Overall Assessment of the Economic Situation

In the opinion of the Board of Management, the Daimler Group’s economic situation continues to be generally satisfactory at the time of publication of this Annual Report, although overall conditions for our business are significantly less favorable. This development was not without an influence on our financial success. Nonetheless, we continued to pursue our strategy with great determination and also with the corresponding allocation of funds. We will continue to follow the course we have set in a disciplined manner in order to remain competitive in the long term and to grow profitably. Our goal is clear: We aim to continue to be a leading vehicle manufacturer while evolving into a leading provider of sustainable mobility.

In order to achieve that goal, we have prioritized five components, which are closely interlinked. Within the framework of our 5C strategy, we want to

  • strengthen the global core business (CORE),
  • lead in new fields of the future (CASE),
  • adapt the corporate culture (CULTURE) and
  • strengthen the divisional structure (COMPANY).

The focus of our activities is on our fifth and most important C: our customers (CUSTOMER). We are aligning our processes and our organization with a strong customer focus and aim to develop the best product and mobility solutions for and with the customers.

We succeeded in strengthening our core business also in the year 2018: Daimler again set records for unit sales and revenue, and the Group’s EBIT was at a high level despite difficult conditions and special challenges in our business operations.

In the year under review, Daimler sold a total of 3.4 million cars and commercial vehicles (2017: 3.3 million), Contributions to this growth came primarily from the divisions Daimler Trucks (+10 %), Mercedes-Benz Vans (+5 %) and Daimler Buses (+8 %). The Mercedes-Benz Cars division also achieved record unit sales with growth of 0.4 % despite difficult conditions. Demand for passenger cars of the Mercedes-Benz brand remained high; however, the sales development was largely influenced by lifecycle effects of various model series. Some additional factors were increased tariffs in China on vehicles imported from the United States, bottlenecks in the supply chain and the suspension of deliveries of individual diesel models. Delays with vehicle certification in some international markets also had an impact on availability.

Daimler Financial Services’ business developed positively once again in 2018. Worldwide contract volume continued to grow and reached a new high of €154.1 billion (+10 %).

On this basis, the Group’s revenue also increased, by 2 % to the record level of €167.4 billion. Adjusted for exchange-rate effects, revenue grew by 4 %.

The Daimler Group’s operating profit (EBIT) of €11.1 billion was significantly lower than in the previous year (€14.3 billion). The Daimler Trucks division increased its EBIT significantly, while the other divisions posted partially significant decreases. In the overall vehicle business, our EBIT of 6.9 % did not reach the target corridor of 8-9 %. Also at Daimler Financial Services, our return on equity of 11.1 % was significantly below the target of 17 %. This was partially due to expenses from the settlement reached in the Toll Collect arbitration proceedings.

We regard it as an ongoing task to strengthen the Group’s earning power and secure it in view of future challenges. At Mercedes-Benz Cars, we further developed Fit for Leadership as an efficiency program and firmly established it in the organization. With Fit for Leadership, we aim to achieve further improvements in earnings of €4 billion by 2025. Comparable programs are running also in the other divisions.

As a result of the positive development of earnings, we again achieved a very good return on net assets of 14.8 % (2017: 22.5 %). We therefore once again substantially surpassed our target of 8 % for the minimum return on capital employed. Despite the decrease compared with the previous year, value added of €3.7 billion shows that we created significant value also in the year under review (2017: €7.0 billion).

The fact that our key financial metrics remain very solid was also confirmed by the rating agencies: Daimler AG’s credit ratings remained unchanged with the five rating agencies we commissioned in the 2018 financial year. At the end of 2018, Daimler’s ratings were thus at a consistently high level with a “stable” outlook.

The Group’s overall equity ratio and the equity ratio of the industrial business reached 22.2 % and 42.8 % respectively in the year under review (2017: 24.0 % and 46.4 %), and thus continued to be at very solid levels. This also applies to the net ­liquidity of the industrial business of €16.3 billion at the end of 2018, which was almost unchanged from a year earlier. The free cash flow of the industrial business – the parameter we use to measure financial strength – was €2.9 billion in 2018, which is significantly higher than the prior-year figure of €2.0 billion. However, it must be taken into consideration that the prior-year figure was reduced by an extraordinary contribution of €3 billion into the German pension plan assets of Daimler AG.

To be able to implement our growth strategy with new products, innovative technologies and modern production capacities, we once again increased the advance expenditure to secure our successful future, from an already very high level by a total of €1.2 billion to €16.6 billion in the year under review: €9,1 billion for research and development (2017: €8.7 billion) and €7.5 billion for property, plant and equipment (2017: €6.7 billion). In the application of these funds, we are increasingly concentrating on the CASE future fields of connectivity (Connected), automated and autonomous driving (Autonomous), flexible use and services (Shared & Services) and electric drive systems (Electric). We intend to be leaders in each of these areas and to utilize additional potential by linking up the four areas. To that end, we plan to launch more than ten all-electric cars.

We see great growth opportunities in the area of electric mobility in particular. By the year 2022, the entire Mercedes-Benz portfolio is to be electrified. This means that at least one electrified alternative will be offered in each segment – from compact cars to large SUVs. Significantly more than 130 electrified vehicle variants are planned. As well as all-electric models, this will include plug-in hybrid versions and models with 48-volt technology. By 2025, depending on the development of the public infrastructure and customer preferences, 15 to 25 % of the cars we sell are to be all-electric. To that end, we plan to launch more than ten all-electric vehicles on the market.

We are progressing with electrification also with our commercial vehicles. The Group is focusing on areas of application in which e-mobility is also economical. In 2018, Daimler Trucks for the first time presented all-electric trucks to the public across all segments: from the FUSO eCanter in the light-duty segment to the Freightliner eM2 in the medium-heavy segment and the Mercedes-Benz eActros, Freightliner eCascadia and FUSO Vision One in the heavy-duty segment. Mercedes-Benz Vans plans to offer all its commercial model series with electric drive. The first was the mid-size eVito, which has been available since November 2018. With the new, all-electric Mercedes-Benz eCitaro, which had its world premiere at the IAA Commercial Vehicles trade fair in 2018, we have added an important component to our portfolio for environmentally friendly local public transport with low-emission and locally emission-free buses.

With the further development of autonomous driving, we rely on the one hand on technical assistants and on the other hand on automated systems that take customers from A to B without a driver. Mercedes-Benz Cars has demonstrated its strong position in the field of technical assistants with the S-Class. On the other hand, we are developing automated systems that can be used without a driver or can be shared with others.

Daimler Financial Services is continuously investing in the development of a comprehensive mobility ecosystem. car2go is a leading company for flexible car sharing. In the ride-hailing segment, the Daimler subsidiary mytaxi is one of the leading providers of app-based taxi services 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 upscale rapidly for on-demand mobility, the mobility services car sharing, ride hailing, parking, charging and multimodality of today’s Daimler Mobility Services and the BMW Group are to be merged and strategically expanded. To successfully transition from vehicle producer to full-range supplier of innovative mobility solutions, we must adapt our company to face 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 further focusing and strengthening the divisional structure of the Daimler Group.

With the components CORE, CASE, CULTURE and COMPANY, we are aligning the Group towards the customers’ requirements (CUSTOMER). In this way, we are setting the course for a successful future. This is precisely why we can continue to look forward to the coming years with great confidence.

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