Thank you, Bjorn, and a warm welcome to this conference and also to all of those who join us via Livestream.
Going into this conference today, I was thinking that before I actually start with the presentation, I wanted to reflect a little bit upon the situation and think about what has happened over the last few months and looking forward into the future.
When we met with many of you at the Capital Markets Day in November, we laid out the situation that we're facing. We presented to you a plan, how we're going to deal with this situation. And we initiated a whole lot of measures in 2019 that are starting to gain traction.
Of course, there are many things that we can be proud of. I'm looking at these products here. Great product pipeline, a brand that is admired around the world, number one premium position on the Mercedes-Benz car side.
But if I look at the financial results and where our stock is, this is not something that we can be satisfied with. And certainly not something that I am satisfied with. Yes its true, that we said that we would do in the second half of 2019 in terms of stabilizing the underlying performance, yes we did that, and as you will see when we present the number here in the next few minutes, that those measures have largely worked, and if I take out the material adjustments and I look at the underlying performance as a whole, yes, it is not as low as if you look at the all-in number.
But its not good enough. Its not what this company deserves. Its not what these brands should stand for. We need to aim for more. We understand that we’re in transformation, yes, the auto industry in the next years, next decade is going to change fundamentally.
This company is going to change fundamentally. We’re prepared to take the actions and measures that we need to take to make sure that we come out as a winner of this transformation.
I have no illusions about the next two to three years the number of heavy lifting that we’re going to have to do to put the financial number right, to unlock cash flow so that we can finance the investments that we need to get ahead in electrification, to get ahead in digitization and software architectures for our products.
I know its not an easy task. I look around we meet, sometimes it feels like for morning till evening and meetings in the board and in other management circles, its not just me, this management team is 100% determined and dedicating to making this happen.
We are going to restore the financial health of this company. We are going to take the measures that we have to take to get back on track. Some of them we have initiated, we’ll go through them division by division. Yes, it will take some time, so of course, on some of the issues there are no quick fixes, but the dedication is 100% there.
I will work 24/7 with this management team to make that happen so that the numbers that we're presenting today hopefully represent somewhat of a turning point and the plan that we presented in the Capital Markets Day, with the transformational cost that is included over the next 3 years that we put that as a floor and that we start rebuilding from there.
So you're seeing people that are determined. I am determined, and we are going to make this happen because this company, this team and these brands, they deserve that. That's just an initial reflection for you to get a feeling of my state of mind and what I want to achieve with this company.
If we then jump in and look at what happened, let's just look at some of the highlights first and also come back to some of the things that we said, actually, starting in our road show after Q2 that Harald I went on in July of last year.
Yes, in the second half of the year, we turned the sales around of Mercedes-Benz Cars, and we put our back - we put ourselves back in a position of growth after having a first half of 2019 where we were down 5%. And yes, we retained the number one position in the luxury segment, although I want to underline, it's not volume for the sake of volume that we're going for here. Going forward, profitable growth is what matters.
Yes, the underlying performance that we did set out and the measures that we took in the second half of 2019, they did yield what we expect them to yield and we met our investment targets and our cost targets. Although, as I mentioned in my introductory speech, for the mid to long-term, that's not an underlying performance that we can be satisfied with.
And yes, very important. We protected our net industrial liquidity. We're sitting at about 6 billion at midyear and taking measures, both on the performance side and on the working capital side, we ended up above the 10 billion that we drew as a line in the sand for the end of 2019.
We didn't only make fundamental commitments for a road towards carbon-neutral mobility. We are very quickly ramping up our activities in our industrial footprint in terms of putting electrification on the road. We get to that in a second.
And of course, the whole mindset of looking at the cash flow in relation to the EBIT has started because part of the story of these next 3 years is to get the cash conversion rate up, especially on the car side. And the 2020 outlook that we presented at the Capital Markets Day, we will confirm here today.
Just looking at the numbers. Sales around last year's level. Revenue, up 5 billion. The EBIT is down significantly. Of course, we have material adjustments. If you take those out, the EBIT is still down, sitting at 10.3 compared to 11.1 last year. You have the same thing reflected in the cash flow with cash conversion rates, in this case, they are still below what we're seeking for the mid to long term.
If I step in and to the first division here with Cars and Vans, before I hand over to Martin on the Truck side. Let's look at a few things that happened in Mercedes-Benz Cars.
As I already mentioned, leading luxury brand, perhaps one thing that is important. It was the first time that we took the number one position in China, while at the same time watching our discount level so that we keep healthy price premiums in that market, around 700,000 units. If I think back 5 or 10 years ago, I don't think we could have imagined what had happened in China and the amount of growth that we have been able to capture there. And looking forward for our strategy, China will remain a very, very important pillar of that forward-looking strategy.
I know that many in the room are thinking, what's going on with the coronavirus? What's happening? We started up slowly our factories again in Beijing yesterday and will gradually ramp up both on the production side and on the retail side.
I think it's too early to say what the whole effect of this coronavirus will be. All I can say is that our partners in China and the team that we have there at BBAC with BAIC, the amount of effort that this team has put in to gradually get back into an orderly production manner must be applauded. I've seldom seen that kind of dedication and determination to make that happen.
We talked about last year that we had, had some launches. I'm looking at the vehicle to my left here, the GLE that have not gone as smooth as we have gotten accustomed to at Mercedes. We fixed those operational problems in the second half of the year. We're now in stable operation in our Tuscaloosa factory, actually at all-time high levels, which is what we had tooled up for.
We've also stabilized our operations in Mexico, together with our joint venture partner, Infinity, there. And we have also stabilized our battery production activities that are mainly in Germany but are spreading around the world. I already mentioned carbon-neutral mobility, and I will get to that when we talk about CO2 later.
We redefined the smart business model. We've moved it into a new joint venture. It's going to be done out of China. The products are in development, and smart will be redefined as of the second half of 2022 when the new products come.
And of course, we have, I would say, left no stone unturned to look at how we can improve cash flow, including significantly reducing inventories from the end of June last year until the end of December of 2019.
Financials. You saw them already in our press release, slightly up on sales, slightly up on revenues. The EBIT burdened about mainly by the material adjustments. If you look at the underlying, it was 5.8%, with a return on sales of 6.2%.
If you look at the transition from the 2018 results to the 2019 result, what is it then? Yes, the net volume structure and pricing was a slight positive, not as positive as we had planned had we had smooth launches and more availability of products in high demand, but a slight positive nevertheless.
Foreign exchange rates last year hit us relatively hard in the wrong direction with about 670 million. And 1 billion other cost changes are mainly in conjunction with the technology that we're putting into our products and the spend that we're doing for technologies going into the future that we need for transition.
And the disclosed items have been commented on, mainly diesel-related but also with regard to the recall with Takata. If you take those out, you come to the 5.8 billion that I just mentioned.
Then we come to Vans. Many have been puzzled with what's going on at Vans. Pretty healthy business, maybe a little bit in the shadow of the passenger car and the truck business, but a healthy member of the Daimler family. And suddenly, you end up with a year where you have a horrendous loss. What happened with Vans? Let's break that down.
First of all, we don't have a product problem. We actually reached a new sales record. The new sprinter that we launched has been very well received. It's a great product. We facelifted the V-Class, which we introduced a few years ago, and it's really taking that segment of the passenger car side of the people mover by storm, especially in Europe, but not only in Europe. And we presented the first electric version of that, has been quite a buzz around it, and we're going to launch that in the market this year.
Also here, we had a new plant starting up in Charleston in the United States, which faced similar challenges to the other operation in the U.S. That has also now been stabilized, and we're looking at a much more healthy situation in 2020, but that burdened our cost level with excessive start-up costs.
And equal to what we're doing on Cars, efficiency measures and cash flow measures have been taking across the board. And we had to make one tough decision, one big and tough decision, that the X-Class that we launched now about 3 years ago is a product that didn't work in the market the way we had expected.
And when you look at investments going forward, are you going to put in more money into something where you don't have the market prospects that you originally thought? Or are you going to make a hard cut? We decided to make a hard cut. This hard cut, of course, burdened the results of last year.
If I look at these results, sales up; revenue up; EBIT, minus 3 billion, an unbelievable number, coming from 300 million the year before. And even if we adjust it, we come to 300 million, a number that we cannot be satisfied with, a number that won't stay like that, something that we will change. And the measures that we have taken, I believe, are already starting to bear fruit.
Also here, looking at the transition. Volume structure net pricing, slightly up. Foreign exchange rates, not as significant on the van side as on the car side, but nevertheless, cost us 120 million.
Other cost changes due to measures that were taken. In spite of the fact that we had high start-up costs in the U.S. plant, we almost kept neutral, minus 30. And then we have the disclosed items with - mainly regard to diesel, the discontinuing of the X-Class and Takata.
Putting that back up, we would get to 284 million. It's not a level of profitability that you should have with Vans, and it's not a level of the profitability that will stay with Vans. The measures that we initiated in the second half of 2019, they will start to bear fruit in 2020 already.
And similar to the story of Cars, even though I described the tough 3 years that we have ahead of us, 2020, 2021 and 2022, the Vans will follow suit in the same fashion that we are doing with Cars, and we're going to put that right.
With that, I would like to hand over to Martin that will give us an update on what went on with Trucks in 2019. Martin, over to you.
Thank you, Ola, and we changed from the world of passenger cars and vans to the world of trucks. 2019, we continued to be the world's largest leading truck manufacturers by far. We all know that size is not the only thing that matters. It's ultimately profitability.
But on the other side, it gives us a unique market positions, our strategy with global presence with global platforms and is driving the industry through cutting-edge technology, all worked out in the last year and gives us in my opinion a great platform on which we can build up our success in the future.
We had a strong performance in the NAFTA market. At the beginning of the year, we decided not to follow the overheated market, with expanding our capacities, which proved right. Then, in the second half, suddenly, the market cooled off. And we had in the fourth quarter, despite still on the retail side, a pretty strong quarter, but on the factory delivery side from all competitors for share during the weaker 2020, we were well equipped to adjust to that coming, I wouldn't call it market downturn, but market normalization. And that accompanied by absolutely benchmark results in this market segment.
So we have the blessing to have a tool market benchmark in our own family, where we know all the details, how you run a very successful trucking company, and we just have to transform that to other parts of the world and everything will be fine, which is more difficult to do than to say.
In Europe, we launched our new Actros. It was rewarded as Truck of the Year 2019, a huge honor and a huge award for that cutting-edge technology. We can do it for - of the mirrors, improving fuel efficiency, as well as safety as visibility, high take rates, but we had a delayed launch because we do it right.
If you bring out into the market something completely new, you don't want to fly [ph] with quality problems. You want to have it absolutely picture perfect, and that happened. We have good take rates. We have the reward from the best. We have the reward from our customers, and I'm very confident that this truck will really rock the market in 2020.
We had, on the other side, in Europe, a significant deterioration of the market environment. We have to reduce our production rates in our plant in Germany as well have to adjust. We are used to that cyclical business. We have the measures in place. They worked, was basically a good adjustment.
When it comes to transformation that will come in our industry as well, I see us very well equipped. We are absolutely committed, and I am convinced that in a couple of years ahead, let it be 10, let it be 20, the number of CO2 for zero-emission trucks will be much, much bigger than today, will become the major source of electricity. And we have these days of discussion whether this will be battery electric or fuel-cell trucks? And my answer is, it's both. It's an electric truck. It's just a different power source. And in trucking, it will be both, in short distance rather battery electric on the longer distances rather fuel cell.
We are in both. We are in both areas very well prepared. We work. We have with the eCitaro, a great electric vehicle already in series production in the market. It's very good customer results. We are following suit with Mercedes-Benz Trucks, with freight and eActros, on the FUSO side with eCanter already on the market.
So electric is a very, very important area for us, and I feel not afraid of the years to come. And I would say 2025 to 2030 will be the crucial years when you need to be prepared. So we have the time to prepare us and our customers for that.
Secondly, we acquired in 2019 the majority stake of Torc Robotics in Blackburg, Virginia, which jettisoned us on the top of the autonomous driving in the trucking industry. Since last summer, we have our trucks on the road testing and with very, very good results. It takes traction.
We focus solely on the U.S. on-highway pace because, in our opinion, crucial for success in the autonomous driving is that your focus is - you cut every distraction away, everything which proves to be too difficult, cut the very focus of that, what is possible. That's enough to get already a viable and great business case that supports the future business of our customers. So 2019 was a very important year with lots of future directions set, and I come to the topic of profitability on the next slide, and I have to click it.
So sales. Sales 2019 slightly down, as I said, when we - if you would have asked me after the second half, it would be certainly - I would still predict a record year, but the cooling of the North American market and the wholesale side and the cooling off of the European market didn't allow us to get out with the - to be the 2018 numbers, 489,000, still a high number.
In revenue, we are slightly above prior year. That is mainly due to a higher mix of the United States and less tax in NAFTA. So the problem is certainly on our side. The EBIT, we are not content with the EBIT. It's not a bad EBIT. It's accompanied by a cash conversion rate from around 1. And so we are here in a healthy position, but it can and it has to be more.
What had been the reason for this EBIT development? On the volume structure side is what we gained on the structure, higher NAFTA volume, we lost through the lower number of sales. So that was basically a wash, Foreign exchanges for us, mostly the translation impact when we translate the U.S. dollar results into euros, which we report here. So that was a positive.
On the other side, in the other cost changes, we are flat on material cost, but the gain and efficiency was eaten up by raw material, especially in the NAFTA region. Our fixed cost, we had been flat, which was a good achievement, but it's not enough. So we'll work heavily on that one to turn it around and even get this lower fixed cost.
But we had two burdens, which are covered here in the minus 400 million [ph]. One was we had to adjust our used truck inventory in Europe to the tighter market conditions. And secondly, we ramped up significantly our investments in new technologies, e-mobility and autonomous trucks, which is part of that number.
All in all, it's a glass which I would rather consider half empty than half full because we have clear plans in place to make that glass half full. We have all the ingredients, we have the people, we have the markets, we have the brand reputation, we have the technology, we have the products, nothing should stop us to show here a much better number.
When I go to the second area, the bus area. Bus continues to be the benchmark in profitability in that market segment, truly global business in every major market, except NAFTA. We are very well positioned. We maintained the leading position. We have the eCitaro, in my opinion, a cutting-edge product out the best electric bus money can buy these days.
For Western Europe, very, very good results in the first cities. We are there, and we're ramping up steeply in 2020, and we deliver on our target margins, but we continue with our efficiency efforts.
The financials on the bus side, about the same as last year, same, 2,000 more sales, slightly more revenue and an EBIT of 283, which translates in a ROS of 6%, which is benchmark in that industry or here is value cash conversion rates even fund [ph] slightly larger than one, which reflects the possibilities we have, leveraging on our technology on the truck side for the bus business.
How did the numbers develop? I go shortly through it. I think it was something of everything. And then on the other cost changes, we have, again, less capitalization of development cost. We have a very low rate of capitalization of development costs.
So all, the future is not burdened by the past, and that basically gave us this result of 283. And I see here, even on the bus side, room for improvement on the profitability, and we are very committed.
I can pass it on to Harald.
Harald Wilhelm（ 戴姆勒全球CFO）
Thanks a lot, Martin, and hello, and good morning to everybody. So what happened in Daimler Mobility in 2019? First and foremost, again, a strong support to the core business, which means each and every second vehicle of the group were got supported by DMO in 2019 via competitive financing and leasing solutions. That means the portfolio is now at a 5.4 million vehicles at the end of 2019.
At the same time, attractive returns got generated in Daimler Mobility. I'd like to highlight that. I mean, in particular, against the backdrop that we had to put additional equity due to the regulatory requirements, in particular, in Germany and in China for approximately €2 billion, which means that the equity ratio moved from roughly 8% in 2018 to now closer to 9% by the end of 2019.
What else? We retained the prudent risk management in the course of 2019. Overall, I think, I mean that allowed us to contain the net credit losses in a reasonable envelope. I mean, we had a moderate move. Thanks to that prudent policy, and that's definitely what we want to retain moving forward.
Another highlight certainly was the creation of the NOW family jointly with BMW in 2019. First, on the business side, the customer base is expanding nicely. So I think, I mean good progress is made over there. At the same time, we looked at - I mean the set up throughout the year. We prioritized the activities into three verticals: the ride-hailing, the car sharing, the parking and the charging. We clearly set strategy for each of these. We clearly agreed jointly, I mean, the business plans. So we're clearly set for action in this field moving forward.
Overall, let me reassure you also Daimler Mobility, efficiency and gaining efficiency also by, I mean, digital effort is on the top of the agenda, certainly for the benefit, for the convenience of our customer base, but also to drive efficiencies in the bottom line, and that helped to improve the cost income ratio in Daimler Mobility in 2019.
Looking at the numbers. Well, the new business grew by 3%, chiefly in Europe, North and South America, the contract volume now is at 163 billion. So that support of 9 billion increase was also helped by an FX impact of 2 billion. I would emphasize that happened mainly in Europe and in the Americas. On the EBIT side, we see the EBIT reported at 2.1 billion. On an underlying basis, we see that at 1.8%.
Let me explain that shortly. I mean how we came from 2018 to the 2019 numbers. First, I mean, the volume impact was favorable. We had, on the other side, I mean the moderate increase of the cost of credit risk. As I just outlined before, we invested more in the scaling of the NOW family. That's what sits here as a tailwind. And then we had, I mean, numerous one-offs, so I mean 700 million from the creation of the NOW family.
Due to the restructuring, the reprioritization, we had to record impairments of 400 and bear in mind that in 2018 we had a 400 million capital gain from the Toll Collect. So that explains here the disclosed items of 700, but as well the adjustments of 300, which means by the end of 2019 or 2019, we see the adjusted return on equity at 13%.
What happened at the group level in 2019? First and foremost, the new group structure got implemented, went live on November 1st. The benefits of that, I think you know, we outlined them. They will give more flexibility, more empowerment, therefore, more speed and efficiency into the business, which is crucial against the challenges Ola outlined at the beginning of the meeting and overall, will also give us more strategic flexibility for the future.
At the same time, we went back and also had a look at what is the role of the ParentCo, against more empowerment of the division. So it shouldn't be just the same as to what it is today, which means we focused the role of the ParentCo on governance, on capital allocation and access to the financial markets. That's not implemented, but we clearly decided on that, and we're moving forward.
However, we could already achieve, I think, I mean, first benefits in the course of 2019 at the ParentCo level. Well, I'm not that long with the company, but as I'm told that since quite many years, I'm reported 10 years. It's the first time we see that cost evolution of the ParentCo going down actually year-on-year, which means a 4% cost less in headquarter in 2019 than in 2018. And that comes along also with a couple of hundred [ph] people less in the headquarter than in 2018. So you can see, we are moving, we started to move.
On the group financials, just to wrap up, I mean, the numbers we saw at the division side, we see the EBIT adjusted at 10.3 billion. I think that's important. So we highlight that quite a lot, as this is a base how we see the underlying performance. That's the base also to look forward.
The reported is at 4.3 billion, impacted by material adjustments, and that translates into a net profit of 2.7 billion, where we also recorded some impairment on deferred tax assets.
All in all, after minority interest that leaves us with an earnings per share of €2.22. The tax rate is at 29.3%. This is in the expected range for the midterm. Looking forward, you should expect the tax rate to be at about 28% to 30%.
On the free cash flow side, yes, I think we achieved a goal to turn the cash flow in the second half of the year. Full year was a 1.4 billion positive. That includes, in particular, the payment to the German authorities in Stuttgart of 900 million.
The adjusted free cash flow is at 2.7 billion for 2019. And with this, we could lock in the net industrial liquidity at 11 billion, which was our target for 2019.
Looking at the EBIT walk. On the group level, I think we touched base on of the key building blocks. If you just want to wrap it up globally, I think continued strong demand remain for our products. That's what we can see reflected also in the pricing, also in mix. So that, at the group level is a 400 million tailwind.
However, on the FX side, in particular to hedging activity, that got compensated or were washed out by the hedge rates effective in 2019. And then, yes, I mean, due to the investments into new technology, into the future and higher product costs, we have a headwind of cost increase of 1.5 billion year-on-year.
What does it mean? The efforts we are putting into future, the efforts we are putting into technology, the efforts we are putting into our products, we cannot materialize in '19 in the top line. And therefore, it waits on the bottom line. That's why we're not satisfied with this performance. That's why we have to attack the costs harder, even harder than what we started to do in '19. And we clearly are separating that from the numerous disclosed items and the adjustments which we recorded in 2019.
Talking about these adjustments. Here, you have the details of them, 6 billion all in all, 5.4 billion of them are related to the - our assessment of the true and fair risk or from today's perspective related to legal and regulatory proceedings. So that also includes the Takata airbag.
Then the other chapter is on the stop of the X-Class, as Ola pointed out already before, and also in the p of the restructuring, you see the adjustments on the NOW family from the restructuring outlined before. And in the last column, you see the benefit of the capital gain from the NOW family creation.
Just a warning before we move into the Q&A later. On the legal proceedings, as you know, we cannot comment further as these are ongoing proceedings, and further information will be contained in the annual report, which is coming out next week.
Looking at the net liquidity. We started the year with 13 billion, not 16, as you know, about the adjustment from the IFRS 16. So 13 year - 13 billion being the starting point for the year. Then what happened? The free cash flow of 1.4 billion all in all.
What can we see here? Cash from operations, I mean, 7 billion, including the settlement payment of 900 million as pointed out before. Then a working capital burden. What actually happened in the last quarter? A significant decrease in inventories. So with this over the year, all in all, basically, we could level out the inventory beginning of the year until the end of the year.
We had a strong sales in December. But then we leveled down the production level, so we had some headwinds coming from payables and/or could not collect all of the cash from the sales in December, which means we left traces in the working capital in December from receivables and payables that's why you see a 2.1 billion charge here. Moving forward, definitely, we want to attack that and do better on that.
The other key observation, I think, on this is the investment compared to the depreciation level. You still see that due to the significant investments in the future at 10.6 billion, the cash flow is burdened by the mismatch of the investment and the depreciation level, with the emphasis on capital allocation. And scrutinizing, I mean, the investments moving forward, we will bring that gap closer together. And then last but not least, you see the dividend, which got paid. So that leaves us with 11 billion of net industrial liquidity.
Now let's move to the dividend proposal to the AGM for 2019. First, the basis for the dividend, obviously is the net profit reported, the 2.7 billion, and the earnings per share of €2.22.
During the CMD, I think we said we want to honor the dividend policy of the company with a 40% payout ratio. At the same time, we want to make sure that any dividend to be paid is supported by cash generated.
Well, I think the proposal here of €0.90 a share, recognizing that it is a significant drop compared to previous years, however, exactly reflects that. It honors a commitment in terms of the dividend policy, and it is supported by the cash generated.
And I think that's an important message for the investor community, not only the equity investor side, but in particular, also the debt side as it demonstrates that we want to protect. I mean, the balance sheet was a 10 billion nil, as we discussed several times.
At the same time, I think it also demonstrates the confidence we have into the cash generation potential of the business on an underlying basis moving forward, i.e., for 2020 and beyond.
One thing I cannot size, and you will see it when we discuss, I mean, the guidance, obviously, is the exact timing of cash-out related to legal risks. However, we altogether want to protect, on the one side, the return to shareholders and the investments into our future and protect the balance sheet of 10 billion.
Now moving to the outlook to the guidance p for 2020. First, I really like to remind you to read carefully the assumptions, the key assumptions which are stipulated on the top of the page. In the interest of time, I think I will not read them out, I mean, altogether, but I think they are important, in particular, in the current business environment in these days.
On that basis, what do we see for sales at Mercedes-Benz Cars for 2020, slightly below 2019 level. That is basically reflecting the changeover in the full electric smart business model, and it also reflects some limited risk associated to the situation on the coronavirus, which could impact the supply chain as well as the Chinese markets.
However, on the other side, and I think here, we really feel strong about that. We expect a strong demand for the brand-new GLB, the GLE, the GLS due to the increased availability of these SUVs from our operations in Tuscaloosa, as well as in Aguascalientes.
On the sales of the Vans, we expect a slight decrease. On the Trucks, Martin, I think, a slight decrease, but it's important to remind that a more material decrease in the NAFTA and also in Europe, whereas we expect Asia to improve compared to 2019.
On the Buses, we see a slight increase because of a good product portfolio and market trends. DMO, in line with the rest of the business should see some slight decline with overall stable contract volume.
Now on the return on sales. Let me put that very blunt and straight here. We confirm what we had been saying at the CMD in November. What did we say? We want to achieve more than 4% on passenger cars and vans. We want to achieve more than 5% on the trucks. We want to achieve more than 12 on Daimler Mobility.
This is what we're saying here today. There are some specificities, I think, to German disclosure requirements where we cannot have the more than, but it's exactly the same message. If anybody of you has a question on that, please, let's clarify it here in this room, but this is exactly, I mean, the message that we want to give here today.
The second point, which we alluded to already during the CMD was that we want to guide on an underlying basis. So that's what we're doing for return on sales and return on equity now moving forward, but we also do it for cash conversion rate on an adjusted basis.
So this being said, what does it mean? For passenger cars and vans, 4% to 5%. Let me remind you what is the key evolution, '19 to '20. So what are the key building blocks? The walks, which we showed in the CMD are perfectly valid, I mean, from today's standpoint.
We see a strong demand for our products, so that should have favorable volume mix and pricing impact, but the headwinds from CO2 from the higher level of depreciation are material. We're trying to compensate that in 2020, with the cost measures, the material cost, the fixed cost reduction, the personnel cost reduction, but we cannot overcompensate it, and that's we see the margin dropping basically by 100 basis points or so between '19 and '20.
What is different that we moved ahead, I mean, 2 to 3 months. And so the targets have been supported by actions, by plans, accountabilities assigned to the teams. And therefore, yes, we went ahead in maturing, in securing these targets for 2020.
在戴姆勒卡车和客车方面，为5％。同样，这里发生了什么？ NAFTA和欧洲的预期市场下降幅度很大，我们希望通过固定成本降低，Actros 5产品在市场上的可获得性以及通过改善产品的可变和材料成本来尽可能地弥补这一损失。
On the Daimler Trucks and Buses side, 5%. Again, what happens here? The expected market drop in NAFTA and Europe is significant, and we want to compensate that as much as possible by fixed cost reduction, by the product availability of the Actros 5 in the market and also by improving the variable and the material cost of the product.
At Daimler Mobility, 12%. And what does that mean? We see - I mean, the volume roughly in line with previous year. We have to expect a bit of a headwind from the - from a cost of credit risk normalization, as well as in current environment maybe a bit of margin pressure. That's why we see that roughly 100 basis points down for 2020.
On the cash conversion rate adjusted, first, in terms of - I mean, what is it? It is the CFBIT at the division level on an adjusted basis over the EBIT adjusted at the division level. Again, if there is any question on that, I mean, let's kill that and knock it off here.
Where is it, where we want to be in 2020, was it, for Cars and Vans, in the corridor of 0.7 to 0.9, and on the trucks and buses between in 0.8 and 1. So I would say compared to 2019, some material improvement. How do we want to get there? Prioritization of the investments. We put the investment cap into place in all of the operational plans, and we will work on the working capital further in 2020.
What does it mean at the group level? So first on the underlying performance at the group level. Obviously, I mean, the three units are down. So at the group level, we should see the same. So we discussed that, I think, before. I don't need to repeat that.
If we look at the EBIT reported, however, we see the EBIT reported significantly up, and that is chiefly due to the significant material adjustments recorded in 2019. If I look into the EBIT reported to full [ph] 2020, we expect restructuring charges from the personnel cost reduction program in the order of magnitude of €1.2 billion. At this stage, we size the overall program slightly above €2 billion.
Looking at the free cash flow of the industrial business in 2020. We will definitely continue to put a significant and important investment into our products and technologies for the future. But 2019 was a peak. So we cap it for 2020 and we'll put additional efforts in terms of prioritization for the years beyond, obviously.
What we can say for the cash flow all in for 2020 that it will be significantly above 2019 level. I have to make one exception to it, which is the possible cash out related to legal and regulatory proceedings just as absent a final settlement on this, we cannot give any timing of them based on the current sizing as we recorded it in the books. On the restructuring charges, I just mentioned before, we'd rather see them hitting the cash flow in 2021 and beyond, not in 2020.
So I can wrap it up on the guidance here, we clearly put the line in the sand with what we said at the CMD. Here and today, we confirm these targets. But we initiated actions to secure them.
And, I think, that's what you want to talk about moving forward now, Ola.
Ola Källenius （ 戴姆勒全球CEO）
Thank you, Harald. So if we sum up, what is the 2020 agenda? What's on our jobs list, if you will, for this year? Much of this we have talked about in terms of cost efficiencies, cost restructuring, cash.
Maybe two things I want to highlight beyond what we have mentioned already. On the one hand, because most of the headwind is on the variable side through electrification and measures that we need to reduce CO2 on our product, that means it's on the material cost side that we have to do the most work to outweigh this.
Needless to say, in 2019, we started a comprehensive program together with our suppliers and also in our own engineering to find ways to improve products and take cost out and complexity out.
But next to that immediate exercise, which is focused on the next few years, we are looking for new architectures to fundamentally rethink complexity of our products. Those are things that will yield results further down the road when we introduce new architectures 2024, 2025 and beyond. But it is a dual exercise, not just focusing on the short term, but looking at what does our business model require in the long term. So both is happening.
And as Martin mentioned, I think, especially for the European truck side, to improve the variable cost of the Actros truck and the other products there is one of the key pillars to restore healthy profitability for trucks.
With regard to personnel cost reductions and other measures, SG&A, it's, of course, an across the board. We have now initiated the program for personnel cost reductions. We have set ourselves a target that we communicated when we met with you at the Capital Markets Day in November to have a run rate reduction of €1.4 billion for the group by the end of 2022.
We negotiated with our - with the labor side with our social partners to put together a framework how to execute this. Many things you can do without that framework in terms of not replacing fluctuation and so on, of course, all of those measures that we can take unilaterally, we have already started.
But that won't be enough. We need packages for termination as well, and this process is starting now this spring and will continue for the next couple of years. So also, this has been initiated and will be a priority in 2020, but also in 2021.
There has been much discussion and speculation on CO2. In November, I showed you a picture of an estimated fleet average based upon NEDC at the end of '19 of 138. They actually ended up at 137, and we need to get down to a target. We know that the generic target for the EU is 95.
Based upon the size of your products and your portfolio, that number is different for each carmaker. In our case, it will be north of 100. We can only make an estimation at this stage based upon the sales profile that we have in our plan. But the actual sales will then determine what the final number is.
How are we doing this? It's electrification across the board. Should we, many years ago, when we had - when we started these projects started earlier? Yes, we should. Have we, in the last 2, 2.5 years, significantly, significantly ramped up our efforts to make sure that we can meet these targets and double down on investment, both on the engineering side and also on the production side to be able to meet this? Yes, we have. We are looking at a very, very big year in terms of industrialization of electrification to get into the target vicinity.
So as I mentioned, in November, it is possible to get to target achievement. I realize that 2020 and 2021 are our most challenging years. I feel much more comfortable with 2022 and beyond with the product pipeline that we have.
But I also want to state clearly, as a matter of principle, we have flicked the mental switch. We are on the road to CO2-neutral mobility. This is a core element of our business strategy. We're going to execute it. Every architecture decision that we make now going forward is electric first. So mentally, we're on the other side, although we have industrially a big task for 2020 and 2021.
What does this industrial task look like? On the electric car vehicle, we're ramping up production of EQC. We have very healthy demand. If you look at xEVs in total, so a fully electrified smart portfolio, the EQC - the EQV that's being launched this year, we're presenting the EQA also to the market even though we're launching it next year, alongside with a range of other electric products.
We're going for a very steep ramp on fully electric vehicles. Plug-in hybrids, I don't think there is any manufacturer or premium manufacturer that has a more comprehensive portfolio than we have. We also have some unique positions for some of the vehicles that are - others don't have that fit particularly well to the German market, such as some of the diesel hybrids from top to bottom. We are significantly increasing ranges for our vehicles in terms of plug-in hybrids.
So the play for a plug-in hybrid for the customer becomes more sensible. For our compact cars, around 70 kilometers using WLTP. And for our new GLE that is over here, up to 100 kilometers. And you can see now in terms of interest, particularly from business and fleet customers, they're really keen on this.
What does it mean industrially? In this year, we want to more than quadruple the number of xEVs that we're going to deliver in the market and more than double the number of 48-volt mild hybrid systems. So it's a very, very steep ramp up.
And we're going global on this. The electrification will follow all our plants around the world, investing 1 billion plus in our operations in Tuscaloosa as one example. And we just started our first full-scale battery plant at our operations in Beijing at the end of last year.
Next to the strategic move of turning Mercedes into sustainable modern luxury and also on the truck and commercial vehicle side pivoting towards CO2-free mobility. The other major strategic move that the industry, and we as a company, will make in the years to come is the full utilization of digitization for the product as well as for the company.
For the product, it will be a fundamental change of how we think about cars. It's not a mechanical package where you put a bunch of ECUs that you buy from suppliers, including software packages and then you integrate that. That's the world where we come from. That world will continue to exist. It will become more open. And you will be able to, over
the air, download into these software and electric electronic architectures.
But we're on a path to a fundamental shift where we are separating the software architecture from the hardware architecture, where you can put a software architecture into any one mechanical product that you put on the road.
That effort has started at Mercedes. In fact, a couple of weeks ago at our software company in Berlin, where we're programming this new operating system, if you will, actually drove the first rough prototype of what such a system could look like. This is the path that we're on. That's why when we talk about personnel cost savings, we have not pulled out the lawnmower and just mowed down every department in the same manner.
In the area of software, we're going to grow, and we're going to grow significantly because we believe that this is a hugely important future profit pool for the auto industry.
Next to that, of course, our MBUX that we launched a couple of years ago that have received tremendous feedback from customers and product press around the world. The next level is already in the pipeline. Stay tuned for the S-Class that we launched at the end of this year. You will see the latest and greatest MBUX taking that to the next level, and 2021, we have even more ideas coming. So I feel very excited about this future.
If you want to be successful making strategic moves, pivoting the company towards electrification, pivoting the company towards a software future on top of a strong mechanical heritage, you need to work on culture.
We started 3 or 4 years ago with what we call Leadership 2020. Well, here we are. It's 2020. It came around a lot quicker than I thought. We're taking an evolutionary step of 2020 calling it 20X, the next decade, the decade this industry will change fundamentally and the decade this company will change fundamentally.
Many of the things, the core of Leadership 2020 will carry forward using empowerment, trying to turn the company, even if it's a 300,000 people company, into a more agile company, using new ways of working in product projects and other parts of the company.
But it comes with accountability. If we can't deliver on the financial performance and unlock the cash flows that we need to invest into the future, that bright future will not be as bright. So it is a dual play.
Financial performance, accountability of the different management teams around the divisions and in the different areas to meet their targets and deliver these numbers, and at the same time, think big. At Mercedes, we say, as a purpose, first, move the world. Think about what is going to move the world in the next 10 years, and deliver that to be as successful in 2030 as we have been leading up to this point. That's what our leadership transformation is all about. And that's a marathon, not a quick sprint and something that needs to be a mindset issue for the whole company.
And even though our plans do not quite reach to the year 2149 [ph] on Pandora, our dream reaches that far. And I can already reiterate what I said at the beginning. Behind what is sometimes viewed as a cool, slightly reserved Nordic personality, there is a fire to make this happen, and we will use that fire - as a management team, we will use that fire to put this great company in the place it belongs. Thank you very much.
Q1: Patrick Hummel （UBS Analyst）
Okay. Thanks. Patrick Hummel, UBS. So I'll stick to that one complex, which is CO2 then. We've heard about potential delays with the EQC related to battery supply. I just wanted to reconfirm. Is that 50,000 unit number for 2020? Still what you expect to happen? Or do you expect to sell more plug-in hybrids?
And can you remind us if that EBIT bridge that you gave at the CMD about CO2 compliance costs, whether you factored in any pass-through of plug-in hybrid content costs to the customer, meaning through pricing or do you assume the full P&L hit for the plug-in hybrid?
And as a final part. The battery supply in general, we've seen some OEMs entering joint ventures. For example, GM recently, with LG Chem. Volkswagen has a direct stake and a joint venture with Northvolt, and battery sale supply doesn't look quite as stable and reliable as maybe people had thought a year or two back.
So was it maybe a mistake not to invest euros directly into cell manufacturing in the form of joint ventures or whatever? Or why do you think it's still the right decision to stay out of this business?
That was a very long one question. Let's start with answering. The underlying plan that we presented in 2019 at the Capital Markets Day, which is the fundament for putting us in a position to be able to also reach the targets in 2020, although we cannot - would certainly say exactly how the market will behave. That underlying assumption is intact.
So we are on that plan. We have not changed that plan, and that reflects this going from a 2% to a 9% xEV. And it's a mix of battery-electric vehicles and, of course, plug-in hybrids, and then we have the 48-volt as also another measure. So that plan remains robust. We don't have an individual shortage of cells to be able to make that happen.
I have to make a short comment on EQC. We did, at the end of 2019 from a supplier on another component, have a supplier raised his hand and said one of their sub-suppliers had, had a component that are being produced out of spec. So before we launched, we, of course, pulled the produced volume back and had to refit those cars towards the end of the year and the beginning of this year. That held us back somewhat. That had nothing to do with cell supply in its own right.
Our suppliers set for cells. We have five suppliers for cells. They have confirmed their supply for the next few years. Where as we don't have a joint venture with them, just to mention, one, even though we don't talk about individual suppliers, one of those, one of the biggest that we have picked for the next-generation electric cars to start in 2021, are building dedicated, initially dedicated cell manufacturing plants for us, both in Germany and in the United States. Obviously, they will leverage those assets down the road to capture other customers as well. But we feel that, that sourcing strategy is robust.
At this point in time, as the market is so dynamic in terms of technical development, to take the scarcest capital that we have and put billions into potentially if you want to do it really at scale, 1 billion [ph] plus into a full-scale cost competitive cell manufacturer, we believe that, that capital is better spent on cars, software architecture of course, the battery systems that we do and so on.
So to go all the way down into that vertical integration at this stage being, I guess, the only manufacturer that's actually once done it ourselves some years ago. It's a matter of capital allocation, and that's where we stand.
Pricing. Of course, we pass on as much in pricing as we can. So it's not a full hit. But it's fair to say, otherwise, the numbers wouldn't have been the way they are, that we cannot pass on the whole cost. It is one of the headwinds that we have in the next couple of years that lead to this path that we presented in November.
Q2:Tim Rokossa(Deutsche Bank Analyst)
Tim Rokossa at Deutsche Bank. Ola, I didn't think that you came across Nordic cool at all, and I think you actually came across quite encouraging and with very strong word, saying that this is the floor, and then you're going to move on from here. I think that's very encouraging and good to see. A lot of investors will appreciate that. But in order to judge whether or not that journey will be successful after all these disappointing quarters now, it's very important to understand how you got to where you are right now.
And you touched on some of the building blocks. But I must say, I still struggle a bit to really understand the underlying problems. When we just think about the three major items, we're talking Mercedes. You have the highest selling prices in the market. You have, by far, the lowest margin.
Were you too bullish on your sales assumptions? Is - are you over engineering the product with things that your customers are not paying for? Or what is the underlying problem? Also, when we look at Vans, 2% adjusted. Everyone else prints money in this segment, at least in Europe, but actually also globally given the relatively low content and good pricing. Why are you not at 10% but only at 2%?
And when we think about diesel, why almost 4.5 years after Dieselgate are we still talking about this every single quarter? Why are you not finally settling and then move on and take all that management power that you have to dedicate to this to be finally fixed and focus on the future and moving on rather than just fixing the past? Thank you.
I'm going to start from the back. If it would have been a very straightforward, easy thing to analyze and put behind us, we would not have spent 4.5 years discussing this with authorities. So I think that highlights the complexity of the situation.
It has been our policy, and it is wise, why you're still in proceedings with authorities to be very scarce with the information because opening up there does not support that process.
As we mentioned last year, we are focused on getting to resolution. That focus has never been higher than it is now. In these types of circumstances, as a company, you don't always control the time line. We were able to put one of these proceedings to bed in the fall, as you know, here in Germany, which one - which was one important piece of that journey to final conclusion.
And we must, as discussions progress, make a fair assessment of what we think the risk can be according to a process that you know is very clear in detail and it's something that we do with our auditors.
Do I wish that we could have done that quicker? Of course, I do. But the only thing I can say there, I can assure you that we're trying to get this to a good resolution as soon as we can. I'm going to put that to the side because that has very little to do with your question going forward.
To be frank, I have to agree with you. If you have the highest sales and the highest prices, you should have the highest profitability. I don't think you need a Ph.D. in Economics to understand that you don't have a cost problem. And that is what we are tackling, both on the variable side and on the fixed cost side.
The reason why we have to resize, for instance, personnel cost, is the fixed cost suit is too big. Yes, maybe we were too optimistic on what the revenue side could yield as some decisions were made in the past. And if you don't have the full revenue line to support that, you can only respond with tackling costs. Those are the measures that we're putting in place, both variable and fixed.
And of course, if you make large, large, large-ish luxury cars, the road then to CO2 compliance is perhaps a little bit longer. But that's - I don't want to use that as an excuse. We are going to, as we have outlined in this plan, step by step tackle the cost side to start outweighing some of those headwinds. So it is primarily a cost issue that we're dealing with.
The same was true for Vans?
是， 面包车略有不同，占1.9％，这是不可接受的。 我们今年将开始更改该数字。 10％，我认为我们从未遇到过。 这将是一个惊人的数字，但我们今年将开始更换货车。
Yes. Vans is little bit of a special story, 1.9% unacceptable. We're going to start changing that number this year. 10%, I don't think we've ever had that. That would be a phenomenal number, but we're going to start changing vans this year.
当然，其中一些实质性调整严重负担了2019年的结果，但即使3亿欧元也不能接受。 它是投资组合和成本的组合，但主要还是成本。 与乘用车类似，我们也将解决该问题。
And there was, of course, some of those material adjustments that burdened heavily the result in '19, but even the 300 million is not acceptable. And it's a combination of portfolio mix and costs, but primarily also costs. And similar to passenger cars, we're going to tackle that as well.
Q3:Angus Tweedie(Citigroup Analyst)
花旗集团（Citigroup）的安格斯（Angus）。 希望是第一个简单直接的问题。 您谈到了GLE在美国正在全速发展。当我们考虑库存时，您对当前的位置满意吗，尤其是在GLE库存方面？ 当我们想到2020年自由现金流指南时，您能给我们提供任何有关我们在其中假设的营运资金收益的指南吗？
Angus from Citigroup. Hopefully, a straightforward, number one. You talked about the GLE is now going at a full speed in the U.S. When we think about the inventories, are you happy with where you are, particularly on GLE inventories? When we think of the 2020 free cash flow guidance, can you give us any guide on how much of a working capital benefit we've assumed in that?
I can start. You do payables and receivables. I do the physical stuff. As you know, when we did the road show after Q2, because of the issues that we had in the launch, we were sitting on too high at the inventory middle of last year. That was brought in to balance by the end of 2019.
So now we are, let's call it, a normal healthy operational inventory level in that operation. That doesn't mean that we're going to stop. Of course, we're looking at the range, the stock range on every single one of our plants and cars to see if we can optima stock range.
When you launch a new plant, which is very far away like the one in Mexico, automatically due to supplies to that plant and so on, you take like a step-up on inventory. Now we're looking at, from the end of 2019 to 2020, in spite of our ambition to wanting to grow, how can we dampen that and then start moving in the other direction that we're looking at.
如果您看到2019年的数字，那么21亿的营运资本增加主要是应收账款和应付账款发行，与其说是存货发行，不如说是因为我们在2019年底之前基本上就把它改了。If you see the numbers for 2019, the 2.1 billion up on working capital, that was mainly receivables and payables issue, not so much an inventory issue because we largely put that right by the end of 2019.
As we do the work share on the working capital, physical and financial. No, I think the remainder is not just financial. Yes, clearly, and you can see in the numbers, if you look at the sales on the production level by the end of 2019, a healthy sales production has been leveled out.
We have actually pretty short payment terms on the payable side, which means the payable plummet at the end of 2019, and receivables I mean, went up, I mean, that's chiefly in the burden of the 2.1 billion. Once the balance sheet is out next week, you will see it clearly over there.
Do we want to do better than that? Yes, we want. But let me clarify one thing. When we give the cash conversion target of 0.7 to 0.9 for MBC in Vans and 0.8 to 1 for Trucks and Buses, we see that as an underlying cash conversion moving forward. We do not expect in that any, call it, more onetime benefit, which we could harvest from working capital.
And it's extremely important to differentiate the underlying cash conversion rate we want to achieve by putting more emphasis on capital allocation and on the investment cap and have a more natural balancing out of the working capital.
On top of that, yes, we do believe there is a potential to improve our net liquidity situation, also in perspective of some remaining risk of cash-outs, which I referred to before. So that's our strategy.
Q4:Jose Asumendi（JPMorgan Analyst）
谢谢您。我是摩根大通的Jose Asumendi。 请问马丁先生关于卡车业务的问题。马丁，您能谈谈在欧洲和北美的库存水平吗？ 此外，您多大程度上调整了欧洲和北美的员工人数以反映我们当前在两个地区的现有账单比率？谢谢。
Thank you. It's Jose [Asumendi] from JPMorgan. Just a question on Trucks, please for Martin. Martin, can you talk about your inventory levels in Europe and North America? And also, how far have you adjusted the workforce in Europe and North America in order to reflect the current book-to-bill ratios that we have across both regions? Thank you.
When you look at inventories, you can look at that, threefold. First of all, it's the new trucks that are in our position. We had record lows in North America. We adjusted our production very early to it. We have very, very low levels in Europe. So that's fine.
The second level is the inventory level, what you see in the marketplace, especially in North America in the hands of the dealers and the bodybuilders. Therefore, we pushed the brakes fairly early in the fourth quarter. So that inventory level went significantly down, and there is nothing to worry at all about that.
For the retail sales in the fourth quarter were - we couldn't see a downturn in the retail numbers, but you see it significantly in the wholesale numbers, where we delivered about 8,000, 9,000 trucks less than normally we deliver at such retail level. So that's a deduction in the inventories of our dealers. So that's very fine as well.
And then there is a last issue that's used trucks in our own possession. And I would say Europe is rather on the higher end. So we have to put emphasis in 2020 on that to get it lower. Has a significant - had some burdens, as you've seen in our other additional cost charges to adjust for that level, but I'm confident that in 2020, we get that in order as well.
Q5:Horst Schneider（BAML Analyst）
您好，我是美银美林的Horst Schneider。我对2020年指南再次提出了疑问，尤其是当我将其与您的CMD幻灯片进行比较时。 我认为，在CMD上您指导了2020年销量增长3％的目标，现在您的目标销量略低。 因此，现在在数量结构和价格上应该存在差距，您需要在其他地方进行补偿， 那么您打算在2020年做什么来弥补短缺？
Yeah. Hello, it's Horst Schneider, Bank of America. I have got a question again on the 2020 guidance, especially when I compare that with your CMD slides. I think in the - at the CMD, you guided for something like 3% volume growth for 2020. Now you have got slightly lower unit sales that you are targeting. So there should be a gap now on volume structure and pricings that you need to compensate elsewhere. So what do you aim to do in 2020 to compensate the shortfall?
And especially, when I look to the 2020, 2022 period, a large portion, I think, it was something like 2% of sales, was coming from volume structure net pricing. Don't you get nervous that, that might be too ambitious? Is that the most ambitious part in your guidance?
And what do you aim to do if you continue to fall short of volumes for which reasons ever, it might be just industry-related and not your own mistake. But what you aim to do to compensate shortfalls in that bracket?
And the last one, sorry, on cash flow. Does it mean your guidance now that the cash conversion ratio, including working capital measures, which will be higher than that what you guide now for 2020. So that there's much more upside on cash flow already this year?
Maybe I'll start with sales. And of course, sales and revenues are two things. So this is the sales. We have a reset of the smart business model in 2020. So the combustion smarts, they fall away, that in its own right, financially, not as significant, but that in its own right, takes your sales numbers in absolute numbers down.
We have made a first, I would say, very cautious estimate of effects from the coronavirus, although it's far too early to make a final assessment of what that is going to look like. At the same time, we have had, and I think we showed a pretty strong pricing power. Of course, growth in areas such as after sales with a growing carpark and also in terms of generating revenues. I'm looking here at the GLE with MBUX, where we also generate revenues for selling some of the digital content after the fact and so on.
And as we have tried to bring across the actions that we've taken on the cost side are gaining momentum. So we, as Harald said, we stand by the greater than 4% for 2020, if you sum all of those things together.
好吧，也许现金流很快。 但正如我们所说，就CMD而言，我指的豪华车领域的销售。 基本上，我们今天所说的略有增加，包括Smart品牌。我提到了GLE，GLS和GLD，我们预计2020年品牌核心将同比增长。我希望这能解释CMD和Now。
Well, maybe quickly on the cash flow. But just on the CMD, as we said, I mean, sales in the luxury segment. And basically, what we said today, a slight increase, including smart. If you take MB without smart, thanks to the strong product availability. I mentioned GLE, GLS or GLD, we expect year-on-year up on the core of the brand for 2020. I hope that explains between CMD and Now…
Sorry, and that's including China, right?
That's including China.
And on the cash flow side and the guidance which we gave, be it on the CCR by division, as well as on the FCF at the group level, we include improvement on working capital, but no material onetime impact in 2020.
As I outlined before, that remains our objective. That remains our strategy, however, to unlock these. However, they are not part of the guidance, which we issued today.
Q6:Gautam Narayan（RBC Analyst）
Gautam Narayan, RBC. Thanks for taking my question. Question on Trucks. One of your peers last week tried to consolidate its North American truck business at a pretty high valuations some may consider. And your guys truck business is, obviously, really strong in North America. I feel like it's - in some cases, it may be like an unsung hero.
If I put that valuation multiple that attempted acquisition last quarter or last week on your sum of the parts, it would mean that trucks is a pretty big percentage of your equity value, some may say.
The question is, how do you view the truck business with the car business strategically? I know it contributed a sizable amount of cash flow this past quarter. Is there a more strategic synergy between the two, perhaps with battery technology in the future, autonomous? How do you view these two businesses strategically together?
我的意思是，您自己回答了问题。 首先，我们非常清楚我们拥有北美业务，而不必购买它。 因此，这种情况下的时机确实可以从10、20、30年前开始。
I mean, you answered your question yourself. First of all, we are very clear that we have the North American business and don't have to buy it. So the timing in this case was really good to start in couple of 10, 20, 30 years ago.
Secondly, there are huge synergies or big synergies between the two. Yes, we collaborate very closely when it comes in all transformation-related things. We collaborate on the battery side. We collaborate on the fuel cells. There, we see Truck even more a better use case than in the passenger car side. And yes, we collaborate on the autonomous piece with passenger car.
And then we have a very good and strong exchange on the human - on the management side and the people side and the talent side where we can groom really good entrepreneurial talents in both sides of the fence. So it's really - there is a lot of synergies between the two.
Q7:Henning (HSBC Analyst)
谢谢。 我是汇丰银行的分析师Henning。 我希望不要在一个是或否答案上浪费我的一个问题。 但是我想有人问过你关于股息的问题。因此，也许您需要再澄清一次，您希望坚持40％的支付比率，并将自由现金流视为最高限额，并且您将不会针对政府和法律现金支出进行调整，也不会重组现金支出。显然，我们正在考虑数十亿美元，而您必须在未来几年内付款。
Thank you. It's Henning from HSBC. I hope I'm not wasting my one question on a yes or no answer. But I think somebody asked you about dividends. So just to maybe clarify one more time that you want to stick with the 40% payout ratio and see the free cash flow as a ceiling and that you won't be adjusting for governmental and legal cash-out and also restructuring cash-out and obviously, we're looking at several billion now that you have to pay out over the next few years.
And I perfectly appreciate it's difficult to quantify both the magnitude and timing, but maybe just exceptionally, that could mean that there's no free cash flow after such cash-outs, depending on where they're for, and that would restrict the dividend possibly to zero. Is that a fair clarification?
And maybe just, while I can on the restructuring itself, I believe you said you're anticipating 2 billion in '20 or 2 billion overall, of which 1.2 in 2020. Just to clarify that as well?
So let's talk of this one quickly. One, overall, 2 billion, I said, 1.2 in EBIT in 2020. Yes, cash will show more in '21 and beyond. So a smoother profile on…
So 1.2 out of 2 in the EBIT in 2020, right?
In 2020. That's what I said. So again, on the dividend, how should we think? I mean, 40% payout ratio, I think, is a good benchmark. And that's why we feel committed and adhere and stick to that, even at this trend juncture. Obviously, there is a question mark in terms of what is the level of - I mean, cash outs and beyond that.
I can only guide you on what I really can predict and forecast with a reasonable level of certainty. I hope you appreciate that. So what are we doing beyond what we guide? I outlined it before. We will try to free up as much cash potential from the company, from the balance sheet in order to mitigate any risk which is still inexistent based on the disclosure we did today. That's what we're firmly committed to. And why? As we want to secure also mean the dividends moving forward, and at the same time, protect the NIL of 10 billion.
Just looking for a second into dividend without making commitments or promises here. But at the same time, we said today, EBIT reported will be significantly above in 2020, beyond 2019, right? So it was everything, we know from today's standpoint, I mean, EBIT reported, I mean, up should translate into net profit, EPS up. Yes. So clearly, I mean, it is our objective, I mean, also to have mean dividends at a higher level, again, in the future, I mean, consistent with the rising in profits.
Q8:Philippe Houchois(Jefferies Analyst)
Yeah. Philippe Houchois at Jefferies. And my question kind of follows up on Henning's. But first of all, congratulations for cutting your dividend. I think that was overdue for being done a year ago. So that's important to protect the balance sheet.
What I'm trying to understand is, you still have a lot of claims on your balance sheet even if you generate the kind of cash flow you're talking about. My first question is kind of understanding, have you considered doing something like a perpetual hybrid like Volkswagen did to kind of buffer your equity based, protect your rating? I know it costs you a bit of money, but at the same time, it would kind of stick as a balance sheet and – ahead of the claims coming.
And when I look at your cash conversion otherwise and kind of link it to your balance sheet is you have a 3 billion gap between CapEx and depreciation. So that's a very chunky amount of money to hurt your cash conversion or your target. Some of your peers in the U.S., Ford and GM, are kind of talking about trying to match CapEx and depreciation. And I'm just wondering how long might it take for you to get to that point, given that you are getting to a flat level of investment.
And if I can squeeze the last one would be given your performance, your market cap you bring to this business over the years, I assume you do an asset impairment test every year. And I'm surprised you haven't done something to write down your asset base. Am I getting ahead of myself? Is that coming, what's your - what can you tell us about the mismatching between your earnings, cash flow and the amount of the value of your balance sheet?
Well, let me take the last one right away. Obviously, we're doing impairment testing as part of each and every disclosure. Our auditors look at that carefully. So I have no reason for any impairment test. This is unaudited numbers today, but I think we sit here with confidence that, I mean, the final accounts, which will be published next week will be what they are today, at least that's where I am today where with the finance team.
Second point, in terms of any instruments or hybrids. No, I do believe that - I mean, the cash potential, I mean, of the company does exist. Just take me in the cash flow statement as we showed it. I mean, imagine for a second we are able to balance the working capital. Imagine we are able to close the gap between investments and the depreciation level.
Just take the 2019 cash flow chart we showed to you, the NIL charge. I think it starts to illustrate, I mean, potential. That's where we want to grab. And I think that's what we have to do also with regard to the remaining risk on cash-outs we are facing.
And on the cash generation, the CCR, I mean, the reference, a benchmark, you mentioned. Why do we say Cars and Vans should have a 0.7 to 0.9 in 2020? We put the cap. I mean, we put the break. Beyond that, probably we'll go the other direction. So we stopped it. We flattened it. And at the same time, that's a bit more technical. Depreciation is coming up.
So clearly, that material gap of more than 3 billion between investment and depreciation will close down. So we should have on a recurring rate of working capital, which is more balanced, and we should have investments and depreciation, which is more balanced. And then basically, the cash from operations we revealed into the bottom line on the free cash flow.
Q9：George Galliers（Goldman Sachs Analyst）
感谢您接受我的提问。 我是来自高盛的分析师George Galliers。刚开始时，帕特里克（Patrick）有关二氧化碳的问题就绕了一圈。Ola，您强调指出，您在2020年和2021年面临风险。大概在有风险的地方，您有一个计划B。能否帮助我们更好地了解您的计划B，它是否正在从市场上撤出某些产品？ 更努力地推动电动汽车？ 您是否有关于冷却的讨论？ 还是只是支付罚款？
Thank you for taking my questions. It's George Galliers from Goldman Sachs. Just coming full circle to Patrick's questions at the beginning about CO2. Ola, you highlighted that you saw risk in 2020 and 2021. Presumably, where there's risk, you have a plan B. Could you help us better understand what your plan B is, whether it's withdrawing certain products from the market? Pushing the EVs harder? Have you had discussions around cooling? Or is it just paying the fines?
And if it's not paying the fines, at what point in time will you have a view on whether you're going to need to implement plan B or not? Will it be at a 6-month period? 9-month period or even later in the year?
We watch, of course, this on a monthly basis as we see our sales develop. But we would make economically rational decisions. So we will not do something that we feel would be less economical to demonstrate a certain number or a certain level of compliance.
At the moment, our plan is to ramp up our xEVs. We have healthy demand. So I think it's more of an operational issue than it is a sales issue to be totally honest. And that is why the industrialization of these different technologies is so important in the next 2 years. But we would not artificially cap, let's say, sales of high-end vehicles that are not in that compliance range.