Daimler Q1 2010 Earnings Conference Call Transcript

Daimler Q1 2010 Earnings Conference Call Transcript
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Daimler (DAI)

Q1 2010 Earnings Conference Call

April 27, 2010 7:30 AM ET

Executives

Michael Muhlbayer – Head of Daimler IR and Treasury

Bodo Uebber – CFO

Analysts

Arndt Ellinghorst – Credit Suisse

Christina Church – Barclays Capital

Horst Schneider – HSBC

Max Warburton – Sanford Bernstein

Christian Breitsprecher – Oppenheimer Research

Daniel Schwarz – Commerzbank

Charles Winston – Redburn Partners

Christian Hessner – Reuters

Thierry Huon – Exane BNP Paribas

Jochen Gehrke – Deutsche Bank

Adam Hull – WestLB

Aleksej Wunrau – BHF

Presentation

Operator

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Welcome to the Global Conference Call of Daimler. At our customer's request, this conference will be recorded. A 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 teleconference is governed by the Safe Harbor wording that you will find in our published results documents. Please note that our presentations contain forward-looking statements reflecting 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 documents and are also described in our most recent Form 20-F, under the heading Risk Factors. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by these statements. Forward-looking statements speak only to the date 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 to our first quarter presentation. We are very happy to have with us today, the 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. Ladies and gentlemen welcome to our conference call on the results of the first quarter of 2010. After our last year’s deep recession, the world economy continued along its recovery pass in the first months of 2010. Strong growth came once more from the rapidly expanding Asian economies, especially China and India and the economies of South America also achieved significant growth.

Our automotive divisions unit sales provided from both from the globally higher demand and from the market success of our attractive model range. EBIT of EUR1.2 billion in the first quarter underlined our strong performance. Especially the very positive development of Mercedes-Benz cars and Daimler Trucks led to the strong improvement. Revenue rose in line with the increased unit sales by 13% to EUR21.2 billion. Net profit is positive again with open EUR6 billion. And we achieved a positive free cash flow from the industrial business in the first three months of the year leading to a slight increase in net liquidity of the industrial goodness.

On April 7, Daimler entered Renault-Nissan, and also strategic cooperation which focuses on concretely defined projects in the area of small cars and engines. The partners have signed a general framework agreement on long term strategic cooperation. This involves the following projects. First, we will develop a common architecture for our Smart in the Renault Twingo. As part of this project, we would launch a new Smart four seater and other aspect is that an electric drive version of all Smart models will be supplied right from the beginning. And second, we will expand our engine portfolio by jointly developing new small three and four-cylinder engines. Third, Nissan and its premium brand Infiniti were procured larger gasoline and diesel engines from Mercedes-Benz and fourth, we will extend our range of Benz by using a common architecture for city events and we will also share our partnering components for mid-size Benz.

With this strategic cooperation we will strengthen our product range both for small engines as well as in the small car and compact car segments and the partners in this cooperation we’ll be able to exploit increased economies of scale. The cooperation with be supported by a symbolic cross-shareholding of 3.1% which Daimler will hold in the Renault and Nissan and the two of them in aggregate will hold them in Daimler.

Let's now come back to our business developments. In the first quarter, global demand for cars generated continued to recover primarily due to the rapid growth in China. However car sales in many major markets are still profiting from various state incentive programs although this applies more to the next market segment than to the premium segment. Worldwide demand for trucks benefited from the strong Chinese markets, our truck demand remained rather restrained in Western Europe. The US truck markets continued to stabilize and expanded slightly compared to the week prior year quarter.

Daimler’s strong performance in the first quarter of 2010 can be demonstrated if you look at our key figures. Revenue increased by 13% to EUR21.2 billion. We posted group EBIT of plus EUR1.2 billion compared to minus 1.4 a year ago. This strong improvement not only compared to the weak prior year period but also to the fourth quarter of 2009, is due to the significantly improved earnings duration mainly at Mercedes-Benz trucks and Daimler trucks. Net profit was open EUR6 billion, a positive swing of EUR1.9 billion in comparison with the first quarter of last year.

Earnings per share improved to $0.65, the free cash flow of industry business in the first quarter totaled EUR4.3 billion, net liquidity from our industrial business of EUR7.3 billion remained at the high level at the end of 2009. The free cash flow of the industrial business was positively affected by the positive earnings. In addition the sale of our stake in Tata Motors led to a cash flow in-flow of approximately EUR300 million. On the other hand our working capital increased by EUR4.6 billion due to the higher inventories in line with the growing Vito demand and preparations for the spring selling season which are usual for the first quarter.

Let's now take a closer look at the individual divisions. For the first quarter of this year, Mercedes-Benz cars continued positive development of the first quarter of 2009, unit sales increased compared to the first quarter of last year by 20% to 277,000 vehicles. This increase was due in particular to a strong growth in the E-Class and X-Class segments, but we also sold more cars of the A and B class and in the SUV segment. While unit sales in Western Europe was slightly than best of prior year level, sales in the United States increased by 28% to 65,000 units. In China, Mercedes-Benz cars more than doubled its unit sales to 27,000 vehicles and thus maintained its position as a premium brand with a strongest growth in that very important market.

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