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Executives

Michael Mühlbayer - Senior Vice President, Investor Relations and Treasury

Dieter Zetsche - Chairman

Andreas Renschler - Head of Daimler Trucks

Bodo Uebber - Chief Financial Officer

Analysts

Arndt Ellinghorst - Credit Suisse

Jochan Gehrke - Deutsche Bank

Thierry Huon - Exane BNP Paribas

John Lawson - Citi Investment Research

Max Warburton - Bernstein Research

Christian Breitsprecher - Macquarie

Kristina Church - Barclays Capital

Horst Schneider - HSBC Trinkaus & Burkhardt AG

Fraser Hill - BofA Merrill Lynch

Frank Biller - Landesbank

Philippe Houchois - UBS

Ranjit Unnithan - JPMorgan

Stephen Reitman - Societe Generale

Jose Asumendi - Royal Bank of Scotland

Charles Winston - Redburn Partners

Alexis Albert - Nomura International

Adam Hull - WestLB

Daimler AG (OTCPK:DDAIF) Q4 2010 Earnings Call February 16, 2011 9:00 AM ET

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 along with presentation slides will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler website. A short introduction will be directly followed by a Q&A session. (Operator Instructions)

I would like to remind you that this conference is governed by the Safe Harbor wording that you find in our published results document. Please note that our presentation contains 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 assume, 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 Investor Relations and Treasury. Thank you very much.

Michael Mühlbayer

Good afternoon. This is Michael Mühlbayer speaking. On behalf of Daimler, I would like to welcome you on both the telephone and the Internet to our full-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, Andreas Renschler.

This morning at the annual press conference Dieter Zetsche and Bodo Uebber presented our figures in detail. The speeches as well as the charts are available on the Daimler website. Therefore, we will start the conference call with a short introduction focusing on our Q4 results, to have more time for Q&A.

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

Dieter Zetsche

Thank you, Michael Mühlbayer. Good afternoon ladies and gentlemen. I like to begin with a brief summary of our results for the full-year 2010, as well as a look at the fourth quarter.

In a nutshell, 2010 was an excellent year for Daimler. We posted EBIT of EUR7.3 billion, earnings per share were at EUR4.28, we will propose a dividend of EUR1.85 and that equates to more than 40% of our net profit.

Free cash flow from industrial business increased to EUR5.4 billion, despite higher inventories and investments. As a result, net liquidity of our industrial business increased from EUR7.3 billion at the end of 2009 to EUR11.9 billion at the end of 2010. In sum, 2010 confirmed that we are well on track toward our medium-term profitability targets.

As for the fourth quarter of 2010, we've also done very well. In the fourth quarter, Daimler posted EBIT of EUR1.6 billion, special reporting items excluded EBIT amounted to EUR1.8 billion. At the Mercedes-Benz Cars, sales increased by 12% compared to the previous year. Passenger car sales of our Mercedes brand grew by 15%.

Revenue improved by 24% in the same period, due to an excellent product mix and a strong improvement in net pricing. With EUR1.2 billion Mercedes-Benz Cars almost doubled its EBIT compared to the previous year’s fourth quarter.

MBC profit margin was 8.3%. That reflects the quality of the reported EBIT as earnings from ongoing business include higher R&D spending than in the previous quarters, plus we’re facing headwinds from higher raw material prices.

Daimler Trucks boosted sales by 44% and all regions contributed to that success with double-digit growth rates. Truck sales increased by 45% in Latin America and by 53% in Western Europe. In Western Europe, we further increased our market share by 2.1 percentage points and affirmed our position as a market leader. In the U.S., our new engines are popular with customers, resulting in a market share gain of 3.7 percentage points in the Class 8 market compared to last year.

In the full-year 2010, we took number one spot in the Class 6 to 8 segments by obtaining an after market share of 32%. And this positive trend is bound to continue. In the fourth quarter, the order intake in the U.S. increased by 82%. In Asia, sales improved by 46% in the fourth quarter. There are two renewed motor portfolio sizes and market share gain of nearly 3 percentage points in Japan.

Global revenue at Daimler Trucks increased by 42% in the fourth quarter, EBIT grew to EUR393 million. Excluding special reporting items related to our restructuring activities in North America and Asia, it even reached EUR420 million. This translates into a profit margin of 6.1%. By and large, Daimler Trucks is in an excellent position to benefit from a further recovery of the global truck markets in 2011.

Mercedes-Benz Vans also saw sales growth of 18% in the fourth quarter, especially because of strong market developments in Eastern Europe, North America and China. Revenue increased by 21% and we posted EBIT of EUR138 million, reflecting sustainable efficiency improvements. Return on sales was at 6.2%.

Daimler Buses showed a 20% increase in sales, while sales in the Western Europe had been flat, most other regions showed double-digit growth rates. Daimler Buses EBIT was up from EUR46 million in the previous fourth quarter to EUR84 million in 2010. Consequently, our profit margin also improved from 3.8% to 6.3%.

Daimler Financial Services benefited from the growth of the automotive business. Its portfolio increased 9% to EUR63.7 billion. We are also able to raise profitability and posted EBIT of EUR224 million. This success was supported by decrease in credit losses and low interest rates. We continue to be very conservative when it comes to risk management.

Now let’s look ahead at 2011. As outlined this morning, we posted strong sales of cars, trucks and vans in January 2011. Furthermore, we informed about our joint venture with Toray and we also provided a short update on our legal proceedings.

Based on today’s assumptions, Daimler is expecting to pose an EBIT from ongoing business in 2011, significantly above 2010. Of course, there will be constraining factors. Higher raw material, energy and logistics costs, higher R&D and CapEx, mainly due to spending related to CO2 emissions reduction, higher spending in connection with moral changeovers, as well as higher personnel cost.

Nevertheless, we have reason to expect that with expected growth of global automotive markets in the years to come, we can outperform the industry average and that’s how we intend to further improve earnings of both our individual divisions and our entire group.

Starting 2013, we seek to achieve an annual average return on sales of 9% in our automotive business over the market and product cycles and we intend to do so on a sustained basis. As far as individual divisions, our goals remain to achieve a return on sales of 10% at Mercedes-Benz Cars, 8% at Daimler Trucks, 9% at Mercedes-Benz Vans, and 6% at Daimler Buses.

At Financial Services, we aim for a return on equity of 17%.

2011 will mark another step in the right direction. All-in-all, I’d like to reiterate what I said at our annual press conference this morning, the inventor of the automobile is in very good shape.

Now, Bodo Uebber, Andreas Renschler, and I will be happy to answer your questions.

Michael Mühlbayer

Thank you very much Dr. Zetsche. Ladies and gentlemen, you may ask your questions now. I will identify the questionnaire by name, but please also introduce yourself with your name and the name of your organization. Two practical points; firstly, please 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

Thank you. (Operator Instructions)

Michael Mühlbayer

Okay, thanks. The first question, we take from Arndt Ellinghorst.

Arndt Ellinghorst - Credit Suisse

Arndt Ellinghorst, Credit Suisse. My first question is a bit more strategic, I guess. What do you think Dr. Zetsche is the reason why your stock goes down pretty much every quarter, your company reports earnings for the last three years? And then secondly a bit more operational, Mercedes I think increased the inventory level at the Daimler level of around 25,000 units in the fourth quarter. And could you tell us how much of an impact that will have in the first quarter in this year and how much in value terms that roughly is? Thank you.

Dieter Zetsche

As far as the stock is concerned, to my knowledge we are depending on the day you are looking at, perhaps most of the time the second largest automotive company as far as capital markets cap is concerned. This is what we are looking at, the long-term development and the daily and hourly developments are driven very much less down the line performance, but more by considerations within the system, which we should not focus our intension too much.

As far as inventories are concerned, on the Mercedes-Benz side, we had two specific aspects, one being that by the percentage of sales not going to Germany and Europe is increasing. Naturally, the pipeline is growing. And therefore, we have on that side a reduced amount of vehicles ready for sale and an increased amount being in the pipeline to fulfill the upcoming demand in the first quarter and ongoing in China and other places.

On top of that, we have a major change over in our Rastatt plant for the next generation of A and B Class vehicles. And therefore, we already had to stop the production of the current A Class in order to prepare for the new product and to still supply the market we had to retch up our supply in that segment.

So these are the reasons why not only according to plan, but actually below our planned number, we increased inventory below because we sold more than we planned for in the last days and months of the year.

Arndt Ellinghorst - Credit Suisse

And on the share price reaction, you don’t believe that there’s a more structural element to it because this is just reappearing so many times now, i.e., that just always something goes wrong within Europe quite significant group of companies?

Dieter Zetsche

Well, you certainly have a better overview than I do about the general reaction to quarterly reporting. My feeling is, we are not the only company with this kind of reaction to marketplace. Secondly, I look at our performance based on the main aspects, how our products are received by the customers, how our margins are developing, how inventories are, how the costs are coming down and things like that. And in this regard, I don’t see these many things going wrong in our company. Actually, I think a lot of things must have gone right, comparing 2010 with 2009, in absolute terms and relative to our competition. And therefore, I don’t see where this question could lead do?

Arndt Ellinghorst - Credit Suisse

Okay, many thanks.

Michael Mühlbayer

Okay. We take next question from Jochen Gehrke

Jochen Gehrke - Deutsche Bank AG

Just three topics, if I may. First of all, regarding cash flow, are you conscious about the fact that the annual report is yet to come out. Could you help us understanding a little bit of the quality of the earnings of this quarter, seems like working capital was a significant drag in the fourth quarter and yet you produced good cash. Could you help us do some main items such as provisions and so on and so forth to understand how we should read some of the margins? Then secondly on trucks, in the fourth quarter what you displayed is certainly a sequential strengthening, but when I keep in mind – Mr. Renschler, last quarter you highlighted that in the 5%, you also burdened the quarter a little bit and that the true margin in Q3 was a 6%. The point that I am trying to make is the sequential development doesn’t look to be that big. Was there again some stuff in there? And on a more strategic side, the Daimler Truck business is one where we know that you have put through substantial restructurings in the last couple of years and mainly NAFTA and Fuso. And yet when annualized the revenue level now you’re back to pre-crisis levels, almost, but your profitability is what we know is to be. So there doesn’t seem to be a structural shift up. And if you would agree, when should we expect this to happen. And then final question, is on financial services, when you look at your partner Renault, it seems like they can produce almost the same EBIT in financial services as you can while just running a fraction of the asset base, have you looked into this and if so what can you learn from your corporation partner? Thank you.

Dieter Zetsche

Jochen to your first question, so regarding the cash flow development in the fourth quarter, when we had the third-quarter conference call, I do think I announced the negative free cash flow for the fourth quarter. Now we are slightly positive in the fourth quarter. So we manage it better than we thought based on the end of October. We had of course in the fourth quarter a higher CapEx spending of – that's roughly EUR500 billion, I think. And we had also of course some tax payments in this fourth quarter where we saw that we had to pay taxes in Germany based on our very good performance. And of course, we had some, as Dieter mentioned it already, also investments in inventories regarding A and B class in China that all in all explains that the fourth-quarter cash flow was somewhat lower than the third quarter. But as I said, it was higher than we expected it at the end of Q3. So therefore, I am very pleased with the development of the cash flow. It's very strong over the whole year, EUR5.4 billion is I would say an extraordinary achievement and this year we have to take into account sometimes that accounts payables are so far volatile because it depends when you close your books. So sometimes in this regard, it's up or sometimes it's also down. But all in all, cash flow was extraordinarily strong and the discipline in the Company I would say regarding inventories even seeing it year-end at trucks at vans and buses is very good. We are far away from all-time peaks. We had a new inventory and used inventory and therefore as I said, I am pleased with the strong cash flow in 2010.

Andreas Renschler

Okay Mr. Jochen, your question is, we said that the third quarter it goes in the direction to 6% and you will see at the fourth quarter the same, a little bit higher. That means ongoing is 6.1%. That shows what we said already also at our conference in (Inaudible) and its underlined here that we are really good on track. If you look to the markets, you are always coming up with revenue. If you look to the markets in 2010, they are everything then booming. If you look to the European markets, it was plus 5% in the overall market and in the United States, it was the second worst in 54 years. And you have to look to our performance when you look to different kinds of markets and as you know, we see some more improvement in 2011, so we are like we said, very confident to achieve our mid-term target from 2013 on, the 8%, and we are on a good track to achieve this.

Dieter Zetsche

Regards to your first question of financial services, of course I have not yet followed up the Renault figures. We do of course – we look at so to say the benchmark if you might say so. But you know our target is 17% return on equity and that drives our financial services profits. Because we have two roles of course in the Company. One is to support our divisions in the market in sales and marketing so to say and you know it why our special arranged terms of financing or leasing finances and whatsoever and wholesale financing for dealers for example. And on the other hand to earn a decent return on equity. We define this balance of supporting and earning and being profitable earning money with 17%. That goes back to also to benchmarks we looked into a couple of years ago and we do think that this balance for our Company is the best one with 17%. All in all we will of course further do benchmark analysis if they are available. Especially I do think it's good for us seeing how the risk management is developing. So that is an indication for me for example where we could do better maybe. I've not seen now the numbers of renewal, whether they are in risk management, where their losses are and compare with the passenger cars development that we have to follow up and then to make our conclusion here. But as I said, 17% is from our point of view the right balance.

Jochan Gehrke - Deutsche Bank

Mr. Renschler, sorry, if I may just follow up, obviously conscious of the market development, but nevertheless, if I look at your fourth-quarter revenue level and I were to annualize that, I'm very close to where you were in 2007-2008, and these were years where you made 6% or 7%. And now here we are after two major restructurings in Freightliner, in Fuso, and the business is producing 6.1%. Is this just too shortsighted or where am I missing the point?

Dieter Zetsche

I think it's a little bit shortsighted because revenue is one thing. As you know, we have major increases in prices when you look to new emission laws in EPI010 and other things. And this is good to bring the costs through and to stay with the price tag. So revenue, I think it's the right measure you should look into the market developments and the market developments there, like I described before in 2010 was okay, but not that I am feeling in Paradise. And the next step into that will be in 2011 and the market will grow like you would see in our charts. I'm sure you have in front of you and we will see how the market development is coming out. Order intake is still very good. We have in January a very good order intake compared to and shows that we are on this way and we can achieve it.

Jochan Gehrke - Deutsche Bank

All right, thank you.

Michael Muhlbayer

Okay, next in line is Thierry Huon.

Thierry Huon - Exane BNP Paribas

Yes, good afternoon, it's Thierry Huon, speaking from Exane in Paris. Three questions please. First, on the Q3 report, it is said that if – should the interest rates stay where they used to be previously, you would have to have EUR2.5 billion on the pension fund. Could you clarify where you are on this issue? Secondly, Dr. Zetsche said several times that capacity might become an issue for our Mercedes Car group since demand is really high, so do you intend to increase your capacity in Germany or in the US? Or could you help us understand what you are going to do there? And finally, could you share with us the numbers about the whole material headwinds you are expecting for this year? Thank you.

Bodo Uebber

So, Thierry, on to your first question, first in my presentation this morning and the press conference and the pickup you will find the funded status of the pension and healthcare obligations. The pension gap is currently at EUR6.5 billion and the healthcare funded statuses was negative EUR1 billion roughly or negative EUR900 million. The difference to Q3 assumption was at the long-term interest rates in November, December and picked up and therefore the net present value of course of the pension obligations changed in favor to our statement compared to end of October. And that was not foreseen that the interest rates picked up in November and December and therefore the gap was not widening with EUR2.5 billion. I do think it was only so to say or EUR0.5 billion compared to end of last year.

Dieter Zetsche

As far as capacity is concerned, we are on our way to increase capacity on the one hand with a new plant in Hungary and on the other hand, with expansion in China going to about two-thirds of 300,000 units to be sold in 2015, which means about 200,000 capacity, which is three-quarters additional to what we had. So these are two major expansion plans. Going beyond that, I do not expect that you would see capacity increases in Germany as the incremental demand will not come from Germany either. So that is a very clear direction. As far as raw materials are concerned, we expect in 2011 compared to 2010, an incremental cost of about EUR700 million.

Thierry Huon - Exane BNP Paribas

Okay, that's really clear. Thank you very much.

Dieter Zetsche

You are welcome.

Michael Muhlbayer

Okay, next question we take from John Lawson, please.

John Lawson - Citi Investment Research

John Lawson, Citi. Firstly, could you just tell us whether there are any costs to you of dropping the Penske-driven Mexican Smart four-seater project? Secondly on trucks, I think if we look at the book to bill again in the fourth quarter, it's one times and it's not particularly typical I think of the gains that we might have been expecting at this stage of the cycle. Is this a mix effect? I mean if we can't find ourselves just to heavy trucks, would we get a much more positive read on your book to bill, or is there something else going on? Finally, just on this litigation risk, which seems to have impacted reconciliations in the fourth quarter, I guess it's not particularly easier for us to fully understand there are a few potential candidates, I suppose. I mean, just to help us eliminate some, did the EADS litigation question arise too late for you to consider within these accounts? Thanks very much.

Dieter Zetsche

To your first question, we are early days as far as the plan for Nissan-based four-seater from Smart and the EADS is concerned. That's why the cost of dropping it will be one digit or EUR1 million number.

Andreas Renschler

Your question about book to bill and the order intake, we are over 100% in the year 2010 and it’s indeed the fourth-quarter we saw some slower order intake in light duty truck. There's one reason behind we had to clarify some delivery issue with Indonesia and Indonesia is for Fuso light duty truck a very important one, so that was one of the reasons. But basically, if you are going and we see some increase also overall in GDP, so that impact is a little bit better in heavy-duty and then secondly, also in light duty, that's general. If you look to the January date, we have 150% book to bill again, so it shows that it underlines our forecast for the market.

Bodo Uebber

Your question regarding legal proceedings as we also disclosed and said that we have additional expenses in connection with the legal proceedings in 2010, which you find under the reconciliation item. We also were included the expenses, which related to the 125 years celebration and also to the capital increase for our Daimler and Benz Foundation. When you go back into the past, normally the reconciliation item is slightly negative. You can look it up in the first quarter. It has also been our policy not to give further details to specific legal cases with regard to provision or expenses and that I will speak to and hopefully you are understanding that I cannot provide you with further details.

John Lawson - Citi Investment Research

After the event, Mr. Uebber, it is your policy clearly though, because in the third quarter, you were quite clear about the provision reversal, right? So we could see something not very symmetrical here. In other words --.

Bodo Uebber

In the third quarter, you are right. We had a legal case, a release of a provision with regard to a legal case from the past that is right and you find this on our, I do think special reporting item list in our disclosure in the backup of our – I do think the fact sheet there you find it.

John Lawson - Citi Investment Research

So if these aren't needed, hopefully we will see them again there sometime.

Bodo Uebber

We will discuss it I think in the coming years.

John Lawson - Citi Investment Research

Thanks.

Michael Muhlbayer

Okay, next question we take from Max Warburton.

Max Warburton - Bernstein Research

Yeah, hi, good afternoon, Max Warburton from Bernstein. Just got two questions, please. The first predictably is on Mercedes-Benz in China. I'm sure you are aware that all of us in the financial community are trying to figure out how to forecast this market and forecast particularly premium car sales. Just wondering if you could share your latest methods for doing that. How is Daimler going about forecasting that market and particularly what are your latest thoughts for this year? Secondly on trucks, we have this antitrust case of sorts in Europe that seems to have broken in the last couple of weeks. Would it be reasonable to assume that M&A activity in trucks is basically going to be off the table in Europe as long as that case is ongoing? Thanks.

Bodo Uebber

I don't know if we have a comment on the later parts. I know there was one comment from one competitor related to their specific M&A activities or expectations not from us. We are not in any M&A discussions right now, therefore it is irrelevant to us. As far as China is concerned, we saw in the past typically three numbers of forecasts for the China market. One was our own which used to be the most conservative. The next one was the one of Western analysts, which was a little bit more optimistic, and then the one of Chinese analysts, which was much more optimistic. And the actuals always came in better than the Chinese analysts had expected. Nothing tells us that this would continue, but we are now more in the middle using the different sources and trying to put ourselves in the middle not to be short of capacity and prerequisites to follow the market opportunities. Of course, we are seeing risk as well, but we have said that we expect for ourselves a sales potential of 300,000 units in 2015. We see ourself on the way in this direction in the year 2011, 2012, and so on. So in spite of some news like the Beijing policy or more recent some financing constraints, we do believe that first of all, the Chinese economy will continue to grow close to a two digit margin and that based on this growth, automotive demand will continue to see significant increases year-over-year. And within that, we see the premium segment, which has more than doubled in recent years as a percentage of the total sales to at least grow at the same rate.

Max Warburton - Bernstein Research

Okay, just to follow up on that, I mean obviously we have seen these huge January figures year-on-year, but the comp is quite easy. Is your feeling that the pace of growth is now slowing sequentially and that we are going to get a more sensible number this year? Or is it possible that we could get yet another extraordinary year of growth in 2011 like we saw last year?

Dieter Zetsche

Well, I neither expect that the total market would grow at the rate of 2010, nor do I expect that we will more than double our sales in 2011 as we did in 2010. So my understanding is that the Chinese government tries to find a balanced path forward between dampening inflation, continuing growth in order to create another 50 million jobs in 2011. And so far they have done a quite impressive job in finding this right balance. I don't see external factors to dramatically change this picture. There is one aspect certainly as far as automotive is concerned that we see significant concession in some of the major cities and that is something Chinese authorities are dealing with as well.

But once again, overall for the automotive – and perhaps to this specific aspect, at least in similar cases, Singapore and other places where there have been restrictions in the number of new cars you can get licenses for. In the end of the day, this always has led to a change of the structure in favor of more expensive vehicles whatever their specific system was. That might be different in China, but it's more likely that this would favor the premium market in these specific regional markets or metropolitan markets versus the volume market. But once again altogether, we expect there are significant growth in 2011 for the total market and at least proportional growth for the premium market and Mercedes should do at least, as well as its competitors for I think four years now we have done considerably better than our competitors as far as growth is concerned.

Max Warburton - Bernstein Research

Okay, it's going to be interesting to watch. Good luck and thanks.

Dieter Zetsche

The same is true for us. Thank you.

Michael Muhlbayer

Next in line is Christian Breitsprecher.

Christian Breitsprecher - Macquarie

Good afternoon. It's Christian Breitsprecher, from Macquarie. I have two questions, one going back to the Mercedes unit and one financial services. When we look at the fourth-quarter results, you know at this point disappointed me a little bit, but what was really the headwind there? You highlight, higher research and development expenses, higher raw materials, but when we look at the margin deterioration versus the third quarter, it was almost 1.2 percentage points. Is it really just those elements or is there anything else that we should be aware of that led to that deterioration, the sequential deterioration in margin versus the third quarter despite the fact that you had higher volumes and higher revenues sequentially? The second question is on financial services, also there we have seen a sequential deterioration versus the third quarter. What is behind that? Any specific issue? And is the fourth quarter result something that is a good basis we are extrapolating into 2011?

Dieter Zetsche

Well, the first answer about the Mercedes business, when you look into our history, that's not true for every single year, but in general, we had somewhat lower fourth-quarter versus the second and third quarter. To explain that in a very unscientific and general way and not accounting where I would say we do some housekeeping in the fourth quarter where we look to the next year and where we address all the annual issues, which have not been addressed already. Specifically in this quarter, there is about EUR100 million number, which relates to employment related aspects where we prepare for some actions, which we expect in 2011. And there are some other issues. So to answer it very simply, from insight, I have not seen any pressure on our performance in Q4 versus Q2 or Q3 on an ongoing basis. And I do not expect that to happen going forward. We have told you in our analyst meeting in Beijing that 2011 and 2012 from our product portfolio point of view are not the peak years, so we have some product renewals, we have a little aging of our product portfolio in average volume-based altogether, which will then reverse strongly with the introduction of the new C-Class, of A and B Class and the new S-Class and so on. But these are two years in the seven-year cycle, which are the most challenged from a product portfolio point of view. In spite of that, we will show that our strong confidence, continuation of our development towards the 10% margin in 2013, and therefore, we feel very good about the development in the third and the fourth quarter and expecting to see continuous development.

Bodo Uebber

Christian, to your second question regarding Financial Services, in the third quarter, I do think I also made the remark that we had some releases of provisions, our credit reserves in the third quarter. So it was an extraordinary good quarter so to say, which was not the run rate. I commented already on the road show and conference call that the run rate is more between EUR200 million and EUR250 million and you see in the fourth quarter, EUR220 million as you think about the financial services. We have built some specific fleet reserves in the US but credit losses develop beside this very good, so there's no negatives in that. But we have to cope also in 2011 with at minimum at the second half of 2011 with some rising interest rates, which normally makes it a bit more difficult for Financial Services. So all in all, kind of the run rate of the fourth-quarter might be let's say a good indication for 2011.

Christian Breitsprecher - Macquarie

Okay, thank you.

Michael Muhlbayer

Next in line is Kristina Church.

Kristina Church - Barclays Capital

Got a question coming back to the trucks business firstly. Just more looking at your orders versus some of your competitors particularly in Europe, it did look rather weak. Still obviously up 37% in Q4 in total terms, I was wondering if there was anything in there that we should be thinking about versus the Scania Volvo order numbers reported? And then as a sort of follow-on from that on the trucks business, your outlook for North America remained at 20% to 25%, which is significantly behind where your run rate is at the moment and also where a lot of your competitors are guiding to. Should we look at that as being overly cautious or should we think is there something in that specific to Daimler Trucks that we should be aware of? And then just to follow on from the raw materials question we had earlier where you guided to EUR700 million, just wondering if you could break that down a bit between the divisions and give us a bit more detail on what raw materials headwind in particular you would expect from the Mercedes division? And then the final question is coming back to the accounting cleanup numbers that you were talking about regarding headcount issues in Q4. Obviously, you haven't reported these as one-off items, the EUR100 million that you talked about. Is that because we should expect to see these still ongoing in 2011 or are they really more exceptional items for the quarter? Thank you.

Andreas Renschler

To your truck-relevant questions, first of all, I don't know if somebody disclosed any order intake. As far as I know not. I can only tell you that we have order intake increase of over 70%. Maybe you are coming to sales figures, but some of us maybe have for January disclosed. I am very – first of all, if you compare January 2011 to January 2010, you have to look what kind of sales the respective company has in such a month if you make month-to-month comparisons. We feel very – you know on a deep slide in January 2010, then you can of course report a lot of growth. Second thing is you have to know in our business specifically and that is normally in December in certain countries you are cleaning up the pipeline, so you have – and you look to sales, always the first task is to fill up the pipeline again. Specifically in Brazil, as this in our case very often the reason behind.

For us it's very important as I said, is the order intake and the order intake is a very good indication and we have on a very good track of when you look to our order intake, and so we see that the market is developing like we said in the U.S. between 20% and 25%. And by the way, we gained market share in the United States. Also in January, we gained some market share, so if the market is going up, this is not a question of we don't want to sell it and we will sell more. The performance we can see today in the market is that we are gaining market share. We gained last year in Class 8 or in Class 6 and 8 if you combine this and the same you will see this year. So we will always grow a little bit better, that is at least our assumption, than the market and we would see how we end up at the end and it's a little bits too early to say as we go up 30%. It could be, but our forecast from today's knowledge is 20% to 25%.

Kristina Church - Barclays Capital

Sorry, Mr. Renschler, if I could just follow up on – the order of the question was specifically for Q4 orders rather than January orders and for Europe in particular where you reported 34% increase, whereas Scania and Volvo had closer to 100% increase in order intake?

Andreas Renschler

Also there is the question of pace. I don't know the actual figure of – we can look on that. But again, I said we have – and you look to that one. We had one of the issues that you can not see in the overall order intake also at the end of December. It's at some delivery issues between Japan and Indonesia that's light-duty trucks. There we fall on, but it's now clarified and you will see this in the first quarter coming up again. And overall, the order intake is much higher than we expected. And we see the same development and that's the most important thing for us also in January. And of course, we have already 15 days in February also in February and we are going up and we can see no reason that we cannot participate in the market growth.

Kristina Church - Barclays Capital

Okay, thank you.

Bodo Uebber

As far as this kind of personnel-related costs are concerned, you were asking for this EUR100 million I was talking about is mostly part of our strive for further improvement of HPV hours where we are addressing indirect labor, mostly. On the other hand, we see growth all over the place, which means that we have no problems, (Inaudible) with employment and therefore I do not see a recurring position of this kind going forward. Therefore this is – we do not show that as a one-time as part of our operations, but it has the character of a one-timer, if you want.

Dieter Zetsche

To your third question, I just think you asked for the breakdown of the raw material costs and roughly it’s 50% related to material expense cars and 30% to trucks.

Kristina Church - Barclays Capital

Thank you.

Michael Muhlbayer

Okay. Next question we take from Horst Schneider.

Horst Schneider - HSBC Trinkaus & Burkhardt AG

Good afternoon, Horst Schneider here from HSBC. Three questions, if I may. First of all, maybe you could provide some outlook with regard to the potential one-offs in 2011. We talked already here in the conference call about the investigation here in Europe on trucks. But – and you mentioned also in the press conference toll collect again and especially with regard to toll collect, maybe can you provide us an update what is the worst-case impact that you could imagine will be seen in 2011? And the second question is with regard to Mercedes-Benz and the outlook, Mercedes-Benz Cars, you said in the press conference that Daimler aims to avoid a dip in Mercedes 2011 margins. So here I would like to ask is that still a possibility that the margins really decline in Mercedes-Benz Cars, given the fact that you expect the global light vehicle market to increase by 6% or 5% to 7%. So – or should we rather expect an increase in the earnings margin? And then the last question is more strategic one that refers to acquisitions. You also said in the press conference that Daimler is still open to potential acquisitions. So maybe could you specify that a bit? So should we expect acquisitions rather or are acquisitions possible rather in trucks or in cars? Do we talk about larger or smaller acquisitions? Thank you.

Dieter Zetsche

To start with your last question, if you are running an enterprise, acquisition should be a possibility. Otherwise, you would not look at all aspects of doing business, but there's nothing more specific than that and therefore there's no possibility to make any further clarifications because there are no specific plans in a very meaningful way of that kind. Generally spoken, as we are a premium car manufacturer and there are not too many premium car companies around, major acquisitions on the car side are highly unlikely, close to impossible. So in this field, we rather would be talking about truck-related activities, but again, that is a very general comment.

Horst Schneider - HSBC Trinkaus & Burkhardt AG

But you ruled out any tie up with (inaudible), right?

Dieter Zetsche

I said that there were some talks and that they ended based on different perspectives, more on their financial part of the actual transaction than on the strategic one. When you are referring to the press conference, I am not aware and the two gentlemen sitting right and left of myself are not aware of me having commented about the fight against decreasing margins at Mercedes. I said and I repeat that we feel confident with our 10% margin in 2013. I said and I repeat it today or at this meeting that we made some comments in our Chinese Beijing analyst conference as far as the product portfolio is concerned that was true and continues to be true. But we feel confident that we are on our way to the 10% margin on the Mercedes side.

One-offs, Bodo, it's your turn.

Bodo Uebber

One-off is me. So first of all of course, just from a theoretical point of view, a practical point of view, if you would have special reporting items today in my view would have to give you some information regarding 2011. So, we have given you guidance, having in mind today not any special reporting item as of today. But I cannot exclude – I don't know, first, second-quarter that there was something to be reported about, but I don't know anything right now. With regard to your question of the legal cases, I would like to now not to repeat it but I would like to refer to my speech in the press conference and I do think the disclosure we have made where I commented on legal proceedings with regard to toll collect and the antitrust investigation, but also to the EDAS acquisition on France. Further than this, I do not want to comment further on any might be possible or such kind of events. I already stated that we do not give further details in the specific legal cases. Of course you can refer also to other disclosure and some of the elements here from 2009 and any other stuff I have commented in the press conference.

Horst Schneider - HSBC Trinkaus & Burkhardt AG

But is it now fixed when the German Court or I don't know if toll collects now already at the German Court, but when the German Court will decide on that case, is that already known?

Bodo Uebber

No, there is an arbitration proceeding. It's not only on a court, an arbitration proceeding and we will see what the outcome will be in that case. As I said before, we disclosed in 2009 with regard to the toll collect proceedings in our disclosure and you will get of course really a change at March 2, where you get annual reports in a written way.

Horst Schneider - HSBC Trinkaus & Burkhardt AG

But you cannot say when the arbitraging proceeding will end?

Bodo Uebber

That is a kind of probability question you ask me right now, so I cannot comment on this.

Horst Schneider - HSBC Trinkaus & Burkhardt AG

All right, no problem. Thank you.

Dieter Zetsche

Coming back to you once again, I am just shown something, which is called growth. Daimler Chief Financial Officer, Bodo Uebber on the sidelines of a press conference said he couldn't rule out that profit at the passenger car operations could suffer a dip this year, adding that the Company will try to avoid such a scenario. I would have to ask Bodo, but I am pretty sure that someone might have heard that, but nobody has said that.

Horst Schneider - HSBC Trinkaus & Burkhardt AG

Okay, thanks for clarification.

Dieter Zetsche

I think this had nothing to do with the [reality].

Horst Schneider - HSBC Trinkaus & Burkhardt AG

Okay, thank you.

Michael Muhlbayer

Okay, we take the next question from Fraser Hill.

Fraser Hill - BofA Merrill Lynch

Fraser Hill, Bank of America. Hello can you hear me.

Dieter Zetsche

Fraser we can’t you, maybe you use the mobile phone.

Fraser Hill - BofA Merrill Lynch

Yeah it’s Fraser Hill from Bank of America. I've got a few questions left. Firstly, I just wanted to go back to China and specifically to Beijing. I know that it's difficult for you to give a forecast and the January numbers that we've seen thus far have I think reflected an order backlog from a few months ago. So can you give us a bit of feedback as to what you are seeing in your dealers in January and also in February? And specifically in Beijing, whether you are seeing any effect or how significant the effect has been from the policy that have been implemented there? Secondly on raw materials, you've given the guidance of EUR700 million. I just wondered how much of that was locked in for the year. What percentage of your materials have you contracted for 2011 and what sort of hedging have you got in place?

Thirdly on financial services, just interested why your contract volume has only increased by 9% given that you had a much sharper increase in deliveries. Is there any reason why the contract volumes didn't increase by a larger amount? Because it would seem that it might imply that you’ve seen your penetration rate drop or is that the wrong way to look at it?

Finally just on R&D, what proportion of the increase that you are flagging comes from CO2 reduction measures? Is it all going towards CO2 reduction measures or is there something else that you are spending the money on there?

Dieter Zetsche

As far as China is concerned, altogether sales in China in January were good. We saw some decline in Beijing. We saw a significant uprise in Beijing in December. So now independent of what the impact of new regulation was, you would expect this reduction in January just based on the pull forward effect of December. So I think it's just too early to tell what kind of impact this new regime in Beijing might have on our ongoing basis. As far as R&D is concerned, the last question I would take that and then Bodo would answer the other two, the R&D increase to some extent is related to CO2 reducing activities, but there's good part as well related to further portfolio increases in our overall plan for Mercedes, which means we are investing into – in some cases incremental product, which according to our planning is bound to give us very nice returns. So these are, if you want, good investments.

Bodo Uebber

To your question on financial services, the increase in 2010 was 9% currency-adjusted and about 3%, so this increase in portfolio is based on an increase in acquisition. I do think it's 11% currency-adjusted and it develops like our sales. According to our sales in passenger cars, and in trucks, the penetration rate is kind of stable. There's no big movement even in the difference of leasing and finance, there is no big change to 2009. In 2011 of course, we will see according to our sales forecasts of course further increase also in the financial services portfolio.

The raw material question of course, the EUR700 million I mentioned of course is taking into account the hedged volume of course in steel, we don't have so to say a treasury hedging, but we have a hedging according to the contract length we have in the different divisions. And therefore of course, it is also taking that into account.

Michael Muhlbayer

Okay, next in line is Frank Biller.

Frank Biller - Landesbank

There are just two questions left here. The one is again on raw materials and the margin of Mercedes-Benz Cars. Maybe you can give us a figure of the headwind in Q4, is there any headwind in the magnitude of EUR100 million, EUR200 million here or is it just going or coming into 2011? But the other question is on incentives, maybe you can give us here the incentive level in Q4 and how it's going to develop in 2011, what is your estimate here, and also on residual value development?

Dieter Zetsche

Well, let me start on incentives. You do understand and we said the same in the past that we cannot give you specific numbers in this regard because they are of course highly competitive. But we had set ourself a very aggressive target for 2010 in the reduction of percentage points of incentives. And we have over-achieved this target and we had not any different development within the fourth quarter. When you look at their published observed numbers for instance you asked, you will see that we have according to these third-party reports decreased our incentive spending significantly and more than our direct competitors. So this is one indication about the overall development. Of course, this is a competitive marketplace and of course it will continue to be one, but we have been very successful not the least in reducing incentives, not the least because of our general policy that our margins and our profits are more important to us than the absolute volumes specifically in the U.S. once you have seen that until November we were leading in sales towards both of our competitors or if you include Lexus basically against all three. And on purpose, I mandated our head of sales in the U.S. that we will not come in first at the end of the year because I knew what that would lead to and I left this game to our competitors.

Bodo Uebber

Your question regarding residual values, situation is stable and good. We have in the U.S. one of the best situations we had compared to the past, so there's no reason to – that's this situation should change. The same is that we have a same stable development also regarding passenger cars in Germany. Same holds true for trucks in comparison to the year 2009. We were further – we have further stabilizations also there. So all in all from the residual value side, I don't see risk either – not for trucks but also not for passenger cars. You assumed a couple of hundred millions I do think in raw materials in the fourth quarter. I don't want to go now to any specifics here of discussing here in millions but it was not a three digit number, which was going into the fourth quarter.

Frank Biller - Landesbank

Thank you.

Michael Muhlbayer

Next in line is Philippe Houchois.

Philippe Houchois - UBS

Just a quick question, a couple of questions. One is, I was surprised to see you listed currency as a headwind potentially in '11, it was almost neutral in '10. Can you kind of clarify a bit what the currency effect was coming from – for '11? And then for Mr. Renschler on the truck side in the U.S., do you see any reason, any bottlenecks potentially that would actually prevent you from ramping up production to the level that we start to see in terms of – if you start annualizing orders, are we looking at 300,000 plus at this stage? Is the supply base able to cope with that increase? And is your organization able to cope with that kind of increase if you – if the actual market is above your current forecast?

Dieter Zetsche

Philippe, on your first question, of course we commented this morning of course on the risk of the volatility of currencies, which we have to take into account if they occur. The currency duration is that at the level we are trading right now, we don't see a headwind for 2011 compared to 2010 from the currency side.

Philippe Houchois - UBS

Okay, so (inaudible)

Andreas Renschler

Your truck-related question, so far we see no major issue in the supply chain. Also no flexibility in the production, when it follows more or less our market forecast. We have to manage some of the suppliers already in a little bit more detail, but we are very confident and we saw no shortage so far and we have a good relationship with the suppliers. We are very close together with them, so I am pretty sure we can handle also the higher market demand like we forecast. Our own flexibility is fine. We have full production in Mexico already. We have hired some new people also in Saltillo, our new plant, so we have now stretched out there all our possibilities, so it will come into production beginning of February. The next increase we will see like we announced in Mt. Holly, for our medium truck business class and then we asked them to higher the S&P build for - to follow the demand.

Philippe Houchois - UBS

Okay, do you have to provide financing to some of these suppliers to help them ramp up or not?

Andreas Renschler

We are working, like I said, very good together with suppliers and we don't have to spend any money or something. We have reserved the production rate that we have in our mind very early.

Philippe Houchois - UBS

Okay, thank you.

Michael Muhlbayer

Next in line with Ranjit Unnithan.

Ranjit Unnithan - JPMorgan

Hi, it's Ranjit Unnithan at JPMorgan, thanks for taking my questions. A few. First, in terms of free cash flow for 2011, you will be paying about EUR2 billion in dividends this year. You have ramped up your CapEx from EUR3.7 billion to EUR5 billion. Do you think you will be – your free cash flow will be greater than EUR2 billion, i.e. greater than your dividends that you are willing to pay? Second, related to that, well, you have about EUR12 billion of cash right now and I think in the past, you’ve said you would be comfortable going to a much lower level of cash. So again, thoughts about cash relative to what is an optimal capital structure? And then in terms of your – you refrained from giving a margin outlook for your respective divisions. Can you explain why? Because you seem to be suggesting that you are pretty comfortable with Mercedes margins not declining. Can you not give us some thoughts on where margins could be particularly for trucks and for cars in 2011? And I guess my last question is on China. You sound confident about I guess a more moderate level of growth in China going forward, but could you tell us how that growth in your volumes is going to be in 2011 if you had split it between imports and joint venture? For instance, will about 80% of that growth in volumes this year come from JV or is it more likely to be sort of a 50-50 split? Some direction there would be helpful. Thanks.

Dieter Zetsche

Perhaps I can start with the last point and then Bodo will take over. We have been in 2010 in a ratio of about 30% local production and 7% import. We intend to go rather to a ratio of about 50-50 in 2011. We are not – we do not plan to give you a 2011 overall volume number as a sales forecast and therefore I can't give you our specific growth related to locally produced and imported cars, but you can see by the ratios change, which I mentioned that their locally produced vehicle will play much more important role than in the past.

Bodo Uebber

Ranjit, your question regarding free cash flow, the answer is yes, what you stated and I already commented this is morning. Our free cash flow should be significantly higher than the dividend payout in 2011 and that of course, it is positive news, I do think. That might add also then on the net liquidity side. Net liquidity is at EUR11.9 billion. Of course it is a high number. But I also commented this morning we have to take into account that we have also a pension debt of EUR6.5 billion on the one hand and on the other hand, I do think the volatility in the market is not yet away. There are certain risks outside which sometimes are popping up. Hopefully they will not occur, no doubt, and then of course we have to look into our net cash. But I do think that long-term spoken also if we would add on the net liquidity side in that scenario, I do think also payout ratio could change, which we currently having said is 40%, but of course that we will review once in a while if the good situation will carry on. Currently the base case is in that line, but I do think it's again too early now to talk about any specifics regarding the net liquidity. The margin targets we have announced our margin targets with 2013. I don't want to repeat them. They are at benchmark levels as margin targets and we have decided not to give guidance for the divisions in 2010, 2011 as we have also announced in the third quarter because we do think that we are now in a more sustainable mode to further work on our long-term margins. We have given you a Daimler guidance and that is first for this day.

Ranjit Unnithan - JPMorgan

Thank you.

Michael Muhlbayer

Okay, next in line is Stephen Reitman.

Stephen Reitman - Societe Generale

Good afternoon, this is Stephen Reitman coming from Societe Generale. The question really about your ability to predict your results, obviously a year ago your guidance that you gave at the group level was EUR2.3 billion, which of course you must have exceeded with EUR7.2 billion reported this year. By the time we got to the third quarter and when you are guiding over EUR7 billion, it seems that you are now and you have reported a figure, which is very much in line with that guidance. You seem now to have had much better ability to predict the fourth quarter than maybe you predicted in the second quarter that will be coming before that. Do you feel now you have much better visibility on your business and obviously particularly on China, as that seems to be really the wildcard between a year ago and where we are today? And secondly, if you could give some information as well about what's been happening on that provisioning, the warranties, you mentioned that you had lower accounts, a lower accrual for product warrantees, and what impact that had in the fourth quarter. Thank you very much.

Dieter Zetsche

I understood very little from your question. I'm sorry for that, and what I'm looking to the faces of my colleagues, there's not that much different. As far as visibility is concerned, I think it's fair to say that the overall forecast channel GDP development and so on in 2010 by all participants in that game was very volatile. So nobody forecasted a 3.7% increase in GDP in Germany or many other of these elements. And in accordance to that, we had to increase our guidance three times last year and now have somewhat beaten the last guidance we gave. We expect 2011 to be a year, which follows somewhat more expectation of January, as you do. If 2011 as far as the boundary conditions would develop totally different then all of us think right now, obviously that would have an impact on us as well. So within the given environment, I think we have very good transparency of what our business is doing, what our costs are doing, what our market shares are doing, but we do not more than you do as far as the general economic developments are concerned.

Michael Muhlbayer

Okay, we take the next question from Jose Asumendi.

Jose Asumendi - Royal Bank of Scotland

Thanks very much, a Jose Asumendi, RBS. Three items, please. First one on trucks, I was wondering if you could talk a bit about the pricing environment you are seeing both in Europe and North America and where you can actually do an offset of price increases in 2011? And order intake, I think the order intake in North America was impressive on the truck side. Could you just comment whether the current run rate will continue into 2011? And Latin America, the same, it was sequentially down Q4 versus Q3, where you are starting to see the market ticking off slightly or will it continue on a high level? Second item on Mercedes Cars, if you could please provide some guidance in terms of production rates for the first quarter of '11, just directionally should be down or up versus the fourth quarter? And I guess the last question for Dr. Zetsche, I'm just thinking about the intrinsic value of the truck business and you obviously have everything aligned. You've got – you have restructured the operations and you have probably two very good years of strong demand in Europe and US. Now, if you would manage to hit your margin target for the truck business over the next years, but still the share price would not reflect the proper value for the truck business at least in line with your peers, would you simply continue to ignore the situation or would you consider other steps that will show the real value for your shareholders? Thanks.

Dieter Zetsche

As far as the production rate at Mercedes is concerned, we have seasonally obviously less days in the first quarter than in the fourth quarter and on that basis, production is always in every year lower in the first quarter. But we are basically hitting all cylinders and producing the max volume out of our existing capacity and therefore, we are seeing a strong demand throughout the world. And we definitely will have considerably higher volume in the first quarter this year than we had in 2010. As far as your truck-related question is concerned, our first job and we said that over time is to put Daimler Trucks into a position of benchmark performance. I have at various times explained why I am convinced that strategically it's a good thing for Daimler to be active in trucks and to passenger cars. When the scenario, as you described it, would appear, we can deal with that, but let's cross the bridge when we are getting there – in case.

Jose Asumendi - Royal Bank of Scotland

Okay.

Bodo Uebber

Your other questions, when we look to the pricing for next – last year, it was very successful in the United States. We could put through the higher prices for EPIO10 very successful and it is accepted in the market and the same is more or less here in Europe. In Europe, we had a little bit still some issues there because some customers were used to some of the discounts in the year 2009 when some of our competitors had to give up there some special discounts. So we are there in a situation where we try to put full pricing again through, but we are on a good track so basically last year – it was – we were able to achieve this. This year we are looking into the raw material situation of course basically in the second half year. We have to look what kind of price increase is possible. It depends a little bit on the market development. If the market development is as high as we forecasted or maybe a little bit higher, then I think we have a good chance to put also some additional prices that may come based on some raw materials through. Your question about order intake, as I said before, the run rate of the order intake in the United States is as good as in December. And by the way, when we are making market forecasts, we are always talking about market fixed rate, so if you are comparing it to other things in the Class 8 specifically could be a little bit higher already, but combine 6 to 8, it's still this 25%. Also in Brazil – the New Year started very good and so our forecast is that the market will be more or less on the same level in 2010 and the order intake shows that this is still valid.

Jose Asumendi - Royal Bank of Scotland

Excellent, thanks.

Michael Muhlbayer

Next in line is Charles Winston.

Charles Winston - Redburn Partners

Charles Winston, Redburn Partners. Pretty much all my questions have been asked. I just have one left, which is in relation to labor costs. Can you just remind us the current status of your current major labor agreements in terms of wages, what sort of inflation we should be expecting for this year and when the current major agreements expire? In other words, when they are due for renegotiation with unions, thank you.

Dieter Zetsche

Well, we are, if you want, in the comfortable position, as far as labor is concerned that in Germany, which is not our main market, but our main employment source, we have a labor contract, which is valid through March 2012. So on that basis, we do not expect any unexpected development in this parameter. We have used the flexibility in this contract, which of course did not reflect the very positive development of the overall economy. We have used the flexibility in the sense of putting the increase in place two months earlier than necessary, if you want, but that's obviously a one-time effect, so the base is solid and stable for 2011 in Germany.

Charles Winston - Redburn Partners

Very clear, thank you.

Michael Muhlbayer

Next question we take from Alexis Albert.

Alexis Albert - Nomura International

Hi good afternoon this is Alexis Albert from Nomura. I have two quick questions. The first is you spoke about the raw material impact of EUR700 million. I would like to know if it's the gross impact or the net impact? And related to this question, I would like to get your view on more generally, what is the ability of the industry and the ability of Mercedes to pass on the price, to pass on the increase of input costs to final customers? When I mean input costs, I mean raw material, salaries. So what is the pricing power of the industry? Thank you.

Dieter Zetsche

So Alexis, the first answer, the first answer is net. It's net. The net impact.

Alexis Albert - Nomura International

Okay, thank you. And regarding --.

Bodo Uebber

I don't know what you mean between gross or net. This does not mean that this is a net bit of material development. This is one element between content and negotiation results and technical continuous improvement to reduce cost and material side efficiency, all of that, but as far as raw materials is concerned, this is the net effect.

Alexis Albert - Nomura International

Okay, but how much do you intend to pass on to end customers?

Dieter Zetsche

Well, of course the plan is to pass all to end customers and then there is the market and the markets are sometimes there tell you that it was a nice try. But I told you as well that last year we were able to reduce our discount significantly and our plan is to continue that path, again depending on the overall market conditions of course and on the list pricing, you will see what we might do.

Alexis Albert - Nomura International

Okay, thank you very much.

Michael Muhlbayer

Okay, and the last question today, we have Adam Hall, WestLB.

Adam Hull - WestLB

Hi good afternoon. Two questions on trucks and then one just clarification on cash flow. Mr. Renschler, firstly just on Brazil, I mean you talked about the overall market, but obviously you've got your new plant coming on stream, I think has a final capacity of 15,000. Can you give us some idea as to how much you could potentially produce in 2011? Just give us some idea of sort of the revenue you might be able to get in terms of growth for 2011 even in a flat market? And then just secondly on the truck side, it just seems to me since the 30th of November you are at least mildly more confident. Is that a right read? Is that a read on the top line? Are you more confident on the margin side as well? And then just a clarification on the free cash flow you were talking about on the net automotive liquidity, just what might happen on or give us some guidance on the working capital potentially quite a big move there. I think, Mr. Uebber, you were saying that in Q4 you had expected quite a big working capital outflow. It wasn't as bad as that. Is that just being delayed into 2011 that outflow, if you can give us some guidance, would be great. Thank you.

Andreas Renschler

Let's start with your truck questions, first the Brazilian question. Indeed, we are increasing capacity because now we are putting the choice to four of the former [car plant] into our network. And we cannot utilize this 100% this year because we have to redo a lot of different kind of equipment there, paint job starting because the paint job for a big truck is somehow a little bit bigger than for cars, so we have to do something. So we utilize this capacity as much as is possible hopefully between 4,000 to 5,000 units and that's the reason we are very confident. If the market stays like this, maybe a little bit lower, but basically like this, we can gain some market share in addition because we have no capacity constraints at least in this dimension I describe. Second, when you look to the market forecasts and also some of our margin development of course, we are not only a couple of months older than November, but risk of double dips or some issues are much smaller. There is more or less – you can see that the market development is going in the right direction and also our development. So to answer it very shortly, yes, I'm more confident.

Adam Hull - WestLB

Could I just ask – is that more confident on the top line – you are saying you are more confident on topline. I mean, is that also on the margin side on the pricing developments, just in general terms as well?

Andreas Renschler

Yes.

Bodo Uebber

Your question regarding cash flow, I do think yes, we will see in 2011 some increase in inventories and other working capital elements. Finally, the equation as I said before, is how accounts payable are developing that can be on one case and you look at the 31st, always can be a negative, but also a positive. All in all, I do expect that the free cash flow including this kind of volatility will be significantly higher than the dividend payout in 2011.

Adam Hull - WestLB

Great. Thank you very much.

Michael Muhlbayer

Okay. Thank you. Ladies and gentlemen, thanks for your questions for being with us today. Investor relations team is at your disposal to answer any further questions you may have. We hope to talk to you again soon. Thanks and goodbye.

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Source: Daimler Management Discusses Q4 2010 Results - Earnings Call Transcript
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