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

Welcome to today's Analyst Call of Daimler. At our customer's request, this conference will be recorded. A replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler website. [Operator Instructions] I would like to remind you this teleconference is governed by the safe harbor wording that you find in our published results documents. Please note that 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 prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. May I now hand over to Steffen Hoffmann, Head of Daimler Investor Relations. Thank you very much.

Good afternoon, ladies and gentlemen. This is Steffen Hoffmann speaking. On behalf of Daimler, I'd like to welcome you on both the telephone and the Internet to our analyst call. Thank you very much that you made yourselves available today on short notice. We are very happy to have with us today Ola Källenius, Martin Daum, Harald Wilhelm. In order to give you maximum time for your questions, we will begin with a short presentation directly followed by a Q&A session. The respective presentation can be found on the Daimler IR website. Now I'd like to hand over to Ola.

Thank you, Steffen, and welcome to this investors' call this afternoon. Today is a very important day for our company. I would say it's a historic day for our company. We've just come out of the Supervisory Board meeting where we have decided that we will propose to our shareholders to divide Daimler into 2 industrial businesses -- 2 strong industrial businesses, a pure-play car company and also a global leader in trucks and buses. This will be done, if we move to the next slide, through a separation in the structure that we know today. And in the structure that we are pursuing, we will have a Mercedes-Benz with, of course, a strong financial and mobility services division that supports that, and the same will go for Daimler Trucks. If I move to the next slide, what does this mean? Next to my role as leading Daimler, I also lead Mercedes-Benz. Many of you had the opportunity to take part in the strategy event that we had presented to you in the fall of last year. We are very much in the middle of implementing this strategy: a clear focus on Mercedes as a luxury brand, a clear focus on Mercedes in transformation to take a lead in electric drive and car software. We have done a lot of work in terms of our cost structure and our cost efficiencies to lift and improve our financial performance and put ourselves in the position that we can go into the next years of transformation in a position of strength. Our liquidity is robust. We signed off a 5-year plan based upon the strategy presented in October, just before Christmas, and we're eager to get on with it. We think that this pure-play luxury car company is going to be even more to attractive investors for those who seek a return in that area. And as Head of Mercedes-Benz, I'm hugely excited about taking on this new future in that capacity. And the other side of this business is a global champion in trucks and buses. Martin, why don't you take the opportunity to share some views on how you view this new structure?

Thank you, Ola. Martin Daum here speaking. I'm absolutely excited, just energized with the decision today because this is what the guys in the truck division dreamt for, for many years, having the full independence to show the world the potential that our company has. We are really, truly a truck -- Daimler Trucks & Buses, a truly global company with extremely strong brands, extremely strong market presence all over the world. We are ready to seize opportunities wherever trucks are needed in the world. And I think we have proven in the past, and we have many ideas how we can prove it in the future even more how we can leverage our global scale and global platforms, especially when it comes to new energy drivetrains and when it comes to electronic and software. We have, in all of our markets today, the leading technology truck, which gives our customers a superior total cost of ownership, and we have strong partnership when it comes to new technologies, meaning battery electric or when it comes to fuel cell, where we really have all ingredients to shape the market of the future. On automation, we are in a very good track with our own strong presence with Torc Robotics in the United States and our close relationship and cooperation with Waymo, a 2-legged strategy that bolsters our position in this area of the market. We are doing with good results already in 2020 to optimize our product and service portfolio, streamlining our footprint with a lot of plans for the future. I think the core for the future is that we continue to execute the initiated restructuring, which is well under its way despite COVID with a good 2020 second half. We have the DTNA, which is our really absolutely leading position, where it -- we want to maintain that and even expand it with the launch of our vocational product this fall '20 -- last fall and where we start harvesting the benefits this year 2021. And then certainly, we will continue with partnerships and have quite an interesting pipeline to get amortized on our tech investments and keep the 2 strong pillars, that is, our global presence and our really deep engineering know-how when it comes to trucking and really unleash that potential to the market. As I said at the beginning, I'm super excited of the years ahead of us.

So thank you, Martin. So we will create 2 independent, I mean, industrial leaders: Mercedes-Benz for Cars & Vans, Daimler Truck for Trucks & Buses. How are we going to do that? Well, we'll have a separate listing of Daimler Trucks via a majority spin-off. What does it mean? Daimler will distribute the majority -- a clear majority of the shares we are holding in Daimler Truck today to our current Daimler shareholders. This means there will be a very clear majority free float in the market. And in return, Daimler will cease control over Daimler Truck. However, we'll retain a minority share in Daimler Truck moving forward. What does it mean for our current, I mean, investors? No investment needed from the shareholder side, i.e., no dilution for the existing one. On the other side, I mean, no proceeds in terms of cash for Daimler. The clear benefit and beauty, I would say, first off, the spin is that you can do the majority. So you create the entrepreneurial freedom, but you also create the potential for the rerating. And at the same time, it is relatively independent of capital market conditions. How can you judge that we're really doing an independent Daimler Truck entity, I mean, in the future? Well, I referred to the majority and the minority already before. So a very clear majority stake will be spin-off. We will retain a minority, but you should consider that as a financial stake, a financial shareholding, which will clearly allow deconsolidation of Daimler Truck from Mercedes. You can also judge it from a governance standpoint, i.e., Daimler Truck will have an independent governance with an Independent Chairman of the Supervisory Board, and the remaining Daimler/Mercedes-Benz representation will be in line with the intended deconsolidation. The new entity, I mean Daimler Truck, will have a very strong financial profile as the passenger cars entity has it and will have it, i.e., both entities will have a very strong net liquidity position with the number we disclosed last week with a net industrial liquidity of close to EUR 18 billion. This is obviously a very comfortable starting position from which both entities, Mercedes-Benz and Daimler Truck, will benefit. And we'll have as well very ambitious financial targets. You know the one which we defined for the cars business, which we disclosed in fall. We told you as well that we defined an ambitious set of targets for truck as well. The listing is expected to be in Germany, in Frankfurt. And from what we see today, it clearly should -- the Daimler Truck entity should clearly qualify to be in the DAX. The intended listing is by the year-end, I mean, of 2021. So what are the major steps, I mean, to get from here to that point in time? You see that on the slide. Well, we have this very important mark here today, the starting line, so to say, of that race to the listing. We intend to hold an in-depth Capital Market Event to just talk about, I mean, the equity story of Daimler Trucks in the course of May, the strategy, the structure, the execution, the financial profile, everything you need to know to be comfortable with where the Daimler Truck business is going. Then we plan for an Extraordinary Shareholder Meeting in fall. Obviously, there's a bit of work to be done with the separation agreements, service agreements, so tons of work which has to be done. However, we benefit from all of the heavy work, which has been done before on the PROJECT FUTURE, with a large set of the separation already being done and executed. We'll then hold, obviously, before the final event, another Capital Market Day for the spin-off, before then, we should go to the listing by the end of the year.

So to wrap this up, as Harald said, we want to get it done within this fiscal year. I think that's important. It's an ambitious plan, but it can be done, and we will go for that. And if I finish off on the last slide, this is a decision made out of conviction: conviction that customer dedication is the right way to go for these industrial businesses, conviction that entrepreneurship can be taken to yet another higher level for each one of these businesses and also a conviction that we can create value for our shareholders. Businesses that are successful are businesses that can grow and that will also create safe jobs. I think emotionally, for all of us, we have been here, many of us, for decades. We have grown up under this Daimler roof. We know it. We live and breathe this company. Each and every one of us mostly also has, inside the company, somewhat of an emotional core. You're often either a car person or you're a truck person. So I cannot already -- even though we're an hour into this, and we yet -- we have yet to implement it, I see the glimpse in the eye of the people that go, yes, let me show the world what we can do. And as you can hear, I can hardly conceal my excitement, but we'll go over to the questions now.

Thank you very much, Ola, Martin and Harald. Ladies and gentlemen, you may ask your questions now. [Operator Instructions] Before we start, the operator will give -- explain the procedure.

[Operator Instructions] The first question is from Tim Rokossa, Deutsche Bank.

It's Tim from Deutsche Bank. So I'm easily excited as you are, I think, and a lot of people share that excitement with me. So it's great that you're doing this. It's great that you communicated this will be a very independently run business. That truly is important for the valuation. I have 2 questions, please. The first one is obviously, in the past, I understand there were some tax considerations that also prevented from doing this. Will there be any meaningful dissynergies that you know of at this point in time? By doing this, will you create any of those? And then secondly, this minority stake, is there any indication you can already give us for the size of that? And can the size ultimately be 0?

Yes, Tim, for sure. You want to know a lot of detail at this stage. I mean this is the beginning of feasibility. However, I mean we wouldn't have brought that forward to the Supervisory Board without doing homework beforehand. So what I can clearly say, the potential which we do see by doing that in terms of value creation for the business but also for the shareholders by and largely exceeds any of the dissynergies to encounter. So dissynergies in terms of, I mean, share activities functions, we consider as marginal. And I think we have a solid assessment of any implications on the tax side, which are, from our point of view, at this stage, also very manageable, i.e., not constituting a showstopper in executing that. Point #1. Point #2, on the minority shareholding, we'll not say here and for some time what the shareholding will be moving forward. But look at it, I mean, as the following: it will -- the majority share will be significant enough. And that doesn't mean 51% but higher, so a significant majority shareholding. However, I mean, we will retain a share not as a strategic investor, not as an industrial investor but as a financial investor. And for sure, we want to see how -- I mean, that value creation and rerating is going to take place over time, and we want to stay on with that and enjoy that as well as you will enjoy.

The next question is from Arndt Ellinghorst from Bernstein.

I can only echo all the comments, and the feedback is obviously very impressive. So really, really well done, everyone. I would be really interested, Ola and Harald, given I've passionately followed this and pushed for more than 10 years because most of us really agree in the industrial logic, and you described it really well today that these businesses will be better set up separately. So what was the trigger that got everyone on board finally? Why did it happen now? What's the -- what were the discussions like on the Supervisory Board? What did you pull off to get everyone on board?

So Arndt, to the question, why now? I think we can all see around us that the topic of transformation of the auto industry is picking up speed. And I think speed and agility and decision-making in entrepreneurship is going to be one of the keys to navigate through these next 10 years of transformation. And in some cases, the very different nature of the customer for trucks and cars also lead to different technical choices. In some cases, you can bring it together. But in most cases, it's different technical choices. So on one of those evenings after having had, I don't know, how many video conferences in a row, we sat down, primarily Harald and I, and thought this through. And every time when you look forward in a business, you shouldn't dwell too much on the past. You should look at what are the decisions I can make now to put myself in a stronger position for the future. And it boils down to the 3 things I mentioned before: We truly believe in customer dedication. We truly believe in releasing even more energy in terms of entrepreneurship and picking up speed in our governance model. And we truly believe in the potential to create more value for our shareholders and, thereby, for all stakeholders. And as we came to that conclusion, if you believe that there is a better future, you shouldn't wait. We said let's go for it. In this conversation, we have had preparing for the Supervisory Board meeting today and had an extensive conversation, looked at all angles, and we received overwhelming support from the Supervisory Board that also shared this view. And that's why they gave us a green light to start this process.

Great. And Harald, what are you telling Martin and his team on the truck side? What do they need to do to get a valuation similar to Volvo today?