Overall Assessment of the Economic Situation

In the opinion of the Board of Management, the Daimler Group’s economic situation continues to be very satisfactory at the time of publication of this Annual Report. In recent years, we have implemented our strategy effectively and with great determination. This has led us onto a stable and profitable growth path, along which we have made great progress, also in the past year. We will continue along that path in order to remain sustainably competitive and profitable. Against this backdrop, we intend to take the lead in shaping the fundamental transformation process of the automotive industry.

For that purpose, we have prioritized four strategic areas for action, which are closely interrelated:

  1. CORE (strengthening the global core business)
  2. CASE (leading in new future fields)
  3. CULTURE (adapting the corporate culture)
  4. COMPANY (strengthening the divisional structure)

We continue to expand our core business as a basis for us to take a leading role in the new CASE areas. CORE and CASE are inseparably connected and mutually dependent. In this context, we need a corporate culture that strengthens and supports both areas. In order to enhance our focus on markets and customers and to facilitate cooperation with other companies, we are reviewing whether we should make our divisions even more independent.

We succeeded in strengthening our core business also in the year 2017, with significant increases in the Daimler Group’s revenue, unit sales and EBIT. The growth targets we announced at the beginning of the year were in some cases actually surpassed.

In the year under review, we increased our unit sales to a total of 3.3 million cars and commercial vehicles (2016: 3.0 million), enabling us to further strengthen our market positon in the core business. Thanks to numerous new and successful products, Mercedes-Benz Cars and Mercedes-Benz Vans sold more vehicles than ever before. The consistency of our growth path is demonstrated by the fact that December 2017 was the 58th consecutive record month for sales to end-customers at Mercedes Benz Cars. The Daimler Trucks and Daimler Buses divisions also significantly increased their unit sales. And driven above all by the positive development of the automotive business and a further increase in the proportion of those vehicles leased or financed by Daimler, the Daimler Financial Services division also continued to grow in 2017. The Daimler Group’s revenue therefore also increased significantly: by 7 % to €164.3 billion. Adjusted for exchange-rate effects, revenue actually grew by 8 %.

The Daimler Group’s operating profit (EBIT) of €14.7 billion was significantly higher than in the previous year ( €12.9 billion). The divisions Mercedes-Benz Cars, Daimler Trucks and Daimler Financial Services all achieved significant EBIT growth, while Mercedes Benz Vans and Daimler Buses maintained their high level of prior-year earnings. In the overall vehicle business, return on sales we achieved our target value of 9 %. Daimler Financial Services’ return on equity of 17.6 % surpassed its target of 17 %.

As a result of the positive development of earnings, we once again achieved a very good return on net assets of 22.9 % (2016: 19.1 %). We therefore once again earned substantially more than our targeted minimum return on capital employed (8 %). This is reflected by our value added of €7.2 billion, which was significantly higher than the prior-year figure (2016: €5.2 billion).

In line with the ongoing high level of earnings, we continue to have very sound key financial metrics. This was confirmed by the rating agencies in their publications during the year. In early February 2017, Moody’s raised Daimler’s long-term credit rating from A3 to A2 and the short-term rating from P-2 to P-1. And in November 2017, the Canadian rating agency DBRS also raised the long-term rating from A (low) to A.

The Group’s overall equity ratio and the equity ratio of the industrial business increased in the year under review to 24.0 % and 46.4 % respectively (2016: 22.9 % and 44.7 %). The net liquidity of the industrial business decreased to €16.6 billion at the end of 2017 (2016: €19.7 billion). This decrease is almost entirely explained by an extraordinary contribution of €3 billion to the German pension plan assets of Daimler AG. Mainly for the same reason, the free cash flow of the industrial business – the parameter we use to measure financial strength – decreased to €2.0 billion (2016: €3.9 billion). Without this effect, at €5.0 billion the free cash flow of the industrial business would have been higher than in the previous year and higher than the dividend distribution in the year 2017, despite a significant increase to in advance expenditure for new products and technologies.

We want our shareholders to participate appropriately in the very good level of earnings achieved by Daimler once again in 2017. At the Annual Shareholders’ Meeting on April 5, 2018, the Board of Management and the Supervisory Board will therefore propose a dividend of €3.65 per share (prior year: €3.25). The dividend distribution will thus increase to the record level of €3.9 billion (prior year: €3.5 billion).

On the basis of our profitable core business, we increased the expenditure for securing our future in 2017 from an already very high level by a total of €2.0 billion to €15.5 billion: €8.7 billion for research and development (2016: €7.6 billion) and €6.7 billion for investment in property, plant and equipment (2016: €5.9 billion).

This substantial expenditure is necessary because we, as the inventor of the automobile, intend to play a major role in shaping the mobility of the future. To achieve this goal, we are increasingly focusing on CASE – the four strategic areas for the future: connected, autonomous, shared and services, and electric. We intend to be leaders in each of these areas and to utilize additional potential by linking up the four areas.

We see great growth opportunities in the area of electric mobility in particular. By the year 2022, we aim to electrify each segment across the entire Mercedes-Benz portfolio. Our goal is to offer our customers at least one electrified alternative in each segment - from the compact car to the large SUV. In total, we plan to launch more than 50 electrified versions, including more than ten fully electric vehicles, the plug-in hybrid versions and the models with 48-volt technology. Under the new brand EQ, which stands for electric intelligence, we offer Mercedes-Benz Cars’ customers both vehicles and services in connection with electric mobility. We are progressing with electrification also with our commercial vehicles. With the FUSO eCanter, our first fully electric light-duty truck from a limited production series, we started deliveries to customers in 2017; unlimited large-series production is to start in 2019. The Mercedes-Benz electric truck concept vehicle shows how fully electric transport is possible with a gross vehicle weight of up to 26 tons. Electric drive will soon be available also for vans from Mercedes-Benz: The eVito will be available as of the second half of 2018 and the eSprinter is to follow in 2019. And Daimler Buses plans to put a fully electric bus on the road in 2018.

With the upgraded S-Class, Mercedes-Benz has taken another step towards automated driving. For example, Active Distance Assist DISTRONIC and Active Steering Assist have been further developed with new and modified functions. Daimler Trucks also has a leading position in the field of autonomous driving. Platooning concepts, electronically linking up several trucks driving in a convoy, are gaining importance as an intermediate stage. We successfully tested the system under real-life conditions in Europe on several occasions in 2016, and we plan to test platooning in real operation with fleet customers in the United States as of 2018.

Daimler Financial Services is a pioneer in the field of shared and services with its mobility services. We invested in the expansion of these businesses in 2017 and we aim to achieve further growth with them. The total number of registered users of our mobility services increased to 17.8 million at the end of 2017. With car2go, Daimler is the world’s leading company for flexible car sharing. The Daimler subsidiary mytaxi is the market leader for taxi-ordering apps in Europe, and with moovel, we offer our customers a platform with which they can optimally compare, combine, book and pay for various mobility services.

In order to successfully make the transition from vehicle producer to full-range supplier of innovative mobility solutions, we must adapt our company to face the new challenges. In doing so, we aim to combine the flexibility and risk culture of the digital industry with the perfection and innovativeness of our company’s strong traditions. Together with our workforce, we are therefore developing a new and flexible corporate culture under the roof of “Leadership 2020”. In addition, we are working in “Project Future” on how we can change our divisions into legally independent entities, in order to further focus and strengthening the divisional structure of the Daimler Group.

With the four strategic areas for action - CORE, CASE, CULTURE and COMPANY - we have set the course for a successful future. Against this backdrop, we look to the coming years with great confidence, and aim to continue our profitable growth.

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