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Daimler Truck Holding AG (DTRUY) on Q1 2021 Results - Earnings Call Transcript

Daimler Truck Holding AG (OTC:DTRUY) Q1 2021 Earnings Conference Call May 17, 2022 2:00 AM ET Company Participants Jochen Goetz - Chief Financial Officer Christian Herrmann - Head of Investor Relations and M&A Jörg Howe - Head of Global Communications Conference Call Participants Nicolai Kempf - Deutsche Bank Michael Jacks - Bank of America Jose Asumendi - JP Morgan Klas Bergelind - Citi Miguel Borrega - BNP Paribas Exane Tom Narayan - RBC Capital Jonathan Day - HSBC Anthony Dick - ODDO BHF Poppy Gozal - Goldman Sachs Markus Klausen - Dow Jones Ilona Wissenbach - Reuters, Germany Christian Herrmann Good morning ladies and gentlemen. This is Christian Herrmann speaking. On behalf of Daimler Truck, I'd like to welcome you on both telephone and the Internet to our Q1 Results Global Conference Call. We are very happy to have with us today Jochen Goetz, our CFO. Jochen will begin with an introduction directly followed by a Q&A session. I would like to tell you today that Jochen was tested positive for COVID 19. For that reason, he does this session from home. The sound might be affected a bit by the circumstances, apologies for any inconvenience. The respective presentation can be found on the Daimler Truck IR website. On our request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler Truck website. I would like to remind you that this telephone conference is governed by the Safe Harbor wording you will find in our published results documents. Please note, our presentation contains forward looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements are incorrect, then actual results may be materially different from those expected or implied by such statements. Forward looking statements speak only to the date on which they are made. Now I would like to hand over to Jochen. Jochen Goetz Yeah, thanks, Christian. Good morning ladies and gentlemen, and a warm welcome to our results conference call for the first quarter of 2022. Thank you all for joining us today. Before I share with you the details of our financial results, I want to give you an overview of the key highlights of the quarter. We finished the first quarter of 2022 with an adjusted EBIT of €651 million, with an adjusted return on sales of 5.9% for the industrial business. EBIT came in with €461 million. Our earnings per share amounted to €0.31. Despite the challenging supply chain situation creating high and introducing stock, free cash flow was positive, leading to a slightly higher net industrial liquidity of €6.1 billion. We see a continued strong demand environment with a high level of incoming orders. The supply chain situation remained challenging besides the ongoing semiconductor shortage, which again caused significant constraint costs especially in the United States. The further increase of raw material and energy price burdened our financial performance. We are working constantly to offset these increases of material prices by pricing increases or surcharges on both existing and new orders. However, most of the price increases especially in the United States will only fully impacted the P&L from Q2 on. We expect the raw material price increase to continue to be a headwind in the next quarters, particularly in Europe and Asia, which I will provide more details on later. At Financial Services, we were live in seven out of 16 markets per Q1. The ramp up of the new markets is well underway for further nine markets to be added in 2022. We are continuously working on our self-help measures and are on track to achieve the targets. On fixed costs we actually continue to expect to achieve our target at 50% reduction versus 2019 in 2023, two years earlier than initially anticipated. As highlighted on the last call, we are member of the DAX community since March 21st. As I refer to yet another debut on the capital market, we issued €1.75 billion of Eurobond under the new established EMTN program. Additionally, we accessed the US bond market with a $1.8 billion issue. This was the second issuance for the Daimler Truck in the US market after the inaugural bond offering in December 2021. Both have seen strong demand from investors. The finance are purely used for our Financial Services business. Mid of April, we did a deep dive on autonomous driving activities at a test center of our subsidiary Torc Robotics in New Mexico. I'm afraid that I was very impressed by the demonstration of what our time Daimler Truck team together Torc is capable of bringing on the road. This really underlines our innovation power in sustainable technologies driving safety, and enabling our customers in making their businesses future proof. As mentioned at our full year 2021 call, we decided to suspend our relations in Russia and ward off our Russia related efforts which had a negative one-time impact in Q1 of €170 million. The remainder of the anticipated total impact of roughly €200 million will be written off at a later point of time. Given the strong demand in other regions, the volume we lost in this market was reallocated and absorbed quickly by other markets. Because we are receiving some questions on this topic at the moment, let me once again clarify the size and scope of our defense business at Daimler Trucks. Our sales share of defense we gave was far below 1% in 2021. These are vehicles for logistic purpose for road weapons or mountings for weapons on the outside. This was in line with previous years as frequently mentioned at the AGM of the former Daimler AG. And from Q1 of 2022, remained a challenging business environment as you were already used to from last year. But despite these challenges, we still finished the first quarter in line with our expectations, and we reconfirm our return on sales full year guidance. At this point, a big thank you to all our Daimler Truck employees worldwide, also for my colleagues of the entire Board. Thank you, for the dedication, hard work and accomplishments in these exceptionally challenging times. I'm very proud to be part of this great team. Now, let's take a short glimpse at the key market development in Q1. We were able to maintain a strong market leading position in North America. This underlines the appreciation of our customers and it also reflects the efforts we are putting in to produce as many trucks as possible and deliver them to our customers, even if the semiconductor shortage require us to accept additional costs. In this challenging time, we are prioritizing our long term customer relationship. In the EU30 region, we have increased our market share from 17.1% in Q4 of last year to 19.3% in Q1. For both regions, North America and Europe, also in Q1 the limiting factor was, remains supply. With the supply chain constraints throughout the entire trucking industry, market volume would have been noticeable higher and sales at Daimler Truck as well. Looking at other major truck markets worldwide, we see very weak markets in Asia. Japan is showing a significant decrease of total market volume with only 38,000 units in Q1, compared to 50,000 units one year ago. Also China came in this year with only 198,000 units for the heavy duty truck market in Q1 compared to 513,000 units in Q1 of 2021, mainly driven by pre-buys in 2021. The overall market development confirms to us that our market guidance for 2022 seems to be still appropriate. Looking at unit sales and orders over Group sales, Daimler Trucks increase by 8% compared to Q1 of 2021, despite the continuing supply chain constraints. Main contributions are coming from Trucks North America and Mercedes-Benz, flat sales development at Daimler Buses and a significant decline of Trucks Asia, due to the constraint parts supply and active reallocation of semiconductors to higher margin markets. And contrary to last year when very specific chips for European and US heavy duty products were missing, we now have the opportunity to reallocate chips, which are used in Asia and our other regions to Europe and North America. We are intentionally doing this, expecting a negative impact on our sales and financial performance in Japan. Just as we saw in the second half of 2021, the global supply chain challenges are depressing our sales. Demand continues to remain well above production levels. Cancellation rates remain very low. We are monitoring this issue extremely closely and so far not seen any step up in cancellation rates in any of our market. The order intake in Q1 show a slight decrease of 8% compared to last year's Q1, but remains on a high level. Keep in mind that we are more or less sold out for 2022, and are very carefully expecting orders for 2023. I have not even opened the order book. Given the strong demand order intake is currently still more dependent on our willingness to accept orders and to free up our structure slots than on demand. Respectively, the order backlog at the end of the first quarter of this year is at a record high. Also in fuel emission on vehicle side, positive momentum is strong. In the first quarter of 2022, we saw 163 battery-electric trucks and buses compared to 61, one year ago. So the new orders also increased significantly from 169 units of last year to 619 units in the recent Q1, but still infrastructure and the framework for cost parity with conventional vehicles remain the limiting factor here. At Daimler Trucks, we are therefore in constant discussion with policymakers and energy companies to get the right momentum in that respect. And we are also engaging in partnerships with other companies from the energy and trucking sector to set up initial infrastructure projects in Europe and North America. We are ready and we are serious about it. We now also have the eActros in addition to eCascadia and FUSO production. And we are producing our E-Vehicles at the same line as our conventional vehicles. So we are not making headlines of prototypes but can quickly ramp up the EV production according to our customer needs. Now, let's move ahead to take a closer look at our earnings performance in the first quarter of 2022. Year-over-year revenue for the Group increased by more than 70% to €10.5 billion for the first quarter 2022. Adjusted for FX effects, revenue increased by 13%. Adjusted EBIT increased nearly 11% to €0.9 million while reported EBIT declined from €1.7 billion to €0.5 billion due to Q1 2021, including the one-time positive impact of cellcentric. Free cash flow of the industrial business decreased from €931 million in Q1 2021 to €73 million in Q1 2022. The reduction is mainly attributed to the negative working capital caused by the ongoing global impact of the semiconductor bottlenecks and elevated inventory levels, increased investments in cellcentric and higher tax payments. In our business, we face seasonality so that Q1 is normally on the low side in terms of cash contribution. The fact that we are positive in terms of free cash flow despite mentioned negative effects, gives me confidence for the full year. Free cash flow adjusted stood at €0.2 billion the data is mainly related to the payout for restructuring. Net industrial liquidity is strong, and stood at €6.1 billion at the end of Q1 2022 more or less the same level at the end of 2021. Industrial revenue increased to €10.3 billion, mainly driven by a significant increase in unit sales, positive currency translation effects from US dollar and first visible effects of better pricing. EBIT adjusted increased €600 million is of course but mainly return on sales adjusted at 5.9% which is in line with the company compiled consensus of 5.8%. Performance at DAX North America was adversely affected by the 4000 lower unit sales and ongoing supply constraint, cost pressures leading to adjusted EBIT margins below Q1 2021. Our first priority remains to fulfill the commitments we gave to our customers with customer loyalty being our primary goal. This means that we are not optimizing our business on the back of our customers. We are always the last man standing for them. We are not optimizing a single quarter by slowing down production at the expense of our customers since we believe customers will remember that. Instead, we are trying to minimize delays and as soon as we get to the require chips for the ordered trucks that are sitting in our very high offline inventory, we get them out to our customers, who are eagerly waiting for them. In North America, we are continuing to apply price charges for our trucks. In Q1, 30% of our sales are covered by the price increase done in Q1. This does not yet fully offset the material cost increases. In Q2 we will see a significantly higher realization of the price surcharges. However, raw material inflationary costs are still further increasing. Therefore it will be necessary for us to implement further significant price increases this year, which visible effects in our P&L from Q3 on. The performance of our aftermarket business remained strong in Q1. We achieved another new record level of average daily profit. New truck business was significantly strong the last year. Given the shortness on new vehicles in the first few months of the year, we had almost no used truck volume to sell and therefore less tailwind from used truck revenue. To sum up, so starting the year, the Trucks North America was the opposite of last year. In 2021, we started strong without major headwinds on the production and supply side and ended rather on the low side with major headwinds in Q3 and especially Q4. In 2022 we build up during the year driven by the price surcharges becoming effective with Q1 as well as of what we see today being the low watermark. With Q1 attractive margin of 7.9%, Mercedes-Benz achieved a significant improvement versus last year. Despite ongoing supply constraints and inflationary pressure, we achieved a good price realization in Q1 that was initially related to last year and an effective order intake also we have this here. But overall we have adjusted pricing further upwards for all vehicles. However, we expect the full impact of the inflationary raw material price increases show up only in Q2, while these additional price increases support the P&L only in the second half of the year. In Brazil, we continued our efforts to turn the business around. Brazil contributed positively and additionally are able to sell parts on the real estate of the plant as showed before. And on the used truck side, our results benefited from the constrained new truck market. Overall mix in Q1 was stronger than in Q1 and Q4 of 2021. While we are proud of the operational progress we made, it's important to keep in mind that we had significant positive one-time effects from increased interest rate and pension obligations in Europe and the mentioned positive effect of the real estate sale in Brazil. The overall one-time effects amounted to approximately 1.5% inwards. Each time, each item is not large enough to be treated as exceptional and hence excluded in adjusted EBIT. Important to highlight in Mercedes-Benz, Q1 showed once again continued strict cost control and execution of restructuring on track to secure sustainable profitability towards our margin goals in our guidance for the full year. Our business at Trucks Asia saw return on sales of 2.2%, significantly below the performance of last year, main reason here was the low level of Q1 sales. There was good sales and financial crisis, 10 years ago. Especially our sales in Japan were affected by parts supply and reallocation of semiconductors to North America and Europe. As mentioned, we are doing this intentionally to support a higher margin business in Europe and North America, something we were not able to do last year because of the nature of the chips and new technical solutions now in place. Moreover, cost headwinds from raw material cannot be fully compensated by positive pricing development in Indonesia and India. In Japan, in which prospective pricing is legally not possible, so price increase already, actions will only meaningfully impact our results from Q4 on. Another weakening factor was the equity participation on side of our Chinese joint venture BFDA, that came in negative and significantly below Q1 of 2021 due to the pre-buy effects in China in the respective markets beginning in 2022, which was anticipated in our guidance. Don't forget that the participation result of our at-equity investments are included in our EBIT. For the remaining year BFDA expected to remain a burden for the performance of Trucks Asia, also through the expected launch cost of the soon to be introduced Mercedes-Benz eActros for the Chinese market. On the positive side, ongoing disciplined fiscal spending helped to partially compensate the mentioned headwind. Daimler Buses was and still is affected by COVID-19 because the tourism segment in Europe remains weak as expected. The weak market supply, constraint costs and significant raw material headwinds could not be compensated by our price increases. A better aftermarket business, improved mix and ongoing restructuring and very strict cost management led to a return on sales of minus 7.1%, half of the losses we recorded same period last year. Now let's have a closer look at the individual EBIT drivers for the first quarter of 2022 compared with last year's Q1. Main driver of the Q1, we found, were volume, mix, and pricing. Total profit this contribution of €473 million year-over-year. After sales and with a slight positive result in used truck business also contributed to the increase. FX impact was positive €46 million, mainly translation effect from the US dollar. Regarding our industrial performance, Q1 was mainly burdened by a triple digit raw material cost increase, manufacturing constraint costs were still a burden, although a lot smaller than they had been from the material side. Warranty costs had a smaller negative impact. As already mentioned, to price increases that we initiated at the end of last year could only partially offset these headwinds, especially the continuing raw material cost inflation. Selling and G&A expenses combined are more or less flat year-over-year, although our sales activities are clearly picking up again. And as highlighted before the volumes are steadily increasing. This clearly proves our strong fixed cost control and working out. In others you can see the negative contribution from our BFDA at-equity results, which makes up the main part of the negative effect. Financial Services supported Group performance with €11 million, which is positive effects from higher interest margin North America and improved cost of credit risk. This leads to adjusted Group EBIT of €0.7 billion. Including the adjustments for restructuring and M&A EBIT reported came in at €0.5 billion. Speeding up the EBIT performance of our industrial business and mainly the segment contributions in Q1 shows a mixed picture. As I already mentioned, Daimler Buses constituted positively to the industrial business performance versus Q1 of last year. As mentioned, please keep in mind the Mercedes-Benz impact here is affected by the mentioned positive one-time effects. Trucks North America and Trucks Asia had a negative contribution each, both still heavily impacted by high supply chain constraints, correlating higher manufacturing and significant increased material cost. The reconciliation bucket mainly contains our core participation like cellcentric and Setra, our term of activity and elimination. I want to underline again, that within our reporting logic the recon part of the industrial business was at. Our total EBIT adjusted industrial business came in at €0.6 billion with return on sales adjusted at 5.9%. In Financial Services we are making good progress in ramping up the business and adding new markets. Contract volume increased to €18 billion with a significant increase - increased new business and improved penetration rates. However, the main positive effect came from the FX side from North and South America especially from the US dollar. EBIT adjusted in Q1 increased to €47 million. Return on equity came in with 11.3% a little bit past last first quarter. Main drivers on the positive side were higher interest margin in North America and improved costs of creditors. On a negative side, we saw a normalization of the cost situation. Please be aware that European markets have not yet been consolidated into Q1 results. Seven out of the nine phase two countries were shifted only in early Q2, and we expect ramp up costs for these entities to impact to the side for the rest of the year. Our full-year guidance reflects this. Detailed works and further information on the financial performance of each segment are included in the Appendix of this presentation as well as in our Factbook. Cash flow for industrial business is still facing high inventories through the supply chain constraints which amounted Q1 to a negative working capital impact of €137 million compared to last year's Q1, and even Q4 to a further significant increase in offline inventory and mainly at Trucks North America and Trucks Asia. The net investment bucket includes a negative effect of €50 million from financial investments, mainly driven by our fuel cell joint venture cellcentric with the main part of the minus €216 million coming from net investments in PP&E and intangible assets. Depreciation and amortization of €260 million once again exceeded the net investments in PP&E and intangible assets also Q1 for 2022 underlying our strict CapEx management, based on our active portfolio management approach. The provision and others, bucket contains on the one side attributed to negative effects from the mentioned reversal of particular provisions due to increased interest rates and interest expense on the other side, also a positive effects in the cash flow from the impairment of our Russian operations. This leads to a shift of the industrial business of €0.2 billion and adjusted for restructuring measures and M&A transactions to the EBIT adjusted on the industrial business of €0.3 billion. Down the way to free cash flow, cash taxes came in at €147 million. Free cash flow of the industrial business excluding adjustments for M&A transactions and the restructuring measures came in at €73 million. This leads to €0.2 billion free cash flow adjusted of the industrial business. Net industrial liquidity rose a bit to €6.1 billion at the end of Q1. Regarding the outlook for full-year 2022, please allow for the following remark. Obviously the following outlook of Daimler Trucks are subject to further development in international law against Ukraine and its impact on the global economy. It currently also look as if the market distortions caused by the semiconductor and COVID-19 related supply bottlenecks will continue to impact the market. Daimler Trucks assumes that it will continue to face strained supply chains for the key upstream products. The further geopolitically as well as the COVID-19 pandemic development also harbor uncertainties. While the global market outlook remains opaque, we are laser-focused on our strategy and self-help measures. We continue to make great progress on fixed cost savings and our pricing access will address the inflationary headwinds. Given that and based on the current information we have, we feel confident to achieve our targets for 2022. All of the following guidance is made with the following assumptions: we currently assume that economic conditions our most important minus continue to normalize; that neither the COVID-19 pandemic nor the Russian work against Ukraine will have an effective impact on the general market development. Despite strong demand, bottlenecks in semiconductor industry and ongoing supply constraints, we continue to impact sales mainly in the first half. The market plan for the full year 2022, we gave back in March at our annual press conference is still valid. For the heavy duty market in North America a range of 255,000 units to 995,000 units, for European heavy duty truck market a range of 240,000 units to 280,000 units. For its industrial business, Daimler Truck continue to anticipate an increase in unit sales to a range between 500,000 units and 520,000 units in 2022. We also continue to expect a significant increase in revenue on Group level in 2022. The updated revenue forecasts in terms of range to between €48 billion to €50 billion from the previous forecast of €45.5 billion to €47.5 billion. The increase in our revenue forecast is caused by a federal pricing in Europe and North America and improved after sales business and positive impacts on exchange rate developments. For industrial business revenue guidance, this leads to an increase in the guidance range from €44 billion to €46 billion, to now €46 billion to €48 billion. Consequently, the EBIT guidance for the quarter also adjusted from slight decrease to on prior year levels. Regarding EBIT adjusted on Group level, we continue to expect a significant increase regarding the return on sales adjusted for the industrial business. Daimler Truck is expecting to come out unchanged between 7% and 9%. Investments in PP&E and R&D costs are still expected to slightly increase coming from a low level in 2021. Our guidance for free cash flow reported is also unchanged and still expect on prior year level. So what's the outlook for 2022 on the segment level? Simple answer, it's the same that we gave you at our full year 2021 Disclosure Conference back in March. Because of that, I'm not going to read it all out again, but rather make use of the time to provide you with the main drivers of the outlook for the upcoming second quarter. For Trucks North America, we expect the second half of the year to be materially stronger than the upcoming second quarter. As Q1 that has been only minor material cost increases versus Q4 2021, in addition, we had mentioned one-time effects of around 1.5 for total sales percentage points. The segment material cost headwinds is expected to significantly increase in Q2 when we expect to see the next major negative inflationary impacts coming into effect. With regard to price actions that were already initiated to compensate this material cost increases, the majority of that will come into effect only after Q2. At Trucks Asia, I already mentioned that the equity result of our Chinese joint-venture BFDA for the full year 2021 is expected to be negative and if necessary, we are going to further reallocate semiconductor from our Asian business to higher margin segments in North America and Europe. If this should drag on for all of the upcoming three quarter for 2022, this could have an impact on today's concerned segment guidance of Trucks Asia. At Daimler Buses, we expect the weak quarterly performance not only for the second but also for the third quarter of the year, as we have very specific semiconductor shortages here. From today's view, we expect a very strong fourth quarter. At Financial Services, we'll see significantly increasing operating costs in the remaining quarters of the year, especially related to adding the European countries. So much on the financial outlook for the full year 2022. Let me conclude by looking at our strategic priorities for this year and beyond. Now, our two strategic goals, we want to unlock our profit potential and to lead sustainable transportation. With respect to profit potential, several things are on top of our list. Let me highlight the following measures. To manage our environment to take maximum advantage of a strong market environment, we allocated available parts and semiconductors in a deliberate way. This means we'll be consistently prioritize products in regions with high contribution margins. At the same time as we continue to adjust our net pricing to pass on increased raw material costs to our customers. Of course, we have an intense dialogue with our customers on that, and so far, reactions are very positive. Apart from that, we also continue to increase our resilience. It is a priority for us to keep working our self-help measures and continuous fixed cost control to achieve our cost reduction targets. On services, we are fully ramping up our Financial Services business all around the clock and we're further strengthening our after sales business. Let's now switch to our second strategic priority, leading sustainable transportation. First of all, we are pushing hard to further accelerate zero emissions. Two weeks ago, we hosted our Daimler Buses eMobility Days to layout our bus customers how we see the way forward and to get their feedback on that. Key highlights can be summarized as follows. By 2030, we will only offer CO2-neutral city buses in Europe and only CO2 neutral new vehicles will be on offer in the core European markets by 2039. In addition, we are clearly committed to offer an all-electric intercity bus from 2025. Just last week, we launched our Freightliner eCascadia, an electric heavy duty truck in the range of 370 kilometers. And there are more premieres coming up in the next month, we intend to launch our refuse collection specialist and eEconic, the next generation of our light truck FUSO eCanter and an electric bus chassis in Latin America. So we are accelerating battery drive. And we are doing the very same for hydrogen drive by intensively testing our GenH2 Truck on public road. That much for zero emissions, let's now quickly look at autonomous trucking. Here we have two great partners Waymo, and our independent subsidiary, Torc Robotics. Both partnerships are making great progress. We are delivering autonomous-ready Freightliner Cascadia trucks to Waymo. And Torc Robotics now further intensified its collaboration with leading logistic company. All this is backed by our strong corporate culture with its key pillars of trust and entrepreneurship. With that, I like to thank you very much. And I'm looking very much forward to your questions. Christian Herrmann Thank you very much, Jochen. Ladies and gentlemen, you may ask your questions now. The operator will identify the questions by name, but please also introduce yourself with your name and the name of the organization you are representing. A few practical points, please ask your questions in English. And always, as a matter of fairness, please limit the amount of questions to a maximum of two. Now, before we start, the operator will explain the procedure. Question-and-Answer Session Operator Thank you very much. [Operator Instruction] The first question is from Nicolai Kempf of Deutsche Bank. Your line is now open. Nicolai Kempf Yeah, good morning. Nicola Kempf here from Deutsche Bank. First of all, all the best for you [indiscernible]. And my first question would be on the current lead times, and just get some color on order, how much in the current year? Jochen Goetz Yeah, thanks a lot, also for the good wishes. Well as we set our times, well, given the very strong order backlog, the lead times are very long. It always depends on which region and which product you're talking about. But generally speaking, if you want to have one of our flagship products, eCascadia and eActros, the likelihood that it get it this year, if you'd have not placed the order right now is basically zero. And even if somebody would step back from an order, which you don't see at the moment, there are so many in the waiting room, basically and saying, hey, we will take that immediately. So they are longer than normal, you have to wait. As I said, if you look at the end of the year, eight to nine months for a truck like that. Are the customers happy with that? No, obviously not because they need it. On the other hand, they understand that given the overall situation of the semiconductor, that's what happens not only on our side but on the whole industry and of that the customer except that it's not a bigger problem. And as I said, we are continuously in discussions with our customers to optimize the situation, but also openly sharing the circumstances we are operating in. Nicolai Kempf Okay, makes sense, thank you. And maybe just to follow up on the supply chain production. And do you see any improvement in the supply chain in the quarter or is it more regarding second half of the year that you see a strong improvement of the semi supply? Jochen Goetz Yeah, I would answer two-fold. If you look on semiconductors, which was a major topic for the, yeah, basically for the last year since summer last year, we see improvements. And two kind of, the one is while we had intense discussions with our customers, with our suppliers and they were basically not able to give firm commitments because they simply didn't know when they get their free material. That has changed and meanwhile for all of the main suppliers, we have some commitments. That means they have more confidence to get the path and that helps us to stabilize our business. There will be improvement already in Q2 but it will be significantly better in the second half. The second thing what also happened is that we worked on the technical side of the problem, meaning, there were chips which were restricted in the past. Our engineers were looking for alternatives. And now we have cases where more than - we have more than one chip we can do the job, that helps us to be more flexible. And we have also one real-life case where in the past for the same models units, you have to use two chips, same kind. Now we were able to reduce the number of chips to one which immediately doubles the outcome. So on the semiconductor, they're challenging as I described, however, there's really improvement and again, as I said, especially in the second half of the year. The other one is supply chain related to everything you get out of China. And here, we have to be very clear. We are early stage, we are watching that way carefully. But given the COVID situation, we have a lot of shutdowns in major Chinese cities, and obviously, the [hub]. There is a risk that something happens here, we don't see concrete problems at the moment. But as I said, it's early stage. So that's a clear watch item and here we have a level of uncertainty. Nicolai Kempf And so thank you, for all of that. Jochen Goetz Operator The next question is from Michael Jacks of Bank of America. The line is now open. Michael Jacks Hi, good morning, Michael Jacks from Bank of America. Thanks for taking my questions. And the first one is on the price increases. It's possibly a bit premature to be asking this, but do you see the new pricing levels as a watermark? Or can they come down again, if raw material costs decline and you stop there? Jochen Goetz Well, what we clearly communicated to our customers that we are not increasing prices just for the sake of profit but basically a pure necessity given the higher raw material and energy costs. And customers, well, obviously they don't like price increases for obvious reasons. But they understand and they accept and they see it also, you can look basically on all the industries, yeah. But it also means just for the sake of argument, if you would assume for a moment, that the raw material would fall back to the level we had, call it, one and a half years ago, that would obviously have impact on the pricing itself. And it would go down again, because there's a big portion, which is really raw material related. And I think that's the way we communicated with the customer. And that's also the way the customer and communicated with us if the market for raw material price will go down, then you also have to adjust your pricing accordingly. Michael Jacks Okay, that's fair. And then perhaps just related to that, could you give us some kind of a breakdown for the major cost inflation drivers and for you in raw mats and manufacture and what you see the incremental impact being for Q2 versus Q1? Jochen Goetz Yeah, so from an overall perspective, but when we talk about the cost increases, and I mentioned in the past, for us the most important material is steel, a little bit of aluminum in the US, but steel is the important one. And what we said already is that year-over-year, we expect a high double digit million impact on raw materials, compared to 2021. And always keep in mind, also in 2021, we had a similar impact compared to the year 2020. When it comes, and that's the major thing. On the manufacturing side, we have two effects. On the one hand, especially in the US, we have still inefficiencies because of these permanent interruptions caused by the supply constraint. So and still some COVID measures, so there is room for improvement. And especially on the first one, we expected an improvement as soon as the supply chain is more stable. And then on the other side, we have the energy cost, which increased already. Overall, that could balance out in the quarter to come. So I don't see an additional burden here if we compare to Q1. On the raw material side, it's different region-by-region. India will hit very fast, very high numbers. In US, it's more a continuous increase and in Europe and I mentioned that we haven't seen that much of an increase at the moment. But it's also fair to say that we have constant negotiations with all suppliers. But also they want to shorten the contracts because of the uncertainty and their we expect an significant increase. Just to give you one number, in Europe, quarter four it's nearly €2.8 million which we expect on raw material. Michael Jacks That's clear. Thanks, Jochen, get well soon. Jochen Goetz Thank you. Thank you very much. Operator The next question is from Jose Asumendi of JPMorgan. Your line is now open. Jose Asumendi Hi, Jochen, it's Jose, JP Morgan. Hope you're - and wish you all the best there. Just a couple of questions, please? Can you talk a bit more about the margin in Europe, the margin cadence for the year? How do you expect that to evolve? And talk really about those cost savings measures that are coming to the P&L? And second, if we think about the guidance you're providing, and the autonomous sales range you are providing, are you thinking it around, maybe that the lower end or the upper end of the range at this stage of the year? Thank you. Jochen Goetz Yeah, thanks, thanks Jose. Let me start with the second one on the guidance. Well at the moment we feel that guidance is from a range exactly where it should be. There is an upside scenario. And that means we would - the problem, the semiconductor side would be solved fully in the second half and that would give us upside potential on the volume side. Especially in Europe, we are prepared for that. So if that happens, basically upside potential that would definitely lead us to the upper range on the guidance. Then on the other side, I think the big unknown is China, I touched on that. If the impact of the war and the impact of the supply chain would further worsening, then we are on the lower side. So from today's perspective, I feel very confident with the range and we are exactly where we should be in the middle. And then on the margin in Europe, well, as I said, we had a real strong quarter one, the 7.9%. Take out 1.5% which are non-operational, I would say. So the starting point is 6.5% and that continues or shows a continuous improvement over the last quarters, also Q4 to Q1. What we will see in the second quarter, that will be the most challenging quarter for us, why? On the one hand, we see further increase in raw material and such as that we are in constant negotiation with suppliers, especially in Europe. So there will be a hit in Q2, and pricing action will come towards the end of the quarter. So that will be the most challenging one and then starting the second half, we see then the price increases, and then we are balanced when it comes to price and cost. From a cost improvement perspective, I mentioned that also in the year-end call, we have basically especially in Europe, two development. On the one hand, we are continuously working on our structural measures with using personnel costs, so that's well underway. And we said that half of the reduction when it comes to personnel cost reduction was already put in 2021, big portion of that come in 2022 and less in 2023. But on the other side also keep in mind and I also shared that, that we still have some related costs, out of the spin-off, we have to adjust IT systems for long term benefits. So there will be costs, structure cost improvements, but also focus related costs for that will balance out basically on Europe, so the big driver in the second half is then down to price increase on Europe. Jose Asumendi Jochen Goetz Operator Next question is from Klas Bergelind of Citi. Your line is now open. Klas Bergelind Yeah, thank you. And hi, Jochen. So I want to come back on pricing. We know that pricing in North America was, I think it was mid single-digit, Jan 1st one-third, only this quarter and more to come in the second quarter. But if you say there, how much we should model for Mercedes-Benz and you're talking about phasing more into the second half. It would be really good to have some sort of guide as well on price realization and expense and the phasing, please? I will start there. Jochen Goetz Yeah. And, thanks, Klas for that question. But let me just start with North America and I come to Europe as well. You're right said - rightfully said, the first price increase, which has an effect already, had in March but now full impact in the Q2. But we already announced also to our customer's second which then will be affected starting of July because of the increased pricing. So if you're comparing year-over-year, it's more than a double digit price increase. And if you go back to Europe, so they are a bit different and took a bit longer because they have different customer structure than in the United States. But if we look at from a year-over-year perspective, with all the initial price increases, you'll end up at a similar level. It's just basically one quarter delayed compared to North America. But from a procedure, we do exactly the same. We go back to the customer, they look raw material and enterprise, see that - they see the transfer prices - transport prices, and have similar price increases and in North America, it's just one quarter late. And maybe one sentence because that's also a question, what happens with order in 2023, if we take any? We have to change our procedures here and have what we call, a flexible pricing component in the order, which means we take the order, but we take the liberty to adjust raw material price parts of that order, depending on the micro level at the point of time, which gives us flexibility, but still the customer have the security, they get the truck. Klas Bergelind Okay, thank you. My second one is on the reconciliation line, which came in higher than I thought, and obviously, it's good trading at sort of the operating level. But I mean, we're thinking, what kind of level we should model here going forward? Because here you have group participation, you have the autonomous solutions, etc. Yeah, so we get that right for the other quarters, that would be very helpful? Jochen Goetz Yeah. So I would say in the Q1, there were two effects, which, in quotation marks you could call it “further marry.” The one effect is that we have the participation in for [Setra]. And they are seen as a tech company, and we see it as a tech company, but you all have seen what happens with tech companies in the United States where the about in a year, when it comes to our participation simply because their stock price dropped. The second one is the elimination, I talked about is mainly elimination between the segments, so delivering parts from - or a truck from Asia to Europe, but also parts for engine production in North America. So basically, these are free material we delivered from one segment to the other, which was not sold to the customer. Therefore, we had to eliminate the intersegment profit. Sorry for the technical answer but that was a big portion and that's a one-time portion. We do have it at the beginning, when you ramp up, and then in the course of the year, then it's more stabilized and normally you have a positive impact in Q4, so if you take the two extraordinary effects out, you can basically deduct, call it €40 million out of the recon and then you have another one, right? Klas Bergelind Got it. Now that makes sense. And my very final one is on the industrial performance, the €377 million in the bridge on Slide 10, you obviously show this also, when you reported the full year stage. I think the majority is the raw material negative versus inefficiencies on the production from the semi shortages. And was that the same last quarter? I'm just trying to understand that they're really not impacting the bridge, and we can analyze this. Think about it for the year. Jochen Goetz Klas Bergelind We know in the second quarter, of course. Jochen Goetz Yeah, you're right, the majority of that is material. And we're also right, its efficiency, as well as raw materials and the negative effects of the raw material increase. And as I said on a question earlier, and US, we see more constantly changing raw material price and more linear development while in Europe, we had quite a positive, as well, a less negative development on the raw material than expected. But we see some catch up in Q2. And as I said, you can for Europe, take €100 million as an effective quarter-over-quarter for raw material. And then it's very much depending on what happens on the stockpile on the raw material price, but then it's more flattish towards the end of the year. Klas Bergelind Jochen Goetz Operator The next question is from Miguel Borrega of BNP Paribas Exane. Your line is now open. Miguel Borrega Hi, good morning, everyone. Just have two questions, the first one probably is for coming back to the price increases in Europe. And can you maybe talk about how that compares to the US? I think you talked about $4,000 of surcharges, a price surcharge in the US, so how much are we talking about in Europe? I believe you said also there is the second price increase in the middle of the year and then just the follow up on your margin guidance. I think you mentioned that at this stage you expect the midpoint of the margin guidance to be achieved and only disruptions to the supply chain would lead you to the lower end. I mean, how much confidence you have on this guidance given the disruptions, as of now, of cost inflation. Do you have all your cost inflation headwinds secured up until now? And are you thinking on taking additional measures, maybe some more restructuring to offset cost inflation in Europe? Thank you. Jochen Goetz Yeah. Thanks, Miguel for the questions. Let me start with the later one and to clarify. Well, what's baked in our guidance is an outlook on semiconductors. And as I said earlier, it's getting better. We get more firm confirmations by our suppliers and we also working on technical solutions, some are already in production, some are still to come, so there we see a normalization. I'm not saying that all the problems are solved in the second quarter but that's baked in our in our underlying planning. Same so for raw material and energy, as we see them today and what the expectation is we have for the quarter of the year. The point I want to make is, if now something happens, which we don't know, right now, let's assume and we will figure out that due to the COVID crisis in China, important raw materials could not be delivered anymore. That's not baked in the guidance because they simply don't know at that point of time, but everything, which we know we have included. So that's important. Therefore, we feel confident. When it comes to the guidance, I only want to say there is uncertainty in the market. And that's nothing new since we talked the last time. But there are also opportunities and I talk on the volume side as well. And that's the one piece on the guidance. And then on the pricing, as I said earlier, the pricing in Europe is very similar to the US, if you take year-over-year, depends a little bit on products and markets. But roughly, we increase prices to double digit, just the cadence is a different one. US started earlier with the price increase, therefore we see a price increase already in Q2, a major one. But in Europe, we see it one quarter later. But given the fact that the majority of that is driven by raw material and we have very much global raw material commodity prices, meanwhile, it's also logical that we have a similar pricing strategy. And the last comment I want to make, what happens if raw material gets even worse, meaning even higher cost? What we did so far, and I would say successfully is, getting in touch with our customers and saying, look, that's what happened, now we see another spike. And they have to talk how to improve that. To be honest, given the structure of our contracts, we are now in May, we have always a kind of a time delay in raw material prices, it is not a spike, if you will, if that really happens, that will be a bigger challenge for 2023 and not that much for 2022 because somehow we are already secured for the rest of the year. Miguel Borrega It's very clear. Thank you. Jochen Goetz Operator The next question is from Tom Narayan of RBC. Your line is now open. Tom Narayan Hi, yes, Tom Narayan, RBC. Thanks for taking my questions and Jochen, best wishes from our end as well on getting better. Jochen Goetz Tom Narayan Yeah, on Mercedes-Benz in Q1, I was wondering if you can comment on the positive effects from valuation measures you mentioned in Slide 25. On the bridge there, was that significant? That's my first question. Jochen Goetz So if you look under valuation measures, they are basically three effects we have to mention for the Q1. The one it's not a valuation effect, but had an impact, we sold a part of our plant in quarter four. That was a part we haven't used for years, there was an interest for an industrial company to take over that piece of land and we sold that, that's one thing. Not a valuation, but kind of a non-operational effect. The second one is, yeah, unfortunately and you'll see that our share price dropped significantly. And with that we had to adjust our [pension] share programs positively, from the EBIT perspective, negatively obviously, from the overall development. And that was a positive contribution, which we hope will go away in the course of the year but we'll see. And a line that it hit Europe much harder than others because the majority of the white collars are sitting here in Europe, hold the power train operations are part of the Mercedes-Benz segment. Therefore it was a significant higher than that's found sometimes in North America, that was a second one. And the third one is, if you look on long term liabilities, we always discount them according to accounting rules. And it very much depends on what's the interest rate. And what we have seen in Europe is an adjustment on interest rate upwards already before maybe potential in the course of the year as well. But in Q1, we have seen a major step upward. And that would use basically, our liabilities given positive impact on EBIT, these are the three impacts, which in total account for the 1.5% I mentioned in the speech. Tom Narayan Okay, thank you. And my second question is on the headcount reduction that you guys have achieved, I think it was, I believe it was something like it was like €280 million is your total plan, and you got half of that, it was around €140 million by the end of 2021. Jochen Goetz Yeah. Tom Narayan If I look at the annual report, I have the headcount there. I think it implied something like a reduction of 1400 employees or something. And I know most of them are white collar. It implies that kind of average salary of around €100,000. I just want to make sure the math is right, is that - is that those are right numbers, like a 1400 and the headcount that you achieved and that that goes to the €140 million savings. Jochen Goetz Well, that is really two questions. So first of all, one the price, it very much depends on which level you're talking. But €100,000 for employees annual salary, for Europe, in average, it's not a bad number. That's a good number. Tom Narayan Okay. Jochen Goetz And then on the headcount, we never disclosed any headcount numbers. And we are also saying we are not aiming for a specific number of headcount reduction, we are aiming, and you said the number rightfully, the 280 which confirmed and we aim for 300. Or keep in mind, if you look on headcount numbers, especially at the moment, there's still a lot of changes which are related to focus activities. We're still taking over companies, which at a starting point of 10th December on the Mercedes side, though there are changes here. That's true for Financial Services. That's true, but also for the sales organization at Mercedes-Benz and we also have taken over function, on example, April 1, we started with indirect purchasing department, which was still a mandate from old Daimler AG and now Mercedes-Benz Group, now we take that over. So I just want to say, be a little bit careful, if you look on the numbers, because there are so many facts included in that. So I think therefore, we are focusing on the Europe number. And there you're absolutely right. We had €140 million, half of it was baked in EBIT of 2021. You see a big portion this year, and then the remainder will come in 2023. Tom Narayan Okay, thank you very much. Jochen Goetz Operator Next question is from Himanshu Agarwal of Jefferies. Your line is now open. Himanshu Agarwal Hi, it's Himanshu from Jefferies. Best wishes from my side as well. Jochen Goetz Himanshu Agarwal I just have to questions. One is on supply chain constraints. So we talked about the semi shortages, but are you seeing constraints in other areas as well and especially around labor shortages in the US? Yeah. And then I have a second. Jochen Goetz Yeah. Well, as I said, the major thing still is the semiconductor one. And if you look on everything else, we don't have any shortages on raw material. We have the price topic but we don't have a quantity topic. So that's not a problem. The one where Russia was one of the main suppliers, we could find alternatives like on palladium, so that's not an issue. If you look on everything else, I would say you have the normal noise. There's always parts missing, but nothing I would write home about. So it's really the semiconductor. And on the on the labor side, the labor market is challenging. But so far, we have no constraint on labor, not in the US, not in Europe. And as I said, we want to ramp up production in second half, given a more stable supply on the semiconductors. And we're prepared for that from a capacity perspective as well as from the headcount, so challenging but not a problem at the moment. Himanshu Agarwal Understood, thanks. And secondly, I wanted to ask about the recent announcement where Daimler Trucks North America has partnered with Cummins on fuel cells. Can you just give us more color on that and how does that impact cellcentric? Yeah. Jochen Goetz Yeah, thanks for that question. Basically, you have to think in two phases on the fuel cell. Well, when we decided to join forces with Volvo that was clearly a decision for the long term. We want to develop a state-of-the-art fuel cell, which fits to our standards and fits to our purpose principle, we need to be long fuel. We started with Europe, but both companies, Volvo then, so we have a strong US business. And therefore we always have an eye on US. And we make sure that from current factors from a technical requirement, is fuel so fits in the future also in our track. So that's our long term plan and long term goal. On the other hand, we have good experience in the United States with having two suppliers, we have that 4-H is basically on the engine. And sometimes time is of essence. So therefore we decided to join forces with Cummins and have on an earlier point of time, fuel cell trucks up and running, gain knowledge with that, and then we have basically for US market two options. But it does not mean - the question basically, that does not mean we go with Cummins only the in US and cellcentric is basically Europe only, that's not our plan. Himanshu Agarwal Jochen Goetz Operator The next question is from Jonathan Day of HSBC. Your line is now open. Jonathan Day Thanks. Good morning, it's Johnson from HSBC. Jochen, hope you feel better soon. I just wanted to ask a little bit about the switching of parts from Asia to the US. Just wondering if you could talk a little bit about the impact of that on your Asian customer base? That's my sort of first question. Jochen Goetz Yeah. Yeah, but you might remember that, in the past, we were saying what we are missing those specific chips. And that hit us in 2021 quite hard, especially on eActros, especially on eCascadia and it was also a burden for the overall profitability last year. Now, the world changed a little bit that the specific chips are available. Now it's more call it the incoming chips, which are missing. And that gave us the opportunity to move away parts or to optimize the allocation of chips, call it positively. That affected, especially India, and it will affect India in the second quarter very strongly, because we have really silicon chips here. And it also affects Japan. So that's the one. Hard to judge what it would mean if we would allocate everything with the same amount or percentage points but I could easily see and we have seen high stocks, we have a lot of unfinished sitting in Japan, could easily sell 3000 to 5000 more in the high margin trucks. So one to two percentage points on return on sales, if we will do the allocation a different way, would be possible. Jonathan Day Okay, great. Thanks. And then my second question was really more on buses. I was just wondering if you could talk a little bit about sort of the longer term outlook there, whether you could see, at some point a recovery? Or do you think there are some structural challenges now for buses and coaches? Or I suppose coaches post-COVID, just curious to get your thoughts on that? Jochen Goetz Yeah. Well, that's obviously the most important question is the coach business basically returns to the levels before? Well, we have intense discussions with that. We have intense discussions with our customers. And we believe it will come back because the purpose of driving buses will be the same. What are the big drivers? Well, the cruise ships, they are up and running now. Now that's in big demand. It's - and that's important to understand, it's not only the older generation who use us coach buses. It's more and more also, the younger generation who use that to come to point a point and have a more flexible alternative, basically, to taking the [Wayland] and Chiba as well. So that's a huge demand. So we see no structural change on it. Will it take some years? Yes, it will take some years. But two things are positive I would say, the one is what we see is much higher demand in parts. In other words, that means the trucks are now not sitting on a lot but really are used. So that's the first sign of recovery. And the second one and this was a concern, to be honest, because on that segment, you don't have this mega fleets who are buying thousands of buses. It's more midsize companies. And it was quite hard. And still, it's hard for them to survive. But what we see at the moment, especially in Germany, but also in countries like France, that these midsize companies, they really survived. They managed to survive, they used coach buses so to transport kids to schools and things like that. And that's very important for long term that the customer base was not hurt or majorly hurt by the crisis. So therefore, answer is structurally, we believe coach segment comes back. And as I mentioned, several times, we really use the time to significantly decrease the level of costs in our bus businesses. And under that, I think we are very well prepared, when the time of stronger coach might come back, and we'll see nice return phase there. Jonathan Day Right, thank you very much. Jochen Goetz Operator Next question is from Anthony Dick of ODDO BHF. Your line is now open. Anthony Dick Yes, hi, thank you for taking my question. And this was just for you. I had a question on the US market. So we're witnessing a sequential slowdown in freight indicators in the US. And at the same time, you're passing on price increases and operators themselves are facing higher operating costs. So to what extent do you think this can translate into demand for your products in the short and medium term? Thank you. Jochen Goetz Yeah, very good question, thank you. I think it's important to understand that at the moment, the market size is not defined by demand but by supply. And what it says, at the moment, if we look on the range of the guidance we have given, that already includes basically a significant impact, negative impact by supply. Without that, the markets would be easily 50,000, 60,000, 80,000 higher than what we see. And what basically happens, what could happen is that even if the demand is not that strong any longer but if the customers were not able to get the trucks for this high demand, it's still in line. Therefore we see our market guidance, still a case laden with this upside potential. And the other one I want to mention, and it's important to understand, in 2021, the US markets without restriction on the supply chain would be a spike market, very, very strong market. So what happens, supply chain constraints limited the market and demand was postponed to 2022. So now the postponed demand in 2022, meet a still very strong demand in 2022, but still cannot fulfill because of the limitations in the contract. So basically, a portion of 2021 is moved to 2023 and the not fulfill demand of 2022 is moved to 2023. At the same time you see more efficient truck, and you see an aging fleet. So basically, what we see at the moment, and that could be kind of the positive side effect of the crisis, instead of what we have seen the past spike in US, then lower markets for couple of years, we are seeing more a stabilization in 2021, 2022, 2023. After that, it's hard to judge where you have a couple of years with a strong good market. So we are not concerned at the moment that the demand is not strong enough. Anthony Dick Thank you very much. Jochen Goetz Operator Okay. We have time for one more question. And the question comes from Poppy Gozal of Goldman Sachs. Your line is now open. Poppy Gozal Hi, thanks for taking the question. I appreciate that. And the first thing I wanted to ask was just on the increase in sales that you saw in the quarter, and understanding a bit better the balance of that that was driven by the kind of easing supply chain and the reallocation of resources, for example, towards North America and Europe. How much was driven by the supply chain side versus positive trends in demand? Jochen Goetz I would say it's only driven by the supply chain side because if you're going to one last year, there basically the supply chain was not a big issue. Now, we had already a strong demand in the course of the year. So the demand would be even much higher than what we could sell in Q1. The limiting factor was the supply chain that they are able to sell more trucks than us, has another effect. You might remember that we said at the end of the year, we were producing full steam and had the problem in the year-end that a lot of trucks are sitting in our yard especially in United States with just one or two chips missing. But we really decided to make a conscious decision, we accept the higher cost burden or profitability, in North American in Q4, and we had a higher inventory. But that gave us the opportunity to, as soon as the chips came in, in the beginning of the year, to immediately finish the trucks and then hand it over to our customer. So especially in January, we had a much longer trend in January than last year. And that was mainly driven by a different approach at the year end. And again, it was really a conscious decision. Because customer eagerly waiting for the trucks. That's what the main driver. Poppy Gozal Okay, yeah, understood. The last thing I wanted to ask and apology. This if this was already mentioned earlier, my line did cut out for a moment, was just if you could clarify what are your net pricing assumptions in the margin guidance for the full-year? How do you like within the different segments you're expecting to become sort of price cost positive overall? Jochen Goetz Yeah, so what I said earlier, for the two major markets, it you take year-over-year, overall, we see double digit price increase. That's true for US and for Europe. And from a balance perspective, as mentioned in Q1, we were not able to fully recover or to see on the cost side. That will change in the US in the quarters to come already in Q2. While in Europe, we have a more difficult for ahead of us with expected significant increases in raw material quarter-over-quarter and pricing kicking in the second half. From a full year perspective, in our guidance, we assume that we can cover the cost increases based on the current spot price, including our anticipations for the rest of the year with pricing. That's what's baked in our guidance. Poppy Gozal Jochen Goetz Thank you very much. Christian Herrmann So ladies and gentlemen, thank you very much for your questions and for being with us today. Jochen, thank you very much for answering all the questions. Now, as always, the IR team remains at your disposal to answer any further questions you might have. For all of you, have a great day. Thank you for participating today and talk to you soon. Goodbye and take care. Jörg Howe Good morning, everyone. Welcome to this Conference on our First Quarter Results '22. We hope everyone on the line is fine and healthy. On this conference call, I would like to welcome the CFO of Daimler Truck, Jochen Goetz. My name is Jörg Howe, I'm the Head of Global Communications of Daimler Truck AG. As mentioned previously by Christian Herrmann, Jochen Goetz is joining this call today from his home office, as he needs to stay in quarantine. This morning we published our press release and the Q1 presentation on our website. You might very well have followed today's Analyst Conference call prior to this media Q&A. Jochen Goetz will now briefly explain the most important figures and our business outlook. Following this, we look forward to your questions. First a few more notes. This whole call is conducted in English. So please be so kind to ask your questions in English as well. The operator will explain the procedure for registering your questions again, in a moment. Our conference call will end around 10:15 a.m. And now, Jochen the floor is yours. Jochen Goetz Yeah, thank you, Jörg. And a very warm welcome from my side. And well, if you look on Q1, what are the most important things to mention? Overall, I would say it was a quite positive development. If you look from a sales perspective, we sold 109,000 trucks, significantly above the number we have sold last year was 101,000 trucks. So a strong developments here, especially driven by North America but also the Europe. Incoming orders demand still very strong on a high level, not as high as last year but it was the extraordinary high. In discussions with our customers, we still see strong demand and more requests to get trucks earlier or more trucks. But so on the other side, the supply chain especially semiconductors is still a restricting factor, but overall good. And with that, we also ended the quarter with a record high in order backlogs. We don't see cancellations, we don't see move out. So we are all good from that point. At that point of time, we are very confident that we have a solid order backlog not only numbers, but also content wise. Supply chain, as I just mentioned, is still the limiting factor. We see improvement in the orders to come. Our customers - our suppliers are now confirming numbers, which was not the case in the past. So there's improvement. But as I said, it's a limiting factor and was a limiting factor in Q1. We still were able to increase revenues. It's not only sales, but also pricing, which is very important to cover the costs we have on the raw material side and not the energy side. And overall, our EBIT increased to €651 million compared to €580 million in the respective quarter last year, and the return on sales of 5.9% versus 6.3% last year. Main driver for the lower return on sales is the increased costs we had year-over-year. And we expect to cover that with price increases in the US starting with Q2 and in Europe starting this Q2 into Q3. So far through the quarter, from an algorithmic perspective, not too many news, we still confirm our outlook for 2022. That's true for the market environment in North America and in Europe through most important markets. We increased our guidance on revenue that's mainly driven by a stronger US dollar as well as price increases we have now baked into our forecast. With that we also uplift our guidance on the EBIT instead of slight increase we are now on prior-year level. EBIT adjusted, we see a significant increase. No changes on the segment guidance, everything being the same, in quarter two. For the free cash flow, so we have that strong start in the year. Good recovery, still a lot of challenges ahead of us. But we are confident. And - [audio gap] Jörg Howe Ladies and gentlemen, we will now begin the Q&A session. Please state your name and media outlet at the beginning. Take your time for your questions and ask them slowly and clearly. So operator will now explain the exact procedure. Thank you very much. Question-and-Answer Session Operator A - Jörg Howe So and we are going to start with Marcos Roberts from [indiscernible]. Go ahead, Marcos. Q - Unidentified Analyst Good morning, Thank you for taking my question. I have a question regarding the technology. Daimler Truck is a founding member of the H2 Engine Alliance. And my question is, is Daimler committed to develop an H2 engine? And if so, can you put a date to it? A - Jochen Goetz So first of all, Daimler Truck is clearly committed to an economy which is which is based on H2 and there are basically two technical solutions possible on our clear main path. One is the fuel cells for that and you're well aware of that. We joined - jointly or joined forces with the Volvo and established cellcentric joint venture where we produce fuel cell for hydrogen trucks, that's the clear prime path. And there we expect around 2027 to see these products. Second is a discussion for some applications and think about construction areas where we're restricted in space in the truck. There H2 engine could be an alternative. We were developing or exploring the opportunities there are no final decision made but its syntactic alternative, which we cannot finally decide on today. So no concrete decisions made and no timing for potential H2 engine decided so far. Q - Unidentified Analyst A - Jochen Goetz A - Jörg Howe Okay, next one in line is [Marcos Ingerman] from [DPAAX]. Go ahead, Marcos. Marco. Operator He has no question. Please go ahead with the next one. A - Jörg Howe Okay, then we go further on to Markus Klausen from Dow Jones. Go ahead, Markus. Q - Markus Klausen Hi, good morning, many thanks. I have a question regarding the price increases, you're making in light on high cost of raw materials. Is it correct to say that you're reducing prices, again, when the cost of raw materials should drop significantly? And the second question is about the margin outlook for this year that you have deteriorated. Is it fair to conclude that the higher costs will be fully offset by the higher cost of raw materials? Thank you. A - Jochen Goetz Yeah. And yeah, thanks for your question. Regarding the first one regarding price increases, look, when we went back to our customers saying, we're doing very unusual move, we even adjust pricing for trucks, we have in the order backlog which we normally not do. The reason for that was a significant, call it, extraordinary increases, increase in raw material and in energy costs. And the customer understand because they ultimately also see what's going on in the world. And with that, we increase the price not only once but we might also a second time. But they also have a clear expectation. If that's the driver for the price increase, it's not just increasing profits, but cover the cost, that if the costs go away or that the price goes away, that's a clear understanding of the customer and it's, by the way, also our key understanding. So the answer to your question is yes. If we see a totally different cost level, that cost driven price increase with also go away. Second, question on the margins, which are somehow similar. You're absolutely right, in our margin assumptions is baked in. And what we know today from a raw material perspective, from an energy perspective and it's not only the spot prices as we speak, but also the expectation we and our purchasing department have for the rest of the year, that's baked into the guidance. And we expect from a full year perspective, to cover that with price increases in the major markets, in Europe and North America. Especially from a quarterly perspective, I mentioned that in the speech in the Analysts Call, we were not able to recover full costs in Q1, that will change when price increases kicks in the US in Q2 and in Europe in Q3. But from a full-year perspective, you're right, we want to recover or regain the cost increase with pricing. A - Jörg Howe Okay, next one is Alexander Jungert from Mannheimer Morgen. Go ahead, please. Q - Alexander Jungert Yeah, hi and good morning. I have two questions. The first one is how many eActros has been sold in the first quarter? And how is your productions for the fourth year? And the second question is, how long do I have to wait for new eActros? Thank you. A - Jochen Goetz Yeah, okay. So when you look at eActros, and start with the question about how long do you have to wait. We are producing the eActros on the same line on Actros itself. And we are restricted on the number we can produce by the semiconductor. So if you wait for a normal Actros, meanwhile, eight to nine months. You don't get an eActros at the earlier point of time because chips also affect the eActros. So the limiting factor here at the moment is not that we are not able to deliver a truck because of the e-components, that's not a problem. And it's not a, call it, the common problem for the truck, the chips are missing. From a demand perspective, we haven't sold that many in Q1. That was also anticipated, because we are ramping up. But it's important that when we have talks with customer, they understand the concept of the wait. At the beginning, there was quite often one or two trucks which are sold. Now they're testing the trucks to see the progress and now the second wave of orders are coming in. But it's not a major number, we disclose the numbers overall, but we don't close number for a specific product. But we are very happy with the demand. And even more important is the feedback we get from the customer when it comes to technical capabilities of the eActros. A - Jörg Howe Okay, thanks. Thank you. Now we go on to Victoria Waldersee from Reuters. Go ahead, please. Q - Victoria Waldersee Hello, I'm Victoria Waldersee. Can you hear me all right? A - Jochen Goetz Yeah. Q - Victoria Waldersee Great. And I have a quick question on the Mercedes-Benz command stake. Firstly, has there been any advancement on that front in terms of discussions with Russian authorities? And secondly, would the strategy which we saw yesterday was adopted by Daimler to just sell its majority stake to a Russian Institute with a buyback option be a possibility for you with this stake? Thank you. A - Jochen Goetz Well, first of all, we still stick to what we said. We went down all our operations in Russia, and you have seen it in the numbers. We did an impairment on our joint venture as well as on the receivables. With that, we have no assets remain in Russia when it comes to balance sheet items. We are in constant discussions with our partners how to proceed. But for obvious reasons, I will not share any details on the question how we want to proceed because we have ongoing negotiations for them. We are exploring all options which are possible. It's also a question, what's possible, if you're in touch with a sanctioned company which can assist. And as I said, we are in constant talks, but nothing to report by now. Q - Victoria Waldersee A - Jörg Howe Q - Ilona Wissenbach Yes, good morning. On get better, my regards. I would like to ask, can you clarify you mentioned in the Analyst Call the raw material cost and probably this is also, including the energy costs for the whole year would sum up to high triple digit million euro amount, and that the price increases are double digits in Europe and the US with starting in the US and later to kick-in in Europe. Is that right? A - Jochen Goetz Yep, exactly. That's exactly what I could confirm that, that these are the numbers we have baked into our guidance and what we see from today's perspective, exactly right. Q - Ilona Wissenbach Okay, and perhaps one question on your customers. Do you expect that there are repercussions of the inflation and energy cost rises on them, which might then hit demand in the long term as there are expectations that there is entrenched inflation, probably? A - Jochen Goetz Yeah, well our assumption is and you said rightly, long term and short term. Short term, we don't see any impact because, anyway, the demand is not a determining factor at the moment for sales. It's anyway the supply chain, so demand would be much stronger. What we see and it could be a change, especially in US but also in Europe. Normally, what you've seen in the past is if demand is super strong, you see a spike and then you'll see a couple of years of lower demand afterwards. The demand in 2021 could not have fulfilled, the demand in 2022 cannot be fulfilled. It means two years, basically, demand is postponed. Now we're into 2023 and the truck - the trucks aging. That means they are more expensive, more maintenance, more parts. So there is additional demand basically created in 2023 from the years earlier. The order don't get used trucks at the moment because the demand is a bit high. So what we see is by an extended cycle in strong demand, which is a positive and takes a little bit away from the cyclicity we have normally noticed there. So we see that partly from a customer perspective or they understand that raw material has to be passed through. They will do the same and we see it if we purchase basically a transport services, there is already an increase. The variance, this increase in raw material and energy will be passed through from an OEM to fleet and from the fleet to the end customer. And I think that's the truth. At the end, the consumer has to pay a higher price because of this increased input costs for raw materials. That's what happens from our perspective. And we are now somehow back in an inflationary world, which we had for a long, long time, in Europe and North America, but we are no longer used to because the last one and half decade, there is basically no inflation. I think that's the overall change what happens right now. Q - Ilona Wissenbach A - Jörg Howe Q - Unidentified Analyst Yeah, thanks for your time, Jochen. Two questions from my side, please. First of all, the EBIT of your business in Asia is shrinking quite significantly. Can you give us a little bit more insight about what are the reasons here? And my second question is, once again, the margin guidance. I'm not sure if I really understand what's going on here. So from my perspective, you raised the revenue and the EBIT guidance, and you mentioned in your press statement that you're still super focused in terms of cost discipline. So why are you not able to translate those kinds of positive developments in a higher margin guidance? A - Jochen Goetz Okay, thanks for the question. On Asia, a couple of things happened. So first of all, demand in two major markets in Asia is pretty weak. And there are two different reasons for that. Let me start with China. In China, we had implementation of a new regulation, 1st of July last year. We saw a super strong demand in the first half of 2021. And after that, after this huge pre-buy effect, weak markets in the second half, and that continued in the first quarter, so really weak markets in China. And that hits us indirectly via joint venture of BFDA which is part of the Asian segment. What we also see is, in China, due to the fact that the majority of the major cities are closed, in Europe, the demand not only from the - after pre-buy effect but also for the market demand is quite week. That's one bit, China. The other one is that in Asia, there are two things ongoing, one is a big emission scandal with one of our competitors, so strong demand there. And second, we are limited on semiconductors in Asia. And as I mentioned, we made a conscious decision to allocate chips wherever we can, when we talk about common chips to the regions where we have higher margins, that's mainly US and North America, so basically moved away chips from Asia. These are the two main reasons for that. Structurally, we have no problem. On the cost side, we are - on our plan, same is true for aftermarket, but it's really the demand piece which limits us in Asia. Regarding the guidance, first of all, if you look at the revenue, there was a reference point, two major things. One is pricing, and the other one is currency. These are the two main drivers for the increased guidance. On the revenue side, we uplift the EBIT guidance. I mentioned that if you look on book level, from slightly below prior year, we are now on prior year levels. So therefore, we uplifted our profit on that one. No change on the adjusted one because we are already on significant and more than significant we don't have. And then on the relative number, return on sales you're referring to were, as we said, we are increasing prices to cover costs. That basically means, yeah, it's a higher revenue but there's only a minor margin in because we only want to kind of cover costs. And that's the only thing we can also transfer to the customers. So we have that. And out of this price increase, we increase revenue but that has no major impact on the relative number. That's the reason why we stay within that. And also keep in mind, a guidance between 7% and 9% is quite a broad range. There's still movement within but nothing which led to an overall change of the game. That's the explanation. End of Q&A Jörg Howe Okay, I have no more questions left. If anyone wants to ask something you can do now. We're waiting a little bit or you can afterwards contact the Daimler Truck communications team and we are at your disposal for the rest of the day and maybe for the rest of the night, if you want to. So there is no one left. So I thank you very much Jochen and we hope to see you soon here in Leinfelden-Echterdingen. Thank you very much, ladies and gentlemen, for your participation. I wish you all a good day and of course, stay safe and see you soon as well. Thank you so much. Bye-bye. Comment

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