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Executives

Michael Mühlbayer – Head of Investor Relations and Treasury

Bodo Uebber – Chief Financial Officer

Analysts

Daniel Schwarz – Commerzbank

Thierry Huon – Exane BNP Paribas

Michael Tyndall – Barclays Capital

Christian Breitsprecher – Macquarie

Arndt Ellinghorst – Credit Suisse

Daimler AG (OTCPK:DDAIF) Q1 2011 Earnings Call April 29, 2011 8:00 AM ET

Michael Mühlbayer

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 the 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 teleconference is governed by the Safe Harbor wording that you find in our published results documents. Please note that our presentations contain forward-looking statements that reflect management's current views with respect to 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 and are also described in our risk report in the Daimler Annual Report and the most recent interim report. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made.

May I now hand over to Dr. Michael Mühlbayer, Head of Daimler 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 Q1 Conference Call. We are happy to have with us our CFO, Bodo Uebber. In order to give you maximum time for your questions, Bodo Uebber will begin with a short introduction directly followed by Q&A.

Now, I would like to hand over to Bodo Uebber.

Bodo Uebber

Thank you, Michael. Good afternoon, ladies and gentlemen. Our first quarter results underline that we are on track to grow our business to sustain our results and to achieve our medium term profitability growth. Our Q1 2011 numbers also show that the company has trimmed its operational structures in the interim solid market demand into the results. Nevertheless, we will remain watchful in the future so that we can react quickly and flexible to global challenges.

Let me first give you just a few Group highlights about the first quarter. The upward trend is confirmed by another Daimler Group revenue increase of 17% in the first quarter 2011 compared to last year. Daimler achieved a strong EBITDA of €2 billion in the first quarter, which is 71% higher compared to the first quarter last year and the net profit almost doubled year-over-year and reached nearly €1.2 billion.

The industrial free cash flow in Q1 2011 was minus €500 million. The cash flow reflects the increase in working capital in consequence of higher inventories for the spring selling season and the growth of our business.

Furthermore, Mercedes-Benz Cars continued strong oversees sales momentum results in a higher number of vehicles in Transit. During Q1 2011, we also paid our bonuses to our employees, increased the equity of the Daimler Benz Foundation. The industrial net liquidity was again increased to €12.5 billion benefiting from the annual dividend from financial services.

Let me also give you a brief update on the financial and operational impacts of the events in Japan during Q1. At Daimler Trucks and Financial Services, we booked charges of €49 million and €29 million respectively. The aftermath of the earthquake on March 11, Mitsubishi Fuso Truck and Bus Corporation had stopped the production in Japan. Mitsubishi Fuso Truck and Bus Corporation resumed production of parts and components on March 29 and of vehicles on April 20. With regard to the impact on operations outside Japan, we have so far not seen any noteworthy impact on our production.

If our supply chain should be affected, we of course have prepared countermeasures to limit potential impacts to a minimum. Let me also tell you that the charges in Mitsubishi Fuso of €49 million should be covered by an insurance policy where we have to clarify what amount we can get back from insurance companies.

Let’s continue with a closer look at the divisions. Mercedes had a very good quarter and boosted its unit sales by 12% and revenues over proportionally by 20% compared to last year. This resulted into an EBIT of €1.3 billion and a return on sales of 9.3%. All regions contributed to this achievement and the dynamic growth in China is unbroken with a sales increase of 68% to 44,000 units. With this volume, Mercedes-Benz remains the fastest growing premium automaker in China.

But in the other developing countries, we could also see strongly increase in units sales; Russia, up 86%; Brazil, 42%; and India, 37%. Overall, the sales outside Western Europe and the U.S. increased year-over-year from 32% to 36% demonstrating that our regional sales mix is getting even more balanced.

We have every reason to be optimistic from today’s perspective. We assume that global automotive markets will continue to expand by 5% to 7% in 2011. The second quarter sales will additionally benefit from the new generation of the high-volume C-Class and the all new SLK.

The customer response to both new vehicles has been outstanding during the Cars launch in Europe. We are confident to achieve a new sales record for Mercedes-Benz Cars in 2011. From today’s perspective, we anticipate unit sales of more than 1.2 million auto mobiles solely of Mercedes-Benz brand including Smart unit sales would exceed €1.3 million.

The first three months proved that Daimler Trucks is well positioned to benefit from the recovery of the normalizing truck demand. In the first quarter, we sold around 90,000 trucks, 37% more than last year. The EBIT increased to €464 million excluding the charges in connection with the tragedy in Japan. The return on sales adjusted for the burdens in connection with Japan increased from 3% to 7.4%, clearly showing that we did our homework and that the restructuring measures is good.

Due to the very good customer reception of our new heavy-duty engine, we also conquered 3.3 percentage points of market share in NAFTA Class A during Q1 2011. However, one also needs to take a closer look at the order intake and the book-to-bill in the first quarter of the order intake search by 65%, and at the same time, the book-to-bill ratio of Daimler Trucks increased to 133% from 102% last year and for example NAFTA even to 173%.

In light of the good demand and the strong indicators from our dealer network, we increased our market outlook for NAFTA to 35%. In Europe the order intake is also better than our initial expectations. Therefore, we have raised our market outlook to 20%, 25% compared to last year. And even for Brazil, where the market already reached record levels in 2010. We expect moderate increase in market volume and to exceed 2010s record level.

Products Asia we had anticipated slightly raising sales so ever at different stage it is currently still too early to access the impact of the disaster on the global sales of Fuso. For Daimler Trucks in total that means unit sales were to increase considerably with an increase of 16% to 54,000 units Mercedes-Benz Vans also achieved strong sales growth in the first quarter. The EBIT of €173 million equals an excellent return on sales of 8.8% and it’s on the Buses the season weaker sales development of minus 8% in the first quarter was mainly driven by a weak city-bus market in Europe and North America. And as a result, the EBIT was negative. For the full year 2011, we expect to sell more than 40,000 units thus once again surpassing the figures for the prior year.

At Financial Services our new business in Q1 2011 grew by more than 10% compared to last year. However, the worldwide contract volume decreased compared with the end of 2010 by 3% to a €61.7 billion adjusted for exchange-rate effects contract volume was almost unchanged.

The continuing positive EBIT development of €321 million is mainly driven by a further improved risk situation and a continuing good interest margin. The EBIT is also including a provision of €29 million for expected higher credit risks resulting from the tragedy in Japan. These notes at Q1 2011 EBIT cannot be annualized.

Let’s come to the outlook. The excellent result of the first quarter show that Daimler is growing profitability and is progressing well ahead of our planning. This is confirmed by our positive outlook for earnings in 2011 to significantly surpass the figure achieved in 2010. The developments in the first quarter also demonstrate that we continue to progress good progress towards the targeted rates of return and that we intend to achieve on a sustained phases as of the year 2013.

With this statement, I want to end my introduction and look forward to answer your questions.

Question-and-Answer Session

Michael Mühlbayer

Thank you. (Operator Instructions)

Michael Mühlbayer

Okay, thank you. Now we’re going to start, I will identify the questioner by name, but also please introduce yourselves with your name and the name of the organization before asking your question. Two practical points, firstly please avoid using mobile phone and secondly please ask your question in English. Now, let’s start., I will take the first question from Daniel Schwarz, Commerzbank.

Daniel Schwarz – Commerzbank

Yeah, Daniel Schwarz, Commerzbank. I have one question regarding trucks, you indicated earlier today that the truck NAFTA forecast maybe too low given the strong order intake. Would capacity be a limiting factor and but you need to raise your initial CapEx planning, and in that context do you confirm the free cash flow guidance you gave that free cash flow at least is higher than the dividend payment in 2011. And besides that, regarding financial services, beside your credit default rates, what’s behind the jump in profitability versus fourth quarter?

Bodo Uebber

So Daniel, two questions. Of course what I indicated this morning is that the order intake is extraordinary good and even higher than of course over 30% to 35% of NAFTA market outlook. From today’s perspective you might be more in the 35% region than in the 30% region that’s what we can say today, and its development is further as good as in this first quarter that might be even some upwards potential, but on the other hand also you've seen the [pay car] announced I do think even 40% to 50%, what I heard about the market assumption, but they at the same time they said okay, there might be limiting factors from the production side or from the supplier side. Sorry, but from the production side.

Of course, we will maintain our capacities I do think not with increasing investments that’s not necessary because why should we? Because in production we can produce a lot, but as I said the question from the suppliers currently with our outlook in the market, I don’t see any problem to produce this 30%, 35% on the one side, on the other hand we will see market share increases in Freightliner as you've seen in Q1. And yeah, hence the mood in the guys, are I would say is, as I said before even somewhat in the 35% direction, it’s positive.

The free cash flow is, I just stay with the statement I did also in February, the free cash flow will significantly exceed our dividend payment this year, and when I talked about that in February I’ve stated that we had last year, I do think $5.4 billion, in free cash flow and we will invest in R&D and investments in CapEx $2 billion more. It's somewhat more tax payments of course as we are very profitable and therefore also our role in the, for the different stakeholders, we do have so but that calls the same measure as I said before we will significantly exceeds the €2 billion dividend payment from last year and this year.

So holds true again, maybe also more information to that in the first quarter we have invested, so to say inventory a huge part of that is for example the building up inventory for the C-Class and what I said before in the transition for the Atlantic’s for the U.S. and for China. Vehicles and trends in some growing inventories clearly by growing the business, in trucks and in vans. We are even somewhat kind of better with our ratios by building up the inventories and therefore of course I regard the free cash flow in the first quarter has a very good and stable one. All in all also the bonus payments are in so net of working capital we’re more in the direction of €1 billion. So that is for my point of view a very solid development.

Daimler Financial Services of course an extraordinary good quarter. We have a very good loss situation of course the trend is going further, really especially in the U.S. but also the leverage in the western Europe we see in China for example. So the trend is very okay. Within that number of course, we had the charges for the Financial Services in Japan. We had also some releases of provisions in that number, so that is also what I said this number might not be sustainable, but run rate is about €250 million, which I do think if you calculate this into the whole year, I would say a every solid development also first quarter, and seems to be also in the next quarters to come.

Daniel Schwarz – Commerzbank

Okay, thank you.

Bodo Uebber

Please.

Michael Mühlbayer

Next question, we take from Horst Schneider, HSBC.

Horst Schneider – HSBC

Yes. Good afternoon. Horst Schneider here from HSBC. A couple of questions, specifically regarding trucks, it strikes me that you talk about a very good business in North America and that is also something we can see in the order intake, but when I look to your market share for example in Europe and specifically in Germany, I see that for example in Germany the market share is declined by 6% or 7% from Q4 to Q1. I could have mentioned that it’s related to some extend to the new launch of the Actros which will come later this year.

So maybe you can explain a bit more what is behind the market share loss investment Europe and then especially with regard to the Actros launch may you can clarify again, how you will book the launch costs if you books an evenly across all quarters or if you books in rather more in one specific quarter when we truck is in Benz truck launches finally starting. And then also another question with regard to trucks again I mean I heard you saying that there were some supply problems on the supply side and therefore the protection run rate in Q1 was rather low when I look at my full year forecast I see that you need to catch up a lot, so coming back to that what you said regarding your ability to produce more in the U.S. and is it also true for the global situation, can you really produce much more in Q2 or you know somewhat more limited. Thank you.

Bodo Uebber

Horst, thank you, for your questions. The market share subject is somewhat different, I commented this morning also in the press call that in the first quarter of course, we are not surprised about the development because, we saw the order intakes months before. So what's happened here is we had some of course aggressive pricing in the market, which we have not done all the time from fleets business, which we are not went in through pricing, I do think that's good news, that we stay disciplined. And on the other hand in some segments of course which where we are under proportionally in.

The market growth was higher and therefore you'll see a kind of under-proportional market share, you might say so. The situation will normalize over the next few quarters, so we will get back to our normal levels, if you might say so that gives a little bit of potential also for the next quarters to come, so nothing to be worried about. It's not depending on the, what you said the new Actros because that is coming up in the fourth quarter, this year and therefore of course it's not part of the first quarter or the second quarter.

Your question was regarding production in total of course what I commented of course is where impact on the, from the Japanese situation. All in all, of course our production was very strong in the passenger car side, when you see the production numbers, they are pretty up. They are up, of course because we have produced also inventories but for an investment into sales in Q2 and further in Q3. Therefore our production is doing well. That was true also for Freightliner, in the U.S. of course [subject] of course which we do here, but I commented on this is within Japan of course, they are recommended on the situation on (inaudible) for our capacity is here in Europe for the European trucks.

Horst Schneider – HSBC

Okay, thank you sir. So we should expect especially coming again back to trucks, we should expect from Q1 to Q2 and then especially in Q2 much higher revenues and that will go hand to hand also with the higher operating leverage?

Bodo Uebber

So, let’s come up to your first quarter of course the answer is yes. We will see upcoming increase in phase numbers, of course the order intake numbers are showing this development and we are able to produce the stuff that was two for Europe, the same was two for Freightliner in the U.S. they are even again with the good market share development and in Europe with the normalizing market share as I said before. In Brazil, of course you know that we have invested in capacity and that’s what was in over the quarters, that he can also participate further in the growth of the markets. For Japan, as I said before it’s an estimation of the development very difficult in the market.

Horst Schneider – HSBC

And the booking of the cost for the A class?

Bodo Uebber

The booking of the cost of the A class will be launch of the aircraft. So that means of course you know in the accounting system in order to we have to capitalize a lot of the R&Ds cost and of course the CapEx stuff is something which you capitalized too, and then of course you get pro rata on the one, pro rata burden so to say with the launch of the actual into the launch cost so to say. So that will happen in third and fourth quarter.

Horst Schneider – HSBC

Okay, thank you.

Bodo Uebber

Thank you.

Michael Mühlbayer

Thank you. Next in line is Thierry Huon.

Thierry Huon – Exane BNP Paribas

Hi, yes good afternoon. It’s Thierry Huon from Exane BNP Paribas. So first of all, could you give us an update about the raw material situation I think that this money you say that it’s a bit higher than what you saw, could you give us some color on that? Then about the Japan nuclear plant, after the Tornado, where is the status now of this operation, when do you believe that you will be able to resume production? And I given the weakness of the dollar, we’ve seen recently, when do you think this could hit the hedging or even the profitability of the car divisions. Thank you.

Bodo Uebber

Thierry, thank you for your questions. First to the raw material situation, we have commended it on it in February, I mentioned a number of €700 million in the beginning of the year, as a headwind in this year where we have to work with of course, we had certain measures of course, again this light modular synergies, efficiencies, and other stuff and then commercial negotiation, and so on and so forth. Where we do our best to reduce the impact and all the time being we do well in this regard. So of course the situation is somewhat higher than the 700 million right now, but as I said before, we have some challenges as others too, we have some opportunities, and there we have to cope with that situation, but it’s not too much away from that number we had also in the beginning of the year.

In Tuscaloosa the situation is as follows, you can imagine further what we look to our employees for the time being as far as I know, our no employees injured, we have assist minor damages at the plant, which do not affect our production capacities. Of course the safety of our employee is one of the highest priority you can imagine. So, the Wednesday, Thursday night shifts was canceled as a measure of precaution due to unclear weather conditions with regard to our employees’ way to and back from work. And with regard to the situation, the region, helping those affected by the disaster is now the priority.

The plant management decided to cancel this week remaining shifts thus supporting our employees, who are now fully needed by the families and friends and their communities as you understand and we are intensively monitoring further development and especially ongoing efforts towards restore the power supply networks and we are preparing to resume production on Monday, and are in close contact with all relevant partners, so that is the current situation in Tuscaloosa. I don’t know whether you had a third question was...

Thierry Huon – Exane BNP Paribas

The hedging and do you fear that you might be hit by the current weakness of the dollar at some point in the future?

Bodo Uebber

I do think the dollar right now is pretty much volatile, so this volatility I would not say that it always goes up, so this volatility could also at one point of time come down again somewhat, but of course we should not, they are speculated. It is right now at 148. We are 80% hedged in 2011, so the effect here in 2011, I would say can be managed yes, at the end part of a burden there. But 80% gives us a good understanding for 2011, we have some colors and forwards in our hedge book a good structure. So we would even also benefit if it goes down again a bit. That’s good in 2012 we are roughly at 40%, with a $15 billion net exposure, which also means $15 billion net exposures also a good number because that means that our U.S. and Chinese business and Middle East business for example is growing.

So therefore 40% is so to say hedged and now you can make your accretion 60% more times whatever dollar you would assume. For us, it’s difficult to estimate the dollar is seeing the volatility right now. So there is some thing, of course we have to watch closely you know that we have to do our best in reducing the exposure. On the one hand it is the local content in China on the one hand, and on the other hand, it is our decision what we have already made with the C-Class within the U.S. covering the demand in the U.S. So of course all what we can do there is the look to enhance the local content in the long run.

Thierry Huon – Exane BNP Paribas

This would be effective, when the C-Class in the U.S.?

Bodo Uebber

I’m sorry, can you repeat please?

Thierry Huon – Exane BNP Paribas

Yes, when will you be self supplying at the C-Class in the U.S.?

Bodo Uebber

It’s 2014 with the new C-Class.

Thierry Huon – Exane BNP Paribas

Okay. Thank you.

Bodo Uebber

Okay, thank you. Welcome.

Michael Mühlbayer

Okay, next in line is Mike Tyndall from Barclays.

Michael Tyndall – Barclays Capital

Hi, thanks for taking my question. I have got just three quick questions, one is very easy. Just trying to figure out what the R&D headwind was, so wondering if you could give us the amortization charge for Q1 this year and Q1 last year. And also if you could talk a little bit about inventories at Mercedes-Benz, I understand that you obviously build inventories in Q1 ahead of the selling season in Q2. But when I look at this year versus last year, last year you under produced in Q4 whereas in Q4 2010 it looks like you overproduced by that 25,000 units, so it feels like you already had a decent amount of inventory, I'm just wondering whether or not there is something I’m missing here and perhaps Q2 is going to be particularly strong and your building up the batch.

And then the final point and I think you’ve touched on it already, just in relation to trucks in Europe. If I'm not wrong, registrations for heavy duty trucks dropped 65% in the first quarter and your sales were up 22%, I just wondering if you can help me reconcile those two numbers and what perhaps is driving registrations to be so markedly different from your sales numbers? Thanks.

Bodo Uebber

Okay, Michael you are very difficult to understand first of all, but I do my best to answer your questions. R&D is roughly on the Daimler side $200 million Q1 to Q1 and if I see it through right it is, yeah its EBIT it’s split it by half between cars and trucks. Roughly, second quarter was about the inventory stuff. First of all, everything is in line here even as I said before the ratios which we have in inventories are even better when you see our revenues forecast and sales forecast.

In Q4 you should remember our comment, we’ve build it up here some inventory also for the A and B Class at the end of the year. So for our change into the new MSA models so in Q1 it’s purely, it’s mainly related to the C-Class but also the other effects I mentioned. So there is nothing by overproduction or anything else, I would even say it’s the other way around, I do think they’re more optimized, better optimized than ever in managing inventories and the value chain between sales and production and of course we have to if you’d like to benefit in the sales development in China and in the U.S. you need to put some leaves on transit so and therefore this will go all into higher revenues in the second quarter and of course that goes on then also for the third and fourth quarter. So that is all in line, there’s no overproduction.

Your third question was about market share count the first quarter in Europe of course first of all, there is some maybe kind of I commented one aspect, the other aspect is there are some seasonality, some only because we have some customers liking their trucks almost in December due to some reasons, but part of that that means of course we have always when you look into the bit of a slower start. The other one what I commented before, we have not done every deal in the market last year due to pricing. And I do think that is good news we stay disciplined here, at this regard being margin oriented.

And on the other hand we do, there is one aspect that we have not done every fleet deals within European trucks. We expect normalizing of market shares in the upcoming quarters and that is also good news of course we will see growth here and we get, we will stay with our number one position in the market.

Michael Tyndall – Barclays Capital

Thanks very much.

Bodo Uebber

Welcome.

Michael Mühlbayer

Okay. Next in line is Christian Breitsprecher.

Christian Breitsprecher – Macquarie

I have two questions. One on buses, you have seen a significant decline in profitability in the first quarter. I think you highlighted that this has to do with decline in the city-bus business and well how is they are going to continue, I mean should we see any recovery in that part of the business, so what’s really the perspective for the buses profitability in the next quarters and what would be the driver for the improvement. And secondly, on the tax rate, you had a rather high tax rate in the first quarter, what would be the tax rate that we should calculate with for the full year?

Bodo Uebber

Christian to your question of the bus business of course the first quarter is negative due to the market development in the city-bus business. In Europe that is the impact we do have there, for the total year, we will be positive of course with the bus business. So the quarterly, I don’t want to give now quarterly guidance here where the numbers are. We’re talking about the bus business, which is a smallest, but also important within Daimler, but we expect of course getting back to positive levels over the quarter no doubt, and we’ll have a solid earnings development also in the total year.

We would achieve also 40,000 units as we have said what (inaudible) has commented in his press conference I do think four weeks ago the target and I do think they will get to the target. The tax rate is for the total year it roughly it’s totally to be really excess of 35%. Normally, over many, many years to be seen and it should be more directionally 33% by this year I would say the normal level and which you can take so. First into a [major] 35 for this year and that should then be normalized over the years after 2011.

Christian Breitsprecher – Macquarie

Okay. Thank you.

Michael Mühlbayer

Okay, next in line we have Arndt Ellinghorst.

Arndt Ellinghorst – Credit Suisse

Yes many thanks Arndt Ellinghorst from Credit Suisse. On the currency again, if I take your numbers $15 billion, $16 billion of net exposure dollar and RMB 40% hedged I assume at around 136. We could easily get a headwind of €1.5 billion next year. Now what is your strategy there, would you rather hedge to let’s say 70%, 80% right now would you rather wait or when is it when would you think it's time for you to really close the open exposure for next year and I’m asking that especially given that BMW has already hedged 65% to 70% at 130 roughly for next year, but that's quite a bit of difference between the two of you?

Bodo Uebber

And of course and the difference is 20% (inaudible) I would not say that is and so far you as I said before if we do see growth in the business of course we will get also nice sales contribution and of course the question then is are we profitable or not so we are clearly profitable also with that number so that you have also to take into account from the fewer business perspective, at current numbers, I would answer the easy answer would be of course I wait until the dollar comes down again and then I would hedge a little bit more, but of course that could be a question once in while so every prognoses what we do have right now from banks are not a directly going to 148, I regard this number right now or not is a very good number to do more hedges, but of course ask me in two months again because it's certainly depending on the development of the dollar we will get every we will take every chances we do see in this volatility to increase our hedge book, but as I said before right now the 148 I don’t regard as a very good number to hedge something.

Arndt Ellinghorst – Credit Suisse

Okay, that’s clear. And let me also try another one, I don’t know if you can say too much on that.

Bodo Uebber

I would tell you also…

Arndt Ellinghorst – Credit Suisse

But given that just talk quite a bit about Euro 6 cost when we last met in London, could you give us at least some more color on the cost that the truck business might be facing this year and next year because of Euro 6.

Bodo Uebber

Okay and yes it's true of course I’ve answered one question of course before that we have this year Euro 6 and new product so to say within the European, with not only within the European market sorry, but we have also the hedge step in the U.S. and also in Japan so that we will get into that will have an impact in third and fourth quarter from the cost point of view, from a launch point of view and of course at the end finally capitalizing all and everything. So that could be in a synergy of €200 to €300 million, which we have incorporated in our forecast that is roughly as a matter of easier principal 1% of Daimler Trucks kind of revenue margin. I do think we can of course the underlying business of course which goes against that I do think as I’ve commented before the sales increase which we see over the next quarters should be very positive. The market share development I said will normalize also here in Europe.

So there are also other effects I would count as positive development, and therefore when I see the first quarter development as a indication and of course we saw your analysis and your expectations and we have our own plan. We are very positive going into next year and of course doing everything that we can lower down the impact on the launch. And that gives us right now, I do think, a good starting point again with the first quarter to work on this development. Again, we will also have a very good, I do think, Freightliner North American business, which is really doing very well and going up.

And therefore, I do think the objective of the management should be and will be here to manage it in the right direction means our overall target of 2013 to achieve the 8%. We have not changed the year. But I do think seeing the development, we are right now in the market development on top or strengths on the product. There might be even a probability to talk internally about having these targets maybe a bit earlier, if I may think so.

Unidentified Analyst

And closing the gap to Volvo.

Bodo Uebber

Of course, we have seen the numbers of the competitors, I do think you expect us to do this. And of course we are doing that closely, we are not finalized with everything what we can see in there in the disclosure. But of course, it is something I cannot say, we will not accept, but of course, we have clearly our targets to be the number one position in the regions as we told you. And if somebody is better there, we have to look whether that is sustainable in the basis. If that is sustainable, we have to raise our bar on the one hand or to talk about a method or two how to pick up. So no doubts, then we have to speed up, so to say, and to talk about further measures.

Unidentified Analyst

Okay. Thanks a lot.

Bodo Uebber

Welcome.

Michael Muhlbayer

Next in line is Ranjit Unnithan.

Ranjit Unnithan – JPMorgan

Hi, thanks for taking my question. It’s Ranjit Unnithan of JPMorgan. Two questions; one is on cars. The revenue per unit for the car division was about €45,000, which is one of the highest that I can see going back, at least have to go back to ’07 to see similar level. So is this a sustainable level of revenue per unit in your view going forward? And looking through the numbers, it’s not obviously that there’s been a big shift in either country or even product mix. So is this largely driven by pricing? And I guess, a corollary to that question is, if that’s true, is there anything that would prevent margins at least trucking along at this level at Mercedes through the rest of the year? So that’s a question on Mercedes.

My second question is on vans. Your target in this division is 9%. You pretty much reached it in the first quarter though the volumes are well below the prime peak. So does this mean that you have to sort of reset the expectation of what you think is the appropriate target for vans? Or said differently, is anything going to happen in the subsequent quarters that should bring the overall margin for vans down?

And a related question on vans. The Chinese volumes in the van division last year, was I think, the first year where you really started having some volumes. Can you give us some color about the volumes in the van business in China? Should we assume it is A, well above sort of the van margins, i.e., above the 9% margin we saw in Q1? And do you have any field expectations for China? So it’s about 12,000 last year. Is it reasonable that that perhaps doubles this year? Any color there would be helpful.

Bodo Uebber

Thank you, Ranjit, for your questions. First, your revenue per unit question. So the, I would say, the difference to the first quarter last year for the development is good, of course, no doubt. We have roughly two-thirds of structure and mix effects when you compare Q1. So it’s one-third, it’s Q1-to-Q1 mix and structure effects and two-thirds is, for example, also spare parts business, used car business and so on and so forth. So when we look at this development battle, anyway the structure is a very positive one, no doubt.

When we look very fine to the future of course, we have our MFA business, which we are over the next three years moving into Mercedes-Benz, of course, it will have volume effect. On the other hand, we have also a strong S-Class business and E-Class business. So there might be some reduced revenues per unit, but I don’t see that as a major impact. We are high, we will stay high and as I said, with the smaller vehicles, A and B Class successes, there might be a little bit reduced, but even higher than, I would say, some of our competitors in this regard. So I don’t worry about this.

Your second question, and structurally, we commented on this, we see a very pretty much balanced regional development of our sales. We have seen that now and in 2010, we have seen that now in the first quarter. When you compare ourselves to 2004 and 2005, our structure is pretty balanced and we see further growth of course in China with the 300,000 units in 2015. We see growth in the U.S. So from this point, we see a lot of growth in Brazil, Russia, India and all the other emerging markets in South Korea.

So from that point of view, the balance of the regional structure should be even better in the next couple of years. Then next excellent quarter with 8.8%, I would say even at the, yeah, at the benchmark level of 9%, which we picked for the van business, I don’t think that this is now reason right now to adjust our profitability time. I do think we should do that in the case when we have a sustainable profitability in our business and we could confirm it. Right now, I’m happy about the excellent development there. Of course, we have a very good mix in van, we have a lot of options taken by customers, which enriches the revenue side, so to say, per unit.

We have, on the other hand, in the first quarter, naturally less fleet business so that will come in on the next quarter. But it’s a very good development compared to 2010 and will show us a very good van year in 2011, but nothing to revise right now the targets, which we have there.

In the first quarter in 2011, we had 2,000 sales in China. We will launch the Sprinter in the third quarter, I do think in China. So we add another product that, of course, produces also some opportunities again. I do think right now, of course, we are producing there, as one of the management tasks we have is to increase the dealer network in China to even grow the business more. So currently that is one of the main tasks we have. So I do expect over the quarters to come, again a good Chinese business for the van business.

Ranjit Unnithan – JPMorgan

Sorry, so I can just add some follow-up. For Mercedes, the margin in Q1, anything to suggest that that cannot be maintained going forward?

Bodo Uebber

I do think 9.3%, I don’t want to make now a discussion about quarterly development. I do think it confirms, the 9.3% confirms two subjects. First, there is a better margin than we had in 2010. That, I do think, is first of all good news, because when we see the quarter from a pure revenue point of view, from a pure sales point of view and from the introduction of the C-Class and product portfolio and so on and so forth, I read out the quality as a very, very good one. So it tentatively goes in the direction of our long-term target of 10% and therefore, of course, I’m pretty happy with the development in the first quarter. And of course, you know that we have a year of many product changeovers and therefore to conclude on that, very good start and it shows really in the direction of the 10% as the target in 2013, everything is okay.

Ranjit Unnithan – JPMorgan

Thank you.

Bodo Uebber

And we are better than planned, both in trucks and in cars right now.

Ranjit Unnithan – JPMorgan

Thank you.

Michael Muhlbayer

Okay. Next and last in line is Arndt Ellinghorst.

Arndt Ellinghorst – Credit Suisse

Thank you for…

Michael Muhlbayer

Hello. We cannot hear you. We lost you. So we are not able to hear you.

Michael Muhlbayer

Again (inaudible). I think it’s right now. Hello. Yeah, just go ahead. Just like that.

Arndt Ellinghorst – Credit Suisse

Sorry, problem with telephone. I have question a regarding the capacity build up in India which is yeah, you’re starting the production next year, I believe. Do you have any more visibility whether the process is on track? Are there already costs included in the first quarter or is it still to come at the end of the year?

Bodo Uebber

Yes, of course, a good question. India, everything what we know and the latest update we got is everything was on track. We are building up the, of course, our plant production to supplier network, which is, I do think, very important. We have a local content of 80%, I do think with all Indian trucks, we have launched new brand BharatBenz, you know it, in February. So everything is in line to see product launch in 2012 means of course launch costs this regard of course we will see in 2012.

Arndt Ellinghorst – Credit Suisse

Okay. So there is no burden in this year and this all starting, hope to start the production?

Bodo Uebber

Yeah, of course we have some, I would say even investment I call it. Of course, we have people there in India and of course they are, by doing a good work, they have produced cost and therefore of course, there are some burden to this, so to say, expenses in the year 2011, incorporated in our plan, incorporated in our quarters and we will manage also this cost.

Arndt Ellinghorst – Credit Suisse

Okay. Thank you.

Michael Muhlbayer

So we have two more questions, one is from (inaudible) you have to dial in, otherwise we can’t hear you.

Unidentified Analyst

Okay.

Michael Muhlbayer

(inaudible)

Unidentified Analyst

Okay, okay. Okay. I had one question was asked more or less, but maybe it’s a bit question, a bit different way the, the order backlog at Mercedes, could you quantify or at least characterize it, maybe in the average delivery time or something similar and also from a mix perspective, is it still the case that your order book looks very much like the past few quarters have looked in terms of very high and very rich product mix?

And secondly, a small detail, your administrative costs went up quite heavily by 20% in the first quarter. Is there any special reason for that or is it just more or less by accident or might it be the point that you hired a couple of engineers here?

Bodo Uebber

Okay, thank you for your question, Mr. (inaudible). I’ll start with the second one like me. Of course, the first quarter is so far not so bad. When you look at the first quarter, the numbers were higher. And you remember that we had, how much Q2 means the cap in the first quarter last year in the first quarter the pay cut and of course you have a mature increase in this regard. But when you look at the overall development of the first quarter, the first quarter is pretty much okay. The ratios are okay and of course we have no incorporate also, we had a very good year last year.

Some of the bonus payments are also in the year of course, which you don’t need, so to say, over the quarters. So development is okay and very prime to that also in benchmark comparison to others is okay. The difference is always when you compare that to others, what kind of perimeter somebody puts into G&A or SG&A. That is always the case, but I’m fine with that development. Your first question was related to truck or the car?

Unidentified Analyst

To Mercedes cars

Bodo Uebber

Mercedes cars, of course you know that every order intakes and order backlog is a, it’s not difficult, but it’s a regional totally different stuff once you have on the one hand, you know in the U.S. for example, it’s a totally different system than you have it in Europe, for example. So I can’t answer your question so to say on a global basis. Only can tell you that our new products are absolutely, when you read or the newspapers when you read the comparisons to other cars, I do think as a case, the new C-Class, the C and S, we have a very good feedback from customers and of course everybody is keen to get car in this regard and you see that our production numbers are very high. So I would say it’s, let me say it this way, it’s not so easy to get something because we are producing on a high level.

Unidentified Analyst

Okay.

Michael Muhlbayer

Okay, good.

Unidentified Analyst

Okay. Thank you very much.

Michael Muhlbayer

Now we have additionally John Lawson from Citi.

John Lawson – Citi Investment Research

Thanks very much. John Lawson from Citi. Good afternoon. Legal issues have cropped up a couple of times in your reconciliation line causing quite a negative swing. I’m not sure whether you’ll be prepared to identify the issue or issues here. But could you at least say whether we should expect a continuation of costs running through further quarters in the balance of the year?

And second issue would be, I note the very positive swing in cost of risk. In the past, the truck businesses created a rather higher structural cost of risk than at some of your peers. I wonder if just whether you could say whether, what your current experience on truck risk is and whether that’s a big part of the swing that you saw in the first quarter? Thanks.

Bodo Uebber

John, to your first question of course, we have mentioned that in the interim report that we have in the reconciliation line item, includes proper expenses, so to say and partially related to legal proceedings. As we cannot, we will not and we cannot do any further information on ongoing legal cases and as for your understanding that we cannot do it and we will not do it.

For your second question related to that, whether we should forecast anything there, I forecasted we get every time this kind of impact. But on the other hand, I can also not completely exclude it. So that’s to this first question, the second was regarding credit risk on cars and, or trucks, on trucks. It’s structurally worse of course, and it’s naturally when you look at passenger car business and truck business. Therefore also the financial services profitability have two sides. On the one side is passenger car business and truck business. If you compare to BMW for example, or to Scandia or to Financial Services or available financial services. Of course we have to do this differentiation, we have the mix of it.

From a trend point of view right now, of course, the trend is more unless I would say the same, it’s positive in the U.S. of course by this upcoming demand. Every time once in a while, a customer, which is in trouble that is naturally, but overall the trend is positively what we have included of course I mentioned that is in Japan, the effect there, but other than this, we have more releases, of course, and the new right offsets you have seen. That’s it to your question.

John Lawson – Citi Investment Research

But I guess it would be fair to assume that your truck return on equity and Financial Services is still quite a bit below your target rate?

Bodo Uebber

I answer this question with a yes.

John Lawson – Citi Investment Research

Yeah. Yes. Thank you.

Michael Muhlbayer

Okay. Bye, bye. 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 questions you may have. I hope to talk to you again soon. Thanks and goodbye.

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