Björn Scheib - Head of Investor Relations Bodo Uebber - Member of the Board of Management; Finance and Controlling, Daimler Financial Services

Tim Rokossa - Deutsche Bank AG Jose Asumendi - J.P. Morgan Securities Ltd. Arndt Ellinghorst - Evercore ISI Stephen Reitman - Societe Generale Michael Tyndall - Citi Charles Winston - Redburn Adam Hull - MainFirst Bank AG Daniel Schwarz - Credit Suisse Horst Schneider - HSBC Trinkaus & Burkhardt AG Kristina Church - Barclays Capital Fraser Hill - Bank of America Merrill Lynch Stuart Pearson - Exane BNP Paribas

Welcome to the global conference call of Daimler. At our customer's request, this conference call will be recorded. A replay of the conference call will also be available as 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 conference is governed by the Safe Harbor wording that you find in our published results document. Please note that our presentation contains forward-looking statements that reflect management's current views with respect for 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 of which they are made. May I now hand you over to Björn Scheib, Head of Daimler Investor Relations. Thank you very much. Björn Scheib: – both the telephone and the Internet throughout Q3 results conference call. We are very happy to have with us today our CFO of Daimler, Bodo Uebber. In order to give you maximum time for your questions, Bodo will begin with a short introduction directly followed by the Q&A session. Before I hand over to Bodo, I would like to address the following comment on the diesel topic very briefly. There's no new additional information regarding the ongoing investigation by the Stuttgart public prosecutor's office in connection with the diesel or our own internal investigation upon the request of the US Department of Justice. As all of you are aware of the statement of this subject, we are fully continuing to cooperate with the authorities. Our experience has clearly shown that our conservative communication approach supports the constructive dialogue with all the authorities. So, therefore, please understand that we do not comment on pending proceedings and cannot provide any additional further details. With this, thank you very much. And I would love now to pass over to Bodo. Bodo Uebber : Thank you, Björn. And good afternoon. Before discussing our third quarter numbers, I want to give you some additional information relating to recent speculations on cartel issues and our announcement this week. We may now disclose that Daimler AG has filed an application for immunity from fines with the European Commission some time ago. We do not know at present whether or not the European Commission will initiate formal antitrust proceedings. We are cooperating fully with the authorities. Now, let us get to the business. In order to continue our profitable growth and to continue adding value, we have outlined and implemented clear roadmaps and strategies for each division in the group. In order to even better safeguard Daimler's future success, the Daimler board of management had decided on the first steps to further focus and strengthen the group's corporate structure through the creation of legally independent entities. Based on the positive results of a feasibility study and the agreement we reached with employee representatives, we decided, still subject to supervisory board's approval, to continue with the project and, in this context, to take preparatory measures. Daimler will invest a three-digit million-euro amount for these first steps and will contribute €3 billion from liquid funds to the German pension fund of Daimler AG subject to the approval of the supervisory board. Based on the strong balance sheet and free cash flow, we are able to make this extra contribution to our pension funds. Benefits are, for example, improved risk profile of the company, improved credit matrix supporting our A rating, lower net pension cost. The targeted new structure will have to better focus on the changing requirement of markets and customers. As also mentioned in our release, no final decision has yet been made by the board of management or supervisory board to implement the new divisional structure. And such an approval would be possible at the earliest at the shareholders meeting in 2019. This time frame is resulting from the requirement of German stock corporate law. Let us continue with the third-quarter results. In the first nine months of the year, we continued along our successful path and achieved new records for unit sales, revenue and EBIT. In the third quarter, we continued our product offenses with the newly redesigned Mercedes-Benz S Class, the world premiere of the new Mercedes-Benz X Class, we showed the Concept EQA and other show cars at the Frankfurt Motor Show, we had the launch of the FUSO eCanter, the world's first serious produced, all-electric truck, and the expansion of our mobility services business. And now to our group financial result of the third quarter. Due to the solid sales development, group revenue increased to €40.8 billion, up 6%. Adjusted for FX effect, the increase amounted to 8%. Group EBIT reached €3.5 billion, including €523 million of disclosed items. Net profit decreased to €2.3 billion, equivalent to €2.03 per share. The free cash flow of our industrial business rose to €5.8 billion in the first nine months. This significant increase is particular based on the positive business development as well as a positive development of working capital. In the comparison of the last year, we have to consider that industrial free cash flow included a payment of €1 billion imposed by the European Commission in the context of the settlement in the truck antitrust proceedings against Daimler AG. This year's free cash flow includes the dividend by Beijing Benz Automotive in the amount of €800 million. Net liquidity in our industrial business increased to €20.8 billion by the end of the third quarter. To sum up, the group's results were driven by the success of our strong product portfolio and continued efficiency enhancements, but offset by foreign exchange rate effects and special one-time measures. This resulted in a return on sales in the automotive business of 8.4% in the third quarter. Let's take a closer look at major developments in all divisions. Mercedes-Benz Cars posted its 55th record month in succession and the strongest quarter in unit sales in the company's history. Unit sales increased by 6%, with especially good results in Europe, plus 3%, and the continuation of significant growth in China, plus 21%. Revenue at Mercedes-Benz Cars increased by 1% to €23.4 billion. The division's EBIT decreased from €2.7 billion in the third quarter of last year to €2.1 billion, with a margin of 9.2%. Included in this number are around €500 million special charges in connection with expenses for voluntary services activities and a vehicle recall in the current quarter. The underlying operating profit is based on strong sales and ongoing efficiency enhancements, offset by negative foreign exchange rate effects and higher investments in new technologies and future products. Daimler Trucks unit sales increased significantly by 30% in the third quarter as a result of strong markets in the NAFTA region, plus 44% in Asia, plus 42%. Here, in particular, positive developments in Indonesia and India. An increase of the order intake of 39% to 117,000 units is very promising and indicates further growth potential. Revenue at Daimler Trucks of €9.2 billion was significantly above the prior-year level. Expenses for the planned fixed cost optimization of €70 million affected EBIT negatively due to transfer opportunities of our employees within the Daimler Group. Daimler Trucks now anticipates expenses of up to €200 million, mostly effective in 2017. The overall target of Daimler Trucks to achieve a total of €1.4 billion improvement by the end of 2018 is unchanged. Daimler Trucks EBIT increased significantly to €640 million with a margin of 6.7%, including the highlighted and disclosed item for the expenses related to fixed cost optimization. While earnings were positively impacted by higher unit sales, higher expenses mainly for raw materials, new technologies and future products has an offsetting impact on earnings. Mercedes-Benz Vans also had a strong sales momentum in the third quarter. Unit sales increased by 9%. Growth was mainly driven by the V-Class and our position further improved in China where sales increased by over 60% compared with the prior-year quarter. The Van division posted third-quarter EBIT of €280 million, with a corresponding profit margin of 7.1% affected by expenses for product launches, product changeover in the production, and higher costs for raw materials. Unit sales Daimler Buses increased by 17% in the third quarter. The division's EBIT of €26 million was significantly lower than the earnings in the prior-year period. At Daimler Financial Services, new business increased by 11% and contract volume reached €136 billion at the end of September, which is slightly higher than at the end of 2016. Adjusted for exchange rate effects, contract volume increased by 8%. In the third quarter of 2017, the Daimler Financial Services division achieved earnings of €507 million, with a return on equity of 18.5%. This positive development was mainly the result of increased contract volume and the continuation of disciplined risk management, resulting in an unchanged low cost of risk with net credit losses of 25 basis points. Now, let's look at our expectations for the full year 2017 and the remaining months. Based on the positive market expectations for the current quarter, we expect group sales to increase significantly in the full-year. At Mercedes-Benz Cars, we plan for a significant increase in our unit sales, achieving a new record level in 2017. This will especially be supported by our best-selling model families, the C and the E Class, as well as by our SUVs in the current quarter. Since September, the comprehensively modernized S-Class sedan has been available in the United States and its biggest sales market China and should boost our unit sales in the coming months. Daimler Trucks anticipates a significantly increase in its total units compared with 2016. We intend to strengthen our strong market position with significantly higher unit sales in the NAFTA region. The same applies to India and Indonesia, while the EU 30 region and Brazil expect slight sales increases. Mercedes-Benz Vans plans to achieve significant growth in unit sales. The introduction of the new X-Class by the end of this year will create additional momentum. Daimler Buses expects that it will be able to defend its market share leadership, with innovative future-oriented and high-quality products. Overall, we anticipate a significant increase in unit sales. Daimler Financial Services anticipates significant growth in new business and further growth in contract volume, which is based on the strong sales development of the automotive divisions, especially Mercedes-Benz Cars. Beside the financing business, we continue to see further opportunities in the field of innovative mobility services. Our FX guidance for the full year 2017 remains favorable, but due to the most recent strengthening of the euro against most major currencies, from today's perspective, we expect a tailwind of significantly less than €500 million. This means, based on today's assumption, we have to expect a headwind of €200 million to €300 million in the first quarter of this year. Raw material prices at the group level are still expected to be considerably higher than in 2016. We have to anticipate a headwind of significantly more than €500 million for EBIT in 2017. Based on market expectations and the plans of our divisions, we continue to expect significantly increase of group revenues and group EBIT this year. Driven by the strong product portfolio and significantly higher car sales, Mercedes-Benz Cars expects EBIT for full year 2017 to be significantly above last year's level. Due to the ongoing robust demand, especially in North America and Asia, as well as expected lower expenses for the planned fixed cost optimization, we have further adjusted the outlook for our Daimler Trucks results. We now assume that Daimler Trucks will also achieve EBIT significantly above the prior-year level. The same applies for Daimler Financial Services. Due to higher contract volume and a better-than-expected risk profile, EBIT is expected to be significantly above the prior year's level. While for Mercedes-Benz Vans, we continue to expect full year EBIT to be at the prior year level. EBIT at Mercedes-Benz Buses is now expected to be slightly below the prior-year level. The anticipated earnings development and the growth of our automotive business will have a positive impact on the free cash flow of the industrial business in 2017. Despite a further increase in expenditures for new products and technologies, the free cash flow from the industrial business, without taking into consideration the planned extraordinary contribution of €3 billion to the German pension plan assets of Daimler AG, should be slightly above the level of 2016 and, therefore, exceed the dividend distribution in 2017. We are working to further strengthen our current performance step-by-step, with a continuation of our product offensives in all divisions and the transformation of the entire group with a focus on structural optimization, efficiency improvements and increasing operational flexibility. Our core business is stronger than ever. At Mercedes-Benz Cars, we are the number one premium car manufacturer with the right products to reinforce our leading position. We significantly improved our production flexibility over the past few years, with a setup of new plans, increased modularity and we executed our product platform strategy. We are in an excellent position to do even more. While we continue with our comprehensive financial discipline, we are working on and investing in future technologies. In the third quarter, we announced that we will invest a further approximately €1.5 billion in eMobility in China and the United States. Our ambition is clear. Successful transformation to become number one in the world of CASE as well. This means offering customers the most compelling products across these four areas. To ensure that we continue to get strong margins, we have started Fit for Leadership 4.0. The program will take full effect in a few years and aims to deliver €4 billion further EBIT improvement. With Fit for Leadership 4.0, we prepare the comprehensive transformation of the automobile business. This comprises the boost of the EV vehicle share as well as rising hybridization and CO2 measures and the corresponding impact on the profitability of Mercedes-Benz. Therefore, one important goal of Fit for Leadership 4.0 is to secure the profitability of the current portfolio to be best prepared for the upcoming challenges. At Daimler Trucks, well equipped to cope with the future challenges. While sustaining our market leadership position in the core markets, we are focusing on after-sales growth programs and the expansion of our technology edge with high efficiency and speed. Daimler Trucks is already today monetizing the connectivity platform, FleetBoard, Detroit Connect and TruckConnect by providing value-adding services for its customers. And with the introduced efficiency program and the targeted turnaround in Brazil, we are bringing Daimler Trucks up to its target level of profitability. At Daimler Financial Services, our ambition is to become an entirely customer-centric, fully digitized, integrated financial and mobility service provider operating in the most efficient way. Our current portfolio of mobility services is a strong starting point to conquer the customer interface, extending the Daimler ecosystem and generating additional revenue streams. With additional 16 million customers in our mobility services platforms, we are on a good track and well prepared for the full autonomous future. To sum up, the combination of financial strengths and innovativeness is stronger than ever at Daimler. We want also our shareholders to participate in the success of our company by driving shareholder returns and continuing to target a sustainable dividend development. I now look forward to your questions. Thank you. A - Björn Scheib: Thank you very much, Bodo. Ladies and gentlemen, you may ask your questions now. The operator is going to identify the questioner by name, but please also introduce yourself with your name and the name of the organization that you're representing before you ask your question. A few practical points as always. Please avoid using mobile phones as well as hands-free speaking systems. Understood? Please your question in English. And please try to speak loud and clear, so that everybody can understand your questions properly. Last, but not least, as a matter of fairness, please limit the amount of questions that you're going to raise to a maximum of two. With this, you're going to give everybody on this call the opportunity to ask questions. Now, before we start, the operator will once again explain the procedure.

[Operator Instructions]. And the first question comes from the line of Tim Rokossa with Deutsche Bank. Please go ahead. Your line is open.

Yeah. Good afternoon, Bodo and Björn. It's Tim from Deutsche Bank. I would have two questions please. The first one is on your holding plans. How should we really think about the game plan and the time line from here? Will we get updates on the way to 2019? Is there anything that can still derail this idea? You're now investing quite a bit of money to really start it. And then, the second question is really about what you said last, mobility services. You're growing up quite impressively. You're probably on track to double your number of transactions to 120 million or so this year. You started to talk more about it earlier this evening, then again at the IAA. How should we think about transparency on this business from here? Will we eventually get some revenue numbers, for example? Will you share vision with us, where you want to stand in a couple of years? Thank you.

Hell, Tim. Thank you for your questions. First of all, on the timeline, of course, it's quite clear that we are as fast as possible with a question on the structure and we have aligned all the benchmark process which would end, so to say, earliest at the annual meeting in 2019. There are a lot of things to be done. On the one hand, of course, we have to prepare the whole structure of the group into legal entities. It is not only a German topic, but also, as you can imagine, it is a topic which we need to go for every country where we're operating in. So, that work has to be done and we need opening balance sheets, of course, for a proposal for the annual meeting. And you can imagine that 2017 is very close. To answer, 2018 is what we have planned for, and that is, from my point of view, benchmark in this kind of processes. On top of this, we have to look into tax-related matters and a comprehensive due diligence we need to do. Tax rulings have to be assessed for the overall and general concept as well as special issues. For example, transfer of joint operations. The due diligence comprises a screening of all assets, services, function, processes and contracts on residence for [indiscernible] process. So, you can imagine all of that is part of the project and we do that, as I said before, in a benchmark process. Of course, if there is some things to be updated, we will make updates every quarter or in between. We have to see what kind of important information during today and April next year, what happened. Of course, please keep in mind that the board of management will have to make a final decision. The supervisory board too. And then, finally, the annual meeting will make its decision to the program. Your next question was with regard to mobility services. I can give you a number, which is, from my point of view, is pretty successful. So, the revenue stream behind it is a couple of hundred million, which is, in this area, I do think, for this young business, again, and concentrating on the European region, a good and high number. Of course, we are further in the investing phase in this business. Quite clear, as I have pointed out, we would like to get to a kind of, yeah, market-dominating position with our platforms. Other than this, I do think you will not earn money on the one hand or get not the customer growth. As you see, our customer base growing. We're fully in line, so to say, with our plan and their revenue growth up and coming as we are going our customer base right now quite successfully.

Thank you. If I may, just follow-up on the first question then with the holding. You have ruled out with your statement on Monday that you want to divest any of your businesses. I think that statement is quite clear per se and probably also understandable in the context of every other stakeholder. Is that just referring to the fact that you always want to remain an integrated group and you want to be able to run the show total, so to say, or do you also rule out that there may be something on minority strategic options, for example, that you have if something attractive should come along?

Tim, in general terms, our project has many aspects. This is – one, of course, is related to the business. That means we would like to create business processes and structures and responsibilities in the divisions to further execute on our strategies and to develop the business in terms of growth, market share, number one position, as we have pointed out, within cars and in trucks, including the piece of electrification, which is up-and-coming, maybe faster in cars than in trucks. So, that is one area where we'd like to speed up infrastructure processes and responsibilities to gain shares. The second element is to prepare for all the unknown unknowns for the market environment, for the volatilities, for the environment, so to say, which is affected by the electrification, on the one hand, and development in technologies, on the other hand, and we believe that the structure of the company should be more flexible than ever in terms of partnerships and cooperation and the structure as such. So, that is what we like to create. And that gives us all options, so to say, and all possibilities in the future to discuss, at certain points, due to some effects, which I don't know yet, to discuss the structure of the group. What we have said that we do not divest complete divisions. That's what we have stated. And we are now concentrating with our project on implementing the structure and not on speculation of other topics. So, as you can imagine, we need a high concentration in terms of many aspects to implement the program, so that we are successfully earliest at the annual meeting in 2019.

Thank you very much.

Thank you. The next question comes from the line of Jose Asumendi with J.P. Morgan. Please go ahead. Your line is open.

Thank you very much. Jose, J.P. Morgan. Just a couple of questions please. Just coming back to car2go and moovel and mytaxi, in the medium term, do you think these three entities should be under financial services or do you think that maybe more in mid, longer term, you'll be looking to spin them out or doing an IPO of the three entities. And maybe if you could just also clarify. Thank you very much for the detailed explanation we're getting now on revenues behind the three entities. Which of the three entities are contributing to more revenues as we standing within car2go, moovel and mytaxi? And then, second question would be on the €840 million dividend you got from the equity accounted entities. Can you explain a little bit which of the entities was the biggest contributor? I suppose BBAC. And also, we should expect something more coming in the fourth quarter? Thank you.

Jose, thank you for your questions. With regard to all the mobility stuff we are doing, I do think, first of all, the highest priority to get as many customers as we can to have a certain platform in euro, which is the number one platform. We are currently in this position. But, of course, you can imagine, there is a high competition in many of these aspects, but we have to demonstrate that we are number one, that we're growing, that we get a certain distance to the second, so to say. I do think that it's the priority A in this business and not then to speculate about the IPO and other stuff. The main focus of the management is to create this dominating market position and to grow and to prepare out of this platform, a platform for autonomous driving cars. That is one overall objective we do have. Certainly, there are other aspects in moovel where we do city mobility and so on and so forth, which is more or less adding to this vision we do have. And, therefore, it is not in our mind right now to do anything than this. What makes us stronger in terms of our platform we go for, so we have never excluded in many aspects that I've said, also the structure gives us a lot of possibility in terms of cooperation, so we have every time to think where we can team up with somebody or other stuff just to make the platform better and more safe, so to say. Same applies what we're doing for other operations like Nokia Here, for example, or Here operations where we are inviting a lot of partners into the platform again to come to a certain position to our competitive world in terms of other competitors of Nokia Here. You are asking with regard to the dividend of our joint venture in China. I think that was your question, I assume. So, we have pointed out in our interim report that we need to this year get a €800 million dividend from BBAC that reflects the strong position to – strong profitability and growth of our joint venture, and that will hold on. I do think another €400 million will show up in the fourth quarter out of this. For next year, we expect not similar numbers, but a very strong dividend position too, but not as strong as this year as this year includes also some dividend spending of 2015.

Thank you very much.

Jose, welcome.

Thank you. And moving on to the next in line, Arndt Ellinghorst, ISI Evercore. Please go ahead. Your line is open.

Thanks. And good afternoon. It's Arndt Ellinghorst from Evercore. First question is, it looks like you've impaired some of your assets in smart because you're moving it from combustion engine to EV. And I know we had this discussion before and understand that carmakers want to avoid impairing engine investments, especially diesel, as it further triggers worries of their consumers and residual values trigger down further. But can you help us to understand at what stage your auditors require impairments on combustion engine or diesel assets? And then just to clarify, and coming back to Tim's question at the beginning, the statement on no divestment regarding the group structure, we understand you correctly that this does not rule out a partial carve-out or IPOs of some of your divisions? Thanks.

Arndt, thank you for your questions. First of all, we've already this morning discussed diesel topics and trends and so on and so forth where we are, as Mercedes-Benz, a bit better placed than others. But, anyway, we have in absolute terms some higher diesel sales. In relative terms, we have some minor changes in percentages. We have no indication for an impairment right now. You can imagine that our impairment process and triggering is based on KPIs. There are a lot of KPIs moving in per country everywhere. And all of this evaluation, there is no impairment to be done. Of course, we are watching the numbers, the KPIs, on days of inventory, for example, with dealers. There is one, for example, we are using our internal data – from Athlon, for example, we are using data from external service providers and so on and so forth. Again, then we do our evaluation. There are some certain risks and we have it on the watchlist. But Q3, no impairment needed to be done.

And, Bodo, if I may, I was more asking – I was more asking regarding the assets because you've of course – you've invested and an engine platform probably lasts for eight or ten years nowadays, supposed to. And if the expected returns are much lower, but the – at some stage – I think it's an opportunity actually to impair some of the assets, but I understand the message that you're sending to the market.

So, if your question is with regard to smart, then we are buying the engines. So, there we have no topics, so to say, on the one hand, with regard to our own engines, of course. There's a certain method behind it, how to depreciate the stuff per unit. And as long as your margin is keeping up with this, there is no necessity of impairments on our powertrain activated basis. On the second question, you're referring to my answer which I've given to Tim. I don't want to start a discussion about speculative question in this area. My question which I gave to – answer which I gave to complete. Again, I don't want to add in speculative questions. Thank you.

Thank you. And moving on to the line of Stephen Reitman with Societe Generale. Please go ahead. Your line is open.

Thank you very much. Good afternoon, gentlemen. I have two questions. First of all, on the guidance about the free cash flow, you've done €5.8 billion at the nine-month stage and you're guiding for a figure slightly above the €3.9 million you achieved in 2016. I understand there's high degree of conservatism in your guidance and understanding you will have higher R&D, higher PPE and some increase in maybe some extra inventory at the end of the year. But still, it seems like quite a big change in the fourth quarter in terms of whether seasonality or others to explain what would be a quite substantial negative free cash flow in the fourth quarter. My second question is again about the corporate structure that you've been describing or maybe exploring. And I'm still struggling to try to understand how the group could operate differently if this structure goes in place. If you could maybe give me an example of – some examples of how the company could act faster than it's acting today because I think most people would agree that Daimler is acting already pretty quickly to adapt to the new challenges that it's facing. It's been able to take stakes in companies, whether it's with other companies like – with Renault, for example, or others or in the tech companies. So, maybe some example of how this change might impact the way the company operates. Thank you.

Hi, Stephen. Thank you for your questions. First of all, the cash flow guidance we've given is unchanged. Of course, we made a remark due to the fact that we are putting €3 billion into our pension funds. But other than this, the guidance is unchanged. When you look at the nine-month cash flow, it's very good, it's strong. Of course, included, as we discussed it already, the dividend from our China joint venture, on the one hand, passenger cars then on the other hand, we have also a working capital inflow. The third element is that, in the fourth quarter, we expect far higher CapEx investment, over proportionally higher than the first three months. On top, we have volatilities in working capital. As you have seen that a lot of cash flow also came from the accounts payable side. So, that gives us the reason to stick to our guidance for 2017. Of course, there are opportunities in terms of cash flow. And with regard to the guidance, we will keep you updated in the next three months, if it goes better. Of course, I'm not ruling out to change the guidance in terms of the cash flow. But that's the reason why we stick to it for the time being. With regard to your second question, of course, asking your question with two answers. The first, our experience which we had in the last seven years is very positive when it comes to concentrating responsibilities on the divisions. You might remember, when we announced our program Customer Dedication in 2012, 2013, where we started to organize our sales areas into the divisions in cars and trucks and vans and that gave us a lot of speed and more shorter decision-making processes. And in hindsight, although we created a lot of discussion internally in the company, everybody said that was the right way to go. We created also costs with that organizational step. Finally, we have offset all of this cost and we – of course, seeing where we are right now in market shares and sales development, we are better than ever. So, that path of successful organizing our business divisions, we are going the next step and now in a final step also for legal entities around two AGs, cars and vans and trucks and buses. That's the because we see another positive effect in strengthening the divisions. Again, shorter decision-making processes, speeding up and so on and so forth. And we think it is the right time to do so because the challenges ahead are high and we have today the best starting point because we have the best ever profitability and revenue as we have in the history of the company. And what is better to discuss structures and other topics when you're in a strong position instead of the other way around. I do think that's the right move and that is the reason also why we're doing it now. When you refer to examples like Renault where we have cost-sharing, imagine that we would have more entities, we are able to partner and to cooperate on different levels. So, why always to think about Daimler and on the level of Daimler. There might be corporations on the truck side which might be technology – in terms of technology or other areas. So, we don't want to rule out to have possibilities in the future to do so. And that is one reason, when you refer to Renault, for example, there could have been the possibility that Renault was teaming on on the car group level. But, of course, now it's difficult to say because that is already past history and the stake of Renault-Nissan is now part of the pension fund, as you know. But that is maybe not the best example.

But if I can maybe, just from a different perspective then, one of the strengths of Daimler is that technically – the R&D, the basic R&D you're doing and the new technologies are perhaps shared between the truck business and the car business and the vans business and the like. Can this be guaranteed that you still get the full benefits of this? Or will you maybe have to have arm's-length agreements then on technology sharing if you have separate legal structures?

Stephen, I rule out that we have less synergies. The structure of the company, the new one, will generate the same synergies, and if not more, between the entities. Of course, we need to add some cost due to the legal structures. You know that we have to have some one-time costs and running costs, no doubt, for doing so. But the synergies, as we have them today, in batteries, in autonomous driving stuff, in engines, in many – in the brand and so on and so forth, we will keep certainly and that is not a contradiction to the structure.

Thank you.

Yeah, welcome.

Thank you. And moving on to the line of Mike Tyndall with Citi. Please go ahead. Your line is open.

Hey, good afternoon, gentlemen. It's Mike Tyndall from Citi. Two questions, if I may. The first one, just looking at the cash flow statement, specifically the industrial statement, under the other operating assets and liabilities, €903 million at the first nine months, it looks like an inflow of about €1.5 billion in Q3. I just wonder if you can give us a bit more detail on that. Presumably, provisions are part of that, but that seems like a pretty big number in the context of your €2.7 billion of free cash flow. And then the second question is back to the new structure. And, I guess, to ask this a slightly different way, it's going to be a three-digit-million-euro cost. I wonder if you can give us any detail on what the benefit looks like because presumably, as part of this project, you've done the cost-benefit analysis. What sort of number are you looking at on the positive versus that negative? Or is it not quite as tangible as that? I'm just, yeah, trying to get my head around the key incentive for the new structure.

Mike, thank you for your questions. The first topic you are mentioning, these are – here included, we do have the provisioning for the voluntary service measures in car group and the recall is in here. We have engine-related stuff, fluctuations in the provisioning in pension and also for personal-related matters are included here. For example, you have always to increase your provisions for the, so to say, bonus payments of next year. So, we have a quarter-by-quarter provision of the increase, so to say. All of that gets together to a bigger number, right? But that is, in terms of the cash flow, even as I have explained it right now, non-cash items, but you see that in the statement as a difference to last year. Nothing very specific about it. And the only thing what you can – what you can take, the cash flow right now underlies the strength of our business. But you have to keep in mind, of course, that we have working capital changes within the cash flow. That is the topic you should look. That is a bigger swing. And, therefore, I said that we are a bit careful with our guidance right now. But as we will see fourth quarter, there is potential that we change our guidance. The three-digit-billion cost, just to firstly to be precise – and please read our press releases in detail – these are the cost for the preliminary steps. That is not the final cost behind it. We will come up with some information, of course, during the timeframe which have lined out in some of the questions before. So, that's some of the preparatory steps. That includes our internal costs, consultant costs, IT costs, legal costs and so on and so forth, which we need, as I have said before, to prepare, on the one hand – and please keep in mind, we are going to every single country in our operations and we look where we need to do something in terms of getting two legal entities everywhere. And that is, of course, a complexity we do have and that, of course, certainly gets in terms of costs. I will tell you, in general statements, as I have lined out already, that on Customer Dedications, we were able to offset the cost we had for the establishment of this organization that, of course, management will go for finally offsetting the running costs we have behind the structure. So, you have never seen us to accept cost increases only. So, we will go also for the different way around, but maybe also in different aspect, but is then maybe not related to the structure, it is related to other topics.

Okay, thanks.

Thank you very much. And moving on to the line of Charles Winston with Redburn Partners. Please go ahead. Your line is open.

Yeah, thank you. Good afternoon. Charles from Redburn. My two as well please. First on, just coming back to the topic of residual values and leasing, we, obviously, saw overnight an announcement from fixed leasing. I know it's a different business model. It's much more in terms of the short-term rental and other areas and fleet management. But we're still seeing this pressure from other sources on leasing and residual values. Can you just give us an update on how comfortable you are with your book values, where you might be seeing any pressures on the lease book? Second question is actually just going to the cost of emissions and electrification. We're getting to the end of 2017 now. Clearly, the targets you have to meet in 2020 broadly for the year. In other words, [indiscernible] start to measure them on the 1st of January 2020 when you need to be 95% compliant. In other words, in effect, you've got two years to meet those targets. Can you give us an update as to the phasing of those costs? There's, clearly, a lot of content to put into Mercedes vehicles in terms of 48 vault plug-in, et cetera, et cetera. Are we going to start seeing a big chunk of those costs coming in next year in 2018 or is it just going to be a one big slug of costs coming in in 2019 and 2020? Thank you very much.

Charles, thank you for your question. With regard to diesel, of course, I've already lined out some of your questions. But, of course, we're closely watching the development of sales and residual values of vehicles with diesel engines. So far, for Mercedes-Benz diesel vehicles, we have not observed the strong declines of sales or registrations and residue values described by the media, but also what [indiscernible] disclosed. But, honestly, I have also to tell you that disclosed I do think is however to an effect of €1.6 million. So, honestly, I cannot derive anything out of this for the corporation. But what we do is always to take every indication we have, as already pointed out, that this residue values per country, per car line that is inventory – days of inventory and so on and so forth and based on this, we have no impairment. So, it is not better to say it twice or three times. Be aware, we are watching also our indicators and, of course, certainly in the whole diesel discussion there, certainly some risk in, but we will follow up with this stuff every month and every quarter. The second question with regard to 2020 and that was also true for the years ago where we had certain targets also in 2015, as I remember. All of this effort is part of our material costs. So, as we have lined it out, I do think in Fit for Leadership, even 1.0 and 2.0, that all the additional necessary costs we do have for meeting the CO2 related targets, we tried to offset. It was a net zero approach on our material cost basis with savings. And, of course, as we come to 2020, the same holds true. But, of course, it's right that we have to put additional effort into hybridization, electrification, 48 vaults, and so on and so forth, and that is important, how big the fear of diesel engines is is quite clear. That we do know and we do our best, of course, to move into this direction with all the measures you know already to come up with meeting the targets in 2020 where we have two different targets in Europe and in China and the United States.

Okay, thank you.

Thank you very much. And moving on to the line of Adam Hull with MainFirst. Please go ahead. Your line is open.

Hi, good afternoon. Two questions. It's Adam Hull from MainFirst. Firstly, on trucks, if we strip out the €70 million charge, the Q3 margins come at a 7.4%. You've got orders up 39%. Could you really just give us a bit of a feel? Is there anything funny in that number? Is it the true underlying number or are there other costs there or other elements there? And as your cost savings start to feed through into Brazil and Europe, is that really into 2018 or is it even into 2019? Just give us a bit more of a feel as to when you think it's realistic to achieve an 8% margin. Clearly, you're a bit behind your competitor at this point. And then, secondly, on the Chinese JV, BBAC, the Q3 net profit was €307 million. So, that's I think triple what you did a few years ago in terms of annual numbers. Are there any one-offs within that? Or should we now be thinking that this business is doing more like 1.1, 1.2 a year? Or is there something particular on the MFA2 costs when you've got that smaller car being launched, local production there? If you could just help us a bit more on that. Thank you.

Thank you, Adam, for your questions. First, with regard to trucks, first of all, it's good news that we have the €70 million charge. And you referred that we have reduced the amount of charges we need to do our program. Sorry, I just – has not pushed the button. Adam, coming up to your question, €70 million charge, first of all, to mention that we have reduced our charges, our target of €500 million to €200 million, that is good news because we stick to our target of €400 million. Everything is in plan. But we use possibilities that employees can move over to other divisions. And sort of what we save, so to say, some one-offs, but we're going forward with our €400 million targets. So, good news in this regard. The 7.4% is excluding that €70 million, of course. The number is as it is. The underlying profitability, I don't want to comment whether good or bad. I'm happy with this number, no doubt. 7.4% is a good number. It is mainly composed on our success in the North American business, Freightliner. That is one topic. And the other topic, we have not pretty much of a different situation in Brazil. As you see that the market is not up, really boosting up. So, therefore, we are with our situation in Brazil. And we have our startup business in India. But you can also say that is good news because we are aiming for breakeven in these two regions. So, looking ahead, there's possibilities to do better, depends on the market development in NAFTA and Europe and so on and so forth. But I'm pleased with the achievement right now in Q3. And, of course, we have also changed our guidance for the year to significantly better. That is, on the one hand – lower charges on the one hand, but also the strong business in NAFTA and Indonesia and India. The Chinese JV has a very good profitability. There are not that I know – there are no one-offs in this number. That is pure performance and sales development. For the years to come, we have to keep in mind the investment which we take. You have heard about. That's battery on the one hand, that is product on the other hand. So, I do think it's a high profitability. So, I would not go from higher profitability in our joint venture. So, it will stay high, but maybe not as high as it is today.

I can just follow up on the cash dividend on BBAC because I think you received €400 million in H1. And you've received – is it right that you received about half of the €733 million for fiscal 2016? So, you've received half that and the second half is coming in Q4. So, when you refer, you're referring to a lower overall Chinese dividend. Are you referring to the fact that this year you effectively got fiscal 2016 and fiscal 2015 dividend? Is that right? Am I understanding that right?

Okay, you're right. This year, we will come up with a total amount of €1.2 billion roughly. And next year, as some elements are from 2015, of course, this piece, roughly one-third, we will have not next year, but we have a high dividend next year, but it is lower than this year because part of this is from 2015.

Great. Thanks very much.

Welcome.

Thank you. And moving on to the line of Daniel Schwarz with Credit Suisse. Please go ahead. Your line is open.

Yeah, thank you. Daniel Schwarz, Credit Suisse. I have one question also on the strong performance at BBAC and the long-term margin guidance at Mercedes, the 8% to 10%. Does it range, assume a rising equity contribution from China with the same accounting approach? And if it does, would that imply a declining profitability outside China? And then, the second question, just to clarify the €3 billion pension contribution, if it's coming, would that have an impact on the 40% payout ratio? Thank you.

So, for the long term – Daniel, thank you for your question. We have outlined our strategy on the Capital Market Day in the beginning of September where we have outlined that, for a certain transition phase, we are within the bandwidth of 8% to 10%, and that includes, yes, of course, also the BBAC joint venture. For the time being, we are not expecting BBAC to have higher profitability than today. This is the remark I can do from today's perspective. The question to pension contribution, as we have also pointed out already, not here in the conference call, but in general, that the pension contribution will have no impact on our discussion on the dividends. So, that is excluded, so to say, from a dividend discussion. In terms of underlying cash flow, on the one hand, the EBIT is not affected anyway from the contribution into pensions.

Okay, thank you very much.

Yeah, welcome.

Thank you. And moving on to the line of Horst Schneider with HSBC. Please go ahead. Your line is open.

Good afternoon. It's Horst Schneider from HSBC. I have got two questions left please. The first one is on Mercedes, specifically on the volume and price trends. We continue to see Mercedes here to perform quite well in the market. Since now the comparison base is getting higher, when precisely you expect the volume growth to slow down? Does that happen already in the fourth quarter or is that [indiscernible].

Horst, sorry to say so, but it's not possible that we can clearly hear you. We have to speculate what the question is. And that might not make sense.

Okay. Can you hear me now better?

Oh, by far better.

Sorry, then it was a mistake with the phone. I apologize. Can I repeat just again my question please?

Of course.

Okay. I was asking about Mercedes and the volume and price trend. I just wanted to know when precisely the volume growth, you expect that to slow down just because the comparison base is getting higher. And the competitor, they also launch more models and you have now a phase of transition basically until you launch the new A-Class. And then, last, but not least, on pricing, if I understand it right, you had a slight negative price impact in the third quarter. Can you maybe elaborate to which extent it was negative and which region it was negative and how you see the trend developing going forward in terms of pricing? And the last question is on other cost changes. Just if you can update us what you expect for the fourth quarter. Thank you.

Thank you for your question, Horst. Now, we have understood your question.

Sorry again.

No, no. No problem. First of all, we have currently a very stable situation in terms of pricing in general throughout the regions. That holds true for every region we are in. In this quarter, of course, third quarter, we had the changeover to the facelifted S-Class, on the one hand, and, of course, we had a very high starting point last year in the third quarter. But, again, stable pricing situation, not really something specifically to be reported here in the conference call. We are doing good on all aspects by a strong product portfolio we do have. Yeah?

Okay.

Thank you.

Volumes and other cost changes?

Volume, other costs. Other cost changes for this year, we have an expectation for the total year of €1.2 billion. That excludes the provisioning of the two disclosed items in terms of voluntary service measures and the recall. Of course, the content of that. A lot of stuff, of course, is also raw material cost in this area. Other than this, I do think we have, yeah, discussed what the elements of the costs are. Volumes, you said we have another significant growth this year. We – they expect a fourth quarter which is in line with their statement. A good quarter is ahead of us in the fourth quarter.

All right. Thank you.

Thank you. And moving on to the line of Harald Hendrikse with Morgan Stanley. Please go ahead. Your line is open.

Yeah. Thanks, guys, for taking my question. Horst has already sort of highlighted it, but you've had now three or four years of very, very strong volume growth. And, obviously, your Mercedes margins have been very strong. Last few months, maybe underlying growth outside of China has slowed down a little bit. Can you just help us to think a little bit about how you're going to sustain or what level of growth you think you can sustain going into 2018? And, specifically, can you just highlight a little bit how you're thinking about both the US and the UK markets, which seem to have clearly more difficult over the last six months or so?

We are very happy about our development all through this year. I do want to give an outlook now for 2018 please. We need to do so in the beginning of 2018. Lot of things have to be analyzed and discussed and so on and so forth. We come back with guidance for 2018. Other than this, of course, you know by growing double-digit, of course, you are creating a lot of growth. And the base point, last year, of course, was even higher ones. Therefore, we have some single-digit growth now. But if I compare this to our main competitors, we are in a very good shape. So, even when we look at our product portfolio in comparison to others, I do think I can only highlight that we're doing a good job in every aspect. We have, in many markets, number one market share leadership. And in China, that is one of the base effects you're mentioning. You know that we have last year, in the second half year, they have grown already very much by introduction of new products. And now, we are slowing down, but slowing down means we come from 35% to 20%. If we stick to 20%, I'm very happy. So, extraordinary situation. Good growth, we do have. You know that we have some markets like the United States which could do better somewhat, but also, in this market, we are doing, in comparison to our competitors, quite well.

Okay, thanks a lot. Maybe second quick question if you don't mind. But just to give you another opportunity on the cost restructuring program, which you've clarified for us. You're on budgeting on the electric vehicles and the fact that you would offset this with your cost restructuring program. Can you give us any sort of detail or any sort of guidance at all on the relative timing of the sort of cost-reductions that you might be able to make versus the impact of the dilutions? We kind of the buckets, but we don't have a really good idea about when those years might be. Could we even see a net upside from those cost reductions or is it really meant to offset the extra costs?

Of course, this is a question which would have fitted to our strategy market day. But, of course, to see, you know we have a long-term transition in general terms in this industry. And this is also a long-term program, which starts slightly, of course, in gaining, of course, also by volume on electrification, gaining traction, and then it goes up into the years 2020 and further. So, it is a longer-term program. As for your understanding, we might come up with some numbers during the years. But that's the current plan and we have not yet decided of giving more guidance in terms of yearly distribution.

Okay. Thanks, Bodo.

Thank you.

Thank you. And moving on to the line of Kristina Church with Barclays. Please go ahead. Your line is open. This is for the line of Kristina Church. If you can hear me, please unmute yourself. Your line is open.

Hello, it's Kristina Church here from Barclays. I've just got one remaining question left. Looking at your financial services division. And, obviously, you previously answered the question on residual values. But looking more at the opportunities in that division, where do you see the greatest growth areas? In my view, there's still quite a lot of opportunity in China for increase in financial services, particularly on the leasing side? Are you seeing any growth in that area currently and what are your assumptions going forward? Thank you.

First of all, financial services is in a business where I'm happy where it is constantly giving us a value contribution, quite a lot of sales support. We have the two elements. And as long as financial services is giving us a decent profitability, a decent growth, but on top, support to the colleagues, I'm fine with financial services. Where are areas of EBIT growth or growth as such? China is, of course, a source of the portfolio growth because the penetration is increasing. We're coming now – we're between 40% to 50% in penetration rate. Leasing is not yet as big, but it's already double digit. And then, we could imagine, of course, to do more as the market in China gets more mature than more matured. So, there's an opportunity penetration and it is combined with sales. So, we see portfolio growth in China over-proportionately and that should give us also profitability in China. Europe is a source of further volume grows and also some percentage points in the penetration. So, the portfolio growth also in this quarter, in this first nine months with a higher share, US, I would say, that we are somewhat at the level of penetration. It's a very matured market. And I don't see the penetration rate opportunities too many. On the other hand, the portfolio growth for the market, we have to see where the US market is growing. In trucks, I would like to mention, we have India as a source of growth. Truck is in the startup phase. We have opportunities in Brazil. We will have opportunities in NAFTA and so on and so forth with regard to trucks. So, all in all, growth opportunities and, in some areas, penetration rate opportunities which should lead to opportunities on the sales area. On the other hand, the biggest opportunities then, mobility services, of course, which is currently is a startup, with 16 million customers. And that piece, therefore, we should, of course, keep an eye on this business for value creating. Thank you, Kristina.

Thank you. And moving on to the line of Fraser Hill with Bank of America. Please go ahead. Your line is open.

Hi. Good afternoon. Just two questions left for me. The first one's on the statement from Monday on the future plan and, specifically, the comments around securing the employees' future. I think you said a major element of that has been safeguarding employment until 2029. Can you just talk around that? How do we tally that with your comments around wanting to structure the company to be more flexible than ever? I think Dr. Zetsche has also said, looking for sustainable competitiveness, an ability to continuously evolve. So, it seems to me as if that's a fairly sort of major part of your fixed cost base that you're sort of locking in in an environment where raw materials are increasing, where the need to invest in R&D is, obviously, going up for the whole industry and yourself as well. So, this is not sort of [indiscernible] on the cost side or what have I missed in terms of looking at that?

Fraser, thank you for your questions. First of all, you need to know that if you – we need to go everywhere in the world and look at the topic. But if we created in Germany, legal entities out of one legal entity, you are obliged by law more or less that you discuss this topic with our employee representative. And, of course, you have to make sure that finally every single employee is agreeing to moving over into a new legal entity. So, they do that person by person and they agree one by one. So, the objective of doing this kind of big restructurings, which we think – I have discussed the benefits of doing so, is that you convince all employees that this is the right thing to do and you get the buy-in of 140,000 people. And, therefore, also, it is necessary out of this reason and out of the huge transformation which we are doing, that's the second piece that we get impacted due to electrification in our company and digitalization that we need to sit together and to structure our future, and that was true not only for the shareholder returns, that was true also for the employees. And the outcome is the key pillars we have defined with the employee representatives. And one of the biggest ones is the employment until 2029. The second one is to finance our pension plans by 90%. And there are others, committees and so on and so forth, but these might be the two major topics which you are also interested in. On the other hand, it's quite clear that you were – by all these agreements, we have to make in mind that they are based on the current plan, so to say. So, that means, also, if we have material adverse changes in markets and company and sales and so on and so forth, we need to sit together and to discuss. So, there's always a paragraph in the agreement that you can change to this element, but it must be a serious impact. So, if there's something, which I don't see today, but if there's something, we need to sit together and to discuss the topics. Other than this, of course, as you know, in general terms, also on the Capital Market Day of Mercedes car group, we said that the €4 billion program is not affecting our workforce right now because we are a growing company and, therefore, we can optimize the €4 billion in terms of material costs in other area, platform strategies and so on and so forth on the basis of the current workforce, but certainly you have some fluctuation and you have some retirements and so on and so forth, which we have to keep in mind. Even I refer to the truck restructuring right now. We have currently a discussion in the truck group. But at the same time, we have our employment discussed and agreed. So, that means, within these kind of areas, you can discuss certainly areas where we need to act because there are some necessities, but we are discussing this with our employee representatives if there's something upcoming. I do think that's it from your question. Raw material, as I've already said, are increasing. That is right. Of course, we have to look into the piece. This year, we have a major impact on raw materials. Also, for the car group, it's a major share. And also, for trucks, even in the fourth quarter, it might accelerate a bit, so to say, we have to keep in mind this area. But, anyway, we're shooting for the €4 billion program. It's a commitment and we will deliver. And in trucks, €1.4 billion. Thank you.

Thank you. And moving on to the line of Stuart Pearson with Exane. Please go ahead. Your line is open.

Yes, good afternoon. Thanks for the questions. Just maybe following on from Fraser's question on the employment, maybe can you compare to certain degree the safeguarding agreement versus, I guess, that given, I think it's 2006. Does it allow more flexibility if we get to a tough environment, which we're about to do on this time horizon because, if I recall, and correct if I'm wrong, but one of the issues in 2008 and 2009 for Mercedes is that inability to cut headcount in the way that some peers because of the labor guarantee. So, should I take your comments just on that answer to that question from Fraser that there's a greater degree of flexibility into this contract or is it that perhaps you're planning on more insourcing on this side than we realize? And then, the second question, just on diesel, I'm just coming back at a slightly different angle to, I guess, the point that Charles was exploring earlier. On the residual value side, just thinking about how you're pricing of car is looking forward. Some of your OEM peers are telling us that they are starting to proactively take more conservative residual value assumptions when they're selling cars under leases, guaranteeing a lower value, just in case, even though they're not necessarily observing in their car to the market right now. It seems in your comments that's not something that Mercedes is doing right now. So, the residual values you're using are probably similar to this time last year. Is that a correct understanding? Thank you.

To your first question, that is what I referred to in my last – in the last answer. And if I recall, we had always the same situation. There's nothing new in this social compensation plans we had in the past with the one we have today. There's always, of course, a paragraph with regard to material adverse change in the environment or the profitability of the business. As we do not foresee it right now, of course, it's not an issue. And, therefore, of course, we are happy to have an agreement which gives our people a dedication, a motivation, some secureness, of course, on top. And what we get is the commitment to work on the future of Daimler, which is important. And, therefore, we have the agreement right now on the buy-in, as I've pointed out. Every single employee has to agree to stepping over in different legal entities, which, of course, by itself makes people a bit nervous, you can imagine. So, the agreement is fair in many aspects, but it is not different to the ones that we had in the past. Just the timing of the stuff, of some issues is different. The second question, of course, as we don't have right now big impacts, we don't have to change. But if we have impact, of course, we need to change.

Sorry, on that, we, obviously, had a – I guess the biggest disruption economically we could imagine in 2008 and 2009. The Mercedes headcount went from 97,000 to 94,000 because of those agreements. So, if it hasn't changed, is there really any flexibility to adjust the headcount when we get to another downturn? Essentially, what I'm trying to get at, apologies if I'm not clear, I just wonder if –

Of course, we have a lot of possibilities in general terms. We have a lot of possibilities. As you know, we have our workforce structure. We have between permanent and temporary workers, on the one hand. We have of course – we are unfortunately an aging society even in our plan, so that we have – we are on higher in average age, for example. So, there are, just by aging workforce, possibilities to adjust if necessary. So, all of that is done. But as I said before, I do think our company has growth opportunities for the couple of years to come, next foreseeable future, so that we don't come into the situation to cut down on our workforce.

Yeah. That's fair. I'm sorry, you're about to answer on the diesel side?

On the diesel side, as I said before, if we see some changes, we need to act. But as long as we do not have changes, we have no impairments and, therefore, we don't need to adjust our lease rates and other stuff like this. But, of course, I cannot exclude, as we all know, and the industry that we have to adjust to certain changes in the environment or customer behavior and whatever.

Okay. All right. Thank you very much.

Thank you. Björn Scheib: So, ladies and gentlemen, thank you very much for your question and being with us today. Also, thank you very much to Bodo for answering all your questions. Now, as always, investor relations remains at your disposal to answer any additional, further open questions that you may have. In addition, I would like to inform you about some upcoming events of IR and Daimler in the year to come. We will attend the CES in January for the first time and, for sure, are going to host a couple of meetings down there. At the same time, we would love to alert you about our full year conference on 2 February that we're going to host here in Stuttgart. And last, but not least, we also would draw your attention to our capital markets day about the Daimler trucks and buses in Portland on 6 June of next year. We're also planning a capital markets day about China, but this date is not fixed yet. So, thank you very much. Have a lovely afternoon, evening or morning wherever you have been listening to. And we look forward to see you. Bye-bye.