Bjorn Scheib - Head, IR Dieter Zetsche - CEO Bodo Uebber - CFO Wolfgang Bernhard - Head, Daimler Trucks and Buses

Daniel Schwarz - Commerzbank Tim Rokassa - Deutsche Bank Horst Schneider - HSBC Global Research Stephen Reitman - Societe Generale Arndt Ellinghorst - Evercore ISI Charles Winston - Redburn Partners Alexander Haissl - Credit Suisse Kristina Church - Barclays Capital Fraser Hill - Bank of America Merrill Lynch Christian Ludwig - Bankhaus Lampe Welcome to the global conference call of Daimler. At our customers' 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 website. The short introduction will be directly followed by Q&A session. [Operator Instructions]. I would like to remind you that this teleconference is governed by the Safe Harbor wording that you find in our published results documents. Please note that our presentations contain forward-looking statements that reflect management’s current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlining 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. I now hand over to Bjorn Scheib, Head of Daimler Investor Relations. Thank you very much.

Good afternoon. This is Bjorn Scheib speaking. On behalf of Daimler, I would like to welcome you on both the internet and the telephone, to this Q2 results conference call. Today, we are very happy to have with us our CEO, Dr. Dieter Zetsche; our CFO, Bodo Uebber; and the Head of the Daimler Trucks and Buses, Dr. Wolfgang Bernhard. In order to give you maximum time for your questions, Dr. Zetsche will begin with a short introduction, which will be directly followed by the Q&A session. In the Q&A session, all gentlemen will be available for your questions. I would only kindly ask you to use your phone without the speaker and it would be very nice if you wouldn't not be willing use mobile phones as these may disrupt the quality of this call. With this, I would love to hand over to Dr. Zetsche.

Thank you Bjorn, and good afternoon, ladies and gentlemen. Today, we made our second quarter results public. I believe the numbers speak for themselves, therefore I'll keep my opening remarks brief. In the second quarter, we sold about 715,000 vehicles, 14% more in the same period of the prior year. Increased our revenue by 19% to the EUR37.5 billion, while our EBIT from the ongoing business climbed 54% to EUR3.8 billion. These numbers show, we are growing profitably. Group net profit was EUR2.4 billion. Free cash flow from our industrial business rose to EUR3.4 billion in the first half of the year. Net liquidity of our industrial business stood at EUR18.4 billion at the end of June including the dividend payment made in early April. Next, how did our individual business units performed? Mercedes-Benz Cars set yet another record in the second quarter. We sold more than 500,000 passenger cars, 20% more than the prior year quarter. The first half of 2015 we sold more than 960,000 vehicles, 19% more than the same period last year. In the second quarter sales was especially good in US, Western Europe and China. US sales were up 10%, Western Europe we saw an increase of 70%, in China of 34%. Our compact car models continue to do very well. In the second quarter sales climbed over 30%. Sales of our C-Class family went up by 66%, smart sold 46% more cars. EBIT from ongoing business at Mercedes-Benz cars came in at EUR2.25 billion, that's 60% more than the second quarter of 2014. This success was driven by our attractive product portfolio and the resulting worldwide growth in sales along with our continued efficiency measures. At the same time we also benefited from currency and interest rates effects. A return on sales reached 10.7%. This quarter we not only achieved our strategic profitability goal, we exceeded it, slightly I should say. And we also delivered on our margin goal in the first half of the year. Now it's all about maintaining that level of performance and continuing our course of profitable growth. At Daimler Truck sales were at the same level as the second quarter of the prior year. And there were big differences in markets worldwide. In Brazil and Indonesia, sales declined due to very poor economic conditions. Brazil, we again had to reduce our market expectations for 2015. However, due to our global market presence, we can compensate for such regional weakness. The NAFTA region for example, sales were up 20%. In Western Europe, we gained 15%, Japan, we are also able to significantly increase sales. EBIT from ongoing business came in at EUR717 million with that we significantly exceeded the prior year result. This was mainly due to the strong demand in the NAFTA region, and in Western Europe coupled with gains from our ongoing efficiency initiatives. At Daimler Trucks, we also benefited to a certain degree from currency and interest rates effects. Return on sales at Daimler Trucks improved by 1 percentage point compared to the prior year quarter reaching 7.6%. Mercedes-Benz vans improved itself in the second quarter by 7%. Thanks to the market success of our mid-sized vans as well as strong demand in Europe and in the NAFTA region. EBIT from ongoing business reached EUR240 million and we're therefore 33% above the prior year quarter. Return on sales was 8.5%. Now let's turn to Daimler buses. Sales in the second quarter decreased by 9%. Growth in Western Europe and Turkey partially offset the sales decline in Latin America. EBIT from ongoing business of EUR57 million was at the level of the prior year. Return on sales was 5.5%. Finally to Daimler Financial Services compared to the prior year quarter, new business climbed by 28%. Contract volume at the end of Q1 reached EUR110.6 billion or 12% more than at the end of 2014. With EBIT of EUR445 million we were able to exceed the previous years' mark by 32% mainly driven by the portfolio growth. So much for the results for business units. Now to our outlook. We are also well-positioned for the second half of 2015. At Mercedes-Benz cars, we continue the renewal of our portfolio. As of July, the new generation A-Class has been available for order. In August, we've celebrated the world premiere of the new C-Class Coupé. In September our SUV offensive [ph] continues following the GLE Coupé we introduced to the market the new generation GLE and the GLC. In addition to both new smart models are now available in all core markets and can be ordered with the dual clutch transmission. All of this will help us ensure that a product portfolio will stay very strong. Our sales numbers for the full year would significantly climb and our competitive position keeps improving. And at this point, I'd like to stress that Mercedes-Benz in China continues to have every reason to remain confident. Locally produced GLE and the C-Class will support our growth plans. We will continue to drive our product offensive beyond this year. In 2016, for example, we introduced the new E-Class. It's considered to be the heart of the Mercedes-Benz brand for good reason. At Daimler Trucks for the full year 2015, we expect a significant increase in sales. However, the situation will continue to highly differ from regional perspective. In Indonesia and Brazil we expect significantly decreasing sales numbers for the whole of 2015. In Asia, we by and large expect stable sales numbers. In India, however we expect to clear increasing sales due to the ramp up at Bharat Benz. In Western Europe, we expect to raise investment activity and therefore positive development in sales. Sales in the after NAFTA region should also be significantly above the previous year. Our successful products will continue to ensure our market leadership there. Mercedes-Benz vans also plans on a significant increasing unit sales in 2015. We especially anticipate strong growth in our core European market. This year in both North and Latin America we'll introduce the Vito which would spark additional demand there. Furthermore in the future we will also produce this printer in North America. Daimler buses we expect a significant drop in sales this year. While at Daimler Financial Services new business and contract volume will significantly increase again. We will also continue to expand our range of mobility services offerings, Katugo [ph] for example already has won over more than 1 million customers. Based on our planning and the anticipated market development, we continue to expect Coupé EBIT from ongoing business to significantly increase for the full year 2015. At cars, trucks, vans and financial services we expect to achieve EBIT significantly above the level of the prior year. Our bus division will likely be significantly below the level of the prior year. Half way through 2015 we can say the implementation of our strategy is right on schedule. In the past years we set the course, our product offensive is in full swing. We are in a mood of rapid growth, our production is becoming increasingly flexible. Our entire enterprise is getting more efficient and opportunities for digitalization have crossed the entire value chain seem to go daily. We are taking advantage of them. It all points to this, we chose the right course and we will continue on it. We are hungry for more. And I look forward to your questions. Thank you.

Thank you very much. Ladies and gentlemen now it's up the time for your questions. The operator will identify the questioner by name. But as discussed before please don't use hand-free speakers and second, fully understood please raise your question in English. Now, I would kindly ask the operator to explain the procedure again.

[Operator Instructions] The first question is from Daniel Schwarz, Commerzbank.

Yes. Thank you. My first question is an obvious question. Now, that you achieved the two double-digit margin in Mercedes, would you say Mercedes from now on is already in the position for sustaining 10% margin over the cycle and what do you say where we are in the cycle at Mercedes? And the second question is on the free cash flows you again increased the guidance compared to beginning of this year, the guidance increased by almost EUR3 billion, could the explain the EUR3 billion gap how is that split into earnings and working capital and CapEx? And the last question if I may on trucks so while we'll see the US market at peak levels, what’s your view on the US market?

Thank you for these questions. As far as the first question is concerned, as I mentioned in my speech having reached our strategic target profitability level it’s now about sustaining it and keeping that level there are all of our plans are put in place to support that notion and therefore we are obviously confident. Where in the cycle are we there obviously two cycles, one cycle is our product cycle, the other cycle is the overall economic cycle in the world economy. As far as the first aspect is concerned, the differences in cycle today are totally different from 20 years ago and 10 years ago when we had two or three main car lines obviously there were two major launches or three within seven years and this had a major amplitude on our sales potential within this cycle today as we are talking about 30 vehicles of course some of them niche vehicles we have a much more constant flow of new products and a much more constant age of our fleet or portfolio and therefore certainly we have a very young portfolio but I don’t see it's getting much older within the next years and therefore bigger than next year E-Class as I said that’s the heart of the Mercedes brand that is really a push to our cycle in the positive sense. So I think we are fine as far as this aspect is concerned and about the overall economic cycle you probably know more about this than I do. Now, we would have from Bodo down to the next question.

Mr. Schwarz coming to your questions. In the beginning of the year our cash flow guidance was that we expect free cash flow between the dividend spending which is EUR2.6 billion and the last year’s free cash flow of EUR5.5 billion so the average of this number is roughly EUR4 billion we have now increased our guidance to the last year’s level which is EUR5.5 billion so we have to increase it by EUR1.5 billion which is related to the operating performance of our company and the very good working capital management.

I have people sitting aside of me and therefore I am able to be reminded that I should add a little bit to the first question respectively the answer. One thing is our product cycle of course and I made a statement about that. The other one is that commenting today’s results we said this is to high extent driven by the volume growth based on our products but at the same time very much supported by the efficiency gains we accomplished according to our plans and beyond. As you know fit for leadership has the next stage and this next stage is very much dealing with structural changes for instance, there are sale of about a third of our outlets in the German retail dealership owned by the company is one of the examples where we are making fast and good progress. So there are many, many topics we are addressing in the sense of structurally improving our competitiveness and our profitability and these activities will enable us to maintain this level we have accomplished now in the first half.

This is Wolfgang Bernhard. The third question with respect to US market. We very closely monitor the US market development because this is obviously a very important part of our business. This is the things I can say so far. We are fully booked for this year 2015. We have orders already reaching far into 2016 of which we only show those who are on the 12 months forward. Only 12 months forward rolling month’s horizon. We try to put quality into those incoming orders by urging our dealers to only bring forward orders where they have specific customers and we tell them in case these customers avoid and they don't turn out to be the real ones, the orders is forfeit. So this is the way we discipline and we are very much sure that the quality of the order book that we have is very good. What I can tell you at this point and of time, we do not see any softening in the US market. Our order inflow with respect to 2016 is very strong. It has been strong throughout the year '15 and we cannot see any picking in US market. This is our point of view if the market at the end of the day really softens in 2016 this might point to a market share gain. We cannot say that this point of time. The only thing is we cannot see any softening of incoming orders right now in US.

Okay. I appreciate it. Thank you.

Thank you. The next question is from Tim Rokassa, Deutsche Bank.

Yeah. Good afternoon and thank you very much for taking my question. Tim Rokassa, Deutsche Bank. And may be first on passenger cars, obviously one need to ask a bit more about China giving the existing concerns in the market. You clearly outperformed all your competitors and volume and from your comments this morning. I understand you expect us to continue but can you perhaps touch on what you are seeing on the pricing side given that your competitors clearly outperformed as good as you, and may be then also what do you expect for the broader market. I mean I know this is tiny for you but given the limited visibility everyone is looking obviously for bits and pieces and your equity results for example was down quarter-on-quarter. Is that simply due to ramp up costs and can you please help us understand this? And then secondly just following up on trucks as well. You touched on the US what do you see in Europe? Is this more of a broad based than steady increase or do you see any acceleration in recent months or any countries sticking out? And are there any signs of stabilization in the Brazilian truck market? Thank you.

With regard to the Chinese market, we do believe that we underutilized the potential for our brand in China for a number of reasons which we discussed in former years, in past years. We took action and we see that we now to some extent in-depend of the overall market development much better chance to exploit that potential. We are very stable in our pricing throughout the last 12 months. You have the transparency if you can see that confirmed in our overall fleet mix. We see that as somewhat unique to us in comparison. Of course, we are very op-minded and alert to understand if there are signals in the market which would give us any indication that our future ambitious plans are on risk. We do not get any of these signals. But I would say clearly as well for us maintaining the pricing discipline is number one priority and wherever we would see any weakening in any one of our product lines, we would direct on the supply side to maintain that stability. So we are very confident that we will continue with very strong sales momentum throughout the year 2015 and we have good reason to expect that for the next year as well.

Your question to the BBAC and equity results is a following compared to last year we have better results not only natural terms but also in relative terms, the sales was to for the first quarter, the second quarter was impacted by as I said already before due to launch cost in investments into the company that we have launched the C-Class standard with base in June this year.

With respect to truck in Europe I would like to look back a little bit. Last quarter, last year September, I think you remember that for Europe, the outlook was fairly fragile. We guided the market very carefully with only a little uptick. As we entered into the year first quarter we could see some life in the East, in Eastern Europe have been followed by Western Europe Germany, a lagging for some time. So we had Germany being in the minus territory for the first quarter. But now we see throughout of Western Europe an uptick throughout Europe and uptick that really leads us to change our guidance for totally Europe up to 10% to 15% business of what the growth that we see. So it's a broad recovery feud by low fuel prices, but primarily and a gain in the whole economic activity. So it's a broad recovery that we can see for the truck market in Europe. Brazil has a different picture. We started the year with the minus 30%. As we walked into the year things basically deteriorated and they still do. We see right now a minus of 40% and that is off up a very weak basis of last year 2014. We see right now that both the political situation in Brazil is not getting any better. We see some investments program being pushed through. It remains to be seen how and when these are being implemented. However, we cannot - this is a very fragile situation, we cannot see how this whole market will turnout. A minus 40% at this point of time is our best guess.

Thank you very much.

The next question is from Horst Schneider, HSBC.

Yes good afternoon it's Horst from HSBC. Also I've got a few questions, first of all, I want to learn something about the seasonal pattern that we can now expect basically for H2. So I just want to know if now Q2 was a peak in the quarter this year or if you can still expect that H2 will be higher in terms of sales compared to H1 and if that also refers to earnings. Then the second question is on other cost changes, maybe see a quite pleasant development again in Q2. I just want to know if you can take now H1 just times 2 and we have got for most of the divisions the impact that we should work with for the full year. And the third question is we have this just on pricing, I mean you said in China it's fairly stable, I just want to know if you can confirm that also for the rest of the market, I know for the full year you guide for at least I mean at slightly negative pricing at size as got in the mind or as best flat pricings so is that guidance still intact and does it imply the pricing gets worse probably in H2. Thank you.

To your first question were simply for the group and for the Mercedes car group. We expect the second half to be in sales and earnings above the first half. The second question other cost changes, even though we continue to invest heavily into our future. We and I am not talking about EUR50 million up and down expect to maintain the very, very moderate development on other cost changes close to flat for the second half as well. I refer again to our many initiatives regarding efficiency including next stage. What we have achieved earlier on the procurement side, we call that net CRO approach where we actually recovered prior year increases in the recent years and got back to the levels of 2010-11. We set as a target for our internal value chain as well and we are getting to that target by now that what's you're seeing in these numbers. As far as the third point is concerned, I could answer just with a yes as well. What I said about China is true for the world in the first half I'm talking now about the passenger car side because obviously we have more diverse picture between all the divisions but in the passenger car side on a global basis, we have basically flat pricing slightly up in the first half and that's what we expect for the second half as well.

All right. Thank you.

For the truck world, we will see growth in the second half which is a bigger growth that we see in the first half, driven by Europe coming back and continues growth in NAFTA. We also see growth coming from India and parts of Asia. So we see more growth coming in, I know structurally even improving. And this will also drive earnings and in other hand, other cost changes these other cost changes amongst other things are being driven primarily by capacity increases, additional shifts that we put into our NAFTA operation in order to cope with other demand. A same also ramp up cost that we have in India so these are basically important side of the other cost changes. We believe that most of those capacity increases are done. On the other hand we have our efficiency programs that are continue to work. We believe that also in the second quarter we will accelerate savings on material cost and productivity so that basically means other cost I mean other cost changes will not be just doubled it will be more or less flat maybe a little uptick in the second half. So this is basically what you can report into your equations.

All right, thanks for that. Thank you.

Schneider your question with regard to Mercedes-Benz cars where we stick to our full year guidance of couple of EUR100 million negative in other cost changes. You know that it's related to product effectiveness for example or more R&D spending. We could in the first half we could offset partially this results by our very good development in the BBAC and equity results on the one hand but also the interest rate, the effects from interest rates had a positive effect in the second quarter.

Okay, understood. Thank you.

The next question is from Stephen Reitman, Societe Generale.

Yes good afternoon, Dr. Zetsche you mentioned that the group now is much more balanced in terms of having a larger number of vehicles than this have had in the past. Can you comment on how the profitability is now spreading that but particularly with the MFA platform is it getting now approaching the target you set for that platform compared to the previous AB. And then so how is that playing though with the over profitability we saw in the second quarter. Thank you.

I mean obviously we will not start in giving information about the profitability of our different clients and I think you don't expect that either. But yes I can confirm that with the compact cars, we are with the launch of the GLA of the shooting brake of the CLA and with the CLA itself adding having at products which are clearly more profitable than the base model. And therefore yes, overall we are now at the levels we were shooting for with this generation of course, the next generation we have set ourselves in more ambitious targets which we are confident we will accomplish as well. But overall, whether it's the regional spread or whether it's the spread through our portfolio we are at a pretty balanced situation volume wise and profit wise from we never had before.

Thank you.

Thank you. The next question is from Arndt Ellinghorst, ISI.

Yes hi. It's Arndt Ellinghorst from Evercore ISI. Thank you. Two questions, the first one is we look at your stock here today great numbers I'd say the stocks probably 15% be rated today alone. And I would say the key reasons probably the people are just saying these are peak earnings and it's not going to get much better from here companies like yours, just comp and keep it and also coming to what Steven has just asked. I think we are wondering how confident you are that you can maintain the current level of earnings across the board of the Daimler Group, and potentially even enhance it from here. Or just keeping it would be I think quite an interesting scenario. So can you talk a bit more structurally and also bearing in mind that some markets will go against US at some stage. And then secondly a bit more technically, can you just quickly update us on your currency hedging for 2016, you're guiding for EUR1.2 billion this year, you're well on track to get there. Would it be fair to assume something like 1.5 or 2 billion if we were to stay at these dollar levels, pound levels as we are today? Thank you.

Thank you for your questions. We certainly both do not value our stock market performance on today's developments but a more general terms you're asking about my confidence. I am very confident at investors who direct their behavior plus our stock under the assumption that we are peaking now will be very unhappy year or two years from now. So the other way around we are very confident that we have all the means to stay in that level. We have accomplished therefore longer always given that the world around us doesn't fall into pieces but based on our product portfolio, the coming launches one after other. I mentioned the E-Class for instance, there are development in China whereby the way probably it's fair to say that something which even we didn't include that much in our own expectations, we see some effect of communicating tubes. So it's not that you will assume that because some of our competitors weaker right now. They should apply to other as well. It's perhaps involve that the weakness of our competitors is a consequence of our strength as it was the other way around in the past. So we are pretty confident based on our product portfolio and on our ongoing absolutely full of energy forwarded efficiency drives throughout their company which are now much more lasting because much more structural that this is a beginning of an era and not a peak.

To answer your question with regard to currencies the spot levels compared to the first quarter have not changed much, we are more or less on the same levels in almost in all currencies. So we have not updated - we have updated our guidance but this is the same as we have given in Q1, 1 billion for the year. Split it up into 60% car group, 40% trucks.

Yeah. I guess both of my questions was more if we're staying there into 2016 just technically from your hedging. Would it be, could you at least say would it be more or less than this year?

Of course. We have a 60% hedge roughly for the year 2016. So if we would be at the current levels of course we would add more profitability as you know we don't make any calculation because it's too early to say where the currency will be at the year end. But there of course we will give a certain update.

All right. Thanks a lot.

Thank you.

Thank you. The next comments are from Charles Winston, Redburn Partners.

Yeah. Hi there. Good afternoon. Just one from me and forgive me it's probably a little bit detailed. Let's try to understand relatively flat other cost results even if we adjust out the 139 million change on the provision discounting. It is sort of 80 million negative. If I was going to look at your industrial P&L let's say quite big increases in SG&A, R&D a bit in depreciation, so in other words, the operating cost inflation is there but the overall cost inflation isn't. That implies that you're seeing some quite big savings at the cost of sales level. I would just like to understand that level but in terms of is that understanding correct in other words, a lot of the progresses is in cogs and if that is the case what's behind it of the sustainability of the that it's not just for the rest of this year because I've heard your comments about the guidance of the minus 200 perhaps how that might go into 2016. I guess another way of asking the question is this MRA in act, is this the savings or MRA and [indiscernible] part 2 and therefore I should be expecting these cost of sales savings to progress through the end of this year into '16 and potentially a little bit into '17 as well? Thank you.

Thank you for your very detailed questions. So I've given the guidance for the full year and then of course there are some questions with regards to the BBAC and interest rate development is also the questions you've raised. I would like to ask you to contact Investor Relations for this very detailed questions and I do think we'd find an answer to that. Thank you.

Okay. Thank you.

The only comment in the interest of my colleague from sales I would like to make is that as much as in other areas that we make progress in the area of sales we made progress in the efficiency as well.

Okay. Thank you.

Thank you. The next question is from Alex Haissl, Credit Suisse.

Good afternoon. This is Alex Haissl of Credit Suisse. I have one question basically on China. The equity income it was a very discuss to 68 million is down from 170 million in the first quarter and when you take the year-over-year comparison you've seen in the first quarter quite a significant growth. So if you just take it sequentially, can you really explain the entire delta of 60 million just by ramp up cost that will be my question and if yes, what can we expect in terms of ramp up cost into the second half and related to the China question in the second quarter you are reported sales in China up 18% which is more or less reflecting the currently move in the region. Is it fair to say that the inputs are flat year-over-year in the second quarter? Thank you very much.

I've already commented on the Q2 BBAC development and this as I said the launch and the investment so that it's what I've said and nothing more to add.

And it's true that the significant growth in China for us is mainly fueled by local produced product.

Okay. Thank you very much.

Thank you. The next question is from Mark Tong, Warbuck Research [ph].

Good afternoon. It's Mark Tong from Warbuck Research. Two questions on trucks. One would be with senior market share in Europe going down quite a bit and more pronounced in the first quarter in Q2. Is it a change in the mix of vehicles being sold in Europe segments where you are not of that active or is it just perhaps pricing pressure which you were not prepared to take part in? And the second question on trucks would be now within the seeders [ph] being at 10% and as a midterm guidance. So it's a bit structurally and what does it need for trucks to achieve its target as well just the reflection of perhaps volumes in Europe and Brazil recovering, what we could expect for that? Thank you.

With respect to your first question I would like to go back into the last quarter of last year. Remember that the prospects of 2015 were rather Daimler and at this point of time some of our competitors were entering into a price war that resulted in the order book for the first quarter 2015 especially in Europe where we did not follow the pricing pressures and try to keep up our prices. As you've seen debt results in the drop in market share especially in Germany, not so in Eastern Europe, not so in Western Europe, just in Western Germany that is basically reflected in the overall drop in the European market share. As we speak right now if you look at incoming orders, you can see that incoming orders are quite up for in the second quarter. They are already up in the first quarter over last year. So we will see that the drop in market share especially in Germany in the first quarter will be made up throughout the year most likely until the end of the year we will recover from that move in the last quarter of last year to preserve all premium pricing. Second point is over last couple of years we have been raising our profitability coming from a 5% - 6% range all the way up year-over-year we gave guidance with respect to our earnings. We have been a reliable partner ever since and delivered on our promises. This year again we said we will be significantly above last year. So in the second quarter we are at 7.2, 7.6 and we are step-by-step approaching our strategic target of 8%. We are confident that giving the environment we will be able to get there, I would like to note that the 7.2 is being achieved not in a very bright and in every region bright shining environment. We have this result despite the fact that we have a very weak Indonesia and we have a really bad Brazil. So I think from those numbers you can see that the business system has been improved overtime and we are coming closer to our target and to promise that we will achieve 8% over the cycle.

Thank you.

Thank you. The next question is from Kristina Church, Barclays.

Hi, yes. Kristina Church. Thank you for taking my questions. I've got two questions left, one on financial services obviously very low credit losses at the moment in the division. I was just wondering if going forward you're seeing any risks to particularly in the US market so the lengthening of leases or any issues that you're worried about there in the longer term for the financial services division. And then my second question is looking at mix and I guess more broadly in where emission standards tightening and obviously you're now talking about your product portfolio being much more balanced. But in terms of the phasing of your spending on cost of the CO2 reduction et cetera. Is it a steady spend now or do we see a ramp up as we get price to emission standards tightening post the 2020?

Kristina as your question with regard to financial services and credit losses we currently don't see no worldwide no signs that losses will pick up. But over the very, very long-term of course cycles following GDP development and that might picking overtime slowly for the time being - at any indication for picking up losses.

As far as the mix is concerned, we certainly have two effects, one that, we have accomplished significant growth with the current compact car generation. We expect to see further significant growth for the next generation there so. Therefore their share of compact cars now our total sales is growing. At the same time to quite some extent due to CO2 emission reduction pressures that we see displacement of engines are coming down. This is not just effect for our company but basically for our competitors. And there are certainly one task on end which we have accomplished pretty successfully so far is to sell vehicles with similar performance or better performance and to lower displacement at the same price level as previously higher displacement engines with less efficiency. And so far this is working very well this has something to do with nomenclature as well which has changed in its basic principles. So yes there will be further changes in our mix but we are foreseeing that and we are planning for that and that's why the next MFA generation will be even more profitable than the current one to offset these impact and to key parts at the level of profitability we are in.

Thank you.

Thank you. The next question is from Fraser Hill, Bank of America Merrill Lynch.

Yeah hi. Good afternoon. It's Fraser Hill from Bank of America. Two questions on the China commentary that you've made today. Firstly start with you have in the market I think you're still talking about that growing significantly the market overall I mean obviously we seen the growth rate sort of come down and actually declined in June. Year-to-date we're up for about 8% so what is that giving you confidence the again prior comps that the Chinese Comp market overall is going be growing quickly in the second half of this year and I see that growth rate picking up quite strongly from what we seen over the past couple of months. On your services business that I mean I'd say your commentary on board around that the second quarter. Can you provide a bit of an update in terms of your interaction with the dealer network. We've seen commentary from BMW and Audi about topping up bonus payments to that dealers. I know that you've made a small top-up in the beginning of this year. Is there anything that we should expect from the savings towards the dealer network in the second half of the year or have you had any conversations or pressure from the dealer network in that regard? And I'll leave at that for now. Thanks.

Thank you for the questions. I think we are pretty much line given take 1 or 2 percentage point’s expectation for the total Chinese market for the remainder of the year. But we do see significant momentum for our brand within this growing but more moderately growing market environment and this is based on the existing very strong product basis plus the launches which are still ahead of us. For instance there are C-Class short wheel based or the GLA which is now coming fully into the volume side. We are clearly benefiting from the expansion of our dealer network and for the more professional approach of these dealers and there are many more positives. We have for instance strongly growing penetration of our financial services business which is of course another very supportive element in the overall development. So all of these effects will and we are very much convinced about that maintain our and even growing momentum we - July's two-thirds are over. So we know that's not pure speculation anymore that July will be another very strong sales month for us and once again we are very confident that this will continue throughout the rest of the year and into the next year as well. Based on, I mentioned just a few, but many boundary conditions which we have changed in recent years and which are now developing this harvest we are seeing. As far as the dealer network is concerned you can study yourself the data is available and you certainly know that. The different development of net pricing between the different brands and this is in the first place and effect which takes place at the dealer level. And all of our dealers have roughly the same gross margins and so the different development of prices affects directly the profitability of the dealer body and that's why we are having good discussions with our dealers, constructive discussions and of course we are looking forward how this will develop. But we don't see what we hear from of course we don't witness that ourselves from our competitors and regarding this very different situation. I think that is enough said about that. We have a happy dealer network.

Thank you.

Thank you. The next question is from Christian Ludwig, Bankhaus Lampe.

Yes, thank you. Christian Ludwig, Bankhaus Lampe. I've got two questions. One is for Mr. Uebber, you mentioned the free cash flow guidance which is 5.5 billion for the full year and then we just learn that you are expecting a better operating results from trucks and cars in the second half which also mean that your free cash flow was 3.3 billion for the half year should increase further. Are we missing anything or is it just usual conservatism here? And the second question for Mr. Scheib, it looks like you have been success on the acquiring from Nokia can you give us some more line and what you are playing to do with that?

So one missing piece is of course we are normally in the second half of higher investments. So that is of course waking so to say against it, that is one element and to your second question with regard to Nokia as we roughly understanding. We cannot comment on that. Thank you.

Thank you. The final question is from Richard Higgup, Morgan Star [ph].

Thank you and good afternoon. Thanks for taking my question. Dr. Zetsche at the end of your comments you wrapped up saying that you are continuing or lowing out digitization across the supply chain or value chain and I was wondering if you could maybe expand on that a little bit. It seemed to me like the auto industry was already very well connected between its factory and its suppliers. So what's different about your digitization that hasn't already occurred in the industry and what is this do for Daimler? Does this increase efficiency in some way and how does it work? Can you talk a little bit more about it please?

As this was the last question, it would now open a feud for the next 12 hours of getting your broad information regarding that question. I will not do that and I think you are grateful for it. But still digitization is one of our four main strategic stats and actually looking at what we have accomplished in the other three fields, okay I don't mentioned them. It's today probably our number one priority. And this is affecting absolutely every part of our value chain including the extended family to our suppliers and mainly to our customers. So we are talking what you are addressing is if you want industry 4.0 where the whole, the two main processes the product development and order to delivery process are heavily affected by digitalization there certainly we have a very high level of execution already and there will be further optimization which will help efficiency as well but that is I would say the minor part of what almost like to say the revolution which we are seeing ahead of us. Much more important is first the connected car which gives their customers entirely different experience level seamless experience between the three places home, car and the office. It's created interaction between vehicles so the car becomes part of the internet of things. But then we are talking about different aspects like after sales where we see disruptive initiatives by third parties which could potentially danger some of our profit source and of course when I say our it's the industry and we want to preemptively act on our own to be if there are disruptors to be the disruptors our self so the same applies of course to the whole financial services part of our business and then you talk about Uber's and you talk about sharing in this context and you talk about autonomous cars. So the world is changing rapidly and we want to make sure that we are for sure the fastest changers within our industry in this regard and we want to compete with the speed of this non-industry - non-automotive industry potentially future competitors to be able to deal with this potential attacks. We see that overall as an opportunity and as a potential and that's why we try to change our culture, our focus very much into this direction. Thank you.

So thank you very much. For your questions also thank you very much to the Daimler management for answering all these questions. Unchanged I will stay at the disposal and to all of you listening from the internet and on the phone, have a great afternoon, great morning or great evening and we look-forward to see you soon. Bye.

Ladies and gentlemen this concludes today's conference call. Thank you for attendance. You may now disconnect.