Mercedes-Benz Group AG (MBG) Earnings Call Transcript & Summary

Shareholders, shareholder representatives, ladies and gentlemen, on behalf of the Supervisory Board and the Board of Management, I would like to extend a warm welcome to our shareholders and listeners who have joined us online and hereby open the Annual Meeting of Daimler AG 2020. As Chairman of the Supervisory Board, I'm responsible for its management in accordance with the Articles of Incorporation. This year, the Annual General Meeting will be held as a virtual general meeting in accordance with the provisions of the COVID-19 Measures Act. It will be fully transmitted on the Internet in German and English via the e-service for shareholders. Until we start answering your questions, the Annual General Meeting will be webcast live on the Internet. Afterwards, the Annual General Meeting can only be followed by shareholders entered in the share register, their representatives, inventor -- invited guests and accredited media representatives. For reasons of caution that so prevail, we have also limited to a few people the number of participants here in the studio. Here we have, of the Board of Management, Ola Källenius, Harald Wilhelm and Renata Jungo Brüngger. And Ms. Jungo Brüngger is in charge of integrity and legal, and she will answer any questions that shareholders have on law and compliance. From the Supervisory Board, we have Michael Brecht here, Deputy Chairman of the Supervisory Board. The other members of the Management Board and Supervisory Board also follow the Annual General Meeting via a virtual channel and can exchange information with each other and with us, if required. Also, there is a notary, Dr. [ Sunner ], who is also present in this room. He will notarize the Annual General Meeting. Ladies and gentlemen, before we get down to business, let us honor our dead as we do every year. We will commemorate the employees and pensioners who have passed away since the last Annual General Meeting as well as all those who felt close to our company. Today, we should not forget that the prevailing pandemic also has caused lives of employees of our company, of our suppliers and business partners. We especially include these colleagues and our partners in our thoughts. Now this is an unusual format for all of us, and this is why I'd like to give you a brief overview of the further course of the virtual general meeting. Unfortunately, it is impossible in the current circumstances to hold a general debate in the conventional sense. Instead, registered shareholders and their proxies were able to submit questions via the shareholder e-service until 2 days before the AGM. After my remarks and the report from the Board of Management, we will respond to those questions submitted in due time. After the questions have been answered, we will start with the voting process. We will vote on all items on the agenda in a single ballot. For technical reasons, you have been requested this year to vote on the proposed resolutions together with your registration for the AGM by absentee voting or by authorizing or instructing the proxies of the company. As we explained in the invitation to the meeting and the registration forms, registered shareholders or their proxies may change or revoke their proxy or instructions to the proxies or their written votes during the AGM until the end of voting, where the e-service of -- for shareholders. I shall give you advanced notice of the imminent closure of the vote. After a brief interruption of the AGM, in which we will determine the results of the voting, I shall then state and announce them. Shareholders who have exercised their voting rights have the opportunity to submit an objection to the notary public's minutes via the e-service for shareholders before the end of the annual meeting. The notary public's access to this tool and any objections received there is granted. So let me tell you what the attendance is of the share capital of EUR 3,069,671,971.76 divided into 1,069,000 shares -- 1 billion -- excuse me, 1,069,887,447 shares, we have 559 million shares represented with 1 vote each, and that means we have an attendance of 52.26% of the registered share capital. Also for 10,924,129 shares or 1.02% of the registered share capital, we have absentee votes. So attendance, including the shares for which absentee votes have come in, is a total of 570,032,414 shares or 53.28% of the registered share capital. Ladies and gentlemen, COVID-19 couldn't have hit the automotive industry at a more unfortunate time, in the midst of the most far-reaching transformation of its history. It's been brought to a standstill by the virus. The economic challenges have intensified, and we must prepare for a longer period of time for the effects of the COVID-19 pandemic. Nobody, including us, knows exactly what will happen this year or beyond. Especially in these uncertain times, I would like to thank all our employees. Thank you. Thank you for supporting your company and for joining forces to look ahead and shape its future. At this point, I would like to mention that from April 1 to the end of June, senior executives have waived 10% of their remuneration, and the Board of Management and Supervisory Board have taken a 20% reduction in their remuneration from the 1st of April to the end of the year. Despite of all these challenges, we must not neglect certain tasks of transformation. In consultation with the Supervisory Board, the management all took financial measures to secure liquidity at an early stage in order to prepare the company for the future. At the same time, we focused on the most important investments in future projects and technologies. The transformation of the automotive industry and of our company is in full swing. The main technological tasks, such as electrification and digitization in all its forms, are the main fields that continue to require increased funding. Last but not least, the pandemic has brought it home with a vengeance to everyone that we must take better care of our environment if we do not want to cause massive damage ourselves in the long term. Daimler's goal is and remains emission-free mobility by the end of the year 2039. The fleet of new passenger cars is to be completely carbon-neutral. Your company is again making massive investments this year despite the burdens of COVID-19 to develop ever more efficient drive technologies, among other things. Since every car manufacturers' funds are finite, this company has entered into partnerships in various forms and with various companies. Let me just give you a few examples. Volvo trucks for fuel cells for trucks and buses and then there's our cooperation with NVIDIA for software-defined vehicle architecture and there's Mercedes-Benz and NVIDIA who are partners here. And Ola Källenius will have more examples for you. However, one thing is also clear: the necessary investment in the future can no longer be generated by increases in sales and normal efficiency gains. The Board of Management has therefore adopted a program to improve the cost structure. Cost discipline covers all areas of the company and is an essential prerequisite for an economically successful future. In addition to the health, technological and sales challenges, however, we are also faced with geopolitical challenges. It is obvious that the emerging economic power, China, is challenging the United States' leading position. Unfortunately, Europe is in a state in which despite our potential strength with more than 500 million citizens, it cannot position itself as an economic power of equal standing. The conflict between the U.S. and China, whether in technological, commercial, sociopolitical, cultural terms, or be it in terms of values, can have a massive impact on our business. Daimler operates production and sales facilities in its larger sales markets. The Supervisory Board and the Board of Management have intensively discussed the associated risks for Daimler to the extent that they can be assessed at all and are of the opinion that despite all the risks involved, we, as a leading vehicle manufacturer, must be present with our brands in the world's 2 largest automotive markets, even if they seem to be drifting apart. Let me now turn to the year 2019, on which you will have details in the annual report. Today, the Supervisory Board and Management Board propose a dividend of EUR 0.90 per share. The dividend proposal takes into account a careful and prudent balancing of the interests of all stakeholders to which the company is committed as well as the current business situation, in particular, liquidity and business prospects. Ladies and gentlemen, last year, the current system of Board of Management remuneration was approved by the Annual General Meeting with an approval rate of almost 98% against the background of the new requirements of Section 87a of the German Stock Corporation Act regarding the remuneration of the Board of Management, which will not become mandatory until the Annual General Meeting in 2021 and the new recommendations of the German Corporate Governance Code. Based on these requirements, we would like to voluntarily submit our Board of Management remuneration system for your approval again today rather than in 2021. The adjustments, which focus on the criteria for determining the annual bonus, can be found in today's agenda, item 6, and in the remuneration report, which you can find from Page 115 in the annual report. What is the motivation behind the planned adjustment of the annual bonus? Well, our central concern is to align the incentives, especially for the annual bonus, with the transformation and the sustainability that will safeguard the future. For this reason, in the future, we want to include in our financial targets not only the Daimler Group's operating profit or EBIT, but also in equal measure, the free cash flow of the industrial business, which is of great importance for the financial strength of the company. The free cash flow is calculated on the basis of the defined EBIT, the EBIT target for the segment of the automotive basis -- business and the strategic target for the so-called cash conversion rate. In the case of the transformation targets, the target achievement range is adjusted to 0 to plus 25%. In order to maintain the desired opportunity risk profile of the annual bonus, the maximum target achievement or cap is reduced from 235% to 200% of target bonus, which also leads to a higher relative weighing of the nonfinancial targets and transformation targets in the overall target achievement and further underlines their importance. Our system meets the new regulatory and legal requirements. The value of the maximum total remuneration to be newly defined is based on the previous, still-relevant maximum amount, that is the cap on cash inflow and includes both fringe benefits or noncash benefits and pension expenses in their respective maximum lump sum amount. The cap on the cash inflow is calculated as 1.9x the target remuneration for ordinary members of the Board of Management and 1.7x the target remuneration for the Chairman of the Board of Management. In both cases, the possible cap on the amount in excess of the maximum amount or the maximum total remuneration is made when the long-term-oriented variable remuneration or the performance phantom share plan issued in the financial year and due for payment 4 years later is paid. The principle of pay-for-performance continues to be strongly anchored in our remuneration system proposal. Around 70% of the target compensation have variable compensation components. If the maximum total remuneration applicable to the Chairman of the Board of Management of EUR 12 million, including pension expenses and fringe benefits for a financial year, which we will certainly miss by a wide margin in the next few years, is deemed inappropriate by anyone, I am authorized to inform you today, on behalf of Ola Källenius, that in this theoretical case, any amount exceeding EUR 10 million after deduction of the taxes to be borne by him, will be donated to a charitable cause. Ladies and gentlemen, as in previous years, we had to deal last year with antitrust issues and proceedings relating to diesel emissions. In April of last year, the European Commission issued a statement of objections accusing BMW, VW, Audi, Porsche and also our company of violating EU competition regulations, which the commission interpreted very broadly in this respect in connection with the development and introduction of emission control technologies for new diesel and gasoline passenger cars. Let me emphasize once again at this juncture that your company has fully cooperated with the authorities in this case, as in all other matters, and has ensured transparency. We, therefore, continue to assume that we will not be fined in these proceedings. In view of the confidentiality still required in the course of the current proceedings, I ask you to understand that in the interest of the company, we are unable to provide any further details at this stage. However, I can assure you that the Supervisory Board and the Board of Management have done and are doing everything possible to clarify the events and facts in question in all cases and to take the necessary measures. The truck case, which has already been closed by the authorities, also kept the Supervisory Board busy last year, not least in view of the pending antitrust claims for damages by truck customers. In addition, the Supervisory Board, with the assistance of an independent law firm, updated its review of whether and to what extent former or current members of the Board of Management are responsible in connection with antitrust matters. The Supervisory Board decided to adhere to its previous decision and, taking into account the best interests of the company, to refrain from making any claims at present. In doing so, the Supervisory Board continue to keep in mind the risk of any claims for liability of the executive bodies becoming time bought and has taken appropriate measures in this respect. As in previous years, we've also asked another independent expert, Professor Dr. Habersack, to examine whether the Supervisory Board has fulfilled its duties in this respect. Against this backdrop, Professor Dr. Habersack updated his statement of last year to reflect the developments in cartel matters that have occurred in the meantime. He came to the conclusion that the Supervisory Board had fully complied with its duties. You can find Professor Habersack's statement on the Daimler website in the management statement on the countermotions for today's annual meeting. In September of last year, the Stuttgart public prosecutor's office issued a fine notice for negligent violation of supervisory duties in the certification of certain Mercedes-Benz vehicles. According to this decision, the negligent breach of supervisory duty took place at the level of department heads that are several levels below the Board of Management. The fine was preceded by close and trusting cooperation between your company and the authorities. After discussing the relevant aspects and weighing up the relevant reasons, the Supervisory Board, taking into account the best interests of the company, approved the decision of the Board of Management not to appeal against the fine notice. The Supervisory Board, together with the Management Board, is of the opinion that the conclusion of the fine proceedings was in the best interest of your company. Daimler is also doing everything in its power to promptly bring any further inquiries, investigations, orders and proceedings relating to diesel emissions to a conclusion that best serves the interests of the company. In view of the confidentiality required in the context of these complex issues, I would also like to ask you -- for your understanding that in the interest of the company, we are currently unable to provide more detailed information. I can assure you, however, that both the Supervisory Board and the Board of Management have done, are doing and will do everything possible to clarify the events and facts in all cases and to take the necessary measures. The Supervisory Board, with the help of an independent law firm, is examining whether and to what extent members of the Board of Management are responsible in conjunction with the diesel emissions. The review is ongoing. As soon as the results of the investigation are available, the Supervisory Board will decide on any necessary measures. The Supervisory Board has examined possible risks of limitation in detail and has ensured that there is no risk of the statute of limitations being suspended. In addition, the Executive Board has comprehensively further developed the company's technical compliance management system. This is a very important measure designed to ensure that Daimler vehicles continue to comply with increasingly complex legal requirements worldwide. The Supervisory Board, in consultation with an independent law firm, is dealing in detail with this technical compliance management system and its implementation. Against the background of the high complexity of issues relating to issues of emissions and cartels and with a view to the efficient organization of the Supervisory Board's work, the Supervisory Board established a committee for legal affairs in July 2019, which is chaired by Dr. Bõrsig. This Advisory Committee receives detailed reports on these issues, discusses them and prepares the Supervisory Board's deliberations. This ensures that the Supervisory Board is intensively and comprehensively involved in these complex issues. Ladies and gentlemen, I would now like to turn to the personnel matters of the Management Board and the Supervisory Board. As of the end of last year's annual meeting on the 22nd of May 2019, Ola Källenius assumed responsibility for the areas of responsibility of the Chairman of the Board of Management of Daimler AG and Mercedes-Benz Cars, and Harald Wilhelm assumed responsibility for the areas of finance and controlling and Daimler Financial Services. "There is a sackful of work ahead of the Board of Management team," to quote Ola Källenius. The Supervisory Board is fully aware of the complex tasks that the Board of Management now faces and therefore supports all measures that are suitable for successfully implementing them and shaping the future. In February 2020, the Supervisory Board reappointed Hubertus Troska as a member of the Executive Board with responsibility for Greater China for a further 5 years with effect from the 1st of January 2021. Hubertus Troska has developed and driven forward the business activities of Daimler and, in particular, the Mercedes-Benz brand in China with outstanding success. China is by far the most important automotive market for Mercedes-Benz passenger cars and is also essential for our truck and van businesses. With his local experience, Hubertus Troska has a key role to play here. We look forward to continuing the successful cooperation with Hubertus Troska. Ladies and gentlemen, I would now like to turn to the personnel changes on the Supervisory Board following today's annual General meeting. Paul Achleitner's term of office on the Supervisory Board ends at the end of today's AGM. Mr. Achleitner announced after the Nomination Committee wanted to propose him again for reelection to the Supervisory Board of Daimler, that he does not intend to stand for a third term of office. This decision deserves our respect. Over the past 10 years, Paul Achleitner has enriched our Supervisory Board with his experience and expertise. On behalf of the entire Board, I would like to thank Paul Achleitner for his dedicated work and for his contributions towards the well-being of the company. We wish Paul Achleitner all the best for the future. On the basis of the recommendation of the Nomination Committee, Timotheus Höttges is proposed for election for the first time for a 5-year term of office under agenda Item 7. Tim Höttges has been CEO of Deutsche Telekom AG since 2014. Before that, he was responsible for finance and controlling as a member of the group Board of Management for 5 years. He's a seasoned manager and a proven expert in digitization and telecommunications. With his qualifications, he is an excellent fit for the Supervisory Board of Daimler AG. But I think it is best Mr. Höttges will briefly introduce himself.

Dear shareholders, ladies and gentlemen. Actually, I would have loved to be physically present today. But in these times of the pandemic, we see the advantages of digitization. Via web stream and video, we can attend all the meetings without being there physically. I still hope that next year, I will be able to meet you personally. I would like to present myself, and I stand up for election as a Supervisory Board member. I was delighted when I was proposed as a member of the Supervisory Board to represent the shareholders. Thank you very much indeed. Who am I? I'm Tim Höttges. I was born in 1962 in Solingen, and I'm married. My wife has a private clinical practice in Bonn, and we have 2 adult sons and a dachshund. My career went as follows: I studied Business Administration at Cologne University, and then I started working with a consultancy. I learned my trades from scratch. After that, I joined VIAG and among other things, I cooperated in the merger with VIAG to E.ON. I'm an expert in finance and accounting and in controlling, but I also wanted to see the other side of the business and learn a bit about that. So in 2000, I changed [indiscernible] and joined Deutsche Telekom, where I started being Head of T-Mobile Germany. After that, I was responsible for sales and the business in Europe. And from 2007 onwards, I was in charge of the turnaround of the fixed line business, T-Com. In 2009, I went back to my roots and next to René Obermann, I worked as a CFO. Since 2014, I've been CEO of Deutsche Telekom AG, and I'm responsible for a global business with 215,000 employees and a turnover of EUR 80.5 billion. My most important focus there is connectivity and digitization. How can we connect everything with everything, how can we streamline our products and how can we focus on the customer with a vengeance? How can we create a digital and at the same time, sustainable business model? All these are questions that are also very important for Daimler. And I think I am the right person to support Daimler in this. I would be delighted to share my knowledge, and I'd be pleased to make available my knowledge -- my expert knowledge when it comes to future technologies and connectivity. And I promise I will do that with a lot of passion and great commitment. I would be very happy indeed if you placed your trust in me, and I hope to see you next year.

Thank you very much, indeed. Mr. Höttges. I would like to move on. The agenda with the proposed resolutions was published in the Federal Gazette when this Annual General Meeting was convened on the 10th of June 2020. In doing so, the opportunity was taken to shorten the notice period in accordance with the COVID-19 Act. Since June 10, 2020, the convening notice has been available on the company's website together with other documents to be made available. The countermotions and election proposals to be made available were also published on the website. I will return to the countermotions and election proposals later during the voting process. The annual financial statements of Daimler AG, the consolidated financial statements of the group and the combined management report of the company and the group for the 2019 financial year were audited by KPMG AG Wirtschaftsprfungsgesellschaft Berlin and received the unqualified auditor's opinion. On the 19th of February 2020, the Supervisory Board approved the annual financial statements of Daimler AG and the consolidated financial statements after its own examination. The financial statements of Daimler AG for the 2019 fiscal year are thus adopted as regards to the detailed report of the Supervisory Board on the past fiscal year. Please allow me to refer you to the report of the Supervisory Board, starting on Page 34 of the annual report. The annual report also contains the compensation report and the detailed corporate governance report. Ladies and gentlemen, there's every reason to make me feel confident that Daimler can emerge from the current situation stronger than before. This is why it's now so important to set the right priorities quickly. Daimler's business model, together with the innovative spirit, the wealth of knowledge and commitment of its employees meets all the requirements it takes for taking mobility to the next level. Mobility came to a temporary halt due to worldwide lockdowns, perhaps for the first time since mobility was invented. But the demand for mobility remains unbroken. The Management Board will now report to you on the past financial year and provide an outlook for the future. For his speech, Ola Källenius will now use the equipped studio. Ola, the floor is yours.

Shareholders, my dear representatives, ladies and gentlemen, many things are different these days. Who would have thought 12 months ago that we would have to hold an Annual Shareholders' Meeting this year without a personal meeting? And who would have thought that digitalization would not only be an important topic on this year's annual meeting but a prerequisite for holding it? Of course, I, too, would prefer if we could meet in person today. I am nonetheless pleased that despite the social distancing, I am able to talk to you about the current situation and the future prospects of our company. I would like to do this in a slightly different way than usually, namely with the use of 10 figures. Let's start with this: Daimler has business operations in nearly 180 countries. In each of these countries, we had to react to COVID-19 under enormous time pressure. We acted as fast as possible all over the world. Our top priority has been to protect people's health. Dealing with this pandemic remains a challenge of historic proportions. I would like to take this opportunity to thank all our customers for their understanding and loyalty, and I'm sure I'm also speaking on your behalf. And of course, I would like to thank all my colleagues in those nearly 180 countries. I have been with the company for quite a while now, but I have never experienced such togetherness, team spirit and helpfulness. It was crucial for the economic stability of the company that we were able to secure our liquidity, and this brings me to the next number. At the end of the first quarter, our net liquidity amounted to EUR 9.3 billion. That's a decrease compared to the previous quarter. Nonetheless, in view of the pandemic situation, this is a good and robust level. A key factor here was speed. Within a short time, we initiated a large number of measures to protect our cash position. We adjusted our production to the corona-related low demand at an early stage. We made use of the possibility of short-term work, and we focused our investments consistently on future-oriented projects. At the same time, we arranged an additional credit line of EUR 12 billion. This increases our financial flexibility. We are able to act independently. The measures we took were aimed at dealing with the situation in the short term but also designed to support our long-term course. This also means that we stand by the dividend proposal we made before the pandemic, EUR 0.90 per share. This is the result of a dividend policy that has been based on a clear system for many years. We distribute 40% of the net profit of the previous fiscal year. In addition, the dividend should be covered by the free cash flow from the industrial business. I know many of you would have wished a higher dividend. However, Daimler was significantly impacted by special reporting items that reduced the earnings in 2019. One thing is for sure. The current dividend level is also not what we and the Board of Management have in mind for the long term. At the same time, there were public voices demanding that no dividend be distributed at all. I would like to emphasize, we do not receive any state subsidies. Short-time work, being one tool of unemployment insurance, protect jobs and thousands of companies in Germany. Workforces and companies have been paying into this insurance for decades. It's a way to bridge over the trough in demand, which we are currently experiencing. I would like to appreciate this opportunity to thank the government authorities and regulators for their work, be it health authorities, the employment agency or politicians at local, state or federal levels. Germany has managed the COVID-19 crisis in an impressive manner and has become a role model for many other countries. And the German government's stimulus package will help to overcome the economic impact in Germany more quickly. One key element within the company is the fair distribution of loads. As Manfred Bischoff mentioned, everybody in the company is making a contribution. Sticking together is what matters now. Another trump card is high degree of flexibility. That pays off, especially in times of crisis. The demand is what determines our production program. In the past months, global vehicle markets have slumped massively, and this has hit us hard as well. We sold nearly 870,000 cars of the Mercedes-Benz brand in the first half. That's almost 19% less than in the previous year period. However, in China, Mercedes-Benz achieved its best second quarter ever in terms of unit sales. So in our biggest market, we have gained ground again. And we are cautiously optimistic that other markets will follow this development step by step. Nearly all our dealerships worldwide are opened again. Already in June, global retail deliveries of passenger cars were slightly above the level of the previous year. The pandemic also impacted our truck business. Since the beginning of the year, we sold approximately 150,000 heavy trucks. That's 38% fewer than the year before. COVID-19 is not the only reason, but there's also an anyway weaker market environment, especially in Europe and North America. In recent weeks, the development of order income has been positive again in almost all of our core markets. And also, Daimler Mobility's business was affected by COVID-19. The final figures aren't available yet, but contract volume is expected to have been approximately EUR 155 billion at the end of the year. That's a 2% decrease compared to 2019. And especially in China, mobility is moving up again. The negative effects of the first quarter could be compensated for in the second quarter. Overall and against the backdrop of the effects of COVID-19, we anticipate a negative adjusted group EBIT and a negative free cash flow in the industrial business for the second quarter. This is also what we forecasted when we published our figures for the first quarter. As expected, because of COVID-19, we will record significant revenue decreases in the second quarter, although the development of revenue in recent weeks, especially in the car business, gives us grounds for cautious optimism. The early adjustment of production and measures introduced on the cost and cash side were quite effective. They're especially helpful on cash flow and liquidity. And in general, as quickly and efficiently as we slowed down our production because of COVID-19, we are equally able to ramp up production as soon as demand increases again. But it's also a point of truth that the way to the level before the crisis is still a long way. For 2020, the IMF expects the worst worldwide recession for almost 100 years. The group's unit sales, revenue and earnings are likely to be lower this year than in 2019. When it comes to diesel, we were able to take a decisive step in September 2019 and conclusively end the district attorney's fine proceedings against Daimler AG. This strengthens us in our course. We are working constructively and transparently with the authorities and regulators and focus on sustainable compliance while continuing to defend our legal position. Also last year, we launched a comprehensive initiative to improve our efficiency on the long run in all divisions. We are currently implementing thousands of measures, and first effects are already being felt. Our previous efficiency goals covered the upcoming transformation but not a global recession. And that is why we are further refining our course. We are currently engaged in constructive negotiations with the employees' representatives. We communicated another measure a few days ago. We plan to adjust the capacities of our global production network to the expected market situation. We, therefore, intend to start negotiations on the sale of our car plant in Hambach, France. One potential buyer with whom we are holding talks is Ineos. The prime goal is to give the site a good prospect for the future. At the same time, we are investing in the transformation towards CO2-neutral mobility. The most recent example is our strategic partnership with the Chinese battery cell supplier, Farasis. In this way, we are intensifying our sustainability and, at the same time, strengthen our existing business relationship with an equity interest of about 3%. We have initiated a number of measures to become more competitive. Each of them serves the purpose of generating more profitable growth and meeting your revenue requirements as investors. And I can assure you we are committed to our long-term economic goals. I think we all agree, the latest results of operations, even before Corona, do not do justice to this proud company. Daimler can do better, and we are determined to deliver. COVID-19 has pushed into the background another major challenge that will occupy us for a long time to come intensively, and that's the fight against climate change. We need to change lanes towards decarbonization. It is our goal to offer a CO2-neutral new passenger car fleet by 2039. In order to achieve this, our principle reads electric-first, and we are making good progress. By the end of this year, our car portfolio will comprise 5 fully electric models and more than 20 plug-in hybrids. In Europe, we sold 4x as many plug-in hybrids as in the first half year last year, and this is rising steadily. And this shows that more and more of our customers are deciding on one of our electrified models. And with our all-round carefree packages by Daimler Mobility, we want to specifically reduce any remaining reservations. Our overall contribution to climate protection, however, goes far beyond the vehicles. We recently developed principles for green financing at Daimler. This will make it possible in the future to invest specifically in Daimler's sustainability topics in the future. The first step soon will be an issuance of green bonds. We will use the proceeds to further advance our sustainable business strategy. Or let's take production. As of 2022, production of cars and vans in the more than 30 factories of Mercedes-Benz AG worldwide will be CO2-neutral. And sustainability has priority not only for our cars. For our most important truck markets, the triad, we plan to produce all -- to make all new Mercedes-Benz commercial vehicles CO2-neutral to operate. Production in our commercial vehicle plants in Europe will be CO2-neutral by 2022 already. Other plants will follow. We already have fully electric trucks, vans and buses on the road. The eCanter is already in large scale production. eActros and eCascadia are being tested in everyday use. We want to put both into series production next year. With our vans, after the eVito and eSprinter, our EQV has been available to order for a few weeks now. Thomas Built Buses is the first large-scale manufacturer to put all electric school buses on the road. And the Mercedes-Benz eCitaro city bus is in high demand all over Europe. The fuel cell also plays a crucial role in the electrification of our commercial vehicles. I know that this topic is important to you, my dear shareholders. In the advance of the annual meeting, we received many questions specifically on hydrogen. We are really pleased with this because we share the view that fuel cells are a key element of the drive portfolio of the future. We are consolidating our know-how in this field in 2 partnerships. With Volvo, we plan to offer fuel cell trucks for heavy-duty long haulage in series production in the second half of the decade. And with Rolls-Royce, we are working within a corporation on stationary fuel cell systems. We are taking the next step towards the future with a car that we'll present -- that will be presented in the fall. That's the Model Series 223, our S-class. We offer many highly attractive premium models, but none of them embodies Mercedes as much as the world's best-selling luxury sedan. It is our claim to offer our customers, innovation, safety, comfort and quality like never before. There's a high potential, especially in the upper end of the segments we are active in. We are a luxury brand. That's where we have been strong historically, and that's exactly where we want to grow in the future. One important parameter in this is our strong brand, Mercedes-Benz, and the extension of our sub-brands from AMG to EQ. In total, we are going to strengthen our brand portfolio and make it more attractive to a broader group of buyers. That's one step towards profitable growth. In the core of our strategy, it's about appealing desirable cars, the most desirable cars. That's our promise. I recently drove a preproduction model of the 223 Series and I can tell you that our engineers are once again delivering on their promises. The new S-Class combines our 2 strategic focuses: electrification and digitalization. 48-volt technology will be standard for all engines, and the plug-in hybrid version will set the benchmark for electric range in this segment. Our idea that digitalization is a huge opportunity is documented by our cooperation with NVIDIA. Together with one of the world's leading tech companies, we plan to develop one of the smartest-ever computer architectures for automated driving ever. And as of 2024, we will roll it out across our car fleet. With state-of-the-art software and digital services, we want to offer our customers additional values. For example, automated driving functions can be made available over the air, and the idea behind it is simple. Buying a car is no longer the highlight between customers and us, but it's going to be the starting point. Jensen Huang, NVIDIA's CEO, put it in a nutshell: "In the future, a used Mercedes will be smarter than it was as a new car because it will learn constantly and adapt itself to the customers' wishes." We will already take the next major step in terms of digitalization in less than 2 months with the new MBUX generation. We will demonstrate in detail what the system can do at the S-Class World Premier. But I'm happy to give you a sneak preview already today. You all know MBUX with artificial intelligence and intelligent usability. We revolutionized the automotive cockpit. With new and extended functions, we are revolutionizing the previous MBUX system. In terms of performance, learning capability, design and individualization of the system, we follow completely new approaches. In the future, all passengers will be able to use MBUX and the system will identify the different passengers by their voices. Let's have a look inside. Different stylings make MBUX even more individual and make it a styling element of the interior. With the subtle mode, we also offer a very reduced graphical user interface so that the driver can concentrate on the road and on the traffic. The focus of this system is a large OLED touchscreen. It not only gives tactile feedback, it also predicts which elements I want to select, which are then emphasized visually. In addition, we are offering more and more streaming services in MBUX. The next step is Amazon Music, and more providers will follow. Let's also have a look at the gauge cluster in front of the steering wheel. With the S-Class, we launched the eco score to production. Millions of people know gamification from their everyday life. Playful tasks help improve fitness. And with the eco score, we improved the energy friendliness. By driving with foresight, you keep this globe in the middle, save energy and drive environmentally friendly. One function of our new Mercedes Me app perfectly complements to the eco score. With the individual fuel consumption service, you can view your actual fuel consumption anywhere at any time on your smartphone. And if you want, you can compare your numbers with those of users of the same car model type. The interaction between infotainment and driver-assistance systems in the new S-Class enhances safety also. One example, recognition of one's surroundings. Looking ahead and looking rearward, well, a Mercedes can do that already. With the new MBUX, it not only recognizes that a vehicle is approaching but also which type. The display shows whether it's a motorcycle, a car or a heavy truck approaching. The new S-Class also reaches the next milestone when it comes to automated driving. More about this you will see on the premiere in early September. Is there such a thing as the ideal passenger? Well, couples probably have been arguing about this since the invention of the automobile. Our new S-Class gives the answer. It reads, yes. Augmented reality makes the S-Class the best co-pilot you have ever had. Route instructions are more precise and easier to understand than ever, thanks to the fusion of virtual and real worlds. There are many arrows in navigation systems, but our engineers put them where they belong, on the road. We thus make navigation better and above all safer than ever. In this way, the driver's eyes remain on the road ahead. All of this is just a little glimpse into MBUX in the new S-Class. And I think it makes clear the future of Daimler is digital and electric. Next year, we will enter a new era of Mercedes-Benz electrification. The EQS will set new standards. More than 700 kilometers of driving range, according to WLTP, that's how far it can go on one battery charge. With the EQS, the way we think and conceive cars is changing. It is the first fully electric Mercedes-Benz, which was developed from scratch as an e-car. And this opens up completely new possibilities, from the layout of the batteries to the car's styling. The EQS plays in the same league as the S-Class in terms of luxury, comfort and safety. But the EQS is also a symbol for Germany's future capability. The batteries come from our plant in Stuttgart-Untertürkheim. And the car will drive off the assembly line in Factory 56 in Sindelfingen. In this country, people like to be self-critical, which is good and important, because time and again, this is an incentive for innovation and renewal. But despite of all the justified complaints about things such as losing mobile signal and driving through potholed roads, there is also a lot of reasons for optimism. The EQS and Factory 56 are 2 examples of many that demonstrate the German economy has long and sustained -- is long and sustainable and has been in a fundamental transformation process for many years. We have shaped the history of the automobile since its invention 134 years ago by our founding fathers, Carl Benz and Gottlieb Daimler. Countless people are still inspired by this unique tradition today. And this applies not only to those who drive our cars, it also applies to all our colleagues who engineer, build, sell and maintain them. We at Daimler have time and again experienced profound upheavals in view of an ever fasting -- ever-faster changing world. We must be prepared to change at an even faster pace. As a company, our goal is to be a role model and pioneer for integrity. It is the foundation of our business and our corporate culture. We have already achieved a lot in this regard, but implementing integrity and everyday work is an ongoing task. The right culture also includes taking a clear stance on current issues such as racism or discrimination, and we are doing this both internally and externally. Building cars is teamwork and can only function if we treat each other with respect, openness and fairness. Daimler is clearly committed to this, and we expect the same from the approximately 300,000 employees who work for us worldwide. Owing to your -- to their commitment and their lifeblood, we have come out of every crisis strengthened. And this will also be the case in the current one. And for this reason, I am looking into the future full of confidence. A path of decarbonization and digitalization leads to the future of mobility. Strategically, we have been on this path for a long time, and that was right. The results can already be experienced on the road today. And in the months to come, they will be even more numerous and visible in passenger cars and commercial vehicles. Daimler's future will be sustainably fascinating, sustainably climate-neutral and, last but not least, sustainably profitable. This company has a great history but also a great future ahead. And we are shaping it with courage, with passion, responsibility and togetherness. Thank you very much.

Thank you very much, Ola, for your words. Ladies and gentlemen, with regard to agenda Item 13, concerning the conclusion of a profit and loss transfer agreement with Mercedes-Benz Bank AG, we are obliged to explain this profit and loss transfer agreement to you in detail. Now I would like to ask Harald Wilhelm, our CFO, to do that. Harald, you've got the floor.

Thank you, Manfred. Ladies and gentlemen, Board of Management and Supervisory Board, under agenda Item 13 propose the conclusion of a profit transfer agreement between Daimler AG and Mercedes-Benz Bank AG to be approved. The approval of the annual meeting is a necessary prerequisite for the effectiveness of the profit and loss transfer agreement. The Management Board is required to explain such agreements orally to the shareholders at the beginning of the Annual General Meeting. Since the announcement of the convening of today's Annual General Meeting, we have already made detailed documents available, in particular, the joint report of the Management Boards of both contracting partners -- parties. You'll find it on our homepage, and I refer to this. First of all, the background of the new profit transfer agreement. Until the end 2019, Mercedes-Benz Bank AG was held directly through Daimler Mobility AG, formerly Daimler Financial Services AG. Daimler Mobility AG is 100% direct subsidiary of Daimler AG and is linked to a Daimler AG through a control and profit transfer agreement. Until the end of 2019, a control and profit and loss transfer agreement also existed between Daimler Mobility and Mercedes-Benz Bank. As part of the reorganization of the Daimler Group, all shares in the Mercedes-Benz Bank were transferred from Daimler Mobility to Daimler AG effective January 1, 2020. In this context, the control and profit and loss transfer agreement between Daimler Mobility and Mercedes-Benz Bank was terminated as of December 31, 2019. In order to maintain the integration of Mercedes-Benz Bank into the income tax group of Daimler Group and thus preserving the associated benefits for the future, a profit transfer agreement is now to be concluded directly between Daimler AG and Mercedes-Benz Bank. In the case of an income tax group profit and losses of the controlled company, Mercedes-Benz Bank are allocated to the controlling company, in this case, Daimler AG, for tax purposes on the accrual basis. They can then be consolidated with the results of the other domestic group companies in the income tax group at group level. This can be advantageous for tax purposes. Furthermore, within the framework of the fiscal unity, profits of Mercedes-Benz Bank are transferred to the Daimler AG without additional tax burden. The conclusion of a profit and loss transfer agreement is a mandatory prerequisite for the establishment of an income tax group between Daimler AG and Mercedes-Benz Bank. Necessary components of a profit transfer agreement are the obligation of the Daimler AG to assume the losses of Mercedes-Benz Bank and the obligation of the Mercedes-Benz Bank to transfer its profits to Daimler AG. Apart from the obligation to offset losses, the profit transfer agreement does not have any particular consequences for Daimler AG and its shareholders. The obligation to offset losses vis-à-vis Mercedes-Benz Bank is not new. It already existed indirectly until the end of 2019 because Daimler Mobility was obliged to compensate for any losses of Mercedes-Benz Bank under the control and profit and loss transfer agreement existing between Daimler Mobility and Mercedes-Benz Bank until that date. Daimler AG, in turn, was and continues to be obliged to compensate any losses of Daimler Mobility under the control and profit and loss transfer agreement existing between it and Daimler Mobility. The conclusion of the profit and loss transfer agreement between Daimler AG and Mercedes-Benz Bank requires the approval of the annual meeting of Mercedes-Benz Bank as well as the approval of the annual meeting of Daimler AG, which is to be obtained under Item 13 of today's agenda. The agreement will not become effective until its existence has been entered into the commercial register of Mercedes-Benz Bank. The contract has the following main content: The Mercedes-Benz Bank undertakes to transfer its entire profit to Daimler AG from the beginning of the fiscal year and progress at the time the profit transfer agreement is entered in the commercial register in accordance with the provision of Section 301 of the German Stock Corporation Act as amended. To the extent permitted by law, other revenue reserves formed during the term of the agreement may be released and transferred as profit at the request of the Daimler AG. By contrast, other reserves and retained earnings brought forward and retained earnings from the period prior to the effective date of the agreement may not be transferred to Daimler AG as profit nor may capital reserves, regardless of whether they were formed before or after the effective date of the agreement. As credit institution, Mercedes-Benz Bank is subject to the regulatory requirements for capital adequacy under EU law. In priority, to the extent of the profit transfer just described, the profit transfer agreement must therefore stipulate that Mercedes-Benz Bank, when preparing its annual financial statements may, at its own discretion and to the extent that is economically justified on the basis of sound business judgment, reduce the amount of the profit transfer by allocating all parts of the profit or other revenue reserves or to special item for general banking risk before profit transfer to Daimler AG takes place. In return for the bank's obligation to transfer profits, Daimler AG undertakes to compensate for the bank's losses in accordance with the provisions of Section 302 of the German Stock Corporation Act as amended. The agreement is concluded for an indefinite period and may be terminated by either party by giving 6 months' notice but only at the end of the bank's financial year at the earliest, at the end of the financial year in which the minimum term required for a fiscal unity ends. Currently, the minimum term is 5 years. Due to the capital adequacy requirements of European law, Daimler AG remains obliged to assume the full loss for the current year in the event of an ordinary termination of the agreement, regardless of the party involved. Under certain conditions specified in the contract, both parties may terminate the contract for a good cause. For example, if the tax requirements for so-called financial integration of the bank and to Daimler AG cease to apply due to a sale of shares or for other reasons. Since Mercedes-Benz Bank is a wholly owned subsidiary of Daimler AG, the profit and loss transfer agreement does not provide for any compensation or settlement to minority shareholders. For the same reason, the agreement does not need to be audited by a court-appealed (sic) [ court-appointed ] auditor. For further details regarding the conclusion of the profit transfer agreement, please refer to the documents available on the website of Daimler AG since the convening of this annual meeting on June 10, 2020, in particular, the draft of the agreement and the joint report of the Boards of Management of Daimler AG and Mercedes-Benz Bank AG. I thank you very much for your attention and return to you, Manfred.

Well, thank you, Harald, for those explanations, for all the details. Ladies and gentlemen, now this brings us to the end to the publicly broadcast first part of this virtual Annual General Meeting. From now on, the livestream is only available to shareholders entered in the share register, the representatives, invited guests and accredited media representatives. Downloading, copying and recording or further processing in any way is not permitted without the express written consent given by Daimler. In accordance with the COVID-19 Act, shareholders registered for the Annual General Meeting or their proxies, were able to submit their questions until the end of July 5, 2020, using the method described in the notice of the meeting, and we will now come to the answers to these questions. And as far as possible, we've divided up the questions into topics. And I'll be the first to take the floor. [Statements in English on this transcript were spoken by an interpreter present on the live call.]