Björn Scheib - Head of Daimler Investor Relations Dieter Zetsche - Chairman of the Board of Management, Head of Mercedes-Benz Cars Wolfgang Bernhard - Member of the Management Board, Head of Daimler Trucks

Jochen Gehrke - Deutsche Bank Stuart Pearson - Exane BNP Horst Schneider - HSBC Stephen Reitman - Societe Generale Arndt Ellinghorst - ISI Group Jose Asumendi - JPMorgan Philip Watkins - Citi Laura Lembke - Morgan Stanley Fraser Hill - Bank Of America Merrill Lynch Kristina Church - Barclays Daniel Schwarz - Commerzbank Charles Winston - Redburn Partners Marc Tonn - Warburg Research Frank Biller - LBBW Adam Hull - Berenberg

Welcome to the global conference call of Daimler. At our customer's 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 directly be 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 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 now I hand over to Björn Scheib, Head of Daimler Investor Relations. Thank you very much. Björn Scheib: Good afternoon, ladies and gentlemen. This is Björn Scheib speaking. On behalf of the Daimler, I would like to you on both the telephone and the Internet t our Q2 quarter's results call. Today, we are very happy to have with us our CEO, Dr. Dieter Zetsche, our CFO, Bodo Uebber and the Head of the Diamler Trucks and Buses, Dr. Wolfgang Bernhard. In order to give you maximum time for your questions, Dr. Dieter Zetsche will begin with a short introduction, which will be then followed by Q&A. With this, I would now like to hand over to Dr. Zetsche. Thank you.

Thank you, Björn Scheib. I would like my welcome to our telephone conference. Today, we made our second quarter results public. We are pleased with our financial scorecard. It reflects the team effort being made across Daimler to move us forward. I will quickly run through our key financials for the second quarter. I assume you have already digested the numbers. So I will keep it brief. In June, we sold nearly 630,000 vehicles, 4% more than the same period last year. At Mercedes-Benz cars, we had our best second quarter ever, selling nearly 420,000 units. At Diamler Trucks, our sales were up 2% compared to the second quarter of last year, naturally churned by the NAFTA region. Plus we gained market share in many of our key markets, be it cars or commercial vehicles. During the same period, we increased our revenue by 6% to €.31.5 billion, now EBIT from the ongoing business by 12% to €2.5 billion. Group net profit was €2.2 billion. It was lower than last year, due to a one-time gain in the second quarter of 2013. At that time, remeasurement and sale of our remaining shares and the ADS added €3.2 billion to our earnings. The net liquidity of our industrial business amounted to €12.7 billion at the end of June. Considering the volatility in emerging markets there continues a high level of investment in new products, additional production capacity and technologies, we plan to keep net liquidity at a comfortable level. The cash flow from our industrial business benefited from the strong earnings of our businesses and reached about €800 million in the second quarter. To sum up, based on our momentum in the second quarter, we finished the first half of 2014 fully aligned with our full-year guidance. Now to our product highlights this quarter, to name just a few. We started production of our S-Class Coupé. We launched production of the new C-Class in South Africa and the U.S. We unveiled the new FUSO Super Great V heavy-duty truck. And we launched the new V-Class. Next, let's turn to our expectations for the second half. In a word, o our expectations are positive. Specifically, we anticipate picking up the pace in the second half of 2014 and delivering even stronger results than the first half of this year. One of the primary reasons supporting this assumption, I will explain in more detail with a brief discussion of our two largest divisions, passenger cars and commercial trucks. Let's begin with markets. We expect and increase of about 4% in global demand for passenger cars for the full year. The largest drivers of growth remain China and the U.S. The Western European passenger car market is expected to grow again after running for several years in a row (inaudible). But we will keep up a strong pace with new products. In the fall, the C-Class sedan will launch in the U.S. and its long version in China. Both should provide a significant boost to our sales. The same applies to the station wagon version of our C-Class. It arrives at dealerships as of September. Our S-Class Coupé will also be available in September. In October, the refreshed CLS and CLS Shooting Brake will hit the market. The new generation V-Class follows in November. We also have news on our smallest cars. Just last week we introduced our all new smart fortwo and forfour. The response was excellent. Those cars will reach customers by year's end. In order to satisfy the overall strong demand for our Mercedes models as quickly as possible, we will work through the summer months in nearly all of our plants. In addition, we will bring in about 7,600 vacation workers to support production. These are all good reasons why we expect to set a new sales record for passenger cars this year. Now let's take a look at Daimler Trucks. Global demand for medium and heavy-duty trucks in 2014 is expected at the level of the previous year. In many emerging markets, political or economic uncertainties are generating sales risks. We are monitoring them closely. In addition to Russia and Indonesia, those countries also include India. Although we aim to grow there with our broadening cars and truck portfolio, the market demand is expected to continue to decline. We also anticipate a significant market decline in Brazil this year, which will be at least 10%. Nevertheless, we want to be ready when the market is .We have therefore initiated comprehensive optimization measures for our products and our plants. By the end of 2015, we will have invested about €300 million. In Western Europe, the demand situation will also remain difficult until the end of the year due to Euro VI pre-buy effects. For now, North America is the biggest driver of growth. We expect this market to gain about 10% in 2014. We are well positioned with products such as the Freightliner Cascadia Evolution to turn growing demand for efficient trucks into growing sales for us. For those reasons along with our new product lineup worldwide, we anticipate further sales growth at Daimler Trucks. The sales outlook for our other businesses is also largely positive. Mercedes-Benz Vans will soon introduce the new Vito, backed by new and expand family of vans. We expect significant sales growth for the full-year. At Daimler Buses, we to anticipate good sales in Western Europe. Unfortunately, they will not compensate for the weak market trend in Latin America. We therefore expect a slight decline in overall sales. At Daimler Financial Services, we expect a significant increase in new business and contract volume. So we are well on the way to achieving our sales goals. Now it's about further improving our cost position. To that end, we are systematically implementing the measures of our efficiency programs in all of our divisions. We will reach our communicated intermediate targets by the end of 2014. At the same time, we continue to further develop our programs. A few words on our intermediate targets. With leadership at passenger cars, we will save €2 billion in cost. At the end of the second quarter, we had already achieved 55% of our planned savings. With that, we are well on our way to getting the 70% to 80% of the total cost savings planned for 2014. With Daimler Trucks number one, we are targeting benefits of €1.6 billion and we are making good progress towards that goal. At the end of the second quarter, we had already achieved 50% of our overall target. By the end of the year, we are set to realize 70% to 80% of our total benefits. When you combine the efficiency programs in all of our divisions, the EBIT effect comes to about €4 billion. This will be fully reflected in the results of 2015. Now what does this all mean for our results at group level? Our guidance remains unchanged. We expect to significantly increase our group EBIT from the ongoing business in 2014. We expect our earnings to improve in the second half of 2014 compared to the first half. Due to the strong Euro and developments in emerging markets, we do anticipate significant currency headwinds of up to €1 billion this year. Expenses for product launches and market launches will pose an additional burden on earnings. Still, we are confident we will more than compensate for these negative effects, thanks to our successful new products and the growing impact of our ongoing efficiency programs. Our expectations for development in important emerging markets underline this assumption. We are also sticking to our full-year EBIT targets for each of our respective business areas. Mercedes-Benz Cars, significantly higher than the previous year. Daimler Trucks, significantly higher than the previous year. Mercedes-Benz Vans, at the same level as the previous year. Daimler Buses, significantly higher than the previous year. Daimler Financial Services, slightly above the previous year. In the second quarter, the changeover from the equity method measurement of our shares in Tesla Motors to first-time fair value measurement led to significant contributions to earnings. The sale of our shares in Rolls-Royce Power Systems Holding is expected to contribute an amount of about €1 billion in the second half of 2014. This of course will not be attributed to EBIT from the ongoing business. Daimler Trucks expects expenses from workforce adjustment in a total of up to €150 million in 2014, 2015. The majority of that will be recognized 2014. To sum up, in 2014, we are well on schedule and our strategy is paying off. However, we are not there yet. We can still do more in both sales and profitability. We are sharply focused on becoming successful on a long-term sustainable basis in 2014 and beyond. To that end, we continue our product offensive at passenger cars. We will enter the high margin SUV segment with a new Coupé called M-Class in 2015 and will launch the new CLA Shooting Brake in the compact segment. Plus 2015 is the first year of full availability of the C-Class. In China, we will also launch new models, including the locally produced GLA. Plus the long-term measures we have put in place assure results. To name just one example, the dealership gap to our premium competitors will mostly be closed by 2015. We also keep pressing forward with our alternative (inaudible) strategy. Apart from highly efficient combustion engines, we are making hybrid drive trains available across the entire range of our rear wheel architecture sedans. Again, thanks to our modular system, we will get them into these models both quickly and profitably, like recently with the S 500 PLUG-IN HYBRID. We also prepared for fully electric driving. Our Denza will enter the Chinese market in September. The new B-Class electric drives are already available in the U.S. Its market launch in Germany will be at the end of 2014. And we will rollout our future cars in 2017. At the same time, we are taking the next steps toward improving our cost base. One example is cooperating with partners where it makes sense. That's what we are doing in the long list of projects including the joint engine production with Infiniti in Tennessee or the new assembly plant with Nissan in Mexico. We will also see positive effects from our ongoing structural improvements. The reduced vertical integration, for example, by reorganizing our own retail for passenger cars. And we will benefit from low cost sourcing, for example, at Star Transmission in Romania. We are also rejuvenating our leadership team. We now have new people in the top tier of our design, sales, production and purchasing organizations, all highly experienced and keen to tackle the upcoming challenges. Let's look at Daimler Trucks. We already have the strongest product portfolio in our long history there. When truck market in Europe and Latin America pick up again, we expect to benefit to an above average extent. And we are driving fundamental change to further increase profitability as well. The optimization program in Brazil is just one example of that. And in all of our divisions, we are working on further increasing flexibility in production. Ladies and gentlemen, all this makes me confident, Daimler is a promising investment. We will achieve higher earnings in the coming years, thanks to the renewal and upgrade of our product portfolios, our increased presence in growth markets and our major structural improvements in our organizations. At the same time, we will continue with our financial discipline. Our sights are set on getting to the top of the premium segment. And we won't stop until we are back there to stay. I look forward to your questions. Thank you. Björn Scheib: Thank you very much, Dr. Zetsche. Ladies and gentlemen, you may ask your questions now. The operator will identify the questioner by name and institution. But please also introduce yourself with your name and the name of your organization before asking your question. Two practical points, firstly please avoid using mobile phones and secondly, while understood, please ask your question in English. Before we start again, the operator will detail the procedure.

(Operator Instructions). First question is from Jochen Gehrke, Deutsche Bank. Jochen Gehrke - Deutsche Bank: Hi, yes. Good afternoon. Three quick questions, if I may. First of all on the Mercedes side. In the quarter, you had very meaningful 26,000 units higher retail than your production volume. Could you just shed some light on your expectation in the second half of the year? Is this entirely due to C-Class change and when are we going to see production following closer to the retail side? And secondly, on this upcoming new savings plan in Mercedes, Dr. Zetsche, could you just elaborate a little bit more the reason for that? Is this really to close the missing margin gap to both your midterm range? Or is this largely a reflection of business as usual as we always see, cost saving actions in the auto industry in pretty much any given year? And then thirdly, on the trucks, I noticed your order intake in LATAM, while it's down year-on-year, obviously, but at 12,000 units is quite a bit higher than what we saw in the first and the fourth quarter. Do you feel currently that the market sitting at bottom? And while you cut your guidance, nevertheless, sequentially, at least you are feeling a bit more confident about demand level in the market? Or is that too early to tell? Thank you.

Thank you very much. On your first question, certainly the C-Class has a significant impact as we are out of C-Class inventory from the last generation and payment is on full capacity, but the other three plants are ramping up. So we have a lack of supply. Generally, I would say it's indication of a pull market situation for us. So we have very strong demand. We are ratcheting up production overall with our original business plan in most of our plants and still are not full on level with the demand. So it's a luxury problem. We are doing everything to maximize production in the second half of the year and the C-Class situation of course, will to some extent, solve itself by the ramp-up of the three plants. The second question, I didn't understand. Perhaps somebody can help acoustically. Jochen Gehrke - Deutsche Bank: Sorry, I can repeat if, if you may. We have had now a few talks and I think you said it this morning as well on the press call, that with the finish of the current Fit for Leadership plan, we will enter into another round of savings. Can you just elaborate the reasoning for that? Is this mostly due to higher regulatory cost? Is this the missing gap to meet your 10% midterm margin goal? Or is this vastly a reflection of business as usual in the auto industry that you have cost savings needed in pretty much any given year?

It seems to be a lack of our communication because there is no end to Fit for Leadership and there no was planned end to Fit for Leadership. We have said all the time that we intend to accomplish a €2billion saving by the end of 2014, which will be fully effective starting 2015. But we said as well that this is only part of the Fit for Leadership story. But on top of that, beyond the short-term actions, we are striving for a structural long-term changes and improvements of our business system. And that is exactly what is in implementation execution now. Therefore as planned Fit for Leadership continues and we have a stronger focus on these most structural changes. We told you that we prefer to inform you piece by piece by elements we have accomplished. And one example which obviously is in the media right now is retail organization where we are looking for relevant changes and there more to come. Third question was Bernhard.

The question relates to Latin America. As I assume, it was hard difficult to listen to, but I assume it was about Latin America. We have revised our guidance with respect to Latin American markets, especially Brazil downwards. Our current EBIT guidance reflects those market expectations to the full extent. If I had any news about something else, I would tell you. But this is the best that we know right now. And our guidance is based on that market assumption. Apart from that we also revised downwards our European market assumptions slightly and we revised right upwards the Japanese market as a bit upwards. So all of these things together basically are affecting now EBIT guidance. And maybe one more addition. Obviously, we are doing good in the marketplace, overall in Europe as well as in Brazil. But also in Japan, we are succeeding in gaining market share. Jochen Gehrke - Deutsche Bank: All right. Thank you.

Thank you. The next question is from Stuart Pearson, Exane BNP. Stuart Pearson - Exane BNP: Yes, good afternoon. Stuart Pearson from Exane BNP. Just two or three questions. Firstly on China, just looking at the revenues in Q2, you were up 14% after being up 50% odd in Q1. Maybe you can just elaborate a little bit of what's going on there? Whether that's inventory moves? Or what the explanation is just there please? The second question. Just coming back quickly on trucks, on the older side in the year towards the end of the second quarter and early in the third quarter, some of your peers have talked about some signs of life in the European markets. I just wondered if you can elaborate on what you have been seeing there? Then finally, on the free cash flow side. Working capital, again, a modest drag in the second quarter. But I wonder going back to what you were talking about earlier on production as that picks up in H2, could that swing and be a tailwind in H2 and support some stronger free cash flow? Thank you.

As far as China is concerned, looking at the quarterly wholesale numbers, certainly it's meaningful but I think we get a better idea about their developments of our performance in China by retail and by retail on absolute numbers as we always have the base effect of the previous year as well and you know that Q1 in China last year for us was pretty poor. So to cut it short, we see continues recovery of our performance in China, driven by many positive developments. S-Class is doing great. E-Class is doing very well since the facelift, and this applies to our pricing development in particular and we expect a major opportunity with the introduction of the new C-Class for the first time in extended wheelbase for us in the Chinese marketplace. And then basically having a very sound product basis across our lineup. Dealer body which is growing by 100 new dealers this year and thereby more or less competitive in size with our competitors' dealer network. A strong sales organizations. So all of that together makes us very confident that we will further increase the momentum in China in the second quarter. It gives enough signals to strengthen this confidence.

Second question was around incoming orders in Europe. First of all, we are still experiencing the aftermath of the Euro V to Euro VI changeover. In that respect, we revised downward the market to a 5% or lower for the European market. This is one effect. The second effect is that we are taking the protection of our margins as a number one priority. So market share alone is not the primary goal but making sure that our margins are intact. So in that respect, incoming orders are reflecting the fact that we are hard on getting our prices through. And this is all reflected in our EBIT guidance. So I would just like to assure you, the market in Europe is tough. We are not entering the price wars and we are making sure that our stock is not going up, but we are controlling that with respect also to production.

Of course, one answer was from Wolfgang to the truck side. On the other hand, we have a growing business and therefore working capital finally will go up in the long run. I expect this also for cars in the second half. There will be some end effect, of course, but we are controlling it nicely. Of course, we have, in every division, supply chain management, working capital management teams which are looking for further potential. There might be some of that in the in the second half, you will see. All-in-all, the first half was with €1.4 billion cash flow, a good half year and reflects our targets to beat the dividend payment with ongoing cash flow without any M&A impacts for this year. So we confirm the targets, as we have said it in the beginning of the year. Stuart Pearson - Exane BNP: Okay. Thanks, all.

Thank you. The next question is from Horst Schneider, HSBC. Horst Schneider - HSBC: Yes, hi. It's Horst from HSBC. Thanks for taking my questions. First of all, I want to come back to this article that we had this month in a major magazine where some statements on the A and B class and it was said that A and B class, on a standalone basis, that they are not profitable at the moment. So I would be very happy if you could make a comment on that, if that is true or not. And maybe you can elaborate a bit more on that. Then the second one is about pricing in general at Mercedes Cars. Maybe you can give us some more details about the price trend by region in the second quarter? And then the last question that I have is a specific one on the new C-Class. I just want to know how many new C-Classes you have delivered already in Q2. Thank you.

As far as the first question is concerned, I would say as our competitors and to some extent for competitive reasons, independent of speculations in the media, we will not disclose specific profitabilities of single car lines. I think nobody is doing that. and this doesn't make sense. As far as pricing is concerned, we are, overall, very satisfied with the pricing development throughout the first half of the year. And this is not identical, not totally homogenous throughout the markets to highlight one market where the competition is very tough and pricing pressure is significant. I could name Germany to highlight two markets where our price development is very satisfying. I could name China and the U.S. As far as the C-Class is concerned, I have fortunately someone sitting aside of me. And he tells me that it is 30,000, the number. Horst Schneider - HSBC: Okay, and sorry, just coming back again on the first question. I understand that you cannot give us a specific margin number on the models here, yes. But you not willing even to state if it's profitable or not profitable, the current A and B class?

Of course, we are profitable with the current A and B class. Horst Schneider - HSBC: All right. That's all I wanted to know. Thank you.

Thank you. The next question is from Stephen Reitman, Societe Generale. Stephen Reitman - Societe Generale: Yes, hi. Good afternoon. Stephen Reitman, Societe Generale in London. Two Questions. On the group EBIT bridge, which slide number 16, looking at the other cost changes on Cars, there was a negative €378 million which was higher than the figure in the first quarter. Are you still sticking to the guidance of roughly about, I think, the guidance for the Q1 was about, we could multiply the figure by about four times, so about €1.2 billion or so for the year as a whole, is that kind of headwind for the full-year? And secondly. I took Mr. Bernhard's comment on board about not pursuing market share. But clearly you have made an impressive improvement in market share in Western Europe in the trucks in the second quarter. To what extent do think that is product driven and to what extent it's just the way the market is developing on a country-by-country basis? Thank you.

Well, first question, I can confirm what you assumed, just adding that this is, to a high extent, related to capacity increases. Stephen Reitman - Societe Generale: All right.

With respect to market in Europe, Stephen, I think you are right that we are not pursuing market share in itself as a target, but we are trying to protect our margins. The market share increased that we enjoyed so far in Europe is an outcome of our product strength that we enjoy in the marketplace. It has nothing to do with specifics of the market, but we are very strong with our new product. Stephen Reitman - Societe Generale: Thank you.

The next question is from Arndt Ellinghorst, ISI Group. Arndt Ellinghorst - ISI Group: Yes, hi, and thanks for taking my question. Arndt Ellinghorst from ISI Group. I have two questions really. Just coming back to Horst's question on pricing. Dr. Zetsche, if you could talk a little bit more about Germany really and why pricing remains so tough in Germany despite the market being relatively healthy level. Used car prices are doing well. Residuals are doing well. What is it that the premium industry is under so much pressure or hunting so much volume really in Germany? And the other question is more structural, maybe on your labor costs, and given what you are doing on your retail network and with Fit for Leadership. Your labor cost ratio of roughly 16% is, of course, naturally higher than the roughly 11% at BMW and Audi. Now we understand that trucks is more labor-intensive, but on your whole restructuring effort, do you have a labor cost ratio in mind that would be achievable or ideal for Daimler as a whole? Thank you.

Starting with your first question. First of all, pricing is certainly an area we are pretty much restricted to elaborate on, not the least for antitrust reasons. Having said that, obviously some less rationale and more emotional aspects seem to play a role in the crown market leader there is something which seems to be desirable. So independent of total volume and growth or non-growth, there is a strong battle for every single unit. Does that make sense, you can question. We try to do a good balance, together with a good balance especially as we have excess demand around the globe for our products in the German market between our market share and our margins. When we have third party assessments about transfer prices, it doesn't seem that we are the main driver of this development. But I shouldn't even go into that one because probably every sales organizations plans the same. So let's be as it is. The fact is that Germany is very price, the competition is very intense and that impacts on pricing. Labor cost, we discussed it before that, of course, the vertical integration is the main driver for the labor cost ratio. When you substitute your own production by procurement, obviously substitute labor by cost of material. So what you describe correlates directly with our high integration, which we know. And when you talk, for instance, about the retail structural changes we are striving for, this will ultimately impact downstream our level of vertical integration. And respectively upstream we have quite a number of activities which are heading for the same objective. We do not, at least not publicly, try for certain percentage as a target. But we clearly see structural improvements under this title, I was talking about before, in one aspect by reducing our overall vertical integration. Arndt Ellinghorst - ISI Group: Okay. I appreciate that. Thank you.

The next question is from Jose Asumendi, JPMorgan. Jose Asumendi - JPMorgan: Thank you, Jose, JPMorgan. I have a few items. The first one, can you give us recent update on the currency headwinds and the guidance for cars and trucks? The second one, on the autos division. Can you please confirm that you working to deliver a margin improvement for the autos division sequentially in Q3 versus Q2 this year, that this is in your planning? And the third item was around cash flow. Any items we should bear in mind in the second half in terms of inflows or outflows? Thank you very much.

First of all, I should add to what I said before to the question about pricing. In spite of me calling the German markets especially challenging in this regard, we still do have positive pricing development year-over-year in Germany. Probably I gave a different impression. Secondly, we do not give a quarterly guidance about our profitability. What we said in our guidance is that the second half will have higher EBIT than the first half. And that's where I would like to stop.

Jose, your other two questions. One was related to currency. It has not changed to compared to the first quarter. Although of course, we see currently the dollar somewhat being stronger but again, we are almost in July and we have another five months to go and so the difference will not be big if it would stay on this levels. The €1 billion is divided up a 60% into cars, 30% trucks and 10% van and buses. One quarter is in trucks, since more translation effects because we have balance sheet as you know, big balance sheet in enough time in Brazil, for example, and in Fuso. So the main effect, cash flow wise certain special topics in second half. Yes there was one was (inaudible), as you have pointed out, we are expecting at €2.4 billion Q3, Q4 depends on September, October finally or latest end of this year, we will get this inflow in Rolls-Royce. And you know that we have agreed with the unions in the U.S. about a special plan VEBA trust and that will effects mainly in the fourth quarter, our cash flow. Other than this, I am not aware of any special topics.

Maybe one more word on headwinds we are facing with on the truck side with foreign exchange. As we already made public, we have roughly €250 million of headwinds that we expect for the total year of 2014 in headwinds and currency exchange. €150 million have already happened with the first half. And with respect to the second half, we are expecting €100 million more of the headwinds. Since we were able to compensate all of it to the first half, we are confident that on the second half, we will also succeed to do that. Jose Asumendi - JPMorgan: Understood. Thank you.

The next question is from Philip Watkins, Citi. Philip Watkins - Citi: Thank you very much for the questions here. I was wondering if you could perhaps comment on how CapEx might progress sequentially for Q3 and Q4. And just a follow-up on trucks. I understand visibility is low. But how is pricing being developing in emerging markets, given the order book? Thanks.

CapEx, directionally will grow in the second half, relative to the first half, but be overall in the dimensions which we indicated before. Philip Watkins - Citi: Thanks.

Pricing in emerging markets is a big question because there are a lot of countries involved. I would like to pick out a number of them. Let me start out with Brazil. Pricing is tough. All the competitors are basically fighting for market share and keeping there factories running during the market downturn. So in Brazil pricing is difficult. In India, we see the reverse. For the first time, we see that big discounts are being reduced and in the past, we have seen discount as high up as 40%. This is not happening anymore. So pricing is coming back. Also the stock levels are being reduced in the marketplace and with that the market is getting much more reasonable. So we see a reverse and a better pricing position in India. Other countries like Russia, it is not the pricing issue. It's a market issue where the market is basically going down. Same also applies to Indonesia, which is another big market of ours where also just the demand is going down. It has nothing to do with pricing. So this is the picture as I see it. Philip Watkins - Citi: Very clear. Thanks.

The next question is from Laura Lembke, Morgan Stanley. Laura Lembke - Morgan Stanley: Yes. Good Afternoon. It's Laura Lembke from Morgan Stanley. I actually have just one question on your Chinese business. I mean you said that you are on a good track to improve profitability there, but when I look at your joint venture, we are still not seeing the step up that, I think, everybody is looking for in the joint venture. So if you could give us any kind of update of what is really necessary to increase profitability here, and what the necessary steps are? Thank you.

Well, in one word, I could answer C-Class. So we are now just in the middle of the changeover actually just a few days ago. These days, the C-Class production starts and in fall we will have the market launch of the new C-Class. An important prerequisite is the improvement of our pricing structure and this S-Class started in the phenomenal performance and continue to be there since nine months. The E-Class, with the facelift, even though it was just a facelift, has put us in a much better position as far as pricing is concerned. And of course, objective is for the C-Class, which is a great new car. It gives us lots of opportunity. We want put this segment into good pricing position as well, absolute and relative to competition. And then the whole foundation is laid for profitable growth throughout our overall lineup. And this will have its impact on the our joint ventures bottomline as well. Laura Lembke - Morgan Stanley: Can I just ask a quick follow-up? Could you give us a sense of where capacity utilization in your JV will go once the C-Class is fully up and running?

We just had a top management meeting in Beijing where we visited the plant and we didn't follow that closely as of course the passenger car division did. We were pretty much impressed by the amount of capacity across the board being invested there. And of course that's based on our future plans because you can't do that on a daily basis and therefore because at that very moment capacity utilization is relatively low. But once again next year we expect significant growth with our core car lines which is C-Class, E-Class, S-Class. C-Class and E-Class being the two main volume drivers for capacity utilization in China. On top that, GLK by today, we are restricted by capacity on our sales. So there we are already in a very good situation and I expect next year and the year after to be able to able to say the same across the line. Laura Lembke - Morgan Stanley: Okay. Very clear. Thank you.

Next question is from Fraser Hill, Bank Of America Merrill Lynch. Fraser Hill - Bank Of America Merrill Lynch: Good afternoon. Just two questions left for me. On CapEx, I just wondered if you could flesh out thoughts a bit more structurally. I take it, I just read that of course you said the second half will be higher than the first half, but if I look at your CapEx in the first half relative to last year, it's down in an absolute sense against some pretty strong growth. You are talking about being capacity constrained. Surely at some point it looks as if you are going to need to invest fairly significantly in the manufacturing system just to keep up with growth let alone, I guess, modernization measures. So how can you help us think about maybe how that CapEx to sales ratio is going to trend over the next year or two? And perhaps how the absolute CapEx level will develop? The next question, final question, was just on your truck orders, which were particularly weak in Germany. I think down 27%. So I was just surprised to see such a big fall for Germany relative to the declines you saw in the rest of Europe. I just wondered why that was? Thanks.

Your first question, as you know, we do have a plan which is supposed to take us to the number one position in volume by the end of this decade on the car side. And our planning for plants is accompanying this objective and on this timeline and it's not that long any more to 2020. The capacity will be installed which enables us to do exactly that. So the one objective, of course, which we are having is to do that in the most efficient way possible. One element which is helping us is our strategic cooperation with Renault-Nissan where I think about take-up for instance, we added significant chunk of capacity on the component side. Or think about Mexico, where we will add a car plant. Both of them with numbers much below our normal standalone approach. And the same applies for our small displacement engines altogether where we have very significant volumes being produced on that corporation basis. On top of that, of course, we are investing heavily in our portfolio expansion. You know that, I think at that point of time, 11 new models are still out till the end of the decade. The investment, as far as tooling and so on is concerned, of course, is part of our plan. Altogether this give us more or less flat CapEx development in absolute numbers, which then of course means in combination with our revenue growth declining ratio. That is our current planning. And it seems, on the one end, to be positive for our overall structure, on the other hand, assuring that we will stay ahead as far as technology, product portfolio capacity is concerned in competition. So there's no risk or there should be no concern on your side that we would improve our current profitability by underspending for our future development. That is definitely not the case.

Your second question was about order income in Western Europe. First of all, in the first and second quarter, we are enjoying good market share. So we are able to pick up market share, but you are right. With respect to order income, in Germany we are not really happy about this. We have a reduction in the second quarter. Now you need to know our market share in Europe is the strongest. We are enjoying market shares of around 40% in the past and obviously, this is a very, very important market, which is heavily contested by all our competitors. So we feel we expect that orders in the second half of this year will pick up and we can make up some of the orders that we could not get in the second quarter. So we expect that the second half of this year we will see more orders to come. Fraser Hill - Bank Of America Merrill Lynch: Just to follow up on that, what's driving your confidence there on the order pick-up in the second half of the year?

Especially in Germany, we still saw a number of Euro V trucks being registered both last year and some of the customers were very hesitant to get into the Euro VI trucks and were sort of waiting that we might budge on the price. So there was chicken game, who was going to chicken out first. As we are making our stance clear that we re not making big concessions on the pricing side, we expect that at some point of time, the waiting game will be over and those customers will come back to us and start to order. Fraser Hill - Bank Of America Merrill Lynch: Thanks.

The next question from Kristina Church, Barclays. Kristina Church - Barclays: Hi. Thanks for taking my questions. Kristina Church from Barclays. A slightly more longer dated question was regarding the shift to the 2020 targets and how you see yourself positioned in terms of, do you think there will be a significant mix deterioration and then a more emphasis on the smaller cars in your production line? Or you were discussing earlier the use of hybridization for the larger vehicles? How do you see your fleet panning out on to 2020 and then beyond the regulations? Thank you.

You are right. We will and we plan to grow with all of our car lines in all segments but the growth in the compact segment will be higher than rich and therefore the portion of compact cars plus smart will go to about 40% of the total which therefore, of course, is a lighter structure than we have today. That is part of our plan going forward and that of course is considered by striving for our strategic profitability target which means, on the one hand, that we have to improve our profitability altogether as far as fixed cost is concerned and other channel elements. Secondly that we have to continue to have very profitable vehicles in the truck segments. Further to that, this generation is already much, much better than the last generation in compact class, as far as profitability concerned. And the next generation, we are shooting for the next step up as far margins are concerned. So all of that together is supposed to bring both in line our volume target and the profitability targets. You are right in pointing out that another element in that equation is the share of hybridization of electrification of your fleet. We all know that the most efficient reduction in CO2 level of your fleet is more efficient combustion engines. While we were significantly behind at least one of our main competitors eight years ago, we are today on the car-by-car comparisons ahead of our competitors and we will continue to strive for this leadership, and therefore reducing the needs, we shouldn't forget that, we take the needs of customers as well to buy these electrified vehicles, but just from a mathematic point of view, to reduce the need for electrified vehicles in the overall fleet to accomplish regular inventory targets. So all of that is built into our plan and that's why we continue to work on the cost side of our business. Kristina Church - Barclays: Thank you.

Next question is from Daniel Schwarz, Commerzbank. Daniel Schwarz - Commerzbank: Yes. Thank you. Daniel Schwarz from Commerzbank. I have two questions left. One is on Mercedes in China. And as you said, you are on track to closing the gap in China regarding the number of dealers but there's still a gap in terms of the overall volumes. How does it reflect on the profitability of your dealers, especially those added newly to the network also compared to your competitor? The second question, a follow-up on trucks. Market share in the U.S., it's down quite a bit compared to the first quarter. What is the driver for that? Is that also pricing and margin protection? And what's your expectation for the second half regarding the market share? Thank you.

Pricing, when I was talking about, there are significant improvement in pricing for our main car lines. This is a composite of our pricing and dealers' pricing. Even though the latter one cannot be influenced by us. And this has improved significantly. And as a result, the profitability of our dealer body has improved significantly. Without now differentiating between the new online dealer and dealer being with us for a few years, I can tell you that investors are standing in line for the new spots. We are intending to add to our dealer body and I think that's the best answer to your question. Our franchise is considered highly attractive and attracts capital. Daniel Schwarz - Commerzbank: Okay.

Second question was about market share in United States or NAFTA. In the first half of this year, we have seen a drop in market share. That was primarily due to the fact that while the market picked up, we could not raise our capacity fast enough. We had a tough first quarter where we traded some of the backlog and every time since, we have been struggling to get rid of that order backlog. In the first and the second quarter of this year, we built up additional capacity by adding shifts in our U.S. plants. With those additional capacity, we will be able to reduce the backlog over the next couple or two quarters. With that, we expect our market share to grow in NAFTA. Daniel Schwarz - Commerzbank: Okay. Thank you.

Next question is from Charles Winston, Redburn Partners. Charles Winston - Redburn Partners: Yes, hi, Charles Winston from Redburn here. Thanks for taking my questions. Really just one question left. With the new C-Class coming out, just sort of thinking about the MRA platform, I guess sort of three sort of subquestions. Firstly, how far down the investment program in the rollout of MRA and the investment in MRA that you need to put in? How much of that has been done? I guess clearly a chunk of it, but with only the C-Class out there's still quite a bit to come, if you could update us there. Secondly, how many vehicles do you need on MRA to start making a material contribution? In other words, is the C-Class, by itself, enough to actually start seeing a material margin contribution from using MRA? Or do you actually need the C-Class plus another model for it to be material? And final element really, is how much of those MRA cost benefits will get eaten by the cost of CO2? I guess in many ways, that links back to Kristina's question and the move to 2020. I am guessing a lot of the MRA benefits will just get swept straight into CO2 related content. Will there be a net gain from MRA in the introduction of that platform once you have put in all of the CO2 related content? Sorry, lots of questions there, but kind of all on that one theme. Thank you.

Thanks for the questions. I will try to give you satisfying answers. Altogether, we have, there are about 13 vehicles on that platform between C-Class and E-Class. We are in the midst of the launch of the second one with the T model. From that point, you could conclude group, which would be wrong that two-thirteenth of investment would have been done. It is of course much more because we are setting the new platform. On top of that, we have set up the stage for four locations to produce the new C-Class and that is of course a significant element of the overall CapEx we spend in MRA. So I actually, perhaps I could help, but I can't give you the exact percentage of what has been spent, but I would say something like 40% to 50%, something in that range. But that's not the precise. To your further questions. Once again, we are, actually by now, expanding our horizon at far as planning is concerned to 2025, because some of the decisions we are making today already have a decisive impact on our business development beyond 2020. That's the nature of our industry. Therefore for the range of 2020, all of these aspects, like for instance, CO2 are built in into our plan, and our objective is to improve the profitability of our specific car lines with this generation MRA and then of course with the next generations even further. Now to single out what is the benefit of more vehicles on one platform. What is the benefits of our module strategy there? What is the negative impact of CO2? What is the benefit of more plants in more regions and so on? It is very difficult to now calculate the one against the other. I think important outcome is that the profitability of the margin within this business will improve. And as far as scale is concerned, somewhat different from the truck side, where on specific supplier contracts you have a pricing which develops with the ramp-up over time because the launch times there are relatively long as well. On the car side, typically you have one price for one component. And when the volume adds throughout the additional element of this family, this doesn't have a direct price impact. So there is much less of the scale impact overtime. So the C-Class already benefits from the E-Class being built on the same platform later on. Charles Winston - Redburn Partners: Very useful. Thank you.

Thank you. We are now taking the final three questions. The next question is from Marc Tonn, Warburg Research. Marc Tonn - Warburg Research: Yes, good afternoon. Marc Tonn from Warburg Research. Just one follow-up on some pricing in the truck industry in Europe. As Dr. Bernhard had mentioned, you were not entering into any, let's say, major price concessions. Perhaps if you could, give us some insight or more info whether you were fully able to recover the extra cost for Euro VI in terms of pricing in the European market? And second question would be regarding the capitalization ratio at R&D, which I think was at 18.5% for the second quarter. Was this purely something due to the segmental shift in R&D expenditures, perhaps let's say less capitalization of trucks and a bit more at Mercedes? Or is it a structurally lower figure in terms of capitalization we should expect for the future. Thank you.

First question on pricing in Europe. Euro VI comes with a hefty price tag. We were talking about something around 18% price increases. For us, it is essential that we are able to push these price increases into the marketplace in order to cover our increased cost. It goes without saying that while we are doing that, we are also working hard to reduce our costs. So far we have been able to do that and we are intending to do that also in the future, but it also depends on our competitors and everything, the whole market environment to make sure that we are successful. Continue to be successful in doing this. So 18%, that's roughly the number and we were successful in getting the prices from our customers. Marc Tonn - Warburg Research: Thanks.

Marc, for your question with regard to the capitalization ratios, 18.5%, of course, is a mix between cars, trucks, vans and buses. The car number is around 26% and follows normal product related development topics. There is no change in method. In trucks, we have a pretty low, almost zero, so 1% capitalization ratio because we have no big development. We are through almost all what we wanted to do. Marc Tonn - Warburg Research: Thanks.

Thank you. The next question is from Frank Biller, LBBW. Frank Biller - LBBW: Yes, hello. Good afternoon. Frank Biller from LBW. Just two questions. One is on the truck side, the other on the buses side. For the trucks, you are expecting for the whole year significantly increase in earnings despite a somewhat more challenging market here, especially in South America, for example. So what should we expect for the second half? Are you expecting higher margins here in the second half? Or at least same magnitude as in the first half here in absolute terms? And here in buses, you changed a bit your guidance, now expecting also significantly increase in earnings here. Should we expect a margin increase here despite a somewhat weaker volume terms here?

Okay. First of all, trucks, you are right. We have a number of headwinds that we are having this year. You just mentioned Europe and Latin America. I would to it that we have foreign exchange rate that is against us. And also when we gave our guidance, we also had the equity contribution of Rolls-Royce Power Systems in our plan which is also now dropping out until the end of this year. And on top of it, Indonesia. This is all, on the negative side. On the positive side, we have a better than expected market development in the business development in NAFTA. A little bit better market in Japan and obviously we are able. on the operations side, to make a lot of the negative effects that may come up to compensate for that. So all in all, we think that we will stick to our guidance, which is increasing our EBIT significantly over last year and that basically means that also in the second half of this year, we need to improve. We did a big step in the first quarter as when you look at the numbers. First quarter has already been a considerable step. So there is some more coming in the second half, but obviously not as big anymore as we had the first half of this year. So this is the first. The second one is buses. We had a very good start into this year on the bus side. When you look at the numbers first and second quarter, they are very, very strong. They are stronger than we typically have. Since we are experiencing a severe downturn in Brazil, and in Argentina, we do not expect that we will continue on the same level as we did in the first and second quarter. So we will see a downturn in EBIT in the third and the fourth quarter, but overall, we are sticking to our guidance of significantly improved earnings for this year. Frank Biller - LBBW: Thank you.

Thank you. The final question is from Adam Hull, Berenberg. Adam Hull - Berenberg: Hi .Good afternoon. Adam Hull from Berenberg. Just two little clarifications. I wanted to just drill a little bit deeper into that margin on the truck side on Q2. Just firstly on the German car prices, you said they are up year-on- year. Are they also then up quarter-on-quarter? And secondly, on that truck order intake of minus 27% year-on-year, what do you think the German market overall is, because obviously the comparison is tricky with the Euro V? But what do you think the overall German intake year-on-year is? Then thirdly, really just wanting to drill down a little bit on the truck side. You gave the margin of 6.6% on an underlying basis. Is it something exceptional there? Because there does seem to be an awful lot of negative you are talking about Latin America, Europe not as easy as perhaps you had hoped. So it just sort of struck me. Is it the component side and you always expected the costs on Euro VI to be lower? Just to give because there must be more on the positive side, perhaps on the labor force or on the components side or other elements of cost, unless there is that something one-off in that Q2 margin, 6.6%, up from 4.9% in Q1. Thanks.

As the car piece of your question was the shortest one, I will take that first. Yes, Q2 had better pricing than Q1.

Okay. On the truck side, this a mixed bag. We are not talking about only about Euro VI. We are also talking about the U.S. business. So in your equation, you should also look at the positive development we are enjoying on the NAFTA side. You also should look at the positive developments we see in Japan. So these are things that contributing positively with respect to margin and profit increases. And obviously, as I said, as we are looking at market developments and trying to secure our share in the marketplace at good margins, we are also working very, very diligently on the cost side of our business and that also will improve our margins over time. I do not expect huge margin jumps in the second quarter, but basically we are sticking to our guidance. Adam Hull - Berenberg: And just on that, roughly speaking, do you get a feel for what the German order intake is year-on-year, if you compare it to your minus 27%?

As I expected, as I already explained, in the first half, we had a good market share development. In the second quarter, as you mentioned, we are seeing a lull in the order intake. We think that due to the fact that some of the customers are in waiting, and are hesitant to place their orders because they expect us to reduce our prices. We are so far have held out our pricing position and did not compromise. We expect that at some point of time, these customers will come back and place their orders, to the extent that the market is there. So again, as I am saying, we do not want to compromise our margins in a in a price war, We are not in for this. Adam Hull - Berenberg: Just finally, just to be clear, that means there is no particular one-offs in that 6.6% margin, nothing particular that's step changing that we should be stripping out perhaps?

No. Adam Hull - Berenberg: Okay.

This is normal business. It is ongoing business. No one-timers in the 6.6%. Adam Hull - Berenberg: Thanks so much. Björn Scheib: Okay, with this, ladies and gentlemen, thank you very much for your questions and being here with us today. Gentlemen, also thank you very much for taking the time to answer the question. With this, I just want to make use of the opportunity and draw your attention to our China Division Day, which take place in September, if you could seen this conference call today, there seems to be some interest with it. And as Dr. Dieter Zetsche said, its' really worth coming to China and take a look at our plant. Thank you so much and have a great day. Bye.