjust by ForEx, you basically are flat as revenue per unit.

Horst Schneider - HSBC

Okay. Good. Thank you.

Dr. Dieter Zetsche

Welcome.

Dr. Michael Mühlbayer

Okay. Next in line is Fraser Hill.

Fraser Hill - Banks of America

Hi. Good afternoon. It’s Fraser Hill from Banks of America. It’s might return to the free cash flow and also the CapEx and kind of expand your commentary in 2014, if you can help us with that. Obviously you had CapEx to sales ratio, it was low as you point will be second half weighted. I think were down toward 6% for the second quarter?

What’s going to be a sustainable level of capital expenditures as a percentage of sales this year and as we look in to 2014 and 15? And how do you think that might need to trend, I mean certainly you’re spending about 7% of sales, where some of your peer group are spending closer to 10%? So do you feel at the certain point this ratio will have to increase or not?

Moving on from that point and the BAIC investment of €600 million this year, can you confirm that that will be one-off time investment this year there will be no further investments in 2014 and ‘15 as well?

And then, sorry, just one final question on the free cash flow, within the statement in the changes in other operating assets and liabilities there was a €500 million positive effect in the second quarter. Can you just tell us what was going on with that and also give us some help in forecasting that line going forward? Thank you.

Dieter Zetsche

Thank you for your questions. And as far as free cash flow is concerned looking forward to the years to come and CapEx obviously influencing that on the cost side. We see kind of a constant level in absolute terms there on the CapEx all together and with revenues growing obviously the ratios will improve, which means will decline.

On the Truck sides we say, we see an absolute reduction of investments after this huge renewal, which has gone basically through all the Truck lines and therefore we’ll see both an absolute reduction plus higher percentage reduction because there as well we expect revenues to grow.

So our statement looking forward that, on the one hand we want to pay, at the pay out ratio of about 40% of our earnings in the dividends and on the other hand that we want to at least earn our dividend from our cash flow from operations the free cash flow stays absolutely valid.

As far as bike is concerned, we announced the overall package which was negotiated between bike and us, and they are the shareholders in bike. And we are now coming most likely to execution of that plan, and this is this one-time payment in to bikes in order to achieve 12% of the capital. And there is no plan of continuation at this time, so it should be one-off in 2013 and nothing similar in 2014. Last point, Bodo you want to address the second quarter effect?

Bodo Uebber

Yeah. Just cash from operating activities, I think within the changes included in your working capital in your statement and other operating assets and liabilities lines, and it was about €500 million positive in Q2. I just wasn’t entirely show what was driving that and also I have to think about that line going forward because it’s been a big variance in second quarters?

Dr. Dieter Zetsche

Yeah. I mean, okay. Your question is mainly there is service -- normal services contract in Trucks, which we have contracts which are -- which we have to account for EBIT but not for cash flow, that’s not the cash flow item which you see here, it just the topic that we have to, that the work is not yet done and will be done in quarter, so that is between quarter something we have to do in service contract. But it is normal cause of business with regard to service contracts. So it does not have cash flow impact. And that was part I have answered just. Yeah. Okay. Thank you.

Dr. Michael Mühlbayer

Next in line is Jose Asumendi. Jose?

Jose Asumendi - Kepler Chevreux

Yeah. Hello. Can you hear me?

Dr. Michael Mühlbayer

Yeah.

Jose Asumendi - Kepler Chevreux

So, two questions on Trucks please, how do you see the book to bill progress in Europe in the third quarter and how should we think about production sequentially in Q3 versus Q2, and if you can give us some details behind Europe and Brazil, and they can some shutdowns over there? Thank you.

Bodo Uebber

Yeah. Order in take for in the second quarter it was 19% higher than previous year. So our book-to-bill ratio is positive. In Europe, we have -- we had in the first half year in the marketplace in minus 10% roughly. We were able to hold our market share where a little bit higher than the year before. We think that for the end of the year we will see a market that is around minus 5%. That means if we want to keep up we have to continue that slight uptick throughout the rest of the year and we have basically booked our factories in Europe, until I would say October, November timeframe, so we have now a number of extra shifts on Saturdays that we need in order to satisfy the demand that is coming from the market side.

In Latin America, we’ve seen in the first half 4% growth. We also think that here the growth for the whole year will be all the way up to 10% that also means that there is considerable catch up to do in order to come to that all the way up to 10%. So we also see and the hope for some and increase market. In Latin America we were not able to hold market share we slightly loss 2% in the market share, but the market in the compensated for that.

So, all in all we think that in the rest of the year we’ll have slightly growth. We will provide for that and it will be driven primarily by Western Europe and Latin America, and into some extent by NAFTA. So far we were able to keep up with the -- what the market is giving us. And as I say, we will come up to our guidance from the lower end so we have considerable way in order to reach where you want to by the end of the year.

Jose Asumendi - Kepler Chevreux

Brilliant. Thank you.

Dr. Michael Mühlbayer

Next in line is Daniel Schwarz.

Daniel Schwarz - Creative Global Investments

Yeah, I have also two questions for Mr. Bernhard. The significant acceleration you’re expecting in Brazil in the second half? Is it mainly driven by pre-buy effects or do your customers anticipate that incentives will be renewed in 2014 and what do you think about market development in 2014?

And the second question would be, after Brazil renewal of all major products and the implementation of Truck number one? What do you think will be a main focus of your work in the next years? And did you identify parts of the Truck group that you think that could be divested or on the other side parts for you think acquisition could make sense?

Dr. Wolfgang Bernhard

Okay. Thanks for the question. First question was with respect to Euro VI and Euro V pre-buys. So far we see that in the market in the first half we have seen 50-50 distribution between Euro IV, Euro V, it’s picking up now toward Euro VI because our Euro VI trucks are much more fuel efficient. So some of those customers see already there economical advantage of taking a Euro VI truck, we don’t see considerable Euro V pre-buy, only some of those logistic companies that work in distribution tasks Euro IV -- Euro V is still being in demand.

Daniel Schwarz - Creative Global Investments

My first question was more on the Brazilian market whether you see pre-buy effect in Brazil because customer…

Dr. Dieter Zetsche

No, we can cut that chart. There is nothing like this happening.

Daniel Schwarz - Creative Global Investments

Okay.

Dr. Dieter Zetsche

Second question was with respect to that was -- I think you asked about M&A activities. Right now, we have -- we are very busy of working on operational tasks. There is lot of work to do. And we are not in any way busy in thinking about M&A activities. This is not something that is in the top of our mind right now. We have to continue to launch our products in Europe. We have to work in Latin America. We have to make sure that we continue to gain market share in NAFTA and we have huge launches that we have to come up with in India.

So right now, this is what is on the top of our minds. It’s what we called Daimler Truck number one being at the number one position. And the main tasks is basically to get our cost positions right and to top out on our market potential.

Daniel Schwarz - Creative Global Investments

Okay. Thank you.

Dr. Michael Mühlbayer

So next in line we have Charles Winston.

Charles Winston - Redburn Partners

Yeah. Hi. Charles Winston from Redburn Partners. Thanks for taking my questions. Just two or three for me, firstly, the new E-Class or facelift E-Class has been in the market for two or three months now. Just wondering, if you could give us a feel for what the achieved pricing on the new models is like relatives to the outgoing model. And perhaps they give us a feel as to the quantum of pricing changes that we could see there.

Secondly, just looking at the cost side in Mercedes, we saw, I think it was $528 million cost headwinds in the first quarter and $554 million in the second quarter. You are talking about roughly $200 million that fits the leadership savings in first half. And I guess those are probably 2Q buyers, that suggest the cost inflation, which I guess includes content, has sort of got probably quite materially worse in the second quarter versus first quarter.

I was wondering, is that interpretation right and if it is, is this a content issue? And if it isn’t a content issue, perhaps you could flash out what was going on there. I’m sorry, very finely, I just want to follow-up on Fraser’s question actually, in terms of the other operating assets and liabilities of $500 million.

You explained it by talking about service contract in trucks, where you account for EBIT with there is no cash flows. The issue is this is a positive. In other words, when we’re reconciling from profits to cash, it was a positive suggesting that there was a non-cash cost in the P&L as opposed to a non-cash profit. And I was just wondering if I understood it right, the explanation service contracts doesn’t explain the direction of the impact in terms of the cash flow. Thank you.

Dr. Dieter Zetsche

Let’s start with your question regarding the new E-Class. Sorry, but first of all as you know, the introduction has taken place in Europe basically exclusively. So yeah, it’s happening now in China. It will start in September. So we have some delay there to see effects but based on Europe and the early signs in other markets, we are very satisfied with both with the order intake and with the pricing. So we have positive development on incentives with the facelifted E-Class and once again the demand for new product is very encouraging.

As our costs are concerned, I would like to focus on the second quarter that’s fine with you. We talk about roughly $500 million. About half of that is increased content related to new products and capacity expenditures all around the technique part of the product, the plants. The other half is basically cost which are not ongoing more than half of that non-periodic -- non-periodic costs in 2012 which has the base effect as these positives of last year do not -- could not be repeated. They have a negative impact on this comparison and the other half is similar in 2013, where we have again a periodic cost effect in the technical order in 2013. So about half of that has substance and half is periodic. Bodo, you would take on the third.

Bodo Uebber

$500 million.

Dr. Dieter Zetsche

It’s $500 million. So the cost position has unchanged in Q2 2013. The main part of the cost changes that is more than 50% is related to high expenses amongst others for new technologies as we’ve always said new products and additional capacity. Sorry, I just wanted to clarify the service contract piece. Therefore, I had not the attention on what you said.

Bodo Uebber

Fine.

Dr. Dieter Zetsche

Sorry, so I clarified the service contact. Service contract are here for trucks and passenger class in this line item. Sorry to say so, it’s both. And this are expended which are accrued for over the life time of their contract. And therefore it hasn’t EBIT impacts in this quarter but it has not yet a cash flow impacts. So that is pre-size impact, sorry. We had to look into the books so to say and talk to the account and therefore give the precise answer. Thank you

Charles Winston - Redburn Partners

Thank you, guys. I’ll very quickly just follow up, the periodic cost relating to my second question, the half of those which you said related to comp impact, really from 2Q of ‘12. Is there any more effect to comment, other words, it was that -- is there any more than 3Q and 4Q and or it was that just one time issue?

Dr. Dieter Zetsche

So, we think second half impact will be by far lower than the first half impact.

Charles Winston - Redburn Partners

Thank you.

Dr. Mike Mühlbayer

Okay. Next in line we take the question from Philippe Houchois.

Philippe Houchois - UBS Limited

Good afternoon. I have a couple of questions. The first one is on this dispute that you involved in with the EU on air conditioning coolants. Now, how seriously should we take that issue. What is the risk that your sales in France are further blocked for the rest of the year? Are the countries coming through and how difficult or really, what’s the hurdle, it seems not lot of car markers have agreed that this new product from Honeywell and Du Pont is acceptable. You seem to take the different view. How resistant are we going to be and how difficult it is for you to change course and possibly adopt that product that was my first question.

The second one is you talked to us at the end of Q1 about your interest in potentially disintegrating some of dealership and fringe up some of the cash there. I believe you sold a few dealers in France. Can you confirm that and can you also tell us where you stand on this project? Thank you.

Dr. Dieter Zetsche

Thank you for your questions. As far as the first question is concerned, our position is pretty clear. We got the type approval for the product in question which is a B-class and SL by the KBA with the former coolant. It's called R134. This doesn't matter, but that’s what we got. And to our understanding it’s just a pure technicality that this type of approval is recognized in all European countries, has been done except for France, and which really do not have a clear explanation why that is so. And we are in intend discussions between Brussels and France and Germany in order to clarify and rectify the situation as fast as possible.

So it’s difficult to answer your question because we don’t have really a good reasoning why we’re facing the situation in the France, the way we do, therefore it’s not that easy to tell you about the solution.

But we are of course, we are in constructive talks and we are optimistic that there will be a solution foreseeable timeframe, just to make it here about that’s what you understood anyway that we’re talking about these specific vehicles in France, not about our total sales in France, but that’s of course already significant.

The second question was about on retail. It’s true that in France we sold one owned retail outlet to an independent investor. We talked about before the broader scope studies we are under training on our own retail business all together, the performance -- the financial feasibility and so on. These studies are ongoing, discussions about potential actions to be taken as well, but there is nothing which would be as concrete at that point of time that we could make an announcement for that reason.

Philippe Houchois - UBS Limited

Okay. Thank you.

Dr. Dieter Zetsche

Thank you

Dr. Michael Mühlbayer

Jochen Gehrke, you are next.

Jochen Gehrke - DZ Bank AG

Yes. Good afternoon. I have just two topics, if I may. First of all on China, can you just help us understand where we are now, with regards to your dealer openings, I think you had very significant plans for this year? How much is there more to come in the second half and genuinely speaking where do you stand against to your plans now by the second quarter after what I understood to be rather disappointing first?

And secondly for Mr. Bernhard in the trucks, can you help us understand where we currently stand with regional profitability in the various areas and more broadly, speaking after you’ve looked at this business now more deep and with one quarter being the CEO.

What part of the business is in at the moment and you just need improvement to finally reach the 8% on through the cycle basis. I mean, I understand that markets have always played role, but I think it’s equally fair to say that Trucks is now running several years behind its own profitability ambitions? And how long market taking a side, do you think it will take for Daimler Trucks to finally have to structure in place that we are going to see the 8% plus minus the quarter that you guys have historically defined? Thank you.

Dr. Dieter Zetsche

To your first question at that point of time we have 279 dealerships are active in China which is about 20 more than by the end of last year. Our plan for this year was to open all together about 75 dealership and this plan is and continues to be valid, about 45% of these 75 new dealers we want to see in Tier III in smaller cities which was one area of concern that to explain before that we did not have enough dealers there. To your first question?

Dr. Wolfgang Bernhard

To your second question pertaining the Truck business. We do not disclose any regional results, we haven’t done in the past and we’ll not do that in the future. I give you a little of overview what is going on. Obviously, in Europe where well situated. We just invested heavily into new technology and it’s paying off in terms of market share and in us having a firm grip on the market side. So Europe seems to be doing okay.

We are enjoying in NAFTA growing market share with good profitability. So we also are okay in NAFTA. However, as I mentioned before, situation is not that bright in Brazil. We are losing market share in Brazil. We are not taking advantage of the growth of the market as it’s moving on. So we have something to lot of things to do there. And with Asia basically we have a big job in terms of growing the top line of the business.

So it’s a very differentiated picture. Obviously, we’re working hard in every region. It’s not that anybody can fall back and lean back and relax, everybody has to work hard to improve the performance. We always say that we are going to step by step improve our performance towards an 8%.

As you know truck markets in particular are very much dependent on the -- very volatile and the performance of the companies are very much depending on those market. So it is very difficult for us to forecast at what point of time we will reach that 8%. But you can be sure that all our efforts are being focused on that target and we will reach that target step by step as we move on and as the markets allow to do so.

Jochen Gehrke - DZ Bank AG

Okay. Thanks but sorry for coming back to the first point, historically you always said that Europe and Lat Am should be a double digit business, North America about 8% and then Asia somewhat around 5% and then in bringing together the 8%. Now in the second quarter you made 6.5%, obviously in H1 much less. But which of the areas at the moment really has the biggest improvement potential, is it Lat Am and if that way to be close that gap then we have finally seen the 8% or is it more complex on that?

Bodo Uebber

Well, I see basically that, well, Latin America there is the greatest improvement that we can make or there is a long way to go in terms of sales and products. So this is where we can do the most good on the Europe and America basically all the good products are underway and all the things that we need to do is working on the operational side.

Jochen Gehrke - DZ Bank AG

All right. Thank you.

Dr. Mike Mühlbayer

Okay. Next in line is Laura (inaudible).

Unidentified Analyst

Yeah. Good afternoon. I have got three questions please, two on Trucks and one on Cars. Just coming back to the Trucks, obviously looking at your full year guidance, I think you still have some way to go in the second half here. And I just wanted to check what your underlying assumption is regarding potentially Euro VI pre-buys, so what you actually factoring in here in order to make that number and maybe you can give a little bit more clarity on what your expectations are here for the Q4, especially given that it’s now quite unlikely that we’re going to see toll road incentives in Germany? That’s my first question.

And second one is also on Trucks, obviously like you just highlight most of your growth going forward will be driven by the emerging markets, yet that is obviously region where ASPs are much lower in arguably margin as well. So does your long-term Truck target of 8% margin reflect the potentially negative mix effect or maybe put differently. Can you assure us that the growth in emerging markets will not be margin dilutive going forward?

And then lastly just on the Mercedes, I mean your competitor BMW is now launching its i3 vehicle in a few days, and obviously has been prepping the market for quite some market regarding it’s a brand strategy. So I was just wondering if you could remind us of your electric vehicle strategy, please?

Dr. Wolfgang Bernhard

Your question on emerging markets, fortunately, we are able to take a share out of those emerging markets and special applications where we are able to sell our premium trucks coming out of Europe. So this helps us on the one hand and on the other hand with the vehicles that we have in India, we are able to capture more of the heart of the market if not the lower end from their point of view, it’s the heart of the market where we can now attack.

As Dieter already mentioned in his statement is that we are starting to launch these products out of India into Sri Lanka, into the other African markets. So this is a very important -- very important -- from our strategic asset. Additionally, we also have our joint venture in China. With this joint venture, we are basically partnering up with the third largest truck manufacturer in the biggest truck market of the world. We are working together with this joint venture partner to see how can we increase our footprint and how we can capitalize on that status. So, we are having our focus on those emerging markets.

Dr. Dieter Zetsche

As far as electric vehicles are concerned, we have the smart in the market since quite some time and our market leader, for instance in Germany last year this year so far. We announced that we will introduce the B-Class with electric drive train first in the S and later on in Europe starting end of this, beginning of next year, so that's imminent.

We have, but that’s certainly not a question of big volumes but as that adds E drive as well which is more demonstrator of topnotch technology. And so we think we are well prepared in this technology and well under way in the marketplace.

Unidentified Analyst

Okay. Thank you. Can I just follow-up on the question regarding the full-year truck guidance for ‘13 and the assumption on the Euro VI pre-buying?

Bodo Uebber

Yeah. We already said that we are -- we were basically not happy with the first quarter. We are very happy with what happened in the second quarter. It came in as expected. Now, for the rest of the year, we have to catch up with what has not been achieved in the first quarter. This will happen in the second half of the year.

So that is why we were saying the second half of the year will be higher than the first quarter. And by the end of day, we are standing by our guidance that our earnings for this year will be in the magnitude of the last year. So, this all said and done, we think that with the market assumptions that we have we can reach what we said by the beginning of this year. Is it okay?

Unidentified Analyst

Yeah. Just one -- just to clarify, so because obviously, I think going into the year there was the expectation that Germany would introduce the toll road incentives for Euro VI but not that seems to be delayed. So I am just wondering if that has changed your market assumption and maybe makes it more likely that you will reach the guidance?

Bodo Uebber

Now, this has no implications on the market whatsoever.

Unidentified Analyst

Okay. Thank you.

Dr. Michael Mühlbayer

Okay. Next in line is Stephen Reitman.

Stephen Reitman - Societe Generale

Yeah. Good afternoon. Steve Reitman from Societe Generale, London. On the compact cars, could you give some color on your experience with the CLA in terms of customers and also in terms of the transaction process on that car. And what you expect for the GLA coming out late this year as well? Thank you.

Dr. Dieter Zetsche

Thank you for the question. I think it’s not exaggerate to say that direction -- sorry that direction to the CLA is kind of overwhelming so far. Wherever I come into any market, they back me to look for some more production for their particular market. So we are positive.

Within this volume aspect, we have second positive element that it’s a high conquest rate. That’s with A-Class where we see a 50% conquest. The CLA is a Conquest car as well. Very important for us for the offensive we want to drive in the compact car segment. Pricing, basically we are selling the vehicle the way we are offering it.

So this is a good situation especially given the fact that in Europe you know that we have significant price pressure in the market place across the board and the compact segment definitely is not an exception there. But, it is going well.

Perhaps, perhaps it is fair to say that, in Germany, the pricing pressure generally is particularly high and that there are some customers questioning our price point with the CLA and it is pretty ambitious there. But overall, we have a really good price realization with the CLA.

The introduction in the S is just ahead of us. This is a new price bracket for Mercedes in the S. So it's -- as we go deeper into the market to new customer segments different from Europe where the pricing is somewhat more ambitious. So overall, we feel very good for the CLA as far as volume is concerned, the specific customers in the sense of Conquest and the pricing so far is low.

Stephen Reitman - Societe Generale

And do you have any flexibility in cash demand in terms of the production mix between the B-Class and the CLA?

Dr. Dieter Zetsche

The B-Class is the one which is supposed to give us the flexibility by shifting it potentially back and forth between Rastatt and Kecskemét and therefore potentially freeing up some -- some additional volumes for the CLA. Of course, there are limitations to that because we have an entire supplier base which has to follow these potential moves, plus B-Class and A-Class are selling very well as well.

So we have an overall supply issue with the compact cars which is traditionally good problem to have. But you know that now these days we will see the beginning of the additional capacity from government as well which will help us too. You were asking for the GLA before as well?

There, of course, we have shown the concept car. In Frankfurt, we will show the production car. Whatever we hear from our dealers in the first place about customers so far as well, their reaction is very positive but there we are not talking about orders or about pricing so far. So that is premature to make any fine adjustments in this regard.

Stephen Reitman - Societe Generale

Thank you.

Dr. Michael Mühlbayer

So our next question we get from Frank Biller. Biller?

Frank Biller - LBBW

Yeah. Hello, Frank Biller from LBBW. Actually, it's three questions. The first question from my side is about the second quarter and the year earnings. Well, you talked about your internal planning’s and now we have seen very good figures for the second quarter. How much have you been better than your internal planning in the second quarter and how much was related to your foreign income change and maybe raw material tailwinds here. That’s my first question.

The other is on the market, China, Europe, USA. Can you talk a bit about the current competition, the situation in pricing here. Is it a bit better than in the first quarter or is it still as sharp as the pricing pressure? And the other thing is on the margins, Mercedes-Benz cars here. Is it fair to assume to in the second half, you should be able to reach at least the margins of the second quarter?

Bodo Uebber

Let's start with Q2. I would say in -- the one point is that in the first quarter, the prospectives in the market places look pretty bleak for the industry all together especially in Europe. In the second quarter, the market situation improved somewhat, not dramatically but somewhat. So we could realize some upside on the sale side.

Secondly, you like to be a little bit cautious with your cost programs you’re running in taking them into your expectations. The way it worked out is that we were very much at the upper end of our expectation as far as cost improvements are concerned and that was another contributor to the positive outcome.

And third, I would say perhaps our expectation was somewhat between the consensus and our final outcome. So a little bit upside to our planning, a little bit we expected to come in above consensus there as well. So overall, it’s pretty much within our expectation but at the high end of the ranges. China pricing, do you want to say something about Q2.

Frank Biller - LBBW

About the market

Bodo Uebber

Yeah. Okay. About the markets, what we expect for the rest of year, on the truck side in Europe, we expect that Europe will be bottomed out and we will see the uptick. So expect growth in the market place for the rest of the year in Europe. NAFTA will be a little bit up we expect until the rest of the year. Asia will be basically flat. And Latin America, we will see further continued dynamism in the marketplace. So we will see also an increase in Latin America.

Dr. Dieter Zetsche

Yeah. As for pricing in China, we clearly to come a little bit more to pull versus a push situation in the marketplace that’s when -- especially in the first quarter, we took volumes back significantly. We had seen some positive impact from that site. From our sites, incentives are coming down. Of course, we have less-to-no control about the deal behavior. Overall, we see some developments in the right direction but we always told you this is not changing or turning a switch and everything will be perfect for one day to the other but it’s a process overtime.

Dr. Mike Mühlbayer

The next question we take from Michael Tyndall.

Michael Tyndall - Barclays

Hi. It's Mike Tyndall from Barclays. Thanks for taking my question. Just three questions if I may, two are very quick, just to confirm what you’re saying about the other line in the EBIT walk down. Am I right in saying that you said 50% of it was benefit you saw in 2012, which haven’t necessary been repeated in 2013.

The second question, just again around the dealers. And I’m just wondering to what degree in your Fit for leadership plan, there is any cost saving associated with perhaps you selling down some of your dealerships. I know that’s been reported in the press.

And then the final question, if I may on the compact cars, I mean they've had a fantastic reception in the market. Your capacity constrained at least to some degree. I’m just wondering if we think about it from a contribution margin perspective, have we reached cruising altitude now or is there still significant gain to come in terms of contribution margin from those vehicles, say in 2014. Thanks.

Dr. Dieter Zetsche

Perhaps, let me start with the last point. As you know, this is a family of vehicles. We have launched three of the five vehicles. And the third and the fourth and the fifth based on the market segments and the overall configuration will provide for higher margins than the first two. And therefore just because of the launch sequence, we see further improvements as far as the average margins being accomplished are concerned.

To your second question, Fit for Leadership, we have two aspects of Fit for Leadership. One is ‘13-14 with 2 billion target by the end of ‘14 as far as running rate is concerned. Within this, there is no element of retail included. Talking about Fit for Leadership in the sense that we want to address structural issues as well, one element we are looking at is our own retail.

As I said before, ongoing without specific results at that point of time, this might have cost or margin impact as well but nothing specified at that point of time. So I could answer your question, no, there is no content in Fit for Leadership with the slight remarks I made before.

To your first question, when I said before, 50% is related to a-periodic aspects. Out of this 50%, it’s basically half-half ‘12-13. So, good guys in ‘12 which are not repeated in ’13 will represents half of the impact and bad guys in ‘13 are the other half. And of the total, the other 50% is related, as we said before, to content and to capacity and other issues. Okay?

Michael Tyndall - Barclays

Got it. Thank you very much.

Dr. Mike Mühlbayer

Okay. The last question we take from Philip Watkins.

Philip Watkins - Citi

Good afternoon. Philip Watkins from Citi and thanks for taking my question. It was really on China. and I know we’re sort of hearing a little bit less about credit tightening there. But I’m wondering if you have seen any problems with car dealerships in terms of them getting hold access to credit and whether you think you might have to provide more support. Thank you.

Dr. Dieter Zetsche

You actually know but Bodo can answer that more specifically.

Bodo Uebber

In terms of funding, we have a good position. We’re somewhat prefunded in China and we can do more in penetration even in the financial services business. So we plan also to increase the penetration for the second half. So fortunately, we have not any impact on the discussion which is currently going on in China on the credit side.

Philip Watkins - Citi

So even the dealerships don’t need any more funding.

Bodo Uebber

Dealerships of course when we are growing the business, we have launched financing in China. So there will be an increase certainly when our numbers are going up, but I don’t see any problem to finance it.

Philip Watkins - Citi

Okay.

Dr. Dieter Zetsche

Plus we have new dealerships, as we discussed, coming on line and that applies for them as well of course.

Bodo Uebber

Right. Right.

Philip Watkins - Citi

Okay. Good. Thank you.

Bodo Uebber

Welcome.

Dr. Mike Mühlbayer

Okay. Ladies and gentlemen, thank you for your questions and for being with us today. Investor Relations remain at your disposal to answer any further question you may have. We hope to talk to you again soon. Thanks and goodbye.

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