Daimler AG Annual Report 2017

Plain-text annual report

Annual Report 2017 Key Figures Daimler Group € amounts in millions % change 2017 2016 17/16 Revenue 164,330 153,261 Investment in property, plant and equipment 6,744 Research and development expenditure Free cash ﬂow of the industrial business EBIT Net proﬁt Earnings per share (in €) Dividend per share (in €) 8,711 2,005 14,682 10,864 9.84 3.65 5,889 7,572 3,874 12,902 8,784 7.97 3.25 Employees (December 31) 289,321 282,488 1 Adjusted for the eﬀects of currency translation, revenue increased by 8%. +7 1 +15 +15 -48 +14 +24 +23 +12 +2 Cover photo The Concept EQA is the ﬁrst fully electric EQ concept car from Mercedes-Benz in the compact segment. Excellent driving dynamics are ensured by permanent all-wheel drive and two electric motors, whose system output can be increased to over 200 kW thanks to scalable battery components. In combination with the intelligent Mercedes-Benz operating strategy, the Concept EQA oﬀers a range of up to 400 kilometers, depending on the battery capacity installed. The highly eﬃcient lithium-ion battery with pouch cells is supplied by the Daimler subsidiary Deutsche ACCUMOTIVE. The Concept EQA can be charged via induction or wallbox and is also prepared for rapid charging. Daimler’s Divisions > The Divisions and Brands € amounts in millions Mercedes-Benz Cars Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Trucks Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Mercedes-Benz Vans Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Buses Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Unit sales Employees (December 31) Daimler Financial Services Revenue EBIT New business Contract volume Investment in property, plant and equipment Employees (December 31) 2017 2016 2015 17/16 % change 94,695 9,207 9.7 4,843 6,642 2,388 89,284 8,112 9.1 4,147 5,671 2,008 83,809 7,926 9.5 3,629 4,711 1,612 2,373,527 142,666 2,197,956 139,947 2,001,438 136,941 35,707 2,380 6.7 1,028 1,322 45 470,705 79,483 13,164 1,181 9.0 710 565 310 401,025 25,255 33,187 1,948 5.9 1,243 1,265 57 415,108 78,642 12,835 1,170 9.1 373 442 238 359,096 24,029 37,578 2,576 6.9 1,110 1,293 26 502,478 86,391 11,473 880 7.7 202 384 153 321,017 22,639 4,351 4,176 4,113 243 5.6 94 194 30 28,676 18,292 23,775 1,970 70,721 139,907 43 13,012 249 6.0 97 202 11 26,226 17,899 20,660 1,739 61,810 132,565 37 12,062 214 5.2 104 184 13 28,081 18,147 18,962 1,619 57,891 116,727 30 9,975 +6 +13 . +17 +17 +19 +8 +2 +8 +22 . -17 +5 -21 +13 +1 +3 +1 . +90 +28 +30 +12 +5 +4 -2 . -3 -4 +173 +9 +2 +15 +13 +14 +6 +16 +8 Daimler AG is one of the world‘s most successful automobile companies. With its divisions Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services, the vehicle manufacturer is one of the biggest suppliers of premium cars and is the largest producer of commercial vehicles with a global reach. Daimler Financial Services provides ﬁnancing, leasing, ﬂeet management, insurance, investment products and brokerage of credit cards, as well as innovative mobility services. For more information: w daimler.com Contents #1 CORE CASE CULTURE COMPANY SHAPING THE FUTURE Chairman’s Letter A | To Our Shareholders The Board of Management Report of the Supervisory Board The Supervisory Board Highlights of 2017 Daimler and the Capital Market Objectives and Strategy 1 4 24 44 50 54 56 61 62 64 70 72 78 82 B | Combined Management Report 88 90 95 101 107 115 Corporate Profile Economic Conditions and Business Development Profitability Liquidity and Capital Resources Financial Position Daimler AG 118 (condensed version according to HGB) Sustainability and Integrity 121 Overall Assessment of the Economic Situation 134 135 Events after the Reporting Period Remuneration Report 136 Takeover-Relevant Information and Explanation Risk and Opportunity Report Outlook 152 155 170 Information guidance system Refers to an illustration or a table in the Annual Report w Refers to additional information on the Internet E Cross-reference within the Annual Report K Refers to a Daimler publication C | The Divisions Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services D | Corporate Governance Report of the Audit Committee Declaration on Corporate Governance, Corporate Governance Report E | Non-Financial Report Sustainability at Daimler Environmental issues Employee issues Social issues Compliance Statement on the review of the Non-Financial Report F | Consolidated Financial Statements 176 178 184 189 192 195 198 200 203 214 216 218 222 227 229 234 236 238 Consolidated Statement of Income Consolidated Statement of Comprehensive Income/Loss 239 Consolidated Statement of Financial Position 240 Consolidated Statement of Cash Flows 241 Consolidated Statement of Changes in Equity 242 Notes to the Consolidated Financial Statements 244 G | Further Information Responsibility Statement Independent Auditor’s Report Ten Year Summary Glossary Index Daimler Worldwide 324 326 327 334 336 337 338 CORE Strengthening the base CASE Driving transformation CULTURE Innovative, ﬂexible corporate culture COMPANY Future-oriented structure 01. GB2017_Imageteil_EN_060218-rz.indd 1 12.02.2018 14:48:47 2 DAIMLER ANNUAL REPORT 2017 | #1 | CORE CASE CULTURE COMPANY AS A LEADING VEHICLE MANUFACTURER … Daimler is writing the next chapter of its success story. As a leading automo- bile manufacturer, we continue to set the pace and shape the future. That’s because the mobility of tomorrow will be fundamentally diﬀerent — because our customers’ expectations are becoming more diverse and more challeng- ing in increasingly dynamic markets. To make sure Daimler stays in the lead, we are focusing our activities in four strategic areas. That’s how we aim to strengthen our economic base through proﬁtable growth in our global core business: CORE. We are using our earning power to shape the radical trans- formation of the automobile industry. To this end, we’re investing in the future-oriented CASE ﬁelds — Connected, Autonomous, Shared & Services and Electric — in order to strengthen our core business over the long term. To support this transformation eﬀectively, we are renewing our corporate culture in cooperation with our employees: CULTURE. Through the new structure that we envisage, we aim to make even better use of our opportunities in the market: COMPANY. As a result of our activities in these four strategic areas, we are becoming more eﬀective, faster and more successful — on course for a leading role at the next level of mobility. ... WE WANT TO SHAPE THE FUTURE OF MOBILITY. 4 DAIMLER ANNUAL REPORT 2017 | #1 | CORE The updated Mercedes-Benz S-Class deﬁnes milestones on the road to autonomous driving thanks to its innovative assistance systems, and thrills customers with its luxurious driving comfort. DAIMLER ANNUAL REPORT 2017 | #1 | CORE 5 6 DAIMLER ANNUAL REPORT 2017 | #1 | CORE CORE Strengthening the base Sustainable earning power in our automotive core business is our economic foundation — and the basis for the investments we need to make in the future. That’s why Daimler plans to systematically expand its global strategy for success in all of its divisions. Our fascinating premium cars and our successful trucks, vans and buses are all shaping our course of prof- itable growth. The customized financing and leasing products of Daimler Financial Services support our successful core business all over the world. In addition to our traditional markets, the Asia region and China in particular will continue to play a key role. Thanks to our glob- ally organized, flexible production network and our optimal customer orientation, we continue along our successful path. MERCEDES-BENZ: NO. 1 AMONG PREMIUM VEHICLES Premium vehicles from Mercedes-Benz thrill our customers worldwide — unstoppably. Premium automobiles form the basis of our core business. That’s why Mercedes-Benz now has a larger and more diverse model portfolio than ever before. With their pioneering design and innovative technologies, Mercedes-Benz vehicles fascinate customers all over the world. The cars with the star are setting sales records and leading the worldwide premium segment. The new E-Class and the upgraded S-Class from Mercedes-Benz are playing a key role in this success. Daimler is operating from a position of strength and is stepping up its pace. Until the end of this decade, it will launch numerous new car models on the market. Many of them have no predecessor in the Group’s current product range. We are expanding our international production network and our ﬂexible modular strategy in order to achieve our long-term goal of eﬃcient manufacturing for sustainable growth. w daimler.com/products 8 DAIMLER ANNUAL REPORT 2017 | #1 | CORE The new edition of the Mercedes-Benz G-Class represents the biggest transformation in the success story of this oﬀ-road legend — and yet it remains true to itself. CONFIDENT ON EVERY TERRAIN The special qualities of Mercedes-Benz SUVs impress customers, both on and oﬀ the road. With seven models in all classes, Mercedes-Benz is extremely well positioned all over the world in the growing market for oﬀ-road vehicles. Our model oﬀensive is paying oﬀ: Customers are thrilled by these vehicles’ superb SUV aesthetics and outstanding technology. We’re delivering more GLA, GLC, GLC Coupe, GLE, GLE Coupe, GLS and G-Class vehicles than ever before. The SUVs with the star are posting double-digit sales growth that puts them in a top spot in this global growth segment. These are good reasons to continue closely watching our oﬀ-road vehicles — because they’re setting the pace for Daimler. The dynamic GLC Coupe, which delights buyers all over the world, is an especially popular product. The GLA became an overnight success in the compact SUV segment, which it shaped and redeﬁned. 10 DAIMLER ANNUAL REPORT 2017 | #1 | CORE The minimalistic styling of the sporty and elegant E-Class coupe typiﬁes the sophistication of Mercedes-Benz design. DREAM CAR WITH A STAR Roadsters, convertibles and coupes from Mercedes-Benz make customers’ hearts beat faster. Dream cars such as the legendary gullwing model are part of the myth of the Mercedes-Benz brand. Today, we offer dream cars that meet a wide range of expectations and are available in all classes. Now more than ever before, the Mercedes-Benz star stands for state-of-the-art luxury and outstanding diversity. It symbolizes success: Mercedes-Benz roadsters, convertibles and coupes are coveted all over the world. The dream car family includes the SL, the SLC and the C-Class convertible as an entry-level model from the world of Mercedes-Benz convertibles, as well as the luxurious S-Class four-seat open convertible. The special highlights of our portfolio also include the Mercedes-Maybach convertible and the E-Class coupe. The breathtaking coupes and roadsters from the Mercedes-AMG GT model series are manufactured in the hand-ﬁnishing section of the Mercedes-Benz plant in Sindelﬁngen. Through its sensual and emotional design and technical innovations, the Vision Mercedes-Maybach 6 convertible deﬁnes the luxury of the future. 12 DAIMLER ANNUAL REPORT 2017 | #1 | CORE HIGH SPEED IN CHINA’S GROWTH MARKET Mercedes-Benz is breaking sales records in the booming markets of Asia. The brand with the star is the most frequently registered premium brand in many countries all over the globe. Especially in the Asia-Paciﬁc region, Mercedes-Benz vehicles are bestsellers. The Group delivered more cars in this region last year than ever before. As the world’s biggest market and a source of considerable growth, China has played a key role in this outstanding result. Our coveted premium vehicles are also very popular in South Korea and India and are setting new sales records there. We are already producing many vehicles locally in this region. For example, we’ve produced more than one million vehicles to date at our plant in Beijing. We’ve more than tripled our sales in China in just four years. Many new models are now celebrating their premieres in Asia. That’s yet another way Daimler recognizes the major role played by its successful markets in Asia, where it remains on course in the passing lane. Strong demand: Between 2013 and 2017, sales of Mercedes-Benz cars in China more than doubled. More and more satisﬁed customers: Half of all the new vehicles we sell today are either ﬁnanced or leased through Daimler Financial Services. WORLD- CLASS FINANCIAL SERVICES Customized ﬁnancing and leasing products accelerate our automotive business. One of the most important factors behind our success is our attractive and innovative range of services around vehicle ﬁnancing and insurance. Daimler Financial Services has posted record ﬁgures for many years. We aim to systematically pursue our strategy of proﬁtable growth at high speed in the future. Daimler Financial Services ﬁnances or leases half of all the new vehicles sold worldwide by the Daimler Group — and our international portfolio contin- ues to grow. In 2017 DFS increased the number of its new leasing and ﬁnancing contracts by 14 percent, once again setting a new record. It’s clear that in the future, Daimler’s automotive core business will stay in the fast lane. w daimler-ﬁnancialservices.com/en DAIMLER TRUCKS: GLOBAL LEADERS With the new generation of the FUSO ﬂagship truck, the Super Great, Daimler Trucks aims to further expand its market position in Japan. Ever since the truck was invented 120 years ago, Daimler Trucks has been the pioneer in the sector — and it continues to gain ground. As the world’s number one company in the truck business, we focus our strengths for our customers’ benefit — with the optimal experience, know-how and positioning for providing attractive products and services. Our success is based on six strong vehicle brands under the roof of Daimler Trucks. We aim to continue shaping the logistics business with these brands in the future. We offer customized applications and pioneering truck technolo- gies all over the world. For example, since early 2017, we have been offering the new Freightliner Cascadia in the North American market and the new FUSO Super Great to customers in Japan. At the beginning of 2017, we launched production of the new Freightliner Cascadia, which is equipped with our integrated powertrain. Components of the global Daimler Trucks platform strategy are installed in all of our new heavy-duty trucks from Mercedes-Benz, Freightliner and FUSO. Our standardized architecture for electric and electronic systems is yet another success factor that makes us the leader in the global truck market. w daimler.com/products/trucks DAIMLER ANNUAL REPORT 2017 | #1 | CORE 15 Thanks to the ongoing optimization of its powertrain and aerodynamics, the Actros is posting ever better fuel economy. The 75th anniversary of Freightliner and the 50th of Western Star: Two signiﬁcant birthdays that underline Daimler Trucks’ strong market position in North America. VEHICLES FOR EVERY MARKET DAIMLER ANNUAL REPORT 2017 | #1 | CORE 17 In another milestone, Daimler Trucks has put more than 60,000 BharatBenz trucks on the road in India in the ﬁve years since the brand’s market launch. In 2017, Daimler and its partner Beiqi Foton Motor produced more than 112,000 Auman brand mid-size and heavy-duty trucks in China. As a world market leader with a global pres- ence, Daimler Trucks is close to its customers. We identify customer needs quickly and respond to them with tailor-made solutions. That’s why we aim to expand our strong position in our core markets and enter new markets as well. For exam- ple, in 2012 Daimler Trucks launched BharatBenz, its first brand specially tailored to the needs of a specific market. Modern BharatBenz trucks in weight classes between nine and 49 tons are manufactured locally for the Indian market. At our production plant in Wanaherang, Indonesia, Mercedes-Benz trucks have been rolling off the assembly line since 2017. In addition to FUSO vehicles, Daimler Trucks will produce heavy-duty trucks with the star for the Indonesian market at this plant in the future. Daimler Trucks’ FUSO brand has occupied a very strong position in Indonesia for more than 40 years. In China, the world’s biggest truck market, Daimler is also stepping on the gas through Beijing Foton Daimler Automotive (BFDA), its joint venture with Beiqi Foton Motor. All in all, these are the ideal precondi- tions for keeping Daimler Trucks in the forefront of the international truck markets in the future. w daimler.com/company/business-units/ daimler-trucks 18 DAIMLER ANNUAL REPORT 2017 | #1 | CORE A STRONG VAN PORTFOLIO A comprehensive product range is the engine of our “Mercedes-Benz Vans goes global” strategy. Thanks to its complete range of vans for private and commercial use, Daimler is ideally positioned in the growing global van market. The mid-size pickups, commercial vehicles, full-size MPVs and travel and recreational vehicles from Mercedes-Benz stand for reliability, quality and value retention all over the world. The portfolio ranges from the X-Class to the Citan urban delivery van, the mid-size Vito (“Metris” in the United States) and V-Class vans including the Marco Polo models, and the large Sprinter van. Mercedes-Benz is the world’s first premium automaker in the promising segment of mid-size pickups, represented by the X-Class. The mid-size pickup segment is global in scope, high-volume and set for further growth. Thanks to its typical pickup strengths and Mercedes-Benz standards of design, com- fort, safety and connectivity, the X-Class forms a bridge between commercial and private use and between rural and urban appli- cations. That makes it not only a commercial vehicle but also a lifestyle and family vehicle. So the X-Class is adding a fourth category to the Mercedes-Benz Vans portfolio — at the interface between cars and commercial vehicles, where we’re already enjoying success with the Vito and the V-Class. The X-Class appeals to pickup owners who would like their vehicles to have more of the qualities typical of cars. It also attracts customers who have previously driven a car, a van or an SUV. w daimler.com/products/vans Mid-size vans with the star are a major pillar of Mercedes-Benz Vans’ success. The V-Class full-size MPV is a standout vehicle for family, sports and recreational activities. It combines the func- tionalities of traditional vans with the strengths of Mercedes-Benz sedans. The new V-Class RISE was added to the line in 2017. The Marco Polo travel and camper vans, which are based on the V-Class and the Vito, have been especially successful. For the first time, they are now also offered with right-hand drive in Australia and the United Kingdom. Following the Marco Polo and the Marco Polo ACTIVITY, the product family has been supplemented by the compact Marco Polo HORIZON camper van since 2017. w daimler.com/products/camper-vans The new Marco Polo HORIZON combines functionality with high quality design — and it’s thrilling new customer groups. Stylish and robust: Mercedes-Benz has created the X-Class for a wide range of customer groups all over the world. SUCCESS STORY The Mercedes-Benz Sprinter established the market for large vans — and has broken records ever since. More than 3.4 million units have been delivered to customers in over 130 countries to date. That makes the Sprinter one of the most successful commercial vehicles of all time and a bestseller in the Daimler product portfolio. In addition to its commercial applications, the Sprinter is playing an increasingly important role in the growing market for camper vans. With the introduction of the fully connected new Sprinter, Mercedes-Benz Vans is ushering in the age of the digital van and once again reinventing the worldwide van segment. Through numerous innovations and even greater versatility, our new large van offers customized solutions to a wide range of customers and sectors. In addition, the new model generation equipped with new drive variations offers tailor-made solutions for the diverse requirements of the growing camper van market. w daimler.com/company/business-units/mercedes-benz-vans The launch of the new Sprinter will begin in the ﬁrst half of 2018 in Europe, followed by other markets. It will once again redeﬁne the van segment. DAIMLER ANNUAL REPORT 2017 | #1 | CORE 21 The Vito is a reliable partner for tradesmen, a delivery van, a high-capacity taxi and an emergency vehicle — a real all-rounder on course for success in many sectors all over the world. RECORD BREAKERS The Vito and the V-Class full-size MPV are also pacesetters for the global growth strategy of Mercedes-Benz Vans. The mid-size vans with the star are exciting and impressing our customers all over the world. The Mercedes-Benz Vito and the V-Class are proving to be strong sales drivers with sustained high growth rates. Their attractive design and diverse variants are setting the benchmarks in their respective segments. The versatile Vito mid-size van combines spaciousness with high quality and stands out through its great adaptability. For its part, the V-Class combines the high-quality design of a Mercedes-Benz car with the strengths of a mid-size van. Mercedes-Benz Vans has been delivering Vito and V-Class models in China, the world’s largest auto- mobile market, since 2016. Both vehicles are “Made in China for China” and manufactured by our local joint venture Fujian Benz Automotive Co., Ltd. (FBAC) in Fuzhou. 22 DAIMLER ANNUAL REPORT 2017 | #1 | CORE WORLDWIDE SUCCESS ON THE ROAD The Mercedes-Benz Citaro, our best-selling city bus, is now also on the market in a future-oriented hybrid variant. Daimler Buses is still on the upswing, thanks to its pioneering city buses and coaches with over eight tons gross vehicle weight, its global positioning and its innovative mobility solu- tions. Our full line of vehicles from the Mercedes-Benz, Setra and BharatBenz brands covers a wide range of requirements. In addition, our products impress customers through their safety, eﬃ ciency and environmental friendliness. Our portfolio is rounded out by the OMNIplus and BusStore service brands, our worldwide workshop network and our comprehensive range of services — everything that keeps Daimler’s bus segment on the move. w daimler.com/company/business-units/daimler-buses Our city buses are also scoring points with their innovations. For example, the hybrid drive of the Mercedes-Benz Citaro, combined with its new electrohydraulic steering system, is further reducing its fuel consumption. And our sales oﬀ ensive in the emerging markets is in full swing. Daimler Buses has launched two new bus models on the market in Kenya, Cameroon and the Ivory Coast. This is how Daimler Buses is responding in eastern and central Africa to the growing demand for comfortable and safe buses for passenger transportation. Our global production net- work is also part of this campaign: The chassis for local assembly come from our bus production plants in India and Brazil. The new Setra S 531 DT double-decker bus and the Setra TopClass 500 are now rounding out our successful portfolio. Two coaches celebrate world premieres in the booming intercity bus market. The year 2017 was a special one for Daimler Buses. The new Setra S 531 DT double-decker bus and the Setra TopClass 500 impress with their eﬃ ciency, versatility, comfort and safety. The Mercedes-Benz Tourismo RHD high-decker coach also celebrated its premiere in 2017. It’s impressing transportation companies, passengers and drivers alike through its cost-eﬀ ectiveness, safety, functionality and high level of comfort. w daimler.com/products/buses/setra w daimler.com/products/buses/mercedes-benz 24 DAIMLER ANNUAL REPORT 2017 | #1 | CASE DAIMLER ANNUAL REPORT 2017 | #1 | CASE 25 DAIMLER ANNUAL REPORT 2017 | #1 | CASE 27 CASE Driving transformation Connected, Autonomous, Shared & Services, Electric — by connecting all the future-oriented CASE fields, Daimler is transforming itself from an automaker to a provider of mobility services. It’s shaping “intuitive mobility” with comfortable, user-friendly products and services that are making our customers’ mobility and daily lives easier. For one thing, we are electri- fying our cars, trucks, vans and buses. In the car division alone, we intend to launch at least ten fully electric models, ranging from the smart to the SUV, by 2022. Connected vehicles and digital services are already sales clinchers today. Through Mercedes me, Mercedes PRO and Uptime, we offer our customers comprehensive access to a wide range of brands and services. Mobility services such as car2go, moovel, mytaxi and the piloted on-demand ride-sharing service ViaVan are becoming increasingly important. We’re also developing additional impetus through innova- tion platforms such as the STARTUP AUTOBAHN and Lab1886. The smart vision EQ fortwo is fully- automated, customizable, communicative and electric. In this concept vehicle, we have combined all the CASE areas for the first time and exploited the tremendous potential of this intelligent mix. w daimler.com/case/en 28 DAIMLER ANNUAL REPORT 2017 | #1 | CASE C Connected Connected automobiles support drivers and communicate with their surroundings. A Autonomous Smoothly flowing traffic, flexible logistics processes and stress-free travel in self-driving vehicles. S Shared & Services Reaching destinations quickly and flexibly using your own car and other transportation options. E Electric Electric vehicles plus a service infrastructure will shape the future. CASE — these four letters are radically changing mobility. Our new interactive website shows how Daimler is reshaping the mobility of the future by combining these four future fields. w daimler.com/case/en 30 DAIMLER ANNUAL REPORT 2017 | #1 | CASE EQ: ELECTRIC INTELLIGENCE Our electric offensive is taking off with the Concept EQA. The modular basic architecture of our EQ technology and product brand can be individually varied to suit SUVs, sedans and other lines. With its Concept EQA, Mercedes-Benz is now show- ing what a compact EQ could look like. This concept vehicle has two electric motors with a system performance of up to 200 kilowatts. Permanent all-wheel drive ensures great handling. The battery-electric Concept EQA study achieves a range of about 400 kilometers thanks to its intelligent operating-mode strategy, and offers a techno- logical vision of the electrified future. Its lithium-ion battery comes from the Daimler subsidiary Accumotive. The Concept EQA can be charged by means of induction or a wall box. It can also be used with fast-charging systems. As a result, the Concept EQA from Daimler, the inventor of the automobile, embodies all the essentials of state-of- the-art electric mobility. w mercedes-benz.com/EQ/en The EQ ecosystem is a trailblazer for comprehensive customer-oriented electric mobility. EQ stands for “electric intelligence” and is derived from the Mercedes-Benz brand values of emotion and intelligence. In 2019, we will launch the ﬁrst series-produced EQ model, the EQC. And in addition to electric vehicles, we will also be oﬀering much more: charging services and products ranging from wall boxes to home energy-storage units. Seamless Charging is one vision of how to recharge electric vehicles at public charging stations in the future. This Mercedes me-based service would enable drivers to recharge their vehicles and pay for this service anywhere. Through strategic partnerships with companies such as the leading global charging solution provider ChargePoint, we are forging ahead with the expansion of our intelligent EQ ecosystem. A further important step is the founding of the IONITY joint venture for creating a public high-power charging station infrastructure along the main traﬃc arteries of Europe. The Concept EQA combines electrifying aesthetic appeal, driving pleasure, suitability for daily use and safety. The intuitive and adaptive multimedia system “MBUX Mercedes-Benz User Experience”, which will be standard equipment in the new A-Class, is ushering in a new era of infotainment. IN DIALOGUE WITH YOUR CAR Mercedes me transforms vehicles into mobile assistants. Our personalized digital services in the areas of connectivity, service, ﬁnancing and mobility have been expanded further. The “Digital Anticipation” service, which has been honored with the German Award for Online Communication, supports our customers from the time they buy a car until their new vehicle is delivered. In Germany, customers can track the production status of their new car in real time. It’s an exclusive interactive service that provides a completely new kind of brand experi- ence. To make sure customers stay mobile even without their Mercedes-Benz vehicle, the Mercedes me app is integrated with moovel, mytaxi and car2go to provide mobility services across the board. The Mercedes me connect service “In-Car Oﬃce” enables customers to use certain oﬃce functions as well as their own telephone and calendar data while they’re on the road. The “In Score” feature oﬀers discounts of up to 20 percent on insurance premiums, depending on the customer’s personal driving style. And coming soon is the “Ask Mercedes” app, a digital users’ manual with an augmented reality function and additional online services that will make our customers’ daily lives noticeably easier. w mercedes-benz.com/en/mercedes-me The digital service portal Mercedes me is now actively used and appreciated by well over 1.5 million Mercedes me customers in 36 countries. Women in focus. Through the community and inspiration platforms of “She’s Mercedes”, we are emphasizing our claim to be totally responsive to the wishes and needs of women customers — in areas ranging from sales to communication and aftersales services. Through these platforms, Mercedes-Benz is engaging in a more intensive dialogue with women and offering an even more impressive premium brand experience. w mercedes-benz.com/en/mercedes-me/inspiration/she DAIMLER ANNUAL REPORT 2017 | #1 | CASE 33 URBAN MOBILITY? OUR CONCEPT OF THE FUTURE! The smart vision EQ fortwo is ﬂipping the switch to bring more ﬂexibility and individuality to local public transportation. Thanks to swarm intelligence and demand prediction, the fully automated driving electric smart vision EQ fortwo picks up its customers wherever they wish. This concept car is operated entirely via smartphone. Through the black panel grill at the front and the projection surfaces along the sides, the smart vision EQ fortwo oﬀers previously undreamed-of options for individualized car sharing. Relieved of driving obligations, people inside the car can relax or chat with their fellow passen- gers. The smart vision EQ fortwo is the ﬁrst concept vehicle from Daimler to dispense with the steering wheel and the gas and brake pedals. It’s also the ﬁrst vehicle in which we have installed all the future- oriented features of CASE. This approach oﬀers huge advantages to our customers: urban mobility with the highest level of comfort, more individuality and a whole new form of communication. No steering wheel, pedals or driving tasks: The smart vision EQ fortwo oﬀers customers innovative options for urban mobility in the future. 34 DAIMLER ANNUAL REPORT 2017 | #1 | CASE The fully electric E-FUSO Vision One is a future-oriented solution for the transportation of heavy cargo in inner-city traﬃc. ELECTRIFYING IDEAS The new E-FUSO brand from Daimler is electrifying the entire FUSO product range. People are increasingly calling for clean and quiet urban delivery traﬃc. In response, our commercial vehicle subsidiary Mitsubishi Fuso Truck and Bus Corporation (MFTBC) is putting the FUSO eCanter on the road. This light-duty eCanter is environmentally friendly and cost-eﬃcient, with an impressive range of up to 100 kilometers. The drive system is powered by six high-voltage lithium-ion batteries. FUSO is taking advantage of many Daimler partnerships to establish the eCanter in the market, including Mercedes-Benz Energy as a supplier of local energy storage and the charging station provider ChargePoint. MFTBC aims to fully electrify all of FUSO’s truck series. The concept vehicle of the fully electric E-FUSO Vision One heavy-duty truck with a range of up to 350 kilometers exempli- ﬁes our claim to be a pioneer in the segment of electric commercial vehicles. TOTALLY CONNECTED Daimler Trucks is setting the pace for our customers with the Truck Data Center and digital services. Connectivity and digitization make it possible to use trucks more eﬃciently. In a pioneering move, Mercedes-Benz Trucks is oﬀering a smart network consisting of vehicles, Mercedes-Benz services and freight companies — through Mercedes-Benz Uptime. When Uptime is in use, it monitors the vehicle systems in real time and promptly warns of critical situations. The aim is to avoid breakdowns and unplanned repairs and optimize scheduled trips to the workshop. Thanks to the new FleetBoard Manager app, Mercedes-Benz oﬀers quick entry into connectivity free of charge. This smartphone app enables users to call up information about a vehicle ﬂeet, such as capacity utilization, mileage, vehicle positions, fuel consumption and cost-saving potential. The key element for both of these services as well as previously introduced solutions is the new Truck Data Center — the “brain” of connected trucks. This connectivity module is based on internationally standardized electric/electronic architecture. We are installing it across all brands at Daimler Trucks and adapting it to regional customer needs. PERFORMANCE BOOST Daimler is the ﬁrst truck manufacturer to put a truck platoon on public highways in the United States. Public interest in digitally connected trucks for road freight transport is growing. Trucks driving independently behind one another can be linked together to form a partially automated truck platoon. This helps to enhance safety, relieves strain on the drivers and improves fuel eﬃciency, thanks to shorter distances between the vehicles. Following successful trials on test tracks, the regional regulatory authorities in the United States have authorized Daimler Trucks North America (DTNA) to continue its platooning tests on public highways. To being with, two Freightliner New Cascadia tractor-trailers are being paired. Digitally connected commercial vehicles also perform well in oﬀ-road applications. In a trial near Frankfurt Airport, four connected Mercedes-Benz Arocs semitrailer trucks showed how cost-eﬃcient it is to clear an airﬁeld with driverless vehicles — and how the cutting-edge “Remote Truck Interface” technology from Daimler Trucks is opening up the road to the future. 36 DAIMLER ANNUAL REPORT 2017 | #1 | CASE SUPPLIER OF COMPLETE SOLUTIONS Mercedes-Benz Vans is oﬀering customized sector solutions through adVANce. Through the strategic initiative adVANce, Mercedes-Benz Vans is transforming itself from an automobile manufacturer to a provider of holistic transport and mobility solutions. adVANce comprises all of the CASE future ﬁelds. In ﬁve areas of innovation, it will oﬀer responses to the megatrends and central challenges in the transport sector. At DIGITAL@VANS, the main focus is on connectivity and the digital networking of vehicles. At SOLUTIONS@VANS, we develop hardware solutions that can make our customers’ daily business operations more eﬃcient. Meanwhile, RENTAL@VANS is all about innovative rental models, SHARING@VANS presents new concepts for local public transport, and eDRIVE@VANS presents a comprehensive approach to electric mobility. Mercedes-Benz Vans is developing innovative products and services — and once again deﬁning the route to the future of transportation. Delivers revolutionary concepts: With its fully automatic cargo area, delivery drones and other innovations, the intelligent Vision Van deﬁnes the requirements for the networked delivery chains and vans of the future. Fleet managers are connected with all the vehicles and drivers in their ﬂeets via the web-based service Mercedes PRO connect. PIONEERING CONCEPTS Mercedes PRO takes service for the transport sector to a new level. This online services platform provides centralized access to existing professional services as well as newly developed applications for daily operations. Here, commercial customers can receive customizable holistic solutions and services from Mercedes-Benz Vans. Plans call for the step-by-step expansion of the range of oﬀers to include concepts that go far beyond traditional van features, ranging from connectivity, mobility and transport solutions to ﬂeet and overall system solutions. w pro.mercedes-benz.com/uk/en Mercedes-Benz Vans is electrifying all of its commercial van model series. It has already begun with the mid-size eVito van, which has been available for ordering since November 2017. Deliveries are scheduled to start in the second half of 2018. The battery-electric Vito will be followed by the eSprinter in 2019. The holistic electric drive strategy eDRIVE@VANS focuses not only on the electric van itself, but also on an ecosystem geared to provide eco- nomic beneﬁts to electriﬁed ﬂeets. The customized system solutions, which will cover the entire value chain, include a powerful and intelligent charging infrastructure, rental vehicles, a driver training program for eﬃcient vehicle use, and connectivity solutions that will ensure optimal vehicle capacity in relation to an individual vehicle’s state of charge and battery range, as well as route planning in real time. Connected delivery processes for more eﬃciency in the last mile. As part of the future-oriented adVANce initiative, Mercedes-Benz Vans is combining vans with delivery drones and delivery robots. In a pilot project, a Mercedes-Benz Sprinter became a mobile loading and transport hub for eight autonomously operating robots. The overall concept is now being extensively tested in cooperation with logistics companies. In the Vans & Drones pilot project in Zurich — a world ﬁrst — products that have been ordered online are being delivered to customers by two drones and two Mercedes-Benz Vito vans with integrated landing platforms. 38 DAIMLER ANNUAL REPORT 2017 | #1 | CASE EMISSION-FREE The countdown has started for the fully electric Mercedes-Benz Citaro. All over the world, the demand for clean and economical local public transport is growing. That is giving an additional boost to the development of our best-selling city bus, the Citaro. For Daimler Buses, the logical next step a(cid:5)er the Citaro hybrid will be the fully electric Citaro. The new model will set milestones with its lithium-ion battery drive system and its modular battery package for diverse applications in city traﬃc. In addition to a network for powering the vehicles at wall sockets in the depots, Mercedes-Benz will also provide interim charging systems. A special feature of the new bus model is thermal management of the climate control and drive systems. The developers have signiﬁcantly reduced the model’s energy consumption, thus expanding its range without having to enlarge the batteries. As a result, the new Mercedes-Benz Citaro will run locally emission-free in cities — and in the local public transportation network of the future. Daimler Buses is shaping the future of mobility through innovative vehicles and novel services. In a strategic partnership with the on-demand ride-sharing service CleverShuttle, Daimler Buses will oﬀer ﬂexible solutions for on-demand mobility. This will enable transport associations and companies to optimally adapt their services to passenger needs at any time. Series production of the fully electric Mercedes-Benz Citaro will begin in late 2018. GET IN AND DRIVE OFF Innovative mobility services from Daimler are on an upswing. Demand is increasing in the area of future-oriented shared and services all over the world, especially in China. Our mobility services provider, Daimler Financial Services, has a wide range of responses to every need — for example, through the world’s leading company for ﬂexible car sharing, car2go, as well as moovel mobility services and transport services ranging from Blacklane to our stake in Flixbus. Thanks to mytaxi, Daimler is the leading app-based taxi broker in Europe. We’ve also become a full-service ﬂeet management provider for cars and vans in Europe through our acquisition of Athlon Car Lease. We aim to continue expanding our mobility portfolio in the future. For example, our acquisition of shares in Turo is another step in our expansion of peer-to-peer car sharing. And our investment in Via has made Mercedes-Benz Vans a player in the ﬁeld of on-demand ride sharing. In all of these ways, Daimler is using smartphone-based mobility concepts to support the optimal use of existing transportation infrastructures on the way to the ﬂexible and environmentally friendly mobility of tomorrow. w daimler-ﬁnancialservices.com/en The mytaxi app has revolutionized an entire industry. Taxi rides via mytaxi are simple and eﬃcient — from ordering the car to cashless payment and ﬁnally an evaluation of the ride. mytaxi is the biggest service platform of its kind in Europe, with 70 million passen- gers and 120,000 registered taxi drivers in over 70 cities in eleven European and two South American countries. It’s the leading app-based taxi broker, and as a result of its merger with Hailo and Taxibeat, it now operates in Germany, Greece, the United Kingdom, Ireland, Italy, Austria, Poland, Portugal, Spain and Sweden. Taxibeat also operates today in Peru and Chile. The network also includes the Clever Taxi subsidiary in Romania. w mytaxi.com/de/en FIND. BOOK. PAY. car2go is an important part of Daimler’s mobility strategy. car2go makes Daimler a pioneer and market leader in the ﬁeld of ﬂexible car sharing at 26 locations in eight countries on three continents: Europe, North America and Asia. In Europe and North America, car2go vehicles can be taken across national borders. Today, almost three million customers have access to the car2go ﬂeet of more than 14,000 smart and Mercedes-Benz vehicles. Customers ﬁnd, book and pay for car2go vehicles via their smartphones. There are fully electric ﬂeets with a total of 1,400 vehicles in Stuttgart, Amsterdam and Madrid. That makes car2go one of the biggest providers of electric car sharing. In April 2016, car2go opened its ﬁrst operation in the growth market of China in the city of Chongqing. Demand for the 600 smart fortwo vehicles at this car2go location developed rapidly within just one year: 234,000 customers were using car2go in Chongqing at the end of 2017. This makes Chongqing the metropolis with the most car2go customers, ahead of cities such as Berlin and Madrid. w car2go.com/de/en Daimler’s moovel is an operating system for urban mobility. The smart connection of diverse means of transportation is a trend of our time. Our moovel mobility app oﬀers access to a wide range of mobility services and shows the duration and cost of trips made via local public transport, car sharing, mytaxi, rental bicycle and the Deutsche Bahn rail network. Most of these services can be directly booked and paid for via the app. Over 3.7 million customers in Germany and the United States use the moovel app and moovel transit, a worldwide service from the moovel Group which oﬀers solutions that transit associa- tions and companies can make available to their customers under their own brand names. In the USA, moovel transit is the market leader for mobile ticketing systems. More than 22.3 million transactions were conducted via moovel products in 2017. w moovel.com/de/en DAIMLER ANNUAL REPORT 2017 | #1 | CASE 41 DAIMLER ANNUAL REPORT 2017 | #1 | CASE 43 IDEAS FOR TOMORROW Even more drive for Daimler innovations — thanks to the entrepreneurial spirit of the startup community. We are forging ahead with new ideas for mobility, in many cases through our dialog with young companies. Our points of entry include initiatives such as CASE Invest, Lab1886, Startup Intelligence Center, DigitalLife@Daimler and STARTUP AUTOBAHN. As one of the leading European startup accelerators in the ﬁelds of mobility and Production 4.0, STARTUP AUTOBAHN works with established companies to support selected startups. Projects are rapidly advanced with space, a hardware lab and a network of investors and mentors. Daimler and the other founding partners have been joined by additional partners since 2016. A total of 41 startups conducting a large number of pilot projects have completed the ﬁrst two STARTUP AUTOBAHN programs in Stuttgart. One of the ﬁrst products to have been realized is the innovative address system “what3words,” which makes every location on earth unmistakably identiﬁable by means of three words. Mercedes-Benz is the ﬁrst auto manufacturer to use the system. In the third program at STARTUP AUTOBAHN, 34 young tech companies are developing their projects to market maturity. STARTUP AUTOBAHN is also widely established internationally: Alongside Stuttgart, startups are also being sought, sponsored and supported in Beijing, Singapore and South Africa. w daimler.com/innovation/venture/en 44 DAIMLER ANNUAL REPORT 2017 | #1 | CULTURE DAIMLER ANNUAL REPORT 2017 | #1 | CULTURE 45 46 DAIMLER ANNUAL REPORT 2017 | #1 | CULTURE CULTURE Innovative, ﬂexible corporate culture At Daimler, the expansion of our attractive core busi- ness operations is inseparable from our systematic development of the CASE fields. We want to safeguard and enhance our corporate success through optimal customer orientation and innovative business models. To this end, we are establishing a corporate culture that effectively supports transformation and keeps Daimler on its successful path. Integrity, one of our four corporate values, is its foundation. Together with our employees, we have developed future-oriented management principles and work methods within the framework of the Leadership 2020 program. This is how we can shape the mobility of the future from a position of leadership, flexibly address ever-changing customer requirements, and quickly establish our- selves in new markets. State-of-the-art office environ- ments support agile Group-wide cooperation through the options offered by connectivity, communication and collaboration. LEADERSHIP 2020 New forms of cooperation will make us even faster, more agile, and closer to our customers. Daimler has shaped the automotive sector for more than 130 years. But the markets are becoming increasingly fast-paced and focusing on customers even more than before. Daimler is adapting itself to this fundamental transformation. That’s because the more precisely we know our customers, the faster we can react to their ever-changing requirements. The sooner we launch the right products on the market, the more we distinguish ourselves from our competitors. And the more ﬂexibly we react to changes, the more eﬀectively we can use trends to our advantage. We are shaping our future success by means of a new kind of cooperation: one that is faster and more ﬂexible and involves more sharing and more innovation. An international Leadership 2020 team across hierarchies, locations and functions is shaping the new culture at Daimler. In eight focus areas — the “game changers” — we are creating completely new systems, processes and tools. Supported by a mandate from the Board of Management, this process is also deliberately altering previous structures and work methods — in order to prepare the way for a new era of mobility. w daimler.com/career/thats-us/leadership2020 48 DAIMLER ANNUAL REPORT 2017 | #1 | CULTURE FREE SPACE FOR INNOVATIONS! Today’s modern work environments already oﬀer us scope for future operations. To sup- plement Leadership 2020 and our new work culture, we are developing our business premises into future-oriented oﬃce environments. Traditional single-occupancy oﬃces are giving way to ﬂexible, activity-oriented work settings. As a result of this reorganization, Daimler employees can work ﬂexibly in terms of their work space and work organization. They can take advantage of all the potential oﬀered by agile, project-related teamwork. We have transformed traditional oﬃces into state-of-the-art work environments in pilot projects at various locations such as Mercedes-Benz in Sindelﬁngen and Daimler Financial Services at Pragsattel in Stuttgart. In the future, we will launch pilot projects at the new Daimler Trucks campus in Leinfelden-Echterdingen and the campus in Stuttgart-Vaihingen. Through these experiences and in line with the needs of the dynamically changing world of work, we are continuously developing our “me@work” concept. This is where we can implement the dynamic culture and values that we, the inventors of the automobile, have embodied for over 130 years and will continue to embody in the future. w daimler.com/career/thats-us/daimler-as-an-employer This is where Daimler is enabling new forms of cooperation and direct communication across hierarchies and functions. THE BASIS OF OUR CONDUCT Integrity is our motivation — for balanced economic, environmental and social results. Together with passion, discipline and respect, integrity is one of our four corporate values at Daimler. In our understanding, integrity includes compliance with laws and regulations, as well as fairness, responsibility, mutual respect, openness and tolerance. Daimler’s management culture is based on this understanding. Integrity is also the basis of our respectful dealings with one another. It gives our employees orientation, even in diﬃcult situa- tions. That’s especially important in times of change and transformation. Integrity and Leadership 2020 are part of Daimler’s DNA, and they are essential if we are to remain on our successful course in the future. w daimler.com/sustainability/integrity 50 DAIMLER ANNUAL REPORT 2017 | #1 | COMPANY DAIMLER ANNUAL REPORT 2017 | #1 | COMPANY 51 51 52 DAIMLER ANNUAL REPORT 2017 | #1 | COMPANY PROJECT FUTURE This is the right moment to prepare Daimler optimally for the future and to safeguard our employees. New competitors, breakneck technological change and increasingly diverse customer requirements — never before has the automotive sector changed so hard and fast. To stay competitive, we want to continuously develop — technologically, culturally and struc- turally. In the highly dynamic ﬁ elds where we operate, we need an organization that enables us to act fast and ﬂ exibly, with the power of a globally operating company. In “Project Future”, we will strive to further focus and strengthen our structure. We are considering the forma- tion of three legally independent business entities under the management of Daimler AG: Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and Daimler Financial Services AG, which is already a successful legally independent company. This is how we want to create the preconditions for optimally utilizing market potential — with new cooperation partners as well — and to safeguard our employees at the Group. E pages 93 f w daimler.com/company/strategy The planned new structure We continue to be a family under the roof of Daimler AG Daimler AG Mercedes-Benz Cars & Vans Daimler Trucks & Buses Daimler Financial Services Mercedes-Benz Cars Mercedes-Benz Vans Daimler Trucks Daimler Buses Daimler Financial Services Daimler Mobility Services Through our future-oriented strategy, we aim to boost our eﬀectiveness and also set benchmarks in the global mobility sector as a corporate family. OUR GOAL: TO PIONEER A NEW ERA OF MOBILITY The next level of mobility will have many dimensions: People all over the world want to be mobile in highly individual ways. Vehicles will be connected and electric, drive autonomously and be shared with other individuals. As one of the world’s leading auto manufacturers, Daimler is already shaping the mobility of tomorrow. Through the combination of our strategic fields of action — CORE, CASE, CULTURE and COMPANY — we will systematically write new chapters in our success story in the future. DAIMLER ANNUAL REPORT 2017 | #1 | CORE CASE CULTURE COMPANY 55 “With the four strategic areas for action - CORE, CASE, CULTURE and COMPANY - we are setting the course for a successful future.” CHAIRMAN’S LETTER 57 Stuttgart, February 2018 In 2017, Daimler once again succeeded in breaking its record of the previous year. I would therefore like to thank everyone at Daimler for their great eﬀorts last year, as well as for their willingness and enthusiasm to actively push for- ward with our company’s transformation. I would also like to thank you. You have placed your trust in our strategy. And you have given us the freedom to act and the time to implement that strategy. And it has been worthwhile! In the year 2017, we sold more vehicles than ever before in our company’s history of more than 130 years, nearly 3.3 million altogether. Revenue reached 164.3 billion euros and was thus 7 percent higher than in the previous year. EBIT increased by 14 percent to 14.7 billion euros. And at 9 percent, we achieved our targeted return on sales in the automotive business. The bottom line is a net proﬁt of 10.9 billion euros. At the Annual Shareholders’ Meeting, the Board of Management and the Supervisory Board will propose the distribution of a dividend of 3 euros and 65 cents per share. Let’s have a look at the development of the individual divisions. Mercedes-Benz Cars remains on its path of proﬁtable growth. In 2017, we sold nearly 2.4 million cars – an increase of 8 percent compared with the prior year. Mercedes-Benz continues to be the leading premium brand and further extended its lead over its direct competitors. A key reason for that is our success in China. In 2017, unit sales by Mercedes-Benz in the world’s largest car market increased by 28 percent. This is the result of our hard work in recent years. smart was also very popular in China in 2017. The strong demand for the electric smart models is also very pleasing. Worldwide, the brand sold 136,000 cars. 58 CHAIRMAN’S LETTER Daimler Trucks sold 471,000 vehicles in 2017 – signiﬁcantly more than in the previous year and signiﬁcantly more than we had expected at the beginning of the year. As overall demand from the markets was only moderate, that is a strong performance, which was primarily driven by our positive business development in the NAFTA region. With the eﬃciency activities we have initi- ated, in particular at Mercedes-Benz Trucks, we have good prospects also of reaching our targeted level of proﬁtability in the medium term. At Mercedes-Benz Vans, the year featured further strong growth. All model series helped to achieve the fourth consecutive record year. Towards the end of the year, we had the successful launch of the X-Class, the world’s ﬁrst pickup from a premium manufacturer. In 2017, we also showed how we imagine the transformation from a van producer into a provider of system solutions. That ranges from ride-sharing projects to new delivery methods with vans and drones. The development of Daimler Buses beneﬁted from the improved economic situation in Latin America. We sold a total of 28,700 buses and bus chassis last year, which is 9 percent more than in 2016. At the same time, we continued our product oﬀensive: With a new hybrid city bus, we would like to help make public transportation even more eﬃcient. And with two new coaches, we aim to continue proﬁting from the growing long-distance bus market. Daimler Financial Services has been delivering record results for many years now, and it was the same in 2017. We lease or ﬁnance half of the vehicles we sell. And we increasingly also broker suitable insurance policies: 20 percent more in 2017 than in the previous year. The core business of DFS now also in- cludes mobility services. Nearly 18 million people in more than 100 cities around the world already use such services provided by Daimler: from ﬂexible car sharing to an app-based taxi service and mobile ticketing solutions for trans- portation companies. And we plan to further strengthen this leading position. CHAIRMAN’S LETTER 59 The results for 2017 show that our company is in excellent shape and highly proﬁtable. It stands for sustainable success in volatile times. We are proud of that. But it’s no reason to stand still. That’s why we are pushing forward with the transformation in all areas at Daimler. The focus on our core business (CORE) is the foundation for our success today. It is the ﬁnancial backbone of Daimler and we will make it even stronger. Above all, we are investing in new products. In the areas of cars alone, we will launch a total of more than a dozen new models in 2018. We are making use of our technological expertise and the proﬁtability of our core business to vigorously tackle the major future issues of our industry. We summarize them under the acronym CASE. It stands for a combination of connectivity, autonomous driving, sharing and electric mobility. So it’s about nothing less than the reinvention of individual mobility. We showed what that could look like at the Frankfurt Motor Show in the fall: The smart vision EQ fortwo concept car that we presented there drives to you autonomously and emission-free whenever you need it. Along the route, it suggests ride sharers with similar destinations. It is constantly in contact with the other cars in the ﬂeet. Thanks to artiﬁcial intelligence, it drives in good time to where it will be needed next. That might sound like science ﬁction. But in the early 2020s, we at Mercedes-Benz want to put the ﬁrst self-driving taxis on the roads. Working on the CASE topics requires of us a culture of openness (CULTURE). We are working on that with Leadership 2020. We wanted to make the trans- formation quickly tangible. That’s why we focused right from the start on changing processes, rules and tools. A new phase is now starting. We are focusing on the basis of Leadership 2020: the principles according to which we manage and work together. This is also a matter of the right inner attitude, on cooperation or agile actions for example. 60 CHAIRMAN’S LETTER We want to reﬂect the entrepreneurial spirit that we promote with Leadership 2020 also in the structure of the Daimler Group (COMPANY). Because an inner attitude and the external image should complement each other. We would like to strengthen individual responsibility in our organization while maintaining the synergies that we have at Daimler. CORE, CASE, CULTURE and COMPANY. Those are the four fundamental ele- ments of our future strategy. But another “C” is still missing: the customers – our customers. They are at the center of everything. Because what convinces our customers is also good for our employees, for our business partners and for you, our shareholders. Together, we have seen three phases in the development of our company in the past three years. The ﬁrst phase was the restructuring. We focused on our core competence, the production of motor vehicles. In the second phase, we wanted to become the number one. We achieved that goal ahead of time and conﬁrmed it in 2017. We are now in the phase of shaping the future. Our ambition is un- changed: Daimler belongs at the top. 132 years a(cid:5)er the invention of the auto- mobile, Daimler is once again a company on the move. And we will be delighted if you continue to accompany us on this journey. Sincerely yours, Dieter Zetsche A | TO OUR SHAREHOLDERS | CONTENTS 61 CORE, CASE, CULTURE, COMPANY: WE HAVE SET THE COURSE FOR A SUCCESSFUL FUTURE! As the inventor of the automobile, we intend to shape the fundamental transformation of the automotive industry from the forefront. With a strong core business (CORE), we are creating the ﬁnancial basis to invest in the future-oriented areas of connectivity, autonomous driving, the ﬂexible use of vehicles and services, and electric mobility (CASE). In parallel, we are developing an innovation-friendly and ﬂexible corporate culture under the roof of Leadership 2020 (CULTURE). In addition, we started “Project Future” in the year under review (COMPANY), with which we will strengthen the future viability of our divisions. We reached some important milestones in the implementa- tion of our strategy last year, and we were once again very successful in our business operations. This is also to the beneﬁt of our shareholders: in the form of an attractive dividend and an attractive share price. A | To Our Shareholders The Board of Management Report of the Supervisory Board The Supervisory Board Highlights of 2017 Daimler and the Capital Market Objectives and Strategy 62 64 70 72 78 82 The Board of Management Dieter Zetsche | 64 Chairman of the Board of Management, Head of Mercedes-Benz Cars, Appointed until December 2019 Renata Jungo Brüngger | 56 Integrity and Legal Aﬀairs, Appointed until December 2023 Martin Daum | 58 Daimler Trucks and Buses, Appointed until February 2022 Ola Källenius | 48 Group Research & Mercedes-Benz Cars Development, Appointed until December 2022 A | TO OUR SHAREHOLDERS | THE BOARD OF MANAGEMENT 63 Wilfried Porth | 59 Human Resources and Director of Labor Relations, Mercedes-Benz Vans, Appointed until April 2022 Britta Seeger | 48 Mercedes-Benz Cars Marketing & Sales, Appointed until December 2019 Hubertus Troska | 57 Greater China, Appointed until December 2020 Bodo Uebber | 58 Finance & Controlling, Daimler Financial Services, Appointed until December 2019 64 A | TO OUR SHAREHOLDERS | REPORT OF THE SUPERVISORY BOARD Report of the Supervisory Board Dear Shareholders, Daimler is a successful and strong company. Despite various challenges, Daimler AG concluded ﬁnancial year 2017 with excellent results once again and, as in the previous years, with solid earnings. We can therefore strengthen our core business while investing in new technologies and businesses. From a position of strength, the company has initiated a far-reaching process of transformation. Daimler is actively shaping the future of mobility. Supervisory and advisory activities of the Supervisory Board The Supervisory Board of Daimler AG fully performed its tasks as deﬁned by the law, the Company’s Articles of Incorporation and rules of procedure. The Supervisory Board continually advised and supervised the Board of Management in the management of the Company and provided support with strategically important issues relating to the Group’s further development. The Supervisory Board examined whether the annual company and consolidated ﬁnancial statements, the combined management report and the other ﬁnancial reporting were in conformance with the applicable requirements. In addition, it approved numerous business matters for which its consent was required following careful reviews and consultations. As well as approving the further review and initiating the ﬁrst preparatory measures for the strengthening of the divisional structure by creating legally independent entities in the context of further developing the Daimler Group’s structures, this also included ﬁnance and investment planning, major equity measures at companies of the Group, key individual investments and the conclusion of contracts with particular importance for the Group. The Board of Management informed the Supervisory Board about a large number of further measures and business transactions, and discussed them with it intensively and in detail, including the comprehensive future plan for diesel engines, which was approved by the Board of Management in July 2017. Finally, the Board of Management reported continually to the Supervisory Board on the current status of the main legal proceedings. The Board of Management regularly informed the Supervisory Board about all signiﬁcant economic developments of the Group and the divisions. It continually provided information to it on all fundamental questions of corporate planning, including ﬁnance, investment, sales and personnel planning, current developments at the companies of the Group, the development of revenue, the situation of the Company and the divisions, and legal risks. Furthermore, the Board of Management reported to the Supervisory Board continually on return on equity and the Group’s liquidity situation, the development of sales and procurement markets, the overall economic situation, and developments in the capital markets and the area of ﬁnancial services. Additional topics included the further development of the product portfolio, securing the Group’s long-term com- petitiveness, and the ongoing implementation of measures for safeguarding sustainable and future-oriented mobility. The Supervisory Board also dealt in detail with the development of the share price and the related background, as well as the expected impact of strategic projects on the share price. Daimler is a strong and successful company and systematically pushed forward with the implementation of its strategy also in ﬁnancial year 2017. The Group’s ﬁnancial strength and sound balance sheet allow our growth strategy to be continued while paying out an attractive dividend to our shareholders. In addition to the core business, we have summarized the topics “Connected”, “Autonomous”, “Shared & Services”, and “Electric” under the acronym CASE. From a position of strength, we have initiated a far-reaching transformation process in order to be active in shaping the upcoming fundamental changes facing the automotive industry in the coming years. For that purpose, high levels of advance expenditure will be made in the coming years. With the presentation of important products and concept vehicles in 2017, Daimler demonstrated its strong expertise in the core business and in the CASE areas. The Super- visory Board and the Board of Management are convinced that the new challenges require both a cultural change as well as a changed structure. The cultural change has been initiated with the involvement of all employee groups. Work is now being done at all levels to implement that change in order to be prepared for the challenges ahead of us. Daimler will become faster, more ﬂexible and more digital in order to safeguard its future strength. For this purpose, a start has been made with the review and initiation of the ﬁrst preparatory measures to strengthen the divisional structure by creating legally independent entities. The Supervisory Board ﬁrmly supports all of these steps. Working culture and areas of Supervisory Board activity In the year 2017, the Supervisory Board convened for nine meetings. Participation in the meetings by the members of the Supervisory Board was at a high level once again. All members of the Supervisory Board participated in signiﬁcantly more than half of the meetings of the Supervisory Board and its com- mittees of which they are members during the year under review. The work of the Supervisory Board featured open and intensive exchanges of information and opinions. The members of the Supervisory Board regularly prepared for upcoming resolutions with the use of documentation provided in advance by the Board A | TO OUR SHAREHOLDERS | REPORT OF THE SUPERVISORY BOARD 65 Dr. Manfred Bischoff, Chairman of the Supervisory Board of Management. Furthermore, the members representing the employees and the members representing the shareholders regularly prepared the Supervisory Board meetings in separate discussions, which were attended by members of the Board of Management. The Supervisory Board was intensively supported by its committees and the members of the Supervisory Board intensively discussed the measures and business matters to be decided upon with the Board of Management. For the meetings, executive sessions were regularly arranged so that topics could be discussed also in the absence of the Board of Management. The members of the Supervisory Board and of the Board of Management came together for the bilateral exchange of opinions also outside the regular meetings. The Board of Manage- ment informed the Supervisory Board with written reports about the most important indicators of business development and existing risks, and submitted the interim ﬁnancial reports to the Supervisory Board. The Supervisory Board was informed of special occurrences also between the meetings. The members of the Supervisory Board independently attend such courses of training and further training regarded as necessary for the performance of their tasks, relating for exam- ple to questions of corporate governance, changes in the legal framework, new products and future-oriented technologies, in which they are supported by the Company. In a special onboarding program, new members of the Supervisory Board have the opportunity to meet the members of the Board of Management and other senior executives for a bilateral exchange of opinions and information on the current topics of the various Board of Management areas, allowing them to gain an overview of the topics relevant to the Daimler Group. In its meeting on February 1, 2017, which was attended by the external auditors, the Supervisory Board discussed, took note of and approved the preliminary key ﬁgures of the annual company and consolidated ﬁnancial statements for 2016 and the dividend proposal to be made at the 2017 Annual Shareholders’ Meeting. The Supervisory Board determined that no objections were to be raised to their publication. The preliminary key ﬁgures for the year 2016 and the proposal on the appropriation of proﬁt were announced at the Annual Press Conference on February 2, 2017. In the Supervisory Board meeting held on February 10, 2017, the Supervisory Board ﬁrst decided on the personnel changes in the Board of Management described on E page 68. Subsequently, it dealt with the annual company ﬁnancial state- ments, the annual consolidated ﬁnancial statements and the combined management report for Daimler AG and the Daimler Group for the year 2016, each of which had been issued with an unqualiﬁed audit opinion by the external auditors, as well as with the reports of the Audit Committee and the Supervisory Board, the declaration on corporate governance combined with the corporate governance report, the remuneration report and the proposal on the appropriation of proﬁt. In preparation, the members of the Supervisory Board were provided with comprehensive documentation. The Audit Committee and the Supervisory Board dealt with those documents in detail and discussed them intensively in the presence of the external auditors, who reported on the results of their audit and were available to answer questions and to provide further information. Following the ﬁnal results of the review by the Audit Committee and its own review, the Supervisory Board declared its agreement with the results of the audit carried out by the external auditors. It determined that no objections were to be raised, approved the ﬁnancial statements and the combined management report as presented by the Board of Management, and thus adopted the ﬁnancial statements for the year 2016. On this basis, the Supervisory Board consented to the proposal made by the Board of Management on the appropriation of distributable proﬁt. In addition, the Supervisory Board approved the report of the 66 A | TO OUR SHAREHOLDERS | REPORT OF THE SUPERVISORY BOARD Supervisory Board, the corporate government statement combined with the corporate governance report, and the remuneration report, as well as its proposed decisions on the items of the agenda for the 2017 Annual Shareholders’ Meeting. In connection with the adjustment of Supervisory Board remuneration proposed at the Annual Shareholders’ Meeting, the Supervisory Board called for a self-commitment by the members of the Supervisory Board to purchase Daimler shares. In this self-commitment, the members of the Supervisory Board state to the Supervisory Board that they will purchase shares of the Company each year for 20% of their adjusted Supervisory Board remuneration (excluding committee remuneration and meeting fees and before taxes) and hold them at least until the end of the year following their departure from the Supervisory Board of the Company (self-commitment according to the principle of comply or explain). This does not apply for members of the Supervisory Board whose Supervisory Board remuneration is transferred to the Hans-Böckler-Sti(cid:5)ung due to compulsory or voluntary application of the guidelines of the German Federation of Trade Unions, or is transferred to the member’s employer due to a contract of employment, or is credited to the member’s contractual remuneration entitlement. All members of the Super- visory Board who are not subject to any of the described trans- fer or credit arrangements made the self-commitment in 2017. In its meeting on February 10, 2017, the Supervisory Board dealt also with questions of corporate governance and discussed the results of the eﬃciency review carried out in ﬁnancial year 2016, which once again conﬁrmed the very good and constructive cooperation within the Supervisory Board and with the Board of Management. There was no fundamental need for action or change; however, some suggestions for further optimization were made, which were implemented during the ﬁnancial year. Furthermore, the Supervisory Board dealt with matters pertain- ing to the remuneration of the members of the Board of Management and approved the memberships in other boards and further external secondary employments of the members of the Board of Management that were presented in the meeting. Finally, the Supervisory Board addressed at this meeting once again whether, in connection with the antitrust investigations of the European Commission against truck manufacturers, claims for compensation were to be made against former or current members of the Board of Management. On the basis of the reviews carried out so far and repeatedly updated by an inde- pendent law ﬁrm, a further review by an independent legal academic, as well as detailed discussions in the Supervisory Board taking into account the welfare of the Company, the Supervisory Board maintained its previous resolution, based on the information available, that no such claims were to be made at the present time. The grounds for this resolution did not change in the further course of the year. The items on the agenda of the Annual Shareholders’ Meeting held on March 29, 2017 included the reelection of Dr. Clemens Börsig and the election of Bader Mohammad Al Saad as members of the Supervisory Board representing the shareholders. In the subsequent meeting of the Supervisory Board, Dr. Clemens Börsig was reelected to the Audit Committee and was appointed as its Chairman. In another meeting held in late April 2017, the Supervisory Board received detailed reports on current legal issues, also relating to the requests, inquiries, investigations and court proceedings in connection with the issue of diesel exhaust emissions. Furthermore, the Supervisory Board was informed about current business developments in China and Brazil and the respective economic and political situations, and discussed those matters in detail with the Board of Management. In the meeting in late July 2017, the Board of Management informed the Supervisory Board about the review of the general feasibility and the advantages and disadvantages of the possibility of reﬂecting the divisional structure of the Group with legally independent entities. Also in this meeting, the Super- visory Board discussed in detail with the Board of Management about the course of business and the results of the ﬁrst half of the year, and was informed in detail about current legal issues and about the antitrust accusations made in the press against the German automotive industry. Finally, also in this meeting, the Supervisory Board dealt with and approved the new product platform for construction vehicles from Western Star. In a subsequent meeting of the Supervisory Board together with the Advisory Board for Integrity and Corporate Responsibility, the participants discussed the role of the Advisory Board as well as the cultural change, which constitutes an important success factor for Daimler, with the examples of Leadership 2020 and integrity. Strategy meeting of the Supervisory Board During a two-day strategy workshop held in Sindel ﬁngen in late September 2017, the Supervisory Board was informed about the status of the transformation in relation to the individual divisions. The Supervisory Board discussed with the Board of Management about how, based on the existing core business and the new businesses summarized under CASE, the future challenges were to be mastered and the mobility of tomorrow was to be shaped. The four areas of CASE - “Connected”, “Autonomous”, “Shared & Services” and “Electric” - were dis- cussed and it was explained with the use of examples where Daimler currently stands in these areas. Information was pro- vided inter alia with regard to “Connected” on mercedes.me and the Fleetboard solutions, with regard to “Autonomous” among other things on the cooperation between Daimler and Bosch, and with regard to “Shared & Services” also on mobility services. The discussion with the Board of Management with regard to “Electric” focused on the EQ brand and brand strategy, as well as on the transition to electric mobility. The members of the Supervisory Board and the Board of Management, with participation by the senior executives responsible for the topics discussed, held a con structive and open dialog about how Daimler will adapt to new challenges and which further developments are imminent. The topic of the changing competi- tive environment was also discussed. In the context of a vehicle exhibition, various models were presented to the Supervisory Board. In this meeting, the Supervisory Board was also informed A | TO OUR SHAREHOLDERS | REPORT OF THE SUPERVISORY BOARD 67 in detail about the current legal issues and about the subject of technical compliance management at Daimler. Furthermore, the members discussed the key ﬁnancial metrics and the targets for the Group and the divisions. Corporate Governance and declaration of compliance During the year 2017, the Supervisory Board was continually occupied with standards of good corporate governance. At an extraordinary meeting held in mid-October 2017, the Super- visory Board was informed about the current status of the review of the future business structures at Daimler. In late October, the Supervisory Board granted its consent to the ongoing review and to the initiation of the ﬁrst preparatory measures for strengthening the divisional structure. Meeting on operational planning 2018/2019 On the day before the meeting in December 2017, the members of the Supervisory Board had the opportunity to participate in a product presentation and to be informed about new vehicle models, design studies and forward-oriented technologies. In the context of the actual meeting on December 7, 2017, the Supervisory Board dealt with, among other things, the imple- mentation of non-ﬁnancial reporting at Daimler resulting from the EU CSR Directive, and in this context decided that KPMG should be commissioned to carry out a voluntary review in the form of a limited assurance. The Supervisory Board then decided on the election proposals to be made to the Annual Shareholders’ Meeting in 2018 as described on E page 68. During the further course of the meeting, on the basis of comprehensive documentation, the Supervisory Board discussed in detail and approved the operational planning for the years 2018 and 2019. This included discussion of existing opportunities and risks as well as the Group’s risk management. Also in this meeting, the Supervisory Board dealt with various equity contributions at companies of the Group, including at Daimler India Commercial Vehicles Pvt. Ltd., and consented to the plans. Subsequently, the Supervisory Board was informed in detail on the status of the review and on the initiation of the ﬁrst preparatory measures to strengthen the divisional structure. A further focus of the meeting was information on the current legal issues, also with regard to the requests, inquiries, investigations and legal proceedings in connection with the issue of diesel exhaust emissions. In the further course of the meeting, the Supervisory Board dealt with Leadership 2020 and the Personnel Strategy Digitalization, in particular the initiatives relating to the recruitment of digital talent, employees’ digital qualiﬁcation and the digitization of HR tools. Further- more, the Supervisory Board approved the creation of a steering committee for the CASE future topics composed of members of the Board of Management. Other topics discussed at the December meeting were corporate governance, also with regard to the recommendations of the German Corporate Governance Code, and Board of Management remuneration. Thereby, the focus was on the qualiﬁcations proﬁles, including diversity concepts, for the Board of Management as well as for the Supervisory Board, which are explained on E pages 210 ﬀ of the declaration on corporate governance combined with the corporate governance report. Finally, the Supervisory Board dealt with the probable main topics of the year 2018 and with the planning of a meeting of the Supervisory Board abroad in 2018. In its meeting in December 2017, the Supervisory Board approved the 2017 declaration of compliance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG). With the exception explained there, all the recommendations of the Code have been complied with and continue to be complied with. In the same meeting, the Supervisory Board updated the rules of procedure for the Supervisory Board and its committees. In accordance with good corporate governance, the members of the Supervisory Board of Daimler AG are obliged to disclose conﬂicts of interest – especially those that might arise due to an advisory or board function for a customer, supplier or creditor of Daimler, or for other third parties – to the entire Supervisory Board. There were no indications of any actual conﬂicts of interest in 2017. In order to avoid individual conﬂicts of interest, some members of the Supervisory Board did not participate in dis- cussions of certain items of the agendas in the year 2017: Dr. Bernd Bohr, Dr. Jürgen Hambrecht and Dr. Bernd Pischetsrieder le(cid:5) the room during the Supervisory Board meetings for dis- cussion of the legal status report on the issue of diesel exhaust emissions. As a result, in compliance with the goals of the Supervisory Board, there were no potential conﬂicts of interest during the year under review for at least half of the members representing the shareholders and for at least 15 members of the entire Supervisory Board. Law for the equal participation of women and men in management positions For supervisory boards of listed companies subject to parity codetermination, like that of Daimler AG, the German Stock Corporation Act prescribes a binding gender ratio of at least 30% women. The ratio is to apply to the entire supervisory board. If the side of the supervisory board representing the shareholders or the side representing the employees objects to the chairman of the supervisory board before the election about the application of the ratio to the entire supervisory board, the minimum ratio is to apply separately to the share- holders’ side and to the employees’ side for that election. As of December 31, 2017, the Supervisory Board of Daimler AG is composed of 30% women (the members Sari Baldauf, Andrea Jung and Petraea Heynike) and 70% men. On the employees’ side, the proportions as of that date are 20% women (the members Elke Tönjes-Werner and Sibylle Wankel) and 80% men. In its meeting on December 7, 2017, the Supervisory Board dealt with the speciﬁc proposals for candidates for election to be made at the Annual Shareholders’ Meeting in 2018 and, against this backdrop, stated that the shareholders’ side and the employees’ side should separately achieve the legally prescribed proportion of women. The members representing the shareholders and the members representing the employees 68 A | TO OUR SHAREHOLDERS | REPORT OF THE SUPERVISORY BOARD stated that they object to the overall fulﬁlment of the statutory gender quota. Subsequently, based on the recommendation of the Nomination Committee, the Supervisory Board decided to nominate Sari Baldauf as well as Dr. Jürgen Hambrecht again and Marie Wieck for the ﬁrst time for election to the Supervisory Board at the Annual Shareholders’ Meeting in 2018. Marie Wieck is a General Manager at IBM Blockchain. If the proposed persons are elected, the statutory quota will be fulﬁlled on the shareholders’ side, insofar as no other changes occur. The next election to the Supervisory Board of members representing the employees will also take place in 2018. For the composition of the Board of Management, the Super- visory Board set the target in December 2016 of at least 12.5% women, which is applicable until December 31, 2020. Corporate governance at Daimler is described in detail in the declaration on corporate governance combined with the corporate governance report on E pages 203 ﬀ and in the remuneration report on E pages 136 ﬀ of this Annual Report. The work of the committees The Presidential Committee convened eight times last year. It dealt primarily with corporate governance topics as well as Board of Management matters concerning remuneration and personnel. As in previous years, compliance targets constituted part of the individual target agreements of the members of the Board of Management. Once again, additional non-ﬁnancial targets were also included as criteria in the target agreements. For the past ﬁnancial year, they were the further development and permanent establishment of the corporate value integrity, diversity with regard to increasing the proportion of women in management positions, the maintenance and enhancement of a high level of employee satisfaction, and high product quality. The Audit Committee met six times in 2017. Details of those meetings are provided in a separate report of that committee on E pages 200 ﬀ. In two meetings in 2017, the Nomination Committee prepared recommendations for the Supervisory Board’s proposals to be made at the Annual Shareholders’ Meeting in 2018 on the candidates for election to the Supervisory Board. Among other things, and taking into consideration all circumstances of each individual case, the proposals are oriented towards the Daimler Group’s interests and aim to fulﬁll the overall qualiﬁcations proﬁle, including expertise proﬁle and diversity concept, for the entire Supervisory Board. There was no occasion to convene the Mediation Committee in 2017. Personnel changes in the Supervisory Board and the Board of Management In the meetings in December 2016 and on February 10, 2017, the members of the Supervisory Board representing the shareholders decided, on the basis of a recommendation by the Nomination Committee, to propose the election to the Supervisory Board of Dr. Clemens Börsig and Bader Mohammad Al Saad at the Annual Shareholders’ Meeting in 2017. Dr. Bernd Bohr had previously stated that in the interests of the Daimler Group, he would step down from the Supervisory Board as of the end of the Annual Shareholders’ Meeting in 2017. The Super- visory Board had stated its intention to propose Dr. Bernd Bohr for reelection to the Supervisory Board within the next two years. On March 29, 2017, the Annual Shareholders’ Meeting elected Bader Mohammad Al Saad and Dr. Clemens Börsig as members of the Supervisory Board representing the shareholders until the end of the Annual Shareholders’ Meeting that decides on ratiﬁcation of board members’ actions for ﬁnancial year 2021. In the Supervisory Board meeting on February 10, 2017, Ola Källenius was reappointed as a member of the Board of Management Member with responsibility for “Group Research and Mercedes-Benz Cars Development”, eﬀective from Janu- ary 1, 2018 for a period of another ﬁve years. In advance of this meeting, Dr. Wolfgang Bernhard, who had been appointed as a member of the Board of Management with responsibility for “Daimler Trucks & Buses” until February 2018, stated that he would not be available for a contract extension. The appointment of Dr. Wolfgang Bernhard was terminated as of February 10, 2017. Until the appointment of his successor, Dr. Dieter Zetsche, the Chairman of the Board of Management, took charge of those divisions. In its extraordinary meeting in late February 2017, the Supervi- sory Board appointed Martin Daum as a member of the Board of Management with responsibility for “Daimler Trucks & Buses” eﬀective as of March 1, 2017 for a period of ﬁve years until February 28, 2022. A | TO OUR SHAREHOLDERS | REPORT OF THE SUPERVISORY BOARD 69 The Audit Committee and the Supervisory Board dealt with those documents in detail and discussed them intensively in the presence of the responsible external auditors, who reported on the results of their audit and were available to answer supplementary questions and to provide additional information. Following the ﬁnal results of the review by the Audit Committee and its own review, the Supervisory Board declared its agreement with the results of the audit by the external auditors; it determined that no objections were to be raised and approved the ﬁnancial statements and the combined management report as presented by the Board of Management. The company ﬁnancial statements of Daimler AG for the year 2017 were thereby adopted. On this basis, the Supervisory Board consented to the proposal made by the Board of Management on the appropriation of distributable proﬁt. Furthermore, it approved the report of the Supervisory Board, the declaration on cor- porate governance combined with corporate governance report, the remuneration report and the non-ﬁnancial report, as well as its own proposed resolutions for the items of the agenda of the 2018 Annual Shareholders’ Meeting. Appreciation The Supervisory Board warmly thanks all of the employees and the management of the Daimler Group for their committed contributions to the very successful year 2017. The Supervisory Board also thanks Dr. Bernd Bohr, who closely supported the Daimler Group through his committed work in the Supervisory Board and who stepped down as of March 29, 2017. In addition, the Supervisory Board thanks Dr. Wolfgang Bernhard for his successful work at the Group. Stuttgart, February 2018 The Supervisory Board Dr. Manfred Bischoﬀ Chairman In the meeting in December 2017, the members of the Super- visory Board representing the shareholders decided, on the basis of a recommendation by the Nomination Committee, to propose the election to the Supervisory Board of Sari Baldauf, Dr. Jürgen Hambrecht and Marie Wieck at the Annual Share- holders’ Meeting in 2018. In the Supervisory Board meeting on February 9, 2018, Renata Jungo Brüngger was reappointed to the Board of Management of Daimler AG as the member responsible for “Integrity and Legal Aﬀairs” for further ﬁve years eﬀective from January 1, 2019. Audit of the company and consolidated financial statements The ﬁnancial statements of Daimler AG and the combined management report for the Company and the Group for 2017 were duly audited by KPMG AG, Wirtscha(cid:5)sprüfungsgesellscha(cid:5), Berlin, and were given an unqualiﬁed audit opinion. The same applies to the consolidated ﬁnancial statements for 2017 pre- pared according to IFRS. In a meeting held on January 31, 2018 attended by the external auditors, the Supervisory Board discussed, took note of and approved the preliminary key ﬁgures of the annual company and consolidated ﬁnancial statements for 2017 and the the proposal on the appropriation of proﬁt to be made at the 2018 Annual Shareholders’ Meeting. The Supervisory Board determined that no objections were to be made to their publication. The pre- liminary key ﬁgures for the year 2017 as well as the proposal on the appropriation of proﬁt were announced at the Annual Press Conference on February 1, 2018. In the meeting held on February 9, 2018, the Supervisory Board dealt with the annual company ﬁnancial statements, the annual consolidated ﬁnancial statements and the combined manage- ment report for Daimler AG and the Daimler Group, each of which had been issued with an unqualiﬁed audit opinion by the external auditors, as well as with the reports of the Audit Com- mittee and the Supervisory Board, the corporate government statement combined with the corporate governance report, the remuneration report, the proposal on the appropriation of proﬁt and the non-ﬁnancial report, the latter prepared for the ﬁrst time and reviewed by the external auditors pursuant to ISAE 3000. In preparation, the members of the Supervisory Board had been provided with comprehensive documentation including the Annual Report with the consolidated ﬁnancial statements according to IFRS, the combined management report for Daimler AG and the Daimler Group, the declaration on corporate governance com- bined with the corporate governance report, the remuneration report, the non-ﬁnancial report, the annual company ﬁnancial statements of Daimler AG, the proposal of the Board of Manage- ment on the appropriation of proﬁt, the audit reports of KPMG on the annual company ﬁnancial statements of Daimler AG and the consolidated ﬁnancial statements, each including the com- bined management report, as well as dra(cid:5)s of the reports of the Supervisory Board and of the Audit Committee. 70 A | TO OUR SHAREHOLDERS | THE SUPERVISORY BOARD The Supervisory Board Dr. Manfred Bischoﬀ Munich elected until 2021 Chairman of the Supervisory Board of Daimler AG Other supervisory board memberships/directorships: SMS Holding GmbH Michael Bettag* Nuremberg appointed until 2018 Chairman of the Works Council of the Nuremberg Dealership, Daimler AG Michael Brecht* Gaggenau elected until 2018 Deputy Chairman of the Supervisory Board of Daimler AG; Chairman of the General Works Council Daimler Group; Chairman of the General Works Council Daimler AG; Chairman of the Works Council, Gaggenau Plant, Daimler AG Dr. Paul Achleitner Munich elected until 2020 Chairman of the Supervisory Board of Deutsche Bank AG Other supervisory board memberships/directorships: Deutsche Bank AG – Chairman Bayer AG Bader M. Al Saad Kuwait elected until 2022 (since March 29, 2017) Former Chairman and Managing Director of the Executive Committee of the Board of Directors of Kuwait Investment Authority Other supervisory board memberships/directorships: Member of the Executive Committee of the Board of Directors of Kuwait Investment Authority Sari Baldauf Helsinki elected until 2018 Chairwoman of the Supervisory Board of Fortum OYj Other supervisory board memberships/directorships: Deutsche Telekom AG Fortum OYj – Chairwoman Vexve Holding OY – Chairwoman AkzoNobel N.V. (until December 1, 2017) Dr. Clemens Börsig Frankfurt am Main elected until 2022 Former Chairman of the Supervisory Board of Deutsche Bank AG Other supervisory board memberships/directorships: Bayer AG (until April 28, 2017) Linde AG Emerson Electric Co. Dr. Jürgen Hambrecht Ludwigshafen elected until 2018 Chairman of the Supervisory Board of BASF SE Other supervisory board memberships/directorships: BASF SE – Chairman Fuchs Petrolub SE – Chairman Trumpf GmbH + Co. KG – Chairman Nyxoah SA (until December 31, 2017) Petraea Heynike Vevey elected until 2021 Former Executive Vice President of the Executive Board of Nestlé S.A. Andrea Jung New York elected until 2018 President and Chief Executive Oﬃcer of Grameen America, Inc. Other supervisory board memberships/directorships: Apple Inc. General Electric Company A | TO OUR SHAREHOLDERS | THE SUPERVISORY BOARD 71 Joe Kaeser Munich elected until 2019 Chairman of the Board of Management of Siemens AG Other supervisory board memberships/directorships: Allianz Deutschland AG NXP Semiconductors N.V. Sibylle Wankel* Frankfurt am Main appointed until 2018 General Counsel of the German Metalworkers’ Union (IG Metall) Other supervisory board memberships/directorships: Siemens AG (until January 31, 2018) Ergun Lümali* Sindelﬁngen elected until 2018 Chairman of the Works Council at the Sindelﬁngen Plant; Deputy Chairman of the General Works Council of Daimler AG Dr. Frank Weber* Sindelﬁngen elected until 2018 Director of the Press Shop, Sindelﬁngen Plant, Daimler AG; Chairman of the Management Representatives Committee, Daimler Group Wolfgang Nieke* Stuttgart elected until 2018 Chairman of the Works Council, Untertürkheim Plant, Daimler AG Dr. Bernd Pischetsrieder Munich elected until 2019 Chairman of the Supervisory Board of the Münchener Rückversicherungs-Gesellscha(cid:5) Aktiengesellscha(cid:5) in München Other supervisory board memberships/directorships: Münchener Rückversicherungs-Gesellscha(cid:5) Aktiengesellscha(cid:5) in München – Chairman Tetra Laval Group Valter Sanches* Geneva elected until 2018 General Secretary IndustriALL Global Union Jörg Spies* Stuttgart elected until 2018 Chairman of the Works Council, Headquarters, Daimler AG Elke Tönjes-Werner* Bremen elected until 2018 Deputy Chairwoman of the Works Council, Bremen Plant, Daimler AG * Representative of the employees Roman Zitzelsberger* Stuttgart appointed until 2018 German Metalworkers’ Union (IG Metall), District Manager Baden-Württemberg Other supervisory board memberships/directorships: Heidelberger Druckmaschinen AG Retired from the Supervisory Board: Dr. Bernd Bohr Stuttgart retired on March 29, 2017 Former Member of the Management Board of Robert Bosch GmbH Other supervisory board memberships/directorships: Formula D GmbH Committees of the Supervisory Board: Committee pursuant to Section 27 Subsection 3 of the German Codetermination Act (MitbestG) Dr. Manfred Bischoﬀ – Chairman Michael Brecht* Dr. Jürgen Hambrecht Roman Zitzelsberger* Presidential Committee Dr. Manfred Bischoﬀ – Chairman Michael Brecht* Dr. Jürgen Hambrecht Roman Zitzelsberger* Audit Committee Dr. Clemens Börsig – Chairman Michael Brecht* Joe Kaeser Ergun Lümali* Nomination Committee Dr. Manfred Bischoﬀ – Chairman Dr. Paul Achleitner Sari Baldauf 72 A | AN UNSERE AKTIONÄRE | HIGHLIGHTS 2015 At the Frankfurt Motor Show, Mercedes-Benz presented pioneering solutions for the mobility of the future. The Mercedes-AMG Project ONE show car with its Formula 1 hybrid technology stands for the future of driving performance. And the smart vision EQ fortwo oﬀers an electric and fully automated solution for highly eﬃcient and ﬂexible local transport. A | TO OUR SHAREHOLDERS | HIGHLIGHTS OF 2017 73 A | AN UNSERE AKTIONÄRE | HIGHLIGHTS 2015 73 Highlights of 2017 The year 2017 was very successful for Daimler. We strengthened our core business with attractive new products and services. Important new products included the upgraded S-Class and the new X-Class from Mercedes-Benz, the new FUSO Super Great and the new SETRA double-decker bus. We expanded our business portfolio with targeted acquisitions and joint operations. We made very good progress in the future strategic areas of connectivity, autonomous driving, ﬂexible use and services and above all with electric mobility. Furthermore, we aim to strengthen Daimler’s future viability with a new divisional Group structure. 74 A | TO OUR SHAREHOLDERS | HIGHLIGHTS OF 2017 Q1 Daimler Financial Services acquires PayCash Europe S.A. With its entry into the e-payment business, Daimler will launch its own electronic payments service under the “Mercedes pay” brand name. Mercedes pay is a key component of Daimler’s mobility and digitization strategy. The new payment system demonstrates the goal of making Daimler even more attractive as the leading provider of digital mobility services. Startup culture at Daimler Daimler expands its “Knowledge College” program, a series of workshops for students, with a seminar on the subject of startup culture at the Group. The company has the clear goal of combining the strength of a global corporation with the flexibility of the startup scene. Daimler is creating new impetus to strengthen the entrepreneurial spirit at the Group with numerous initiatives. For this purpose, it has designed a new seminar at which students can acquire startup know-how. Daimler Financial Services invests in smartphone app for auto financing Daimler Financial Services is continuing along its growth path with digital ﬁnance and mobility services. With the ﬁnance startup AutoGravity, which was founded in Irvine, California in late 2015, Daimler Financial Services is now starting the national rollout in 46 federal states of the USA. The customer-focused comparison app for automobile purchase and ﬁnance provides information on up to four tailored and binding oﬀers within just a few minutes. Launch of Truck Data Center and new digital services The Truck Data Center facilitates the market launch of new digital services from Mercedes-Benz Trucks: the revolutionary service product Mercedes-Benz Uptime and the new Fleet- Board Manager app. A precondition for both services is the installation of the Truck Data Center, which will be the brain of the connected truck across all brands at Daimler Trucks. It communicates via Bluetooth, 3G mobile telephony or GPS with the infrastructure, other vehicles and other parties involved in the logistics process. Daimler invests in ChargePoint ChargePoint is regarded as the world’s leading provider in the segment of charging stations for electric vehicles, and is the market leader in the United States. Expansion of the business to the European market is planned. Strategic involvement in ChargePoint is another important step in the spread of electric mobility. The cooperation lays the foundation for a compre- hensive, customer-oriented charging service. 1,500 Mercedes-Benz Sprinter and Vito vans with electric drive for Hermes Hermes and Mercedes-Benz Vans agree on a strategic partnership to electrify the parcel service’s vehicle fleet. The focus is on the economy, sus- tainability and practicality of locally emission-free delivery vans used for the last mile. By 2020, Hermes plans to use 1,500 Mercedes-Benz electric vans of the Vito and Sprinter model ranges in urban areas all over Germany. The Annual Shareholders’ Meeting approves a constant dividend of €3.25 per share. Approximately 6,200 shareholders (2016: 5,500) come to the CityCube in Berlin on March 29. The resolutions proposed by the management are all approved with large majorities. The dividend payout amounts to €3,477 million and is the highest of the DAX companies. A | TO OUR SHAREHOLDERS | HIGHLIGHTS OF 2017 75 Q2 New battery factory in Kamenz Daimler takes a further step in its electric oﬀensive by laying the foundation stone for one of the largest and most modern battery factories. The Group’s second factory for lithium-ion batteries is being built at the 100-percent subsidiary ACCUMOTIVE in Kamenz with an investment of approximately €500 million. €500m Foundation stone for new car plant in Russia Mercedes-Benz starts the construction work for a new, fully ﬂexible car plant in the Moscow region, which is due to go into operation in 2019. The production facility is planned for maximum ﬂexibility so that multiple architectures can be assembled on one line. A total of more than €250 million is to be invested. World premiere for the Mercedes-Benz Tourismo RHD With sales of more than 23,000 units, the Mercedes-Benz Tourismo is the most successful coach from Daimler Buses and a key driver for the division’s success. The new model sets standards for economy, comfort and safety. With its four model versions and a broad spectrum of powertrains and equipment, it covers diverse customer requirements in the entire coach segment. Start of construction for new engine plant in Jawor, Poland The engine plant in Jawor is designed to combine the latest standards in the sector with Industry 4.0, and to be a benchmark for engine production. As well as state-of-the-art machinery and technology, it is also planned to utilize the potential of digitization, for example with app-based systems in the areas of human resources and energy management. Daimler is investing approximately €500 million in the new production facility for four-cylinder engines. Bosch and Daimler cooperate on highly automated driving in an urban environment Bosch and Daimler are cooperating to advance the development of highly automated driving and driverless cars. The joint development aims to put highly automated driving and driver- less cars on the road in urban environments by early in the next decade. The project combines the overall vehicle expertise of the world’s leading premium carmaker with the system and hardware expertise of the world’s biggest automotive supplier. World premiere of the upgraded S-Class in Shanghai Oﬀering a wide range of improvements, the upgraded S-Class has its world premiere at Auto Shanghai. The highlights include an all-new, highly eﬃcient family of engines with various new technologies for electrifying the drivetrain. Intelligent drive takes a further step towards autonomous driving. And in the interior, new standards are set for comfort and wellness in the premium segment. 50th record month in succession Mercedes-Benz Cars sets an unprec- edented series of records: It has now increased its unit sales every month for more than four years – without a break. In April, unit sales grow com- pared with the prior-year month for the 50th month in succession. New FUSO Super Great for the Japanese market With the latest generation of the FUSO ﬂagship, the world’s biggest truck manufacturer sets new standards in Japan for eﬃciency, safety and connectivity. Through the application of various new tech- nologies, the new truck’s fuel consumption can be reduced by up to 15 percent. The FUSO Super Great makes full use of Daimler Trucks’ global platform strategy. This allows uniform quality standards, cost advantages through economies of scale, and ﬂexibility in the utilization of production capacities. 76 A | TO OUR SHAREHOLDERS | HIGHLIGHTS OF 2017 Q3 Production of battery-electric vehicles in China Daimler and BAIC agree to jointly invest €650 million in the production of battery-electric Mercedes-Benz vehicles at the local production facility of Beijing Benz Automotive Co. (BBAC) in Beijing. As part of this strategic framework agreement, the partner companies will prepare for the local production of battery-electric vehicles at BBAC by 2020, and aim to establish the required infrastructure as well as research and develop- ment capacities in China. Daimler Buses makes its production network fit for the future In order to remain fit for the future at the sites in Europe, management and works council agree on a future package for efficiency enhancements in production. Furthermore, Daimler Buses will continue shaping the future of mobility. Within this context, in the years ahead, we aim to invest approximately €340 million. New Setra double-decker bus continues coach initiative World premiere of the Setra double-decker, the biggest and most comfortable coach from Daimler Buses. As a result of improved aerodynamics, it is significantly more fuel efficient than its predecessor. In addition, it is equipped as standard with an emergency braking system with obstacle and pedestrian recognition, and Sideguard Assist for taking the blind spot into account is oﬀered as an optional extra. Mercedes-Benz Vans founds joint venture ViaVan with US startup Via Mercedes-Benz Vans enters the ride-sharing market. For this purpose, the van division of the Daimler Group has founded the joint venture ViaVan with Via, a New York-based startup. The technology from Via and the engineering from Mercedes-Benz Vans form a perfect combination for efficient, cost-effective and sustainable ride sharing. Five years of BharatBenz Daimler’s Indian commercial-vehicle brand is on a successful path. The vehicles are specially tailored for the Indian market and the requirements of customers there. Meanwhile, BharatBenz has delivered more than 60,000 BharatBenz trucks to customers in India. In recent months, it achieved a double-digit market share for the first time. The brand is well established among the top 4 in the Indian market and is actually the number 3 in the heavy-duty segment. World premiere of the Mercedes-Benz X-Class With the “Mercedes-Benz Vans goes global” strategy, Mercedes-Benz Vans is entering a new market segment. The Mercedes-Benz X-Class is the first pickup from a premium manufacturer. The X-Class with space for up to five persons supplements the traditional strengths of a midsize pickup with the typical Mercedes-Benz characteristics of driving dynamics, comfort, design, safety, connectivity and comprehensive individualization. 1,900 Full speed ahead into the future: 1,900 young people start their vocational training at Daimler Investing today in the qualified personnel of tomorrow: In Germany alone, approximately 1,900 young people start their careers at 50 Daimler locations. Dr. Dieter Zetsche visits the 279 new apprentices and students on their first day at the Mercedes-Benz plant in Sindelfingen. Daimler Board of Management decides on plan for future diesel engines The plan entails the massive expansion of the existing voluntary service actions on vehicles in customers’ hands, as well as the rapid market launch of an all-new family of diesel engines. This package is extended with additional measures on the occasion of a summit meeting between politicians and repre- sentatives of the automotive industry. A | TO OUR SHAREHOLDERS | HIGHLIGHTS OF 2017 77 Q4 Daimler starts with four new modules at the proving ground and technology center in Immendingen With the operation of additional testing modules at the site in Immendingen, Daimler is taking an important step towards the mobility of the future. Test operations at the Daimler proving ground and technology center start on the four testing modules: urban environment, 4x4 ground, hill endurance, and the “Bertha area,” a proving ground for autonomous vehicles. IONITY facilitates electric mobility on long distances With the establishment of the IONITY joint venture for the development of a high-power charging (HPC) network for electric vehicles, Daimler is in cooperation with other companies to set the course for the installation of the largest fast-charging network in Europe. The installation and operation of up to 400 fast- charging stations by 2020 should guarantee electric mobility on long journeys and accelerate its market acceptance. 400 Investment in startup cooperation Daimler Financial Services (DFS) presents its Startup Intelligence Center (SIC) in Lisbon. This is where cooperative ventures and partnerships are fostered with promising mobility, fintech and insurtech startups. With the Startup Intelligence Center, DFS is bringing together its various activities in the area of innovation cooperation management. Electric vans from Mercedes-Benz Vans Mercedes-Benz Vans plans to offer all of its commercial vans with electric drive. This starts with the eVito, which can be ordered as of November 2017 for delivery as of the second half of 2018. Further model series are to follow as of 2019. In addition to the actual vehicles, Mercedes-Benz Vans also offers a technical ecosystem, for example with an intelligent charging infrastructure for the vehicles’ operation. The Board of Management and Supervisory Board decide on initial steps to strengthen the divisional structure Daimler is working on how the divisions can be changed into legally independent entities. This “Project Future” is intended to strengthen the business units’ future viability so that growth and earnings potential can be better utilized in the various markets. The project is to be continued in close consultation with the employee representatives. Subject to a final assessment, the goal is to obtain approval for the new entities at the Annual Shareholders’ Meeting of Daimler AG in 2019. Daimler Trucks presents E-FUSO and fully electric heavy truck Vision One At the Tokyo Motor Show, Daimler Trucks announces the full electrification of all truck and bus model series of the FUSO brand in the coming years. Daimler Trucks is thus the first manufacturer with its own brand for electric trucks and buses. The first fully electric FUSO eCanter trucks are delivered to customers in December 2017. Electric icons Thomas Built Buses, the subsidiary of Daimler Trucks North America, presents the first fully electric school bus, which is to go into series production in early 2019. With the development of the “Saf-T-Liner C2 Electric Bus,” Thomas Built Buses profited significantly from the electric-vehicle expertise of Daimler. Formula 1 World Champion for the fourth time Lewis Hamilton wins the Formula 1 World Championship for the fourth time and ensures that the Silver Arrows win the Driver’s World Championship for the fourth time in succession! In addition, Mercedes-AMG Petronas Motorsport wins the Constructors’ World Championship by a large margin. 78 A | TO OUR SHAREHOLDERS | DAIMLER AND THE CAPITAL MARKET Daimler and the Capital Market Global stock markets signiﬁcantly improved in 2017 and reached record levels in several regions. Daimler’s share price was volatile during 2017 and closed the year at the level of a year earlier. The Board of Management and the Supervisory Board will propose to the Annual Shareholders’ Meeting that an increased dividend of €3.65 (2016: €3.25) per share be paid for 2017. A.01 Development of Daimler’s share price and of major indices End of 2017 End of 2016 17/16 % change Daimler share price (in euros) 70.80 70.72 DAX 30 Dow Jones Euro STOXX 50 Dow Jones Industrial Average Nikkei Dow Jones STOXX Auto Index 12,918 3,504 24,719 22,765 615 11,481 3,291 19,763 19,114 543 +0 +13 +6 +25 +19 +13 A.02 Key ﬁgures per share Amounts in euros Net proﬁt Dividend Equity (December 31) Xetra price at year end1 Highest1 Lowest1 1 Closing prices 2017 2016 17/16 % change 9.84 3.65 59.84 70.80 73.25 59.29 7.97 3.25 54.17 70.72 73.64 51.97 +23 +12 +10 +0 -1 +14 Global stock markets significantly improve in 2017 Global stock markets started the year 2017 in an optimistic mood, with many investors anticipating that the new administration in the Unites States would implement measures to stimulate the economy. In this environment, the key US stock-market indices rose to all-time highs. At the same time, investors in automotive stocks behaved in a very risk-averse manner. Following a short phase of uncertainty prior to the presidential elections in France, stock markets rose signiﬁcantly at the end of April a(cid:5)er the ﬁrst round of the elections. During this period, the German DAX share index surpassed its previous record of 12,375 from the year 2015. The positive development that followed was supported by the ongoing expansionary monetary policy of the European Central Bank (ECB) and a course of rather moderate interest-rate increases in the United States on the part of the Federal Reserve, which, as expected, raised base interest rates by 25 basis points in March and then again in June. Market volatility increased in mid-August, partly due to the rising tension between the US and North Korea. Automotive stocks were also subject to major ﬂuctuations in this environment, but markets as a whole then recovered strongly once again in September. Along with robust economic data and the strong US dollar, the prospect of a new business-friendly government in Germany had a stimu- lating eﬀect on the German economy. During the rest of the year, the global economic recovery and positive ﬁnancial reporting by European companies increased investors’ propensity to purchase shares. Many stock-market indices around the globe reached all-time highs in the fourth quarter. Nevertheless, expectations regarding the future behavior of central banks worldwide remained very much on investors’ minds. The index of the most important shares in the euro zone, the Dow Jones Euro STOXX 50, rose by 6% in 2017. The leading German share index, the DAX, performed signiﬁcantly better, rising by 13%. The DAX also broke the 13,000 mark for the ﬁrst time ever in October 2017, and reached a new all-time high of 13,479 on November 3. In Japan, the Nikkei index also ﬁnished the year with a signiﬁcant increase, to 22,765 (+19 %), its highest level in several years. In the United States, the Dow Jones reached an all-time high of 24,719 in December 2017 and re- corded a 25% increase for the year as a whole. Volatile development of Daimler share price Automotive stocks were able to carry over their momentum from the prior year in the early part of 2017, but this momentum began to dissipate once again at the beginning of the second quarter. Along with their general concern regarding the sus- tainability of demand for cars in Western Europe, North America and Japan, investors were also very much focused on the further development of the Chinese car market a(cid:5)er adjustments to subsidies there in late 2016. The discussions regarding diesel technology and ongoing litigation also had an increasingly negative eﬀect on automotive stocks. On the other hand, inves- tors did recognize the fact that business continued to develop favorably in the automotive industry. Nevertheless, automotive stocks came under further pressure on global markets in the months that followed. Discussions regarding the future of diesel engines now spread to many other countries with a negative impact on the entire sector, and thus on our share price as well. Investors believe that the expansion of drivetrain electriﬁcation in the coming years will lead to a high level of capital investment and a comparatively lower level of proﬁtability. Investors and analysts also continued to pay close attention to the various automotive markets during the year under review. The focus here was on the development of the car market in the United States, where a declining number of new registrations and concerns about residual values led to increased uncertainty on the capital market as to whether demand could be sustained. In general, the appreciation of the euro against the dollar had a negative eﬀect on the shares of companies with a high pro- portion of exports to dollar-based markets. In this situation, the Daimler share price dropped to its lowest point of the year 2017 when it fell to €59.29 on July 31. Following the diesel summit in Germany at the beginning of August, the debate on diesel technology took on a more objective tone, and greater clarity was also achieved regarding the measures planned by the German federal government and automakers. This led to greater investor conﬁdence in the automotive sector, and many investors took advantage of the favorable opportunity to purchase automotive shares. Investors’ new share-price ex- pectations were also reinforced by the innovations presented at the Frankfurt International Motor Show (IAA) and by the strate- gic course adopted by the automotive industry. Our ongoing product oﬀensive and the solid ﬁnancial results that we recorded once again in the third quarter of 2017 led to further increases in our share price in September and October. On November 3, Daimler’s share price reached €73.25, which was the highest price for the year. The Daimler share closed at €70.80 on December 29. At the end of the year, the company had a market capitalization of €75.7 billion (2016: €75.7 billion). Daimler’s share price was thus at the same level as a year earlier year and therefore failed to keep pace with the development of the German share index DAX (+13%) and the Dow Jones STOXX Auto Index (+13%). When the dividend payout of €3.25 per share is included, our shareholders saw the value of their investment increase by 5%. In the ﬁrst few weeks of the year 2018 our share price developed very positively. Daimler’s shares were listed at €73.73 at the end of January, which is 4% above the closing price at the end of 2017. Dividend of €3.65 (cid:202) A.02 The Board of Management and the Supervisory Board will recommend an increased dividend payment of €3.65 per share for ﬁnancial year 2017 at the Annual Shareholders’ Meeting on April 5, 2018. The total dividend amount will thus reach the new record level of €3,905 million (2016: €3,477 million). A broad shareholder structure (cid:202) A.07 Daimler continues to have a broad shareholder base of approximately 0.9 million shareholders. Shareholder numbers decreased slightly during the reporting year, particularly as fewer private investors purchased our shares. The Kuwait Invest- ment Authority (KIA) currently owns 6.8% of the company’s A | TO OUR SHAREHOLDERS | DAIMLER AND THE CAPITAL MARKET 79 shares, making it Daimler AG’s largest individual shareholder. The Renault-Nissan Alliance continues to hold 3.1% of Daimler’s shares. BlackRock Inc., New York, still holds a stake above the 5% reporting limit as deﬁned by Germany’s Securities Trading Act (WpHG). In November 2017, BlackRock notiﬁed us that its proportion of the voting rights was 5.95% on November 8, 2017. In March 2017, Harris Associates L. P., Wilmington, notiﬁed us that its proportion of the voting rights rose above the 3% reporting limit to 3.01% on March 9, 2017. The aforementioned and all other voting-rights notiﬁcations are published on the Internet at w daimler.com/investors/share/ voting-rights. Institutional investors hold a total of 71% of our equity capital, while private investors own 19%. Approximately 65% of our capital is in the hands of European investors and around 23% is held by US investors. A.03 Daimler share price (high/low), 2017 In euros 80 75 70 65 60 55 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 A.04 Share price index 120 115 110 105 100 95 90 85 80 75 70 12/30/16 2/28/17 4/28/17 6/30/17 8/31/17 10/30/17 12/31/17 Daimler AG Dow Jones STOXX Auto Index DAX 80 A | TO OUR SHAREHOLDERS | DAIMLER AND THE CAPITAL MARKET A.05 Key ﬁgures for Daimler shares End of 2017 End of 2016 17/16 % change 0 0 +0 -10 Share capital (in millions of euros) 3,070 3,070 Number of shares (in millions) 1,069.8 1,069.8 Market capitalization (in billions of euros) Number of shareholders (in millions) Weighting in share indices DAX 30 Dow Jones Euro STOXX 50 Long-term credit ratings Standard & Poor’s Moody’s Fitch Scope DBRS 75.7 75.7 0.9 1.0 6.79% 2.92% 7.52% 3.18% A A2 A- A A A A3 A- – A (low)- A.06 Stock-exchange data for Daimler shares ISIN German Securities Identiﬁcation Number Stock exchange symbol Reuters ticker symbol Bloomberg ticker symbol DE0007100000 710000 DAI DAIGn.DE DAI:GR A.07 Shareholder structure as of December 31, 2017 By type of shareholder Kuwait Investment Authority Renault-Nissan Institutional investors Retail investors 6.8 % 3.1 % 71.2 % 18.9 % A.08 Shareholder structure as of December 31, 2017 By region Germany Europe, excluding Germany USA Kuwait Asia Rest of the world 34.5 % 30.9 % 22.8 % 6.8 % 2.9 % 2.1 % With a weighting of 6.79% (2016: 7.52%), Daimler was ranked sixth in the German share index DAX30 at the end of 2017. In the Dow Jones Euro STOXX 50 index, our shares had a weighting of 2.92% (2016: 3.18%), which put Daimler in eleventh place. Daimler shares are listed on the stock exchanges in Frankfurt and Stuttgart. A total volume of 942 million shares were traded in Germany in 2017 (2016: 1,210 million). Daimler shares are also increasingly being traded on multilateral trading platforms and in the over-the-counter market. Employee share purchase plan implemented once again Staﬀ members entitled to purchase employee shares were able to do so once again in March 2017. As was the case in the previous year, price-reduced shares as well as bonus shares were oﬀered. At 19.8%, the participation rate in the year under review was signiﬁcantly higher than in previous years (2016: 11.7%). A total of 36,200 employees took part in the program (2016: 34,500), which is the highest number since 2008. The total number of shares purchased by employees also increased substantially once again, from 576,000 in 2016 to approximately 604,000 (of which just under 54,400 were bonus shares) in the year under review. The high degree of participation in the employee share-purchase plan was likely due to the positive outlook for the company, a high proﬁt-sharing payout once again, and the attractiveness of dividend yields in the current low interest-rate environment. Annual Shareholders’ Meeting in the CityCube in Berlin Our Annual Shareholders’ Meeting was held on March 29, 2017 in the CityCube in Berlin. Some 6,200 shareholders (2016: 5,500) attended the meeting. A total of 49.18% (2016: 50.77%) of equity capital was represented at the meeting (actual attendees and shareholders who voted by absentee ballot). A large majority of the shareholders approved each of the agenda points proposed by the company’s management. For example, the Annual Share- holders’ Meeting once again approved a very attractive dividend of €3.25 per share (2016: €3.25) and reelected Dr. Clemens Börsig as a member of the Supervisory Board of Daimler AG representing the shareholders. At its subsequent meeting, the Supervisory Board reelected Dr. Börsig to the Audit Committee, which in turn elected Dr. Börsig as Chairman of the Audit Committee. The Annual Shareholders’ Meeting also elected Bader Mohammad Al Saad, a member of the Executive Commit- tee of the Board of Directors of Kuwait Investment Authority (KIA), as a member of the Supervisory Board of Daimler AG represent- ing the shareholders. The terms for both newly elected Super- visory Board members will expire at the end of the Annual Shareholders’ Meeting held in 2022. Important documents and information related to the Annual Shareholders’ Meeting can be found on the Internet at w daimler.com/investors/events/ annual-meetings/2017. In the exhibition areas of the CityCube, Daimler presented its technological expertise and a broad range of products and services under the motto “Future Mobility.” The exhibition highlights showcased future mobility: Along with the elegant Vision Mercedes Maybach 6 and the ﬁrst model from the EQ brand, as well as a Mercedes-Benz electric truck for heavy- duty distribution transportation, the presentation also featured the Vision Van, which attracted a great deal of attention. The vehicle boasts a fully automated cargo compartment, integrated drones for autonomous air deliveries and state-of-the-art joystick control. The Mercedes-Benz Future Bus, a partially automated city bus with the City Pilot system, oﬀered a preview A | TO OUR SHAREHOLDERS | DAIMLER AND THE CAPITAL MARKET 81 Number of online shareholders remains at a high level Our shareholders continue to make good use of our range of personalized electronic information and communication. The increase in online shareholders was particularly high in 2017, as a total of 95,000 (2016: 86,500) shareholders received the invitation and the agenda for the Annual Shareholders’ Meeting by e-mail rather than by post. We would like to thank those shareholders for helping to protect the environment and cut costs. As was the case in the past, those shareholders once again had the opportunity to win attractive prizes in a lottery. Access to the e-service for shareholders and additional in- formation can be found at w https://register.daimler.com. Refinancing benefits from high level of capital-market liquidity and good ratings Central banks’ ongoing expansionary monetary policies also impacted bond markets during the year under review. As a result of the high level of liquidity, companies with investment- grade ratings saw their risk premiums remain at a moderate level. In 2017, the Group primarily covered its reﬁnancing needs by issuing bonds. A large proportion of those bonds were sold as benchmark bond issuances (bonds with high nominal volumes) in euro and dollar markets. In the US capital market, for example, Daimler Finance North America LLC issued bonds worth a total of $6.5 billion in January, May and November 2017. The bonds had terms of 18 months and three, ﬁve and ten years. In addition, Daimler AG issued euro bonds in benchmark format with a total volume of €6.3 billion and terms of seven, eight, ten, 12 and 20 years. In 2017, Daimler AG also issued four bonds in China (so-called Panda bonds) worth a total of CNY 16.0 billion. Furthermore, many smaller bonds were issued by the Daimler Group in a variety of currencies and markets. At the end of 2017, Daimler Group companies had issued bonds that were still outstanding in a volume of €67.1 billion (2016: €63.1 billion). Besides raising funds through the issuance of bonds, Daimler also issued a small volume of commercial paper in 2017. During the year under review, Daimler conducted asset-backed security (ABS) transactions in two new countries in addition to the existing ABS platforms in the United States, Canada, Germany and China. In the United Kingdom, for example, GBP 0.4 billion was successfully placed with investors, while the ﬁrst transaction in Australia had a volume of AUD 0.75 billion. In the United States, the company generated a reﬁnancing volume of $4.7 billion through three transactions in 2017; in Canada, a volume of CAD 0.4 billion was generated in one transaction. In addition, Mercedes-Benz Bank used the Silver Arrow Platform to sell €1.1 billion in ABS bonds to European investors. And in China, two ABS transactions were successfully conducted with a total volume of CNY 10.2 billion. of local public transportation in the future. Daimler Financial Services was also on hand at the Annual Shareholders Meeting to present its mobility services, and Mercedes me and various connectivity services were on display as well. Some of our trainees were also at the meeting to provide an insight into their work. The presentation of our program for the further develop- ment of our corporate culture, Leadership 2020, showed how Daimler is responding to the changes occurring with regard to products, customer expectations and the working world. Continuation of comprehensive investor relations activities In 2017, we once again provided institutional investors, analysts, rating agencies and private investors with timely infor mation regarding the company’s business development. We organized road shows for institutional investors and analysts in the ﬁnance capitals of Europe, North America, Asia and Australia. We also held many one-on-one meetings at investor conferences. This was especially the case at the international motor shows in Geneva and Frankfurt. Sustainability-focused investors were also able to meet and talk with company representatives at two events held at the IAA in Frankfurt and at conferences in Frankfurt in February and in Paris in November. We reported on our quarterly results in conference calls and webcasts. The presentations can be viewed on our website at w daimler.com/investors/events/presentations. The talks with analysts and investors focused on the latest earnings expectations for 2017, as well as on business develop- ments and the proﬁtability of the individual divisions and regions. In addition, top-level managers from Daimler Financial Services discussed the strategies and goals for ﬁnancial services and mobility services at a capital market event held in London in February. In September, numerous analysts and investors attended an event in Sindelﬁngen, where Daimler pre- sented an overview of the latest business developments and oﬀered a look at the future strategy of the Mercedes-Benz Cars division with speeches, discussions and workshops. The audio recordings and charts and illustrations from the events are avail- able at w daimler.com/investors/events/capital-market-days. Awards once again for online version of the Annual Report Our Annual Report, which boasted numerous additional features for 2016 (w annualreport2016.daimler.com), won prestigious international awards once again in 2017, including the Stevie Award. The online report also captured Gold at the 2016 LACP Vision Awards. Continual further development of the corporate website Since December 2016, we have upgraded both the content and the visuals of numerous sections of our Investor Relations site at w daimler.com/investors. Among other things, we have introduced key-ﬁgure modules, information charts, detailed explanations and quotes. A representative online user survey revealed that visitors to the Investor Relations site are very satisﬁed with what they ﬁnd there. The survey also yielded valuable information on user structure, information require- ments and the potential for further improvement. The additional optimization measures we implemented for Internet search engines also now make it easier for users to ﬁnd and access the content they need. 82 A | TO OUR SHAREHOLDERS | OBJECTIVES AND STRATEGY Objectives and Strategy Today, the automotive industry is on the verge of a fundamental transformation. Four future-oriented ﬁelds are set to radically change the nature of mobility: greater vehicle connectivity, advances in autonomous driving, the development of digital mobility and transport services, and electric mobility. Our goal as one of the leading vehicle manufacturers is to become a leading provider of mobility services as well. To this end, we will further strengthen our core business and lead the way in these four future-oriented ﬁelds. Our eﬀorts will be supported by a cultural and organizational transfor- mation. We have not lost sight of our overriding corporate objective: to achieve proﬁtable growth and increase the value of our company. Our objectives Number one in our core business We want all of our divisions to be the leaders in their business segments. Our goal for Mercedes-Benz Cars is to play the leading role in the worldwide premium segment over the long term. We also aim to enhance the smart brand’s pioneering role in urban, electric mobility. Daimler Trucks intends to further strengthen its position as the leading truck manufacturer in the global truck business. Mercedes-Benz Vans is striving to achieve further proﬁtable growth with the help of its “Mercedes- Benz Vans goes global” divisional strategy. Daimler Buses wants to strengthen its leading position in the segment for buses above eight metric tons gross vehicle weight. Daimler Financial Services plans to maintain its position as the best captive ﬁnan- cial and mobility services provider; it will continue to expand its mobility services and continue growing in close cooperation with our other divisions. Through our core business, we are creating the ﬁnancial foundation for investments in the future of our company. To this end, we intend to achieve a 9% return on sales (EBIT in relation to revenue) for the automotive business on a sustained basis. This overall ﬁgure is based on the return targets for the individual divisions: 8–10% for Mercedes-Benz Cars, 8% for Daimler Trucks, 9% for Mercedes-Benz Vans and 6% for Daimler Buses. For Daimler Financial Services, we have set a target of 17% for return on equity. In general, we want to achieve proﬁtable growth on a sustained basis, thus increasing the value of our company. Leading in the CASE fields Connected, Autonomous, Shared & Services and Electric: Our goal is to play the leading role in each one of these future ﬁelds and to generate additional potential by linking the four ﬁelds together. We want to expand vehicle connectivity even further, thus creating added value for our customers. We also seek to be the leader in the use of digital technologies, both in our products and services and along the entire value chain. The digitization of our core processes is the key to our ability to link individual customer needs with the technologies of the future and with mobility requirements. We seek to play the leading role in autonomous driving at all of our divisions. This will result in the creation of new and attractive business models for private car customers, ﬂeet customers, and the public transport and commercial cargo transport sectors. We are expanding our strong portfolio in the ﬁeld of mobility services. With our broad customer base and presence in all of the relevant mobility segments, Daimler Mobility Services already has a strong foundation for future success. We remain on course for growth through innovative mobility services and strong cooperation partners. We are also forging ahead with the development of new mobility and transport services in the commercial vehicle segment. In the ﬁeld of electric mobility, we are establishing an ecosystem of products and services in order to make electric vehicles as convenient and pleasant to use as those with combustion engines. We plan to oﬀer the best electric vehicles on the market in the coming years and to signiﬁcantly increase our market share in the sector. The smart brand intends to oﬀer solely cars with electric drive sys- tems in Europe and North America as of 2020, with the other regions to follow soon a(cid:5)er. We also plan to become the leader in the area of electric commercial vehicles for urban applications. A cultural and organizational transformation for a successful future The increasingly dynamic developments and growing challenges in the automotive sector require rapid innovation as well as operations that are quick, agile, market-oriented and customer- focused. We are systematically promoting new approaches to vehicle development and interdisciplinary cooperation models. We support and implement promising innovations that are developed by our employees and external partners. We are also safeguarding our transformation with new management tools and team-oriented remuneration systems. We aim to change our divisions into legally independent entities, thus further focus- ing and strengthening the divisional structure of the Daimler Group. With “Project Future”, we are pursuing the goal of strengthening the future viability of the divisions so that we can better utilize the growth and earnings potential of the respec- tive markets. Integrity is extremely important for our company, especially as we are undergoing a phase of fundamental transformation. Integrity guides our dealings with respect to our company and its employees, business partners and customers. We are ﬁrmly convinced that conducting business with integrity provides us with orientation in times of major transformation as well. It makes us more successful over the long term – and it also ben- eﬁts society as a whole. Four strategic focus areas We plan to achieve our goals through four strategic focus areas: – strengthening our global core business (CORE) – leading in new future ﬁelds (CASE) – adapting our corporate culture (CULTURE), and – strengthening our divisional structure (COMPANY). Strengthening our global core business (CORE) Mercedes-Benz Cars will continue to implement its growth strategy with the goal of safeguarding its leading position in the global premium segment. We will inspire our customers with our leading brands and outstanding products. New and innova- tive models in the compact segment, a C-Class model upgrade and new versions of our iconic G-Class series will be part of this campaign. We are pursuing three diﬀerent technological approaches as we move ahead on the road to emission-free driving: the further improvement of ultra-modern combustion engines, hybridization, and locally emission-free vehicles with batteries and fuel cells. One important lever for the improve- ment of combustion engines is the full electriﬁcation of the drivetrain through the use of new technologies such as the integrated starter-generator (ISG) and the 48-volt electrical system. Systematic hybridization is another important interim solution on the road to emission-free mobility. We continue to expand our range of currently eight hybrid vehicles on the road. By 2022, we plan to oﬀer at least one electriﬁed option in each segment, with more than 50 variants in total. This includes more than ten fully electric vehicles, the plug-in hybrid versions, and the models with 48-volt technology. We are systematically implementing our architectural and modular strategy in order to ensure that we can continue our model initiative eﬃciently, rapidly and at a high level of quality. Our global development network and the establishment of new technology centers and digital hubs keep us close to our customers, our markets and new technologies. We have also designed our global production network to with the aim to achieve uniform standards and the high quality of “Made by Mercedes” worldwide. Within the framework of our growth strategy, we are expanding our pro- duction network and thus improving our global competitiveness. Our “Best Customer Experience” initiative is designed to oﬀer our customers the best experience compared to all other automakers. All of our sales, service and ﬁnancial services activities are aligned with each other, from the ﬁrst contact throughout the entire duration of the customer relationship. Depending on our customers’ needs, we make use of physical and digital channels for customer communication. Our market position in China plays a key role in safeguarding our market leadership. We have already transformed China into thebiggest market for Mercedes-Benz cars, thanks to products that are aligned with Chinese customers’ requirements and our establishment of local development and manufacturing facilities. We want to strengthen this position even further. In order to safeguard the future proﬁtability of Mercedes-Benz Cars, we intend to optimize the business system and processes in the context of the “Fit for Leadership” eﬃciency program with the goal of a further earnings improvement of €4 billion by 2025. A | TO OUR SHAREHOLDERS | OBJECTIVES AND STRATEGY 83 Daimler Trucks is focusing on global growth, technology leader- ship and the continued implementation of its platform strat- egy. In everything we do, we focus on our customers. We want to safeguard our strong position in Europe and North America and to grow in Brazil in line with the market recovery we expect to see there. We will therefore invest in our product program in Brazil during the coming years, as well as in vehicle connec- tivity and the modernization of our plants in São Bernardo do Campo and Juiz de Fora. We plan to achieve signiﬁcant growth in Asia. We launched assembly operations for the Mercedes- Benz Axor in Indonesia in 2017, so that we will be present with two strong brands in this Southeast Asian market. We are well established in India with our local BharatBenz brand. Using this good position as a starting point, we plan to further develop through an updated product program as well as in export mar- kets. Our platform strategy has generated substantial synergy beneﬁts for us as a vehicle manufacturer. Our customers also beneﬁt from this strategy, as it speeds up the broad availability of technologies that are relevant for trucks. Fuel eﬃciency is a key selling point for commercial vehicles. In order to improve fuel eﬃciency even further, we are continuously developing new measures for vehicles and drivetrains. With a number of measures, the new FUSO Super Great sets standards in terms of eﬃciency. Additional measures for reducing the fuel consumption of the Mercedes-Benz Actros and the new Freightliner Cascadia are planned to be implemented in 2018 and 2019. The Daimler Trucks division works continuously on improving its eﬃciency. Levers in this regard are optimizing our production network and supply chain, integrating new technologies and reducing our product portfolio’s complexity. We plan to optimize our ﬁxed costs by €400 million by the end of 2018 in order to strengthen our competitiveness. This will be achieved through a range of measures, including the restructuring and optimi- zation of Mercedes-Benz Trucks’ development, production and sales organizations in Germany and Brazil. Together with the cost optimizations previously planned, some of which have already been implemented, we aim to achieve improvements for Daimler Trucks with a direct impact on earnings in an amount of €1.4 billion by the end of 2018. Our goal is for these measures to become fully eﬀective in the year 2019. Mercedes-Benz Vans is pursuing three approaches with its “Mercedes-Benz Vans goes global” strategy: the implementation of market strategies for global expansion, the use of product strategies for the further expansion and diﬀerentiation of its prod- uct portfolio, and the adVANce future initiative, which bundles the development and commercialization of customer-focused, holistic transport and mobility solutions. Mercedes-Benz Vans plans to continue to grow proﬁtably and conquer new markets in the future. The continued growth of online retail sales of goods can be expected to lead to increased sales of commercial vans in the future as well. Our product pipeline is in outstand- ing shape with the new Mercedes-Benz X-Class – the ﬁrst pre- mium pickup from Mercedes-Benz Vans – and the new Sprinter, which will be launched in 2018. We are modernizing our plants in Ludwigsfelde and Düsseldorf in preparation for the new Sprinter. Ludwigsfelde is also set to become our ﬁrst fully con- nected manufacturing facility. Our objective is to completely digitize all of our van plants worldwide by 2025. We are also building a new production plant in North Charleston, South Carolina. This will expand our existing assembly operations and support our growth on the North American market. 84 A | TO OUR SHAREHOLDERS | OBJECTIVES AND STRATEGY Daimler Buses continues to grow around the globe with the help of its regional strategies and new products in the city bus and touring coach segment. With its new ﬂagship model, the Setra double-decker coach, Daimler Buses aims to safeguard its current market leadership in this market segment. And with the new Citaro hybrid city bus, we want for the ﬁrst time anywhere in the world to oﬀer hybrid technology as optional equipment for a wide range of city buses with both diesel and natural-gas engines, rather than in the form of stand-alone models. The Daimler Buses European production network, which has manufacturing locations in Germany, France, Spain and the Czech Republic, is being reorganized to make it more eﬃcient and more competitive. Within the framework of this reorgani- zation, the Mannheim plant is being expanded into the center of competence for city buses and electric mobility. Meanwhile, the plant in Neu-Ulm is being transformed into the center of competence for touring coaches, connectivity and autonomous driving. We are also strengthening our development expertise in the ﬁelds of electric mobility and autonomous driving. Through new regional centers, the production of school buses and fully equipped buses in India and the use of the Brazilian production location as a hub for exports to other countries in South America, Africa and Asia, Daimler Buses continues to expand its inter- national business operations, particularly in emerging markets. The success of Daimler Buses is primarily the result of its position as a global manufacturer and distributor of products featuring cutting-edge technologies. As one of the leaders in safety technology and with highly eﬃcient vehicles, Daimler Buses oﬀers an impressive overall package of new and used vehicles, service and maintenance contracts, ﬁnancing plans and new mobility solutions. Daimler Financial Services plans to strengthen its core busi- ness in the context of its “balancedSTRATEGY”, while also investing in mobility and digitalization. Daimler Financial Services will continue to grow in its core business areas of ﬁnancing, leasing and insurance by oﬀering customized services and mak- ing use of increasing vehicle connectivity. About half of all the vehicles delivered by Daimler around the world today are either ﬁnanced or leased by Daimler Financial Services. At the end of 2017 the division was ﬁnancing or leasing 4.8 million cars and commercial vehicles worldwide, and it plans to increase this number in the future. Daimler Financial Services supports the worldwide sales of Daimler vehicles in approximately 40 countries. In line with the motto “Engaging customers for life”, the division focuses on the highest possible degree of cus- tomer satisfaction and on enhancing customer loyalty. This is to be achieved by oﬀering a holistic ecosystem and relevant ﬁnancing and mobility services – ideally throughout the custom- er’s entire life. In order to focus our business activities even more eﬀectively on the needs of existing and new customers, we have expanded the Board of Management of Daimler Financial Services with the position of Customer Experience Oﬃcer (CXO). The division is also looking to completely digitize its business processes in order to become an even faster and more eﬃcient organization. Leading in new future ﬁelds (CASE) As a pioneer of automotive engineering, we seek to be the leader in all CASE ﬁelds (Connected, Autonomous, Shared & Services, Electric), and to generate additional potential by linking up these four ﬁelds. Connected Mercedes-Benz Cars customers experience connectivity through the digital brand, Mercedes me. The digital platform of the same name brings together all mobility, ﬁnancing and other services (connect, assist, move and ﬁnance), and also provides information and news about the Mercedes-Benz brand (inspire). Customers should be able to access their vehicles online at any time and from any location. We are also digitalizing the value chain in order to beneﬁt from the full scope of connectivity. Such digitization is the only way to eﬀectively link individual cus- tomer requirements with value-adding potential. And the smart brand is oﬀering a range of digital services for urban mobility with “smart ready to …” Connectivity will be a crucial success factor also in the logistics sector in the future. Truck connectivity plays an important role at Daimler Trucks. Our goal is to create a seamless trans- port logistics system with connected trucks and technologies to ensure that all vehicles are ideally always fully loaded, with no downtimes or waiting periods. Our new Truck Data Center connectivity hardware is the foundation for such a logistics sys- tem. The module records all internal truck data and serves as the interface for external communication as well. With Fleet- Board for Mercedes-Benz Trucks, Detroit Connect for Freight- liner and Truckonnect for FUSO, we oﬀer digital platforms in all of the world’s major regions on the basis of the Truck Data Center. These platforms can be gradually expanded to include additional services. With its adVANce strategic initiative, Mercedes-Benz Vans is underscoring its transformation from a pure vehicle manufac- turer into a provider of holistic and customer-focused transport and mobility solutions. Our Vision Van concept vehicle oﬀers a preview of future delivery transport. Thanks to full connectiv- ity, the supply chain will be optimized down to the last mile. Mercedes-Benz Vans Mobility GmbH, which was established under the roof of Daimler Financial Services in 2017, puts us at the center of a future business model between connectivity and sharing, which will enable us to meet the growing demand for ﬂexible and innovative concepts for the utilization of our vehicles. The new Mercedes PRO overarching service brand brings together all commercial transport services on a digital platform. Mercedes PRO connect is the ﬁrst innovative con- nectivity solution launched by this umbrella brand. Connectivity at Daimler Buses also oﬀers beneﬁts for every- one involved – for example, bus operators in terms of ﬂeet management and maintenance costs, bus drivers traveling their routes, and passengers using the e-ticketing service. In 2018, Daimler Buses will bring together all of its current and future digital services for buses on its “OMNIplus ON” digital portal, and will also launch a new preventive maintenance system known as OMNIplus Uptime. The wide-ranging telematics services from Fleetboard will also be integrated into the digital portal in the future. Daimler Financial Services aims to expand digital business models in the area of ﬁnancing and mobility services in the context of its balancedSTRATEGY, and is utilizing connectivity to further develop its services. For example, the InScore insurance feature analyzes driving data by means of a factory-installed telematic control unit. This allows customers who drive safely to receive a discount of up to 20% on their insurance premium. With Mercedes pay, our own electronic payment system, customers A.09 Strategic focus areas Innovative corporate culture CULTURE A | TO OUR SHAREHOLDERS | OBJECTIVES AND STRATEGY 85 Leading in new future fields CASE Connected, Autonomous, Shared & Services, Electric Innovations Investments Investments New business models Strengthening global core business CORE Financial foundation for investments in CASE Forward-looking structure COMPANY can easily pay for our mobility and other services using their smartphone. In this way, Daimler Financial Services is imple- menting another stage of its “mobility at your ﬁngertips” philoso- phy. Furthermore, Mercedes-Benz Connectivity Services, which was established in 2017, oﬀers specialized connectivity services for vehicle ﬂeets, and the “Connect Business” brand provides connectivity services for individual companies and large ﬂeets. Autonomous Our approach to autonomous driving is based on the use of comprehensive safety and assistance systems combined with vehicle connectivity technology and real-time digital maps. We have demonstrated our leading position at Mercedes-Benz Cars with the upgraded S-Class. Our driving assistance sys- tems have been signiﬁcantly expanded in many of their functions and are currently regarded as the benchmark in the industry. We are developing fully automated systems without a driver, which can be used exclusively or shared with others. With our research vehicle Mercedes-Benz F 015 Luxury in Motion, we demonstrated at an early stage the kinds of technological and social changes that this will bring about. The vehicle’s fully connected digital interior concept shows how people can use the additional time that autonomous driving will make avail- able to them. Our smart Vision EQ concept car oﬀers another preview of the future of shared and fully automated mobility. In order to accelerate the development of autonomous driving, we have launched a number of partnerships – for example with HERE for high-resolution digital maps and with Bosch for the joint development of technology for highly automated and driverless driving. These new technologies can only be rolled out on a broader scale if changes are made to the current regulatory framework. Daimler Trucks is consolidating its excellent position in the area of safety through the further development of tried-and- tested safety technologies. With the fourth-generation Active Brake Assist system and Sideguard Assist – both of which fea- ture pedestrian detection – Mercedes-Benz Trucks is one of the leaders for active safety technology. We are also among the technological pioneers with automated and autonomous driving systems for trucks, which should lead to another step in the improvement of transport safety and eﬃciency. Platoon- ing – the electronic linking of several trucks – is becoming more important as an interim step on the road to autonomous driving for trucks. Daimler Trucks is one of the leaders for inno- vative platooning concepts. In 2016, we successfully tested our platooning system under real conditions in Europe. In 2017, we were the ﬁrst manufacturer to test digitally connected trucks on public highways in the United States, and we also want to test platooning under real conditions with our ﬂeet customers in the United States as of 2018. Mercedes-Benz Vans is also beneﬁting from the further development throughout the Group of safety and assistance systems related to automated and autonomous driving. Our plans here cover everything from automated and autonomous cargo transport and passenger transport systems. 86 A | TO OUR SHAREHOLDERS | OBJECTIVES AND STRATEGY With its Mercedes-Benz Future Bus with CityPilot, Daimler Buses has demonstrated the highly advanced stage its research has reached in the area of partially automated driving on a BRT route (bus rapid transit) near Amsterdam. BRT sys- tems are an important element of future urban mobility, and already facilitate eﬃcient, fast and cost-eﬀective public trans- port in many cities of the world. Shared & Services Daimler Financial Services oﬀers mobility services that make the division a pioneer in the area of Shared & Services. We are enlarging our customer base by expanding existing services and creating additional services for new mobility segments. At the same time, we are working both independently and with partners to develop the core expertise we need to establish new business with ﬂeets of automated and autonomous vehi- cle vehicles. With car2go, we are currently the world’s leading company for ﬂexible car-sharing services. The Daimler subsid- iary mytaxi is the leader in the taxi-ordering app market in Europe, while moovel oﬀers our customers a platform that enables them to optimally compare, combine, book and pay for various mobility services. With our strategic partner Via, we are now testing ﬂexible shuttle services and pooling concepts that can complement local public transport systems. We plan to continue growing in the business customer segment as well. Mercedes-Benz Van Rental oﬀers customers ﬂexible rental services for vans and commercial vehicles. Electric At Mercedes-Benz Cars, we have signiﬁcantly expanded our activities in the area of electric mobility. We believe that by 2025, between 15% and 25 % of our new vehicles will be all-electric models. All of the electric vehicles and electric mobility services oﬀered to Mercedes-Benz Cars customers have been consolidated under our new EQ brand, which stands for “Electric Intelligence”. We aim to oﬀer more than ten battery-electric models by 2022, and to this end we will invest approximately €10 billion. Our modular and scalable electric- vehicle platform will enable us to oﬀer impressive designs and a high degree of ﬂexibility in terms of variants and models. The EQC, a sporty SUV model, is to be launched in 2019. A(cid:5)er that, we aim to launch a new model every six to eight months. In 2017, we presented a pre-series model of the new Mercedes- Benz GLC F-CELL at the IAA, a fuel-cell vehicle with plug-in hybrid technology. In addition to hydrogen, the purely electric version of the popular SUV was also able to “ﬁll up” with elec- tricity. The smart brand plans to oﬀer cars solely with electric drive systems in Europe and North America by 2020; the other regions are to follow a short time later. We are establish- ing a production network to permit the ﬂexible manufacture of electric vehicles at all of our key production locations world- wide. This is the only way to ensure that we can react fast enough to ﬂuctuations in demand. Daimler Trucks is also focusing more strongly on vehicle elec- triﬁcation. Worsening traﬃc congestion in urban distribution transportation and more restrictions for vehicles with combus- tion engines are making the development of alternative drive systems also for commercial vehicles increasingly important. As early as 2006, we started series production of the FUSO Canter Eco Hybrid for the Japanese market. The FUSO eCanter is our ﬁrst light-duty series-produced truck with fully electric drive; we delivered the ﬁrst units to customers in 2017 and large- scale production is to begin in 2019. With its Mercedes-Benz Electric Truck concept vehicle, Daimler Trucks is demonstrating the viability of all-electric transport. The E-FUSO Vision One shows how electric mobility can be successfully launched also in the heavy-duty truck segment. Daimler Trucks North America is also working on an electric Freightliner eCascadia for long- distance haulage. And Daimler Trucks’ North American sub- sidiary Thomas Built Buses has presented an all-electric school bus that is to be launched in 2019. Mercedes-Benz Vans believes the future of delivery transport will be increasingly electric, and it is making use of the modular system employed by Mercedes-Benz Cars for electric vehicles. Mercedes-Benz Vans plans the electriﬁcation of all its com- mercial model series. The eVito will be available in the second half of 2018 and the eSprinter is to follow in 2019. Daimler Buses is increasingly focusing on the development of electric drive systems. In late 2018, the division plans to start series production of a city bus with a fully electric drive system on the basis of the Mercedes-Benz Citaro. The modular design of the lithium-ion battery pack will allow individualized solutions for various applications and requirements in urban transport. The Mannheim plant shall be developed as the center for electric mobility at Daimler Buses. In addition, Daimler Buses provides comprehensive advice to its customers on the subject of electric mobility with its “eMobility Consulting” initiative. Daimler Financial Services has been operating a system for ﬂexible car sharing with electric vehicles for about six years with car2go, and we are the largest provider in the ﬁeld of ﬂexible, electric car sharing. Of a total of 14,000 vehicles at 26 locations worldwide, we have 1,400 electric vehicles and three all-electric ﬂeets in Stuttgart, Amsterdam and Madrid. car2go thus oﬀers millions of city dwellers an easy way to experience electric cars for the ﬁrst time. Furthermore, Daimler Financial Services supports risk-free access to electric mobility through leasing plans and overall packages for electric vehicles and accessories. Adapting our corporate culture (CULTURE) We are also addressing the cultural challenge associated with the transformation of the automotive industry by adapting our corporate culture accordingly. Together with our employees, we have developed a new management culture within the frame- work of the Leadership 2020 program. We support interdisciplin- ary work that is pursued outside of hierarchical structures. To this end, we enable new teams to be put together for limited periods of time in order to work on speciﬁc projects (swarm- ing). We also promote the development of innovations through the use of modern techniques such as scrum and design think- ing. With our Incubator, which is an internal startup concept for employee ideas, as well as our STARTUP AUTOBAHN initiative, we are supporting the development and implementation of new business ideas and innovations from employees and external partners. We develop digital solutions for our customers at our divisions’ digital units and at our digital hubs. In order to pro- mote our employees’ enthusiasm for digital technologies and to enable them to use such technologies eﬀectively, we create learning programs that teach digital skills. We also promote knowledge sharing through new event formats and platforms such as our Social Intranet, blogs and communities. And we oﬀer hands-on experience with digital technologies during our DigitalLife Days and road shows at our sites. This is how we are cooperating with our employees to lay the foundations for our company’s cultural transformation. Strengthening our divisional structure (COMPANY) In order to respond appropriately to the highly dynamic devel- opment of our industry, its markets, new competitors and new technologies, we need to have an organization that enables rapid and agile action. In our fourth strategic column, “Project Future”, we are working on how to transform our divisions into legally independent entities to further focus and strengthen the Group’s divisional structure. It is intended to form three legally independent three legally independent business units with greater business responsibility under the shared roof and overall management of Daimler AG. These new units would be Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and Daimler Financial Services AG, which is already a successful legally independent company.“Project Future” pursues the goal of strengthening the divisions as they prepare for the future so that they can more eﬀectively exploit the growth and earn- ings potential of their respective markets. The project will be continued in close consultation with the employee representa- tives. In this context, the main focus of a balance of interests is on the extension of the employment guarantee until the end of 2029. Following the preparation and ﬁnal assessment of an implementation plan, the Board of Management and the Supervisory Board must make a decision to implement it and the plan must be approved by the Shareholders’ Meeting. The goal is to present a dra(cid:5) proposal for the separations to the Annual Shareholders’ Meeting of Daimler AG in 2019. By focusing on these goals and on our strategic focus areas of CORE, CASE, CULTURE and COMPANY, we will successfully transform our company from a leading automaker into a leading provider of mobility services. A | TO OUR SHAREHOLDERS | OBJECTIVES AND STRATEGY 87 A.10 Investments in property, plant and equipment 2016 2017 2018 – 2019 Amounts in billions of euros Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services Corporate 5.9 4.1 1.2 0.4 0.1 0.04 0.0 6.7 4.8 1.0 0.7 0.1 0.04 0.0 14.8 11.0 2.4 0.7 0.3 0.1 0.3 A.11 Research and development expenditure Amounts in billions of euros 2016 2017 2018 – 2019 Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 7.6 5.7 1.3 0.4 0.2 8.7 6.6 1.3 0.6 0.2 17.8 14.0 2.5 0.9 0.4 Extensive investments in our company’s future In the coming years, we will continue to forge ahead with our innovation oﬀensive in order to implement our growth strategy through the introduction of new products, innovative technolo- gies and modern manufacturing capacities. The future-oriented CASE ﬁelds (Connected, Autonomous, Shared & Services and Electric) will play a key role here. We will invest almost €15 billion in property, plant and equipment in 2018 and 2019, as well as nearly €18 billion in research and development projects. With this plan, we are once again increasing our investment in order to safeguard the future of our company. (cid:202) A.10 and A.11 The investments in property, plant and equipment will mainly be used to prepare for the production launches of our new models. We will also use our investment to realign our manufacturing facilities in Germany, increase local production in the growth markets and expand our global production network for electric vehicles and batteries. Most of our expenditure for research and development ﬂows into new products. Important individual projects include the successor models of the current compact-class cars, as well as the GLS and GLE oﬀ-road vehicles and the new Sprinter. Other focus areas at all of our automotive divisions include innovative drive-system and safety technologies, vehicle connectivity and the further development of autonomous driving. The plans also call for substantial funds to be invested in our comprehensive electric mobility oﬀensive. WE ARE CONTINUING ALONG OUR PATH OF PROFITABLE GROWTH! Daimler achieved record levels of unit sales and revenue in the year 2017, and Group EBIT also increased signiﬁcantly. On the basis of solid ﬁnances and a strong core business, we are focusing our businesses on the future: with outstanding vehicles and services, with pioneering technologies and business models, with an innovative and ﬂexible corporate culture, and with an organization that meets the needs of the markets’ growing dynamism. In 2017, we invested more than €15 billion in the future of the company, thus creating the right conditions for further proﬁtable growth. B | COMBINED MANAGEMENT REPORT | CONTENTS 89 B | Combined Management Report Corporate Proﬁle Business model Portfolio changes and strategic partnerships Important events Performance measurement system Corporate governance statement Economic Conditions and Business Development The world economy Automotive markets Business development Proﬁtability EBIT Statement of income Dividend Net operating proﬁt Value added Liquidity and Capital Resources Principles and objectives of ﬁnancial management Cash ﬂows Financial guarantees, contingent liabilities and other ﬁnancial obligations Investment Reﬁnancing Credit ratings Financial Position Daimler AG (condensed version according to HGB) Proﬁtability Financial position, liquidity and capital resources Risks and opportunities Outlook 90 90 92 93 93 94 95 95 96 97 101 101 103 105 105 105 107 107 109 110 111 112 114 115 118 118 119 120 120 Sustainability and Integrity Sustainability at Daimler Research and development Innovation, safety and environmental protection The workforce Social responsibility Integrity, compliance and legal responsibility Overall Assessment of the Economic Situation Events a(cid:5)er the Reporting Period Remuneration Report Principles of Board of Management remuneration Board of Management remuneration in ﬁnancial year 2017 Commitments upon termination of service Remuneration of the Supervisory Board Takeover-Relevant Information and Explanation Risk and Opportunity Report Risk and opportunity management system Risks and opportunities Industry and business risks and opportunities Company-speciﬁc risks and opportunities Financial risks and opportunities Risks from guarantees, legal and tax risks Non-ﬁnancial risks Overall assessment of the risk and opportunity situation Outlook The world economy Automotive markets Unit sales Revenue and earnings Free cash ﬂow and liquidity Dividend Investment Research and development The workforce Overall statement on future development 121 121 121 122 128 129 132 134 135 136 136 140 142 150 152 155 155 157 157 163 164 167 168 169 170 170 171 172 173 174 174 174 174 175 175 90 B | COMBINED MANAGEMENT REPORT | CORPORATE PROFILE Corporate Proﬁle Business model Daimler can look back on a tradition covering more than 130 years – a tradition that goes back to Gottlieb Daimler and Carl Benz, the inventors of the automobile, and features pioneering achievements in automotive engineering. Today, the Daimler Group is a globally leading vehicle manufacturer with an unpar- alleled range of premium automobiles, trucks, vans and buses. Its product portfolio is rounded out by a range of customized ﬁnancial services and mobility services. Daimler’s goal is to continue playing a leading role in the development of products and services for the future of mobility. The automotive industry is in the process of a fundamental transformation, and we intend to play a major role in promoting and shaping that change. With our strong core business, we are creating the ﬁnancial foundation for our investments in the future-oriented ﬁelds of Connected, Autonomous, Shared & Services (ﬂexible use) and Electric – “CASE” for short. Innovations from the future-oriented CASE ﬁelds enable us to safeguard the attractiveness and proﬁtability of our core business. Daimler AG is the parent company of the Daimler Group, and has its headquarters in Stuttgart (Mercedesstraße 137, 70327 Stuttgart, Germany). The main business of Daimler AG is the development, production and distribution of cars, trucks and vans in Germany and the management of the Daimler Group. The management reports for Daimler AG and for the Daimler Group are combined in this management report. B.01 Consolidated revenue by division Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 55.4% 20.8% 7.7% 2.6% Daimler Financial Services 13.5% Thanks to its strong brands, Daimler is active in nearly all the countries of the world. The Group has production facilities in a total of 19 countries and more than 8,500 sales centers all over the world. The global networking of its research and devel- opment activities as well as its production facilities and sales organizations gives Daimler considerable competitive advantages internationally, and also oﬀers additional growth opportunities. In 2017, Daimler increased its revenue by 7% to €164.3 billion. The Group’s ﬁve divisions contributed to this total as follows: Mercedes-Benz Cars 55%, Daimler Trucks 21%, Mercedes-Benz Vans 8%, Daimler Buses 3% and Daimler Financial Services 13%. At the end of 2017, Daimler employed a total workforce of more than 289,000 people worldwide. The products supplied by the Mercedes-Benz Cars division comprise a broad spectrum of premium automobiles of the Mercedes-Benz brand, the Mercedes-AMG high-performance brand and the Mercedes-Maybach luxury brand. These auto- mobiles range from compact models to a highly varied program of oﬀ-road vehicles, roadsters, coupes and convertibles, as well as S-Class luxury sedans. The portfolio is rounded out by the Mercedes me brand and the high-quality small cars of the smart brand. In 2016, we introduced the new EQ brand, which consolidates all of our activities related to electric mobility. The most important markets for Mercedes-Benz Cars in 2017 were China with 26% of unit sales, the United States (14%), Germany (13%) and the other European markets (29%). Within the framework of its growth strategy, the division continuously reﬁnes its ﬂexible and eﬃcient production network consisting of more than 30 plants on four continents. At the same time, we are preparing our worldwide production network to meet the requirements of electric mobility. We will manufacture our future electric vehicles of the EQ product and technology brand within the framework of normal series production, on the same assembly lines that are used to produce vehicles with com- bustion engines. In the future, our sites for the production of electric vehicles will be our plants in Bremen, Sindelﬁngen and Rastatt, Germany; Tuscaloosa, Alabama; and Hambach, France. We will also manufacture electric vehicles for the Chinese mar- ket at Beijing Benz Automotive Co., Ltd.(BBAC) in China. In the future, Mercedes-Benz Cars will thus build electric vehicles at six diﬀerent locations. In parallel, we will expand our global battery network to ﬁve sites on three continents. B | COMBINED MANAGEMENT REPORT | CORPORATE PROFILE 91 Polo camper vans and recreational vehicles. With the launch of the Mercedes-Benz X-Class in November 2017, we became the ﬁrst premium manufacturer to introduce a model series in the very promising segment of mid-size pickups. The Mercedes-Benz Vans division has manufacturing facilities on four continents: in Germany, Spain, the United States, Argentina, China and Russia. The division is active in the Chinese market through a joint venture, Fujian Benz Automotive Co., Ltd. The production of the Citan and the Mercedes-Benz X-Class is part of the strategic alliance with Renault-Nissan. In Russia, the Sprinter Classic is built for Mercedes-Benz Vans by the GAZ and YaMZ companies. The most important markets for vans at present are in the EU30 region, which accounts for 68% of unit sales, and the NAFTA region (11% of unit sales in the year under review). The Daimler Buses division with its Mercedes-Benz and Setra brands is the undisputed industry leader for buses above 8 metric tons in its most important traditional core markets: the EU30 region, Brazil, Argentina and Mexico. The division’s prod- uct range comprises city and inter-city buses, touring coaches and bus chassis. The largest of the division’s 14 production plants are located in Germany, France, Spain, Turkey, Argentina, Brazil, Mexico and, since 2015, in India as well. In 2017, Daimler Buses generated 67% of its revenue in the EU30 region and 17% in Latin America (excluding Mexico). Whereas we mainly sell complete buses in Europe, our business in Latin America, Mexico, Africa and Asia focuses on the production and distribution of bus chassis. As the world’s largest manufacturer of trucks above 6 metric tons gross vehicle weight, Daimler Trucks develops and produces vehicles in a global network under the brands Mercedes-Benz, Freightliner, Western Star, FUSO and BharatBenz. The division’s 26 production facilities are located in the NAFTA region (14), Europe (7), Asia (3) and South America (2). In China, Beijing Foton Daimler Automotive Co., Ltd. (BFDA), a joint venture with our Chinese partner Beiqi Foton Motor Co., Ltd., has been producing trucks under the Auman brand name since 2012. Daimler Trucks’ product range includes light-, medium- and heavy-duty trucks for long-distance, distribution and construction-site haul- age, as well as special vehicles that are used mainly in municipal applications. Due to close links in terms of production tech- nology, the division’s product range also includes buses of the Thomas Built Buses and FUSO brands. In the future, Daimler Trucks intends to oﬀer vehicles with locally emission-free elec- tric drive across the entire product portfolio: The product portfolio will be supplemented with the FUSO eCanter for light- duty distribution, fully electric trucks from the Mercedes-Benz brand for heavy-duty distribution, the new product brand E-FUSO and the fully electric school bus from Thomas Built Buses. Daimler Trucks’ most important sales markets in 2017 were the NAFTA region with 35% of unit sales, Asia with 32% and the EU30 region (European Union, Switzerland and Norway) with 17%. Mercedes-Benz Vans is a global supplier of a complete range of vans and associated services. The division’s product range in the commercial vans segment comprises the Sprinter large van, the Vito mid-size van (marketed as the “Metris” in the United States) and the Mercedes-Benz Citan urban delivery van. The range of Mercedes-Benz vans in the private-customer segment consists of the V-Class full-size MPV and the Marco B.02 Daimler Group structure 2017 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services Revenue €94.7 billion €35.7 billion €13.2 billion €4.4 billion €23.8 billion Employees 142,666 79,483 25,255 18,292 13,012 Brands 92 B | COMBINED MANAGEMENT REPORT | CORPORATE PROFILE The Daimler Financial Services division supports the sales of the Daimler Group’s automotive brands in approximately 40 countries. Its product portfolio primarily consists of customized ﬁnancing and leasing packages for end customers and dealers. It also includes insurance brokering, ﬂeet management services, investment products and credit cards, as well as various mobil- ity services such as the moovel mobility platform, the mytaxi app and car2go, the world’s leading company for ﬂexible car- sharing services. The total number of users of our mobility ser- vices increased to 17.8 million in 2017. During the year under review, Daimler Financial Services ﬁnanced or leased around 50 % of the vehicles sold by Daimler. The division’s contract volume of €139.9 billion covers more than 4.8 million vehicles. Daimler Financial Services also holds a 45% interest in the Toll Collect consortium, which operates an electronic road- charging system for trucks on highways in Germany. Daimler is also active in the global automotive industry and related sectors through a broad network of subsidiaries, asso- ciated companies and joint operations. The statement of investments of Daimler AG in accordance with Section 313 of the German Commercial Code (HGB) can be found in E Note 40 of the Notes to the Consolidated Financial Statements. Portfolio changes and strategic partnerships By means of targeted investments and future-oriented partner- ships, we strengthened our core business and made use of additional growth potential in 2017. We also focused on contin- uously developing our business portfolio and improving our competitiveness in our core business areas. Our activities revolve around the future-oriented strategic ﬁelds of Connected, Autonomous, Shared & Services and Electric (CASE), all of which will play a major role in shaping the future of mobility. In order to strengthen our position in these areas, we forged ahead with our partnerships and made a large number of investments during the year under review. The most important projects are brieﬂy described below. Cooperation with Bosch on the development of highly automated and driverless driving In March 2017, the two companies entered into a development agreement that will bring highly automated and driverless driving to city streets by the beginning of the next decade. The objective is to jointly develop so(cid:5)ware and algorithms for a highly automated driving system. By introducing highly automated and driverless driving in the urban environment, Bosch and Daimler aim to improve the ﬂow of traﬃc in cities, enhance safety on the road and provide an important building block for the traﬃc systems of the future. Intelligent charging solutions for electric mobility Daimler AG became an investor in the American charging solu- tions provider ChargePoint Inc. in March 2017. ChargePoint’s core areas of expertise include both the development and pro- duction of innovative infrastructure solutions for electric vehicles – ranging from conventional AC (alternating current) systems to ultra-fast DC (direct current) charging systems with up to 400 kilowatts. All of the products from ChargePoint are networked via so(cid:5)ware and can be expanded as needed. Along with hardware, the US market leader also provides its customers with customized cloud-based solutions, ranging from user-speciﬁc energy management systems to well-proven payment services, and a mobile app for private customers that provides innovative features previously unavailable in the European market. Daimler and ChargePoint are systematically pursuing the same goal: to promote the breakthrough of electric mobility through the targeted expansion of infrastructure and services. The strategic partnership of the two companies sup- plements existing Daimler AG alliances and joint ventures that are designed to build and expand an ecosystem for electric mobility. With the establishment of the IONITY joint venture in November 2017, the BMW Group, Daimler, Ford Motor Company and Volkswagen with Audi and Porsche laid the foundation for the creation of the most powerful charging network for electric vehicles in Europe. The establishment and operation of approx- imately 400 high-power charging (HPC) stations by 2020 will be a major step toward enabling long-distance journeys with electric vehicles, thus helping to establish these vehicles in the market. Expansion of strategic partnership with BAIC In June 2017, Daimler AG and its Chinese partner BAIC Group signed a framework agreement that will strengthen their stra- tegic cooperation through investments in the production of vehicles with alternative drive systems in China. As part of the investment agreement, Daimler intends to acquire a minority share in Beijing Electric Vehicle Co., Ltd. (BJEV), a subsidiary of the BAIC Group. The goal is to strengthen the strategic col- laboration with BAIC on vehicles with alternative drive systems. China is already the world’s biggest market for electric vehicles. In July 2017, the two partners also signed an agreement that will further strengthen their cooperation within the framework of the production joint venture Beijing Benz Automotive Co., Ltd.(BBAC). The companies plan to jointly invest around RMB 5 billion (approximately €655 million) in the production of battery-electric Mercedes-Benz brand vehicles at the BBAC manufacturing facility in Beijing. As part of this strategic framework agreement, Daimler and BAIC Motor are to prepare for the local production of battery-electric vehicles at BBAC between now and 2020. The partners also intend to provide the infrastructure needed for the local production of battery cells in China, as well as the required research and development capacities. Daimler launches e-payment business In January 2017, Daimler Financial Services acquired the elec- tronic payment services provider PayCash Europe SA. With its entry into the e-payment sector, Daimler is launching its own electronic payment services provider under the brand name “Mercedes pay”. The “Mercedes pay” brand is a key component of Daimler’s mobility and digitization strategy. The new pay- ment system underscores Daimler’s goal, as a leading provider of digital mobility services, of making its products and services even more attractive. B | COMBINED MANAGEMENT REPORT | CORPORATE PROFILE 93 of the employees and those of the company. The key points include the extension of the employment guarantee to the end of 2029 (“Safeguarding the Future 2030”) and measures that will ensure nearly full funding of the company’s pension obliga- tions. With regard to balancing the interests of the employees and those of the company, Daimler contributed €3 billion in liquid funds to the pension plan assets of Daimler AG in the fourth quarter of the year under review. This project will be continued in close consultation with the employee representatives. Following the preparation of an implementation plan and a ﬁnal assessment, the actual imple- mentation will have to be decided on by the Board of Manage- ment and the Supervisory Board and approved by the Annual Shareholders’ Meeting. The goal is for the dra(cid:5) proposal on the separation to be presented to the Annual Shareholders’ Meeting for its approval in 2019. Performance measurement system Financial performance measures The ﬁnancial performance measures used at Daimler are oriented toward our investors’ interests and expectations. They provide the foundation for value-based management. Value added Value added is a key element of our performance measurement system, which is applied at both the Group and the divisional levels. It is calculated as the diﬀerence between operating proﬁt and the cost of capital of the average net assets. Alternatively, the value added of the industrial divisions can be determined using the main value drivers of return on sales (quotient of EBIT and revenue) and net assets’ productivity (quotient of revenue and net assets). (cid:202) B.03 Using a combination of return on sales and net assets’ produc- tivity within the context of a strategy of proﬁtable revenue growth provides a basis for the positive development of value added. Value added shows the extent to which the Group and its divisions achieve or exceed investors’ minimum return requirements, thus creating additional value. The quantitative development of value added and the other ﬁnancial performance measures is explained in the “Proﬁtability” chapter. E pages 105 f B.03 Calculation of value added Value added = Profit measure – Net assets × Cost of capital (%) Cost of capital Value added = Return on sales × Net assets productivity – Cost of capital (%) × Net assets mytaxi invests in international expansion Daimler’s mytaxi subsidiary – Europe’s leading taxi app – acquired 100% of the Greek taxi app operator Taxibeat LTD in February 2017. Through this acquisition, Daimler is investing in the further development and expansion of urban mobility sys- tems in Europe. Daimler will initially continue to use the Taxi- beat brand name. In June 2017, Daimler also acquired a 100% interest in Clever Taxi, the taxi app market leader in Romania. As a result, mytaxi now operates in 11 European countries. In the third quarter of 2017, we introduced a pooling service known as mytaxi match, which allows several customers to share a taxi. The pilot project for the service was launched in Warsaw. Targeted investments in mobility services During the year under review, we expanded our range of inno- vative mobility services in a targeted manner. In August, the moovel Group acquired the Hamburg startup Familonet, which oﬀers a locator app. Private car-sharing services have also been expanded through the acquisition of a minority interest in Turo, which is the leading peer-to-peer (P2P) marketplace for vehicle rentals in the United States. Turo plans to enter the German market in 2018. At the same time, Daimler integrated its Croove private car-sharing platform into the Turo organization. With the acquisition of ﬂinc, the leading provider of door-to- door ride-sharing services, Daimler added yet another compo- nent to its portfolio of forward-looking mobility solutions. ViaVan joint venture with the US startup company Via Mercedes-Benz Vans entered the ride-sharing sector in October 2017 through the establishment of the ViaVan joint venture with the US startup company Via, which has its headquarters in New York. Via’s intelligent algorithm enables the creation of a dynamic mass transportation system that supplements public transport systems and reduces traﬃc volumes in cities. Tech- nology from Via and engineering from Mercedes-Benz Vans thus form a perfect combination for eﬃcient, aﬀordable and sus- tainable ride-sharing services. Furthermore, Daimler acquired an equity interest in Via Transportation Inc. in 2017. Important events Initial steps taken to strengthen the divisional structure Daimler AG seeks to further focus and strengthen the business structure of the Group by establishing legally independent enti- ties. The plan calls for Mercedes-Benz Cars & Vans and Daimler Trucks & Buses to become legally independent entities with greater business responsibility alongside the legally independent Daimler Financial Services division. This project is designed to strengthen the divisions as they prepare for the future, so that they can more eﬀectively utilize the growth and earnings poten- tial of their respective markets. Daimler’s plan for safeguarding the future of the company is based on three components: maintaining and increasing business success, continuing to pre- pare employees for the future, and keeping investors committed to the company over the long term. Daimler plans to invest a three-digit million euro amount in the initial measures of this plan. None of the aspects of this project involve cost-cutting or eﬃciency programs, and the Group has no plans to reduce workforce numbers. Daimler AG is also not planning to divest itself of individual business units. The company will consult closely with employee representatives throughout the project. It has already reached an agreement in a position paper that addresses ways to balance the interests Return on sales As one of the main factors inﬂuencing value added, return on sales is of particular importance for assessing the industrial divisions’ proﬁtability. The combination of net proﬁtability and net assets’ productivity results in the return on net assets (RONA). If RONA exceeds the cost of capital, value is created for our shareholders. The measure of proﬁtability for Daimler Financial Services is not return on sales, but return on equity. Key performance indicators The important ﬁnancial indicators for measuring our operating ﬁnancial performance, in addition to EBIT and revenue, are the free cash ﬂow of the industrial business, investments, and expenditure for research and development. Along with the indicators of ﬁnancial performance, we also use various non- ﬁnancial indicators to help us manage the Group. Of particular importance in this respect are the unit sales of our automotive divisions, which we also use as the basis for our capacity and human resources planning and workforce numbers. Non-ﬁnancial performance indicators are also used to deter- mine the remuneration of our Board of Management members. Important criteria for annual target achievement also include integrity and compliance, employee satisfaction and the high quality of our products. Details of the development of non-ﬁnancial performance indicators can be found in the chapters “Economic Conditions and Business Development” and “Non-Financial Report”. E pages 95 ﬀ and pages 214 ﬀ Corporate governance statement The corporate governance statement pursuant to Section 289f and Section 315d of the German Commercial Code (HGB) can be found in this Annual Report on E pages 203 ﬀ and can also be viewed on the Internet at w daimler.com/corpgov/en. Pursuant to Section 317 Subsection 2 Sentence 6 of the German Commercial Code (HGB), the purpose of the audit of the statements pursuant to Section 289f Subsections 2 and 5 and Section 315d of the HGB is limited to determining whether such statements have actually been provided. 94 B | COMBINED MANAGEMENT REPORT | CORPORATE PROFILE Proﬁt measure The measure of operating proﬁt at the divisional level is EBIT (earnings before interest and income taxes). EBIT thus reﬂects the divisions’ responsibility for proﬁt and loss. The measure of operating proﬁt that is used at the Group level is the net oper- ating proﬁt. It comprises the EBIT of the divisions as well as proﬁt and loss eﬀects for which the divisions are not held respon- sible. The latter include income taxes and other reconciliation items. (cid:202) B.19 on page 105 Net assets Net assets are the basis for the investors’ required return. The industrial divisions are accountable for the net operating assets; all assets, liabilities and provisions for which they are respon- sible in day-to-day operations are therefore allocated to them. Performance measurement at Daimler Financial Services is implemented on an equity basis. Net assets at the Group level include the net operating assets of the industrial divisions and the equity of Daimler Financial Services, as well as assets and liabilities from income taxes and other reconciliation items which cannot be allocated to the divisions. Average annual net assets are calculated on the basis of average quarterly net assets. E page 106 Cost of capital The required rate of return on net assets, and hence the cost of capital, is derived from the minimum rates of return that inves- tors expect on their invested capital. The cost of capital of the Group and of the industrial divisions comprises the cost of equity as well as the costs of debt and net pension obligations of the industrial business. The expected returns on liquidity of the industrial business are considered with the opposite sign. The cost of equity is calculated according to the capital asset pricing model (CAPM), using the interest rate for long-term risk- free securities (such as German government bonds) plus a risk premium reﬂecting the speciﬁc risks of an investment in Daimler shares. Whereas the cost of debt is derived from the required rate of return for obligations the Group enters into with external lenders, the cost of capital for net pension obligations is calculated on the basis of discount rates used in accordance with IFRS. The expected return on liquidity is based on money- market interest rates. The Group’s cost of capital is the weighted average of the individually required or expected rates of return. During the year under review, the cost of capital amounted to 8% a(cid:5)er taxes. For the industrial divisions, the cost of capital amounted to 12% before taxes; for Daimler Financial Services, a cost of equity of 13% before taxes was applied. (cid:202) B.04 B.04 Cost of capital In percent 2017 2016 Group, a(cid:5)er taxes Industrial business, before taxes Daimler Financial Services, before taxes 8 12 13 8 12 13 B | COMBINED MANAGEMENT REPORT | ECONOMIC CONDITIONS AND BUSINESS DEVELOPMENT 95 Economic Conditions and Business Development The world economy With real growth of more than 3% in the year under review, the world economy had its strongest growth performance since 2011. (cid:202) B.05 Both the industrialized countries and the emerging markets contributed to this positive development, as the economic upturn was once again relatively broad-based and synchronized for the ﬁrst time in several years. During the year under review, the economic situation of the emerging markets, which accounted for nearly two thirds of global growth, improved signiﬁcantly. A key driver of this development was the increase in prices for industrial raw materials, which were approximately 20% higher on average compared with the pre- vious year. The acceleration of global growth was even more remarkable in view of the fact that the risks associated with geopolitical developments remained relatively high. The industrialized countries also beneﬁted from the favorable global economic environment, as these nations increased their growth rates to just over 2%. The US economy played a major role here, posting growth in output of 2.5%, which was signiﬁcantly higher than the growth recorded in 2016. Increased investment by companies following the decrease in 2016 served as a key driver of growth, while private consumption remained stable. Developments were very positive also in Japan, where gross domestic product (GDP) rose by about 1.8%. The economy of the European Monetary Union was particularly strong in the year under review: Growth of around 2.5% represents a signiﬁcant improvement on the ﬁgure for 2016. This was largely due to a higher contribution from exports. The European Central Bank (ECB) also supported this development with its ongoing expansionary monetary policy in response to low inﬂation rates. The German economy recorded above-average growth (2.2%) in a long-term comparison for the fourth consecutive year. Despite a signiﬁcant decrease in private consumption, the economy of the United Kingdom posted GDP growth of 1.8%, so the economic impact of the Brexit negotiations continued to be limited. With a real growth rate of just over 4.5%, the emerging markets ﬁnally succeeded in overcoming the economic diﬃculties they had experienced over the previous two years. The turnaround was particularly pronounced in South America, which recorded slight growth of just over 1% in 2017 a(cid:5)er undergoing a substantial downturn in the prior year. The economies of Eastern Europe also bounced back noticeably during the year under review. The growth rate for the region more or less doubled, largely due to the recovery of the Russian economy. Despite receiving less support from ﬁscal and monetary policy, the Chinese economy continued to beneﬁt from previous measures in this regard, and with a growth rate of 6.9%, China actually posted a slight increase in growth compared with the prior year. The economic situation in the Middle East remained problematic, with growth clearly below the long-term trend. Currency exchange rates remained volatile despite the favorable global economic environment. Against the US dollar, the euro moved during the year between $1.03 and $1.21. At the end of the year, the euro stood at $1.20, making it around 14% stronger than at the end of 2016. The range of ﬂuctuation of the Japanese yen against the euro was 116 to 135. By the end of the year, the euro had appreciated against the yen by about 9%. The British pound once again fell against the euro (by approximately 3.5%), but this decrease was not nearly as pronounced as the decrease recorded in 2016. The euro also appreciated against other key currencies such as the Russian ruble, the Brazilian real and the Turkish lira, in some cases recording double-digit increases. B.05 Economic growth Gross domestic product, growth rates in % 2016 2017 6 5 4 3 2 1 0 -1 -2 -3 -4 Total Europe NAFTA Asia South America Source: IHS Global Insight, own calculations 96 B | COMBINED MANAGEMENT REPORT | ECONOMIC CONDITIONS AND BUSINESS DEVELOPMENT market demand remains at an unusually high level. Whereas sales of SUVs and pickups increased once again, demand for traditional sedans was relatively weak by comparison. The Japa- nese market displayed a solid performance, with market volume increasing by about 6%. Sales in India were signiﬁcantly higher than in the prior year. A recovery trend was observed in Brazil, where the market expanded by just over 9%. During the year under review, worldwide demand for medium- and heavy-duty trucks gradually recovered from its previous weak phase, and experienced an upswing as 2017 progressed. It should be pointed out, however, that overall demand in the full year in markets relevant to our operations was only slightly above the prior-year level. The pace of recovery on the North American market picked up in the second half of the year. However, as demand in the ﬁrst half of the year was signiﬁcantly lower than in the same period of 2016, the full-year market volume in weight classes 6-8 was only slightly higher (+1%) than in the previous year. Sales in the heavy-duty Class 8 segment were at about the same level as in 2016. Demand in the EU30 region (European Union, Switzerland and Norway) approximately maintained the solid market volume of the previous year. Sales in Western Europe rose somewhat, while markets in the EU states of Central and Eastern Europe contracted slightly overall. Demand for trucks in Brazil stabilized following the slight improvement of overall economic conditions in the country. No signiﬁcant recovery occurred in Brazil, how- ever, so the market volume therefore only slightly surpassed the very low level of the prior year. Following the severe mar- ket slump in Turkey in 2016, demand improved during 2017, but also here, the market was only slightly larger than the weak volume of the previous year. The Russian market underwent a strong recovery and expanded at a signiﬁcantly double-digit rate. Developments in Daimler’s most important Asian markets were varied. The Japanese market for light-, medium- and heavy- duty trucks was slightly larger than the solid volume of the prior year (+1%). In India, on the other hand, demand for medium- and heavy-duty trucks fell by about 10%. Here, the introduction of new regulatory and tax measures during the year led to uncertainty and weak demand that could not be oﬀset in the ﬁnal months of 2017. Truck sales in China once again rose sharply, largely due to the favorable economic situation and regulatory measures that led many truck operators to replace many older vehicles. Automotive markets Global demand for cars continued to develop favorably in 2017, with the worldwide market volume increasing for the eighth consecutive year. While the previous high market volume led to slower growth compared with the previous year, the increase of more than 2% was nevertheless impressive. Once again, the growth of the world market was primarily due to contributions from the Chinese and Western European markets, while sales in the United States decreased slightly. Key emerging markets were able to overcome their weaknesses and developed in a much more positive manner during the year under review. (cid:202) B.06 Once again, the Chinese market made the biggest contribution to the growth of the world market, although growth was significantly lower than in previous years due to the very high market volume in 2016. A substantial number of advance purchases were made towards the end of the year because state tax incentives for purchasers of cars with small engines ended in January 2018, as had been previously announced, but market growth for the full year was just over 3%. Car demand in Europe was slightly higher than in the previous year. Following the recovery of recent years, the Western European car market has now reached a solid level and was able to record slight growth in 2017. Most of the Western European core markets grew once again; only the UK car market suﬀered a decrease (of approximately 6%) a(cid:5)er reaching a record volume in 2016. Sales in Germany were up by nearly 3% from the prior year. The overall market situation in Eastern Europe improved considerably. This was largely due to developments in the Russian market, which posted a signiﬁcant increase of approximately 12% a(cid:5)er recording substantial contraction over the previous four years. The US market volume for cars and light trucks decreased by almost 2% and thus did not quite reach the record volume of the prior year. Nevertheless, at just over 17 million units, B.06 Global automotive markets Unit sales growth rates 2017 in % Passenger cars Commercial vehicles 15 10 5 0 -5 Total Europe NAFTA1,2 Asia South America1,2 1 Cars segment includes light trucks 2 Medium- and heavy-duty trucks Source: German Association of the Automotive Industry (VDA), various institutions B | COMBINED MANAGEMENT REPORT | ECONOMIC CONDITIONS AND BUSINESS DEVELOPMENT 97 Demand for vans continued to develop positively in the EU30 region in 2017. Market volume for mid-size and large vans increased by 9%, while demand for small vans rose by 3%. In Germany as well, sales in the combined segment for mid-size and large vans increased by 8%. Demand for large vans in the US was slightly below the prior year’s level. Demand in the segment of the van market that we serve in China also decreased slightly. The market for large vans in Latin America recovered strongly from the low level of the previous year. Market volume for buses in the EU30 region was at the high level of the previous year. The market recovery in Latin America (excluding Mexico) led to a signiﬁcant improvement in the bus segment, especially in Brazil, where market volume increased by 10% a(cid:5)er bottoming out in 2016. As a result of the ongoing diﬃcult situation in Turkey, domestic demand in that country once again decreased signiﬁcantly compared with the prior year. Business development Unit sales Daimler increased its total unit sales in the year 2017 by 9% to 3.3 million vehicles, thus surpassing its growth target. The Mercedes-Benz Cars and Mercedes-Benz Vans divisions exceeded the forecasts made at the beginning of the year by recording signiﬁcant growth (8% and 12% respectively). Daimler Trucks also posted a signiﬁcant increase of 13% in unit sales. At the beginning of the year, the division had anticipated unit sales similar to those of the previous year. Our sales forecast was successively adjusted as a result of more favorable market developments in some markets important for us. As we expected at the beginning of the year, unit sales at Daimler Buses were also signiﬁcantly higher than in the prior year (+9%). The Mercedes-Benz Cars division continued along its growth path in the year under review. Unit sales rose by 8% to the new record of 2,373,500 vehicles. The Mercedes-Benz brand increased its unit sales by 9% to 2,238,000 vehicles and was once again the strongest-selling premium brand in the automobile industry. Mercedes-Benz is the number one brand in the premium segment in Germany and numerous other key European markets, as well as in the United States, Canada, South Korea and Japan. In addition, we once again signiﬁcantly improved our position in China. Unit sales in Europe increased by 5% to 911,700 vehicles. Signiﬁcant growth was achieved in the volume markets of France (+9%), Italy (+9%), Spain (+8%) and the United Kingdom (+4%), and we also increased our unit sales in Germany by 2% to 282,600 vehicles. Mercedes-Benz continued its success in China during the year under review. Unit sales in the country rose by 28% to 595,200 vehicles — much faster growth than the overall market and our most important competitors. We set new records for unit sales also in other Asian markets — for example in Thailand (+31%) India (+14%), South Korea (+9%) and Taiwan (+7%). Total unit sales in the NAFTA region were at the prior-year level. Here, sales increased signiﬁcantly in Canada and Mexico but decreased slightly in the United States as in the market overall. The growth was primarily driven by our new E-Class. A(cid:5)er all model variants became available, sales reached the new record level of 398,200 units (+31%). Our oﬀ-road vehicles were also very successful once again. Total unit sales in the SUV segment increased by 16% to 823,000 vehicles. Demand for our C-Class models also remained very strong, with sales of these vehicles increasing slightly to 492,700 sedans, wagons, coupes and convertibles in 2017. Unit sales of A- and B-Class models did not quite reach the previous year’s high level. Including the CLA and CLA Shooting Brake, a total of 420,200 units were delivered. Sales of the S-Class reached a total of 79,400 sedans, coupes and convertibles. The upgraded S-Class generated additional sales momentum in the second half of the year. (cid:202) B.07 B.07 Unit sales structure of Mercedes-Benz Cars A-/B-Class C-Class E-Class S-Class SUVs* Sports Cars smart * including GLA Europe NAFTA Asia Other markets 18% 21% 17% 3% 34% 1% 6% 43% 17% 36% 4% 98 B | COMBINED MANAGEMENT REPORT | ECONOMIC CONDITIONS AND BUSINESS DEVELOPMENT B.08 Unit sales structure of Daimler Trucks EU30 Latin America NAFTA Asia Other markets B.09 Market share1 in % 17% 6% 35% 32% 10% 2017 2016 17/16 Change in % points Mercedes-Benz Cars European Union thereof Germany United States China Japan Daimler Trucks Medium- and heavy-duty trucks EU30 thereof Germany Heavy-duty trucks NAFTA region (Class 8) Medium-duty trucks NAFTA region (Classes 6 and 7) Medium- and heavy-duty trucks Brazil Trucks Japan Medium- and heavy-duty trucks India Mercedes-Benz Vans Mid-size and large vans EU30 thereof Germany Small vans EU30 Large vans United States Daimler Buses Buses over 8 tons EU30 thereof Germany Buses over 8 tons Brazil 6.3 10.5 2.0 2.6 1.7 21.0 36.4 40.0 39.3 27.6 19.6 9.1 16.7 27.3 3.1 7.5 28.4 51.6 52.5 1 Based on estimates in certain markets. 6.2 10.4 2.0 2.1 1.7 20.7 37.2 40.0 37.9 29.8 20.4 +0.1 +0.1 0.0 +0.5 0.0 +0.3 -0.8 0.0 +1.4 -2.2 -0.8 6.8 +2.3 16.8 27.3 3.1 7.6 29.6 50.1 58.4 -0.1 0.0 0.0 -0.1 -1.2 +1.5 -5.9 The smart brand sold a total of 135,500 vehicles in 46 markets worldwide in 2017. The smart was particularly popular in China, which is now the smart brand’s third-biggest sales market a(cid:5)er Germany and Italy. E pages 178 ﬀ Unit sales by Daimler Trucks in 2017 were signiﬁcantly higher than in the previous year. In total, we delivered 470,700 heavy-, medium- and light-duty trucks as well as buses of the Thomas Built Buses and FUSO brands in the year under review (2016: 415,100). Daimler Trucks continues to be the world’s biggest manufacturer of trucks above 6 tons. (cid:202) B.08 In the EU30 region (European Union, Switzerland and Norway), we sold 82,300 vehicles in the year under review, slightly higher than the 79,800 sold in 2016. Our Mercedes-Benz brand remained the market leader in the medium-duty and heavy- duty segments, with a share of 21.0% (2016: 20.7%). Following the slump in Turkey in 2016, we were able to signiﬁcantly increase our sales in the country to 11,800 units in the year under review (2016: 9,300). Developments were also very positive in Russia, where unit sales more than tripled to 8,000 trucks (2016: 2,300). (cid:202) B.09 Our unit sales in Latin America increased to 30,500 from the low level of 27,500 vehicles sold in 2016. With sales of 5,600 units (2016: 3,900), the market in Argentina made a major contribution to this positive development. Sales in our main Latin American market, Brazil, rose signiﬁcantly to 13,400 units (2016: 12,100). With our Mercedes-Benz trucks, we achieved a market share of 27.6% in the medium- and heavy-duty segments (2016: 29.8%). In the NAFTA region, we were able to record a signiﬁcant increase in sales to 165,000 units in the year under review (2016: 145,700). We further increased our market share in Classes 6–8 with a market share of 39.8% (2016: 39.3%). In Class 8 for heavy-duty trucks, we once again achieved a market share of 40.0% (2016: 40.0%). We also remained the undisputed market leader in Classes 6–8. At the beginning of 2017, we started production of the new Freightliner Cascadia, which oﬀers a number of new features for fuel eﬃciency, connectivity and safety. We increased our sales in Asia by 18% to 148,600 trucks. At 44,800 units, sales in Japan were slightly lower than in the previous year (46,400). Our FUSO brand achieved an overall market share of 19.6% (2016: 20.4%) in Japan. The new Super Great heavy-duty truck underscores our determination to further strengthen our position in the Japanese truck market. Our sales of 42,700 units in Indonesia were substantially higher than in the prior year (28,000). Although the volume of the truck market in India was below the prior-year level, we were able to increase our sales in the ﬁ(cid:5)h year since the establishment of the BharatBenz brand to 16,700 trucks (2016: 13,100) and our market share increased to 9.1% (2016: 6.8%). At 23,600 units (2016: 17,600), our sales in the Middle East were also substan- tially higher than the low prior-year level. B | COMBINED MANAGEMENT REPORT | ECONOMIC CONDITIONS AND BUSINESS DEVELOPMENT 99 In China, the world’s biggest truck market, Daimler AG holds a 50% interest in Beijing Foton Daimler Automotive Co. Ltd. (BFDA), a joint venture with Beiqi Foton Motor Co. Ltd. Medium- and heavy-duty trucks of the Auman brand have been produced there since 2012. In line with the signiﬁcant recovery of the Chinese truck market, Auman posted a substantial sales increase to 112,400 units (2016: 77,800). E pages 184 ﬀ volume in Brazil grew by 10% a(cid:5)er having bottomed out in 2016. Sales of Mercedes-Benz bus chassis in Brazil rose by a double- digit rate (+46%) to 7,200 units. We were also able to maintain our leading market position in Brazil with a market share of 52.5% (2016: 58.4%). In Mexico, sales of 3,400 units (2016: 3,800) were signiﬁcantly lower than in the previous year. E pages 192 ﬀ Mercedes-Benz Vans achieved record sales once again in 2017. Unit sales of 401,000 vehicles surpassed the prior-year ﬁgure by 12%. Whereas we mainly focus on commercial customers with the Sprinter, Vito and Citan models, the V-Class is primarily designed for private use. With the X-Class, our new mid-size pickup, we are addressing various customers for both private and commercial applications. In the EU30 region, which is our core region, we increased our unit sales by 9% to 273,300 vehicles, and we continue to be the market leader for mid-size and large vans with a share of 16.7% (2016: 16.8%). Double-digit growth was achieved in several European markets, and the division also set a new record in Germany with sales of 105,800 units (2016: 96,100). Sales in the NAFTA region in creased to 44,800 units (2016: 43,400) and the division’s mar- ket share for large vans in the United States reached 7.5% (2016: 7.6%). Business development was very favorable in Latin America, where sales rose by 31% to 16,400 units. Unit sales in China also increased signiﬁcantly, by 75% to 23,800 vans. This devel- opment was largely due to the success of the Vito and the V-Class, both of which were launched in China in 2016. In total, we sold 200,500 Sprinter vans worldwide (2016: 193,400) in the reporting period, which was the last full year of the current model’s lifecycle. Vito sales rose signiﬁcantly, by 21% to 111,800 units, while sales of the Mercedes-Benz Citan reached 26,100 units (2016: 24,900). The V-Class full-size MPV was very successful; sales of 59,300 units surpassed the previous year’s ﬁgure by 22%. The X-Class also got oﬀ to a good start at the end of the year with sales of 3,300 units. E pages 189 ﬀ Daimler Buses sold 28,700 buses and bus chassis worldwide in 2017 (2016: 26,200). The signiﬁcant increase is due in particular to the gradual recovery of the economy in Brazil. The division maintained its clear market leadership in its most important traditional markets (EU30, Brazil, Argentina and Mexico). Continued high demand for complete buses meant that the division achieved sales in the EU30 region of 8,700 units sold in the year under review (2016: 8,800). At 28.4% (2016: 29.6%), market share was once again at a very high level. Sales of 3,100 Mercedes-Benz and Setra buses in Germany were at the prior year level (2016: 3,100), while the ongoing diﬃcult situation in Turkey resulted in a signiﬁcant decrease in unit sales, to 400 vehicles (2016: 600). The market situation in Latin America (excluding Mexico) improved considerably; bus market Business at Daimler Financial Services continued to develop very positively in the year under review. As we had forecast in the 2016 Annual Report, worldwide contract volume continued to grow, reaching the new record level of 139.9 billion (+6%) in 2017. Adjusted for currency-translation eﬀects, contract volume increased by 12%. New business increased by 14% to €70.7 billion, growing at a much faster rate than we had anticipated at the beginning of the year. Signiﬁcant growth was recorded in Europe (+15%), while new business in the Americas region was of the prior-year magnitude (+1%). The growth of new business in the Africa and Asia-Paciﬁc region (excluding China) was once again very dynamic at a rate of 16%. In China, new business actually increased by 56%. In the insurance business, we bro- kered approximately 2.1 million policies, representing an increase of 20% compared with the prior year. In ﬁnancial year 2017, Daimler Financial Services was active in ﬂeet management with the two brands Daimler Fleet Management and Athlon. In Europe, Daimler Financial Services had a total of 383,300 contracts with ﬂeet customers on its books at the end of 2017, representing an increase of 6% compared with a year earlier. Contract volume amounted to €6.4 billion. The total number of registered users of our mobility services rose to 17.8 million in the year under review. car2go increased its number of regis- tered users to 3.0 million at the end of the year and thus strengthened its position as the world’s leader for ﬂexible car sharing. The app-based taxi-ordering service mytaxi is Europe’s biggest taxi network and also continued its growth in 2017; the number of registered users rose by 85% to 11.1 million at the end of the year. We further developed the moovel app, with which customers in Germany can ﬁnd the best way of traveling from A to B using various modes of transport and can also directly book and pay for services from providers such as car2go, mytaxi and Deutsche Bahn (German Railways). With moovel transit, moovel North America is the leading provider of mobile ticket solutions for the apps of public transport companies in the United States. The number of registered moovel users in Germany and the United States had risen to 3.7 million by the end of 2017 (2016: 2.2 million). E pages 195 ﬀ 100 B | COMBINED MANAGEMENT REPORT | ECONOMIC CONDITIONS AND BUSINESS DEVELOPMENT Order situation The Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Buses divisions produce vehicles predominantly to order in accordance with customers’ speciﬁcations. While doing so, we ﬂexibly adjust the production capacities for the individual models to changing levels of demand. Due in particular to strong demand in China and the European markets, the number of orders placed with Mercedes-Benz Cars during the year under review was once again above the high level of orders recorded in the previous year. This was driven on the product side primarily by the new E-Class, all variants of which are now available, as well as by the continued strong success of our oﬀ-road vehicles. Due to the positive development of demand, we once again increased our production volumes. Nonetheless, the order backlog at the end of 2017 was higher than a year before. At Daimler Trucks, both orders received and the order backlog at year-end were signiﬁcantly higher than a year earlier. This was primarily due to the revival of demand in North America and Asia. We increased production volumes mainly in the second half of the year in response to the higher demand. Revenue In the year 2017, Daimler increased its total revenue by 7% to €164.3 billion; adjusted for currency-translation eﬀects, revenue grew by 8%. This means we surpassed our expectations from the beginning of the year. The divisions Mercedes-Benz Cars (+6%) and Daimler Financial Services (+15%) increased their business volumes by signiﬁcant margins. The Daimler Trucks division also recorded a signiﬁcant increase in revenue of 8%, primarily due to positive sales development in North America. Exchange-rate eﬀects had a negative impact on revenue. We had originally expected a business volume similar to that of the previous year. Revenue at Mercedes-Benz Vans (+3%) and Daimler Buses (+4%) rose slightly. At Mercedes-Benz Vans, we had only expected revenue to stabilize and unit sales to increase slightly at the beginning of the year, because contract manufacturing of vans for Volkswagen had been discontinued at the end of 2016. In regional terms, Daimler achieved revenue growth in Europe (+8% to €68.4 billion), in the NAFTA region (+4% to €46.9 billion) and in Asia (+9% to €38.8 billion). B.11 Revenue by division and region 2013 2014 2015 2016 2017 In millions of euros 2017 2016 17/16 % change B.10 Consolidated revenue by region In billions of euros 50 45 40 35 30 25 20 15 10 5 0 Germany Europe (without Germany) NAFTA region Asia Daimler Group 164,330 153,261 Divisions Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses 94,695 35,707 13,164 4,351 Daimler Financial Services 23,775 Regions Europe thereof Germany NAFTA region thereof United States Asia thereof China Other markets 68,437 23,939 46,916 40,459 38,766 18,280 10,211 89,284 33,187 12,835 4,176 20,660 63,417 23,509 44,960 39,169 35,562 15,984 9,322 +7 +6 +8 +3 +4 +15 +8 +2 +4 +3 +9 +14 +10 B | COMBINED MANAGEMENT REPORT | PROFITABILITY 101 Proﬁtability EBIT The Daimler Group achieved EBIT of €14.7 billion in 2017 (2016: €12.9 billion), which surpassed the prior-year ﬁgure signiﬁcantly. (cid:202) B.12 (cid:202) B.13 B.12 EBIT by segment The development of earnings reﬂects primarily the very good situation of unit sales in the automotive segments. Accordingly, the Mercedes-Benz Cars division increased its earnings due in particular to further growth in unit sales, especially of the SUV models and the new E-Class. Daimler Trucks also signiﬁcantly improved its earnings compared with the previous year, mainly due to increased unit sales in the NAFTA region and the sale of real estate in Japan. Mercedes-Benz Vans and Daimler Buses achieved EBIT at the prior-year level. EBIT at Daimler Financial Services increased signiﬁcantly. Exchange-rate eﬀects had a net positive impact on operating proﬁt. The reconciliation of segment earnings to Group EBIT resulted in income slightly above the prior-year level. The Mercedes-Benz Cars division signiﬁcantly increased its EBIT in 2017 and thus met the forecasts made in Annual Report 2016. For the Daimler Trucks division, the EBIT forecast in Annual Report 2016 was slightly below the prior-year ﬁgure. We adjusted those assessments gradually upwards as the year pro gressed in the context of our quarterly reporting, as the divi- sion’s unit sales increased faster than expected in some key markets and as expenses for the ﬁxed-cost optimization were below our expectations. The earnings of Mercedes-Benz Vans also developed better than we had forecast at the beginning of the year. We had anticipated a signiﬁcant decrease compared with the previous year. As the year 2017 progressed, we adjusted that assessment upwards in the context of our quarterly report- ing to EBIT in the magnitude of the previous year, as the division’s unit sales increased faster than expected. Daimler Buses also achieved EBIT at the prior-year level. It thus did not meet the forecast made in Annual Report 2016 of EBIT slightly above the prior-year level. Daimler Financial Services signiﬁcantly increased its EBIT and thus surpassed the forecast made in Annual Report 2016. In millions of euros % change 2017 2016 17/16 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 9,207 2,380 1,181 243 1,970 8,112 1,948 1,170 249 1,739 +13 +22 +1 - 2 +13 - 316 - 299 Reconciliation Daimler Group1 1 EBIT, the indicator of operating performance, comprises earnings before interest income/expense and corporate income taxes. The reconciliation of the Daimler Group’s EBIT to earnings before income taxes is included in Note 33 of the Notes to the Consolidated Financial Statements. 14,682 12,902 +14 +5 B.13 Development of earnings In billions of euros EBIT Net profit (loss) 16 14 12 10 8 6 4 2 0 2013 2014 2015 2016 2017 102 B | COMBINED MANAGEMENT REPORT | PROFITABILITY 2013 2014 2015 2016 2017 B.14 Return on Sales In % 12 9 6 3 0 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses B.15 Return on Equity Daimler Financial Services In % 25 20 15 10 5 0 2013 2014 2015 2016 2017 B.16 Reconciliation of Group EBIT to profit before income taxes In millions of euros 2017 2016 Group EBIT 14,682 12,902 Amortization of capitalized borrowing costs1 Interest income Interest expense - 13 214 - 582 - 12 230 - 546 Profit before income taxes 14,301 12,574 1 Amortization of capitalized borrowing costs is not included in the internal performance measure EBIT, but is a component of cost of sales. The Mercedes-Benz Cars division posted EBIT of €9,207 million in 2017, which is significantly above the prior-year figure of €8,112 million. The division’s return on sales was 9.7% (2016: 9.1%)  B.14 The positive earnings development primarily reflects the increased unit sales of new vehicles. The main drivers were the SUV segment and the new E-Class. Additional positive effects on EBIT resulted from exchange-rate effects and income of €183 million in connection with the remeasurement of the investment in THERE Holding B.V. now using the equity method. Negative effects resulted from advance expenditure for new technologies and future vehicles and from expenses for the expansion of production capacities. Higher expenses for raw materials also had a negative impact on EBIT. Furthermore, expenses for voluntary service activities and expenses for a specific vehicle recall (€425 million) had a significant impact on earnings. In the year 2016, EBIT included expenses in connection with Takata airbags (€480 million) and expenses in connection with remeasurement of inventories (€238 million). Daimler Trucks’ EBIT in the year 2017 of €2,380 million was significantly above the prior-year figure of €1,948 million. The division’s return on sales was 6.7% (2016: 5.9%).  B.14 The positive development of earnings was primarily the result of increased unit sales in the NAFTA region. EBIT was also boosted by income from the sale of real estate at the Kawasaki site in Japan (€267 million) and by efficiency improvements. Higher expenses for raw materials and expenses of €172 million for the fixed-cost optimization had a negative impact on EBIT. Mercedes-Benz Vans achieved EBIT in 2017 of €1,181 million, similar to the prior-year level (2016: €1,170 million). The division’s return on sales was 9.0% (2016: 9.1%).  B.14 EBIT was affected by higher expenses for product ramp-ups and new technologies. Furthermore, earnings were reduced by the termination of a contract-manufacturing arrangement. These effects were offset by the positive development of unit sales, especially in Europe, China and Latin America, and by exchange-rate effects. Prior-year EBIT included expenses in connection with Takata airbags (€83 million) and expenses from a voluntary severance program at the Düsseldorf plant (€38 million). The Daimler Buses division’s EBIT of €243 million in 2017 (2016: €249 million) was at the high prior-year level. The return on sales decreased slightly to 5.6% (2016: 6.0%).  B.14 33_Ertragslage_E.indd 102 13.02.18 12:34 Further efficiency enhancements and higher unit sales in Latin America almost offset the inflation-related cost increase in Latin America and the negative exchange-rate effects. Daimler Financial Services posted EBIT of €1,970 million in 2017, thus significantly surpassing its prior-year earnings of €1,739 million. The division’s return on equity was 17.6% (2016: 17.4%).  B.15 This positive development was the result of increased contract volume and a further improvement in the cost-of-risk situation. On the other hand, there were negative effects from a higher interest-rate level, increased expenses for the expansion of mobility services and the digitization of the business system. The reconciliation of the divisions’ EBIT to Group EBIT com- prises gains and/or losses at the corporate level and the effects on earnings of eliminating intra-group transactions between the divisions. Items at the corporate level resulted in expenses of €254 million (2016: €333 million). In 2017, this primarily comprises expenses related to legal proceedings. On the other hand, the reversal of an impairment of €240 million of Daimler’s equity investment in BAIC Motor had a positive effect on earnings. In the previous year, there were expenses of €400 million in connection with a legal proceeding, the impairment of €244 million of Daimler’s equity investment in BAIC Motor, and losses of €241 million from currency transactions not allocated to business operations. The gain of €605 million recognized on the contribution of the Renault S.A.(Renault) and Nissan Motor Company Ltd.(Nissan) shares into the German pension-plan assets did not offset those expenses. The elimination of intra-group transactions resulted in expenses of €45 million in 2017 (2016: income of €17 million). The reconciliation of Group EBIT to profit before income taxes is shown in table.  B.16 B | COMBINED MANAGEMENT REPORT | PROFITABILITY 103 Statement of income The Group’s total revenue increased by 7.2% to €164.3 billion in 2017; adjusted for exchange rate effects, it increased by 7.8%. The revenue growth primarily reflects the strong demand for our products at Mercedes-Benz Cars and Daimler Trucks, as well as the increased contract volume at Daimler Financial Services. Further information on the development of revenue is provided in the “Business development” section of this Com- bined Management Report.  B.17 Cost of sales amounted to €130.0 billion in 2017, increasing by 7.2% compared with the previous year. The rise in cost of sales was caused by higher business volumes and conse- quentially higher material expenses. The higher material expenses also reflect increased prices of raw materials. Per- sonnel expenses and depreciation of equipment on operating leases also increased. At Daimler Financial Services, the higher interest-rate level led to higher refinancing costs. Cost of sales also includes expenses for voluntary service activities and expenses for a specific vehicle recall of €0.4 billion. Further information on cost of sales is provided in Note 5 of the Notes to the Consoli dated Financial Statements.  B.17 Overall, gross profit of 20.9% was at the same level as in the previous year. Due to the growth in unit sales, selling expenses increased by €0.7 billion to €13.0 billion and includes higher expenses for marketing. As a percentage of revenue, selling expenses decreased slightly from 8.0% to 7.9%.  B.17 General administrative expenses of €3.8 billion were above the level of the previous year (2016: €3.4 billion). The increase was mainly due to higher expenses for personnel and consulting. As a percentage of revenue, general administrative expenses increased slightly to 2.3% (2016: 2.2%).  B.17 Research and non-capitalized development costs increased by €0.7 billion to €5.9 billion in 2017. They were mainly related to the development of new models, advance expenditure for the renewal of existing models, and the further development of fuel-efficient and environmentally friendly drive systems, as well as safety technologies, autonomous driving and the digital connectivity of our products. As a proportion of revenue, research and non-capitalized development costs increased from 3.4% to 3.6%. Further information on the Group’s research and development costs is provided in the “Research and devel- opment” section of the “Sustainability” chapter of this Combined Management Report.  B.17 33_Ertragslage_E.indd 103 13.02.18 12:34 104 B | COMBINED MANAGEMENT REPORT | PROFITABILITY Other operating income increased to €2.8 billion (2016: €2.4 billion). This is primarily attributable to income of €0.4 billion from the sale of property, plant and equipment. Other operating expense decreased in the year 2017 to €1.0 billion (2016: €1.3 billion), due in particular to expenses con- nected with a legal proceeding of €0.4 billion in 2016. Further information on the composition of other operating income and expense is provided in Note 6 of the Notes to the Consolidated Financial Statements.  B.17 In 2017, our share of profit from equity-method investments was significantly higher than the prior-year level at €1.5 billion (2016: €0.5 billion). The increase was primarily due to improved earnings at Beijing Benz Automotive Co. Ltd.(BBAC) and the reversal of the impairment of €0.2 billion of the shares in BAIC Motor (2016: negative impact from the impairment of €0.2 billion of the investment in BAIC Motor).  B.17 Other financial expense/income worsened from income of €0.3 billion to an expense of €0.2 billion. This significant change is primarily the result of the gain of €0.6 billion recognized in the previous year from the contribution of the equity interests in Renault and Nissan at fair value into the German pension- plan assets. Those gains were previously presented within other comprehensive income/loss.  B.17 Net interest expense amounted to €0.4 billion (2016: €0.3 billion).  B.17 The tax expense of €3.4 billion (2016: €3.8 billion) stated under income tax expense decreased despite the increase in profit before income taxes. The effective tax rate for 2017 was 24.0% (2016: 30.1%). This was mainly a result of the law signed in 2017 for a comprehensive tax reform in the United States. Due to the reduction in the nationwide federal corporate income tax rate for US companies, the future net tax liabilities of the US-subsidiaries of Daimler had to be remeasured with the new tax rate. The remeasurement resulted in an income tax benefit of €1.7 billion. Opposing the positive impact from the US tax reform, tax expenses were recognized in 2017 in connection with the interpretation of tax laws.  B.17 Net profit for the year improved to €10.9 billion (2016: €8.8 billion). Net profit of €0.3 billion is attributable to non- controlling interests (2016: €0.3 billion). Net profit attributable to the shareholders of Daimler AG amounts to €10.5 billion (2016: €8.5 billion), representing an increase in earnings per share to €9.84 (2016: €7.97).  B.17 The calculation of earnings per share (basic) is based on an unchanged average number of outstanding shares of 1,069.8 million. B.17 Statement of income1 In millions of euros Revenue Cost of sales Gross profit Selling expenses General administrative expenses Research and non-capitalized development costs Other operating income Other operating expense Share of profit from equity-method investments, net Other financial expense, net Interest income Interest expense Profit before income taxes Income taxes Net profit thereof attributable to non-controlling interests thereof attributable to shareholders of Daimler AG Consolidated Industrial Business2 Daimler Financial Services 2017 2016 2017 2016 2017 2016 164,330 - 129,999 153,261 140,555 - 121,298 - 109,767 132,601 23,775 20,660 - 103,600 - 20,232 - 17,698 34,331 31,963 30,788 29,001 - 12,965 - 12,226 - 12,224 - 11,577 - 3,809 - 5,938 2,824 - 1,042 1,498 - 230 214 - 582 14,301 - 3,437 10,864 - 3,419 - 5,257 2,350 - 1,298 502 275 230 - 546 12,574 - 3,790 8,784 - 2,816 - 5,938 2,621 - 999 1,497 - 230 214 - 577 12,336 - 4,151 8,185 - 2,702 - 5,257 2,200 - 1,267 503 250 229 - 540 10,840 - 3,235 7,605 3,543 - 741 - 993 - 203 - 43 1 0 - - 5 1,965 714 2,679 2,962 - 649 - 717 - 150 - 31 - 1 25 1 - 6 1,734 - 555 1,179 339 258 10,525 8,526 1 The columns „Industrial business“ and „Daimler Financial Services“ represent a business point of view. 2 The industrial business comprises the vehicle segments Mercedes-Benz Cars, Mercedes-Benz Trucks, Mercedes-Benz Vans and Daimler Buses. Intra-group eliminations between the industrial business and Daimler Financial Services are generally allocated to the industrial business. 33_Ertragslage_E.indd 104 13.02.18 12:34 B | COMBINED MANAGEMENT REPORT | PROFITABILITY 105 B.18 Dividend per share 2.25 2.45 3.25 3.25 3.65 In euros 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 2013 2014 2015 2016 2017 B.19 Reconciliation to net operating profit In millions of euros Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 2017 2016 17/16 % change 9,207 2,380 1,181 243 1,970 8,112 1,948 1,170 249 1,739 +13 +22 +1 - 2 +13 +13 - 9 - 5 +24 EBIT of the divisions 14,981 13,218 Income taxes1 Other reconciliation - 3,555 - 299 - 3,895 - 316 Net operating profit 1 Adjusted for tax effects on interest income/expense and 11,127 9,007 amortization of capi-talized borrowing costs. B.20 Value added In millions of euros 2017 2016 17/16 % change Daimler Group 7,246 5,243 Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services 6,330 1,369 895 126 518 5,431 935 962 143 439 +38 +17 +46 - 7 - 12 +18 Dividend In the light of the positive business development in 2017, the Board of Management and the Supervisory Board will propose to the Annual Shareholders’ Meeting to be held on April 5, 2018 that the dividend per share for the 2017 financial year be increased to €3.65 (prior year €3.25). This corresponds to a total dividend distribution of €3.9 billion to our shareholders, which is significantly above the high level of €3.5 billion dis- tributed in the previous year. We aim to achieve a sustainable dividend development also in the coming years.  B.18 Net operating profit Table  B.19 shows the reconciliation of the EBIT of the divisions to net operating profit. In addition to the EBIT of the divisions, net operating profit also includes earnings effects for which the divisions are not accountable, such as income taxes and other reconciliation items. Value added As described in the “Performance measurement system” section of the “Corporate Profile” chapter in chart  B.03, the cost of capital is the result of net assets and cost of capital expressed as a percentage, which is subtracted from earnings in order to calculate value added. The tables  B.20 and  B.21 show value added and net assets for the Group and for the individual divisions. Table  B.22 shows how net assets are derived from the consolidated statement of financial position. The Group’s value added increased by €2.0 billion to €7.2 billion in 2017, representing a return on net assets of 22.9% (2016: 19.1%). This was once again substantially higher than the minimum required rate of return of 8%. The significant increase in value added was mainly due to the growth in the divisions’ EBIT. In addition, a positive effect came from the decrease in income-tax expenses caused by the reduction in the nationwide federal corporate income tax rate for US com- panies as a result of the law signed in 2017 for a comprehensive tax reform in the United States. The increase in average net assets was mainly attributable to higher investment in fixed assets and had only a slight negative impact on value added. Value added at Mercedes-Benz Cars increased by €0.9 billion to €6.3 billion, primarily reflecting the positive earnings development due to the increased sales of new vehicles, positive exchange-rate effects and income in connection with the remeasurement in the equity investment in THERE Holding B.V. Opposing effects resulted from advance expenditure for new technologies and future vehicles, expenses for the expansion of production capacities and a disadvantageous development of raw-material prices. Furthermore, expenses for voluntary ser- vice activities and for a specific vehicle recall had a negative impact on earnings. In the year 2016, EBIT included expenses in connection with Takata airbags and expenses in connection with the remeasurement of inventories. There was a slight neg- ative impact on value added from the increase in average net assets to €24.0 billion primarily caused by higher investments in fixed assets. 33_Ertragslage_E.indd 105 13.02.18 12:34 Daimler Trucks’ value added was significantly higher than in the previous year at €1.4 billion (2016: €0.9 billion). This development was primarily the result of the positive development of earnings due to increased unit sales in the NAFTA region, the sale of real estate in Japan and eﬃciency improvements. Higher expenses for raw materials and expenses for the ﬁxed- cost optimization had a negative impact on EBIT. Average net assets were close to the prior-year level. At Mercedes-Benz Vans, value added decreased by €0.1 billion to €0.9 billion. This development was the result of the increase in average net assets caused by higher investments in ﬁxed assets and higher inventories. Despite increasing expenses for product ramp-ups and production material, as well as the negative impact of the termination of a contract-manufacturing arrangement, EBIT remained at the prior-year level due to the positive development of unit sales. The value added of the Daimler Buses division was slightly lower than in the previous year at €126 million (2016: €143 million). This primarily reﬂects the increase in average net assets due to higher inventories. EBIT was at the high prior-year level, due to further eﬃciency enhancements and increasing unit sales in Latin America. Daimler Financial Services’ value added of €0.5 billion was above the prior-year level at €0.4 billion. The division’s return on equity amounted to 17.6% (2016: 17.4%). The development of value added primarily reﬂects the higher earnings resulting from increased contract volume and a better cost-of-risk situation. On the other hand, a higher interest-rate level, the expansion of businesses activities and exchange-rate eﬀects impacted earnings negatively. In addition, average equity increased by €0.1 billion. 106 B | COMBINED MANAGEMENT REPORT | PROFITABILITY B.21 Net assets (average) In millions of euros 2017 2016 17/16 % change Mercedes-Benz Cars 23,975 22,345 Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services1 Net assets of the divisions Equity method investments2 Assets and liabilities from income taxes3 Other reconciliation3 8,421 2,385 978 11,165 46,924 941 2,141 - 1,492 8,448 1,739 887 10,000 43,419 555 3,372 - 292 Daimler Group 1 Total equity. 2 To the extent not allocated to the segments. 3 To the extent not allocated to Daimler Financial Services. 48,514 47,054 +7 - 0 +37 +10 +12 +8 +70 - 37 +411 +3 B.22 Net assets of the Daimler Group at year-end In millions of euros Net assets1 Intangible assets Property, plant and equipment Leased assets Inventories Trade receivables Less provisions for other risks Less trade payables Less other assets and liabilities Assets and liabilities from income taxes1 Total equity of Daimler Financial Services 2017 2016 17/16 % change 12,742 11,145 +14 27,914 18,711 24,492 9,737 26,314 17,433 24,426 8,977 - 16,512 - 15,325 - 11,655 - 10,853 - 27,789 - 26,727 1,719 2,935 12,378 10,448 +6 +7 +0 +8 +8 +7 +4 - 41 +18 +6 Daimler Group 1 To the extent not allocated to Daimler Financial Services. 51,737 48,773 B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES 107 Liquidity and Capital Resources Principles and objectives of ﬁnancial management Financial management at Daimler consists of capital structure management, cash and liquidity management, pension asset management, market-price risk management (foreign exchange rates, interest rates, commodity prices) and credit and ﬁnan- cial country risk management. Worldwide ﬁnancial management is performed within the framework of legal requirements con- sistently for all Group entities by Treasury. Financial management operates within a framework of guidelines, limits and bench- marks, and on the operational level is organizationally separate from other ﬁnancial functions such as settlement, ﬁnancial controlling, reporting and accounting. Capital structure management designs the capital structure for the Group and its subsidiaries. Decisions regarding the capitalization of ﬁnancial services companies – as well as pro- duction, sales and ﬁnancing companies – are based on the principles of cost-optimized and risk-optimized liquidity and capital resources. In addition, it is necessary to comply with restrictions on capital transactions and on the transfer of capital and currencies. The purpose of liquidity management is to enable the Group to meet its payment obligations at any time. For this pur- pose, the Group records the cash ﬂows from operating and ﬁnancial activities in a rolling plan. The resulting ﬁnancial requirements are covered by the use of appropriate instruments for liquidity management (e. g. bank credits, commercial paper and notes); liquidity surpluses are invested in the money market or the capital market taking into account risk and return expectations. The goal is to ensure the level of liquidity regarded as necessary at optimal costs. Besides operational liquidity, Daimler maintains additional liquidity reserves, which are avail- able in the short term. Those additional ﬁnancial resources include a pool of receivables from the ﬁnancial services business which are available for securitization in the capital market, as well as a contractually conﬁrmed syndicated credit facility with a volume of €9 billion. Cash management determines the Group’s cash requirements and surpluses. Via cash-pooling procedures, liquidity is centrally concentrated on bank accounts of Daimler in various currencies. Most of the payments between Group companies are made via internal clearing accounts, so that the number of external cash ﬂows is reduced to a minimum. Daimler has established standardized processes and systems to manage its bank accounts and internal cash-clearing accounts, and to execute automated payment transactions. Management of market price risks aims to minimize the impact of ﬂuctuations in foreign exchange rates, interest rates and commodity prices on the results of the divisions and the Group. The Group’s overall exposure to these market-price risks is determined to provide a basis for hedging decisions, which include the deﬁnition of hedging volumes and corresponding periods, as well as the selection of hedging instruments. Decisions regarding the management of risks resulting from ﬂuc- tuations in foreign exchange rates and commodity prices, as well as decisions on asset/liability management (liquidity and interest rates), are regularly made by the relevant committees. Management of pension assets includes the investment of pension assets to cover the corresponding pension obligations. Pension assets are legally separated from the Group’s assets and are invested primarily in funds; pension assets are not available for general business purposes. The funds are allocated to diﬀerent asset classes such as equities, ﬁxed-interest securities, alternative investments and real estate, depending on the expected development of pension obligations and with the help of a risk-return optimization. The performance of asset management is measured by comparing with deﬁned ref- erence indices. Local custodians of the pension assets are responsible for the risk management of the individual pension assets. The Global Pension and Healthcare Committee limits these risks by means of Group-wide binding guidelines. Addi- tional infor mation on pension plans and similar obligations is provided in E Note 22 of the Notes to the Consolidated Finan- cial Statements. 108 B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES B.23 Condensed statement of cash ﬂows¹ In millions of euros Cash and cash equivalents at beginning of period Proﬁt before income taxes Depreciation and amortization/impairments Other non-cash expense and income and gains/losses on disposals of assets Change in operating assets and liabilities Inventories Trade receivables Trade payables Receivables from ﬁnancial services Vehicles on operating leases Other operating assets and liabilities Dividends received from equity-method investments Income taxes paid Cash used for/provided by operating activities Additions to property, plant and equipment and intangible assets Investments in and disposals of shareholdings Acquisitions and sales of marketable debt securities Other Cash used for investing activities Change in ﬁnancing liabilities Dividends paid Other transactions with shareholders Internal equity and ﬁnancing transactions Cash used for/provided by financing activities Eﬀect of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period Consolidated Industrial Business2 Daimler Financial Services 2017 2016 2017 2016 2017 2016 10,981 14,301 5,676 9,936 8,751 12,574 12,336 5,478 5,521 8,369 10,840 5,398 2,230 1,965 155 - 1,960 - 1,110 - 2,028 - 1,141 68 - 1,455 - 1,592 1,288 - 11,145 - 3,681 - 48 843 - 3,879 - 1,652 - 10,158 - 687 537 790 - 1,272 - 962 757 - 6,848 - 4,209 2,150 103 - 2,950 3,711 - 8,833 - 3,905 - 2,330 402 - 1,264 - 1,082 1,159 200 642 - 644 842 - 3,715 11,967 - 1,356 - 697 581 194 - 132 1,650 103 - 2,797 - 191 - 510 129 - 11,345 - 4,323 596 1 - 164 - 626 435 791 - 216 - 2,311 344 12,643 - 13,619 - 8,932 - 10,025 - 8,720 - 133 - 9,518 - 14,666 - 9,425 - 10,903 16,794 - 3,727 62 – 15,763 - 3,678 - 76 – 13,129 12,009 - 868 - 9 12,072 10,981 8,976 - 3,723 - 20 - 6,233 - 1,000 - 778 9,515 9,876 - 3,674 - 111 - 7,444 - 1,353 - 5 8,751 - 61 102 - 1 - 93 7,818 - 4 82 6,233 14,129 - 90 2,557 1,567 1,734 80 31 84 - 265 176 - 7,042 - 4,077 500 – - 153 - 113 - 3,689 - 19 58 - 3,763 5,887 - 4 35 7,444 13,362 - 4 2,230 1 The columns “Industrial business« and »Daimler Financial Services” represent a business point of view. 2 The industrial business comprises the vehicle segments Mercedes-Benz Cars, Mercedes-Benz Trucks, Mercedes-Benz Vans and Daimler Buses. Intra-group eliminations between the industrial business and Daimler Financial Services are generally allocated to the industrial business. The risk volume that is subject to credit risk management includes all of Daimler’s worldwide creditor positions with ﬁnancial institutions, issuers of securities, and customers in the ﬁnancial services business and the automotive business. Credit risks with ﬁnancial institutions and issuers of securities arise primarily from investments executed as part of our liquid- ity management and from trading in derivative ﬁnancial instru- ments. The management of these credit risks is mainly based on an internal limit system that reﬂects the creditwor thiness of the respective ﬁnancial institution or issuer. The credit risk with customers of our automotive business relates to contracted dealerships and general agencies, other cor porate customers and retail customers. In connection with the export business, general agencies that according to our creditworthiness analyses are not suﬃciently creditworthy are generally required to provide collateral such as ﬁrst-class bank guarantees. The credit risk with end-customers in the ﬁnancial services business is managed by Daimler Financial Services on the basis of a standardized risk management process. In this process, mini- mum requirements are deﬁned for the sales-ﬁnancing and leasing business and standards are set for credit processes as well as for the identiﬁcation, measurement and management of risks. Key elements for the management of credit risks are appropriate creditworthiness assessments, supported by statistical risk-classiﬁcation methods, as well as structured portfolio analysis and portfolio monitoring. Financial country risk management includes various aspects: the risk from investments in subsidiaries and joint ventures, the risk from the cross-border ﬁnancing of Group companies in risk countries, and the risk from direct sales to customers in those countries. Daimler has an internal rating system that divides all countries in which it operates into risk categories. With equity capital transactions in risk countries, the Group hedges against political risks with the use of investment protection insurance such as the German government’s investment guar- antees. Risks from cross-border receivables are partially pro- tected with the use of export credit insurance, letters of credit and bank guarantees in favor of Daimler AG. In addition, a committee sets and restricts the level of hard-currency credits granted to ﬁnancial services companies in risk countries. Further information on the management of market-price risk, credit-default and liquidity risk is provided in E Note 32 of the Notes to the Consolidated Financial Statements. B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES 109 Cash ﬂows Cash used for/provided by operating activities (cid:202) B.23 resulted in a cash outﬂow of €1.7 billion in 2017 (2016: cash inﬂow of €3.7 billion). The decrease was primarily due to eﬀects from the leasing and sales-ﬁnancing business. In addi- tion, a cash outﬂow of €3.0 billion resulted from the extra- ordinary contribution to the German pension plan assets. Cash used for operating activities also reﬂects higher income taxes paid. Opposing eﬀects were due to the positive business per- formance. A cash inﬂow of €0.8 billion resulted from the dividend distributed by Beijing Benz Automotive Co., Ltd. The payment of the ﬁne of €1.0 billion imposed on Daimler by the European Commission in the context of the settlement in the truck antitrust proceedings led to a cash outﬂow in the prior-year period. Cash used for investing activities (cid:202) B.23 amounted to €9.5 billion (2016: €14.7 billion). The change compared with the prior-year period resulted primarily from lower cash out- ﬂowsfor investments in shareholdings. The reporting period was aﬀected by the acquisition of an interest in LSH Auto International Limited (LSHAI). In the prior-year period, the acquisition of 100% of the shares of Athlon Car Lease Inter- national B.V. (Athlon) and the settlement of ﬁnancing liabilities of Athlon led to cash outﬂows. Positive eﬀects resulted from acquisitions and disposals of securities in the context of liquid- ity management. Those transactions led to a net cash inﬂow in 2017, whereas acquisitions exceeded disposals in the previ- ous year. The sale of real estate in Japan led to a cash inﬂow of €0.3 billion. Cash used for investing activities also reﬂects increased investments in property, plant and equipment and intangible assets. B.24 Free cash ﬂow of the industrial business In millions of euros Cash provided by operating activities Cash used for investing activities Change in marketable debt securities Other adjustments Free cash flow of the industrial business 2017 2016 17/16 Change 11,967 12,643 - 676 - 9,425 - 10,903 +1,478 - 435 - 102 2,311 - 177 - 2,746 +75 2,005 3,874 - 1,869 Cash provided by financing activities (cid:202) B.23 amounted to €13.1 billion (2016: €12.0 billion). The increase was primarily caused by higher net cash inﬂows from ﬁnancing liabilities in the context of reﬁnancing the leasing and sales-ﬁnancing business. Cash and cash equivalents increased by €1.1 billion compared with December 31, 2016, a(cid:5)er taking currency-translation eﬀects into account. Total liquidity, which also includes market- able debt securities, increased by €0.4 billion to €22.1 billion. The parameter used by Daimler to measure the ﬁnancial capabil- ity of the Group’s industrial business is the free cash flow of the industrial business (cid:202) B.24, which is derived from the reported cash ﬂows from operating and investing activities. The cash ﬂows from the acquisition and sale of marketable debt securities included in cash ﬂows from investing activities are deducted, as those securities are allocated to liquidity and changes in them are thus not a part of the free cash ﬂow. Other adjustments relate to non-cash additions to property, plant and equipment that are allocated to the Group as their beneﬁcial owner due to the form of their underlying lease contracts. Furthermore, adjustments are made for the eﬀects of ﬁnancing dealerships within the Group. In addition, the calculation of the free cash ﬂow includes those cash ﬂows to be shown under cash from ﬁnancing activities in connection with the acquisition or sale of interests in subsidiaries without loss of control. The free cash ﬂow of the industrial business amounted to €2.0 billion in 2017 and was lower than the prior-year level of €3.9 billion. The free cash ﬂow of the industrial business was thus in line with the adjusted forecast made in the Outlook section of the Interim Report on the third quarter of 2017, and was primarily inﬂuenced by the cash outﬂow of €3.0 billion for the extraordinary contribution to the German pension plan assets. Excluding this payment, which was announced in the Outlook section of the Interim Report on the third quarter of 2017, the free cash ﬂow of the industrial business was signiﬁ- cantly higher than in the previous year and thus signiﬁcantly surpassed our forecast as adjusted during the year. 110 B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES B.25 Net liquidity of the industrial business In millions of euros Cash and cash equivalents Marketable debt securities Liquidity Financing liabilities Market valuation and currency hedges for financing liabilities Financing liabilities (nominal) Net liquidity Dec. 31, 2017 Dec. 31, 2016 9,515 8,894 18,409 - 1,600 8,751 9,498 18,249 1,451 17/16 Change +764 - 604 +160 - 3,051 - 212 37 - 249 - 1,812 16,597 1,488 19,737 - 3,300 - 3,140 B.26 Net debt of the Daimler Group In millions of euros Dec. 31, 2017 Dec. 31, 2016 Cash and cash equivalents Marketable debt securities Liquidity 12,072 10,063 22,135 10,981 10,748 21,729 17/16 Change +1,091 - 685 +406 Financing liabilities - 127,124 - 117,686 - 9,438 Market valuation and currency hedges for financing liabilities Financing liabilities (nominal) Net debt - 229 61 - 290 - 127,353 - 117,625 - 105,218 - 95,896 - 9,728 - 9,322 The €1.9 billion decrease in the free cash flow to €2.0 billion resulted primarily from the cash outflow for the extraordinary contribution to the pension plan assets and the higher income taxes paid. In addition, the free cash flow of the industrial busi- ness was affected by increased investments in property, plant and equipment and intangible assets and the acquisition of an interest in LSHAI. Opposing effects were due to the positive business performance and the development of operating leases in the industrial business. A cash inflow of €0.8 billion resulted from the dividend distributed by Beijing Benz Automotive Co., Ltd. and the sale of real estate in Japan led to a cash inflow of €0.3 billion. The payment of the fine of €1.0 billion imposed on Daimler by the European Commission in the context of the settlement in the truck antitrust proceedings led to a cash out- flow in the prior-year period. In 2017, the free cash flow of the Daimler Group led to a cash outflow of €11.9 billion (2016: €9.3 billion). Besides the effects of the free cash flow of the industrial business, the free cash flow of the Daimler Group is mainly affected by the leasing and sales-financing business of Daimler Financial Services. In the prior-year period, there was an additional effect due to the acquisition of 100% of the shares of Athlon, including the settle- ment and assumption of Athlon’s financing liabilities. The net liquidity of the industrial business  B.25 is calculated as the total amount as shown in the statement of financial position of cash, cash equivalents and the market- able debt securities included in liquidity management, less the currency-hedged nominal amounts of financing liabilities. To the extent that the Group’s internal refinancing of the finan- cial services business is provided by the companies of the industrial business, this amount is deducted in the calculation of the net debt of the industrial business. Compared with December 31, 2016, the net liquidity of the industrial business decreased from €19.7 billion to €16.6 billion. The dividend payment to the shareholders of Daimler AG and negative exchange-rate effects led to a decrease in net liquidity that was only partially offset by the positive free cash flow. Net debt at Group level, which primarily results from refinancing the leasing and sales-financing business, increased compared with December 31, 2016 from €95.9 billion to €105.2 billion.  B.26 Financial guarantees, contingent liabilities and other financial obligations Within the context of financial guarantees, Daimler generally guarantees the settlement of the payment obligations of the main debtor vis-à-vis the holder of the guarantee. The maximum potential obligation resulting from these guarantees amounts to €0.7 billion at December 31, 2017 (2016: €0.8 billion); the liabilities recognized in this context amount to €0.1 billion at the end of the year (2016: €0.2 billion). The financial guarantees that the Group has issued relating to bank loans of Toll Collect GmbH, the operator company for the electronic toll-collection system in Germany, remain unchanged at €0.1 billion. For information on risks arising from guarantees, we refer to our Risk and Opportunity Report in the section “Risks from guaran- tees, legal and tax risks”. B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES 111 The contingent liabilities principally constitute buyback obli- gations. At December 31, 2017, the best possible estimate for the loss risk from these guarantees amounted to €1.6 billion (2016: €1.7 billion). The amounts of the buyback commitments are close to the fair values of the vehicles to be taken back. Warranty and goodwill commitments (product guarantees) pro- vided by the Group in connection with its vehicle sales are not included in the contingent liabilities. Other contingent liabil- ities are also included. The best possible estimate for an obligation from the other contingent liabilities is €0.6 billion (2016: €0.3 billion). In the context of its ordinary business operations, the Group has also entered into other financial obligations in addition to the liabilities shown in the consolidated balance sheet at December 31, 2017. Detailed information on financial guarantees, contingent liabilities and other financial obligations are provided in E Note 30 of the Notes to the Consolidated Financial Statements. Investment In the context of our strategy of strengthening our core business, we aim to make good use of the opportunities presented by the global automotive markets. At the same time, we intend to play a major role in shaping the fundamental technological change occurring in the automotive industry, and to assume a leading role with the development of the future areas of CASE (Connected, Autonomous, Shared & Services and Electric). This requires substantial investment in innovative products and new technologies, as well as in the expansion of our worldwide production network. In 2017, we therefore once again signi- ficantly increased our investment in property, plant and equip- ment – as already announced in Annual Report 2016 – from an already high level to €6.7 billion (2016: €5.9 billion). At December 31, 2017, financial obligations of €4.0 billion exist in connection with future investments in property, plant and equipment. B.27 Investment in property, plant and equipment In billions of euros 7 6 5 4 3 2 1 0 2013 2014 2015 2016 2017 B.28 Investment in property, plant and equipment by division In millions of euros % change 2017 2016 16/15 Daimler Group in % of revenue Mercedes-Benz Cars in % of revenue Daimler Trucks in % of revenue Mercedes-Benz Vans in % of revenue Daimler Buses in % of revenue Daimler Financial Services in % of revenue 6,744 4.1 4,843 5.1 1,028 2.9 710 5.4 94 2.2 43 0.2 5,889 3.8 4,147 4.6 1,243 3.7 373 2.9 97 2.3 37 0.2 +15 +17 - 17 +90 - 3 +16 At Mercedes-Benz Cars, investment in property, plant and equipment of €4.8 billion in 2017 was significantly above the prior-year level (2016: €4.1 billion). The most important projects included the model upgrade of the S-Class and the successor models in the compact class, as well as new combustion engines and transmissions. We also made sub- stantial investments in the reorganization of our German production facilities as competence centers and in the expan- sion of our international production network. At the same time, we are preparing our worldwide production network for electric mobility. The main areas of investment at Daimler Trucks in 2017 were successor generations for existing prod- ucts, new products, global component projects and the optimization of the worldwide production network. Total invest- ment in property, plant and equipment at Daimler Trucks decreased to €1.0 billion (2016: €1.2 billion). At the Mercedes- Benz Vans division, the focus of investment was on the next- generation Sprinter in Germany and the United States. The main investments at Daimler Buses in the reporting period were in alternative drive systems, new products and the modernization of the production network. 112 B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES In addition to property, plant and equipment, we also invested in associated companies and joint ventures in the reporting period. Through targeted investments, we strengthened our position especially in the area of mobility services and in the development of a charging infrastructure for electric mobility. Also in 2017, Daimler acquired an equity interest of 15% in LSH Auto International Limited (LSHAI) for €0.3 billion. LSHAI is a subsidiary of Lei Shing Hong Group and is one of the biggest Mercedes-Benz dealers worldwide. With this transaction, the two partners are strengthening their longstanding cooperation. Furthermore, we capitalized development costs of €2.8 billion in 2017 (2016: €2.3 billion); this is presented under intangible assets. E page 264. Reﬁnancing The funds raised by Daimler in the year 2017 primarily served to reﬁnance the leasing and sales-ﬁnancing business. For that purpose, Daimler made use of a broad spectrum of various ﬁnancing instruments in various currencies and markets. They include bank loans, commercial paper in the money market, bonds with medium and long maturities, customer deposits at Mercedes-Benz Bank, and the securitization of receivables from customers in the ﬁnancial services business (asset backed securities). Various issuance programs are available for raising longer-term funds in the capital market. They include the Euro Medium Term Note program (EMTN) with a total volume of €50 billion, under which Daimler AG and several subsidiaries can issue bonds in various currencies. Other local capital-market programs exist, which are signiﬁcantly smaller than the EMTN program. Capital-market programs allow ﬂexible, repeated access to the capital markets. The continued expansive monetary policy of the central banks also aﬀected the situation in the bond markets in the reporting period. The high volumes of available liquidity meant that risk premiums for companies with investment-grade credit ratings remained moderate. In the year under review, the Group covered its reﬁnancing requirements mainly through the issuance of bonds. A large proportion of those bonds were placed in the form of so-called benchmark emissions (bonds with high nominal volumes) in the US dollar and euro markets. (cid:202) B.30 In the Chinese market, Daimler placed four so-called panda bonds with a total volume of CNY 16.0 billion. In addition, a large number of smaller bonds were issued in various currencies and markets. Daimler also issued small volumes of commercial paper in 2017. In 2017, asset-backed securities (ABS) were issued in two new countries in addition to the already established ABS platforms in the United States, Canada, China and Germany. In the United Kingdom, ABS of GBP 0.4 billion were successfully placed with investors, while the volume of the ﬁrst transaction in Australia was AUD 0.75 billion. In the United States, a total reﬁnancing volume of $4.7 billion was generated in 2017 in three transactions, and CAD 0.4 billion was generated in a trans- action in Canada. In addition, Mercedes-Benz Bank sold €1.1 billion worth of ABS bonds to European investors through the Silver Arrow platform. In China, two ABS transactions with a total volume of CNY 10.2 billion were successfully placed. B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES 113 Bank credit was another important source of reﬁnancing in 2017. Loans were provided by globally active banks as well as by nationally operating banks. The lenders also included supra national banks such as the European Investment Bank and the Brazilian Development Bank (BNDES). In order to secure suﬃcient ﬁnancial ﬂexibility, Daimler concluded a €9 billion syndicated credit facility with a consor- tium of international banks in September 2013. This provides the Group with ﬁnancial ﬂexibility until the year 2020. More than 40 European, American and Asian banks participated in the consortium. Currently, Daimler does not intend to utilize the credit line. At the end of 2017, Daimler had not utilized short- and long-term credit lines totaling €21.0 billion (2016: €18.1 billion). They include the syndicated credit facility arranged in September 2013 with a consortium of international banks with a volume of €9 billion. The carrying values of the main reﬁnancing instruments and the weighted average interest rates are shown in table (cid:202) B.29. At December 31, 2017, they are mainly denominated in the fol- lowing currencies: 43% in euros, 25% in US dollars, 8% in Chinese renminbi, 4% in Canadian dollars, 4% in British pounds and 3% in Japanese yen. At December 31, 2017, the total of ﬁnancial liabilities shown in the consolidated statement of ﬁnancial position amounted to €127,124 million (2016: €117,686 million). Detailed information on the amounts and terms of ﬁnancing liabilities is provided in E Note 24 and 32 of the Notes to the Consolidated Financial Statements. E Note 32 also provides information on the maturities of the other ﬁnancial liabilities. B.29 Reﬁnancing instruments Average interest rates Carrying values Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 in % In millions of euros Notes/bonds and liabilities from ABS transactions Commercial paper Liabilities to ﬁnancial institutions Deposits in the direct banking business 1.88 2.64 1.64 78,110 73,648 2.71 1,045 1,701 3.09 2.96 34,555 29,674 0.42 0.65 11,460 11,642 B.30 Benchmark issuances Issuer Volume Month of emission Maturity Daimler Finance North America LLC Daimler Finance North America LLC Daimler Finance North America LLC US$1,400 million Jan. 2017 Jan. 2020 US$850 million Jan. 2017 Jan. 2022 US$750 million Jan. 2017 Jan. 2027 Daimler AG €1,250 million Feb. 2017 Feb. 2025 Daimler Finance North America LLC Daimler Finance North America LLC Daimler Finance North America LLC Daimler AG Daimler AG Daimler AG Daimler AG Daimler Finance North America LLC US$500 million May 2017 Nov. 2018 US$1,250 million May 2017 May 2020 US$250 million May 2017 Jan. 2022 €1,250 million Jun. 2017 €1,500 million Jun. 2017 €1,300 million Jun. 2017 Jul. 2024 Jul. 2029 Jul. 2037 €1,000 million Nov. 2017 Nov. 2027 US$1,500 million Nov. 2017 Feb. 2021 114 B | COMBINED MANAGEMENT REPORT | LIQUIDITY AND CAPITAL RESOURCES Credit ratings In financial year 2017, the long-term credit ratings of Daimler AG were upgraded by the two rating agencies Moody’s Investors Service and DBRS from A3 to A2 and from A (low) to A respec- tively. Concurrently, Moody’s also upgraded the short-term rating from P-2 to P-1. For the first time, Daimler received a credit rating from the European rating agency Scope Ratings AG. Scope assigned a corporate issuer rating of A and a stable outlook to Daimler AG and its financing subsidiaries, with a short-term rating of S-1. The other agencies did not change our credit ratings compared with the previous year. At the end of 2017, the outlook for Daimler AG was assessed as “stable” by all five of the agencies it has engaged.  B.31 B.31 Rating Long-term credit rating Standard & Poor’s Moody’s Fitch Scope DBRS Short-term credit rating Standard & Poor’s Moody’s Fitch Scope DBRS End of 2017 End of 2016 A A2 A- A A A-1 P-1 F2 S-1 A A3 A- - A (low) A-1 P-2 F2 - R-1 (low) R-1 (low) On February 3, 2017, Moody’s Investors Service (Moody’s) upgraded its long-term rating for Daimler AG and its rated subsidiaries from A3 to A2. It also upgraded its short-term rat- ing from P-2 to P-1. The outlook was changed from “positive” to “stable”. The upgrade was explained with the robust opera- tional performance in recent years as well as the successful and ongoing product renewal program. As assessed by Moody’s, Daimler is well prepared to weather the future challenges facing the automotive industry such as autonomous driving, alternative drive systems, fuel consumption and emissions. Daimler AG for the first time engaged the European rating agency Scope Ratings (Scope) to issue a corporate rating. On April 27, 2017, Scope assigned an A rating for the creditworthiness of Daimler AG and its financing companies. The short-term rating was assessed as S-1 and the outlook as “stable”. Scope stated that its corporate rating reflects the company’s track record in recent years and Scope’s expectation for a continua- tion of the strong market positions held by the Daimler Group’s leading divisions, Mercedes-Benz Cars and Daimler Trucks. Scope stated that its positive risk assessment was supported by the Group’s geographic diversification and the added benefit from the captive finance business at Daimler Financial Services. Furthermore, it assessed Daimler’s financial risk profile as very strong. On May 26, 2017, Fitch Ratings (Fitch) affirmed its long-term issuer default rating of A- with a stable outlook for Daimler AG. Fitch referred to Daimler’s strong business profile and robust credit metrics. In addition, Fitch mentioned the Group’s wide geo- graphic and business diversification as well as the strength- ened profitability of the automotive divisions in recent years. Fitch expects that increased technological convergence in the fields of autonomous driving and electric mobility will provide more synergies between the divisions in the medium term. On September 15, 2017, S&P Global Ratings (S&P) also confirmed its long-term corporate rating of A for Daimler AG with reference to the leading position that the Group has achieved in the automotive business. The rating agency referred in particular to the strength of the Mercedes-Benz Cars division. S&P assumes that Daimler will maintain its competitive position in the coming years. Furthermore, S&P expects a continuation of very good financial metrics. The business risk of Daimler AG is assessed as “satisfactory” and the financial risk as “minimal”. On November 29, 2017, the Canadian agency DBRS upgraded its long-term rating for Daimler AG from A (low) to A, with a stable outlook. DBRS stated that this change reflects the continually improving earnings over the past number of years, which has caused Daimler’s financial risk assessment to strengthen to a higher level. The short-term ratings issued by S&P, Fitch and DBRS remained unchanged in 2017. B | COMBINED MANAGEMENT REPORT | FINANCIAL POSITION 115 Financial Position The balance sheet total increased compared with December 31, 2016 from €243.0 billion to €255.6 billion; adjusted for the eﬀects of currency translation, the increase amounted to €25.3 billion. Daimler Financial Services accounted for €150.0 billion of the balance sheet total (2016: €141.8 billion), equivalent to 59% of the Daimler Group’s total assets (2016: 58%). The increase in total assets was primarily due to the growth of the ﬁnancial services business and higher trade receivables. In addition, the higher volume of capital expenditure led to an increase in intangible assets and property, plant and equipment. On the liabilities side, the increased reﬁnancing requirement resulting from the portfolio growth led to increased ﬁnancing liabilities. Furthermore, there was an increase in shareholders’ equity. Current assets accounted for 42% of the balance sheet total, which was at the prior-year level. Current liabilities amounted to 34% of total equity and liabilities, which was slightly below the prior-year level (2016: 35%). Intangible assets of €13.7 billion (2016: €12.1 billion) included €10.3 billion of capitalized development costs (2016: €8.8 billion), €2.0 billion (2016: €1.4 billion) of franchises, industrial property and similar rights, as well as €1.1 billion of goodwill (2016: €1.2 billion). The Mercedes-Benz Car division accounted for 79% (2016: 76%) and Daimler Trucks for 10% (2016: 14%) of development costs. Capitalized development costs amounted to €2.8 billion in 2017 (2016: €2.3 billion), and accounted for 32% of the Group’s total research and develop- ment expenditure (2016: 31%) E see page 264. Property, plant and equipment E see page 265 increased to €28.0 billion (2016: €26.4 billion). In 2017, €6.7 billion was invested worldwide (2016: €5.9 billion), in particular at our production and assembly sites for new products and tech- nologies and for the expansion and modernization of production facilities. The sites in Germany accounted for €4.0 billion of the capital expenditure (2016: €3.6 billion). Equipment on operating leases and receivables from financial services rose to a total of €133.5 billion (2016: €127.4 billion). The increase adjusted for exchange-rate eﬀects of €14.5 billion was primarily caused by the higher level of new business at Daimler Financial Services. The growth in business operations reﬂected the successful course of business, especially in Asia and Europe. The growth in the sales- ﬁnancing business was especially signiﬁcant in China and other Asian countries. The leasing and sales-ﬁnancing business as a proportion of total assets was at the prior-year level of 52%. Equity-method investments of €4.8 billion (2016: €4.1 billion) mainly comprised the carrying amounts of our equity interests in Beijing Benz Automotive Co., Ltd., BAIC Motor Corporation Ltd., There Holding B.V. and LSH Auto International Limited. See Note 13 of the Notes to the Consolidated Financial Statements for further information. Inventories increased from €25.4 billion to €25.7 billion, equivalent to 10% of total assets, and were thus at the prior-year level. The increase adjusted for exchange-rate eﬀects of €1.4 billion applied to all automotive divisions. Trade receivables amounted to €12.0 billion, which is above the prior-year level of €10.6 billion. The Mercedes-Benz Cars division accounted for 43% of these receivables and the Daimler Trucks division accounted for 24%. Cash and cash equivalents increased compared with the end of 2016 by €1.1 billion to €12.1 billion. Marketable debt securities decreased compared with December 31, 2016 from €10.7 billion to €10.1 billion. Those assets included the debt instruments that are allocated to liquidity, most of which are traded in active markets. They generally had an external rating of A or better. 116 B | COMBINED MANAGEMENT REPORT | FINANCIAL POSITION Other financial assets increased by €1.1 billion to €6.8 billion. They primarily consisted of derivative ﬁnancial instruments, equity instruments in non-consolidated subsidiaries and other investments, as well as loans and other receivables due from third parties. The increase was primarily attributable to higher positive fair values of currency derivatives. Other assets of €9.0 billion (2016: €9.5 billion) primarily com- prised deferred tax assets and tax refund claims. The decrease in deferred tax assets primarily related to eﬀects from the measurement of derivatives not recognized in proﬁt and loss. The Group’s equity increased compared with December 31, 2016 from €59.1 billion to €65.3 billion; adjusted for the eﬀects of currency translation, the increase amounted to €8.8 billion. The increase in equity was mainly due to net proﬁt of €10.9 billion E see page 104 and the remeasurement of derivative ﬁnancial instruments not recognized in proﬁt and loss of €1.7 billion. The increase was partially oﬀset by the dividend of €3.5 billion paid out to Daimler’s shareholders and eﬀects from currency trans- lation of €2.7 billion. Equity attributable to the share hol ders of Daimler AG increased to €64.0 billion (2016: €58.0 billion). In relation to the 5% increase in the balance sheet total, equity increased by the disproportionally high rate of 10%. Due to the eﬀects described above, the Group’s equity ratio of 24.0% was above the level at the end of 2016 (22.9%); the equity ratio for the industrial business was 46.4% (2016: 44.7%). It is necessary to consider that the equity ratios at the end of 2016 and 2017 are adjusted for the paid and proposed dividend payments. Provisions decreased from €26.8 billion to €24.6 billion; as a proportion of the balance sheet total, they were slightly below the prior-year level at 10% (2016: 11%). They primarily comprised provisions for pensions and similar obligations of €5.8 billion (2016: €9.0 billion), which mainly consists of the diﬀerence between the present value of deﬁned beneﬁt pension obligations of €31.7 billion (2016: €31.2 billion) and the fair value of the pension-plan assets applied to ﬁnance those obligations of €27.2 billion (2016: €23.4 billion). The decrease in provisions for pensions and similar obligations is primarily due to the extraordinary contribution of €3.0 billion into the German pension plan assets. Provisions also related to liabili- ties from income taxes of €1.6 billion (2016: €1.7 billion), from product warranties of €6.7 billion (2016: €6.1 billion) and for personnel and social costs of €4.4 billion (2016: €4.3 billion), as well as other provisions of €6.2 billion (2016: €5.7 billion). B.32 Statement of ﬁnancial position¹ in millions of euros Assets Intangible assets Property, plant and equipment Equipment on operating leases Receivables from ﬁnancial services Equity-method investments Inventories Trade receivables Cash and cash equivalents Marketable debt securities thereof current thereof non-current Other ﬁnancial assets Other assets Total assets Equity and liabilities Equity Provisions Financing liabilities thereof current thereof non-current Trade payables Other ﬁnancial liabilities Other liabilities Total equity and liabilities Consolidated Industrial Business² Daimler Financial Services At December 31, 2016 2017 At December 31, 2016 2017 At December 31, 2016 2017 13,735 27,981 47,714 85,787 4,818 25,686 11,990 12,072 10,063 9,073 990 6,801 8,958 12,098 26,381 46,942 80,507 4,098 25,384 10,614 10,981 10,748 9,648 1,100 5,736 9,499 12,789 27,914 18,711 - 109 4,670 24,492 9,737 9,515 8,894 8,893 1 - 10,933 - 61 255,605 242,988 105,619 65,314 24,617 127,124 48,746 78,378 12,474 11,522 14,554 59,133 26,810 117,686 47,288 70,398 11,567 12,869 14,923 52,936 23,591 1,600 - 19,435 21,035 11,655 7,622 8,215 11,199 26,314 17,433 - 87 4,043 24,426 8,977 8,751 9,498 9,497 1 - 11,045 1,637 101,146 48,685 25,768 - 1,451 - 20,480 19,029 10,853 9,645 7,646 946 67 29,003 85,896 148 1,194 2,253 2,557 1,169 180 989 17,734 9,019 149,986 12,378 1,026 125,524 68,181 57,343 819 3,900 6,339 899 67 29,509 80,594 55 958 1,637 2,230 1,250 151 1,099 16,781 7,862 141,842 10,448 1,042 119,137 67,768 51,369 714 3,224 7,277 255,605 242,988 105,619 101,146 149,986 141,842 1 The columns „Industrial business“ and „Daimler Financial Services“ represent a business point of view. 2 The industrial business comprises the vehicle segments Mercedes-Benz Cars, Mercedes-Benz Trucks, Mercedes-Benz Vans and Daimler Buses. Intra-group eliminations between the industrial business and Daimler Financial Services are generally allocated to the industrial business. B | COMBINED MANAGEMENT REPORT | FINANCIAL POSITION 117 B.33 Balance sheet structure Daimler Group In billions of euros 2016 2017 Assets 149 141 59 65 Equity and liabilities Non-current assets 99 103 Current assets 107 102 85 88 thereof liquidity 22 22 256 243 243 256 Equity Non-current liabilities Current liabilities Financing liabilities of €127.1 billion were above the prior-year level (€117.7 billion). The increase of €16.2 billion adjusted for exchange-rate eﬀects was primarily due to the reﬁnancing of the growing leasing and sales-ﬁnancing business. 53% of the ﬁnancing liabilities were accounted for by bonds, 27% by liabili- ties to ﬁnancial institutions, 9% by deposits in the direct banking business and 9% by liabilities from ABS transactions. Trade payables increased to €12.5 billion due to the higher volume of business (2016: €11.6 billion). The Mercedes-Benz Cars division accounted for 63% of those payables and the Daimler Trucks division accounted for 20%. Other financial liabilities of €11.5 billion (2016: €12.9 billion) mainly consisted of liabilities from residual-value guarantees, liabilities from wages and salaries, deposits received and accrued interest on ﬁnancing liabilities. The decrease was primarily caused by lower negative fair values of currency derivatives. Other liabilities of €14.6 billion (2016: €14.9 billion) primarily comprise deferred income, tax liabilities and deferred taxes. The tax reform in the United States aﬀected the deferred tax liability. This was oﬀset in particular by an increase in deferred income due to the expansion of business activity. Further information on the assets presented in the statement of ﬁnancial position and on the Group’s equity and liabilities is provided in the Consolidated Statement of Financial Position E see page 240 , the Consolidated Statement of Changes in EquityE see page 242 and the related notes in the Notes to the Consolidated Financial Statements. 118 B | COMBINED MANAGEMENT REPORT | DAIMLER AG Daimler AG Condensed version according to the German Commercial Code (HGB) In addition to reporting on the Daimler Group, the development of Daimler AG is also described in this section. Daimler AG is the parent company of the Daimler Group and is domiciled in Stuttgart. Its principal business activities comprise the development, production and distribution of cars, vans and trucks in Germany and the management of the activities of the Daimler Group. Revenue increased by €5.5 billion to €112.7 billion and was thus higher than our expectations as stated in the “Outlook” section of last year’s Annual Report. Revenue in the car business increased by 6% to €87.0 billion due to higher unit sales of vehicles and components. Despite the termination of a contract-manufacturing agreement, revenue in the com- mercial-vehicle business increased by 1% to €25.7 billion. Cost of sales increased by 6% to €101.9 billion. Increases in unit sales and expenses for new products and technologies led to higher cost of sales. Research and development expenses, which are included in cost of sales, were signiﬁcantly higher than in the previous year at €7.6 billion (2016: €6.6 billion); as a pro- portion of revenue, they amounted to 6.8% (2016: 6.1%). Research and development expenses were primarily related to the renewal and expansion of the product portfolio, especially with regard to the model series of the SUVs, the compact class and the S-Class, as well as the successor model of the Sprinter. In addition, work is continuing on new generations of engines, alternative drive systems and the intensiﬁcation of the module strategy. At the end of the year, approximately 20,000 people were employed in the area of research and development. 1 Unit sales relate solely to new vehicles. The unit sales of Daimler AG include vehicles invoiced to companies of the Group which have not yet been sold on to external customers by those companies. Vehicle sales by production companies of the Daimler Group to external customers and to subsidiaries of Daimler AG, as well as contract manufacturing by Daimler AG are not counted in unit sales. The vehicles are produced at the domestic plants of Daimler AG, as well as under contract-manufacturing agreements by domestic and foreign subsidiaries and by producers of special vehicles. Daimler AG distributes its products through its own sales-and-service network, which is organized in seven regional centers for cars and seven for commercial vehicles, through foreign sales subsidiaries and through third parties. The annual ﬁnancial statements of Daimler AG are prepared in accordance with the German Commercial Code (HGB). The consolidated ﬁnancial statements are prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). This results in some diﬀer- ences with regard to recognition and measurement, primarily relating to intangible assets, provisions, ﬁnancial instruments, the leasing business and deferred taxes. The main performance indicators for Daimler AG are unit sales, revenue and net proﬁt. Proﬁtability The development of proﬁtability was aﬀected in ﬁnancial year 2017 by the decrease in operating proﬁt by €0.7 billion to €1.1 billion, as well as by the increase in ﬁnancial income by €0.4 billion to €5.9 billion. (cid:202) B.34 Daimler AG slightly increased its unit sales in 2017, as had been forecast in the previous year. Unit sales in the car business increased by 3% to 1,870,000 vehicles1. The SUV segment was particularly successful in 2017, with a 16% increase in sales to 639,000 units1. The E-Class segment recorded growth of 11% to 274,000 units1. Due to the lifecycle of the C-Class, sales of 336,000 units1 in this segment were lower than in the previous year (2016: 375,000). Sales of trucks amounted to 106,000 (2016: 101,000) units1 and sales of vans increased by 5% to 357,000 units1. Selling expenses increased by €0.9 billion to €7.3 billion. This was primarily due to higher expenses for marketing, commis- sions and outgoing freight. As a proportion of revenue, selling expenses increased from 6.0% to 6.5%. General administrative expenses of €2.0 billion were slightly above the prior-year level (2016: €1.8 billion). In relation to revenue, they amounted to 1.8% (2016: 1.7%). Other operating expense, net amounted to €0.4 billion (2016: €0.7 billion). The prior-year figure mainly comprised expenses in connection with a legal proceeding.  B.34 Financial income increased by €0.4 billion to €5.9 billion, pri- marily due to improved income from investments in subsidi- aries and associated companies. This mainly reflects increased dividend distributions as well as lower impairments of invest- ments in subsidiaries. On the other hand, financial income was affected by increased interest expense relating to pensions. This primarily resulted from a decrease in the discount rate. In the previous year, there was a positive effect from a change in the law on the calculation of the discount rate. The income tax expense amounts to €2.0 billion (2016: €1.4 billion). The increase primarily reflects tax expenses for prior periods relating to tax assessments of previous years. The figure for 2016 includes tax benefits recognized for prior periods. Net profit decreased from €5.9 billion to €5.0 billion, and was thus in line with the expectations stated in the “Outlook” section of last year’s Annual Report. The development primarily reflects the lower operating profit as well as a higher income tax expense. There was an opposing effect from the improved financial income. The economic situation of Daimler AG is primarily deter- mined by its business operations and those of its subsidiaries. Daimler AG participates in the operating results of its sub- sidiaries through profit distributions. The economic situation of Daimler AG is therefore fundamentally the same as that of the Daimler Group, which is described in the chapter “Overall Assessment of the Economic Situation”. E page 134 B | COMBINED MANAGEMENT REPORT | DAIMLER AG 119 Financial position, liquidity and capital resources The balance sheet total of €107.3 billion is €9.1 billion higher than at year-end 2016.  B.35 Non-current assets increased by €2.6 billion to €42.7 billion, mainly due to the higher amounts of financial assets and fixed assets. Investment in property, plant and equipment (excluding leased assets, approximately €3.1 billion) mainly comprises investments for the production of the new A-Class models and the new Sprinter, as well as investments in engine and trans- mission projects. Inventories increased compared with December 31, 2016 by €0.4 billion to €9.5 billion. The increase is mainly related to finished products and goods. Receivables, securities and other assets increased compared with December 31, 2016 by €3.4 billion to €49.5 billion. The main reason for this development was growth of €2.3 billion in receivables due from subsidiaries and associated companies, as well as the increase in securities of €0.8 billion. Cash and cash equivalents increased by €0.1 billion to €1.8 billion. Gross liquidity – defined as cash and cash equivalents and other marketable securities as well as fixed-term deposits presented under other assets – of €9.6 billion was higher than a year earlier (2016: €8.5 billion). The net defined-benefit plan asset results from the fair value of the special-purpose assets in excess of the settlement amount of the pension obligations. The increase in financial year 2017 to €3.5 billon (2016: €0.9 billion) is primarily due to the extraor- dinary contribution of €3.0 billion to the German pension plan assets. B.34 Condensed income statement of Daimler AG In millions of euros Revenue Cost of sales (including R&D expenses) Selling expenses General administrative expenses Other operating expense, net Operating profit Financial income Income taxes Net profit 2017 2016 112,685 -101,874 107,178 -96,271 -7,312 -2,010 -355 1,134 5,866 -2,018 4,982 -6,454 -1,844 -749 1,860 5,430 -1,422 5,868 Transfer to retained earnings -1,077 -2,391 Distributable profit 3,905 3,477 120 B | COMBINED MANAGEMENT REPORT | DAIMLER AG Cash provided by operating activities amounted to €7.2 billion in 2017 (2016: €8.5 billion). The decrease primarily reﬂects higher cash-eﬀective contributions to pension plan assets, increased working capital and higher income tax pay- ments. On the other hand, utilization of provisions was lower than in the previous year. Cash flows from investing activities resulted in a net cash outﬂow of €6.5 billion in 2017 (2016: €6.1 billion). The increase is primarily a reﬂection of capital measures within ﬁnancial assets as well as increased investment in property, plant and equipment. Positive eﬀects resulted from acquisitions and sales of securities within the framework of liquidity management. Cash flows from financing activities resulted in a net cash outﬂow of €0.6 billion (2016: €2.7 billion). This is explained by the reduction compared with the previous year in the cash out- ﬂow from the Group’s internal transactions in connection with central ﬁnance and liquidity management. There were oppos- ing eﬀects of reduced cash inﬂows from the lower assumption of external ﬁnancing liabilities than in the previous year. Cash ﬂows from ﬁnancing activities include the payment of the divi- dend for the year 2016 in an amount of €3.5 billion. B.35 Balance sheet structure of Daimler AG In millions of euros Assets Non-current assets Inventories Receivables, securities and other assets Cash and cash equivalents Current assets Prepaid expenses Net defined-benefit plan asset Equity and liabilities Share capital (Conditional capital €500 million) Capital reserve Retained earnings Distributable proﬁt Equity Other provisions Provisions Trade payables Other liabilities Liabilities Deferred income Dec. 31, 2017 Dec. 31, 2016 42,700 9,466 49,516 1,782 60,764 384 3,462 40,107 9,071 46,120 1,660 56,851 339 891 107,310 98,188 3,070 3,070 11,480 23,637 3,905 42,092 13,981 13,981 6,499 43,838 50,337 900 107,310 11,480 22,560 3,477 40,587 11,847 11,847 6,077 38,935 45,012 742 98,188 Equity increased in 2017 by €1.5 billion to €42.1 billion. This change primarily resulted from the net proﬁt for 2017, of which, in accordance with Section 58 Subsection 2 of the German Stock Corporation Act (AktG), €1.1 billion was transferred to retained earnings. The equity ratio at December 31, 2017 was 39.2% (December 31, 2016: 41.3%). As stated in the notes to the annual ﬁnancial statements according to the German Commercial Code (HGB), Daimler AG holds no treasury shares at December 31, 2017. Provisions increased compared with December 31, 2016 by €2.1 billion to €14.0 billion. This was primarily due to increased obligations from sales transactions, provisions for warranty obligations, and provisions relating to legal proceedings. Liabilities increased by €5.3 billion to €50.3 billion, primarily due to increased ﬁnancing liabilities, as well as trade payables. Risks and opportunities The business development of Daimler AG is fundamentally sub- ject to the same risks and opportunities as that of the Daimler Group. Daimler AG generally participates in the risks of its sub- sidiaries and associated companies in line with the percentage of each holding. Risks and opportunities are described in the “Risk and Opportunity Report”. E pages 155 ﬀ Risks may additionally arise from relations with subsidiaries and associated companies in connection with statutory or contractual obli- gations (in particular with regard to ﬁnancing), as well as from the impairment of investments in subsidiaries and associated companies. Outlook Due to the interrelations between Daimler AG and its sub- sidiaries and the relative size of Daimler AG within the Group, we refer to the statements in the “Outlook” chapter, which largely reﬂect our expectations also for the parent company. E pages 170 ﬀ For ﬁnancial year 2018, we expect Daimler AG to achieve net proﬁt at the level of 2017. This will result from a higher planned operating proﬁt and a lower income tax expense, which will be oﬀset by the anticipated decrease in ﬁnancial income. We expect Daimler AG to achieve unit sales and revenue in 2018 at the prior-year level. B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 121 Sustainability and Integrity Sustainability at Daimler Sustainability is one of the basic principles of our corporate strategy as well as a benchmark for our success as a company. As a vehicle manufacturer with global operations, we face industry-speciﬁc challenges. To ensure that our business success is sustainable, we need to exploit the associated opportunities and minimize the risks. To this end, we have drawn up a Group- wide sustainability strategy, which is part of our corporate strategy and makes sustainability a fundamental corporate principle. Additional information on sustainability at Daimler can be found in the “Non-Financial Report” section of this Annual ReportE pages 214ﬀ. The “Non-Financial Report” is also available on the Internet at w daimler.com/nonﬁnancial-report. The new Daimler Sustainability Report for ﬁnancial year 2017 will available on the Group’s website in late March 2018. w daimler.com/sustainability Research and development Research and development as key success factors Research and development have always played a key role at Daimler. Gottlieb Daimler and Carl Benz invented the automobile more than 130 years ago. Today, we are shaping the future of mobility. Our goal is to oﬀer our customers fascinating products and customized solutions for needs-oriented, safe and sus- tainable mobility. Our technology portfolio and our key areas of expertise are focused on this objective. The expertise, creativity and motivation of our employees in research and development are key factors behind our vehicles’ market success. At the end of 2017, Daimler employed 24,600 men and women at its research and development units around the world (2016: 24,200). A total of 16,800 of those employees (2016: 16,300) worked at Group Research & Mercedes-Benz Cars Development, 5,300 (2016: 5,600) at Daimler Trucks, 1,300 (2016: 1,200) at Mercedes-Benz Vans and 1,200 (2016: 1,200) at Daimler Buses. Around 5,200 researchers and development engineers (2016: 5,400) worked outside Germany. Our international research and development network Our global research and development network comprises 35 locations in 15 countries. Our biggest facilities are in Sindelﬁngen and Stuttgart-Untertürkheim in Germany. Our most important research facilities in North America are the US R&D headquarters in Sunnyvale, California; in Long Beach, California; in Portland, Oregon; and in Redford, Michigan. Our most important facilities in Asia are in Bangalore, India; the Global Hybrid Center in Kawasaki, Japan; and our research and development center in Beijing. Mercedes-Benz Research & Development India (MBRDI), with headquarters in Bangalore) is Daimler’s largest R&D center outside Germany. Activities at MBRDI focus on digitization, simulations and data science. Mercedes-Benz Research & Development China is also an integral part of the Daimler Group’s research network. Among other things, it plays an important role in understanding Chinese customers’ expectations and local requirements. Along with our internal activities, we also maintain close contacts with external research institutions. For example, we work together with various renowned research institutes around the world and participate in international exchange programs for next-generation scientists. In November 2017, we opened new digital hubs in Tel Aviv and Seattle. Targeted involvement of the supplier industry In order to achieve our ambitious goals, we also cooperate very closely with research and development units in the supplier industry. Daimler must be closely intermeshed with supplier companies in order to deal with the rapid pace of technological change in the automotive industry and the need to quickly bring new technologies to market maturity. Such cooperation is all the more important in light of the increasing digitization of processes throughout all stages of the value chain. Strong part- ners from the supplier industry are also essential for our eﬀorts to develop and oﬀer new concepts for future mobility. As part of our joint research and development work, we aim to ensure that the Group retains the key technological expertise it needs to maintain the uniqueness of our brands and safeguard the future of the automobile in general. 122 B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY B.36 Research and development expenditure In billions of euros total thereof capitalized 9 8 7 6 5 4 3 2 1 0 2013 2014 2015 2016 2017 B.37 Research and development expenditure by division In millions of euros Daimler Group thereof capitalized Mercedes-Benz Cars thereof capitalized Daimler Trucks thereof capitalized Mercedes-Benz Vans thereof capitalized Daimler Buses thereof capitalized 2017 2016 17/16 % change 8,711 2,773 6,642 2,388 1,322 45 565 310 194 30 7,572 2,315 5,671 2,008 1,265 57 442 238 202 11 +15 +20 +17 +19 +5 -21 +28 +30 -4 +173 Patents ensure freedom of action and safeguard our brands On January 29, 1886, Carl Benz registered a patent for a “vehicle powered by a gas engine”. Since then, we have reﬁned auto- mobiles with more than 114,000 patents and have launched pioneering innovations. We continued this tradition in 2017 by registering nearly 1,900 new ideas for patents, with an increasing focus on the CASE technologies. These patents are important to the company primarily for two reasons: Firstly, the patents secure Daimler a certain amount of “freedom of action” that enables us to manufacture and sell our products around the world and avoid legal conﬂicts with third parties. Secondly, they enable “exclusivity”, the goal of which is to establish exclusive positioning of selected Daimler features on the market and thus diﬀerentiate ourselves from the competition. In addition to industrial property rights, which safeguard our innovations for future mobility over the long term, the unique visual aspects of our products are protected with more than 7,800 designs registered in 2017 (2016: 9,100). The decrease primarily reﬂects a review of our intellectual-property strategy. Our portfolio of more than 35,800 trademarks worldwide (2016: 32,800), serves to protect the Mercedes-Benz brand, our new EQ brand for electric mobility and all our other product brands in each relevant market. €8.7 billion for research and development We want to continue shaping mobility through our pioneering innovations in the years ahead, while moving ahead with digitization throughout the Group. As announced in our Annual Report 2016, we therefore increased our very high level of investment in research and development by 15% to €8.7 billion in 2017. Of that amount, €2.8 billion (2016: €2.3 billion) was capitalized as development costs, which amounts to a capitali- zation rate of 32% (2016: 31%). The amortization of capitalized research and development expenditure totaled €1.3 billion during the year under review (2016: €1.3 billion). With a rate of 5.3% (2016: 4.9%), research and development expenditure also remained at a high level in comparison with revenue. Research in the year under review focused on new vehicle models, extremely fuel-eﬃcient and environmentally friendly drive systems, new safety technologies, autonomous driving systems and the digital connectivity of our products. The most important development projects at Mercedes-Benz Cars focused on the successor models of the GLS and GLE oﬀ-road vehicles, the new compact class, the EQ electric brand and the new generation of diesel and gasoline engines. We also invested in vehicle connectivity and autonomous driving systems and in the development of additional innovative safety tech- nologies. Mercedes-Benz Cars spent a total of €6.6 billion on research and development in 2017, which once again marked a signiﬁcant increase from the prior-year ﬁgure (€5.7 billion). Daimler Trucks invested €1.3 billion in research and develop- ment projects. The division’s most important projects were in the areas of emission standards and fuel eﬃciency, customized products and technologies for important growth markets, and the successor generations for existing products. R & D expenditure at Mercedes-Benz Vans focused mainly on the new Sprinter generation, the expansion of the portfolio in the form of the new X-Class pickup, and the further development of the Vito and the V-Class. Daimler Buses primarily focused its development activities on new products, the fulﬁllment of future emissions standards and measures to further reduce fuel consumption. Alternative drive systems, in particular electriﬁcation technology, also played a key role in our development activities during the year under review. (cid:202) B.36 (cid:202) B.37 Innovation, safety and environmental protection Innovations for the future of mobility We aim for the best possible customer utility, high standards of safety, environmental compatibility and eﬃciency. In order to work on achieving these goals in parallel, we rely on innovative concepts and environmentally sound product development. In this context, we are focusing on CASE — these four letters stand for the four future-oriented strategic ﬁelds of connectivity (Connected), autonomous driving (Autonomous), ﬂexible use and services (Shared & Services) and electric drive systems (Electric). We are moving ahead consistently in all of these areas at all of our divisions, and we are also linking them in an intelligent way to create a comprehensive target concept for our vehicles, services and business models. In this manner, we are underlining our claim to play a dominant role in the mobility of the future. B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 123 Our “road to emission-free driving” Our “Road to Emission-free Driving” initiative deﬁnes the primary focal points for developing new, extremely fuel-eﬃcient and environmentally friendly drive-system technologies at all of our automotive divisions. We are pursuing this approach along the entire value chain. To this end, we are addressing all relevant aspects and exploiting potential in all areas of development for everything from lightweight engineering to optimized aero- dynamics, the use of clean and eﬃcient fuels, the creation of electric drive systems, and the implementation of sustainable mobility concepts. Our drive system strategy for reducing emissions has three components. First, highly eﬃcient combustion engines remain part of the solution for us, and this applies to both gasoline and diesel engines. We are also focusing on additional plug-in- hybrid and electric vehicle models. We believe that combustion engines will continue to form the backbone of personal mobility until electric vehicles can achieve a breakthrough in the market. This is one of the main reasons why we continue to invest in the improvement of com- bustion engine technology, thus making a contribution to reducing the fuel consumption and emissions of each and every vehicle. At the same time, we have launched a broad-based electric-mobility oﬀensive at all of our divisions. We are pursuing a holistic approach here. For example, along with partial and fully electric drive systems, we are also investing in fast-charging networks, hydrogen infrastructure and so(cid:5)ware solutions. Innovative vehicle and drive-system technologies from Daimler demonstrate what we have already achieved in this regard. The following examples illustrate our approach to the mobility of the future. Biggest engine offensive in the history of Mercedes-Benz The new OM 654 four-cylinder diesel engine, which was launched in the new E-Class in 2016, is the ﬁrst member of the modular engine family that will be utilized across the product range of Mercedes-Benz Cars and also at Mercedes-Benz Vans. Several diﬀerent output ratings are planned for the engine, which will be installed either longitudinally or transversely in vehicles with front, rear or all-wheel drive. In this way, Mercedes-Benz intends to equip its range of diesel cars in Europe with this engine generation by 2019. Four more members of the all-new engine family made their debut in 2017: an inline six-cylinder engine (diesel and gasoline variants), a new four-cylinder gasoline engine and a new biturbo V8. Forward-looking new technologies such as the integrated starter-generator (ISG), the 48-volt electrical system and the electric auxiliary compressor also had their world premieres. The ISG is responsible for hybrid functions, such as boost eﬀect and energy recovery, and thus enables fuel savings that were previously typical of high-voltage hybrid tech- nology. Our new S-Class models, which have been delivered to customers since mid-2017, are a particularly good example of how we have been able to increase fuel eﬃciency even further. For example, the Mercedes-Benz S 350 d 4MATIC (fuel con- sumption in l/100 km urban: 6.9–6.7/extra-urban: 5.0–4.8/ combined: 5.7–5.5; CO2 emissions, combined: 150–145 g/km) with its new six-cylinder diesel engine consumes signiﬁcantly less fuel than its predecessor, despite higher output, while the Mercedes-Benz S 450 4MATIC (fuel consumption in l/100 km urban: 9.6–9.3/extra-urban: 6.0–5.6/combined: 7.3–7.0; CO2 emissions, combined: 167–159 g/km) achieves outstanding fuel eﬃciency with the newly developed M 256 six-cylinder gasoline engine. Fuel-efficient trucks In recent years, we have also continuously reduced the fuel consumption of our commercial vehicles as well as their CO2 emissions. For example, since 2011, we have been able to reduce the average fuel consumption of the Mercedes-Benz Actros heavy-duty truck by a total of about 15% compared to the proven Actros predecessor model through the introduction of the new Euro VI model, the Predictive Powertrain Control (PPC) B.38 Road to emission-free mobility Optimizing our vehicles with modern conventional powertrains Hybridization for further increase in efficiency Locally emission-free driving with electric vehicles powered by batteries or fuel cells Energy for the future Clean fuels for internal combustion engines Energy sources for locally emission-free driving 124 B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY anticipatory cruise control system, our latest generation of engines and the Actros with a second-generation drivetrain, which we presented at the IAA Commercial Vehicles Show in 2016. The new drivetrain technologies will also be used in the Antos and Arocs truck models. The fact that Mercedes-Benz provides its customers with particularly fuel-eﬃcient vehicles has been demonstrated by the more than 4,000 comparison drives that had been carried out throughout Europe by the end of 2017. In these comparison drives, customers tested Mercedes-Benz trucks in their ﬂeet against vehicles manufactured by the main competitors. The results speak for themselves: The Mercedes-Benz trucks came out on top more than 90% of the time, with 11% lower fuel con- sumption on average. Our trucks also set the standards for fuel eﬃciency in North America, where we presented the Freightliner New Cascadia, our ﬂagship in North America, in the fall of 2016. The truck’s aerodynamic shape and state-of-the-art drivetrain components have helped to reduce fuel consumption by up to 8% compared to the predecessor model, the Cascadia Evolution, which was already an extremely economical vehicle. In Europe, we plan to reduce the fuel consumption of our truck ﬂeet by an average of 20% over the period of 2005 to 2020. We are conﬁdent that we will achieve this ambitious target, and we took a clear step in that direction with the introduction of the new generation of the OM 471 heavy-duty truck engine in 2015 and the slightly smaller OM 470 in 2016. New FUSO Super Great truck sets efficiency standards With the latest generation of the FUSO ﬂagship, the world’s largest manufacturer of commercial vehicles is setting new standards for eﬃciency, safety and connectivity in Japan. A range of new technologies has reduced the truck’s fuel consump- tion by up to 15%. The powertrain components in the new FUSO Super Great were taken from the current product platforms and were only slightly adjusted to meet the speciﬁc requirements of the Japanese market. Daimler Trucks’ global platform strategy enables consistent quality standards, cost beneﬁts through economies of scale, and ﬂexibility in the utilization of production capacity. The 10.7-liter OM470 engine used in the new FUSO Super Great complies with the JP17 emission standard in Japan. It also comes with the HDEP (Heavy Duty Engine Platform) Fuel Eﬃciency Package and has been further optimized in terms of fuel consumption, emission eﬃciency and payload compared with the previous drivetrain. Deliveries to customers of the new truck started in May 2017. Clean and efficient drive technology for buses Daimler is also very advanced in terms of exhaust a(cid:5)er treatment technology for the bus sector. For example, all Mercedes-Benz and Setra model series were made available with Euro VI tech- nology at a very early stage. Despite the use of this complex exhaust treatment technology, we were able to achieve a further reduction in the fuel consumption of our already economical buses with the application of the new Mercedes-Benz engines. For example, various vehicle optimization measures have led to further signiﬁcant reductions in the fuel consumption of our touring coaches equipped with the new OM 471 diesel engine, despite higher performance. The new Mercedes-Benz Tourismo coach is also much more eﬃcient than the predecessor model. Its fuel consumption was reduced primarily through optimized aerodynamics and an all-new and lighter body. New optional extras such as Predictive Powertrain Control (PPC) and Eco Driver Feedback (EDF) enable fuel consumption and thus emissions to be reduced even further. The Mercedes-Benz Citaro NGT with natural-gas drive is even cleaner and quieter than the already eﬃcient Citaro equipped with the ultra-modern Euro VI diesel engine. Moreover, the Citaro NGT’s all-new M 936 natural-gas engine makes the bus the benchmark in its segment. The Citaro NGT is also even more eﬃcient than its predecessor model — and when organic natural gas is used, the vehicle is virtually CO2-neutral. In parallel with the further optimization of the combustion engine, the next step along the path into the future is the battery- electric Mercedes-Benz Citaro — an all-electric city bus which Daimler Buses plans to have ready for series production and on the road by the end of 2018. Comprehensive electric mobility offensive Daimler launched a broad-based electric mobility oﬀensive at all of its divisions back in 2016. The models include new plug-in hybrids from Mercedes-Benz Cars, new electric smart models, the DENZA 400, which we developed with our partner BYD for the Chinese market, the new FUSO eCanter and the new GLC pre-series model with fuel cells, which we presented at the Frankfurt Motor Show (IAA) in September 2017. The electric mobility oﬀensive also includes new concept vehicles that oﬀer a clear preview of the future of electric mobility: the Concept EQ, the Concept EQA and the smart vision EQ fortwo, as well as the Mercedes-Benz electric truck and the E-FUSO Vision One truck - both for heavy-duty distribution transport. EQ — our electric mobility brand Mercedes-Benz has consolidated all of its activities in the area of electric mobility into the new EQ product brand. EQ stands for Electric Intelligence, which in turn is derived from the Mercedes-Benz brand values of emotion and intelligence. EQ oﬀers a comprehensive electric mobility ecosystem of products, services, technologies and innovations. The new brand was heralded by the near-production Concept EQ from 2016 and the compact Concept EQA, which was presented at the Frankfurt Motor Show (IAA) in September 2017. With the Concept EQA study, Mercedes-Benz has shown what an EQ model in the compact-car segment could look like. In combination with the intelligent operating strategy from Mercedes-Benz, the concept car achieves a range of approxi- mately 400 kilometers. The Concept EQA provides a glimpse of the technological future. It can be charged using a wall box and is also prepared for rapid charging. Thanks to an integrated B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 125 on-board fast charger, it should be possible in the future to charge an electric car in about ten minutes so that it can drive another 100 kilometers. By 2022, Daimler intends to oﬀer more than ten all-electric models in the passenger-car segment alone: from the smart to a large SUV. The ﬁrst series-produced battery-electric model under the EQ brand will be launched in the SUV segment before the end of this decade. It will be followed by a model initiative that will gradually expand the product range of Mercedes-Benz Cars with all-electric models. The new generation of electric vehicles will be based on an architecture developed especially for battery-electric models. This architecture is scalable in every respect and can be used in all model series: Wheelbase and track width as well as all other system components, especially the battery, are variable thanks to the modular system. Broad range of plug-in hybrid cars Plug-in hybrid vehicles combine the best aspects of combustion engines and electric drive systems. This helps to reduce overall consumption and increase performance, as the electric motor is used to take over from or support the combustion engine in situations where the latter is less eﬃcient. With eight plug-in hybrid models, we already oﬀer a broad range of plug-in hybrid vehicles in the premium segment. Our powerful battery already enables all-electric driving. The battery can be recharged externally. The new S-Class with hybrid drive, which we plan to launch in 2018, already has an all-electric range of up to 50 kilometers. We aim to achieve signiﬁcantly longer ranges for plug-in hybrids as technological advances are made. This will enable our customers to drive locally emission-free to a very large extent in everyday situations. In such a setup, the combus- tion engine is used for longer distances, which means our plug-in hybrids are perfect for any driving requirement. We believe that plug-in hybrid technology will be extremely successful as we move into the next decade, and that is why hybrid systems are a key component of our drive-system strategy. The use of 48-volt on-board electrical systems enables hybrid functions ranging from energy recovery and boost eﬀect to initial acceleration and maneuvering in the all-electric mode. This means that such functions can be used for the ﬁrst time without high-voltage components, which eliminates the need for the additional safety equipment that normally has to be used in high-voltage networks. This enables us to noticeably reduce the fuel consumption of our high-volume models and to oﬀer customers greater agility and comfort. E-Class plug-in hybrid impressive in environmental audit In February 2017, the Mercedes-Benz E 350 e plug-in hybrid model (fuel consumption in l/100 km, combined: 2.1; CO2 emissions in g/km: 49; electricity consumption in kWh/100 km: 11.5) successfully completed the TÜV validation audit for the German Environmental Certiﬁcate. This certiﬁcate is awarded on the basis of a lifecycle assessment in which independent experts at the TÜV Süd technical inspection authority assess the integration of environmental aspects into the product design and development process, as well as the environmental impact of a car throughout its entire life cycle. The E 350 e also makes a big impression in other areas besides driving. For example, during its lifecycle (material manufacture, production, driving for 250,000 kilometers calculated with certiﬁed consumption ﬁgures and recycling) and when the hybrid model is charged externally with the European electricity mix, the vehicle emits around 44% less CO2 than the predecessor model, the E 350 CGI, which has comparable performance data and a conventional engine. If the calculation is based on the use of renewable energy for external charging, CO2 emissions can be reduced by 63%. The picture is much the same in terms of energy consumption, as the E 350 e consumes 31%/48% less primary energy over all of its lifecycle phases. Preproduction phase begins for the GLC F-CELL With the unveiling of the two GLC F-CELL preproduction cars at the Frankfurt Motor Show in 2017, Daimler presented yet another milestone on the road to emission-free driving. The GLC F-Cell is a fuel-cell electric car using a lithium-ion battery as an additional energy source that can be externally charged by means of plug-in technology. Intelligent interplay between the battery and the fuel cells, as well as a short refueling time, will make the GLC F-CELL a practical vehicle for long-distance travel in the future. The preproduction model carries 4.4 kilograms of hydrogen on board and produces enough energy to achieve a range of more than 400 kilometers in the New European Driving Cycle (NEDC). Daimler has developed a completely new fuel-cell system for this world ﬁrst. Compared to the B-Class F-CELL, which has been on the market since 2010 (fuel consumption: 0.97 kg H₂/100 km; CO₂ emissions, combined: 0 g/km), the overall drive system oﬀers around 40 percent more output. The fuel-cell system is around 30 percent more compact than before; it can be housed entirely in the engine compartment for the ﬁrst time, and is installed on the usual mounting points like a conventional engine. In addition, the use of platinum in the fuel cells has been reduced by 90 percent, which conserves resources and also lowers system costs — without any com- promises in terms of performance. To date, fuel-cell vehicles from Mercedes-Benz, which include the B-Class F-CELL and the Mercedes-Benz Citaro FuelCELL Hybrid city bus, have driven more than 18 million kilometers and have thus demonstrated the market maturity of this drive conﬁguration. The pre-series version of the GLC F-CELL repre- sents a further milestone on the road to series-produced fuel-cell vehicles. Market-speciﬁc sales concepts, including the option of a rental model, are currently being evaluated. smart vision EQ fortwo: car sharing for the city of tomorrow At the Frankfurt Motor Show in September 2017, the smart brand presented the smart vision EQ fortwo, oﬀering a preview of car sharing in the future. The concept car is our vision of the form future urban mobility might take. As a fully autonomous vehicle connected in swarms with other cars in the ﬂeet, the smart vision EQ fortwo could move on its own through a city and drive to locations where it is needed at a given time. The electric car could be equipped with a 30kWh lithium-ion battery that is recharged autonomously and inductively. It would do this by driving to one of many hub stations located around a city. 126 B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY Vehicles not in use could store energy, and a bidirectional charging system would allow cars with surplus energy to return it to the power grid. In this manner, smart is assuming responsibility for an important function for the energy transition. In the future, Daimler plans to oﬀer its commercial vehicle customers a comprehensive lineup of battery-electric vehicles ranging from vans and light trucks to heavy-duty distribution trucks and electric city buses. Electric trucks for heavy-duty distribution transportation In July 2016, we became one of the ﬁrst commercial vehicle manufacturer to present an all-electric truck for heavy-duty distribution transportation. The planned key speciﬁcations of this Mercedes-Benz vehicle are as follows: a battery output of 212 kWh, a range of up to 200 kilometers and a payload of 12.8 metric tons with a gross vehicle weight of 26 metric tons. Our electric truck concept met with a very positive response, as evidenced by the many inquiries we received from our customers a(cid:5)er we presented the truck at the IAA Commercial Vehicles Show in October 2016. We forged ahead with the development, establishment and testing of our Customer Inno- vation Fleet in 2017. In 2018, we intend to begin practical tests of our Mercedes-Benz Electric Truck Innovation Fleet for heavy- duty distribution transportation with customers under real-life conditions. These tests will allow us to gain further knowledge about logistics processes and operating costs with electric trucks. The results will be incorporated into new business models for all-electric trucks for heavy-duty distribution transportation within cities. All-electric trucks are a component of Daimler Trucks’ com- prehensive electric oﬀensive, which includes the light-duty FUSO eCanter, which we launched in a small production series on a global scale in July 2017. The ﬁrst 150 vehicles are destined for selected customers in Europe, Japan and the United States. We plan to deliver more than 500 of these trucks to customers over the coming years. All the experience we gain with the small production series will ﬂow into the further development of the battery-electric Canter, with plans for volume production to begin in 2019. The eCanter can make a contribution to reducing noise in large cities. During the Tokyo Motor Show in October 2017, Daimler announced that it will completely electrify its full range of FUSO trucks and buses in the years ahead. With E-FUSO, we are now the ﬁrst truck manufacturer to launch a product brand for electric mobility with trucks and buses. The E-FUSO Vision One, which was presented for the ﬁrst time in Tokyo, is a concept for an all-electric heavy-duty truck with a GVW of approximately 23 metric tons and a payload of around 11 metric tons — which is only two tons less than the payload of the diesel version. With a battery capacity of 300 kWh, the E-FUSO Vision One has a range of up to 350 kilometers. One potential application for the electric heavy-duty truck is regional inner-city and intra-city distribution. Growing customer interest, the development of the necessary infrastructure, and new regulatory measures are promoting the electriﬁcation of road transport. In this situation, it may be possible to launch the series-produced version of the E-FUSO Vision One within the next four years in highly developed markets such as Japan or Europe. Electric vehicles from Mercedes-Benz Vans Mercedes-Benz Vans plans to oﬀer all of its commercial van models with electric drive systems. This has already started with the mid-size eVito, which has been available for ordering since the end of November 2017; deliveries are scheduled to start in the second half of 2018. The eVito is the second all- electric production model from Mercedes-Benz Vans; the ﬁrst was the Vito E-Cell from 2010. With an installed battery capacity of 41.4 kWh, the new eVito will have a range of up to 150 kilo- meters. Even under unfavorable conditions, such as low outside temperatures and with a full payload, the van will have a range of up to 100 km. The mid-size van is thus perfect for inner-city deliveries and other commercial operations, as well as for passenger transport. The battery can be fully charged in around six hours, and dynamic performance is ensured by an output of 84 kW and torque of up to 300 Nm. In terms of top speed, customers can choose between two options: The ﬁrst is a maximum speed of 80 km/h, which meets all requirements in city traﬃc and metropolitan areas, while also conserving energy and increasing the vehicle’s range. If things need to move faster, the customer can choose a top speed of up to 120 km/h. The electric Vito is to be followed by the eSprinter in 2019; the electric van product range will then be rounded out by the Citan. The holistic electric drive strategy at Mercedes-Benz Vans focuses not only on the electric van itself, but also on a tech- nological ecosystem that is optimally aligned with customers’ business needs. This holistic strategy provides for an innovative complete system solution that covers the entire value chain for commercial applications. For this reason, strategic partners and their sector expertise are being incorporated into the development process at an early stage. One example of this is our partnership with the Hermes logistics services company. This partnership was launched with pilot programs in Hamburg and Stuttgart at the beginning of 2018. A(cid:5)er those programs are completed, we want to spread the application of the electric ﬂeet, which is to be used for parcel deliveries and encompass a total of 1,500 electric Vito and Sprinter vans by 2020, to other urban areas. The strategic partnership also involves the joint development of a concept for an eﬃcient charging infrastructure at Hermes logistics centers, as well as IT services to ensure optimum management of the electric ﬂeet. Intelligent charging solutions for electric mobility For the electriﬁcation of the drivetrain, we are employing a holis- tic approach that includes both electric vehicles and a broad range of services needed for electric mobility. Our approach ranges from the provision of green electricity to intelligent charging solutions for the home that include customized services and home energy storage units operating in tandem with photovoltaic units on roofs, for example. B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 127 In March 2017, Daimler acquired an equity interest in the American charging solutions provider, ChargePoint Inc. This investment ensures the Group’s access to other customer- focused electric mobility services. ChargePoint oﬀers solutions for every segment of the electric mobility charging ecosystem, which includes companies, the retail sector, public institutions, ﬂeet customers and private households. In terms of technology, ChargePoint makes use of the standardized Combined Charging System (CCS) in Europe, which will enable it to oﬀer maximum compatibility for future electric vehicle models of all brands. With the establishment of the IONITY joint venture, the BMW Group, Daimler, Ford Motor Company and the Volkswagen Group with Audi and Porsche have laid the foundation for the creation of the most eﬀective rapid-charging network for electric vehicles in Europe. The goal is to install about 400 rapid-charging stations along major routes in Europe by 2020. Our vision of accident-free driving Vehicle safety is one of our core areas of expertise and a key component of our product strategy. The Mercedes-Benz brand has been shaping the development of safety systems for decades. The company’s innovations, especially those for pro- tecting vehicle occupants and other road users, have saved countless lives. Today, Daimler continues to set standards with regard to safety. Our vision of accident-free driving will continue to motivate us to make mobility as safe as possible for everyone in the future. Partially automated driving in the upgraded S-Class With the upgraded S-Class, Mercedes-Benz has taken a further step toward autonomous driving. For example, new and modiﬁed features have been added to the DISTRONIC active proximity control and the Active Steering Assist systems. Another highlight in the new S-Class is the route-based speed adaptation system, which uses map and navigation data to control handling. With these and other intelligent equipment features, the new luxury sedan marks another major step toward autonomous driving. Improved systems with a range of up to 250 meters enable even more comfortable automated driving on all types of roads. In addition, Mercedes-Benz uses Active Body Control with ROAD SURFACE SCAN system and the CURVE curve-tilting func- tion to improve ride comfort even further with the help of intelligent sensors. Cooperation with Bosch During the year under review, we entered into a partnership with Bosch that focuses on the joint development of so(cid:5)ware and algorithms for a highly automated driving system. The objective here is to bring highly automated and driverless driving to city streets by the beginning of the next decade. The project com- bines the comprehensive vehicle expertise of Daimler with the system and hardware expertise of the world's biggest automotive supplier. The resulting synergies are expected to lead to the early series production of a safe and secure technology. By introducing highly automated and driverless driving to the urban environment, Bosch and Daimler aim to improve the ﬂow of traﬃc in cities, enhance safety on the road and provide an important building block for the traﬃc system of the future. Among other things, the technology will enhance the appeal of car sharing. It will also allow people to make the best possible use of their time in cars and will open up new mobility opportunities for people without a driver’s license, for example. The main objective is to develop a production-ready system that will enable cars to drive in highly automated mode in cities. The idea here is that the vehicle should come to the driver, rather than the other way round. Within a predeﬁned area of a city, customers will be able to order a car-sharing vehicle or a robot taxi with their smartphones; the vehicle will then drive driverless to the user’s location. X-ray vision for crash tests The Mercedes-Benz Vehicle Safety unit is cooperating with various partners from the ﬁelds of research and industry on the use of ultra-fast X-ray technology to examine speciﬁc areas of the vehicle body and the interior during a crash test. The X-ray images can be combined with computer-aided simulation models to improve the forecasting reliability of crash simulations. In addition to analyzing the deformation of vehicle bodies and components, the goal here is to develop alternative passenger restraint concepts. Interdisciplinary teams in the project are addressing the challenges of new mobility systems — for example, the issue of passive safety in conditionally automated driving systems. Active Brake Assist 4 An active emergency braking system with pedestrian recognition that can prevent many accidents and protect more vulnerable road users is being used for the first time in Mercedes-Benz trucks. It will also be introduced in Mercedes-Benz and Setra touring coaches in 2018. The new Active Brake Assist 4 (ABA 4) system with pedestrian recognition uses acoustic and visual signals to warn the driver of a potential collision with pedestrians, in which case it also automatically triggers partial braking. Active Brake Assist 4 with pedestrian recognition is based on a new generation of radar technology that is also used in current Mercedes-Benz car models. This electronically scanning multi- mode system uses both long and short-range radar. The long- range radar detects vehicles in multiple lanes and stationary obstacles at a distance of up to 250 meters in a direct line in front of the coach. It also registers single-track vehicles, such as bicycles, at a distance of up to 160 meters, and pedestrians at up to 80 meters. The short-range radar has a maximum range of 70 meters and can even recognize pedestrians and vehicles in front of the coach but at each side of it. 128 B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY A comprehensive approach to environmental protection Protecting the environment is a primary corporate objective of the Daimler Group. Environmental protection is not separate from other objectives at Daimler; instead, it is an integral component of a corporate strategy aimed at long-term value creation. The environmental and energy-related guidelines approved by the Board of Management deﬁne the environmental and energy-related policy of the Daimler Group. This expresses our commitment to integrated environmental protection that begins with the underlying factors with an impact on the environment, assesses the environmental eﬀects of production processes and products in advance, and takes these ﬁndings into account in corporate decision-making. measures. The service measures are being implemented at no charge to customers. The company is also carrying out voluntary service measures for V-Class customers. Additional measures were added to the package following a summit meeting between the government and the automotive industry in August 2017. Additional information on this topic can be found in the “Non-Financial Report” section of this Annual Report. E pages 218 ﬀ Conservation of resources: Consistently high recyclability To make our vehicles more environmentally friendly, we are working to continuously reduce the resources our automobiles consume over their entire lifecycles. A vehicle’s environmental impact is largely decided in the ﬁrst stages of development. The earlier we integrate environmentally responsible product development (design for environment or DfE) into the development process, the more eﬃciently we can minimize the impact on the environment. E pages 218 ﬀ During vehicle development, we also prepare a recycling concept in which all components and materials are examined with a view to their suitability for the various stages of the recycling process. As a result, all Mercedes-Benz car models are 85 percent recyclable and 95 percent recoverable. Car CO2 emissions: 125 g/km Daimler makes great eﬀorts to reduce the fuel consumption of its vehicles while enhancing their performance — thus increasing driving pleasure and safety reserves. As early as 2015, we were able to reduce the CO2 emissions of newly registered vehicles from Mercedes-Benz Cars in the EU to an average of 123 grams per kilometer. This means we achieved our 2016 target of 125 g/km ahead of schedule. We were able to maintain 123 g/km in 2016 as well, despite a shi(cid:5) in our sales structure toward medium-sized and large automobiles. Emissions rose to 125 g/km in 2017, primarily due to a further increase in the proportion of sales in the EU accounted for by vehicles with high levels of optional equipment. More detailed information can be found in the “Non-Financial Report” section of this Annual Report. E pages 218 ﬀ Plan for the future of diesel vehicles We are convinced that diesel engines will continue to be a ﬁrm element of the drive-system mix, not least due to their low CO2 emissions. The public debate surrounding diesel engines is leading to increasing uncertainty among customers, however. For this reason, the Daimler Board of Management approved a comprehensive plan for diesel engines in July 2017. The plan calls for an expansion of the current voluntary service measures for vehicles in customers’ hands, as well as the rapid market launch of a completely new diesel engine family. As early as March 2017, Mercedes-Benz began oﬀering its compact- class customers an improvement in NOX emissions for one engine variant. In order to eﬀectively reduce the emissions of other model series, the Daimler Board of Management decided in July to extend the service measures to include more than three million Mercedes-Benz vehicles. The measures are being carried out for most Euro 5 and Euro 6 vehicles in Europe and other markets in close cooperation with vehicle registration authorities. Daimler is investing around €285 million in these The key aspects of our activities in this area are: – the resale of tested and certiﬁed used parts through the Mercedes-Benz Used Parts Center, – the remanufacturing of used parts, and – the workshop waste disposal system MeRSy (Mercedes-Benz Recycling System). Environmental protection in production Our commitment to the environment is an integral component of our corporate strategy, which focuses on increasing the value of the company over the long term. For this reason, we have established environmental management systems at our manufacturing facilities with the goal of ensuring that we can produce our vehicles safely, eﬃciently, at a high level of quality and in an environmentally friendly manner that complies with all legal stipulations. We also carry out environmental risk assessments at all production locations in which the Group has a majority interest in the ownership structure. We have achieved a high level of air quality control, climate protection and resource conservation (in terms of water consumption, waste manage- ment and soil conservation), and we maintain this high level with the help of Daimler Group standards. The environmental and energy-related guidelines approved by the Board of Management deﬁne the environmental and energy-related policy of the Daimler Group. The guidelines also express our commitment to integrated environmental protection that begins with the assessment of the causes of environment problems and takes into account the environmental eﬀects of production pro- cesses and products as early as the planning and development phases. Additional information on this topic can be found in the “Non-Financial Report” section of this Annual Report. E pages 214 ﬀ B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 129 The workforce Slight increase in the number of employees On December 31, 2017, the Daimler Group employed a total of 289,321 men and women (2016: 282,488). As was forecast in Annual Report 2016, the number of employees increased slightly (+2%). This increase was primarily a result of the positive business situation throughout the Group. Workforce numbers increased at all divisions in 2017. (cid:202) B.40 The number of employees in Germany increased from 170,034 in 2016 to 172,089 in the year under review. Whereas employee numbers rose in the United States to 23,513 (2016: 21,857), workforce numbers remained constant in Brazil at 9,800 (2016: 9,782) and in Japan at 10,016 (2016: 10,535). (cid:202) B.39 Our consolidated subsidiaries in China had a total of 4,099 employees at the end of the year (2016: 3,696). At the end of the year under review, Daimler AG employed a total of 148,953 men and women (2016: 148,704). Around the world, we have combined in-house services, such as those for ﬁnancial processes, human resources (HR), IT and development tasks, sales functions and certain location-speciﬁc services, into shared service centers. Some of the shared service centers are not consolidated because they do not aﬀect our ﬁnancial position, cash ﬂow or proﬁtability; those companies employed around 10,000 men and women at the end of 2017. The Group’s total workforce also does not include the employees of companies that we manage together with Chinese partners; on December 31, 2017, they numbered approxi- mately 19,900 people (2016: 19,500). Human resources strategy The key aims of our human resources strategy are to further increase our attractiveness as an employer and to safeguard the competitiveness of our workforce. Because our executives should motivate their employees to achieve top performance, it is crucial that we further develop our management culture and establish outstanding leadership capabilities in our manage- ment. In addition, we want to take on social responsibility and let diversity ﬂourish in our global company. High attractiveness as an employer Our activities and measures for enhancing our attractiveness as an employer are designed to enable us to recruit and retain a suﬃcient number of specialized employees and qualiﬁed managers in the global competition for talented staff. Our primary objectives here are to ensure attractive and fair compensation and to establish and maintain a work culture that enables outstanding performance and a high level of motivation and satisfaction among our employees and management staﬀ. Today’s living and working conditions require working times to be ﬂexibly organized in accordance with individual needs. Our approach is therefore to challenge our employees to achieve top performance and support their eﬀorts to do so, rather than focusing on their mere presence at work. For this reason, we also seek to improve performance by helping employees reconcile their professional and personal responsibilities. B.39 Employees at 12/31/2017 By region Germany Europe, excluding Germany USA Brazil Japan China* Other 59.5% 14.3% 8.1% 3.4% 3.5% 1.4% 9.8% * excluding non-consolidated associated companies and joint ventures B.40 Employees by division Employees (December 31) % change 2017 2016 17/16 Daimler Group Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services Group Functions & Services 289,321 142,666 282,488 139,947 79,483 25,255 18,292 13,012 10,613 78,642 24,029 17,899 12,062 9,909 +2 +2 +1 +5 +2 +8 +7 130 B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY Diversity management The statement “diversity shapes our future” underscores the importance of diversity management as a strategic factor for success at Daimler. The various skills and talents of our work- force enable us as a global company to eﬀectively reﬂect the diversity of our customers, suppliers and investors around the world. Daimler’s more than 289,000 employees from over 160 countries provide the Group with a vibrant mixture of cultures and ways of life. We have committed ourselves to raising the proportion of women in senior management positions at the Group to 20% by the year 2020. The proportion of women in such positions has continually risen in recent years to reach 17.6% at the end of 2017 (2016: 16.7%). Our instruments for supporting the targeted promotion of women include mentorships, special events and training measures, as well as employee networks. In order to fulﬁll the requirements of new legislation on the equal participation of women and men in management positions, the Board of Management has set targets for the proportion of women at the two executive levels below the Board of Manage- ment and a deadline for achieving those targets. In setting all targets, we have taken industry-speciﬁc circumstances into consideration. Further details are provided in the Corporate Governance Report on E pages 203 ﬀ of this Annual Report. Securing young talent Daimler takes a holistic approach to securing young talent. Our "Genius" initiative gives children and teenagers valuable insights into future technologies and information about jobs in the automotive industry. Along with technical and commercial apprenticeships and dual courses of study, we also conduct various activities that address young talent. In addition, we oﬀer extensive possibilities to personally interact with the company via social media, hackathons, competitions and internships. A(cid:5)er university students graduate, we oﬀer them attractive opportunities to join our company directly or launch their careers at Daimler by taking part in our global CAReer training program. We had 8,097 apprentices and trainees throughout the Group at the end of 2017 (2016: 7,960). Of that number, 4,409 were in a training program at Daimler AG (2016: 4,824). A total of 1,278 young people began their vocational training at Daimler during the year under review (2016: 1,662), and 1,197 of them were hired a(cid:5)er completing their apprenticeships (2016: 1,448). Employee qualification We support our staﬀ with training and continuing education opportunities throughout their entire careers in order to safeguard the long-term innovative capability and outstanding performance of our workforce. Our range of qualiﬁcation measures includes practical training courses, e-learning, semi- nars, workshops, specialist conferences and ﬁnancial support for employees who conduct a course of study while continuing to work. Health management and occupational safety Healthy and motivated employees are important for our competitiveness. We therefore promote the health and safety of our employees through numerous programs that focus on adequate protective measures, ergonomics, the provision of medical care, nutritional advice, individual exercise courses and much more. Daimler has a separate function — the Health & Safety department — that is dedicated to promoting and ensuring occupational health and safety. This department deﬁnes, coordinates and monitors all measures associated with occupational safety, occupational healthcare and the promotion of good health and a healthy lifestyle. Further information on employee matters can be found in the Non-Financial Report of this Annual Report. E pages 222 ﬀ Social responsibility The goals associated with our social commitment As a group of companies with global operations, we regard it as both our responsibility and our obligation to support social progress around the world. That is because for us, business success and social responsibility go hand in hand. As a company, we strive to contribute to the advancement of society and to eﬀectively shape, help and promote its development in order to create recognizable beneﬁts. In 2017, we spent more than €60 million on donations to non- proﬁt institutions and on sponsorships of socially beneﬁcial projects. This does not include our foundations and corporate volunteering activities or self-initiated projects. DaimlerWeCare It is very important to us that our various locations and the people who work there identify with our activities. We therefore support the eﬀorts of our employees to promote the common good, and we also work to improve the social environment in the communities where we operate. In this context, we focus on the one hand on ﬁelds of action that arise from our role as a “good neighbor”. On the other hand, we are involved in projects in which we can contribute speciﬁc expertise and our core competencies as an automaker. We also initiate a variety of aid and assistance projects around the globe. For example, we implement measures to strengthen communities and promote education, science, the arts and culture, and nature conservation, and we also support initiatives that improve road safety. (cid:202) B.41 All of these issues are addressed in various projects organized and managed under the DaimlerWeCare brand. Our approach here is based on three pillars: “For our employees”, “For our locations” and “Worldwide”. B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 131 B.41 Donations and sponsoring in 2017 Charity & Community Arts & Culture Education Science & Technology & Environment Political dialog 69% 10% 14% 6% 1% Funding through foundations Our activities in areas such as sports, science and research are carried out under the auspices of foundations. For example, we use the Daimler and Benz Foundation to fund interdisciplinary research that addresses issues related to the interaction between humans, the environment and technology. We also support interdisciplinary research projects with the Daimler Fund in the Donors’ Association. This fund has helped create several endowed professorships, such as the one for “Elec- triﬁed Commercial Vehicle Drive Systems” at Esslingen Univer- sity of Applied Sciences, the junior endowed professorship for “Sensor Merging and Tracking Driver Assistance Systems” at Ulm University of Applied Sciences, and the junior endowed professorship for “Digital Transformation” at Freie Universität Berlin. The Laureus Sport for Good Foundation uses sports to help achieve sustained improvement of the lives of socially disad- vantaged or sick children and teenagers. A large number of children and teenagers around the world have participated in Laureus sports projects and in this manner have been able to discover their own strengths and potential for the ﬁrst time. For example, donations from the Laureus Sport for Good Foun- dation were used to fund the Indigo Youth Movement project in South Africa. Here, a camp was set up near Durban in which young villagers were taught how to skateboard. The camp community oﬀers them a protected environment in which they can develop greater self-conﬁdence and learn how to improve their lives. More information on the projects promoted by the Group and the activities related to our social commitment can be found in the Daimler Sustainability Report and on our website under “Sustainability”. w daimler.com/sustainability Further information on social matters can be found in the Non-Financial Report of this Annual Report. E pages 227 ﬀ For our employees Since 2006, Daimler Financial Services has been staging a Day of Caring that focuses on non-proﬁt projects that help local communities. Under the motto “Oﬀering help where help is needed”, thousands of employees around the world once again rolled up their sleeves and lent a hand in 2017 by leaving their oﬃces and picking up a paintbrush, hammer or garden rake. A wide variety of social institutions and initiatives were supported — from hospitals and kindergartens to the SOS Children’s Villages organization. The ProCent initiative is another example of our employees’ commitment to society. In this initiative, Daimler employees voluntarily donate the cent amounts of their net salaries to socially beneﬁcial projects. The company matches every cent that is donated. More than €800,000 was collected in this manner in 2017. One of the recipients of donations from the ProCent initiative in 2017 was the Spitalverein Oﬀenburg voluntary hospital aid association, which used a donation of around €10,000 to help build a new 250-square-meter play- ground for young patients at Ortenau Hospital in Oﬀenburg- Gengenbach. For our locations We support a wide variety of initiatives that strengthen the communities at our locations. The integration of refugees is a very important issue in Germany, for example. Here, we support not only labor market integration with our “bridge internships”, but also the social integration of people who have been forced to ﬂee their homes. A key aspect here involves improving access to education with programs such as our Genius knowledge community and the Daimler Children's University in Sindelﬁngen. We want to help preserve the diversity of natural habitats for future generations. For many years now, we have therefore been supporting projects and initiatives carried out by environmental organizations near our locations around the world. One such project, which is being conducted in cooperation with the Global Nature Fund, is helping to restore severely damaged mangrove forests in Asia. Environmental protection measures and speciﬁc funding programs — near our production location in Chennai in southern India, for example — are being implemented to get the local population extensively involved in the project. The goal here is to work with local partner organizations to restore the mangrove forests to their original state and then ensure that they remain protected. Worldwide Another environmental project that Daimler is supporting in cooperation with the Global Nature Fund is EcoKarst. The objective of this project is to contribute to the protection and sustainable economic development of seven protected karst areas in the Danube region. The idea is to achieve a balance between the maintenance and strengthening of ecosystems and their sustainable use. In India, Brazil and Mozambique, we are carrying out projects with Caritas International that promote the sustainable use of water resources. Climate change is threatening to make entire tracts of land uninhabitable in those three countries. Project workers are creating reliable water supply systems and providing training and useful knowledge to local farmers. As a result, the farmers can now cultivate plants that do not require addi- tional irrigation, such as tamarind and passion fruit. 132 B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY Integrity, compliance and legal responsibility For Daimler, integrity, compliance and legal responsibility are not merely abstract concepts — they are inseparable from our daily business activities. That is because only those who act responsibly can achieve sustained success over the long term. For us, this involves more than just obeying laws, as we also seek to align our activities with shared principles and values. Organizationally established at the highest level Because of their strategic signiﬁcance, we have combined the responsibilities for integrity, compliance and legal aﬀairs within a single area headed by a member of the Board of Management. This division supports the business divisions and units in their eﬀorts to ensure that these issues remain an integral com- ponent of their organizations. We view integrity and compliance as ﬁrm elements of our corporate culture that contribute to our company’s lasting success and are already a natural part of our daily business. The basis for this is our Integrity Code, which deﬁnes guidelines for our everyday business conduct, oﬀers our employees orientation, and helps them make the right decisions even in diﬃcult business situations. The Integrity Code is supplemented by other in-house principles and guidelines. A culture of integrity Integrity is one of the four corporate values that form the foundation of our business activities. For us, integrity means acting in accordance with ethical principles. This also includes our determination to ensure compliance with all applicable laws, internal regulations and voluntary commitments. We expect all of our employees and business partners to adhere to the princi- ples of our culture of integrity out of a sense of conviction. Our goal is to make integrity a permanent part of our corporate culture. Organization of integrity management The Integrity Management unit is responsible for the long-term promotion of the culture of integrity at our company. The unit’s experts for change management, corporate-responsibility management, training, consulting and communication develop innovative and employee-focused approaches that promote a culture of integrity at the company. These experts also support disseminators throughout the Daimler organization in their integrity-related activities. The unit’s goal is to further establish and maintain a common understanding of integrity in order to reduce risks and help ensure the sustained success of the com- pany. The Head of Integrity Management reports directly to the member of the Board of Management responsible for Integ- rity and Legal Aﬀairs. Our Integrity Code forms the basis of our business conduct. The Integrity Code is one of the most important results of the employee dialogues we have been conducting since 2011. It is based on a shared understanding of values agreed upon with our employees, and it lays out the principles for our everyday business conduct. These principles are based on compliance with laws. They include fairness, responsibility, mutual respect, transparency and openness. The Code applies for all employees of Daimler AG and the Group and is available in 23 langua- ges. A guide is available on the Group’s intranet to support the employees in their application of the Code in everyday situations, providing answers to frequently asked questions. w daimler.com/sustainability/integrity/at-a-glance.html Requirements for management staff Our Integrity Code also deﬁnes requirements for executives and managers, who are expected to serve as role models in terms of ethical behavior and to provide employees with orientation. To help them optimally fulﬁll their responsibilities, the new web-based Integrity@Work training program includes a manage- ment module that is compulsory for all management staﬀ and which communicates a shared understanding of the role of our executives and managers with regard to integrity, compliance and the law. Furthermore, selected seminars during the training of new managers and the further training of senior executives include modules on the subject of integrity. In addition, integrity and compliance requirements are impor- tant criteria for the target achievement of our executives. They are also part of the agreed objectives for the remuneration of the Board of Management. E page 138 Contact and advice center Our “Infopoint Integrity” is available to our employees around the world as a central contact and advice center. The Infopoint team oﬀers advice on integrity-related issues in the daily working environment and puts employees in touch with the right contact partner if necessary. A worldwide network of local compliance and legal contact persons is also available to our employees. Communication measures We conduct an ongoing open dialogue with our employees in order to ensure that ethical behavior continues to be established in the company’s daily business. We regularly address integrity issues in our internal media and make a wide range of materials available to our business units. During the year under review, we introduced an app that provides information on integrity, compliance and legal aﬀairs. We also place great value on face-to-face discussions. For this reason, we regularly conduct individually designed dialogue events with employees at all levels of the hierarchy, as well as with external stakeholders. These events are held both in Germany and at our locations abroad. B | COMBINED MANAGEMENT REPORT | SUSTAINABILITY AND INTEGRITY 133 We use various event formats to get employees to think about integrity by approaching the issue from diﬀerent perspectives. At these events, we also increase the participants’ awareness of the importance of making ethical decisions. For example, we conduct business simulations that enable employees to experience and discuss the relevance of integrity to daily business operations from a new viewpoint. The things we focused on in 2017 included events that addressed the topic of integrity in technical ﬁelds. We also have a network of integrity contact persons who help the business units address speciﬁc issues in a targeted manner. In addition, we produce target- group-speciﬁc materials for managers who wish to raise aware- ness of integrity and potential ethical dilemma situations in their departments. Compliance and legal responsibility Compliance is an indispensable part of the culture of integrity at Daimler. For us, compliance means acting in accordance with laws and regulations. Our objective here is to ensure that all Daimler employees worldwide are always able to carry out their work in a manner that is in compliance with applicable laws, regulations, voluntary commitments and our basic values, as is set out in binding form in our Integrity Code. Our compliance activities focus on adhering to all applicable anti-corruption regulations, the maintenance and promotion of fair competition, adherence to legal and regulatory stipulations related to product development, the observance of and respect for human rights, compliance with data protection laws and our own data pro- tection policy, adherence to sanctions and the prevention of money laundering. Our Legal and Compliance department advises and supports all of our corporate units worldwide with regard to their business operations, processes and services, in order to minimize legal and business risks. Our Compliance Management System (CMS) serves as the foundation Our Compliance Management System (CMS) is designed to prevent inappropriate or illegal behavior by Daimler and its employees. The measures needed for this are deﬁned by Group Compliance and the Legal department in a process that also takes the company’s business requirements into account. Our CMS consists of basic principles and measures that aim to ensure compliant behavior throughout the company. The CMS is based on national and international standards and is applied on a global scale at all Daimler AG units and majority holdings. The systematic minimization of compliance risks is also extremely important, and for this reason we analyze and assess the compliance risks of all our business units every year. These analyses are based on centrally compiled information on all business units; speciﬁc additional details are taken into account in line with the given risk assessment. The results of the analyses form the basis of our risk management. More detailed information on the Daimler Compliance Manage- ment System can be found in the “Non-Financial Report” section of this Annual Report. E pages 229 ﬀ In order to ensure an independent external assessment of our Antitrust Compliance Program, KPMG AG Wirtscha(cid:5)s- prüfungs gesellscha(cid:5) audited the Compliance Management System for antitrust law in accordance with the 980 standards of the Institute of Public Auditors in Germany. This audit, which was based on the principles of appropriateness and eﬀective implementation, was successfully completed at the end of 2016. 134 B | COMBINED MANAGEMENT REPORT | OVERALL ASSESSMENT OF THE ECONOMIC SITUATION 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 transfor- mation 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 custom- ers 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 rev- enue, 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 dem- onstrated by the fact that December 2017 was the 58th consec- utive 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 indus- trial 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 param eter 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 tech- nologies. B | COMBINED MANAGEMENT REPORT | EVENTS AFTER THE REPORTING PERIOD 135 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 pro- ducer 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 work- ing 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. Events a(cid:5)er the Reporting Period Since the end of the 2017 ﬁnancial year, there have been no further occurrences that are of major signiﬁcance for Daimler. The course of business in the ﬁrst weeks of 2018 conﬁrms the statements made in the “Outlook” section of this Annual Report. 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 increas- ingly 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 condi- tions 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. 136 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT Remuneration Report The Remuneration Report summarizes the principles that are applied to determine the remuneration of the Board of Manage- ment of Daimler AG, and explains both the level and the structure of its members’ remuneration. It also describes the principles and level of remuneration of the Supervisory Board. The vertical comparison focuses on the ratio of Board of Management remuneration to the remuneration of the senior executives and the entire workforce of Daimler AG in Germany, also in terms of development over time. The Supervisory Board has deﬁned the group of senior executives for this purpose. Principles of Board of Management remuneration Goals The remuneration system for the Board of Management aims to remunerate its members commensurately with their areas of activity and responsibility and in compliance with applicable law. The adequate combination of non-performance-related and performance-related components of remuneration is designed to create an incentive to secure the Group’s long-term success. The ﬁxed component of remuneration is paid as a base salary; the variable components are intended to reﬂect, clearly and directly, the joint performance of the members of the Board of Management as a whole, as well as the long-term performance of the Group. The interests of all stakeholders, in particular those of the shareholders as the owners of the Company and those of the employees, are harmonized through the focus on the Group’s long-term success. Practical implementation For each upcoming ﬁnancial year, the Presidential Committee at ﬁrst prepares a review by the Supervisory Board of the system and level of remuneration on the basis of a comparison with competitors. The main focus is on checking for appropri- ateness, based on a horizontal and vertical comparison. In the horizontal comparison, the following aspects are given particular attention in relation to a group of comparable companies in Germany: – the eﬀects of the individual ﬁxed and variable components, that is, the methods behind them and their performance parameters; – the relative weighting of the components, that is, the relation- ship between the ﬁxed base salary and the short-term and long-term variable components; – and the target remuneration consisting of base salary, annual bonus and long-term variable remuneration, also with con- sideration of entitlement to a retirement pension and fringe beneﬁts. In carrying out this review, the Presidential Committee and the Supervisory Board consult independent external advisors. If the review results in a need for changes to the remuneration system for the Board of Management, the Presidential Com- mittee submits the relevant proposals to the entire Supervisory Board for its approval. On the basis of the approved remuneration system, the Super- visory Board decides at the beginning of the year on the base and target remuneration for the individual members of the Board of Management as well as on total remuneration limits. It also decides on the relevant performance parameters and the respective targets that are to be used in the bonus calcula- tions for the upcoming ﬁnancial year. Furthermore, individual targets and compliance goals are decided upon for each member of the Board of Management and additional non-ﬁnancial goals related to sustainability are drawn up for the Board of Manage- ment as a whole. Both the individual goals, including the com- pliance goals, and the non-ﬁnancial goals for the Board of Management as a whole are taken into consideration along with the ﬁnancial performance parameters a(cid:5)er the end of the ﬁnancial year when the annual bonus is decided upon by the Supervisory Board. For the long-term variable component of remuneration, which is referred to as the Performance Phantom Share Plan (PPSP), the Supervisory Board sets an amount to be granted for the upcoming ﬁnancial year in the form of an absolute amount in euros and sets the respective performance targets. A(cid:5)er the end of each year, the achievement of both ﬁnancial and non-ﬁnancial targets by the Board of Management as a whole is measured in order to determine the amount of the annual bonus. The degree of achievement of individual targets by members of the Board of Management is used as the basis for measuring target achievement for the Board of Management as a whole. The Presidential Committee then calculates the annual bonus and submits its proposal to the Supervisory Board for its approval. B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 137 The system of Board of Management remuneration in 2017 The ﬁxed base salary and the annual bonus each comprise approximately 30% of the target remuneration, while the variable component of remuneration with a long-term incentive eﬀect (PPSP) makes up approximately 40% of the target remuneration. (cid:202) B.42 As before, only 50% of the annual bonus is paid out in the March of the following ﬁnancial year. The other 50% is paid out a year later (deferral) with the application of a bonus-malus rule, depending on the development of the Daimler share price compared with an automotive index (Dow Jones STOXX Auto Index) E pages 78 f, which Daimler AG uses as a benchmark for the relative share-price development. Both the delayed payout of the portion of the annual bonus (with the use of the bonus-malus rule) and the variable component of remuneration from the PPSP with its link to additional, ambitious comparative parameters and to the share price reﬂect the recommendations of the German Corporate Governance Code and give due con- sideration to both positive and negative business developments. The maximum amounts of remuneration of Board of Manage- ment members are limited, both overall and with regard to the variable components. As in the prior year, the maximum amounts of remuneration of the members of the Board of Management were set for ﬁnancial year 2017 at 1.9 times the target remuneration for its members and 1.5 times the target remuneration for its Chair- man. The target remuneration consists of the base salary, the target annual bonus and the grant value of the PPSP, excluding fringe beneﬁts and retirement beneﬁt commitments. With the inclusion of fringe beneﬁts and retirement beneﬁt commit- ments from the respective ﬁnancial year, the maximum limit of total remu neration increases by these amounts. The possible cap on the amount exceeding the maximum limit takes place with the payment of the PPSP issued in the relevant ﬁnancial year, i.e. for the year 2017, with payment of the PPSP in 2021. (cid:202) B.43 The individual components of the remuneration system are as follows: The base salary is ﬁxed remuneration relating to the entire year, oriented towards the area of responsibility of each Board of Management member and paid out in twelve monthly installments. (cid:202) B.44 B.42 Remuneration structure Target remuneration consists of non-performance-related and performance-related components: base salary (non-performance-related) approx. 30% short- and medium-term performance-related components approx. 30% long-term performance-related components approx. 40% B.43 Maximum limit of total remuneration1 2017 Chairman of the Board of Management Members of the Board of Management 1.5 times the target remuneration1 1.9 times the target remuneration1 Base salary in 2017 + target bonus = 100% of the 2017 base salary + PPSP value when granted for 2017 Target remuneration1 in 2017 Base salary in 2017 + annual bonus for 2017 (50% paid out in 2018 + 50% in 2019) + PPSP payment for 2017 (in 2021) incl. dividend equivalent payments Total remuneration1 in 2017 The possible cap on the amount exceeding the maximum limit takes place with the payment of the PPSP for 2017 in 2021. 1 Excluding fringe beneﬁts and retirement beneﬁt commitments in all cases. B.44 Base salary – fixed E page 137 base salary – fixed – oriented towards the area of responsibility base salary (non-performance-related) approx. 30% paid out in twelve monthly installments 138 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT B.45 Annual bonus – short- and medium-term performance-related remuneration E page 138 B.46 Annual bonus1 in 2017 dependent upon short- and medium-term performance-related components approx. 30% annual bonus 2017 = target bonus × overall target achievement target bonus = 100% of base salary 2017 target achievement EBIT +/- target achievement for the Board of Management as a whole (derived from individual targets) +/- target achievement for the Board of Management as a whole: non-financial targets - non-achievement of individual compliance targets overall target achievement time of payment of annual bonus 2017 50% of annual bonus = in March of the year after the reporting year (2018) 50% of annual bonus (deferral) = in March of the second year after the amount paid out = 50% of annual bonus × “relative share performance”1 reporting year (2019) 1 Depending on the development of the Daimler share price compared with the Dow Jones STOXX Auto Index. EBIT target achievement Range of possible target achievement: 0% – 200% – 50% relates to a compari- son of actual EBIT in 2017 with EBIT targeted for 2017 Target achievement for the Board of Management as a whole (derived from individual targets) Range of possible target achievement: -25% – +25% Target achievement for the Board of Management as a whole: non-ﬁnancial targets Range of possible target achievement: -10% – +10% Non-achievement of individual compliance targets Range of possible target achievement: -25% – 0% Maximum target achievement (total cap): – 50% relates to a compari- son of actual EBIT in 2017 with actual EBIT in 2016 Individual target agreements in 2017 For 2017: Further development and permanent establishment of the corporate value of integ- rity; diversity and the mainte- nance and enhancement of a high level of employee satis- faction and product quality. Compliance agreements in 2017 235% of the target bonus 1 May be subject to retention or repayment claims The annual bonus is variable remuneration, the level of which is primarily linked to the operating proﬁt of the Daimler Group (EBIT). For the past ﬁnancial year, the annual bonus was also linked to the target for the ﬁnancial year determined by the Supervisory Board (derived from the level of return targeted for the medium term and the growth targets), the actual result compared with the prior year, the combined performance of the Board of Management members, additional non-ﬁnancial sustainability-related targets for the Board of Management as a whole and, as a possible individual reduction component, the non-achievement of compliance targets. With the actual- actual comparison, achievement of EBIT at the prior year level constitutes target achievement of 100%. With the target-actual comparison, the particularly ambitious deﬁnition of the targeted EBIT that is oriented towards the competition constitutes target achievement of 150%. (cid:202) B.45 (cid:202) B.46 Primary reference parameters: – 50% relates to a comparison of actual EBIT in 2017 with EBIT targeted for 2017. – 50% relates to a comparison of actual EBIT in 2017 with actual EBIT in 2016. Amount with 100% target achievement (target annual bonus): In 2017, this is equivalent to the respective base salary. Range of possible target achievement: 0 to 200%, that is, the annual bonus due to EBIT achievement has an upper limit of double the base salary and may also be zero. Both primary performance parameters, each of which relates to half of the bonus, can vary between 0% and 200%. For the primary performance parameter deﬁning 50% of the annual bonus, “comparison of actual EBIT in the ﬁnancial year with the EBIT targeted for the ﬁnancial year”, the limits of the unchanged possible range of 0 to 200% are deﬁned as a deviation of +/- 3% from prior-year revenue. For the other primary performance parameter, which also relates to half of the annual bonus, “comparison of actual EBIT in the ﬁnancial year with actual EBIT in the prior year”, the limits of the unchanged possible range of 0 to 200% are deﬁned as a deviation of +/- 2% of the prior-year revenue. In addition, the Supervisory Board uses individual target agreements as a basis for measuring the target achievement for individual Board of Management members and then uses this target achievement value to measure the overall target achievement of the Board of Management as a whole. This overall target achievement result can lead to an addition or reduction of up to 25% from the degree of target achievement as measured on the basis of the primary performance parame- ters. Only in exceptional cases may the Supervisory Board deviate from this overall performance assessment and make individual additions or deductions within the range described above. In addition, on the basis of the sustainability-related non- ﬁnancial targets for the Board of Management as a whole, an amount of up to 10% can be added or deducted, depending on the predeﬁned key ﬁgures/assessment basis. The non-ﬁnan- cial targets deﬁned for 2017 were the further development and permanent establishment of the corporate value of integrity, the promotion of diversity in the sense of increasing the share of women in management positions and the maintenance and enhancement of a high level of employee satisfaction and product quality. As was the case in previous years, further qualitative targets were agreed upon with the individual members of the Board of Management with regard to the sustained implementation and embedment of the compliance management system. The complete or partial non-achievement of individual compliance targets can be reﬂected by a deduction of up to 25% from the individual target achievement. However, the compliance targets cannot result in any increase in individual target achievement, even in the case of full accomplishment. B.47 Performance Phantom Share Plan (PPSP) – long-term performance-related remuneration E page 139 long-term performance-related remuneration approx. 40% amount when granted in euros E page 139 price of Daimler shares when issued = preliminary number of phantom shares (virtual shares) three-year dividend entitlement after expiry of third plan year preliminary number of phantom shares × performance factor = final number of phantom shares, dividend entitlement in fourth year after expiry of fourth plan year final number of phantom shares × Daimler share price at end of plan = amount paid out Time of payment of Performance Phantom Share Plan 2017 in February of the year 2021 In this context, agreements were reached with the members of the Board of Management allowing for the partial reduction or complete elimination of the annual bonus for any member who clearly violates our Integrity Code. If it is not possible to reduce a future bonus payment, or a payment that has yet to be made, the Board of Management member in question will be required to pay back the amount of the bonus reduction. The Supervisory Board has the ﬁnal decision on all such bonus reductions. The total amount to be paid out from the annual bonus is limited to 2.35 times the base salary of the respective ﬁnancial year. B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 139 B.48 PPSP 2017 dependent upon Development of performance factors Development of the Daimler share price – 50% relates to the “return on sales” achieved in a three-year comparison with the deﬁned group of competitors E page 140 Bandwidth of possible target achievement: 0% – 200%1 – 50% relates to the “relative share perfor- mance”, i.e. the development of Daimler’s share price in a three-year comparison with the development of a share-price index for the deﬁned group of competitors. Bandwidth of possible target achievement: 0% – 200% Price when issued and price at the end of the plan period Bandwidth of possible price development: maximum of 2.5 times the issue price Maximum performance development (total cap): 2.5 times the amount granted (including dividend equivalent payments throughout the plan period) Stock ownership guidelines Share purchase obligation of up to 25% of the gross remuneration until the deﬁned number of shares (between 20,000 and 75,000) have been purchased (shares to be held until the end of the term of service) 1 Maximum of 195% if, in the event of target achievement of 195% – 200%, the strategic return target of 9% has not been reached. The Performance Phantom Share Plan (PPSP) is a variable element of remuneration with long-term incentive eﬀects. At the beginning of the plan, the Supervisory Board speciﬁes a grant value (absolute amount in euros) in the context of setting the individual annual target remuneration. This amount is divided by the relevant average price of Daimler shares calculated over a predeﬁned long period of time, which results in the prelimi- nary number of phantom shares allocated. Also at the beginning of the plan, performance targets are set for a period of three years (performance period). Depending on the achievement of these performance targets with a possible range of 0% to 200%, a(cid:5)er three years the phantom shares allocated at the beginning of the plan are converted into the ﬁnal number of phantom shares allocated. A(cid:5)er another plan year has elapsed (retention period), the amount to be paid out is calculated from this ﬁnal number of phantom shares and the applicable share price at that time. The share price relevant for the payout under this plan is also relevant for allocating the preliminary number of phantom shares for the plan newly issued in the respective year. (cid:202) B.47 (cid:202) B.48 140 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT Performance parameters for Plan 2017: – 50% relates to the Group’s return on sales in a three-year phantom shares allocated. This maximum amount includes the dividend equivalent paid out during the four-year plan period. comparison with a group of competitors comprising all listed vehicle manufacturers with an automotive component of more than 70% by revenue and an investment-grade credit rating (BMW, Ford, Fuji Heavy, Honda, Hyundai, Isuzu, Kia, Mazda, Nissan, Paccar, Suzuki, Toyota, Volvo and Volks- wagen). For the measurement of success, the competitors’ average return on sales is calculated over a period of three years. Target achievement occurs to the extent to which Daimler’s return on sales deviates by a maximum of +/-2 per- centage points from 105% of the calculated average of the competitors. – Target achievement of 100% only occurs when the aver- age return on sales of the Daimler Group reaches 105% of the average return on sales of the group of competitors. Target achievement of 200% occurs if Daimler’s return on sales exceeds 105% of the average of the competitors by 2 percentage points or more. An additional limitation was implemented starting with PPSP 2015: If a target achievement of between 195% and 200% occurs in the third year of the performance period, the maximum target achievement calculated from the performance parameter of return on sales compared to the group of competitors will only be deemed to be 200% if the actual return on sales for Daimler’s automotive business reaches at least the strategic target for return on sales (currently 9%). Otherwise, target achievement will be limited to 195%. – Target achievement of 0% occurs if Daimler’s return on sales is 2 percentage points or more lower. In the deviation range of +/- 2 percentage points, target achievement varies in proportion to the deviation. – 50% relates to “relative share performance”, i.e. the develop- ment of Daimler’s share price in a three-year comparison with the development of a share-price index for the deﬁned group of competitors. If the development of Daimler’s share price (in percent) is the same as that of the index (in percent), target achievement is deemed to be 100%. If the develop- ment of Daimler’s share price (in percent) is 50 percentage points or more below (above) the development of the index, target achievement is deemed to be 0% (200%). In the deviation range of +/- 50 percentage points, target achievement varies in proportion to the deviation. Value upon allocation: Determined annually by the Supervisory Board; for 2017, approximately 1.4 times the base salary. Range of possible target achievement: 0 to 200%, that is, the plan has an upper limit. It may also be zero. Value of the phantom shares on payout: During the four-year period between the allocation of the pre- liminary phantom shares and the payout of the plan proceeds, the phantom shares earn a dividend equivalent in the amount of the actual dividend paid on ordinary Daimler shares. The terms governing the PPSP include a provision that allows for the partial reduction or complete elimination of the annual bonus for any member of the Board of Management who clearly violates the Integrity Code that applies to all employees and Board of Management members, or any other professional obli- gations, prior to the payout of the plan proceeds. The Super- visory Board has the ﬁnal decision on all such bonus reductions. Guidelines for share ownership As a supplement to these three components of remuneration, “Stock Ownership Guidelines” exist for the Board of Manage- ment. These guidelines require the members of the Board of Management to invest a portion of their private assets in Daimler shares over several years and to hold those shares until the end of their Board of Management membership. The number of shares to be held is set between 20,000 and 75,000. In fulﬁllment of the guidelines, up to 25% of the gross remuneration out of each Performance Phantom Share Plan is generally to be used to acquire ordinary shares in the Company, but the required shares can also be acquired in other ways. Appropriateness of Board of Management remuneration In accordance with Section 87 of the German Stock Corporation Act (AktG), the Supervisory Board of Daimler AG once again had an assessment of the system of Board of Management remuneration carried out by an external remuneration expert in 2017. The result was that the remuneration system as described above was conﬁrmed as being in conformance with the requirements of applicable law. The remuneration sys- tem was approved by the Annual Shareholders’ Meeting in 2014 with an approval ratio of 96.8%. Board of Management remuneration in ﬁnancial year 2017 Board of Management remuneration in 2017 pursuant to Section 314 Subsection 1 No. 6 of the German Commercial Code (HGB) The total remuneration granted by Group companies (excluding retirement beneﬁt commitments) to the members of the Board of Management of Daimler AG is calculated as the total of the amounts of – the base salary in 2017, – the half of the annual bonus for 2017 payable in 2018 and measured as of the end of the reporting period, – the half of the medium-term share-based component of the annual bonus for 2017 payable in 2019 with its value at the end of the reporting period (entitlement depending on the development of Daimler’s share price compared with the Dow Jones STOXX Auto Index), – the value of the long-term share-based remuneration (PPSP) at the time when granted in 2017, and – the taxable non-cash beneﬁts in 2017. The value of the phantom shares to be paid out depends on target achievement measured according to the criteria described above and on the share price relevant for the payout. This share price is limited to 2.5 times the share price at the beginning of the plan. In addition, the amount to be paid out is limited to 2.5 times the absolute euro amount speciﬁed at the beginning of the plan, which is relevant for the preliminary number of For both of the share-based components – the second 50% of the annual bonus and the PPSP with a long-term orientation – the amounts actually paid out can deviate signiﬁcantly from the values described depending on the development of the Daimler share price and on the achievement of the relevant target param- eters. Upward deviation is possible only as far as the maximum limits described above. Both components can also be zero. B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 141 The possible limits with regard to the annual bonus and the PPSP are shown in tables (cid:202) B.49 and (cid:202) B.50. The total remuneration of the Board of Management for the ﬁnan- cial year 2017 amounts to €35.0 million (2016: €31.8 million). Of that total, €9.5 million was ﬁxed, that is, non-performance- related remuneration (2016: €10.0 million), €15.3 million (2016: €11.6 million) was short-term and medium-term variable performance-related remuneration (annual bonus with defer- ral), and €10.2 million was variable performance-related remu- neration granted in the ﬁnancial year 2017 with a long-term incen tive eﬀect (2016: €10.2 million). (cid:202) B.51 B.49 Annual bonus (short- and medium-term variable remuneration of the Board of Management members active at year-end) B.50 PPSP 2013 (paid in 2017) (long-term variable remuneration (cid:2) B.55) Maximum 235% of the base salary + 10% of the base salary + 25% of the base salary ACTUAL 197% of the base salary 200% of the base salary + 5% of the base salary + 20% of the base salary 50% medium-term 50% medium-term (deferral) (deferral) 172% of the base salary 50% short-term 50% short-term 50% 50% medium-term medium-term (deferral) (deferral) 50% 50% short-term short-term 235 200 175 150 125 100 75 50 25 0 500 450 400 350 300 250 200 150 100 50 0 ACTUAL 100% Maximum theoretically 500% of the grant value With more than 250% target achievement, the total cap¹ applies. ACTUAL 315% Maximum 200% 191% ACTUAL Maximum 250% ACTUAL 165% Non-achievement of compliance targets -25% - 0 % (not applied in 2017) Joint performance +/- 25% Non-financial success parameters +/- 10% Financial success parameters 0% – 200% 1 Positive target achievement of the defined performance criteria “unit-sales development, revenue development, transformation in future technologies, change in the corporate culture (Leadership 2020)” Grant value (from which is derived the preliminary number of phantom shares with the share price at beginning of plan) Performance factor 0% - 200% (from which is derived the final number of phantom shares with the share price at beginning of plan) Development of Daimler share price from beginning until end of plan, maximum 2.5 times the issue price (share price in €) Overall target achievement final number of phantom shares times share price at end of plan (amount paid out in €) 1 Amount paid out including dividend-equivalent payments of PPSP 2013 B.51 Board of Management remuneration in 2017 Base salary Variable remuneration (annual bonus) Short-term Medium-term Remuneration (PPSP) Number Value when granted (2017: at share price €67.49) (2016: at share price €62.94) In thousands of euros Dr. Dieter Zetsche Dr. Wolfgang Bernhard1 Martin Daum2 Renata Jungo Brüngger Ola Källenius Wilfried Porth Britta Seeger Hubertus Troska Bodo Uebber Dr. Thomas Weber 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2,008 2,008 92 824 677 – 812 781 812 781 812 781 812 – 812 781 947 928 – 781 Total 7,784 7,665 1 Board of Management remuneration paid until Feb. 10, 2017 2 Board of Management remuneration paid from March 1, 2017 2017 2016 1,978 1,516 90 622 667 – 800 590 800 590 800 590 800 – 800 590 932 701 – 590 7,667 5,789 1,978 1,516 90 622 667 – 800 590 800 590 800 590 800 – 800 590 932 701 – 590 7,667 5,789 Total 8,617 7,610 272 3,216 3,054 – 3,455 2,989 3,455 2,989 3,502 3,036 3,455 – 3,455 2,989 4,057 3,559 – 3,053 39,315 40,838 – 18,236 15,446 – 15,446 16,336 15,446 16,336 16,148 17,078 15,446 – 15,446 16,336 18,464 19,528 – 17,345 2,653 2,570 – 1,148 1,043 – 1,043 1,028 1,043 1,028 1,090 1,075 1,043 – 1,043 1,028 1,246 1,229 – 1,092 151,157 162,033 10,204 10,198 33,322 29,441 142 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT B.52 Taxable non-cash beneﬁts and other fringe beneﬁts In thousands of euros Dr. Dieter Zetsche1 Dr. Wolfgang Bernhard2 Martin Daum3 Renata Jungo Brüngger Ola Källenius Wilfried Porth Britta Seeger Hubertus Troska4 Bodo Uebber Prof. Dr. Thomas Weber 2017 2016 167 9 235 108 95 146 366 470 107 – 618 131 – 107 393 171 – 635 163 129 1,703 Total 1 (2016: including an anniversary bonus of €418,464) 2 Board of Management remuneration paid until Feb. 10, 2017 3 Board of Management remuneration paid from March 1, 2017 4 For the fulﬁllment of disclosure obligations pursuant to Section 285 2,347 No. 9a of the German Commercial Code (HGB), this amount is reduced by €197,508 for the year 2017 (2016: €208,136). The cor- responding fringe beneﬁts were granted and borne by a subsidiary and are thus not included in the remuneration to be disclosed in the annual ﬁnancial statements of the parent company, Daimler AG. The granting of non-cash beneﬁts in kind, primarily the reim- bursement of expenses for security precautions and the provision of company cars, resulted in taxable beneﬁts for the members of the Board of Management in 2017 as shown in table (cid:202) B.52. Commitments upon termination of service Retirement provision In 2012, Daimler introduced a new company retirement beneﬁt plan for new entrants and new appointments for employees paid according to collective bargaining wage tariﬀs as well as for executives: the “Daimler Pensions Plan”. This retirement beneﬁt system features the payment of annual contributions by Daimler, but is oriented toward the capital market. Daimler makes a commitment to guarantee the total of contributions paid, which are invested in the capital market according to a precautionary investment concept. The Supervisory Board of Daimler AG has approved the appli- cation of this system for all members of the Board of Manage- ment newly appointed since 2012. The amount of the annual contributions results from a ﬁxed percentage of the base salary and the total annual bonus for the respective ﬁnancial year calculated as of the balance sheet date. This percentage is 15%. This calculation takes into consideration the targeted level of retirement provision for each Board of Management member – also according to the period of membership – and the resulting annual and long-term expense for the Company. The contributions to the retirement provision are granted until the age of 62. The beneﬁt from the pension plan is payable to surviving Board of Management members at the earliest at the age of 62, irrespective of their age upon retirement. If a member of the Board of Management retires due to dis- ability, the beneﬁt is paid as a disability pension, even before the age of 62. The Pension Capital system was used from the beginning of 2006 until the end of 2011. The pension agreements of active Board of Management members that were valid until that time were modiﬁed accordingly. All Board of Management members newly appointed during that period were subject exclusively to the Pension Capital system. Under this system, each Board of Management member is credited with a capital component each year. This capital com- ponent comprises an amount equal to 15% of the sum of the Board of Management member’s ﬁxed base salary and the total annual bonus for the respective ﬁnancial year on the balance sheet date, multiplied by an age factor equivalent to a rate of return of 6% until 2015 and 5% as of 2016 (Wolfgang Bernhard and Wilfried Porth: 5% for all years). These contribu- tions to pension plans are granted only until the age of 60. The beneﬁt from the pension plan is payable to surviving Board of Management members at the earliest at the age of 60, irrespective of their age upon retirement. If a member of the Board of Management retires due to disability, the beneﬁt is paid as a disability pension, even before the age of 60. Payments under the Pension Capital system and the Daimler Pensions Plan can be made in three ways: – as a single amount; – in twelve annual installments, whereby interest accrues on each partial amount from the time payments commence until the payout is complete (Pension Capital 6% or 5%; Daimler Pensions Plan in accordance with applicable law); – as an annuity with annual increases (Pension Capital 3.5% or in accordance with applicable law; Daimler Pensions Plan in accordance with applicable law). The contracts specify that if a Board of Management member passes away before retiring for reason of age, the spouse/ registered partner or dependent children is/are entitled to the full committed amount in the case of the Pension Capital system, and to the credit amount reached plus an imputed amount until the age of 62 in the case of the Daimler Pensions Plan. If a Board of Management member passes away a(cid:5)er retiring for reason of age, in the case of payment of twelve annual installments, the heirs are entitled to the remaining present value. In the case of a pension with beneﬁts for surviving dependents, the spouse/registered partner or dependent children is/are entitled to 60% of the discounted terminal value (Pension Capital), or the spouse/registered partner is entitled to 60% of the actual pension (Daimler Pensions Plan). Until the end of 2005, the pension agreements of Board of Management members included a commitment to an annual retirement pension, calculated as a proportion of the former base salary and depending on the number of years of service; an analogous implementation of this commitment for the corresponding hierarchical level applied to Wilfried Porth for the period prior to his serving as a member of the Board of Management. Such pension claims remained in eﬀect a(cid:5)er the conversion to the Pension Capital system but were frozen at the level reached at the beginning of 2006. Payments of these retirement pensions start upon request when the term of service ends at or a(cid:5)er the age of 60, or are paid as disability pensions if the term of service ends before the age of 60 due to disability. The respective agreements pro- vide for 3.5% annual increases starting when beneﬁts are B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 143 received (with the exception that Wilfried Porth’s beneﬁts are adjusted in accordance with applicable law). The agreements include a provision by which a spouse of a deceased Board of Management member is entitled to 60% of that member’s pension. That amount can increase by up to 30 percentage points depending on the number of dependent children. Departing Board of Management members with pension agree- ments (pension commitments) modiﬁed as of the beginning of 2006 receive, for the period between the end of the last contract period and reaching the age of 60, payments in the amounts of the pension commitments granted as described in the pre- vious section. Departing Board of Management members are also provided with a company car, in some cases for a deﬁned period. These payments are made until the age of 60, possibly reduced due to other sources of income, and are subject to annual percentage increases described above in the explanation of these pension agreements. Service costs for pension obligations according to IFRS amounted to €2.0 million in ﬁnancial year 2017 (2016: €2.8 million). The present value of the total deﬁned beneﬁt obligation according to IFRS amounted to €82.7 million as of December 31, 2017 (December 31, 2016: €95.7 million). Taking age and period of service into account, the individual entitlements, service costs and present values are shown in the table. (cid:202) B.53 Commitments upon early termination of service In the case of early termination without an important reason, Board of Management service contracts include commitments to payment of the base salary and provision of a company car until the end of the original service period at a maximum. Such persons are only entitled to payment of the annual bonus pro rata for the period until the end of the contract of service or of the Board of Management membership takes eﬀect. Entitle- ment to payment of the performance-related component of remuneration with a long-term incentive eﬀect (PPSP) that has already been allocated is deﬁned by the conditions of the respective plans. To the extent that the payments described above are subject to the provisions of the so-called severance cap of the German Corporate Governance Code, their total including fringe beneﬁts is limited to double the annual remu- neration and may not exceed the total remuneration for the remaining period of the service contract. In the event of an early termination of the service contract, both the short-term and the delayed medium-term component (deferral) of the annual bonus, and the proceeds from the long- term PPSP, are paid out not when the contract is terminated but instead at the points in time agreed upon in the service contract or in the terms and conditions of the PPSP plan. In connection with the early termination of the Board of Management membership of Dr. Wolfgang Bernhard by mutual agreement, eﬀective midnight on February 10, 2017, it was agreed that the payments to be made by the Company pursuant B.53 Individual entitlements, service costs and present values for members of the Board of Management Annual pension (as regulated until 2005) as of age 60 Service cost (for pension, pension capital and Daimler Pensions Plan) Present value1 of obliga- tions (for pension, pension capital and Daimler Pensions Plan) In thousands of euros Dr. Dieter Zetsche Dr. Wolfgang Bernhard2 Martin Daum3 Renata Jungo Brüngger Ola Källenius Wilfried Porth Britta Seeger Hubertus Troska Bodo Uebber Prof. Dr. Thomas Weber Total 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 1,050 1,050 – – – – – – – – 156 156 – – – – 275 275 – 300 – 708 46 367 102 – 245 117 248 235 282 247 122 – 238 239 690 649 – 264 1,481 1,781 1,973 2,826 42,738 43,533 – 3,230 2,860 – 938 654 2,651 2,345 10,280 9,597 1,072 – 4,909 4,611 17,263 17,007 – 14,716 82,711 95,693 1 The amounts of the present values are primarily due to the low level of the relevant discount rate. 2 Dr. Bernhard pro rata until Feb. 10, 2017 3 Mr. Daum pro rata from March 1, 2017 144 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT to the contract of service would continue to be granted until the end of the original contract of service on February 28, 2018. Accordingly, Dr. Bernhard receives a base salary of €869,744, short-term variable remuneration of €721,430 (value at the con- tract date to be paid in 2018), medium-term variable remuner- ation of €721,430 (value at the contract date to be paid in 2019 with application of the bonus/malus rule), and fringe beneﬁts of €11,570. Service cost amounts to €365,244 (in accordance with Section 285 No. 9a of the German Commercial Code (HGB) €306,077). Entitlement relating to long-term variable remuner- ation (PPSP) and the company pension are paid out pursuant to the contractual provisions. Sideline activities of Board of Management members The members of the Board of Management should accept management board or supervisory board positions and/or any other administrative or honorary functions outside the Group only to a limited extent. Furthermore, they require the consent of the Supervisory Board before commencing any sideline activities. This ensures that neither the time required nor the remuneration paid for such activities leads to any conﬂict with the members’ duties to the Group. Insofar as such sideline activities are memberships of other statutory supervisory boards or comparable boards of business enterprises, they are disclosed in the notes to the annual ﬁnancial statements of Daimler AG, which is published on our website. In general, Board of Management members have no right to separate remuner- ation for board positions held at other companies of the Group. Loans to members of the Board of Management In 2017, no advances or loans were made to members of the Board of Management of Daimler AG. Payments made to former members of the Board of Management of Daimler AG and their survivors Payments made in 2017 to former members of the Board of Management of Daimler AG and their survivors (including payments made to Dr. Bernhard a(cid:5)er termination of his Board of Management membership) amounted to €19.0 million (2016: €15.6 million). Pension provisions according to IFRS for former members of the Board of Management and their survivors amounted to €270.5 million as of December 31, 2017 (2016: €252.9 million). Details of Board of Management remuneration in 2017 pursuant to the requirements of the German Corporate Governance Code The following tables show for each individual member of the Board of Management on the one hand the beneﬁts granted for the ﬁnancial year and on the other hand the payments made in or for the reporting year and the retirement pension expense in or for the year under review in accordance with the recommendations of Clause 4.2.5 paragraph 3 of the German Corporate Governance Code. The total of “beneﬁts granted” for ﬁnancial year 2016 is calculated from – the base salary in 2016, – the taxable non-cash beneﬁts and other fringe beneﬁts in 2016, – the half of the annual bonus payable in 2017 for 2016 at the value for target achievement of 100%, – the half of the share-based annual bonus payable in 2018 for 2016 at the value for target achievement of 100%, – the value of the long-term share-based remuneration (PPSP) at the time when granted in 2016 (payable in 2020), and – the retirement pension expense in 2016 (service costs in 2016). B.54 Beneﬁts granted In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration (plan period of 4 years) Total Retirement pension expense (service costs) Total remuneration Total limit1 for components of remuneration granted in the reporting year Excluding – Taxable non-cash beneﬁts and other fringe beneﬁts – Retirement pension expense (service costs) Dr. Dieter Zetsche Chairman of the Board of Management, Head of Mercedes-Benz Cars Jan. 1 – Dec. 31 2016 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 2016 max. min. 2017 Dr. Wolfgang Bernhard Daimler Trucks & Buses Jan. 1 – Feb. 10 min. max. 2017 2,008 2,008 2,008 2,008 618 167 167 167 2,626 2,175 2,175 2,175 1,004 1,004 1,004 1,004 2,570 4,578 708 2,653 4,661 – 0 0 0 2,360 2,360 7,000 0 11,720 – – 824 131 955 412 412 1,148 1,972 367 92 92 92 9 101 9 9 101 101 46 46 – 92 46 0 0 – 0 46 108 108 – 216 46 7,912 6,836 2,175 13,895 3,294 239 147 363 10,149 10,224 5,464 348 1 Total limit = maximum amount (cid:198) 1.5 times (Dr. Zetsche)/1.9 times target remuneration (base salary, target annual bonus, value when granted of PPSP, excluding fringe beneﬁts and retirement pension commitments). B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 145 Martin Daum Daimler Trucks & Buses Renata Jungo Brüngger Integrity & Legal Aﬀairs Jan. 1 – Dec. 31 2016 March 1 – Dec. 31 max. min. Jan. 1 – Dec. 31 2016 2017 2017 Jan. 1 – Dec. 31 max. min. – – – – – – – – – 677 677 677 781 812 812 812 235 912 338 338 1,043 1,719 102 235 912 0 0 0 0 102 235 912 795 795 2,750 4,340 102 107 888 108 920 108 920 391 406 391 406 1,028 1,810 117 1,043 1,855 245 0 0 0 0 245 108 920 954 954 2,750 4,658 245 2,733 1,014 5,354 2,815 3,020 1,165 5,823 4,662 5,058 5,176 Beneﬁts granted In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration (plan period of 4 years) Total Retirement pension expense (service costs) Total remuneration Total limit1 for components of remuneration granted in the reporting year Excluding – Taxable non-cash beneﬁts and other fringe beneﬁts – Retirement pension expense (service costs) 1 Total limit = maximum amount (cid:198) 1.5 times (Dr. Zetsche)/1.9 times target remuneration (base salary, target annual bonus, value when granted of PPSP, excluding fringe beneﬁts and retirement pension commitments). Beneﬁts granted Ola Källenius Group Research & Mercedes-Benz Cars Development Wilfried Porth HR and Labor Relations Director & Mercedes-Benz Vans Jan. 1 – Dec. 31 2016 2017 Jan. 1 – Dec. 31 max. min. Jan. 1 – Dec. 31 2016 2017 Jan. 1 – Dec. 31 max. min. In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration (plan period of 4 years) Total Retirement pension expense (service costs) Total remuneration Total limit1 for components of remuneration granted in the reporting year Excluding – Taxable non-cash beneﬁts and other fringe beneﬁts – Retirement pension expense (service costs) 781 812 812 812 781 812 812 812 393 1,174 95 907 95 907 391 406 391 406 1,028 1,810 235 1,043 1,855 248 0 0 0 0 248 95 907 954 954 2,750 4,658 248 171 952 146 958 146 958 391 406 391 406 1,075 1,857 247 1,090 1,902 282 0 0 0 0 282 146 958 954 954 2,875 4,783 282 3,219 3,010 1,155 5,813 3,056 3,142 1,240 6,023 5,058 5,176 5,153 5,271 1 Total limit = maximum amount (cid:198) 1.5 times (Dr. Zetsche)/1.9 times target remuneration (base salary, target annual bonus, value when granted of PPSP, excluding fringe beneﬁts and retirement pension commitments). 146 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT Beneﬁts granted In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration (plan period of 4 years) Total Retirement pension expense (service costs) Total remuneration Total limit1 for components of remuneration granted in the reporting year Excluding – Taxable non-cash beneﬁts and other fringe beneﬁts – Retirement pension expense (service costs) Britta Seeger Mercedes-Benz Cars Marketing & Sales Jan. 1 – Dec. 31 2016 2017 Jan. 1 – Dec. 31 max. min. Jan. 1 – Dec. 31 2016 2017 Hubertus Troska Greater China Jan. 1 – Dec. 31 max. min. – – – – – – – – – 812 812 812 781 812 812 812 366 366 366 635 470 470 470 1,178 1,178 1,178 1,416 1,282 1,282 1,282 406 406 1,043 1,855 122 0 0 0 0 122 954 954 2,750 4,658 122 391 406 391 406 1,028 1,810 239 1,043 1,855 238 0 0 0 0 238 954 954 2,750 4,658 238 3,155 1,300 5,958 3,465 3,375 1,520 6,178 5,176 5,058 5,176 1 Total limit = maximum amount (cid:198) 1.5 times (Dr. Zetsche)/1.9 times target remuneration (base salary, target annual bonus, value when granted of PPSP, excluding fringe beneﬁts and retirement pension commitments). Beneﬁts granted In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration (plan period of 4 years) Total Retirement pension expense (service costs) Total remuneration Total limit1 for components of remuneration granted in the reporting year Excluding – Taxable non-cash beneﬁts and other fringe beneﬁts – Retirement pension expense (service costs) Bodo Uebber Finance & Controlling, Daimler Financial Services Prof. Dr. Thomas Weber Group Research & Mercedes-Benz Cars Development Jan. 1 – Dec. 31 2016 2017 Jan. 1 – Dec. 31 max. min. Jan. 1 – Dec. 31 2016 2017 Jan. 1 – Dec. 31 max. min. 928 947 947 947 163 107 107 107 1,091 1,054 1,054 1,054 464 473 464 473 1,229 2,157 649 1,246 2,192 690 0 0 0 0 690 1,112 1,112 3,288 5,512 690 3,897 3,936 1,744 7,256 6,025 6,095 – – – – – – – – – – – – – – – – – – 781 129 910 391 391 1,092 1,874 264 3,048 5,187 – – – – – – – – – – 1 Total limit = maximum amount (cid:198) 1.5 times (Dr. Zetsche)/1.9 times target remuneration (base salary, target annual bonus, value when granted of PPSP, excluding fringe beneﬁts and retirement pension commitments). B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 147 The total of “beneﬁts granted” for ﬁnancial year 2017 is calculated from – the base salary in 2017, – the taxable non-cash beneﬁts and other fringe beneﬁts in 2017, – the half of the annual bonus payable in 2018 for 2017 at the value for target achievement of 100%, – the half of the share-based annual bonus payable in 2019 for 2017 at the value for target achievement of 100%, – the value of the long-term share-based remuneration (PPSP) at the time when granted in 2017 (payable in 2021), and – the retirement pension expense in 2017 (service costs in 2017). The total of “payments made” for ﬁnancial year 2016 is calculated from – the base salary in 2016, – the taxable non-cash beneﬁts and other fringe beneﬁts in 2016, – the half of the annual bonus payable in 2017 for 2016 at the value as of the end of the reporting period in ﬁnancial year 2016, The caps possible to ensure the total maximum amount shown in the table of beneﬁts granted in ﬁnancial year 2016 are implemented with the payout of PPSP 2016, which constitutes the last payment to be made of the components of remuneration granted in ﬁnancial year 2016. For ﬁnancial year 2016, therefore, the possible cap would take place in 2020, the year that PPSP 2016 is paid out. The total of “payments made” for ﬁnancial year 2017 is calculated from – the base salary in 2017, – the taxable non-cash beneﬁts and other fringe beneﬁts in 2017, – the half of the annual bonus payable in 2018 for 2017 at the value as of the end of the reporting period, – the half of the share-based annual bonus paid in 2017 for 2015 (deferral), – the value of the long-term share-based remuneration (PPSP 2013) paid in 2017, – the dividend equivalent of the current PPSP (2014, 2015, – the half of the share-based annual bonus paid in 2016 for 2016 and 2017) paid in 2017, and 2014 (deferral), – the retirement pension expense in 2017 (service costs in 2017). – the value of the long-term share-based remuneration (PPSP 2012) paid in 2016, – the dividend equivalent of the current PPSP (2013, 2014, 2015 and 2016) paid in 2016, and – the retirement pension expense in 2016 (service costs in 2016). The caps possible to ensure the total maximum amount shown in the table of beneﬁts granted in ﬁnancial year 2017 are implemented with the payout of PPSP 2017, which constitutes the last payment to be made of the components of remuneration granted in ﬁnancial year 2017. For ﬁnancial year 2017, therefore, the possible cap would take place in 2021, the year that PPSP 2017 is paid out. B.55 Payments made In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration Payment of PPSP 2012 Payment of PPSP 2013 Dividend equivalent PPSP 2013 Dividend equivalent PPSP 2014 Dividend equivalent PPSP 2015 Dividend equivalent PPSP 2016 Dividend equivalent PPSP 2017 Total Retirement pension expense (service costs) Dr. Dieter Zetsche Chairman of the Board of Management, Head of Mercedes-Benz Cars Dr. Wolfgang Bernhard Daimler Trucks & Buses Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Feb. 10 2017 2017 2016 2016 2,008 618 2,626 1,516 1,727 6,417 – 395 141 121 133 – 2,008 167 2,175 1,978 2,175 – 6,181 – 152 121 133 128 10,450 708 10,868 – 824 131 955 622 670 2,567 – 158 60 54 59 – 4,190 367 92 9 101 90 892 – 2,472 – – – – – 3,454 46 Total remuneration 13,784 13,043 5,512 3,601 148 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT Payments made In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration Payment of PPSP 2012 Payment of PPSP 2013 Dividend equivalent PPSP 2013 Dividend equivalent PPSP 2014 Dividend equivalent PPSP 2015 Dividend equivalent PPSP 2016 Dividend equivalent PPSP 2017 Total Retirement pension expense (service costs) Martin Daum1 Daimler Trucks & Buses Renata Jungo Brüngger1 Integrity & Legal Aﬀairs Jan. 1 – Dec. 31 March 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 2017 2017 2016 2016 – – – – – – – – – – – – – – 677 235 912 667 – – – – 22 17 19 50 775 102 781 107 888 590 – 320 – 22 8 7 53 – 812 108 920 800 – – 488 – 9 7 53 50 1,000 117 1,407 245 Total remuneration – 1,789 2,005 2,572 1 Payments from the long-term variable remuneration also include amounts granted before the Board of Management membership. Payments made In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration Payment of PPSP 2012 Payment of PPSP 2013 Dividend equivalent PPSP 2013 Dividend equivalent PPSP 2014 Dividend equivalent PPSP 2015 Dividend equivalent PPSP 2016 Dividend equivalent PPSP 2017 Total Retirement pension expense (service costs) Ola Källenius1 Group Research & Mercedes-Benz Cars Development Wilfried Porth HR and Labor Relations Director & Mercedes-Benz Vans Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 2017 2017 2016 2016 781 393 1,174 590 – 411 – 21 15 48 53 – 812 95 907 800 846 – 457 – 18 48 53 50 1,138 235 2,272 248 781 171 952 590 652 2,567 158 59 50 56 – 4,132 247 812 146 958 800 846 – 2,472 – 64 50 56 52 4,340 282 Total remuneration 2,547 3,427 5,331 5,580 1 Payments from the long-term variable remuneration also include amounts granted before the Board of Management membership. Payments made In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration Payment of PPSP 2012 Payment of PPSP 2013 Dividend equivalent PPSP 2013 Dividend equivalent PPSP 2014 Dividend equivalent PPSP 2015 Dividend equivalent PPSP 2016 Dividend equivalent PPSP 2017 Total Retirement pension expense (service costs) B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 149 Britta Seeger1 Mercedes-Benz Cars Marketing & Sales Hubertus Troska Greater China Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 2017 2017 2016 2016 – – – – – – – – – – – – – – 812 366 1,178 800 – – 123 – 2 2 5 50 982 122 781 635 1,416 590 652 1,369 – 158 56 48 53 – 2,926 239 812 470 1,282 800 846 – 2,472 – 61 48 53 50 4,330 238 Total remuneration – 2,282 4,581 5,850 1 Payments from the long-term variable remuneration also include amounts granted before the Board of Management membership. Payments made In thousands of euros Base salary Taxable non-cash beneﬁts and other fringe beneﬁts Total Annual variable remuneration (50% of annual bonus, short-term) Deferral (50% of annual bonus, medium-term) Long-term variable remuneration Payment of PPSP 2012 Payment of PPSP 2013 Dividend equivalent PPSP 2013 Dividend equivalent PPSP 2014 Dividend equivalent PPSP 2015 Dividend equivalent PPSP 2016 Dividend equivalent PPSP 2017 Total Retirement pension expense (service costs) Bodo Uebber Finance & Controlling, Daimler Financial Services Prof. Dr. Thomas Weber Group Research & Mercedes-Benz Cars Development Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 Jan. 1 – Dec. 31 2017 2017 2016 2016 928 163 1,091 701 775 3,068 – 189 67 58 63 – 4,921 649 947 107 1,054 932 1,005 – 2,956 – 73 58 63 60 5,147 690 781 129 910 590 652 2,725 – 168 60 51 56 – 4,302 264 – – – – – – – – – – – – – – – Total remuneration 6,661 6,891 5,476 150 B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT Remuneration of the Supervisory Board Supervisory Board remuneration in 2017 The remuneration of the Supervisory Board is determined by the Annual Shareholders’ Meeting of Daimler AG and is governed by the Company’s Articles of Incorporation. The new regulations for Supervisory Board remuneration approved by the Annual Shareholders’ Meeting in March 2017 and eﬀective for the ﬁnan- cial year beginning on January 1, 2017 specify that the mem- bers of the Supervisory Board receive, in addition to the refund of their expenses and the cost of any value-added tax incurred by them in performance of their oﬃce, ﬁxed remuneration of €144,000 a(cid:5)er the conclusion of the ﬁnancial year. The Chair- man of the Supervisory Board receives an additional €288,000 and the Deputy Chairman of the Supervisory Board receives an additional €144,000. The members of the Audit Committee are paid an additional €72,000, the members of the Presidential Committee are paid an additional €57,600 and the members of the other committees of the Supervisory Board are paid an additional €28,800; an exception is the Chairman of the Audit Committee, who is paid an additional €144,000. Additional payments are made for activities in a maximum of three com- mittees; any persons who are members of more than three such committees receive additional payments for the three most highly paid functions. Members of a Supervisory Board com- mittee are only entitled to remuneration for such membership if the committee has actually convened to fulﬁll its duties in the respective year. In connection with the remuneration adjustment, all members of the Supervisory Board have made a self-commitment to purchase Company shares in the amount of 20% of their gross annual salary (excluding committee remuneration and the meeting fee) every year and to hold these shares until the end of one year a(cid:5)er they have le(cid:5) the Company’s Supervisory Board (voluntary obligation in accordance with the “comply or explain” principle). This does not apply to Supervisory Board members whose Supervisory Board remuneration is subject in a mandatory or voluntary manner to the guidelines of the German Trade Union Confederation on the transfer of supervisory board remuneration to the Hans Böckler Foundation, or to the same extent is subject to a transfer to the employer or claim to payment due to a service or employment contract. In the event that a lower amount of the Supervisory Board remuneration is transferred or credited, the voluntary commitment applies to 20% of the amount not transferred or credited. With this voluntary commitment, the members of the Supervisory Board are expressing their focus on and commitment to the long- term, sustainable success of the Company. The members of the Supervisory Board and its committees receive a meeting fee of €1,100 for each Supervisory Board meeting and committee meeting that they attend. The meeting fee is paid only once if several meetings of the Supervisory Board and/or its committees are held on the same calendar day. The individual remuneration of the members of the Supervisory Board is shown in table. (cid:202) B.56 In ﬁnancial year 2017, no remuneration was paid for services provided personally beyond the aforementioned board and com- mittee activities, in particular for advisory or agency services, except for the remuneration paid to the members of the Super- visory Board representing the employees in accordance with their contracts of employment. The remuneration of all the activities of the members of the Supervisory Board of Daimler AG in the year 2017 was thus €4.2 million (2016: €3.5 million). Loans to members of the Supervisory Board No advances or loans were made to members of the Super- visory Board of Daimler AG in 2017. B | COMBINED MANAGEMENT REPORT | REMUNERATION REPORT 151 Function(s) remunerated Total in 2017 B.56 Supervisory Board remuneration Name In euros Dr. Manfred Bischoﬀ Michael Brecht1 Dr. Paul Achleitner Bader M. Al Saad Sari Baldauf Bettag, Michael1 Dr. Clemens Börsig Dr. Bernd Bohr Dr. Jürgen Hambrecht Petraea Heynike Andrea Jung Chairman of the Supervisory Board, the Presidential Committee and the Nomination Committee Deputy Chairman of the Supervisory Board, the Presidential Committee and the Audit Committee Member of the Supervisory Board and the Nomination Committee Member of the Supervisory Board (since March 29, 2017) Member of the Supervisory Board and the Nomination Committee Member of the Supervisory Board Member of the Supervisory Board and Chairman of the Audit Committee Member of the Supervisory Board (until March 29, 2017) Member of the Supervisory Board and the Presidential Committee Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board and the Audit Committee Member of the Supervisory Board and the Audit Committee Joe Kaeser Ergun Lümali1 Wolfgang Nieke1 Dr. Bernd Pischetsrieder Valter Sanches2 Jörg Spies1 Elke Tönjes-Werner1 Sibylle Wankel1 Dr. Frank Weber Roman Zitzelsberger1 1 The employee representatives have stated that their board remuneration is to be transferred to the Hans- Member of the Supervisory Board and the Presidential Committee Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Böckler Foundation, in accordance with the guidelines of the German Trade Union Federation. 2 Mr. Sanches has directed that he receive no remuneration and that his board remuneration is to be paid to the Hans-Böckler Foundation. 536,000 436,300 183,800 115,177 184,900 153,900 302,300 38,018 215,900 153,900 152,800 230,300 230,300 153,900 152,800 150,600 153,900 153,900 153,900 153,900 217,000 152 B | COMBINED MANAGEMENT REPORT | TAKEOVER-RELEVANT INFORMATION AND EXPLANATION Takeover-Relevant Information and Explanation (Report pursuant to Section 315a Subsection 1 and Section 289a Subsection 1 of the German Commercial Code (HGB)) Composition of share capital The share capital of Daimler AG amounted to approximately €3,070 million at December 31, 2017. It is divided into 1,069,837,447 registered shares, each of which accounts for approximately €2.87 of equity capital. Pursuant to Section 67 Subsection 2 of the German Stock Corporation Act (AktG), only those persons registered as shareholders in the register of shareholders are considered to be shareholders of the Company. With the exception of treasury shares, from which the Com- pany does not have any rights, all shares confer equal rights to their holders. Each share confers the right to one vote and, with the possible exception of any new shares that are not yet entitled to a dividend, to an equal share of the proﬁts in accor- dance with the dividend payout approved by the Annual Share- holders’ Meeting. The rights and obligations arising from the shares are derived from the provisions of applicable law, in par- ticular Sections 12, 53a ﬀ, 118 ﬀ and 186 of the German Stock Corporation Act. There were no treasury shares at December 31, 2017. Restrictions on voting rights and on the transfer of shares The Company does not have any rights from treasury shares. In the cases described in Section 136 of the German Stock Cor- poration Act (AktG), the voting rights of treasury shares are nulliﬁed by law. Shares acquired by employees within the context of the employee share program may not be disposed of until the end of the following year. Eligible participants in the Performance Phantom Share Plans (PPSP) of Executive Level 1 and eligible members of the Board of Management are obliged by the Plans’ terms and conditions and by the Stock Ownership Guide- lines to acquire Daimler shares with a part of their Plan income up to a deﬁned target volume and to hold them for the duration of their employment at the Daimler Group. For the other per- sons eligible for PPSP, this obligation no longer applies since payment of PPSP 2013 in February/March 2017. Provisions of applicable law and of the Articles of Incorporation concerning the appointment and dismissal of members of the Board of Management and amendments to the Articles of Incorporation Members of the Board of Management are appointed and dis- missed on the basis of Sections 84 and 85 of the German Stock Corporation Act (AktG) and Section 31 of the German Code- termination Act (MitbestG). In accordance with Section 84 of the German Stock Corporation Act, the members of the Board of Management are appointed by the Supervisory Board for a maximum period of oﬃce of ﬁve years. However, the Super- visory Board of Daimler AG has decided generally to limit the initial appointment of members of the Board of Management to three years. Reappointment or the extension of a period of oﬃce is permissible, in each case for a maximum of ﬁve years. Pursuant to Section 31 Subsection 2 of the German Code- termination Act (MitbestG), the Supervisory Board appoints the members of the Board of Management with a majority com- prising at least two thirds of its members’ votes. If no such majority is obtained, the Mediation Committee of the Super- visory Board has to make a suggestion for the appointment within one month of the vote by the Supervisory Board in which the required majority was not reached. The Supervisory Board then appoints the members of the Board of Management with a majority of its members’ votes. If no such majority is obtained, voting is repeated and the Chairperson of the Super- visory Board then has two votes. The same procedure applies for dismissals of members of the Board of Management. In accordance with Article 5 of the Articles of Incorporation, the Board of Management has at least two members. The num- ber of members is decided by the Supervisory Board. Pursuant to Section 84 Subsection 2 of the German Stock Corporation Act (AktG), the Supervisory Board can appoint a member of the Board of Management as its Chairperson. If a required member of the Board of Management is lacking, an aﬀected party can apply in urgent cases for that member to be appointed by the court pursuant to Section 85 Subsection 1 of the German Stock Corporation Act (AktG). Pursuant to Section 84 Subsection 3 of the German Stock Corporation Act (AktG), the Supervisory Board can revoke the appointment of a member of the Board of Management and of the Chairperson of the Board of Manage- ment if there is an important reason to do so. B | COMBINED MANAGEMENT REPORT | TAKEOVER-RELEVANT INFORMATION AND EXPLANATION 153 Pursuant to Section 179 of the German Stock Corporation Act (AktG), the Articles of Incorporation can only be amended by a resolution of an Annual Shareholders’ Meeting. Unless other- wise required by applicable law, resolutions of the Annual Shareholders’ Meeting – with the exception of elections – are passed pursuant to Section 133 of the German Stock Corpo- ration Act (AktG) and Article 16 Subsection 1 of the Articles of Incorporation with a simple majority of the votes cast and if required with a simple majority of the share capital represented. Pursuant to Section 179 Subsection 2 of the German Stock Corporation Act (AktG), any amendment to the purpose of the Company requires a 75% majority of the share capital repre- sented at the Shareholders’ Meeting; no use is made in the Articles of Incorporation of the possibility to stipulate a larger majority of the share capital. Amendments to the Articles of Incorporation that only aﬀect the wording can be decided upon by the Supervisory Board in accordance with Article 7 Subsection 2 of the Articles of Incorporation. Pursuant to Section 181 Subsection 3 of the German Stock Corporation Act (AktG), amendments to the Articles of Incorporation take eﬀect upon being entered in the Commercial Register. Authorization of the Board of Management to issue or buy back shares By resolution of the Annual Shareholders’ Meeting of April 1, 2015, the Company was authorized to acquire its own shares during the period until March 31, 2020 for all legal purposes in a volume of up to 10% of the share capital at the time of the resolution of the Annual Shareholders’ Meeting. The shares can be used, under the exclusion of shareholders’ subscription rights, for, among other things, corporate mergers and acquisi- tions or else can be sold for cash to third parties at a price that is not signiﬁcantly below the market price at the time of the sale. The shares can also be used to service debt on convertible bonds and/or bonds with warrants, or can be issued to employ- ees of the Company and employees and members of executive bodies of aﬃliated companies pursuant to Section 15 ﬀ of the German Stock Corporation Act (AktG). The Company’s own shares can also be canceled. In addition, the Board of Management is authorized under other deﬁned circumstances and with the consent of the Super- visory Board to exclude shareholders’ subscription rights for shares they acquire. The Company’s own shares in a volume of up to 5% of the share capital existing at the time of the reso- lution of the Annual Shareholders’ Meeting can also be acquired with the application of derivative ﬁnancial instruments (put or call options, forwards or a combination of these ﬁnan- cial instruments), whereby the terms of the derivatives may not exceed 18 months and must be terminated on March 31, 2020, at the latest. No use was made of this authorization to acquire the Company’s own shares during the reporting period. By resolution of the Annual Shareholders’ Meeting held on April 9, 2014, the Board of Management was authorized with the consent of the Supervisory Board to increase the share capital of Daimler AG in the period until April 8, 2019, wholly or in partial amounts, on one or several occasions, by up to €1 billion by issuing new registered shares of no par value in exchange for cash or non-cash contributions, and with the consent of the Supervisory Board under certain conditions and within deﬁned limits to exclude shareholders’ subscription rights (Approved Capital 2014). Subscription rights can, under these deﬁned conditions, be excluded in the event of a capital increase through non-cash contributions for the purposes of an acquisition, and in the case of a capital increase through cash contributions, if the issue price of new shares is not sig- niﬁcantly below the market price at the time of the issue. No use has yet been made of Approved Capital 2014. By resolution of the Annual Shareholders’ Meeting held on April 1, 2015, the Board of Management, with the consent of the Supervisory Board, is authorized to issue during the period until March 31, 2020 convertible bonds and/or bonds with war- rants or a combination of those instruments (commercial papers) in a total nominal amount of up to €10 billion with a maximum term of ten years, and to grant the owners/lenders o(cid:5)hose bonds conversion or option rights to new, registered shares of no par value in Daimler AG with a corresponding amount of the share capital of up to €500 million, in accordance with the terms and conditions of those convertible bonds or bonds with warrants. The bonds may be issued in exchange for consideration in cash, but also for consideration in kind, in particular for a participation in other companies. The respective terms and conditions may also provide for mandatory con- version or an obligation to exercise the option rights. The bonds can be issued once or several times, wholly or in installments, or simultaneously in various tranches. They can also be issued by companies aﬃliated with Daimler AG pursuant to Section 15 ﬀ of the German Stock Corporation Act (AktG). Inter alia, the Board of Management was also authorized under certain circumstances, within certain limits and with the consent of the Supervisory Board to exclude shareholders’ sub- scription rights to the bonds. Subscription rights can, under these deﬁned conditions, be excluded when bonds are issued in exchange for non-cash contributions, particularly within the framework of a merger or acquisition, and when bonds are issued in exchange for cash contributions, if the issue price is not signiﬁcantly below the theoretical market price of the bonds at the time of the issue. No use has yet been made of this new authorization to issue convertible bonds and/or bonds with warrants. In order to service the debt of the convertible bonds and/or bonds with warrants issued as a result of the authorization, the Annual Shareholders’ Meeting of April 1, 2015, also approved a conditional increase in the share capital of up to €500 million (Conditional Capital 2015). 154 B | COMBINED MANAGEMENT REPORT | TAKEOVER-RELEVANT INFORMATION AND EXPLANATION Material agreements taking effect in the event of a change of control Daimler AG has concluded various material agreements, as listed below, that include clauses regulating the possible event of a change of control, as can occur as a result of a takeover bid: – A non-utilized syndicated credit line for a total amount of €9 billion, which the lenders are entitled to terminate if Daimler AG becomes a subsidiary of another company or comes under the control of one person or several persons acting jointly. – Credit agreements with lenders for a total amount of €2.0 billion, which the lenders are entitled to terminate if Daimler AG becomes a subsidiary of another company or comes under the control of one person or several persons acting jointly. – Guarantees and securities for credit agreements of consoli- dated subsidiaries for a total amount of €131 million, which the lenders are entitled to terminate if Daimler AG becomes a subsidiary of another company or comes under the control of one person or several persons acting jointly. – An agreement concerning the acquisition of a majority (50.1%) of AFCC Automotive Fuel Cell Cooperation Corp., which has the purpose of further developing fuel cells for automotive applications and making them marketable. In the case of a change of control of Daimler AG, the agreement provides for the right of termination by the other main shareholder, Ford Motor Company. Control as deﬁned by this agreement is the beneﬁcial ownership of the majority of the voting rights and the resulting right to appoint the majority of the members of the Board of Management. – A cooperation agreement with Ford concerning the joint predevelopment of a fuel-cell system. In the event of a change of control of one of the parties to the agreement, the agree- ment provides for the right of termination for the other party. A change of control is deemed to occur at a threshold of 50% of the voting rights of the company in question or upon authori- zation to appoint a majority of the members of its managing board. – A master cooperation agreement on wide-ranging strategic cooperation with Renault S.A., Renault-Nissan B.V. and Nissan Motor Co., Ltd. In the case of a change of control of one of the parties to the agreement, each of the other parties has the right to terminate the agreement. A change of control as deﬁned by the master cooperation agreement occurs if a third party or several third parties acting jointly acquire, legally or economically, directly or indirectly, at least 50% of the voting rights in the company in question or are authorized to appoint a majority of the members of its managing board. Under the master cooperation agreement, several cooperation agree- ments were concluded between Daimler AG on the one side and Renault and/or Nissan on the other, which provide for the right of termination for a party to the agreement in the case of a change of control of another party. These agreements primarily concern a new architecture for small cars, the shared use and development of fuel-eﬃcient diesel and gasoline engines and transmissions, the development and supply of a small urban delivery van, the development, production and supply of pickups, the use of an existing architecture for com- pact cars, and the joint production of Inﬁniti/Nissan and Mercedes-Benz compact vehicles in a 50-50 joint venture in Mexico. A change of control is deemed to occur at a thresh- old of 50% of the voting rights of the company in question or upon authorization to appoint a majority of the members of its managing board. In the case of termination of cooperation in the area of the development of small cars due to a change of control in the early phase of the cooperation, the party aﬀected by the change of control would be obliged to bear its share of the costs of the development of shared components even if the development were terminated for that party. – An agreement with BAIC Motor Co., Ltd. related to a jointly held company for the production and distribution of cars of the Mercedes-Benz brand in China, by which BAIC Motor Co., Ltd. is given the right to terminate the agreement or exercise a put or call option in the case that a third party acquires one third or more of the voting rights in Daimler AG. – An agreement related to the establishment of a joint venture with Beiqi Foton Motor Co., Ltd. for the purpose of producing and distributing heavy-duty and medium-duty trucks of the Auman brand. This agreement gives Beiqi Foton Motor Co., Ltd. the right of termination in the case that one of its competitors acquires more than 25% of the equity or assets of Daimler AG or becomes able to inﬂuence the decisions of its Board of Management. – An agreement between Daimler and Robert Bosch GmbH related to the joint establishment and joint operation of EM-motive GmbH for the development and production of traction and transmission-integrated electric motors as well as parts and components for such motors for automotive applications and for the sale of those articles to the Robert Bosch Group and the Daimler Group. If Daimler should become controlled by a competitor of Robert Bosch GmbH, Robert Bosch GmbH has the right to terminate the consortium agree- ment without prior notice and to acquire all the shares in the joint venture held by Daimler at a fair market price. – An agreement between Daimler AG, BMW AG and Audi AG related to the acquisition of the companies of the HERE Group and the associated establishment of There Holding B.V. In the event of a change of control of one of the parties to the agreement, the agreement obligates the party in question to oﬀer its shares in There Holding B.V. to the other parties to the agreement (shareholders). A change of control of Daimler AG occurs if a person gains control over Daimler AG, whereby control is deﬁned as (i) having control of more than 50% of the voting rights, (ii) being able to control more than 50% of the voting rights eligible to vote at the shareholders’ meetings on all or nearly all matters, or (iii) the right to determine the majority of the members of the Board of Management or of the Supervisory Board. A change of control also occurs if com- petitors of the HERE Group or certain possible competitors of the HERE Group in the technology industry acquire a share- holding of at least 25% of Daimler AG. If none of the other parties acquire these shares, the agreement gives them the right to dissolve There Holding B.V. B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 155 Risk and Opportunity Report The Daimler Group is exposed to a large number of risks that are directly linked with the business activities of its divisions or which result from external inﬂuences. A risk is understood as the danger that events, developments or actions will prevent the Group or one of its divisions from achieving its targets. At the same time, it is important for the Daimler Group to identify oppor- tunities so that they can be utilized in the course of its busi- ness activities, thus safeguarding and enhancing the Group’s competitiveness. An opportunity is understood as the possibil- ity to safeguard or to surpass the planned targets of the Group or a division as a result of events, developments or actions. The divisions have direct responsibility for recognizing and manag- ing business risks and opportunities at an early stage. As part of the strategy process, risks related to the planned long-term development and opportunities for further proﬁtable growth are identiﬁed and integrated into the decision-making process. In order to identify business risks and opportunities at an early stage and to assess and manage them consequently, eﬀective management and control systems, which are clustered into a risk and opportunity management system, are applied. Risks and opportunities are not oﬀset. The system is described below. B.57 Assessment of probability of occurrence/possible impact Level Low Medium High Probability of occurrence 0% < Probability of occurrence ≤ 33% 33% < Probability of occurrence ≤ 66% 66% < Probability of occurrence < 100% Level Low Possible impact €0 < Medium €500 million ≤ High Impact Impact Impact < €500 million < €1 billion ≥ €1 billion Risk and opportunity management system The risk management system with regard to existence- threatening and other material risks is integrated into the value-based management and planning system of the Daimler Group. It is an integral part of the overall planning, manage- ment and reporting process in the legal entities, divisions and corporate functions. The risk management system is intended to systematically and continually identify, assess, control, moni- tor and report risks threatening Daimler’s existence and other material risks, in order to support the achievement of corporate targets and to enhance risk awareness at the Group. The opportunity management system at the Daimler Group is based on the risk management system. The objective of opportunity management is to recognize the possible opportuni- ties arising in business activities as a result of positive devel- opments at an early stage, and to use them in the best possible way for the Group by taking appropriate measures. By taking advantage of opportunities, planned targets should be secured or overachieved. Opportunity management considers relevant and realizable opportunities that have not yet been included in any planning. In the context of operative planning, risks and opportunities – with consideration of appropriate risk and opportunity catego- ries – are identiﬁed and assessed for a two-year planning period. Furthermore, the discussions for the derivation of mid- term and strategic targets in the context of strategic planning include the identiﬁcation and assessment of risks and opportu- nities relating to a longer period. The reporting of risks and opportunities in the Management Report generally relates to a period of one year. Besides the reporting at speciﬁc times, risk and opportunity management is established as a continuous task within the Group. In addition to the regular reporting, there is also an internal reporting obligation within the Group for material risks arising unexpectedly. The central Group Risk Management regularly reports the identiﬁed risks and opportu- nities to the Board of Management and the Supervisory Board. 156 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT Risk assessment takes place on the basis of probability of occurrence and possible impact according to the levels low, medium and high. These levels also apply to the possible impact of opportunities. An analysis of the probability of occur- rence is not considered here. When assessing the impact of a risk or opportunity, its eﬀect on EBIT is generally considered. The system includes principles and procedures as well as preventive and detective controls. Among other things, it is regularly checked, if – the Group’s uniform ﬁnancial reporting, valuation and accounting guidelines are continually updated and regularly taught and adhered to; Group level, risks and opportunities below €500 million are classiﬁed as low, between €500 million and €1 billion as medium, and above €1 billion as high. For the quantiﬁcation of each risk and opportunity category in the Management Report, the individual risks and opportunities are summarized for each cat- egory. The assessment of the dimensions probability of occur- rence and possible impact is based on the levels shown in table (cid:202) B.57 and is conducted before measures are implemented. In addition to the quantiﬁable risks and opportunities, risk man- agement also considers qualitative risks and opportunities, which primarily comprise those risks connected with aspects pre- sented in the non-ﬁnancial report. In the context of describing the risk and opportunity categories, signiﬁcant changes in comparison to the prior year are explained. Risk management is based on the principle of completeness. This means that at the level of the individual entities, all concrete risks enter the risk management process. General uncertain- ties without any clear indication of a possible eﬀect on earnings are monitored within the internal control system (ICS). The scope of consolidation for risk and opportunity management corresponds to the scope of consolidation of the consolidated ﬁnancial statements and goes beyond that if necessary. The risks and opportunities of the divisions and operating units, impor- tant associated companies, joint ventures, joint operations and the corporate departments are included. The tasks of the employees responsible for risk and opportunity management include, besides the identiﬁcation and assess- ment of risks and opportunities, the development of measures and the initiation of such measures, if necessary. The objective of such measures is to avoid, reduce or transfer risks. The utili- zation or enhancement of an opportunity, and its partial or full implementation, also require measures to be taken. The cost- eﬀectiveness of a measure is assessed before its implemen- tation. The development of all risks and opportunities of the indi- vidual entities and of the related measures that have been initiated are continually monitored. The management activities take place at the level of the divisions based on individual risks and opportunities. The internal control and risk management system with regard to the accounting process has the objective of ensuring the correctness and eﬀectiveness of accounting and ﬁnancial reporting. It is designed in line with the internationally recognized framework for internal control systems of the Committee of Sponsoring Organizations of the Treadway Commission (COSO Internal Control – Integrated Framework), is continually devel- oped further, and is an integral part of the accounting and ﬁnancial reporting processes in all relevant legal entities and corporate functions. – transactions within the Group are accounted for and properly eliminated; – issues relevant for ﬁnancial reporting and disclosure from agreements entered into are recognized and appropriately presented; – processes are established to guarantee the completeness of ﬁnancial reporting; – processes are established for the segregation of duties and for the “four-eyes principle” (dual accountability) in the context of preparing ﬁnancial statements, and authorization and access rules exist for relevant IT accounting systems. The eﬀectiveness of the internal control system is systematically assessed with regard to the corporate accounting process. The ﬁrst step consists of risk analysis and the deﬁnition of con- trol. Signiﬁcant risks are identiﬁed relating to the processes of corporate accounting and ﬁnancial reporting in the main legal entities and corporate functions. The controls required are then deﬁned and documented in accordance with Group-wide guidelines. Random samples are regularly tested to assess the eﬀectiveness of the controls. Those tests constitute the basis for self-assessment of the appropriate magnitude and eﬀec- tiveness of the controls. The results of this self-assessment are documented and reported in a Group-wide IT system. Identiﬁed weaknesses are eliminated with consideration of their potential eﬀects. At the end of the annual cycle, the selected legal enti- ties and corporate functions conﬁrm the eﬀectiveness of the internal control and risk management system with regard to the corporate accounting process. The Board of Management and the Audit Committee of the Supervisory Board are regu- larly informed about the main control weaknesses and the eﬀec- tiveness of the control mechanisms installed. However, the internal control and risk management system for the accounting process cannot ensure with absolute certainty that material false statements in accounting are avoided. The organizational embedding and monitoring of risk and opportunity management takes place through the risk manage- ment organization established at the Group. In this context, the divisions, corporate functions and legal entities are requested to report on concrete risks and opportunities at regular inter- vals. This information is passed on to Group Risk Management, which processes the information and provides it to the Board of Management and the Supervisory Board as well as to the Group Risk Management Committee (GRMC). In order to ensure the complete presentation and assessment of existence-threatening and other material risks of the Group, as well as the control and risk processes with regard to the corporate accounting process, Daimler has established the GRMC. It is composed of represen tatives of Accounting & Financial Reporting, the Legal Department, Group Compliance and Technical Compliance, and is chaired by the Board of Management Member for Finance & Controlling/Daimler Finan- cial Services. The internal auditing department contributes material ﬁndings on the internal control and risk management system. B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 157 Responsibility for operational risk management and for the risk management processes lies directly with the divisions, corporate functions and legal entities. Reports regarding the current risk situation and the eﬀective- ness, functionality and appropriateness of the internal control and risk management system are regularly presented to the Board of Management and to the Audit Committee of the Super- visory Board of Daimler AG. Furthermore, the responsible managers regularly discuss risks and opportunities out of busi- ness operations with the Board of Management. The Audit Committee of the Supervisory Board is responsible for monitoring the internal control and risk management system. The internal auditing department monitors whether the statutory conditions and the Group’s internal guidelines con- cerning the internal control and risk management system of the Group are adhered to. If required, measures are then initi- ated in cooperation with the respective management. External auditors audit the system for the early identiﬁcation of risks which is integrated in the risk management system for its general suitability to identify risks threatening the existence of the Group; in addition, they report to the Supervisory Board on any signiﬁcant weaknesses that have been recognized in the internal control and risk management system. Risks and opportunities The following section describes the risks and opportunities that can have a signiﬁcant inﬂuence on the proﬁtability, cash ﬂows and ﬁnancial position of the Daimler Group. In general, the reporting of risks and opportunities takes place in relation to the individual segments. If no segment is explicitly men- tioned, the risks and opportunities described relate to all the automotive divisions. In addition, risks and opportunities that are not yet known or classiﬁed as not material can inﬂuence proﬁtability, cash ﬂows and ﬁnancial position. Industry and business risks and opportunities The following section describes the industry and business risks and opportunities of the Daimler Group. A quantiﬁcation of these risks and opportunities is shown in table (cid:202) B.58. Economic risks and opportunities Economic risks and opportunities constitute the framework for the risks and opportunities listed in the following categories and are integrated as premises into the quantiﬁcation of these risks and opportunities. Overall economic conditions have a signiﬁcant inﬂuence on vehicle sales markets and thus on the Group’s success. Like the majority of economic research institutes, Daimler expects the world economy to grow by more than 3% once again in 2018, following the perceptible acceleration of growth in 2017. Economic developments in 2017 are described in detail in the “Economic Conditions and Business Development” section of this Management Report; growth assumptions for 2018 are explained in the “Outlook” section E pages 95 ﬀ and 170 ﬀ. Economic risks and opportunities are linked with assumptions and forecasts concerning general developments. The relation- ship between risks and opportunities at the beginning of the year 2018 is more balanced than in the previous year; however, numerous risks continue to exist for the world economy. In the United States, the tax reform recently passed and a generally more expansive ﬁscal policy could result in additional impetus that has not previously been considered. If a signiﬁ- cantly more dynamic investment activity ensues there, leading to stronger growth in combination with positive employment and income eﬀects, this could boost demand in all automotive divisions. As the Daimler Group generates a substantial pro- portion of its revenue in the United States, especially in the Mercedes-Benz Cars, Daimler Trucks and Daimler Financial Services divisions, these developments would have consider- able consequences for the Group’s success. Furthermore, stronger growth in the United States would also have spillover eﬀects on the rest of the world. However, the disadvantages of such an expansionary ﬁscal policy are a worsening of the debt situation in the United States and the risk that the central bank (“Fed”) might feel forced to raise interest rates more sig- niﬁcantly than previously assumed in order to counteract strong inﬂationary pressure. This would increase the existing risks arising from the Fed’s exit from its expansive monetary policy and from the increase in the federal funds rates. As a result, increasing lending rates could dampen the recovery of the real-estate market and companies’ propensity to invest. There is also the risk of sharp falls in share prices triggering a chain reaction on global stock markets, resulting in major B.58 Industry and business risks and opportunities Risk category Probability of occurrence General market risks Risks relating to leasing and sales ﬁnancing Procurement market risks Risks relating to the legal and political framework Low Low Low Low Impact Opportunity category Impact High Low High High General market opportunities High Opportunities relating to leasing and sales ﬁnancing Procurement market opportunities Opportunities relating to the legal and political framework Low Low Low 158 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT market adjustments and phases of exceptional volatility in the global ﬁnancial markets. Such developments could have a negative impact on the investment climate worldwide, with negative eﬀects on the world economy. In Europe, political risks regarding the stability of the EU and the monetary union have decreased somewhat since the results of the elections in 2017. Nonetheless, separatist tendencies such as in Catalonia or upcoming parliamentary elections in Italy mean that a resurgence of the euro crisis cannot be ruled out. In addition, there are still signiﬁcant risks in the banking sector of some member states and the volume of defaulting loans is very high in some countries. Another crucial factor for economic development in Europe is the ongoing progress of the Brexit negotiations. Failure to reach an agreement could have a negative impact on the business climate and thus on the development of the British economy and to a lower extent the euro zone, which would potentially make trading conditions more diﬃcult. The European market continues to be very important for Daimler across all divisions; in fact, it is the biggest sales market for the Mercedes-Benz Cars and Mercedes-Benz Vans division. These risks exist along with opportunities for stronger growth due to even stronger dynamism from consumption and investment in the euro zone, which would also boost demand for motor vehicles in the important European market. Due to China’s enormous importance as a growth driver for the world economy in recent years, a downturn in China’s economy would represent a considerable risk to the world economy. The enormous growth in debt that has been observed since the global ﬁnancial crisis, especially in the corporate sector, repre- sents a signiﬁcant risk. If the government’s eﬀorts to restrict credit growth lead to a more signiﬁcant growth slowdown than currently expected, this would result in a perceptible cooling-oﬀ for the world economy. Within China, a slowdown could result in an excessive increase in credit defaults, which would then lead to turbulence in the banking sector and the ﬁnancial markets. In particular for the Mercedes-Benz Cars division, for which China is now the biggest individual sales market by a large margin, the aforementioned risks could result in signiﬁcant negative eﬀects on its unit sales. In addition, a drop in demand in China would trigger another fall in the price of oil and other (industrial) raw materials, with extremely disadvantageous eﬀects for raw-material exporting countries worldwide, especially in Latin America, the Middle East and Sub-Saharan Africa. This would have a negative impact on demand for the automotive divisions in those regions. On the other hand, growth in 2018 could also turn out to be stronger than expected if the Chinese government pursues less tight monetary and ﬁscal policies than currently anticipated. The resulting stronger growth in over- all economic consumption would create additional opportuni- ties, especially for the Mercedes-Benz Cars division. The prospects of the emerging markets remain stable compared with the previous year, but continue to be connected with some risks, primarily of an external nature. For example, a signiﬁcant increase in interest rates in the United States could cause diﬃculties in particular for those emerging markets with high current account deﬁcits and high levels of foreign debt, resulting in signiﬁcant currency depreciation (e. g. Turkey, South Africa and Brazil). Financial-market turbulences going as far as currency crises would be possible consequences and could have a massive impact on the economies of the aﬀected countries. Lower growth in world trade and lower raw-material prices (e. g. a drop in the oil price) than currently forecast would have a negative impact on growth for exporters of raw materials. As Daimler is already very active in those countries, or their mar- kets play a strategic role, this would have signiﬁcantly negative eﬀects on the Group’s prospective unit sales. However, import-dependent economies such as India would beneﬁt from lower price levels. Furthermore, stronger growth in world trade and higher raw-material prices would create positive impe- tus in emerging markets that export raw materials, leading to stronger economic growth and thus increased demand for motor vehicles. In view of the positive economic situation in many parts of the world, including Europe and some major emerging markets, the opportunity exists that the world economy will grow in 2018 at a higher rate than hitherto assumed. A stronger increase in worldwide demand would support raw-material prices and would have positive eﬀects on raw-material exporters in South America, the Middle East and Africa. Further risks exist from geopolitical tension, such as between Saudi Arabia and Iran or in North Korea, but countries like Russia and Turkey also continue to represent considerable con- flict potential. Should further terrorist attacks or assassina- tions in Europe or other major economies lead to an additional high degree of uncertainty, investment and consumer conﬁ- dence could be severely undermined with a resulting impact on the real economy. In addition, an increase in terrorist attacks would accelerate the already growing inﬂux into populist parties, thereby promoting isolationism and adversely aﬀecting world trade, with enormous costs to the world economy. General market risks and opportunities The risks and opportunities for the economic development of automotive markets are strongly aﬀected by the cyclical situation of the global economy as described above. The assessment of market risks and opportunities is linked to assumptions and forecasts about the overall development of markets in the regions in which the Daimler Group is active. The possibility of markets developing better or worse than assumed in the planning, or of changing market conditions, generally exists for all divisions of the Daimler Group. B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 159 Potential eﬀects of the risks on the development of unit sales are included in risk scenarios. The risks can cause changes in the planned business activities and the related vehicle sales and inventories. In particular, the partially unstable macroeco- nomic environment as well as political or economic uncertainty could be causes in this context. Diﬀerences between the divisions exist due to the partly varying regional focus of their activities. Discussions about the future of diesel technology and the related legal uncertainties are also responsible for changes in customer demand, which can have a negative impact on the sale of diesel vehicles and possibly also on earnings. The development of markets, unit sales and inventories is conti- nually analyzed and monitored by the divisions; if necessary, speciﬁc marketing and sales programs are implemented. Clear strategies have been formulated for each division for proﬁtable growth and eﬃcient progress. Volatilities with regard to market developments can also mean that the overall market or regional conditions for the automo- tive industry might develop better than assumed in the internal forecasts and premises upon which the Group’s target plan- ning is based. This can lead to market opportunities. Opportu- nities can also arise from an improvement in the competitive situation or a positive development of demand for the divisions. However, the existing market opportunities of the divisions of the Daimler Group can only be utilized if production can be aligned accordingly, and if this is enabled by regional condi- tions. In addition, any gaps between demand and supply have to be recognized and covered in good time. The measures that could be initiated by the Daimler Group to utilize potential opportunities include a combination of local sales and mar- keting activities, as well as central strategic product and capacity planning. As the target achievement of the Daimler Financial Services division is closely connected with the business development in the automotive divisions, the existing volume risks and opportunities are reﬂected in the Daimler Financial Services segment. Due to the partly diﬃcult ﬁnancial situation of some dealerships and vehicle importers, support actions might become neces- sary to ensure the performance of the business partners. The sources of these risks lie in the respective risk environment. Supporting actions would adversely aﬀect the proﬁtability, cash ﬂows and ﬁnancial position of the automotive divisions. Further risks may result from the dependency on certain dealerships. In certain circumstances, relationships with new business partners may have to be developed. The ﬁnancial situation of strategi- cally relevant dealerships and vehicle importers is continually monitored. If required, payment conditions are adjusted and additional guarantees are obtained. Risks of this kind exist for dealerships and vehicle importers of the divisions Mercedes- Benz Cars, Daimler Trucks and Mercedes-Benz Vans. The successful product portfolio of the Daimler Group con- tributes to its advantageous positioning compared with the competitors. Possibly rising competitive and price pressure above all aﬀect the segments Mercedes-Benz Cars and Daimler Trucks. Aggressive pricing policies, the introduction of new products by competitors, or pricing pressure in the a(cid:5)ersales business can make it more diﬃcult to achieve expected prices. This might result in lower revenue, the failure to achieve the products’ planned proﬁtability, or lower market share. The extent of such risks is related to the magnitude of a division’s sales volume. Continuous monitoring of competitors is carried out in order to recognize these risks at an early stage. Depending on the situation, product-speciﬁc and possibly regionally diﬀer- ent measures are taken to support weaker markets. They include the use of new sales channels, actions designed to strengthen brand awareness and brand loyalty as well as sales and mar- keting campaigns. Daimler also applies various programs to boost sales, which include ﬁnancial incentives for customers. Further risks at Mercedes-Benz Cars, Mercedes-Benz Vans and Daimler Financial Services relate to the development of used vehicle markets and thus to the residual values of the vehicles produced. In particular, the uncertainty existing in connection with diesel vehicles can have a negative impact on residual val- ues. As part of the established residual-value management process, certain assumptions are made at local and corporate levels regarding the expected level of prices, based upon which the cars to be returned in the leasing business are evaluated. If changing market developments lead to a negative deviation from assumptions, there is a risk of lower residual values of used cars. Depending on the region and the current market situa- tion, the measures taken generally include continuous market monitoring as well as, if required, price-setting strategies or sales promotion measures designed to regulate vehicle inven- tories. The quality of market forecasts is veriﬁed by periodic comparisons of internal and external sources, and, if required, the determination of residual values is adjusted and further developed with regard to methods, processes and systems. On the other hand, opportunities can arise from a positive development of residual values caused by a favorable market environment for used vehicles as well as reductions in price reductions granted on new vehicles. In addition, a residual-value risk from non-Daimler vehicles exists for the Daimler Financial Services companies that operate commercial ﬂeet management and leasing management, because most of those vehicles are not covered by manufactur- ers’ residual-value guarantees. Residual-value risk is taken into account through a high level of diversiﬁcation with regard to brands, regions, customers and lease periods. Used-vehicle prices are continually monitored both locally and centrally, so that the residual-value risk from a drop in market prices can be forecast in good time and suitable countermeasures may be initiated. 160 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT Despite increasing residual-value risks, the probability of occurrence of general market risks across all segments has decreased compared with the previous year from “medium” to “low” as a result of the improved market positioning of the automotive divisions compared with their competitors. Risks and opportunities relating to the leasing and sales-financing business In connection with the sale of vehicles, Daimler oﬀers its customers a wide range of ﬁnancing possibilities – primarily of leasing and ﬁnancing the Group’s products. The resulting risks for the Daimler Financial Services segment are mainly due to borrowers’ worsening creditworthiness, so receivables might not be recoverable in whole or in part because of cus- tomers’ insolvency (default risk or credit risk). Daimler counteracts credit risks by means of creditworthiness checks on the basis of standardized scoring and rating methods and the collateralization of receivables, as well as an eﬀective risk management with a ﬁrm focus on monitoring both internal and macroeconomic leading indicators. Other risks associated with the leasing and sales-ﬁnancing business involve the possibility of increased reﬁnancing costs due to changes in interest rates (interest rate risk). An adjustment of credit conditions for customers in the leas- ing and sales-ﬁnancing business caused by higher reﬁnancing costs could reduce the new business and contract volume of Daimler Financial Services, also reducing the unit sales of the automotive divisions. Risks and opportunities also arise from a lack of matching maturities with reﬁnancing. The risk of mis- matching maturities is minimized by coordinating reﬁnancing with the periods of ﬁnancing agreements, from the perspective of interest rates as well as liquidity. Any remaining risks from changes in interest rates are managed by the use of derivative ﬁnancial instruments. Further information on credit risks and the Group’s risk-minimizing actions is provided in E Note 32 of the Notes to the Consolidated Financial Statements. Possible regard residual-value risks for the automotive divisions and the companies in the Daimler Financial Services division that operate commercial ﬂeet management and leas- ing management are described in the section “General Market Risks and Opportunities.” The extent of the risks and opportunities and the probability of occurrence of the risks relating to the leasing and sales- ﬁnancing business continue to be assessed as low. Procurement market risks and opportunities Procurement market risks arise for the automotive divisions in particular from ﬂuctuations in prices of raw materials and energy. There are also risks of ﬁnancial bottlenecks of suppliers and of capacity bottlenecks caused by supplier delivery failures or by insuﬃcient utilization of production capacities at suppliers. The risk situation relating to probability of occurrence and impact has not changed compared with the previous year. Oppor- tunities in the raw-material markets continue to exist due to positive price developments for relevant raw materials. Com- pared with the previous year, however, the extent of those opportunities has decreased from “medium” to “low” as a result of more pessimistic assumptions concerning the future develop- ment of raw-material prices. Raw-material prices continued to feature signiﬁcant volatility in 2017. Due to almost completely unchanged macroeconomic conditions, price ﬂuctuations are expected with uncertain and uneven trends in the near future. On the one hand, raw-material markets can be impacted by political crises and uncertainties – combined with possible supply bottlenecks – as well as by volatile demand for speciﬁc raw materials; this increases the risk from raw-material prices for the individual automotive segments. Generally, the ability to pass on the higher costs of commodities and other materials in the form of higher prices for the manufactured vehicles is limited because of strong com- petitive pressure in the international automotive markets. Supplier risk management aims to identify potential financial bottlenecks for suppliers at an early stage and to initiate suitable countermeasures. Although the crisis of recent years is over, the situation of some of suppliers remains diﬃcult due to a high degree of competitive pressure. This has necessitated individual or joint support actions by vehicle manufacturers to safeguard their production and sales. In the context of supplier risk management, regular reporting dates are set for suppliers for which we have received early warning signals and made cor- responding internal assessments. On those dates, the suppliers report their key performance indicators to Daimler and decisions are made concerning any required support actions. Due to the planned electriﬁcation of new model series and a shi(cid:5) in customer demand from diesel to gasoline engines, the Mercedes-Benz Cars segment in particular is faced with the risk that Daimler will require changed volumes of components from suppliers. This could result in over- or under-utilization of production capacities for certain suppliers. If supplier can- not cover their ﬁxed costs, there is the risk that suppliers could demand compensation payments. Necessary capacity expansion at suppliers’ plants could also require cost-eﬀective participation. B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 161 Risks and opportunities related to the legal and political framework The automotive industry is subject to extensive governmental regulation worldwide. Risks and opportunities from the legal and political framework have a considerable impact on Daimler’s future business success. Regulations concerning vehicles’ emissions, fuel consumption and certification play a partic- ularly important role. Complying with these varied and o(cid:5)en diverging regulations all over the world requires strenuous eﬀorts on the part of the automotive industry. In the future, Daimler expects to spend an even larger portion of its research and devel- opment budget to ensure compliance with these regulations. Nonetheless, it has been possible to reduce the assessment of risks and opportunities related to the legal and political frame- work to “low” for the probability of occurrence. This is mainly because issues for the year 2018 have been taken into consid- eration in the planning. The potential impact of the risks and opportunities remains unchanged at “high.” Many countries and regions have already implemented stricter regulations to reduce vehicles’ emissions and fuel con- sumption or are currently preparing such laws. They relate for example to the environmental impact of vehicles, including emission levels, fuel economy and noise, as well as pollutants from the emissions caused by the production facilities. Non- compliance with regulations applicable in the various regions might result in signiﬁcant penalties and reputational harm and in the case of violations of regulations concerning vehicles’ environmental compatibility, might even mean that vehicles could not be or could no longer be registered in the relevant markets. The cost of compliance with these regulations is signiﬁcant, especially for conventional engines, and Daimler expects a signiﬁcant increase in costs in this context. The Mercedes-Benz Cars segment faces risks with respect to regulations on average ﬂeet fuel consumption in the Chinese market. In the European Union, the EU Commission made an ambitious proposal in November 2017 on future regulations concerning the CO2 emissions of new vehicles (period of 2021 to 2030). Legislation in the United States on greenhouse gases and fuel consumption impacts German premium manufacturers and thus also the Mercedes-Benz Cars division harder than US manufacturers, for example. Similar legislation exists or is being prepared in many other countries, as in Japan, South Korea, India, Canada, Switzerland, Mexico, Saudi Arabia, Brazil and Australia. Daimler gives these targets due consideration in its product planning. The increasingly ambitious targets require signiﬁcant proportions of plug-in hybrids or cars with other types of electric drive. The market success of these drive sys- tems is greatly inﬂuenced by regional market conditions, for example the battery-charging infrastructure and state support. If the negative headlines on diesel engines and the threat of driving bans on diesel vehicles were to unsettle customers, resulting in lasting shi(cid:5)s in the drive-system portfolio (fewer diesel and more gasoline engines), additional development and production measures would have to be taken to meet the CO2 ﬂeet limits applicable as of 2020. On the other hand, diﬀerenti- ating bans in cities that privilege diesel vehicles with good emission levels could result in competitive advantages for our new 4 and 6-cylinder engines (OM 654 and OM 656) with their very good exhaust emissions. Pursuant to EU Directive 2006/40/EC, since January 1, 2011, vehicles only receive type approval if their air-conditioning units are ﬁlled with a refrigerant that meets certain criteria with regard to climate friendliness. For vehicles produced on the basis of type approvals granted previously, the directive allowed a period of transition until December 31, 2016. Mercedes-Benz vehicles fully comply with these legal requirements as of January 1, 2017 through the application of CO2 air-conditioning and the refrigerant R1234yf in combination with a specially developed safety device that will be used depending on each vehicle’s conﬁguration. In December 2016, the EU Commission initiated infringement proceedings against the Federal Republic of Germany in the European Court of Justice (ECJ). The Com- mission sees a contravention of the European type-approval directive and of the Directive on emissions from air-condi- tioning systems in motor vehicles by the German authorities. In March 2017, Germany’s Federal Motor Vehicle Transport Authority issued Daimler AG with an injunction requiring the changeover of those vehicles from the ﬁrst half of 2013 in which the previously used refrigerant R134a was used for reasons of safety. Daimler considers the claim to be unfounded and has ﬁled an objection to the order. At present, the Group does not assume that these issues will result in material eﬀects on its proﬁtability, cash ﬂows or ﬁnancial position. Strict regulations for the reduction of vehicles’ emissions and fuel consumption create potential risks also for the Daimler Trucks and Daimler Buses divisions, because it will be hard to fulﬁll the statutory requirements in some countries. For example, legislation has been in eﬀect in Japan since 2006 and in the United States since 2011 on the reduction of greenhouse- gas emissions and fuel consumption by heavy-duty commercial vehicles. In China, fuel-consumption legislation was dra(cid:5)ed in 2017 which aﬀects our exports of heavy-duty trucks to that country with strict requirements as of 2019/2020. The Euro- pean Commission is currently working on methods for measur- ing the CO2 emissions of heavy-duty commercial vehicles that will have to be applied as of 2019. It has also decided to present a standard for limiting heavy-duty commercial vehicles’ CO2 emissions in the ﬁrst half of 2018. We expect that the limits to be conﬁrmed by the EU Parliament and Council will have to be met as of approximately 2025. Other countries such as India, South Korea and Brazil are also working on dra(cid:5) proposals for reducing the fuel consumption of heavy-duty commercial vehicles. 162 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT Furthermore, many countries such as China, India and Brazil are working on the regulation of emissions, which will raise their standards at least to the level of Euro VI limits. Daimler Trucks and Daimler Buses will therefore have to apply the latest tech- nologies in order to fulﬁll these requirements. Very demanding regulations for CO2 emissions are also planned or have been approved for light commercial vehicles. This will present a challenge for Mercedes-Benz Vans, especially in the long term. In the United States, Mercedes-Benz Vans is aﬀected to varying degrees by fuel-consumption and greenhouse-gas regulations for both light-duty and heavy-duty vehicles. The stricter limits planned for the years 2021 to 2027 will also aﬀect Mercedes-Benz Vans. The proposals presented by the EU Commission in November 2017 for limiting the CO2 emissions of light commercial vehicles, if conﬁrmed by the EU Parliament and Council, are very ambitious. In addition to the described emission and fuel-consumption regulations, traffic-policy restrictions for the reduction of traﬃc jams, noise and emissions are becoming increasingly impor- tant in cities and urban areas worldwide. In China for example, limited access to vehicle registration is continuing, and now also imported plug-in hybrid vehicles are being speciﬁcally excluded from access to registration (e. g. in Beijing, Guang- zhou and Shenzhen). This development can have a dampening eﬀect on the development of unit sales, especially in growth markets. Pressure to reduce personal transport is increasingly being applied in European cities through discussions of bans on vehicles entering or driving in inner cities, especially those with diesel engines. These discussions or bans on vehicles with conventional drive systems can increase demand for vehicles with alternative drive systems, especially for electric vehicles, as well as for mobility services including car-sharing services. In order to utilize the resulting opportunities, Daimler is present in the market with the provision of innovative mobility services (including car2go, moovel, mytaxi and Via). Daimler continually monitors the development of statutory and political conditions and attempts to anticipate foreseeable requirements and long-term targets at an early stage in the process of product development. The biggest challenge in the coming years will be to oﬀer an appropriate range of drive systems and the right product portfolio in each market, while fulﬁlling customers’ wishes, internal ﬁnancial targets and statutory requirements. With an optimal product portfolio and market-launch strategy, competitive advantages may also arise. The position of the Daimler Group in key foreign markets could also be aﬀected by an increase in bilateral free-trade agreements. If bilateral agreements are concluded without the involvement of the European Union or without the conclusion of equivalent agreements by the EU, the position of the Daimler Group could be signiﬁcantly impacted. At the same time, EU free-trade agreements could also result in opportunities for the Daimler Group vis-à-vis competitors in countries which are not parties to such agreements. Furthermore, the danger exists that individual countries will attempt to defend and improve their competitiveness in the world’s markets by resorting to interventionist and protec- tionist actions. This applies to the markets of developing countries and emerging economies, but also to Europe, the United States and China, and is manifested above all in the form of local-content rules aﬀecting the entire value chain. In addition, attempts are being made to limit growth in imports through barriers to market access such as by making certifi- cation processes more diﬃcult, delaying certiﬁcation and imposing other complicated customers procedures, while attract- ing direct foreign investment by means of appropriate industrial policies. Changes in tax subsidies or the like have the potential to signiﬁcantly inﬂuence the overall market development and increase uncertainty in the planning process. In order to adapt to these requirements, Daimler has already increased its local value added in major markets, and has thus taken appropriate action in good time. However, on the basis of our production locations’ increasing proximity to the various markets, further opportunities also exist for the Daimler Group, relating for example to the utilization of market potential or logistical advantages. B.59 Company-speciﬁc risks and opportunities Risk category Probability of occurrence Impact Opportunity category Impact Production and technology risks Information technology risks Personnel risks Risks related to equity interests and joint ventures Low Low Low Low High Medium Low Medium Production and technology opportunities Information technology opportunities Personnel opportunities – – – Opportunities related to equity interests and joint ventures Low B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 163 Company-speciﬁc risks and opportunities The following section describes the company-speciﬁc risks and opportunities of the Daimler Group. A quantiﬁcation of these risks and opportunities is shown in table (cid:202) B.59. Production and technology risks and opportunities Key success factors for achieving the desired level of prices for the products of the Daimler Group – and hence for the achievement of corporate targets – are brand image, design and quality, and thus the acceptance of products by custom- ers, as well as technical features based on innovative research and development. Convincing solutions, which for example support accident-free driving or further improve the products’ fuel consumption and emissions, such as hybrid or electric vehicles, are of key importance for safe and sustainable mobil- ity. Innovations and technology opportunities for the progres- sive and future-oriented design of the product range ﬂow into the strategic product planning of the automotive divisions. However, due to increasing technical complexity, the continu- ally rising extent of requirements in terms of emissions, fuel consumption and safety, as well as meeting and steadily raising the Daimler Group’s quality standards, product launches and manufacturing in the automotive divisions are also subject to production and technology risks. In the context of product launches, the required parts and equipment components have to be available. To avoid restrictions in this context, the related processes are continually evaluated and improved. In order to secure and enhance the long-term future viability of production facilities, modernization, expan- sion, construction and restructuring measures are carried out as required. The execution of modernization activities and the launch of new products are generally connected with high investments. For example, stipulations, plant reconstruction or delays in the ramp-up phase of an innovation or during a prod- uct’s lifecycle can lead to a short-term reduction in production volumes. Those automotive segments are aﬀected which are currently launching a new product or have planned a related production ramp up. In this context, it is also necessary to con- sider dependencies between contractual and cooperation part- ners, as well as possible changes in regional conditions, which have to be included in the local decision-making process. In principle, there is a danger that infrastructure problems or the failure of production equipment or production plants may cause internal bottlenecks that would consequently generate costs. With the parallel failure of several production plants, the resulting eﬀects could accumulate. These risks mainly exist for the Mercedes-Benz Cars segment. The production equipment is continually maintained and modernized. As a precaution, spare parts are held available or, if required, redundant machines are purchased for the production plants that might be at risk. Insuﬃcient availability of vehicle components at the right time, interruptions in the supply chain and possible interruptions in supply by energy providers can lead to bottlenecks, especially at the Mercedes-Benz Cars division. In order to avoid such bottleneck situations, importance is placed upon being able to compensate for capacity constraints through forward planning. In addition, supply chains and the availability and qual- ity of products are continuously monitored within the context of managing the entire value chain. Supplier management is undertaken for the prevention of risks with the aim of increas- ing inventories in good time and building up alternative supply lines, as required. Warranty and goodwill cases could arise in the Daimler Group if the quality of the products does not meet the requirements, regulations are not fully complied with, or support cannot be provided in the required form in connection with product prob- lems and product care. Quality problems with components in vehicles from external suppliers – as for example in connection with the industry-wide problems with Takata airbags – can require technical adjustments that can lead to considerable expenses. Possible claims in connection with such risks are examined and, if necessary, the appropriate measures are initi- ated for the aﬀected products. This can reduce the products’ proﬁtability and generate follow-up costs. The Daimler Group works continually and intensively to maintain product quality at a very high level, along with growing product complexity, in order to avoid the need for correction measures on end products and thus to supply customers with the best possible products. The probability of occurrence and possible impact of produc- tion and technology risks are unchanged compared with the previous year across all segments. Information technology risks and opportunities The digitization strategy that is systematically pursued at Daimler oﬀers new possibilities for enhancing customer bene- ﬁts and enterprise value. However, it also includes risks from the increasing IT dependency of products and business and pro- duction processes. In addition, speciﬁc risks exist due to the use and availability of new technologies in connection with digiti- zation, which amongst others can aﬀect the products, their use, or business operations. In addition, risks from cybercrime and hacker attacks cannot be ruled out. It is essential for a global company like Daimler AG that information is available and can be exchanged in an up-to-date, complete and correct form. Appropriately secure IT systems and a reliable IT infrastructure must be used to protect informa- tion. The Daimler Group intends to identify and evaluate risks that could result in the interruption of business processes due to the failure of IT systems or which could cause the loss or corruption of data, over the entire lifecycle of applications and IT systems. 164 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT Due to growing requirements concerning the conﬁdentiality, integrity and availability of data, Daimler has deﬁned various preventive and corrective measures so that the related risks are minimized and possible damage is limited. These measures are continually adapted to changing circumstances. For exam- ple, the Group minimizes potential interruptions of operating processes in data centers by means of mirrored data sets, decentralized data storage, outsourced data backups and IT systems designed for high availability. Emergency plans are developed, employees are trained sensitized, and further tech- nical and organizational precautions are taken in order to maintain operating capability. Speciﬁc threats are analyzed and countermeasures are coordinated at a central cyber security center. The protection of products and services from danger caused by hacking and cybercrime is continually developed. Despite all precautionary measures, disturbances in information processing and therefore negative impacts on the business processes and on IT-based services cannot be completely ruled out. The impact and probability of occurrence of IT risks remain unchanged compared with the previous year. Personnel risks and opportunities The success of the Daimler Group is highly dependent on its employees and their expertise. They are involved in their respective activities and working processes with their ideas and suggestions, and thus make signiﬁcant contributions to improvements and innovations every day. Competition for highly qualiﬁed staﬀ and management is still very intense in the industry and the regions in which Daimler operates. Future success also depends on the extent to which the Daimler Group succeed over the long term in recruiting, integrating and retaining specialist employees. The established human resources instruments take such personnel risks into consideration, while contributing toward the recruitment and retention of staﬀ with high potential and expertise and ensur- ing transparency with regard to the resources of the Daimler Group. One focus of human resources management is the targeted personnel development and further training of the workforce. Employees beneﬁt for example from the range of courses oﬀered by the Daimler Corporate Academy and from transparency in the context of performance management. Management culture and principles are currently being further developed in a Group-wide project. Due to demographic developments, the Group has to cope with changes relating to an aging workforce and has to secure a suﬃcient number of qualiﬁed young persons with the potential to become the next generation of highly skilled specialists and executives. This issue is addressed by taking appropriate measures in the area of generation management. If this risk occurs, depending on the extent of the personnel shortage, an impact is to be expected on the business activities and thus also on the earnings of the Daimler Group. There is no segment-speciﬁc assessment of the human resources risk because the described risks are not related to any speciﬁc business segment, but are valid for all segments in the respective regions. Overall, personnel risks are reduced compared to the previous year in terms of impact from “medium” to “low”. The probability of occurrence remains unchanged. Risks and opportunities related to associated companies, joint ventures and joint operations Cooperation with partners in associated companies, joint ven- tures and joint operations and other types of partnership is of key importance for Daimler. Along with ensuring better access to growth markets and new technologies, these shareholdings and partnerships help to utilize synergies and improve cost structures in order to successfully respond to the competitive situation in the automotive industry. Through investments in startups, Daimler promotes innovative approaches in many areas of the Group. The Daimler Group generally participates in the risks and opportunities of associated companies, joint ventures and joint operations in line with its ownership interest. Risks and opportunities can arise from the remeasurement of an associated company, joint venture or joint operation relating to the corresponding carrying value for the segment to which it is allocated. Furthermore, the business activities of an associ- ated company, joint venture or joint operation, or a disposal or acquisition of a stake in such an entity, could cause ﬁnancial obligations or an additional ﬁnancing requirement, but could also cause higher income or cash inﬂows in excess of the tar- gets set. Such risks are also generally connected with startups whose further development is not yet foreseeable. Risks exist in the Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Financial Services segments, as well as in the associated companies, joint ventures and joint operations directly allocated to the Group. All associated companies, joint ventures and joint operations are subject to a continuous monitoring process so that they can be promptly supported if required and their proﬁtability can be ensured. The recoverable value of investments is also continually monitored. Due to the development of the quoted portfolio and the increas- ing, risky investments in startups, the possible impact of risks in this category has increased compared with the previous year from “low” to “medium.” The probability of occurrence remains unchanged. Financial risks and opportunities The following section deals with the ﬁnancial risks and oppor- tunities of the Daimler Group. Risks and opportunities can have a negative or positive eﬀect on the proﬁtability, cash ﬂows and ﬁnancial position of the Daimler Group. The probability of occurrence and possible impact of these risks and opportuni- ties is presented in table (cid:202) B.60. In principle, the Group’s operating and ﬁnancial risk exposures underlying its ﬁnancial risks and opportunities can be divided into symmetrical and asymmetrical risk and opportunity proﬁles. With the symmetrical risk and opportunity proﬁles (e. g. cur- rency exposures), risks and opportunities exist equally, while with the asymmetrical risk and opportunity proﬁles (e. g. credit and country exposures), the risks outweigh the opportunities. Daimler is generally exposed to risks and opportunities from changes in market prices such as currency exchange rates, interest rates, commodity prices and share prices. Market price changes can have a negative or positive inﬂuence on the B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 165 Group’s proﬁtability, cash ﬂows and ﬁnancial position. Daimler manages and monitors market price risks and opportunities primarily in the context of its operational business and ﬁnancing activities, and applies derivative ﬁnancial instruments for hedging purposes where needed, thus limiting both market price risks and opportunities. In addition, the Group is exposed to credit and country-related risks, risks of restricted access to capital markets and risks of early credit repayment requirements. As part of the risk management process, Daimler regularly assesses these risks by considering changes in key economic indicators and market information. Pension plan assets to cover retirement and healthcare beneﬁts (market-sensitive investments including equities and interest-bearing securities) are not included in the following analysis. Interest rate risks and opportunities Changes in interest rates can create risks and opportunities for business operations as well as for ﬁnancial transactions. Daimler employs a variety of interest-rate sensitive ﬁnancial instruments to manage the cash requirements of its business operations on a day-to-day basis. Most of these ﬁnancial instru- ments are held in connection with the ﬁnancial services busi- ness of Daimler Financial Services, whose policy is generally to perform term-congruent reﬁnancing. However, to a limited extent, the funding does not match in terms of maturities and interest rates, which gives rise to the risk of changes in inter- est rates. The funding activities of the industrial business and the ﬁnancial services business are coordinated at Group level. Derivative interest rate instruments such as interest rate swaps are used to achieve the desired interest rate maturities and asset/liability structures (asset and liability management). Exchange rate risks and opportunities The Daimler Group’s global orientation means that its business operations and ﬁnancial transactions are connected with risks and opportunities related to ﬂuctuations in currency exchange rates. This applies in particular to ﬂuctuations against the euro of the US dollar, Chinese renminbi, British pound and other currencies such as those of growth markets. An exchange rate risk or opportunity arises in business operations primarily when revenue is generated in a currency diﬀerent from that of the related costs (transaction risk). This applies in particular to the Mercedes-Benz Cars division, as a major portion of its revenue is generated in foreign currencies while most of its production costs are denominated in euros. The Daimler Trucks division is also exposed to such transaction risks, but to a lesser degree because of its worldwide production network. Regularly updated currency risk exposures are successively hedged with suitable ﬁnancial instruments (predominantly cur- rency forwards and options) in accordance with exchange rate expectations, which are continually reviewed, whereby both risks and opportunities are limited. Any overcollateralization caused by changes in exposure is generally reversed by suitable measures without delay. Exchange rate risks and opportunities also exist in connection with the translation into euros of the net assets, revenues and expenses of the companies of the Group outside the euro zone (translation risk); these risks are not generally hedged. Equity price risks and opportunities The Group is subject to equity price risks in connection with its listed associated companies and joint ventures. As of December 31, 2017, the only shares that Daimler holds are shares that are included in the consolidated ﬁnancial state- ments using the equity method (primarily BAIC Motor). The Group does not include these investments in a market price risk analysis. The section “Risks and opportunities related to associated companies, joint ventures and joint operations” provides more information on equity risks and opportunities. Commodity price risks and opportunities As already described in the section “Procurement market risks and opportunities”, the Group’s business operations are exposed to changes in the market prices of purchased parts, components and raw materials. The Group addresses these procurement risks by means of concerted commodity and sup- plier risk management. To a minor degree, derivative ﬁnancial instruments are used to reduce the Group’s market price risks related to the purchase of certain metals. B.60 Financial risks and opportunities Risk category Exchange rate risks Interest rate risks Commodity price risks Credit risks Country risks Risks of restricted capital-market access Risks of credit repayment requirements Risks relating to pension plans Risks from changes in credit ratings Probability of occurrence Impact Opportunity category Impact Low Low Low Low Low Low Low Low Low High Low Low Low Low Exchange rate opportunities Interest rate opportunities Commodity price opportunities Credit opportunities Country opportunities Medium Opportunities of restricted capital-market access Low High Low Opportunities of credit repayment requirements Opportunities relating to pension plans Opportunities from changes in credit ratings High Low Low – – – – High Low 166 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT Credit risks The Group is exposed to credit risks which result primarily from its ﬁnancial services activities and from the operations of its vehicle business. Credit risks also arise from the Group’s liquid assets. The following statements pertain to risks arising from the Group’s liquid assets; risks related to leasing and sales ﬁnancing are addressed on E page 160. Should defaults occur, this would adversely aﬀect the Group’s ﬁnancial position, cash ﬂows and proﬁtability. In recent years, the limit method- ology for exposures with ﬁnancial institutions has been contin- ually further developed in order to counteract the diminished creditworthiness of the banking sector since the ﬁnancial crisis. In connection with investment decisions, priority is placed on the borrowers’ very high creditworthiness and on balanced risk diversiﬁcation. Most liquid assets are held in investments with an external rating of “A” or better. Country risks Daimler is exposed to country risks that primarily result from cross-border ﬁnancing or collateralization for Group companies or customers (e. g. Turkey), from investments in subsidiaries and joint ventures, and from cross-border trade receivables (e. g. China). Country risks also arise from cross-border cash depos- its with ﬁnancial institutions. The Group addresses these risks by setting country limits (e. g. for cross-border ﬁnancing of customers and for hard-currency portfolios from ﬁnancial ser- vices companies) and through investment-protection insurance against political risks in high-risk countries. Daimler also has an internal rating system that divides all countries in which it operates into risk categories. Risks of restricted access to capital markets Daimler covers its reﬁnancing needs, among other things, by means of borrowing in the capital markets. Access to capital markets in individual countries may be limited by government regulations or by a temporary lack of absorption capacity. In addition, pending legal proceedings as well as Daimler’s own business policy considerations may temporarily prevent the company from covering any liquidity requirements by means of borrowing in the capital markets. Risks of credit repayment requirements Daimler may be required to make premature repayment of special-purpose loans in the case of adverse results of ongoing legal proceedings. It is to be expected that the resulting reﬁ- nancing requirement will have to be concluded at a higher cost. Further information on ﬁnancial risks, risk-limiting measures and the management of these risks is provided in E Note 32 of the Notes to the Consolidated Financial Statements. Information on the Group’s ﬁnancial instruments is provided in E Note 31 of the Notes to the Consolidated Financial Statements. Risks and opportunities relating to pension plans Daimler has pension beneﬁt obligations and to a lesser degree obligations relating to healthcare beneﬁts, which are largely covered by plan assets. The balance of pension obligations less plan assets constitutes the carrying amount or funded status of those employee beneﬁt plans. The measurement of pension obligations and the calculation of net pension expense are based on certain assumptions. Even small changes in those assumptions such as a change in the discount rate could have a negative or positive effect on the funded status and Group equity in the current ﬁnancial year, or could lead to changes in the periodic net pension expense in the following ﬁnancial year. The fair value of plan assets is determined to a large degree by developments in the capital markets. Unfa- vorable or favorable developments, especially relating to equity prices and ﬁxed-interest securities, can reduce or increase the carrying value of plan assets. The currently increased volatil- ity of ﬁnancial markets raises the risks and opportunities relating to the measurement of both pension obligations and plan assets. The structure of pension obligations is taken into con- sideration with the determination of the investment strategy for the plan assets in order to reduce ﬂuctuations of the funded status. A change in the composition of pension assets can have an additional positive or negative impact on the fair value of the plan assets. Further information on the pension plans and their risks is provided in E Note 22 of the Notes to the Consolidated Financial Statements. Risks and opportunities from changes in credit ratings Daimler’s creditworthiness is assessed by the rating agencies S&P Global Ratings, Moody’s Investors Service, Fitch Ratings, Scope Ratings and DBRS. Risks and opportunities exist in con- nection with potential downgrades or upgrades to credit ratings by these rating agencies. Downgrades could have a negative impact on the Group’s ﬁnancing if such a downgrade leads to an increase in the costs for external ﬁnancing or restricts the Group’s ability to obtain ﬁnancing. A credit rating downgrade could also damage the company’s reputation or discourage inves- tors from investing in Daimler AG. A risk to the credit rating of the Daimler Group could also arise if the earnings and cash ﬂows anticipated from the Group’s growth could not be realized. Credit rating upgrades could lead to lower borrowing costs for the Group and also facilitate its access to ﬁnancing sources in the money and capital markets. If the positive development of the Group continues and its cash ﬂow and proﬁtability also develop positively, opportunities could arise for an upgrade of the credit rating on the part of the rating agencies. B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 167 Risks from guarantees, legal and tax risks The Group continues to be exposed to risks from guarantees as well as legal risks and tax risks. Provisions are recognized for those risks if and insofar as they are likely to be utilized and the amounts of the obligations can be reasonably estimated. No quantitative assessment of these risks is carried out. Risks from guarantees Issuing guarantees results in liability risks for the Group. For example, Daimler holds an equity interest in the road-charging system in Germany, which records the use of autobahns and selected federal highways by commercial vehicles and charges tolls accordingly. The operation of the electronic toll-collection system is the responsibility of the operator company, Toll Collect GmbH, in which Daimler holds a 45% stake through Daimler Financial Services AG and which is included in the consolidated ﬁnancial statements using the equity method of accounting. In addition to Daimler’s membership of the Toll Collect consortium and its equity interest in Toll Collect GmbH, risks also arise from guarantees that Daimler Financial Services AG has assumed with the other partners in the Toll Collect consortium (Deutsche Telekom AG and Coﬁroute S.A.) supporting obligations of Toll Collect GmbH toward the Federal Republic of Germany. These guarantees are connected with the toll system and a call option of the Federal Republic of Germany, i.e. the possibility of the Federal Republic of Germany to take over the shares in Toll Collect GmbH. Claims could be made under those guarantees if toll revenue is lost for technical reasons, if certain contractually deﬁned performance parameters are not fulﬁlled, if additional claims are made by the Federal Republic of Germany, if the ﬁnal operating permit is not granted, if Toll Collect GmbH fails to meet contractual obligations, if it fails to have the required equip- ment available, or if the Federal Republic of Germany takes over Toll Collect GmbH. The maximum loss risk for the Group from these risks can be substantial. Additional information is provided in E Note 29 (Legal proceedings) and E Note 30 (Financial guarantees, contingent liabilities and other ﬁnancial obligations) of the Notes to the Consolidated Financial Statements. Legal risks Various legal proceedings, claims and government investigations (legal proceedings) are pending against Daimler AG and its subsidiaries on a large number of topics, including vehicle safety, emissions, fuel economy, ﬁnancial services, dealer, supplier and other contractual relationships, intellectual property rights, warranty claims, environmental matters, antitrust matters (including actions for damages) and shareholder litigation. Prod- uct-related litigation involves claims alleging faults in vehicles, some of which have been made as class actions. If the outcome of such legal proceedings is detrimental to Daimler, the Group may be required to pay substantial compensatory and punitive damages or to undertake service actions, recall campaigns, monetary penalties or other costly actions. Some of these legal proceedings may have an impact on the Group’s reputation. The automotive industry is subject to extensive governmental regulations worldwide. Laws in various jurisdictions regulate occupant safety and the environmental impact of vehicles, including emission levels, fuel economy and noise, as well as the pollutants generated by the plants where vehicles are produced. Noncompliance with regulations applicable in the different regions could result in significant penalties and reputational harm or the inability to sell vehicles in the rele- vant markets. The cost of compliance with these regulations is significant, and in this context, Daimler expects a significant increase in such costs. Currently, Daimler is subject to governmental information requests, inquiries and investigations as well as litigation relat- ing to environmental, securities, criminal, antitrust and other laws and regulations in connection with diesel exhaust emissions. Several federal and state authorities and institutions worldwide have inquired about and/or are investigating test results, the emission control systems used in Mercedes-Benz diesel vehi- cles and/or Daimler’s interaction with the relevant federal and state authorities as well as related legal issues and implications, including, but not limited to, under applicable environmental, securities, criminal and antitrust laws. These authorities include, amongst others, the U.S. Department of Justice (“DOJ”), which has requested that Daimler conduct an internal investigation, the U.S. Environmental Protection Agency (“EPA”), the California Air Resources Board (“CARB”) and other US state authorities, the U.S. Securities and Exchange Commission (“SEC”), the European Commission, with which Daimler has filed a leniency application, as well as national cartel authorities and other authorities of various foreign states as well as the German Fed- eral Financial Supervisory Authority (“BaFin”) and the German Federal Motor Transport Authority (“KBA”). The Stuttgart district attorney’s office is conducting criminal investigation proceed- ings against Daimler employees on the suspicion of fraud and criminal advertising, and searched the premises of Daimler at several locations in Germany. Further, Daimler comprehensively responded to the diesel emissions committee of inquiry of the German Parliament. Daimler continues to fully cooperate with the authorities and institutions. Irrespective of such coopera- tion by Daimler, it is possible that further civil and criminal inves- tigative and enforcement actions and measures relating to Daimler and/or its employees will be taken, such as subpoenas, i.e. legal instructions issued under penalty of law in the pro- cess of taking evidence, or other requests for documentation, testimony or other information, further search warrants, a notice of violation or an increased formalization of the govern- mental proceedings. Additionally, delays in obtaining regulatory approvals necessary to introduce new or recertify existing diesel models could occur. In light of the notices of violation that were issued by US environmental authorities to another vehicle manu- facturer in January of 2017 and the related complaint filed by the United States against such manufacturer in May 2017, identifying functionalities, apparently including functionalities that are com- mon in diesel vehicles, as undisclosed Auxiliary Emission Control Devices (AECDs) and, in some unspecified cases, as imper- missible, and in light of the ongoing governmental information requests, inquiries and investigations, and our own internal 168 B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT Non-ﬁnancial risks As a company with worldwide activities, Daimler AG is at the focus of public interest. In this context, the relevant stake- holders’ perception is of crucial importance and can aﬀect the reputation of the entire Daimler Group E page 214 “Non- Financial Report.” A key role in the public’s current perception is played by the company’s approach to environmental, employee and social matters, ﬁghting corruption and bribery, and respecting human rights. Risks arise above all in connection with the public debate about diesel vehicles and the related fundamental reconsideration of methods for measuring emissions. Due to the replacement of the NEDC (New European Driving Cycle) with the new measur- ing method WLTP (Worldwide Harmonized Light Vehicles Test Procedure), the ﬂeet CO2 average has worsened. In light of today’s knowledge, this would make it more diﬃcult to achieve the CO2 targets as of 2020. Furthermore, there has been some pressure in the past two years on diesel technology, which is important for compliance with the challenging CO2 targets in the EU, because of air-quality problems in cities (exceeding the NOx limits). For this reason, the Real Driving Emissions (RDE) legislation entered into force in the EU in July 2017. Complying with emission limits under real driving conditions (on the road and not, as previously, only on the test bench) is very ambitious legislation that since September 2017 has required very complex technology for exhaust-gas a(cid:5)ertreatment, as well as detailed documentation. The current public focus on vehicle emissions as well as their measurement and impact on people and the environment jeo pardizes the reputation of the automo- tive industry and in particular of the diesel engine, and could result in damage to Daimler’s reputation. With the develop- ment of a new generation of diesel engines, Daimler has found a convincing technical solution with regard to reducing emis- sions and will successively introduce this innovation throughout the product range. investigation, it cannot be ruled out that the various authorities might reach the conclusion that Mercedes-Benz diesel vehicles have similar functionalities. The inquiries and investigations as well as the replies to the governmental information requests and our internal investigation are still ongoing and open; hence, Daimler cannot predict the outcome at this time. If these or other inquiries, investigations, legal actions and/or proceedings result in unfavorable ﬁndings, an unfavorable outcome or otherwise develop unfavorably, Daimler could be subject to signiﬁcant monetary penalties, remediation requirements, vehicle recalls, process improvements, mitigation measures and the early termination of promotional loans, and/or other sanc- tions, measures and actions, including further investigations by these or other authorities and additional litigations. The occur- rence of the aforementioned events in whole or in part could cause signiﬁcant collateral damage including reputational harm. In addition, Daimler’s ability to defend itself in litigations could be impaired by unfavorable ﬁndings, results or develop- ments in any of the governmental information requests, inquiries, investigations, legal actions and proceedings discussed above. Therefore, it cannot be ruled out that the risks discussed above may materially adversely impact our proﬁtability, cash ﬂows and ﬁnancial situation. As legal proceedings are fraught with a large degree of uncer- tainty, it is possible that a(cid:5)er their ﬁnal resolution, some of the provisions we have recognized for them could prove to be insuﬃcient. As a result, substantial additional expenditures may arise. This also applies to legal proceedings for which the Group has seen no requirement to recognize a provision. Although the ﬁnal result of any such litigation may inﬂuence the Group’s earnings and cash ﬂows in any particular period, Daimler believes that any resulting obligations are unlikely to have a sustained eﬀect on the Group’s cash ﬂows, ﬁnancial position or proﬁtability. Further information on legal proceed- ings is provided in E Note 29 of the Notes to the Consoli- dated Financial Statements. Tax risks Daimler AG and its subsidiaries operate in many countries worldwide and are therefore subject to numerous diﬀerent statutory provisions and tax audits. Any changes in legislation and jurisdiction, as well as diﬀerent interpretations of the law by the ﬁscal authorities – especially in the ﬁeld of cross-border transactions, may be subject to considerable uncertainty. It is therefore possible that the provisions recognized will not be suﬃcient, which could have negative eﬀects on the Group’s net proﬁt and cash ﬂows. Any changes or interventions by the ﬁscal authorities are continuously monitored by the tax department and measures are taken if required. B | COMBINED MANAGEMENT REPORT | RISK AND OPPORTUNITY REPORT 169 be inﬂuenced by the Daimler Group and provided that the required measures are ﬁnancially viable, the Group takes appro- priate action to realize those opportunities. In order to recognize risks and opportunities at an early stage and to deal successfully with the current risk and opportunity situation, the established risk and opportunity management system is continually monitored and further developed. Overall assessment of the risk and opportunity situation The overall view of the Group’s risk and opportunity situation is the sum of the described individual risks and opportunities of all risk and opportunity categories for the divisions, the corporate functions and the legal entities. As well as the risk categories described above, unpredictable events such as natural disasters, political instability or terrorist attacks can disturb production and business processes. Emer- gency plans are therefore prepared to allow the resumption of business operations as soon as possible. As far as possible, precautionary measures are taken and insurance policies are arranged. Risks relating to compliance are also included in the risk management process and are continually monitored. Regular training courses are carried out to prevent compliance viola- tions. In addition to the described risks, other risks can occur that adversely aﬀect the public perception and therefore the reputation of the Daimler Group. Public interest is focused on Daimler’s position with regard to individual issues in the ﬁelds of sustainability, integrity and social responsibility. Furthermore, customers, business partners and capital markets are inter- ested in how the Group reacts to the technological challenges of the future, how it succeeds in oﬀering up-to-date and tech- nologically leading products in the markets, and how business operations take place under the given conditions. As one of the fundamental principles of business activity, Daimler places particular priority – also in the selection of suppliers – on adherence to applicable laws and ethical standards. Furthermore, the secure handling of sensitive data is a precondition for business relationships with customers and suppliers in a trusting and cooperative environment. Compared with the previous year, risks from associated com- panies, joint ventures and joint operations have increased as a result of increasing in risky investments in startups. However, the overall view of the Daimler Group’s risk and opportunity situation remains essentially unchanged. No risks are recogniz- able – neither on the balance sheet date nor at the time of preparing the consolidated ﬁnancial statements – that either alone or in combination with other risks could endanger the continued existence of the Group. But since considerable eco- nomic and industry risks still exist, setbacks on the way to sus- tainably achieving growth and proﬁtability targets cannot be completely ruled out. New competitors in the IT sector for exam- ple and the Group’s current strategy, among other things in connection with electric mobility, pose further challenges for the Daimler Group and are connected with risks and opportuni- ties. By eﬀectively and ﬂexibly focusing production and sales activities on changing conditions, the divisions of the Daimler Group strive to utilize the opportunities oﬀered so that they can fulﬁll or surpass their respective targets and plans. As far as can 170 B | COMBINED MANAGEMENT REPORT | OUTLOOK Outlook The statements made in the Outlook chapter are based on the operational planning of Daimler AG as approved by the Board of Management and the Supervisory Board in December 2017. That planning is based on the premises we set regarding the economic situation and the development of automotive markets. It involves assessments made by Daimler, which are based on relevant analyses by various renowned economic research insti- tutes, international organizations and industry associations, as well as on the internal market analyses of our sales companies. The prospects for our future business development as presented here reﬂect the targets of our divisions as well as the opportunities and risks presented by the anticipated market conditions and the competitive situation during the planning period. Against this backdrop, we adjust our expectations for business development to reﬂect updated forecasts for the development of the various automotive markets. The statements made below are based on the facts known to us at the beginning of 2018. Our assessments for the year 2018 are based on the assumption of generally stable economic conditions and the expectation that the positive trend of the global economy and of worldwide demand for motor vehicles will continue. The development we have outlined is subject to various opportunities and risks, which are explained in detail in the Risk and Opportunity Report. E pages 155 ﬀ The world economy At the beginning of 2018, the world economy continues to develop with solid growth. We assume that this dynamism will also continue as the year progresses. Growth prospects for both the advanced economies and the emerging markets are similarly positive as they were last year. Most economic indicators suggest that the economy of the European Monetary Union (EMU) will grow at an above-average rate also in 2018. On the basis of robust domestic demand and a solid contribution from foreign trade, economic growth of close to 2.5% should be possible. The European Central Bank will make use of the favorable economic outlook to gradually cut back its very expansive monetary policy of recent years. This applies in particular to the probable phasing out of the exten- sive bond-buying program. From today’s perspective, however, increases in key interest rates are not yet on the agenda. Growth prospects for the German economy are also positive and it could expand by 2.5% this year. As the year 2018 will probably continue to be impacted by uncertainty relating to the EU exit conditions for the United Kingdom, the British economy is likely to continue its rather moderate development, an economic slump in the UK is unlikely. In the United States, the available leading indicators point towards a continuation of the economy’s solid upswing. In view of stable domestic demand, moderate inﬂation and low unemployment, the US Federal Reserve is likely to maintain its slightly restrictive monetary policy with only small inter- est-rate rises. In connection with stimulus from the tax reform passed in late 2017, this could result in overall growth of just above 2.5%, and thus slight acceleration compared with 2017. The growth prospects of the Japanese economy also remain relatively stable. Although growth in private consumption and investment should weaken slightly, an increase in gross domes- tic product (GDP) of between 1 and 1.5% is expected. The emerging economies should achieve aggregate growth in output of just over 4.5% in 2018, as in the previous year and thus in line with their long-term trend. The prospects of the Chi- nese economy, based on its very robust development in the year 2017, are favorable for this year as well. However, due to reduced state economic stimulus and rather more restrictive lending, most analysts anticipate a slight decrease in growth to about 6.5%. While the economies of Central and Eastern Europe will probably not quite match their strong growth of the previous year, an acceleration of growth is expected for the B | COMBINED MANAGEMENT REPORT | OUTLOOK 171 South American economies. But with anticipated GDP growth of 2 to 2.5%, South America remains below its potential. The further stabilization of raw-material prices should help the countries of the Middle East, but their expected growth rates of just under 3% remain below average for that region. Thanks to the continuation of a positive investment climate worldwide, overall demand for medium- and heavy-duty trucks should increase signiﬁcantly in most of the regions relevant to us. Overall, the world economy should grow in 2018 by signiﬁcantly more than 3%, a similarly favorable rate of expansion as in the previous year. Automotive markets In 2018, worldwide demand for cars is likely to increase again from an already high level. According to current forecasts, slight growth of approximately 2% is to be expected. Slight market growth is expected once again in Europe and China. The US market will be similar to its prior-year volume and the recovery of demand in the emerging markets should continue. In Europe, we expect a slight increase in overall car sales. As the market volume in Western Europe is now above average again, we expect demand to remain fairly stable. In Eastern Europe, however, a signiﬁcant increase in sales volumes is anticipated primarily due to the ongoing recovery of the Rus- sian market. The US market for cars and light trucks should maintain its high level of approximately 17 million units sold. Despite the favorable economic outlook, we believe a further increase is unlikely because the market can be regarded as being fairly saturated at this level. The Chinese car market continues to be signiﬁcantly aﬀected by regulatory conditions. At the beginning of the year, the tax rate on purchases of cars with small engines (up to 1.6 liters) was raised back to its normal level of 10%. As this led to pur- chases being brought forward to late 2017, more moderate demand is to be expected in the ﬁrst months of this year. In full-year 2018, the Chinese market should expand slightly nonetheless. In Japan, we assume that the car market will under go a slight downward correction, but demand in India should continue to grow signiﬁcantly. In the NAFTA region, a cyclical recovery of the truck market is to be expected and we anticipate a signiﬁcant increase in overall sales in weight classes 6-8. In an ongoing favorable economic environment, we assume that demand in the EU30 region (European Union, Switzerland and Norway) will maintain the robust market volume of the previ- ous year. A(cid:5)er the long weakness of demand of recent years in Brazil, it is to be expected that a somewhat livelier economic recovery will also bring about signiﬁcant growth of the truck market, although from a very low level. The Turkish market should also grow signiﬁcantly from its present low level. In Rus- sia, we expect further signiﬁcant growth in demand for trucks. The most important Asian markets from Daimler’s perspective are likely to present a varied picture in 2018. In the Japanese market for light-, medium- and heavy-duty trucks, we anticipate a slight market correction at an ongoing solid level. We expect a positive development of the Indonesian truck market. In India, demand for medium- and heavy-duty trucks should recover signiﬁcantly from the market contraction of 2017. In the Chi- nese market, a signiﬁcant correction is to be expected following the extremely high volume of the previous year. In the EU30 region in 2018, we expect slight market growth for small vans, for the combined segment of mid-size and large vans, and for the segment of mid-size pickups. In the United States, demand for large vans should be slightly stronger than in the previous year. The market for large vans in Latin America should continue its recovery in 2018. In China, we also expect a significant recovery of demand in the market we address there. We expect a market volume for buses in the magnitude of the previous year in the EU30 region. The market situation in Latin America will be inﬂuenced by the economic upturn in Argen- tina and Brazil. Following the signiﬁcant decline until 2016 and the turnaround in 2017, we assume that the signiﬁcant market recovery will continue in 2018. 172 B | COMBINED MANAGEMENT REPORT | OUTLOOK Unit sales Mercedes-Benz Cars will continue along its growth path in 2018. We intend to slightly increase our total unit sales, thus reaching a new record level. Growth is anticipated above all in China. This expectation is based on our attractive and innova- tive model portfolio, which is more diverse than ever before. Mercedes-Benz will launch more than a dozen new and upgraded automobiles in 2018. Sales should be boosted in par- ticular by our E-Class and C-Class model families. And our new generation of the compact cars, which will be launched with the A-Class this spring, should have a positive impact on unit sales. Our product range will become even more attractive as a result of several model upgrades. Above all, the new S-Class sedan, which has been delivered to customers also as a coupe and convertible since the beginning of 2018, should stimulate demand in the luxury segment. With the new CLS coupe, which had its premiere at the Los Angeles Auto Show in 2017, we intend to continue this model series’ success story. We are well positioned also with our SUVs, including the upgraded GLA, which we launched in 2017. The new G-Class will make its mark in this segment as of this spring, and the GLC models should continue along their growth path. In addi- tion, our sports-car and high-performance brand Mercedes- AMG continues to be an important sales driver. More and more customers are fascinated by the broad and appealing range of automobiles oﬀered by Mercedes-AMG, which we are con- tinually expanding. We are systematically expanding our worldwide production net- work for electric mobility. Under the new brand EQ, which stands for “Electric Intelligence,” we will oﬀer not only vehicles but also services in connection with electric mobility. By the year 2022, we want to electrify each segment across the entire Mercedes portfolio. Our goal is to oﬀer our customers at least one electriﬁed alternative in each segment - from the compact car to the large SUV. We plan to have a total of more than 50 electriﬁed models by the year 2022. This will include more than ten fully electric vehicles, the plug-in hybrids and the models with 48-volt technology. As of the year 2020, the smart brand intends to sell solely cars with electric drive in Europe and North America, and the other regions will follow. The new electric-drive models of the smart fortwo, smart fortwo Cabrio and smart forfour (electricity con- sumption combined: 13.1–12.9 kWh/100 km; CO2 emissions combined: 0 g/km) combine the agility of a smart with locally emission-free driving at an aﬀordable price – the ideal combina- tion for urban mobility. Daimler Trucks assumes that its total unit sales in 2018 will be signiﬁcantly higher than in the previous year, primarily due to the perceptible recovery of major markets. In the NAFTA region, we anticipate unit sales signiﬁcantly higher than the prior-year level as a result of the ongoing market recovery apparent since the second quarter of 2017. In the EU30 region, we expect unit sales to be in the magnitude of the previous year. In Brazil, we assume that unit sales in 2018 will signiﬁcantly surpass the low level of 2017. With our attractive product portfolio in the Indian market, we expect to signiﬁcantly increase our unit sales and to further strengthen our market position. Furthermore, with the expanded range of FUSO vehicles from Indian produc- tion, we have the opportunity to generate additional sales in Asia, Africa and Latin America. Our unit sales in Indonesia should grow signiﬁcantly once again, and we expect to sell a similar number of trucks in Japan as we did in 2017. Mercedes-Benz Vans plans to signiﬁcantly increase its unit sales in the year 2018. Growth is expected to be particularly strong in China and the United States. We anticipate signiﬁ- cant growth also in the EU30 region, due not least to the new X-Class. In the context of our “Mercedes-Benz Vans goes global” strategy for the division, we have expanded our portfolio with the Mercedes-Benz X-Class, a premium pickup for markets in Europe, South Africa, Aus tralia and New Zealand. In Latin America, market launch is planned for the year 2019. We expect additional growth in 2018 from the new Sprinter, which we will produce also in North America in the future. Daimler Buses assumes that it will be able to defend its mar- ket leadership in its most important traditional core markets for buses above 8 tons with innovative, future-oriented and high- quality products. We expect total unit sales in 2018 to be signif- icantly above the prior-year level. We assume that unit sales in the EU30 region will increase perceptibly. A(cid:5)er the signiﬁcant increase in unit sales in Latin America last year, we anticipate a further signiﬁcant recovery in 2018. A positive development of unit sales is expected also in India. Daimler Financial Services aims to achieve ongoing growth in the coming years. In 2018, we expect further growth in contract volume. This will be primarily driven by the strong develop- ment of new business in 2017, which should continue at the same high level this year. We are utilizing new market poten- tial above all in China, and by means of new and digital pos- sibilities for customer contacts – in particular through the systematic further development of our online sales channels. We continue to see good growth opportunities in the ﬁeld of innovative mobility services, where we are active with the brands car2go, moovel and mytaxi, as well as with equity interests in Blacklane and FlixBus and various startup companies. On the basis of our assumptions concerning the development of automotive markets and the divisions’ planning, we expect the Daimler Group to slightly increase its total unit sales in 2018. B | COMBINED MANAGEMENT REPORT | OUTLOOK 173 Revenue and earnings We assume that the revenue of the Daimler Group will also increase slightly in 2018, as a result of the overall positive development of unit sales in the automotive divisions. Exchange-rate eﬀects are likely to have a rather negative impact on the development of revenue in the year 2018. This applies above all to our business in the NAFTA region. Our divisions currently have very attractive product ranges, which have been expanded and systematically renewed in recent years. We therefore assume that Daimler will proﬁt to an above-average extent from the slight growth in global demand for motor vehicles that we expect in the year 2018, and will be able to strengthen or defend its position in major markets. At Mercedes-Benz Cars, additional growth this year will be primarily driven by the E-Class models, the GLC SUV, the new convertible models and the new A-Class. On the other hand, revenue growth will be dampened by the anticipated development of exchange rates and lifecycle eﬀects from some car models, as well as by a changing sales structure. Mercedes- Benz Cars therefore anticipates revenue in 2018 only at the high prior-year level despite a slight increase in unit sales. Due to generally positive expectations for markets and unit sales, the Daimler Trucks division plans for slight revenue growth, while the Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services divisions anticipate signiﬁcant increases in revenue. In regional terms, we expect further slight growth in revenue in Asia and Europe. In China, we have created the right con- ditions for further growth with new sales outlets, additional production capacities and a broad product range. However, growth in unit sales in China will have a disproportionately low impact on revenue growth, as the share of local production will continue to increase. Our Chinese associated company, Beijing Benz Automotive China (BBAC), is included in our consolidated ﬁnancial statements using the equity method of accounting. The growth in unit sales and revenue that we anticipate will have a generally positive impact on earnings in 2018. We have laid the foundations for a lasting high level of earnings with various programs for improved proﬁtability, which we already implemented in the years 2013 to 2015. Since then, we have continuously been taking further measures in all divisions for the long-term and structural optimization of our business sys- tem. At Mercedes-Benz Cars for example, we aim to achieve further eﬃciency improvements in the context of the F4L (Fit for Leadership) program. Daimler Trucks is also working contin- uously on eﬃciency improvements with its optimization pro- gram. In combination with the cost optimizations we have so far planned and partially already implemented, we aim to achieve proﬁt-eﬀective improvements for Daimler Trucks in an amount of €1.4 billion by the end of 2018. These programs are expected to become fully eﬀective in the year 2019. We are standardizing and modularizing our production processes throughout the Group. In this context, we are making intelli- gent use of vehicle platforms, allowing us to achieve further cost advantages. In parallel, we are pushing forward with digi- tal connectivity: in all divisions and at all stages of the value chain – from development to production to sales and service. In this way, we are opening up additional scope to become even faster, more ﬂexible and more eﬃcient - to the beneﬁt of our customers. However, earnings will be reduced by the continuation of very high expenditure: for our model oﬀensive, for innovative tech- nologies (especially for reducing fuel consumption and for elec- triﬁcation), for the digitization of our products and processes, and for the expansion and modernization of the worldwide pro- duction capacities. As a result, our advance expenditure aimed at securing a successful future will once again be substantially higher in 2018 than in the previous year. E page 174 On the basis of the market developments we anticipate, the aforementioned factors and the planning of our divisions, we assume that Group EBIT in 2018 will be of the magnitude of the previous year. The individual divisions have the following expectations for EBIT in the year 2018: Mercedes-Benz Cars: at the prior-year level, Daimler Trucks: signiﬁcantly above the prior-year level, Mercedes-Benz Vans: slightly below the prior-year level, Daimler Buses: signiﬁcantly above the prior-year level, and Daimler Financial Services: at the prior-year level. At Mercedes-Benz Cars, positive eﬀects will result from the anticipated growth in unit sales. They will be oﬀset, however, by the signiﬁcant increase in advance expenditure for new products and technologies, a less favorable sales structure and negative exchange-rate eﬀects. Both Daimler Trucks and Daimler Buses should proﬁt from rising unit sales and the eﬃciency-enhancing measures. Daimler Financial Services assumes that its earnings will develop positively as a result of further growth in contract vol- ume and the optimization of business processes. Increased investment in new businesses and the advance of digitization, as well as higher interest rates and exchange-rate eﬀects, will probably have a negative impact on earnings. Against the backdrop of high advance expenditure for the Sprinter model change, higher costs from the production ramp-up of the new models and negative exchange-rate eﬀects, Mercedes-Benz Vans anticipates a slight decrease in earn- ings. The expected growth in unit sales is unlikely to fully oﬀset these negative eﬀects. 174 B | COMBINED MANAGEMENT REPORT | OUTLOOK Free cash ﬂow and liquidity The anticipated development of earnings in the automotive divisions will have a positive impact on the free cash ﬂow of the industrial business. There will be a negative eﬀect, how- ever, from the further increase in advance expenditure for new products and technologies. Under these conditions, we assume that the free cash ﬂow of the industrial business should be signiﬁcantly higher than in the previous year and also higher than the dividend distribution planned in 2018. It must be taken into consideration, however, that the free cash ﬂow of the industrial business in 2017 was reduced by an extraordinary contribution of €3 billion to the German pen- sion fund assets. For the year 2018, we aim to have liquidity available in a vol- ume appropriate to the general risk situation in the ﬁnancial markets and to Daimler’s risk proﬁle. When measuring the level of liquidity, we give due consideration to possible reﬁ- nancing risks caused for example by temporary distortions in the ﬁnancial markets. We continue to assume, however, that we will have very good access to the capital markets and the bank market also in the year 2018. We aim to cover our fund- ing needs in the planning period primarily by means of bonds, commercial paper, bank loans, customer deposits in the direct banking business and the securitization of receivables in the ﬁnancial services business; the focus will be on bonds and loans from globally and locally active banks. In view of the very good liquidity situation of the international capital markets and our strong creditworthiness, we expect a contin- uation of very attractive reﬁnancing conditions in 2018. An additional goal is to continue securing a high degree of ﬁnan- cial ﬂexibility. Dividend At the Annual Shareholders’ Meeting on April 5, 2018, the Board of Management and the Supervisory Board will propose an increased dividend of €3.65 per share for the year 2017 (prior year: €3.25). This represents a total distribution of €3.9 billion (prior year: €3.5 billion). With this proposal, our shareholders are participating in the Company’s success. We aim to maintain a sustainable dividend development also in the coming years. In setting the dividend, our target is generally to distribute approximately 40% of the net proﬁt attributable to Daimler shareholders. Investment In order to achieve our ambitious growth targets, we will sys- tematically expand our product range in the coming years. At the same time, we want to be able to play a leading role in the far-reaching technological transformation of the automo- tive industry. This applies in particular to the increasing elec- triﬁcation of our product portfolio and to the digital connec- tivity of our products and processes along the entire value chain. By intelligently connecting the constantly growing volumes of data, we will create eﬃciency advantages, improve our product quality and facilitate the ongoing ﬂexibilization of the production process. Against this backdrop, we will once again signiﬁcantly increase our investment in property, plant and equipment in the year 2018. Following the signiﬁcant increase in the year 2017, capital expenditure at Mercedes-Benz Cars will increase again in 2018. This is primarily due to the product oﬀensive and the expansion of production capacities. The most important proj- ects include the successor models of the current compact class, the C-Class, the product ramp-up of the new GLE and GLS, and the new gasoline and diesel engines of the new engine series. Substantial investment is planned also for the realignment of our German production sites, for the expan- sion of our international production network, and for the worldwide production network for electric mobility. Daimler Trucks will mainly invest in successor generations of existing products, in new products, in global component projects, in the optimization of its worldwide production network and in the new Daimler Trucks Campus. At Mercedes-Benz Vans, the focus of capital expenditure will be on production of the next generation of the Sprinter in Germany and the United States. Key projects at Daimler Buses are improvements in the pro- duction network and advance expenditure for new models, in particular for the development of an electrically powered city bus. Research and development With our research and development activities, our goal is to fur- ther strengthen Daimler’s competitive position against the backdrop of upcoming technological challenges. We want to create competitive advantages above all by means of innovative solutions for low emissions and safe mobility. In addition, we intend to utilize the growth opportunities oﬀered by worldwide automotive markets with new and attractive products. We are increasingly focusing on the strategic areas for the future of connectivity, autonomous driving, ﬂexible use and services, and electric drive. We aim to occupy a leading position in these areas, both individually and by linking them up intelligently. In order to achieve our goals, we will once again slightly increase our total expenditure for research and development in 2018. At Mercedes-Benz Cars, a large part of that expenditure will ﬂow into the renewal and expansion of our model range. The divi- sion’s most important projects are the successor models of the compact cars, the GLE and GLS SUVs, and the new C-Class. We are also working hard on new, low-emission combustion engines, electric mobility, the connectivity of our vehicles, and innovative safety technologies for autonomous driving. At Daim- ler Trucks, the focus will be on activities in the areas of fuel eﬃ- ciency and emission reductions, as well as expenditure for tai- lored products and technologies for important growth markets. The topics of electric mobility, connectivity and automated driving also play an increasingly important role. Key projects at Mercedes-Benz Vans are the successor generation of the Sprinter and the further development of the Vito and V-Class. Furthermore, Mercedes-Benz Vans is pushing forward with the electriﬁcation of its commercial model series. Another impor- tant topic is the connectivity of products and processes, espe- cially the innovative connectivity solution, Mercedes PRO. An important area of research and development at Daimler Buses is to meet future emission standards and to increase fuel eﬃ- ciency. Also at Daimler Buses, other focus areas are alternative drive systems, electriﬁcation and connectivity. B | COMBINED MANAGEMENT REPORT | OUTLOOK 175 With the four strategic areas for action - CORE, CASE, CUL- TURE and COMPANY - we are setting the course for a successful future, and we reached some important milestones in 2017. Against this backdrop, we look to the year 2018 with conﬁdence. We expect both unit sales and revenue to be higher than in the previous year, and should continue to achieve a high level of earnings despite the high volume of expenditure to safeguard our future. Forward-looking statements This document contains forward-looking statements that reﬂect our current views about future events. The words “anticipate,” “assume,” “believe,” “esti- mate,” “expect,” “intend,” “may,” ”can,” “could,” “plan,” “project,” “should” and similar expressions are used to identify forward-looking statements. These statements are subject to many risks and uncertainties, including an adverse development of global economic conditions, in particular a decline of demand in our most important markets; a deterioration of our reﬁnancing possibilities on the credit and ﬁnancial markets; events of force majeure including natural disasters, acts of terrorism, political unrest, armed con- ﬂicts, industrial accidents and their eﬀects on our sales, purchasing, produc- tion or ﬁnancial services activities; changes in currency exchange rates; a shi(cid:5) in consumer preferences towards smaller, lower-margin vehicles; a pos- sible lack of acceptance of our products or services which limits our ability to achieve prices and adequately utilize our production capacities; price increases for fuel or raw materials; disruption of production due to shortages of materials, labor strikes or supplier insolvencies; a decline in resale prices of used vehicles; the eﬀective implementation of cost-reduction and eﬃ- ciency-optimization measures; the business outlook for companies in which we hold a signiﬁcant equity interest; the successful implementation of strate- gic cooperations and joint ventures; changes in laws, regulations and govern- ment policies, particularly those relating to vehicle emissions, fuel economy and safety; the resolution of pending government investigations or of investi- gations requested by governments and the conclusion of pending or threat- ened future legal proceedings; and other risks and uncertainties, some of which we describe under the heading “Risk and Opportunity Report” in this Annual Report. If any of these risks and uncertainties materializes or if the assumptions underlying any of our forward-looking statements prove to be incorrect, the actual results may be materially diﬀerent from those we express or imply by such statements. We do not intend or assume any obliga- tion to update these forward-looking statements since they are based solely on the circumstances at the date of publication. The workforce Due to the growth in unit sales and revenue we anticipate, production volumes will continue rising in 2018. At the same time, the eﬃciency-enhancing measures we have implemented at all divisions in recent years are now taking eﬀect. The medium- and long-term measures we have taken for structural improvements in our business processes should facilitate further eﬃciency progress. Against this backdrop, we assume that we will be able to achieve our growth targets with only slight workforce growth. Additional jobs will be created in par- ticular through the expansion of our international production network, as well as in the area of research and development for projects in the future areas of electric mobility and digiti- zation. Companies that we operate together with Chinese partners and whose employees are not included in the ﬁgures for the Daimler Group are also likely to recruit additional employees. Overall statement on future development At the end of the 2017 ﬁnancial year, we continue to be on a path of stable and proﬁtable growth. We will consistently imple- ment our strategy also in the coming years, thus creating the basis for further growth. - We are very well positioned in our markets with innovative products and services. We are increasingly succeeding in addressing new target groups, utilizing additional market potential and strengthening our market position worldwide. With the eﬃciency programs that have been implemented in all divisions in recent years, we have improved our cost structures on a sustained basis and thus laid the founda- tions for a high level of proﬁtability. We are currently taking further measures in all divisions for the long-term and structural optimization of the business system. In this way, we are strengthening our core business (CORE) and creating the ﬁnancial basis to invest in the future of the company. - We will therefore signiﬁcantly increase our advance expendi- ture for new products and technologies once again in 2018. Especially in the strategic, future-oriented areas of connectiv- ity, autonomous driving, ﬂexible use and services, and electric drive, as well as by intelligently linking up those areas (CASE), we will therefore play a leading role also in the future. - Together with the workforce, we are developing a new leader- ship culture under the heading of “Leadership 2020” that will allow us to successfully shape our future. In this way, we are meeting the challenges of the digital world and creating the basis for cultural changes at the Group (CULTURE). - To enable us to react ﬂexibly to the high dynamism of the environment, markets, new competitors and technologies, we need an organization that facilitates rapid and agile action. In the context of “Project Future,” we aim to further focus Daimler’s divisional structure, thus strengthening the future viability of the various businesses (COMPANY). WE CONVINCE WITH INNOVATIVE VEHICLES AND SERVICES! The divisions of the Daimler Group developed extremely successfully in the year 2017, and in some cases signiﬁcantly surpassed their growth targets. The Mercedes-Benz Cars and Mercedes-Benz Vans divisions set new records for unit sales, thanks to numerous new and successful products. The Daimler Trucks and Daimler Buses divi- sions also signiﬁcantly increased their unit sales. Due to the positive development of the automotive business, the Daimler Financial Services division also continued its steady growth. And we further improved the Group’s market position with innovative products and services. C | The Divisions C | THE DIVISIONS | CONTENTS 177 Mercedes-Benz Cars 178 – 183 Daimler Buses 192 – 194 – Mercedes-Benz Cars achieves record unit sales once again – World premiere of upgraded Mercedes-Benz S-Class – Continuation of dream-car oﬀensive – Mercedes-AMG achieves six-digit unit sales for the ﬁrst time – smart focuses on electric mobility – Deepened partnership in China – Comprehensive future plan for diesel engines – Mercedes wins drivers’ and constructors’ world – Signiﬁcant growth in unit sales – Market leadership defended in most important traditional core markets above eight tons gross vehicle weight – Positive development of business with bus chassis in Brazil – Presentation of new Mercedes-Benz Tourismo and Setra S 531 DT double-decker – Strategic cooperation for on-demand mobility – First customer for Mercedes-Benz Citaro fully electric city championships in Formula 1 bus – EBIT signiﬁcantly above prior-year level at €9.2 billion – EBIT of €243 million at prior-year level (2016: €249 million) (2016: €8.1 billion) Daimler Trucks 184 – 188 Daimler Financial Services 195 – 197 – Signiﬁcant increase in unit sales – FUSO eCanter is the first fully electric light-duty truck in – New records for new business and contract volume – Further increase in number of automotive insurance policies series production from Daimler Trucks brokered – Presentation in Japan of E-FUSO, the Group’s own product brand for electric trucks and buses – Presentation of the fully electric school bus from Thomas Built Buses – Truck platooning on public highways in the United States – Connected Mercedes-Benz Arocs in driverless test operation – New connectivity solutions for the logistics industry – EBIT signiﬁcantly above prior-year level at €2.4 billion (2016: – Europe-wide growth of ﬂeet business – Successful progress with digitization of ﬁnancial services – Expanded range of innovative mobility services – car2go upgrades its ﬂeet and expands its range of services – moovel oﬀers mobile-ticketing app for transportation companies – mytaxi continues its expansion and now has 120,000 regis- tered taxi drivers in 70 cities – Toll4Europe operates Europe-wide road-charging system for €1.9 billion) trucks – EBIT signiﬁcantly above prior-year level at €2.0 billion (2016: €1.7 billion) Mercedes-Benz Vans 189 – 191 – Unit sales at record level – Growth driven by V-Class and Vito – First details of new Sprinter – Market launch of Mercedes-Benz X-Class – Expansion of Marco Polo family with new HORIZON – eVito in the ecosystem for electriﬁcation – First results from adVANce future initiative – EBIT of €1.2 billion at prior-year level (2016: €1.2 billion) 178 C | THE DIVISIONS | MERCEDES-BENZ CARS Mercedes-Benz Cars Mercedes-Benz Cars continued to grow proﬁtably in 2017. Unit sales and revenue increased signi- ﬁcantly once again and earnings before interest and taxes reached a record level, despite the con- siderable advance investment we made in our product oﬀensive and new technologies. Our most important new model in the year under review was the upgraded S-Class. We also continued our dream car initiative with new attractive coupes and convertibles. In addition, we oﬀered a preview of our upcoming electric-mobility oﬀensive and the future of mobility by presenting the EQA and smart vision EQ fortwo concept vehicles at the Frankfurt Motor Show. C.01 Mercedes-Benz Cars € amounts in millions % change 2017 2016 17/16 Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales 94,695 9,207 9.7 89,284 8,112 9.1 4,843 4,147 6,642 2,388 5,671 2,008 2,411,378 2,235,352 2,373,527 2,197,956 Employees (December 31) 142,666 139,947 +6 +13 . +17 +17 +19 +8 +8 +2 C.02 Unit sales Mercedes-Benz Cars in thousands Mercedes-Benz thereof A-/B-Class C-Class E-Class S-Class SUVs1 Sports cars smart Mercedes-Benz Cars thereof Europe Thereof Germany NAFTA region thereof United States Asia thereof China 1 Including the GLA 2017 2016 17/16 % change 2,238 2,054 420 493 398 79 823 25 136 2,374 1,014 320 403 338 859 619 435 490 304 84 712 27 144 2,198 980 314 406 347 715 488 +9 -3 +1 +31 -6 +16 -10 -6 +8 +3 +2 -1 -3 +20 +27 Ongoing growth The Mercedes-Benz Cars division consists of the Mercedes- Benz brand with the Mercedes-AMG, Mercedes-Maybach and Mercedes me sub-brands, as well as the smart brand and the new EQ brand for electric mobility. The division continued along its path of proﬁtable growth in the year under review, with unit sales increasing by 8% to the new record level of 2,373,500 vehicles and revenue rising by 6% to €94.7 billion. (cid:202) C.01 Mercedes-Benz Cars was able to improve its market position in nearly all regions. And despite considerable advance investment in our product oﬀensive and new technologies, we were able to increase EBIT by 13% to €9.2 billion. Mercedes-Benz once again posts record unit sales The Mercedes-Benz brand set a new record once again in 2017, with unit sales increasing by 9% to 2,238,000 vehicles. (cid:202) C.02 The Mercedes-Benz brand therefore not only grew signiﬁcantly faster than the global car markets, it was once again the premium brand with the highest unit sales in the automotive industry. The Mercedes-Benz brand is the number one manufacturer in the premium segment in Germany, numerous other core European markets, the United States, Canada, South Korea and Japan. We also signiﬁcantly improved our position in China once again in the year under review. Mercedes-Benz increased its unit sales in Europe by 5% to 911,700 vehicles in 2017. Substantial growth was achieved in the volume markets of France (+9%), Italy (+9%), Spain (+8%) and the United Kingdom (+4%), and we also increased our unit sales in Germany by 2% to 282,600 vehicles. Mercedes-Benz continued its success in China during the year under review. Unit sales in the country rose by 28% to 595,200 vehicles, which means we signiﬁcantly outperformed both the market as a whole and our most important competitors. We also set new records for unit sales in other Asian markets – for example in Thailand (+31%), India (+14%), South Korea (+9%) and Taiwan (+7%). Total unit sales in the NAFTA region were at the prior-year level: Sales increased signiﬁcantly in Canada and Mexico but decreased slightly in the United States and the NAFTA market overall. C | THE DIVISIONS | MERCEDES-BENZ CARS 179 A perfect combination of performance and design: the AMG version of the E-Class convertible. The growth was primarily driven by our new E-Class. A(cid:5)er all model variants became available, sales reached the new record level of 398,200 units (+31%). Our oﬀ-road vehicles were also very successful once again. All in all, sales in the SUV segment increased by 16% to 823,000 units. Demand for our C-Class models also remained very strong, with sales of these vehicles increasing slightly to 492,700 sedans, wagons, coupes and convertibles in 2017. Unit sales of A-Class and B-Class models did not quite reach the previous year’s high level. Including the CLA and CLA Shooting Brake, a total of 420,200 units were delivered to customers. Unit sales of the S-Class totaled 79,400 sedans, coupes and convertibles. The upgraded S-Class generated additional sales momentum in the second half of the year. Fit for Leadership 4.0 Since 2012, “Fit for Leadership” has served as the central component of our strategy for shaping the future of Mercedes- Benz Cars. Fit for Leadership utilizes a holistic approach that aims to achieve continuous growth, to establish competitive structures and to improve eﬃciency on an ongoing basis. The program is being systematically pursued. With the further development of program activities in the context of Fit for Leadership 4.0, we aim to achieve an additional eﬃciency improvement of €4 billion by the year 2025. This should also help to oﬀset the high advance expenditure in the future for the impending technological transformation and to safeguard the division’s return on sales in the corridor of 8-10% over the long term. electric additional compressor also had their world premieres in the new S-Class. The ISG is responsible for hybrid functions such as power boost and energy recovery, and thus enables fuel savings that were previously achieved only by high-voltage hybrid technology. The improved third-generation plug-in- hybrid system is now available in the S-Class for the ﬁrst time. With a signiﬁcant increase in battery capacity to 13.3 kWh, the use of state-of-the-art lithium-ion technology and an opti- mized operating strategy, ranges for all-electric driving of over 50 kilometers (NEDC) can be achieved. Dream car initiative continues The E-Class family was renewed entirely within one year and fully rounded out in 2017 with the addition of a coupe and a convertible model. The new E-Class coupe combines expres- sive coupe proportions, a clear and sensuous design, and long- distance comfort for four occupants with the beauty and clas- sic virtues of a gran turismo. The new E-Class convertible has been thrilling customers in Europe and the United States since September 2017. At once both hot and cool, the vehicle’s design idiom represents beauty and intelligence. We also unveiled the coupe and convertible models of the updated S-Class in both their series-production and AMG versions at the Frankfurt Motor Show in September 2017. These models beneﬁt from extensive new features that were introduced in the sedan – for example extensively enhanced driver assis- tance systems, the state-of-the-art widescreen dashboard, a new-generation steering wheel and the holistic ENERGIZING comfort control system. E pages 10 f World premiere of the upgraded S-Class In April 2017, the upgraded S-Class with numerous innovations had its world premiere at Auto Shanghai. One of the highlights was an all-new and highly eﬃcient engine program featuring a range of new technologies for electriﬁcation of the powertrain. In addition, the Intelligent Drive system has taken another step along the road to driverless driving. For example, new and modiﬁed features have been added to the DISTRONIC active proximity control system and Active Steering Assist. Forward- looking new technologies such as the integrated starter generator (ISG) with a 48-volt onboard power system and the EQ – the brand for electric mobility In 2016, Mercedes-Benz consolidated all of its activities in the area of electric mobility into a new product and technology brand known as EQ. The new brand was heralded by the near- production Concept EQ in 2016 and the compact Concept EQA presented at the Frankfurt Motor Show in September 2017. The Concept EQA is equipped with an electric motor on both the front and rear axles. It has a total output of more than 200 kW and maximum torque of over 500 Nm. It takes only around ﬁve seconds for the electric vehicle to accelerate from 0 to 100 km/h. The basis of the vehicle’s outstanding handling 180 C | THE DIVISIONS | MERCEDES-BENZ CARS and safety is an electric all-wheel drive system with axle-vari- able torque distribution and a battery installed deep inside the vehicle ﬂoor between the axles. In combination with the intelligent operating strategy from Mercedes-Benz, the Con- cept EQA is able to achieve a range of up to 400 km, depending on the installed battery capacity. Daimler plans to oﬀer more than ten all-electric models in the passenger-car segment alone by 2022 – from the smart to the large SUV. The ﬁrst battery-electric series-produced model from the EQ brand will be launched in the SUV segment before the end of this decade. It will be followed by a model oﬀensive that will gradually supplement the product range of Mercedes- Benz Cars with purely electric models. The new generation of electric vehicles will be based on an architecture developed especially for battery-electric models, which in every respect shall be scalable and suitable for use in all model series: Wheel- base and track width as well as all other system components, especially the batteries, will be variable thanks to the modular system. Mercedes-Maybach: perfection blended with exclusivity Mercedes-Maybach stands for the highest levels of exclusivity and individuality. The luxury brand, which was launched in November 2014, combines the perfection of the Mercedes-Benz S-Class with the exclusivity of a Maybach. The Mercedes- Maybach S 600 Pullman launched in early 2016 (fuel consump- tion in l/100 km urban: 19.6 / extra-urban: 10.3 / combined: 13.6; CO2 emissions in g/km combined: 314) has a face-to-face seating conﬁguration and is a clear top-of-the-line model. The brand’s ﬁrst convertible was launched in the spring of 2017 as a limited edition of 300 units. A preview of the form the luxury brand might take in the future is oﬀered by the concept cars Vision Mercedes-Maybach 6 and Vision Mercedes- Maybach 6 Cabriolet – a sensational coupe and a luxurious convertible. Mercedes-AMG: the sports-car and performance brand The brand claim of “Driving Performance” reﬂects the two core competencies of Mercedes-AMG: the ability to provide an unparalleled driving experience and the ability to serve as a driving force in the high-performance segment. The Mercedes- AMG sports-car brand enhances the fascination of Mercedes- Benz with nearly 60 models. The brand’s dynamic vehicles espe- cially attract young and sporty customers to the brand with the three-pointed star. Mercedes-AMG models diﬀer greatly from their series-produced cousins in terms of both engineering and appearance, thus strengthening the authenticity and distinc- tive identity of the Mercedes-AMG brand. The Mercedes-AMG Project ONE concept vehicle marks yet another milestone in the strategic further development of Mercedes AMG as a sports- car and high-performance brand. The two-seat hypercar brings state-of-the-art and eﬃcient Formula 1 hybrid technology from the racetrack to the road in virtually identical form for the ﬁrst time ever. Together with the four-door AMG GT Concept, the Mercedes-AMG Project ONE oﬀers yet another preview of how AMG will use its high-performance hybrid-drive strategy to deﬁne driving performance in the future. The sports-car and high-performance brand from Mercedes- Benz ﬁnished the year of its 50th anniversary with a new record: For the ﬁrst time, the brand sold signiﬁcantly more than 100,000 units. smart: focus on electric mobility At the Frankfurt Motor Show in September 2017, Daimler announced that the smart brand plans to sell solely smart models with electric drive systems in Europe and North America starting in 2020. The other regions will then follow soon a(cid:5)er- wards. The new electric drive models – the smart fortwo, smart fortwo convertible and smart forfour (electricity consump- tion combined: 13.1–12.9 kWh/100 km; CO2 emissions com- AMG provides a preview of alternative drive concepts with the four-door hybrid show car Mercedes-AMG GT Concept. C | THE DIVISIONS | MERCEDES-BENZ CARS 181 Concept for future mobility: The smart vision EQ fortwo is the first fully automated sharing concept car for the city of the future. bined: 0 g/km) combine the agility of a smart with locally emission-free driving at an aﬀordable price – the ideal combi- nation for urban mobility. With its “smart vision EQ fortwo” concept car, the brand pre- sented its vision of the future of urban mobility at the 2017 Frankfurt Motor Show. This car-sharing concept vehicle, which is of course both electric and fully automated, illustrates the future possibilities for personalized and highly ﬂexible public transport with maximum eﬃciency. E page 33 The range of services oﬀered for the smart brand is being continuously expanded. One example is “smart ready to drop.” This service, which is oﬀered in cooperation with various logistics companies, enables parcels to be delivered to the trunk of a customer’s car and also allows for the pick-up of returns using the same system.“smart ready to share” enables car shar- ing in closed groups – e.g. within a family, between friends or at small companies – in an extremely user-friendly manner with the help of an app that eliminates the need to hand over keys to the next user. The smart brand sold a total of 135,500 vehicles in 46 markets worldwide in 2017. The smart was particularly popular in China, which is now its third-biggest sales market a(cid:5)er Germany and Italy. Strengthened partnership in China Sustainable development with local partners is crucial for con- tinuing our business success in China. The signing of two framework agreements has further strengthened cooperation between Daimler and BAIC Motor in their production joint venture, Beijing Benz Automotive Co., Ltd.(BBAC). Daimler and BAIC Motor are jointly investing in the production of battery- electric vehicles in Beijing and in the construction of a new battery factory that will further pave the way for the launch of vehicles equipped with alternative drive systems. In this way, we are creating the foundation for further sustainable growth and continued success in the future for Daimler in China, which is now by far the world’s biggest automotive market. With the upgraded Mercedes-Benz S-Class presented at Auto Shanghai in April 2017, we have opened up a new dimension of driving also in China. All in all, we were able to increase sales of Mercedes-Benz brand vehicles in China to the new record level of 595,200 units, an increase of 28% from the prior year. More than two thirds of the vehicles we sold in China during the reporting year were manufactured locally at facilities operated by our BBAC joint venture. 182 C | THE DIVISIONS | MERCEDES-BENZ CARS Global production network for electric mobility In the year under review, our manufacturing facilities continued to build vehicles without interruption throughout the summer months in order to meet the ongoing high demand for our models on global markets. Within the framework of its growth strategy, the Mercedes-Benz Cars division is continually further develop- ing its ﬂexible and eﬃcient production network with more than 30 locations on four continents. In 2017, for example, we laid the foundation stone for a new engine plant in Jawor, Poland, and began building a new vehicle manufacturing facility near Moscow in Russia. Comprehensive plan for the future of diesel engines We are convinced that diesel engines will continue to be an integral part of the drive-system mix, not least due to their low CO2 emissions. The debate surrounding diesel engines is leading to increasing uncertainty among customers, however. For this reason, the Daimler AG Board of Management approved a comprehensive plan for the future of diesel engines in July 2017. The plan calls for a massive expansion of the current vol- untary service measures for vehicles in customers’ hands, as well as the rapid market launch of a completely new family of diesel engines. At the same time, we are preparing our worldwide production network for the requirements associated with electric mobility. We will manufacture our future electric vehicles from the EQ product and technology brand within the framework of normal series production on the same lines used to produce vehicles with combustion engines. In the future, our production locations for electric vehicles will be our plants in Bremen, Sindelﬁngen and Rastatt, as well as in Tuscaloosa, Alabama, and Hambach. We will also manufacture electric vehicles for the Chinese market at Beijing Benz Automotive Co., Ltd.(BBAC). Mercedes- Benz Cars will thus build electric vehicles at six locations in the future. At the same time, we will expand our global battery network to ﬁve sites on three continents. In the spring of 2017, the foundation stone was laid for a second battery production facility in Kamenz. BBAC will supply the Chinese market with appropriate batteries, and battery production plants will be added to our manufacturing facilities in Untertürkheim (Stuttgart) and Tuscaloosa. With these and other measures, Mercedes- Benz Cars is using new technologies to strengthen its strategic approach to shape the future of mobility. As early as 2016, Mercedes-Benz began oﬀering diesel vehicles that were able to meet the Real Driving Emissions (RDE) limits that went into eﬀect in the EU in 2017. This achievement was made possible by an all-new modular family of eﬃcient and clean diesel engines. In the future, this modular engine family will be utilized across the entire product range of Mercedes- Benz Cars and also at Mercedes-Benz Vans. The new engines’ exemplary emissions have also been conﬁrmed by measure- ments conducted at independent institutes. Best Customer Experience “Best Customer Experience”(BCE) is a global sales and market- ing program at the Mercedes-Benz Cars division. The key drivers of our growth strategy are innovative products and entry into new markets and market segments. The program seeks to more strongly align the division’s sales and marketing organi- zation with changing customer wishes and requirements and in this manner to generate additional growth. Our goal here is to make the Mercedes-Benz brand more attractive to new and also younger target groups while also strengthening the brand An icon is reinvented: The new Mercedes-Benz G-Class is better than ever for either on- or off-road driving. C | THE DIVISIONS | MERCEDES-BENZ CARS 183 Winners of both the Drivers’ and the Constructors’ World Championship in Formula 1 racing: Lewis Hamilton celebrates the fourth consecutive win for Mercedes-AMG Petronas Motorsport in Kuala Lumpur. loyalty of established customers. Our BCE program thus sys- tematically focuses on customers and their need for personal assistance at every point of contact with the brand, its prod- ucts and its services. To this end, Mercedes-Benz is using new sales channels and digital portals as innovative interfaces with the brand. Various sales formats, such as those using new digi- tal channels, supplement the services oﬀered at traditional Mercedes-Benz dealerships and showrooms. An important component of Best Customer Experience is the “Mercedes me” digital ecosystem, which enables personal- ized interaction with the Mercedes-Benz brand. This makes customer contact with Mercedes-Benz more individualized, convenient and transparent. For example, customers can use Mercedes me to obtain information on and utilize services for mobility, connectivity, customer support, ﬁnancing and lifestyle. Mercedes me is now used by more than one million satisﬁed customers in 36 markets. E page 32 The Mercedes-Benz brand’s “She’s Mercedes” initiative spe- ciﬁcally addresses women with the aim of making the brand more appealing to women and increasing the proportion of female customers. Along with community and inspiration plat- forms, the initiative also oﬀers training for sales staﬀ and seeks to increase the number of women in sales positions. E page 32 #4TheTeam: success in motorsports Mercedes-AMG Petronas Motorsport captured both the Drivers’ and the Constructors’ World Championship in the For- mula 1 racing series for the fourth consecutive year in 2017. A special aspect of this achievement is that the team was able to defend its titles despite the extensive changes made to Formula 1 regulations. Last year marked the fourth time that Lewis Hamilton has won the Drivers’ Championship. And with the Mercedes-AMG Project ONE show car at the Frankfurt Motor Show, we presented for the ﬁrst time a car that could bring Formula 1 hybrid technology from the racetrack to the road. Mercedes-AMG Motorsport also recorded six victories and 14 podium ﬁnishes in 18 races in the German DTM touring car series. As part of the strategic repositioning of our motor- sports activities, we have decided to end our participation in the DTM series a(cid:5)er the 2018 season and to participate in Formula E in the future. This will enable us to demonstrate the performance capability of our intelligent battery-electric drive systems in a motorsports setting as well, and it will add an emotional component to the EQ brand. Participation in motorsports is an important factor of success for Daimler – not just in terms of the signiﬁcant image enhancement and exten- sive publicity provided by the races, but also with regard to the valuable experience we gain through the use of hybrid tech- nologies and lightweight designs in our motorsports activities. 184 C | THE DIVISIONS | DAIMLER TRUCKS Daimler Trucks Our Daimler Trucks division achieved signiﬁcant growth in both unit sales and earnings in 2017. In all that we do, our focus is on our customers. In order to oﬀer them our best products and solu- tions, we work continuously on innovations. Our focus is on trucks that are eﬃcient and electric, safe, automated and connected. In order to best meet the needs of our customers in the various regions, we are further expanding our presence in our core markets and in new markets. Using global platforms, our engineers worldwide develop outstanding technologies and utilize economies of scale and the advantage of speed. Our corporate culture is the foundation for the implemen- tation of our strategy: Across national borders and departmental boundaries, we at Daimler Trucks collaborate entrepreneurially, internationally and openly. C.03 Daimler Trucks € amounts in millions Change in % 2017 2016 17/16 Revenue EBIT Return on sales (in %) Investment in property, plant, and equipment Research and development expenditure thereof capitalized Production Unit sales 35,707 33,187 2,380 6.7 1,948 5.9 1,028 1,243 1,322 45 1,265 57 476,325 411,265 470,705 415,108 Employees (December 31) 79,483 78,642 +8 +22 . -17 +5 -21 +16 +13 +1 C.04 Unit sales of Daimler Trucks In thousands Total EU30 thereof Germany United Kingdom France NAFTA region thereof United States Latin America (excluding Mexico) thereof Brazil Asia thereof Japan Indonesia For information purposes: BFDA (Auman Trucks) Total (including BFDA) 2017 2016 17/16 Change in % 471 415 82 32 9 8 165 140 31 13 149 45 43 112 583 80 31 8 8 146 122 27 12 125 46 28 78 493 +13 +3 +1 +12 +2 +13 +15 +11 +11 +18 -3 +53 +44 +18 Positive business development with only moderate market dynamism Daimler Trucks signiﬁcantly increased its unit sales to the number of 470,700 vehicles in 2017 (2016: 415,100). Revenue of €35.7 billion was also signiﬁcantly higher than in the previous year (2016: €33.2 billion). Overall, Daimler Trucks had little tailwind from its relevant markets last year, but nonetheless signiﬁcantly increased its EBIT to €2.4 billion (2016: €1.9 billion). We have taken an important step with the ongoing optimization of ﬁxed costs, especially at the Mercedes-Benz brand, in order to bring Daimler Trucks up to the targeted level of proﬁtability in the coming years. Together with the cost optimizations previously planned, some of which have already been implemented, we aim to achieve improvements for Daimler Trucks with a direct impact on earnings in an amount of €1.4 billion by the end of 2018. Our goal is for these measures to become fully eﬀective in the year 2019. Unit sales significantly higher than in the previous year Our total unit sales of 470,700 vehicles were 13% higher than the prior-year number of trucks sold. In the EU30 region (European Union, Switzerland and Norway), we sold 82,300 vehicles in 2017, which is slightly above the prior-year level (2016: 79,800). Our Mercedes-Benz brand maintained its market leadership in the medium- and heavy-duty segment with a share of 21.0% (2016: 20.7%). Sales of 31,700 units in Germany were in the magnitude of the prior-year level (2016: 31,500). In Turkey, we achieved signiﬁcant sales growth a(cid:5)er the weak development of the previous year and sold 11,800 units (2016: 9,300). The local Daimler company had its 50th anniversary in the summer of 2017. The sales organization for Turkey, the local product development department for trucks and buses, and the plants in Aksaray (trucks) and Hoşdere (buses) are organized under the roof of Mercedes-Benz Türk. The sales development was positive also in Russia, where we more than tripled our sales to 8,000 units (2016: 2,300). C | THE DIVISIONS | DAIMLER TRUCKS 185 Road eﬃciency: The Mercedes-Benz Actros provided evidence of its fuel eﬃciency at the event Driving Experience Portugal 2017. We increased our truck sales in Asia by 18% to 148,600 units. In Japan, our sales of 44,800 trucks were slightly below the prior-year level (2016: 46,400). Our FUSO brand achieved a 19.6% share of the overall Japanese truck market (2016: 20.4%). The new heavy-duty Super Great truck underscores our ambition to further expand our position in the Japanese market and sets new standards for eﬃciency, safety and con- nectivity. The new FUSO ﬂagship, like the latest heavy-duty trucks from Freightliner and Mercedes-Benz, utilizes compo- nents from our global platform strategy such as the common powertrain and standardized electric/electronics architecture. In Indonesia, our sales of 42,700 units were signiﬁcantly higher than in the previous year (2016: 28,000). The ﬁrst Mercedes- Benz truck drove oﬀ the assembly line at our Indonesian assembly plant in Wanaherang. Daimler Trucks will produce heavy- duty Mercedes-Benz trucks for the Indonesian market there, so we will be present in Indonesia with the two brands FUSO and Mercedes-Benz in the future. In the Middle East, our sales of 23,600 trucks last year were signiﬁcantly higher than the low prior-year volume (2016: 17,600). Our sales of 30,500 trucks in Latin America were above the low level of the previous year (2016: 27,500). There was a signiﬁcant contribution from the positive sales development in Argentina, where 5,600 units were sold (2016: 3,900). In Brazil, the region’s main market, we increased our sales signiﬁ- cantly to 13,400 vehicles (2016: 12,100). With our trucks of the Mercedes-Benz brand, we achieved a share of 27.6% in the medium- and heavy-duty segment (2016: 29.8%). In the next ﬁve years, we will invest approximately €600 million in Brazil in the modernization of the product lineup, in digital services and in the two plants in São Bernardo do Campo and Juiz de Fora. Both those plants are to meet the highest production stan- dards by 2022, making them even more competitive. The positive development of unit sales in the NAFTA region made a major contribution to our growth, especially in the second half of the year. We were able to signiﬁcantly increase our sales to 165,000 units (2016: 145,700). We further increased our market share in weight classes 6-8 to 39.8% (2016: 39.3%) and in heavy-duty class 8 we once again achieved a market share of 40.0% (2016: 40.0%). In classes 6-8, we continued to be the undisputed market leader. The new Freightliner Cascadia has been in production since the beginning of 2017 and is equipped with our integrated powertrain. Approximately 95% of our heavy-duty engines in our trucks in the United States and Canada meanwhile stem from our own engine platform. We were able to increase the proportion of Freightliner Cascadia and Western Star 5700 XE trucks with the DT12 automated trans mission to approximately 75 % in the United States and Canada. Local pro- duction of the medium-duty DD8 engine started in Detroit in late 2017, marking a further milestone of our platform strategy. Production of the DD5 engine will follow in 2018. 186 C | THE DIVISIONS | DAIMLER TRUCKS The FUSO eCanter is our ﬁrst light-duty truck from series production with purely electric drive. In India, the ﬁrst half of the year was aﬀected by weaker demand in connection with regulatory and tax changes. Although the Indian truck market contracted compared with the previous year, we were able to signiﬁcantly increase our unit sales to 16,700 BharatBenz trucks in the ﬁ(cid:5)h year since the brand was launched and our market share grew to 9.1% (2016: 13,100 and 6.8%). This development was aided by, among other things, the new emission standard Bharat Stage IV, which our BharatBenz truck already fulﬁlled before it was introduced in April 2017. Meanwhile, more than 60,000 BharatBenz trucks are on the roads in India and a further 14,000 trucks have been exported from there to more than 40 other markets in Asia, Latin America and Africa. Presence in important growth regions In China, the world’s biggest truck market, Daimler AG has a 50% stake in Beijing Foton Daimler Automotive Co. Ltd.(BFDA), a joint venture with Beiqi Foton Motor Co. Ltd. Medium- and heavy- duty trucks of the Auman brand have been produced there since 2012. Along with the signiﬁcant market recovery in China, sales of 112,400 Auman trucks were signiﬁcantly higher than in the previous year (2016: 77,800). More than 460,000 Auman trucks have been sold since the joint venture was established. In Iran, Mercedes-Benz Trucks signed a framework agreement on a joint venture with the Iran Khodro Industrial Group in 2017. This creates a basis for future sales and a(cid:5)ersales activities for Mercedes-Benz trucks in Iran. In addition, Daimler Trucks signed a supply agreement for the FUSO brand with Mayan, a company of the Mammut Group. The supply of FUSO trucks to customers in Iran started in 2017. Electrification has top priority Mercedes-Benz presented a fully electric heavy-duty truck for distribution transport already in 2016. Last year, we launched the new Japanese product brand, E-FUSO, a separate brand for electric trucks and buses. It is planned to have an additional electric version of each FUSO truck and bus model in the com- ing years. With the presentation of the new fully electric E-FUSO Vision One heavy-duty truck for inner-city and regional distri- bution transport, we are underscoring our claim to be a pioneer in the ﬁeld of electric commercial vehicles. The Vision One has a battery capacity of 300 kWh and a range of up to 350 kilo- meters. We intend to launch the series-produced version of the heavy-duty distribution trucks from FUSO in mature markets in four years. E page 34 In New York last September, we handed over the FUSO eCanter to customers including United Parcels Services (UPS). According to our market knowledge, this is the world’s ﬁrst fully electric light-duty truck from series production. In Europe and Japan, other leading logistics pro- viders were among the ﬁrst customers of the small-series pro- duction. They will use the fully electric light-duty truck for various tasks in urban delivery transport. In the coming years, C | THE DIVISIONS | DAIMLER TRUCKS 187 we plan to deliver 500 trucks of this generation to selected customers. Large-scale series production will probably begin in 2019. The development of the vehicle beneﬁted from extensive experience gained from several customer test phases in Portugal and Germany. Production of the eCanter models for Europe and the United States started in Tramagal, Portugal in July 2017. The trucks for Japan are produced in Kawasaki, where the ﬁrst rapid-charging station for electric trucks in the Japanese market has been in operation since May. Thomas Built Buses, a subsidiary of Daimler Trucks North America, presented a fully electric school bus in September, which is to go into produc- tion in 2019. The 160 kWh battery should allow a range of up to 160 kilometers and the range can be extended with additional battery modules if required. With the development of the Saf-T- Liner C2 electric bus, Thomas Built Buses proﬁted signiﬁcantly from the electric-drive expertise within the Daimler Group. In parallel with its activities on the vehicle side, Daimler Trucks invested last year in the Israeli company StoreDot Ltd. and agreed with it on a strategic partnership. StoreDot is a pioneer for nanotechnology materials and is one of the leading com- panies for electric-charging systems and energy-storage mate- rials. The main area of cooperation is the rapid charging of batteries to provide customers with better vehicle utilization. Truck platooning on public highways in the United States In the past ﬁnancial year, Daimler Trucks was the ﬁrst truck manufacturer to test digitally connected trucks on public high- ways in the United States. This so-called platooning makes use of co nnectivity and partially automated driving to reduce the gaps between trucks on the road, and can result in better fuel eﬃciency, easier work for the drivers and enhanced safety. Tests with three Mercedes- Benz Actros trucks driving in par- tially automated mode and connected had previously been car- ried out in Germany in 2016. Daimler Trucks North America (DTNA) linked two Freightliner New Cascadia trucks with the use of Wi-Fi-based V2V communication in connection with driver-assistance systems featured in the new Cascadia under the product name Detroit Assurance 4.0. They include Adap- tive Cruise Control, Lane Departure Assist and Active Brake Assist 4. DTNA is thus responding to growing customer inter- est in solutions for automated and connected driving in trucks. Together with ﬂeet customers in the United States, DTNA is examining the impact of platooning solutions on ﬂeet operations. The trucks were previously tested on the new DTNA test grounds in the desert of Oregon. This new facility with an area of over 35 hectares allows our vehicles to be tested for the NAFTA region under diﬃcult climatic conditions. Test drives of automated vehicles are also to be carried out there. The new Freightliner Cascadia features impressive fuel eﬃciency, connectivity and safety. 188 C | THE DIVISIONS | DAIMLER TRUCKS Connected Mercedes-Benz Arocs trucks in driverless test operation Daimler Trucks continues to work on reducing the burden on drivers by means of automated driving in normal road traﬃc, while enhancing safety on highways and freeways. In parallel, Daimler Trucks is also testing driverless vehicles in closed-oﬀ areas. This oﬀers further potential, for example to signiﬁcantly increase customers’ productivity. Fitted with a Remote Truck Interface (RTI), which in the technological context will be devel- oped for automated driving, four Mercedes-Benz Arocs trucks demonstrated a new dimension of snow removal on an airﬁeld. Using the RTI, all vehicles are fully connected with telematics systems and can either lead or follow in a convoy. Vehicle func- tions can be controlled remotely and thus allow the truck con- voy to be driven from outside the driver’s cab. Following vehicles in the convoy can therefore be used to clear snow in driverless mode. The project was initiated in close collaboration between the Daimler innovation incubator Lab1886, Daimler Trucks and Fraport AG. New connectivity solutions for the logistics sector and truck servicing The Truck Data Center forms the basis for our truck-related digital services and is installed in vehicles from all Daimler Trucks brands as a key component of the platform strategy. The connectivity module receives truck data, evaluates it and communicates with the infrastructure, other vehicles and other logistics participants. Using linked connectivity solutions from Fleetboard, Detroit Connect and Truckonnect that are tailored to local customers’ needs, logistics companies receive extensive insights and useful analyses for their ﬂeets, as well as access to new digital connectivity services. Big data and technology oﬀer new potential for signiﬁcantly increasing the proﬁtability of the logistics sector. Using a variety of new apps, it is possible to display relevant information such as ﬂeet utilization, vehicle position, cost-savings potential, fuel consumption and driving-style evaluation. And for the opti- mization of vehicle servicing, Daimler Trucks last year launched a new digital service: Mercedes-Benz Uptime. This connects the truck with the Mercedes-Benz service organization and the transport company, thus facilitating signiﬁcantly better plannability and higher eﬃciency through maximum vehicle availability. Unplanned repairs can be avoided to a great extent and scheduled workshop visits can be further optimized. The Truck Data Center connectivity module will be the brain of the connected truck across the Daimler Trucks brands. C | THE DIVISIONS | MERCEDES-BENZ VANS 189 Mercedes-Benz Vans Mercedes-Benz Vans continued on its successful course of recent years, with a new record for unit sales in 2017. At €1.2 billion, EBIT remained at the high level of the previous year. Growth was mainly driven by the mid-size segment with the Vito van and the V-Class full-size MPV. We con- tinued our “Mercedes-Benz Vans goes global” growth strategy by expanding our product range to include the X-Class — the ﬁrst pickup from a premium manufacturer. Mercedes-Benz Vans’ future- oriented “adVANce” initiative delivered its ﬁrst concrete results, and the division is systematically forging ahead with its transformation from a vehicle manufacturer into a supplier of transportation and mobility solutions for cargo and passengers. Among other things, Mercedes-Benz Vans plans to electrify its commercial ﬂeet, beginning with the Vito in the second half of 2018. New record for unit sales Mercedes-Benz Vans set a new sales record once again in ﬁnancial year 2017, with an increase of 12% to 401,000 units. At €13.2 billion, revenue was also higher than in the previous year (2016: €12.8 billion). EBIT reached €1,181 million and was thus at the high prior-year level. Continued growth Mercedes-Benz Vans’ products remained very successful in ﬁnancial year 2017. Our Sprinter, Vito and Citan vans are tailored mainly to commercial customers, while the V-Class is designed primarily for private use. The X-Class is targeted at a variety of private and commercial customers. Unit sales in the EU30 region, our core market, rose by 9% to 273,300 vans in the year under review. The markets grew at double-digit rates for example in the United Kingdom (+12%), Spain (+10%), Italy (+13%), Poland (+17%), Switzerland (+10%) and Austria (+14%). Mercedes-Benz Vans posted substantial growth (+10%) also in its important German market. We also set a new record in Germany of 105,800 units sold (2016: 96,100). Unit sales developed favorably also in Turkey (+14%) and Russia (+6%). Mercedes-Benz Vans continued to grow also in the NAFTA region, where sales rose to 44,800 units (2016: 43,400). This included a new record of 34,200 units sold in the United States (2016: 33,700). Sales developed very favorably in Latin America, increasing sig- niﬁcantly by 31% to 16,400 units. Sales in China once again rose sharply (+75%) compared with the prior year, driven by the new models launched in the mid-size segment in 2016. We sold a total of 200,500 units of the Sprinter worldwide in 2017 (2016: 193,400), which was the last full year of the current model’s life cycle. The successor generation of the Sprinter is already set for market launch in the ﬁrst half of 2018. Sales of vehicles in the mid-size segment were signiﬁcantly higher than in the previous year, totaling 171,100 units in 2017 (2016: 140,800). Sales also rose in the commercial segment, with Vito sales increasing signiﬁcantly by 21% to 111,800 vehicles. Meanwhile, sales of the Mercedes-Benz Citan reached 26,100 units (2016: 24,900). Sales of the V-Class full size MPV rose by 22% to 59,300 units in the year under review. The X-Class also got oﬀ to a good start at the end of the year, with sales totaling 3,300 units. C.05 Mercedes-Benz Vans € amounts in millions % change 2017 2016 17/16 Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales 13,164 1,181 12,835 1,170 9.0 710 565 310 9.1 373 442 238 405,129 368,574 401,025 359,096 Employees (December 31) 25,255 24,029 +3 +1 . +90 +28 +30 +10 +12 +5 C.06 Unit sales by Mercedes-Benz Vans 2017 2016 17/16 % change 401,025 359,096 273,297 249,860 105,781 44,815 34,158 16,378 33,641 23,801 32,894 96,130 43,354 33,749 12,497 22,526 13,636 30,859 +12 +9 +10 +3 +1 +31 +49 +75 +7 Total EU30 thereof Germany NAFTA thereof United States Latin America (excluding Mexico) Asia thereof China Other markets 190 C | THE DIVISIONS | MERCEDES-BENZ VANS Mercedes-Benz Vans invests in its future Mercedes-Benz Vans is continuing the successful implementa- tion of its “Mercedes-Benz Vans goes global” growth strategy. At the same time, we have laid the foundation for further growth in the future. Building on its strong position, Mercedes-Benz Vans announced in February 2017 that it would invest a total of over €2.0 billion in 2017 and 2018 alone. This money is being used to expand and update the division’s product range and to establish new services. The investments particularly focus on the new Mercedes-Benz X-Class and the new Sprinter, as well as on innovative holistic solutions for the vehicles from Mercedes- Benz Vans. Market launch of the Mercedes-Benz X-Class Mercedes-Benz Vans has been delivering the new X-Class, the ﬁrst pickup from a premium automaker, to customers in Europe since late 2017. South Africa and Australia will follow in early 2018 and we plan to launch the model in Argentina and Brazil in 2019. The mid-size pickup segment is global in scope, is a volume market and is set to grow further. The X-Class has room for up to ﬁve people. It augments the strengths of a mid-size pickup with the typical properties of the Mercedes-Benz brand: dynamic handling, comfort, great design, high safety, good connectivity and a comprehensive range of customization options. Customers can choose between three variants, rear-wheel drive, engageable all-wheel drive or permanent all-wheel drive (permanent all-wheel drive as of mid-2018), a six-speed manual or seven-speed automatic transmission, and a diverse range of accessories developed by Mercedes-Benz. Preview of the new Sprinter: The transformation of a vehicle into an integrated system solution Mercedes-Benz Vans will launch the new Sprinter in Europe in the second quarter of 2018, with other markets to follow successively. The division already announced speciﬁc details of the new full-size van in 2017. The new Sprinter will be fully connected in order to be a part of the Internet of things. In addition, the vehicle’s unique scalability, electric drive system and customized hardware solutions for the cargo space, as well as a combination of van-sharing and rental services, will make it the ﬁrst integrated system solution from Mercedes- Benz Vans. These innovations are integrated solely on the basis of each customer’s sector-speciﬁc needs, and they sig- niﬁcantly ease the daily work of drivers and ﬂeet managers. Mercedes-Benz Vans is the only manufacturer of full-size vans that continues to produce in Germany. In this context, Mercedes-Benz Vans is investing a total of €450 million in the lead plant of the global Sprinter production network in Düsseldorf, and in the Sprinter plant in Ludwigsfelde. The bat- tery-electric Sprinter will be produced in Düsseldorf, and this location will serve as the global competence center for the electric-drive Sprinter. In 2017, the plant in González Catán near Buenos Aires, Argentina, also began making preparations for production of the new Sprinter. The division will invest US$150 million in this facility and will create more than 500 additional jobs there. At the same time, construction of the new Sprinter plant in North Charleston, South Carolina, con- tinues to progress. Mercedes-Benz Vans is investing roughly half a billion dollars in the new plant and will create up to 1,300 jobs there. The new Mercedes-Benz X-Class is the ﬁrst pickup from a premium manufacturer. C | THE DIVISIONS | MERCEDES-BENZ VANS 191 The Mercedes-Benz eVito has been available to order since November 2017, with deliveries to commence in the second half of 2018. New HORIZON added to the Marco Polo family In January 2017, Mercedes-Benz Vans added a new member to its range of compact camper vans. Following the Marco Polo and the Marco Polo ACTIVITY, our product range is now supple- mented by the new Marco Polo HORIZON. Thanks to its ver- satile seating conﬁguration oﬀering up to seven seats and ﬁve beds, the Marco Polo HORIZON combines maximum function- ality with the high-quality design of the V-Class. The compact new camper van from Mercedes-Benz is geared toward trend- conscious adventurers who are looking for a versatile and func- tional vehicle for short vacation trips and outdoor activities, but also appreciate a stylish image. Full speed ahead: first concrete results of the future-oriented “adVANce” initiative With its future-oriented “adVANce” initiative, Mercedes-Benz Vans is evolving from a manufacturer of globally successful vans into a provider of holistic system solutions for the trans- portation of goods and passengers. The division is thus playinga pioneering role in its sector. We aim to develop new business models and tailored solutions that are adapted to our customers’ respective sectors. In November 2017, Mercedes-Benz Vans provided information on its plans to oﬀer all of its commercial van models with electric drive systems. This has already started with the mid-size eVito, which has been available to order since the announcement was made. Deliveries of the eVito will begin in the second half of 2018, followed by the eSprinter in 2019. The product range will be rounded out by the Citan. The electric-drive strategy of Mercedes-Benz Vans focuses not only on the electric van itself, but also on a technological ecosystem that is optimally aligned with customers’ business needs. Here, the division is taking a holistic approach based on ﬁve pillars (“Holistic Ecosystem”, “Sector Focus”, “Cost Eﬀectiveness”, “Co-Creation” and “Technology Transfer”) in order to create an innovative integrated system solution. This solution covers the entire value chain for commercial applications. Customer co-creation plays a key role in product development, so strategic partners and their sector expertise are being incorporated into the development process. Hermes, a provider of logistics services, is a good example of that. In early 2018, Hermes and Mercedes-Benz Vans will launch the partnership they agreed upon in the spring of 2017 with a pilot phase in Hamburg and Stuttgart. A(cid:5)er the projects are completed, we will expand the electric ﬂeet to a total of 1,500 electric Vito and Sprinter vans by 2020, and launch it for parcel deliveries in other metropolitan areas. The strategic partnership also involves the joint development of a concept for an eﬃcient charging infrastructure at Hermes logistics centers, as well as IT services to ensure optimal man- agement of the electric ﬂeet. The two partners also plan to develop integrated system solutions to boost the eﬃciency of the entire delivery process. They are also working together to create additional eﬃciency drivers, such as intelligent systems for the cargo space that will enable the vehicle to be loaded and unloaded faster. In July 2017, Mercedes-Benz Vans Mobility GmbH launched its ﬁrst mobility service in the German market. Called Mercedes- Benz Van Rental, this innovative and highly ﬂexible rental service from the Daimler subsidiary is mainly targeted at com- mercial van customers. In addition, Mercedes-Benz Vans is entering the business of shared mobility and ride sharing. To this end, the Vans division teamed up with the successful US startup Via to create the ViaVan joint venture for the European market. The new ridesharing service will be launched in a major European city in early 2018. A(cid:5)er that, the service will be gradually expanded to other cities. Mercedes-Benz Vans is also studying new delivery models, including the combination of vans and drones. For example, the division cooperated with the US drone system developer Matternet and the Swiss online marketplace siroop to run a three-week pilot project in Zürich during the year under review. The project involved the use of vans and drones for the eﬃcient on-demand delivery of e-commerce products. 192 C | THE DIVISIONS | DAIMLER BUSES Daimler Buses In 2017, business development at Daimler Buses was strongly inﬂuenced by the recovering economic conditions in Latin America and a signiﬁcant sales increase in India. Lower demand for our buses in Turkey had a negative impact. Our earnings, which were at the very good level of the previous year, enabled us to achieve a 5.6% return on sales. As the market leader in its most important traditional core markets, Daimler Buses focuses on innovative and pioneering city buses and coaches. In 2017, Daimler Buses once again presented itself as a future-oriented manu- facturer with new products and digital services, a “future package” for our production network, and the implementation of the CASE strategy. C.07 Daimler Buses € amounts in millions % change 2017 2016 17/16 Revenue EBIT Return on sales (in %) Investment in property, plant and equipment Research and development expenditure thereof capitalized Production Unit sales Employees (December 31) 4,351 4,176 243 5.6 94 194 30 249 6.0 97 202 11 28,518 28,676 18,292 26,180 26,226 17,899 +4 -2 . -3 -4 +173 +9 +9 +2 C.08 Unit sales by Daimler Buses Total EU30 thereof Germany Latin America (excluding Mexico) thereof Brazil Mexico Asia Other markets 2017 2016 17/16 % change 28,676 26,226 8,687 3,057 12,740 7,201 3,440 2,348 1,461 8,838 3,063 9,837 4,937 3,780 1,759 2,012 +9 -2 -0 +30 +46 -9 +33 -27 Earnings at the prior-year level Daimler Buses sold 28,700 buses and bus chassis worldwide in ﬁnancial year 2017 (2016: 26,200). The signiﬁcant increase was due in particular to the gradual recovery of the economy in Brazil. The division thus maintained its clear market leadership in its most important traditional core markets (EU30, Brazil, Argentina and Mexico). Sales of complete buses in the EU30 region were at the same high level as in the previous year. Revenue grew by 4% and EBIT of €243 million was at the prior- year level (2016: €249 million). Varied business development in the core regions In the EU30 region, the Daimler Buses brands Mercedes-Benz and Setra oﬀer a full range of city buses, intercity buses and touring coaches, as well as bus chassis. Due to the continued high demand for our complete buses, unit sales in this region amounted to 8,700, remaining roughly at the high level of the prior year (2016: 8,800 units). Daimler Buses maintained its leading market position in the EU30 region with a market share of 28.4% (2016: 29.6%). At 3,100 units, sales in Germany were at the same level as in the previous year. Sales of 400 units in Turkey were signiﬁcantly lower than in the prior year (2016: 600) due to the country’s economic situation, which remains diﬃcult. The market situation in Latin America (excluding Mexico) improved considerably on account of the gradually recovering market in Brazil. The bus market volume in Brazil grew by 10% in the year under review a(cid:5)er having bottomed out in 2016. Sales of Mercedes-Benz bus chassis in Brazil rose by 46% to 7,200 units. We were able to maintain our lead- ing market position in Brazil with a market share of 52.5% (2016: 58.4%). In India, we continued along our growth path and increased our sales to 900 units (2016: 500). At 3,400 units, sales in Mexico were signiﬁcantly lower than in the previous year (2016: 3,800). C | THE DIVISIONS | DAIMLER BUSES 193 Economic, safe, comfortable and functional: the new Mercedes-Benz Tourismo RHD high-decker coach. The Setra S 531 DT double-decker is the biggest and most comfortable coach from Daimler Buses. 194 C | THE DIVISIONS | DAIMLER BUSES The benchmark: the new Mercedes-Benz Citaro hybrid In the year under review, Daimler Buses continued its model oﬀensive with the Mercedes-Benz Citaro hybrid and other models. Hybrid drive is available for many model variants of the best-selling Citaro city bus, including the natural-gas- powered Citaro NGT. Hybrid drive, together with the new elec- tro-hydraulic steering system, further reduces the fuel consumption of the conventional Citaro, which is already highly eﬃcient, depending on the vehicle’s application and speci- ﬁcations. The further reduced fuel consumption quickly pays oﬀ for transport companies, and society and the environment beneﬁt from the decrease in emissions. Outstanding new touring coaches: the Mercedes-Benz Tourismo and the Setra double-decker S 531 DT Another focus area of the product oﬀensive was the new version of the successful Mercedes-Benz Tourismo touring coach. New assistance and safety systems such as Active Brake Assist 4 (ABA4) with pedestrian detection make the new Tourismo even safer. Fuel consumption continues to fall, thanks to its optimized aerodynamics and the further improve- ment of its chassis compared with the predecessor model. With four model variants, the new Mercedes-Benz Tourismo addresses the wide range of customer needs in the coach segment. The product oﬀensive is also paying oﬀ in the grow- ing intercity-bus business. The new Setra S 531 DT double-decker bus continues our coach oﬀensive. Thanks to improved aerodynamics, it consumes signiﬁcantly less fuel than its predecessor. In addition, it is equipped as standard with an emergency braking system with obstacle and pedestrian recognition, and Sideguard Assist for taking the blind spot into account is oﬀered as an optional extra. The countdown for our electric city bus has begun By the end of 2018, Daimler Buses plans to begin series pro- duction of a city bus with fully electric drive based on the Mercedes-Benz Citaro. The battery-electric Citaro has already undergone an extensive cycle of testing and test drives. Its prototypes have successfully completed a winter test cycle under below-zero conditions at the Arctic Circle and a summer test cycle under very high temperatures. The cycles are being followed by endurance testing and detailed ﬁne tuning. The bus has reached such a degree of maturity that the brand is already participating in invitations to tender. The ﬁrst state- ment of intent for the purchase of this electric city bus was already signed at the end of 2017. As a result, we plan to deliver the ﬁrst buses starting in late 2018 and to put them into operation in a customer-oriented vehicle testing program. Furthermore, Daimler Buses is conducting the “eMobility Consulting” initiative to advise its customers on issues related to electric mobility. In this context, we work together with our customers to analyze each speciﬁc starting situation and use it as a basis for developing a holistic system with the highest possible proportion of electric mobility. In the process, we con- sider not only the vehicles themselves but also the charging infrastructure, the operating plan and the service concepts. New bus models for the African market Daimler Buses is launching two new bus models on the market in Kenya. Both bus models will be manufactured for the local market in cooperation with the division’s local sales partner DT Dobie Kenya in Nairobi. The Mercedes-Benz 917 city bus was designed for city, school and shuttle operation, and the Mercedes-Benz 1730 is ideal for long-distance routes. The new umbrella brand Omniplus On for all digital services Starting in 2018, we plan to consolidate our digital services for buses under the umbrella brand Omniplus On in a single portal. For example, the Uptime feature continuously monitors and analyzes the vehicle systems and indicates when maintenance or repair is needed. The Driver’s App supports the communi- cation of drivers and companies and helps them carry out the required pre-departure checks. The Remote Bus feature pro- vides essential data. Thanks to these features, our customers have a wide variety of information available to them for sup- porting the eﬃcient deployment of their ﬂeets. Daimler Buses receives many major orders In the year under review, Daimler Buses received a large number of major orders. The local transportation authority in Riyadh, Saudi Arabia, ordered more than 600 Mercedes-Benz Citaro buses – the biggest single order for Mercedes-Benz Citaro city buses in the history of Daimler Buses. Two major orders were concluded in Poland: 80 Mercedes-Benz Conecto buses for Warsaw and 60 Mercedes-Benz Citaro buses for the local transport operator in Wrocław. In addition, EMT Madrid ordered an additional 300 vehicles. A framework agreement was signed with the Italian transport operator AGI for 300 buses, and another contract with BusItalia covered a total of 950 vehicles. A future package to enhance efficiency in production and the implementation of CASE As part of a new target vision, Daimler Buses is making its production network in Europe ﬁt for the future. Within this con- text, in the years ahead, we aim to invest approximately €340 million in optimized structures and more eﬃcient processes in the manufacturing network, as well as in the implementation of the CASE strategy at Daimler Buses. Strategic cooperation with CleverShuttle for mobility on demand Daimler Buses has become a strategic investor in the Berlin- based mobility service CleverShuttle. Through a minority hold- ing, the division is entering into a strategic cooperation for mobility on demand – in other words, mobility services that are designed to ﬂexibly meet customer demand. Award-winning products from Daimler Buses At the Busworld international buses trade fair in Kortrijk, Belgium, Daimler Buses was honored with ﬁve awards. The panel of experts granting the Busworld Awards honored the Mercedes-Benz Tourismo M and Citaro hybrid bus models with two awards each. And the Setra S 516 HD touring coach in the ComfortClass received the Sustainable Bus Award for 2018 from the international panel of judges. C | THE DIVISIONS | DAIMLER FINANCIAL SERVICES 195 Daimler Financial Services The number of cars and commercial vehicles ﬁnanced or leased by Daimler Financial Services reached a new all-time high of more than 4.8 million at the end of ﬁnancial year 2017. Record ﬁgures were also posted for new business and contract volume, and EBIT set a new benchmark as well. The combination of sales ﬁnancing with brokered automotive insurance policies continued to gain importance. The division’s range of innovative mobility services was further expanded. Today, services such as car2go, moovel and mytaxi are used by 17.8 million customers all over the world. In 2017, the digitization of ﬁnancial services was also successfully expanded with the Mercedes Pay electronic payment system and the AutoGravity ﬁnancing app. Half of all Daimler vehicles delivered to customers are financed or leased Daimler Financial Services concluded 1.9 million new ﬁnancing and leasing contracts worth a total of €70.7 billion in 2017. The total value of all new contracts rose by 14% compared with the prior year. About half of all new-vehicle sales by our auto- motive divisions in 2017 were supported by sales ﬁnancing from Daimler Financial Services. A total of more than 4.8 million ﬁnanced or leased vehicles were on the books at the end of 2017 with a total contract volume of €139.9 billion; this repre- sents a 6% increase compared with the end of 2016. Adjusted for exchange-rate eﬀects, contract volume increased by 12%. EBIT rose to a new high of €1,970 million (2016: €1,739 million). (cid:202) C.09 Significant increase in new business in Europe During the year under review, Daimler Financial Services concluded 967,600 new ﬁnancing and leasing contracts worth €31.1 billion in the Europe region (+15%). Especially high rates of growth were recorded in Russia (+51%), Italy (+29%) and Spain (+28%). In Germany, Mercedes-Benz Bank’s new business increased by 9% to €12.9 billion. Daimler Financial Services’ total contract volume in Europe rose by 12% to €59.7 billion. The Americas: new business at prior-year level Daimler Financial Services brokered 444,600 new ﬁnancing and leasing contracts worth €21.8 billion in the Americas region in 2017 (+1%). The volume of new business developed very well in Brazil (+28%) and Canada (+8%). Contract volume in the Americas region of €50.7 billion at December 31, 2017 was lower than at the end of 2016 (-6%). Adjusted for exchange- rate eﬀects, contract volume increased by 6%. Strong growth in Africa & Asia-Pacific region and China New business in the Africa & Asia-Paciﬁc region (excluding China) increased sharply once again compared with the prior year, by 16% to €8.4 billion. Business growth was especially strong in South Korea (+30%) and Japan (+19%). At the end of 2017, contract volume in the Africa & Asia-Paciﬁc region (excluding China) totaled €17.2 billion, representing a 7% increase over the previous year. New business also increased signiﬁcantly in China: 300,300 new leasing and ﬁnancing contracts worth €9.5 billion were concluded in 2017 (+56%). At the end of 2017, contract volume in China amounted to €12.2 billion – an increase of 39% compared with the end of 2016. Further growth in the insurance business Daimler Financial Services brokered approximately 2.1 million insurance policies in 2017 – an increase of 20% compared with the prior year. A new telematics-based insurance rate was developed in 2017 and successfully launched in France, Belgium and Germany. Since it started operations in 2016, the warranty insurer Mercedes-Benz Versicherung AG, has established itself in the German market very successfully and continued to grow in ﬁnancial year 2017. C.09 Daimler Financial Services € amounts in millions % change 2017 2016 17/16 Revenue EBIT New business Contract volume Investment in property, plant and equipment 23,775 1,970 70,721 20,660 1,739 61,810 139,907 132,565 43 37 Employees (December 31) 13,012 12,062 +15 +13 +14 +6 +16 +8 196 C | THE DIVISIONS | DAIMLER FINANCIAL SERVICES True to the motto “Mobility at your ﬁngertips,” Daimler Financial Services is a leading provider of digital mobility services. Mobility services on the right track Daimler Financial Services once again expanded its range of innovative mobility services in 2017. The number of registered users of the car2go car-sharing service increased to more than 3.0 million, enabling car2go to maintain its position as the world’s leading ﬂexible car-sharing company. In 2017, car2go upgraded its worldwide ﬂeets with new vehicle models. In Europe and North America, it added more Mercedes- Benz vehicles to its ﬂeets; in Stuttgart, the ﬂeet was supple- mented with B-Class electric drive vehicles; and in Italy, the ﬂeets were augmented for the ﬁrst time with smart forfour cars. At the same time, the car2go services were technically reﬁned and simpliﬁed for the customers. Thanks to the intro- duction of online validation of driver’s licenses, customers in all markets can now register online from start to ﬁnish and use car2go services immediately. In addition, with the option of hourly packages, car2go is oﬀering its customers aﬀordable and stress-free long-term rental conditions. The moovel app also underwent further development in 2017. moovel enables customers in Germany to compare various mobility and transport-system options and then choose the best way to get from point A to point B. The app can also be used to book and directly pay for services provided by compa- nies such as car2go, mytaxi and Deutsche Bahn. With the introduction of the moovel transit product portfolio, the moovel Group is oﬀering “white label” solutions for transportation companies all over the world. In the United States, mobile ticketing applications from moovel are now used by 16 trans- portation companies. That makes moovel North America the leading provider of mobile ticketing technology for US local public transportation apps. In May 2017, moovel teamed up with the public transportation provider in Karlsruhe (KVV) to launch the joint mobility app “KVV.mobil powered by moovel.” KVV tickets can be booked and paid for directly via the app. In addition, the app shows users available rental bicycles and vehicles from the car-sharing company Stadtmobil. The number of registered app users in Germany and the United States had risen to 3.7 million by the end of 2017 (2016: 2.2 million). In August 2017, moovel also acquired the Hamburg-based com- pany Familonet GmbH, the provider of the location-messenger app Familonet. The acquisition of this startup, which has received numerous awards, enables moovel to apply the com- pany’s expertise in the areas of geofencing and localization. In 2017, mytaxi further expanded and consolidated its position as Europe’s biggest taxi app through its successful merger with Hailo and its acquisition of Taxibeat and Clever Taxi. mytaxi’s geographic coverage was expanded to the United Kingdom, Ire- land, Greece and Romania, which means that it now operates in 11 European countries. It has also entered two rapidly grow- ing markets in South America (Peru and Chile). mytaxi now has 120,000 registered taxi drivers in 70 cities. The number of registered mytaxi users increased compared with the end of 2016 by 85% to 11.1 million. C | THE DIVISIONS | DAIMLER FINANCIAL SERVICES 197 A total of 17.8 million customers are registered for Daimler mobility services, which are oﬀered in more than 100 cities in Europe, China and the Americas. In addition to car2go, moovel and mytaxi, Daimler Mobility Services also has holdings in inno- vative mobility services companies all over the world, including Blacklane and Flixbus. In 2017, Daimler Mobility Services acquired an interest in Turo, which is the US market leader in peer-to- peer car sharing, and in the ride-sharing service Via, as well as in Careem, a ride-sharing service based in Dubai. It also completely took over ﬂinc, the ﬁrst ride-sharing platform for short trips, which was founded in Darmstadt. Growth of fleet business in Europe In 2017, Daimler Financial Services was active in the ﬂeet- management business with Daimler Fleet Management and Athlon. In Europe, a total of 383,300 contracts with ﬂeet customers were on the books at the end of 2017, representing an increase of 6% compared with a year earlier. Contract volume amounted to €6.4 billion. Mercedes-Benz Connectivity Services GmbH has been oﬀering ﬂeets and business cus- tomers connectivity services for telematics-based ﬂeet management under the brand “connect business” since April 2017. Focus on customer and employee satisfaction Customer and employee satisfaction is a top priority at Daimler Financial Services. In 2017, independent surveys once again showed that we are a leader in numerous countries around the world with regard to customers’ and dealers’ assessments of our service quality. In the United States, Mercedes-Benz Financial Services once again ﬁnished at the top of three categories in a J.D. Power study of dealer satisfaction. The foun- dation of these and many other successes is formed by our highly motivated employees. In the independent worldwide Great Place to Work Institute survey to determine the world’s best employers, Daimler Financial Services was listed – in 2016 for example – among the top ranks in many countries. Toll4Europe collects truck tolls all over Europe The Toll Collect automatic system for truck-toll collection on German autobahns and selected federal highways continued to operate smoothly and reliably in 2017. The system recorded a total of 33.6 billion kilometers driven in the year under review. Daimler Financial Services holds a 45% interest in the Toll Col- lect consortium. The Federal Republic of Germany has collected a total of more than €53 billion in tolls since Toll Collect went into operation at the beginning of 2005. Toll Collect is also preparing to extend toll collection to all federal highways, which, as planned by the German government, is to start on July 1, 2018. In addition, Daimler has held a 30% share in the European Electronic Toll Service (EETS) since April 2017 and has founded the joint venture Toll4Europe together with T-Systems (55%) and DKV (15%). The new service is scheduled to begin in the sec- ond half of 2018. The objective is to oﬀer a one-stop shop for truck-toll payment, with tolls charged by means of an onboard unit and Europe-wide invoicing. Daimler Financial Services customers can conveniently ﬁnd out about ﬁnancing and leasing oﬀers on all channels – online or in a direct discussion. WE ACT RESPONSIBLY AND SUSTAINABLY! The Board of Management and the Supervisory Board of Daimler AG are committed to the principles of good corporate governance. Our actions take place within the framework of responsible, transparent and sustainable corporate governance. D | CORPORATE GOVERNANCE | CONTENTS 199 D | Corporate Governance Report of the Audit Committee 200 – 202 – Responsibilities and composition – Meetings and participants – Topics dealt with Declaration on Corporate Governance, Corporate Governance Report 203 – 213 – Declaration of compliance with the German Corporate Governance Code D & O insurance deductible for the Supervisory Board – Corporate government in practice German Corporate Governance Code Principles of our actions Guidelines for behaving with integrity What we expect of our business partners Risk management at the Group Accounting principles – Composition and mode of operation of the Board of Management Board of Management CASE Steering Committee Diversity – Composition and mode of operation of the Supervisory Board and its Committees Supervisory Board Presidential Committee Nomination Committee Audit Committee Mediation Committee – Law for the equal participation of women and men in executive positions – Overall requirements for the composition of the Board of Management and Supervisory Board Board of Management Supervisory Board – Shareholders and the Shareholders’ Meeting 200 D | CORPORATE GOVERNANCE | REPORT OF THE AUDIT COMMITTEE Report of the Audit Committee Dear Shareholders, As Chairman of the Audit Committee, I am very pleased to report to you on the tasks and activities performed by that body in ﬁnancial year 2017. Responsibility On the basis of applicable law, the German Corporate Gover- nance Code and the Rules of Procedure of the Supervisory Board and its committees, the Audit Committee deals primarily with questions of accounting, ﬁnancial reporting and non- ﬁnancial reporting. In addition, it deals with the annual audit and reviews the qualiﬁcations and independence of the exter- nal auditors. Furthermore, it discusses the eﬀectiveness and functional capabilities of the risk management system, the internal control system, the internal auditing system and the compliance management system. A(cid:5)er the external auditors are elected by the Annual Shareholders’ Meeting, the Audit Committee engages the external auditors to conduct the annual audit and the auditors’ review of interim ﬁnancial statements, determines the important audit issues and negotiates the audit fees with the external auditors. Equal representation Audit Committee Chairman Dr. Clemens Börsig and Joe Kaeser served as the shareholder representatives on the Audit Com- mittee in ﬁnancial year 2017. Both are independent and have expertise in the ﬁeld of ﬁnancial reporting, as well as special knowledge of and experience in the auditing of ﬁnancial state- ments and the application of methods of internal control. Dur- ing ﬁnancial year 2017, the employees were represented on the Audit Committee by Michael Brecht as the Deputy Chairman of the Committee and by Ergun Lümali. Meetings and participants The Audit Committee met six times in ﬁnancial year 2017. All of these meetings were also attended by the Chairman of the Supervisory Board, Dr. Manfred Bischoﬀ, as a permanent guest. The other permanent participants in the meetings were the Chairman of the Board of Management, the members of the Board of Management responsible for Finance and Controlling and for Integrity and Legal Aﬀairs, and the external auditors. The heads of specialist departments such as Accounting, Inter- nal Auditing, Group Compliance and Legal were also present to report on individual items of the agenda. In addition, the Chairman of the Audit Committee held regular individual discussions, for example with the external auditors, the members of the Board of Management responsible for Finance and Controlling and for Integrity and Legal Aﬀairs, the head of Internal Auditing and, if required, further heads of the relevant specialist departments. Such individual discussions were mainly held to prepare for the next committee meetings. Reporting to the Supervisory Board The Chairman of the Audit Committee informed the Supervisory Board about the activities of the Committee and about the contents of its meetings and discussions in the following Super- visory Board meetings. Topics in 2017 In the meeting held on February 1, 2017, the Audit Committee dealt with the preliminary ﬁgures of the annual ﬁnancial state- ments and the annual consolidated ﬁnancial statements for the year 2016, as well as with the proposal on the appropriation of proﬁts made by the Board of Management. Following an in- depth review, the Audit Committee took positive note of the presented ﬁgures and determined that no objections were to be made to their proposed publication. The Committee further recommended that the Supervisory Board, which met immedi- ately therea(cid:5)er, adopt the same view. The preliminary key ﬁgures and the proposal on the appropriation of proﬁts were announced at the Annual Press Conference on February 2, 2017. In another meeting held on February 10, 2017, the Audit Com- mittee dealt with the annual ﬁnancial statements, the consoli- dated ﬁnancial statements and the combined management report for Daimler AG and the Daimler Group for the ﬁnancial year 2016, each of which had been issued with an unqualiﬁed auditor’s opinion by the external auditors, as well as with the proposal on the appropriation of proﬁts. At the meeting, the external auditors reported on the results of their audit and were available to answer supplementary questions and to provide additional information. The audit reports on the annual company and consolidated ﬁnancial statements and on the internal control system (ICS), the report on the risk management system (RMS) for the year 2016, Annual Report 2016 and important issues related to accounting were discussed with the external auditors. Following an in-depth review and discussion, the Audit Committee recommended that the Supervisory Board approve the ﬁnancial statements, the combined management D | CORPORATE GOVERNANCE | REPORT OF THE AUDIT COMMITTEE 201 Dr. Clemens Börsig, Chairman of the Audit Committee report and the recommendation of the Board of Management to pay a dividend of €3.25 per share entitled to a dividend. Furthermore, the Audit Committee approved the Report of the Audit Committee for the ﬁnancial year 2016. the issue of diesel exhaust emissions. In addition, the Audit Committee dealt with notiﬁcations concerning possible viola- tions of rules submitted by employees and third parties to the Group’s own whistleblower system BPO (Business Prac- tices Oﬃce). Also in this meeting, the Audit Committee discussed the report on the total fees paid to the external auditors in the ﬁnancial year 2016 for auditing and non-auditing services. The Audit Com- mittee also decided to recommend to the Supervisory Board, and subsequently to the Annual Shareholders’ Meeting, that KPMG be engaged to conduct the annual external audit and the external auditors’ review of interim ﬁnancial reports for the ﬁnancial year 2017 and also to conduct the external auditors’ review of interim ﬁnancial reports for the ﬁnancial year 2018 in the period leading up to the Annual Shareholders’ Meeting in 2018. The Audit Committee based this recommendation on the quality of the annual audit and the results of the independence review, for which no indications of partiality or a threat to inde- pendence were found. Subject to the election of the proposed external auditors by the Annual Shareholders’ Meeting, the Audit Committee also discussed the proposal to be made regarding the fees to be agreed upon with the external auditors for the ﬁnancial year 2017. Finally, within the framework of its respon- sibility, the Audit Committee dealt with the dra(cid:5) agenda for the 2017 Annual Shareholders’ Meeting and the annual audit plan for 2017 of the Internal Auditing department. In the meetings during 2017 related to the quarterly results, the Audit Committee discussed the interim ﬁnancial reports before their publication with the Board of Management and with the external auditors engaged to carry out the auditors’ review of interim ﬁnancial statements. In addition, the Committee received reports from the Internal Auditing, Group Compliance and Legal departments. In this connection, the Board of Management reported regularly to the Audit Committee, on the current status of the main legal proceedings, in particular also on the requests, inquiries, investigations and proceedings in connection with In April 2017, the Audit Committee approved the fees agreed upon with the external auditors for the ﬁnancial year 2017 a(cid:5)er the Annual Shareholders’ Meeting made its decision on March 29, 2017 regarding the election of the proposed external audi- tors for the annual ﬁnancial statements and the consolidated ﬁnancial statements. In its meeting in June 2017, the Audit Committee was informed of a recent development regarding searches of Daimler AG premises conducted by the Stuttgart State Attorney’s Oﬃce within the framework of its investigation of known and unknown employees of Daimler AG. The Audit Committee then dis- cussed the Group’s risk management system and dealt in par- ticular with its changes and further development. It also dis- cussed the methods and processes of, and possible changes to, the internal control system, which along with accounting also encompasses the internal auditing function and the com- pliance management system. In addition, the Audit Committee was informed about the Group Legal System and Group Legal Risk Reporting. Furthermore, the Committee received a report on the non-auditing services provided by the external auditors. In this meeting, the Committee also deﬁned key audit issues for the external audit of the ﬁnancial year 2017, including new requirements for the audit opinion as well as planning measures for the external audit for 2017 and the framework of approval for engaging the external auditors to provide non-audit services. In addition, the Committee extensively addressed the status of implementation of the EU Audit Reform at Daimler. In this con- nection, the Committee congruently aligned the period for the approval framework for engaging the external auditors to pro- vide non-audit services with the ﬁnancial year, thus enhancing 202 D | CORPORATE GOVERNANCE | REPORT OF THE AUDIT COMMITTEE the legally required transparency at the Group. This meeting was also used to discuss the results of the internal quality analysis of the external audit for the ﬁnancial year 2016. Also in the meeting in June 2017, the Audit Committee dealt in depth with the impact that implementation of the EU CSR Directive will have on reporting at Daimler and on the disclo- sure of non-ﬁnancial information. Furthermore, the Committee was informed of new developments in accounting and ﬁnancial reporting, such as the new ﬁnancial accounting standards IFRS 9 (Financial Instruments) and IFRS 15 (Revenue Recognition), and other audit-relevant areas such as tax law. The Committee also received detailed information on the audit from the Finan- cial Reporting Enforcement Panel (Deutsche Prüfstelle für Rech- nungslegung), which did not result in any objections. Finally, the Audit Committee took note of a report on pension manage- ment and of another on current tax issues, and also discussed with the Board of Management the annual report produced by the Group’s Data Protection Oﬃcer. In the meeting held in July 2017, the Audit Committee dealt mainly with the second-quarter results and the risk report. Along with production and technology risks, the Committee members also discussed the possible eﬀects of so(cid:5)ware retroﬁtting of Mercedes-Benz diesel vehicles in Europe, the comprehensive plan for diesel engines approved by the Board of Management in July 2017, and the risks stemming from current legal issues. In the meeting held in October 2017, the Audit Committee dealt with the interim ﬁnancial report for the third quarter of 2017 and the quarterly reports from the Internal Auditing, Group Compliance and Legal departments. The Committee also once again discussed the eﬀects of the EU CSR Directive on non- ﬁnancial reporting at Daimler. Company and consolidated financial statements 2017 In the meeting held on January 31, 2018, the Audit Committee dealt with the preliminary ﬁgures of the annual ﬁnancial state- ments and the annual consolidated ﬁnancial statements for the year 2017, as well as with the proposal on the appropriation of proﬁts made by the Board of Management. Following an in-depth review, the Audit Committee took positive note of the presented ﬁgures and determined that no objections were to be made to their proposed publication. The Committee further recommended that the Supervisory Board, which met immediately therea(cid:5)er, adopt the same view. The preliminary key ﬁgures and the proposal on the appropriation of proﬁts were announced at the Annual Press Conference on February 1, 2018. In another meeting held on February 9, 2018, the Audit Com- mittee reviewed and discussed in detail the annual ﬁnancial statements, the consolidated ﬁnancial statements and the combined management report for Daimler AG and the Daimler Group for the ﬁnancial year 2017, each of which had been issued with an unqualiﬁed auditor’s opinion by the external auditors, as well as the proposal on the appropriation of proﬁts and the non-ﬁnancial report. At the meeting, the external audi- tors reported on the results of their audit and the voluntary audit of the non-ﬁnancial report within the framework of a lim- ited assurance engagement and were also available to answer supplementary questions and to provide additional information. The audit reports on the annual ﬁnancial statements and con- solidated ﬁnancial statements (including the particularly impor- tant audit issues in the audit opinions) and on the internal con- trol system (ICS), the report on the risk management system (RMS) for the year 2017, the Annual Report 2017, and impor- tant issues related to ﬁnancial reporting were discussed with the external auditors. Following an in-depth review and discus- sion, the Audit Committee recommended that the Supervisory Board approve the ﬁnancial statements, the combined manage- ment report, the declaration on corporate governance included in the corporate governance report, the non-ﬁnancial report, and the recommendation of the Board of Management to pay a dividend of €3.65 per share entitled to a dividend. Further- more, the Audit Committee approved the Report of the Audit Committee for the ﬁnancial year 2017. Efficiency review As in previous years, the Audit Committee once again conducted a self-evaluation of its own activities in 2017 on the basis of an extensive company-speciﬁc questionnaire. The results of this eﬃciency review were once again very positive and were pre- sented and discussed in the meeting on February 9, 2018. This did not result in any need for action with regard to the Commit- tee’s tasks, or with regard to the content, frequency or proce- dure of its meetings. Stuttgart, February 2018 The Audit Committee Dr. Clemens Börsig Chairman D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT 203 Declaration on Corporate Governance, Corporate Governance Report The declaration on corporate governance pursuant to Section 289 f and Section 315 d of the Ger- man Commercial Code (HGB) has been combined for Daimler AG and the Daimler Group as well as with the Corporate Governance Report. The following statements thus apply to Daimler AG and the Daimler Group insofar as not otherwise stated. The declaration on corporate governance, which is combined with the corporate governance report, can also be viewed on the Internet at w daimler.com/dai/gcgc. Pursuant to Section 317 Subsection 2 Sentence 6 of the German Com- mercial Code (HGB), the purpose of the audit of the contents of the statements pursuant to Sec- tion 289 f Subsections 2 and 5 and Section 315 d of the HGB is limited to determining whether such statements have actually been provided. The deviation from Clause 5.4.1 Paragraph 2, declared as pre- cautionary measure in the compliance declaration dated Decem- ber 2016, namely the speciﬁc objectives for the composition of the Supervisory Board has ceased to apply from December 2017. The Supervisory Board has set a target objective for its composition regarding the number of independent members of the Supervisory Board and in consideration of potential con- ﬂicts of interest no longer to the appointments for the share- holders’ side only, but in the light of the German Co-Determi- nation Act also for the entire Supervisory Board. Stuttgart, December 2017 For the Supervisory Board Dr. Manfred Bischoﬀ Chairman For the Board of Management Dr. Dieter Zetsche Chairman This declaration and previous, no longer applicable, declara- tions of compliance from the past ﬁve years are also available at our website at w daimler.com/dai/gcgc. Declaration by the Board of Management and Supervisory Board of Daimler AG pursuant to Section 161 of the German Stock Corporation Act (AktG) regarding the German Corporate Governance Code Daimler AG satisﬁes the recommendations of the German Corporate Governance Code published in the oﬃcial section of the German Federal Gazette on April 24, 2017 in the Code version dated February 7, 2017, with the exception of Clause 3.8 Paragraph 3 (D & O insurance deductible for the Supervi- sory Board) and will continue to observe the recommendations with the aforesaid deviation. Since the issuance of the last compliance declaration in December 2016, Daimler AG has observed the recommendations of the German Corporate Governance Code in the version dated May 5, 2015, published on June 12, 2015, with the aforementioned exception as well as with a deviation from Clause 5.4.1 Paragraph 2 (Speciﬁc objectives for the composition of the Supervisory Board) de- clared as a precautionary measure. D&O insurance deductible for the Supervisory Board (Clause 3.8, Paragraph 3) As in previous years, the Directors’ & Oﬃcers’ liability insurance (D&O insurance) also contains a provision for a deductible for the members of the Supervisory Board, which is appropriate in the view of Daimler AG. However, this deductible does not cor- respond to the legally required deductible for members of the Board of Management in the amount of at least 10% of the dam- age up to at least one and a half of the ﬁxed annual remu- neration. Since the remuneration structure of the Supervisory Board is limited to function-related ﬁxed remuneration without performance bonus components, setting a deductible for Su- pervisory Board members in the amount of 1.5 times the ﬁxed annual remuneration would have a disproportionate economic impact when compared with the members of the Board of Management, whose compensation consists of ﬁxed and per- formance bonus components. 204 D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT The main principles applied in our corporate governance German Corporate Governance Code Beyond the legal requirements of German securities, codeter- mination and capital market legislation, Daimler AG has followed and continues to follow the recommendations of the German Corporate Covernance Code (“Code”) with the excep- tions disclosed and justiﬁed in the declaration of compliance. Daimler AG has also followed and continues to follow the sug- gestions of the Code with just one exception: Deviating from the suggestion in Clause 2.3.3, which stipulates that companies should enable shareholders to view the Shareholders’ Meeting with modern communications media such as the Internet, the Shareholders’ Meeting is not transmitted in its entirety on the Internet, but only until the end of the report by the Board of Management, in order to protect the character of the Share- holders’ Meeting as a meeting attended by our shareholders in person. An additional factor is that continuing the broadcast a(cid:5)er that point, in particular broadcasting comments made by individual shareholders, could impair the discussion between shareholders and management. The principles guiding our conduct Our business conduct is based on Group-wide standards that go beyond the requirements of relevant legislation and the Ger- man Corporate Governance Code. These standards are based on the four corporate values integrity, respect, passion and discipline. In order to achieve viable and thus sustainable busi- ness success on this basis, our goal is to ensure that our activi- ties are in harmony with the environment and society. This is due to the fact that we as one of the world’s leading automak- ers also strive to be a leader in sustainability. We have deﬁned the most important principles in our Integrity Code, which serves as a frame of reference for compliant and ethical con- duct in everyday activities for all employees at Daimler AG and the Group. Integrity Code Our Integrity Code is based on a shared understanding of val- ues, which we developed together with our employees. The Code deﬁnes our principles of behavior in daily business. This applies to interpersonal conduct within the company as well as conduct toward customers and business partners. The key principles here include fairness and responsibility on the basis of compliance with applicable laws. In addition to general prin- ciples of behavior, the Code includes requirements and regu- lations concerning respect for and the protection of human rights and the handling of conﬂicts of interest. It also prohibits all forms of corruption. The Integrity Code applies to all em- ployees at Daimler AG and the Group. The Integrity Code is available on the Internet at w daimler.com/dai/caag. We have also reached agreement on “Principles of Social Re- sponsibility” with the World Employee Committee. These princi- ples apply throughout Daimler AG and the entire Group. In the Principles of Social Responsibility, Daimler commits itself to the principles of the UN Global Compact and thus to internation- ally recognized human and workers’ rights, the proscription of child labor and forced labor, freedom of association and sus- tainable protection of the environment. Daimler also commits itself to guaranteeing equal opportunities and adhering to the principle of “equal pay for equal work.” Expectations for our business partners We also require our business partners to adhere to compliance stipulations because we regard our business partners’ integrity and behavior in conformity with regulations as an indispens- able prerequisite for trusting cooperation. When selecting our direct business partners, we therefore pay close attention that they comply with the law, follow ethical principles and do the same themselves towards other partners in the supply chain. For the expectations we place on our business partners, see also w daimler.com/sus/obr. Risk management at the Group Daimler has a risk management system commensurate with its size and position as a company with global operations, E pages 155 ﬀ of the Annual Report 2017. The risk manage- ment system is one component of the overall planning, control- ling and reporting process. Its goal is to enable the company’s management to recognize signiﬁcant risks at an early stage and to initiate appropriate countermeasures in a timely man- ner. At least once a year, the Audit Committee discusses the eﬀectiveness and functionality of the risk management system with the Board of Management. The Chairman of the Audit Committee reports to the Supervisory Board on the commit- tee’s work at the latest in the meeting of the Supervisory Board following each committee meeting. The Supervisory Board also deals with the risk management system on the occasion of the approval of the operational planning and the audit of the annual company and consolidated ﬁnancial state- ments. In addition, the Board of Management regularly informs the Audit Committee and the Supervisory Board of the most important risks facing the company and the Group as a whole. The Chairman of the Supervisory Board has regular contacts between Supervisory Board meetings with the Board of Man- agement, and in particular with the Chairman of the Board of Management, to discuss not only the Group’s strategy and business development but also the issue of risk management. The Internal Auditing department monitors adherence to the legal framework and to Group standards by means of targeted audits and initiates appropriate actions as required. Accounting and the external audit Daimler prepares its consolidated ﬁnancial statements and interim ﬁnancial reports in accordance with the International Financial Reporting Standards (IFRS), as adopted by the Euro- pean Union. The annual ﬁnancial statements of Daimler AG are prepared in accordance with the accounting standards of the German Commercial Code (HGB). Daimler prepares both half- yearly and quarterly ﬁnancial reports. The annual ﬁnancial statements and consolidated ﬁnancial statements of Daimler AG are audited by the external auditor; interim ﬁnancial reports are also reviewed by an external auditor. The consolidated ﬁ- nancial statements and the Group management report shall be made publicly accessible via the Company’s website within 90 days from the end of the reporting year; the interim ﬁnancial reports shall be made publicly accessible in the same manner within 45 days from the end of the reporting period. Based on the recommendation of the Audit Committee, the Supervisory Board submits a decision proposal to the Share- holders’ Meeting for the election of the external auditors for the annual ﬁnancial statements, the external auditors for the consolidated ﬁnancial statements and the auditors for the external auditors’ review of interim ﬁnancial reports. At the Shareholders’ Meeting on March 29, 2017, KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5), Berlin was elected to conduct D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT 205 Information on the areas of responsibility and the curricula vi- tae of the Board of Management members are posted on the Daimler AG website at w daimler.com/dai/bom. The members of the Board of Management and their areas of responsibility are also listed on E pages 62 f of the Annual Report 2017. D.01 Governance structure Annual Shareholders’ Meeting ratifies the actions of elects members representing the shareholders, ratifies the actions of reports Supervisory Board 20 members appoints, advises and monitors reports reports Board of Management 8 members the audit of the annual ﬁnancial statements and the consoli- dated ﬁnancial statements, and the external auditors’ review of interim ﬁnancial reports, for the ﬁnancial year 2017, as well as the external auditors’ review of interim ﬁnancial reports for the ﬁnancial year 2018 in the period leading up to the Sharehold- ers’ Meeting in 2018. Since 2014, the responsible auditor com- missioned to carry out the external audit has been Dr. Axel Thümler. KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) has been conducting the audit of the annual ﬁnancial statements and the annual consolidated ﬁnancial statements of Daimler AG since the 1998 ﬁnancial year. Prior to issuing its recommendation to the Shareholders’ Meet- ing, the Audit Committee of the Supervisory Board obtained a declaration from the external auditor under consideration. The external auditor was requested to state whether any business, ﬁnancial, personal or other relationships existed between the external auditor and its bodies and audit managers on the one hand, and the Company and the members of its bodies on the other, which could justify concerns regarding a conﬂict of in- terest. Further, the external auditor was asked to describe the nature of any such relationships that may have in fact existed. This statement also described the extent to which other services were performed for the Daimler Group in the previous year or had been contractually agreed upon for the following year. The Audit Committee instructed the external auditor to imme- diately inform the Committee Chairman of any indications of partiality or grounds for exclusion uncovered during the audit or the auditors’ review of interim ﬁnancial statements, and of all key ﬁndings and events relevant to the tasks of the Supervi- sory Board, particularly ﬁndings or events related to suspected irregularities in accounting. The Audit Committee also reached an agreement with the external auditor stipulating that the ex- ternal auditor would inform the Audit Committee, and make a note in the audit report, of any facts uncovered during the an- nual audit that would reveal inaccuracies in the Board of Man- agement’s and the Supervisory Board’s declaration of compli- ance with the German Corporate Governance Code. Composition and mode of operation of the Board of Management (cid:202) D.01 Daimler AG is obliged by the German Stock Corporation Act (AktG) to apply a dual management system featuring strict per- sonal and functional separation between the Board of Manage- ment and the Supervisory Board (two-tier board). Accordingly, the Board of Management manages the company while the Su- pervisory Board monitors and advises the Board of Management. Board of Management In accordance with the Articles of Incorporation of Daimler AG, the Board of Management has at least two members. The pre- cise number of Board of Management members is determined by the Supervisory Board. The Board of Management had eight members on December 31, 2017. In accordance with the Ger- man law requiring equal participation of women and men in ex- ecutive positions, the Supervisory Board has deﬁned a target for the proportion of women on the Board of Management and a deadline for achieving this target. The details are described in a separate section: E page 209. With regard to the compo- sition of the Board of Management, the Supervisory Board has also adopted a diversity concept that is embedded in an overall requirements proﬁle. The details of this concept are also de- scribed in a separate section: E page 210. 206 D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT The Board of Management manages Daimler AG and the Daimler Group. With the consent of the Supervisory Board, the Board of Management determines the Group’s strategic focus, deﬁnes the corporate goals, and makes decisions concerning opera- tional planning issues. The members of the Board of Manage- ment are bound to the interests of the Company and share responsibility for managing the Group’s entire business. Irrespective of this overall responsibility, the individual mem- bers of the Board of Management manage their allocated areas on their own responsibility and within the framework of the in- structions approved by the entire Board of Management. Spe- ciﬁc issues deﬁned by the Board of Management as a whole are dealt with by the Board as a whole, which must approve all related decisions. The Chairman of the Board of Management coordinates the work of the Board of Management. The Board of Management prepares the consolidated interim reports, the annual company ﬁnancial statements of Daimler AG, the annual consolidated ﬁnancial statements, and the combined management report of the Company and the Group, as well as the separate combined non-ﬁnancial report pro- duced for Daimler AG and the Group. It ensures that the provi- sions of applicable law, oﬃcial regulations and the Group’s internal guidelines are adhered to, and works to make sure that the companies of the Group comply with those rules and regu- lations. The Board of Management has also established an ade- quate compliance management system that takes into account the Company’s risk situation. The main features of this system are described on E pages 229 ﬀ of the Annual Report 2017. Such features include the Company’s whistleblower system, the BPO (Business Practices Oﬃce), which enables Daimler em- ployees and external whistleblowers to report misconduct any- where in the world. The tasks of the Board of Management also include establishing and monitoring an appropriate and eﬃ- cient risk management system. For certain types of transactions of fundamental importance as deﬁned by the Supervisory Board, the Board of Manage- ment requires the prior consent of the Supervisory Board. At regular intervals, the Board of Management reports to the Supervisory Board on corporate strategy, corporate planning, proﬁtability, business development and the situation of the Group, as well as on the internal control system, the risk man- agement system and the compliance management system. The Supervisory Board has speciﬁed the information and reporting duties of the Board of Management. The Board of Management has also given itself a set of rules of procedure, which can be seen on our website at w daimler.com/dai/rop. Those rules describe, for example, the procedure to be observed when passing resolutions and ways to avoid conﬂicts of interest. CASE Steering Committee The Board of Management has formed a Steering Committee consisting of Board of Management members to address the future-oriented CASE topics of connectivity (Connected), driv- erless driving (Autonomous), ﬂexible use and services (Shared & Services) and electric drive systems (Electric). The responsi- bilities of the Board of Management as a whole, in particular those regarding the catalog of issues that require its approval, as well as the areas of responsibility of individual Board mem- bers, remain unchanged despite the creation of the Committee. The Steering Committee consists of the Chairman of the Board of Management, who is also responsible for Mercedes-Benz Cars, as well as the members of the Board of Management re- sponsible for Finance & Controlling/Daimler Financial Services, Mercedes-Benz Cars Marketing & Sales and Group Research & Mercedes-Benz Cars Development. The Chairman of the Board of Management is also the Chairman of the Steering Commit- tee. In line with the Committee’s structure as described above, the members of the Steering Committee on December 31, 2017, were Dr. Dieter Zetsche (Chairman), Bodo Uebber, Britta Seeger and Ola Källenius. Within the framework of the strategic approach adopted by the Board of Management, the Steering Committee deﬁnes the management model and the strategic guidelines for CASE. The Board of Management has deﬁned rules of procedure for the Steering Committee. The Committee can make changes to these rules on its own authority, provided such changes do not aﬀect the steering model. Along with the composition of the Steering Committee, the responsibilities of its Chairman, the responsibility for the rules of procedure and the options available for establishing other CASE bodies below the Steering Committee, the rules of pro- cedure of the Steering Committee also deﬁne the structure and format of Committee meetings and the adoption of resolu- tions, as well as the rules on reporting to the Board of Manage- ment of Daimler AG. Diversity Diversity management has been part of the corporate strategy of Daimler since 2005. We rely on the diversity of our employees and the diﬀerences between them because such diﬀerences form the foundation of an eﬀective and successful company. The aim of our activities is to bring together the right people to tackle our challenges, create a work culture that promotes the performance, motivation and satisfaction of our employees and managers, and help attract new target groups to our prod- ucts and services. Our activities for shaping diversity at Daimler focus on three areas: best mix, work culture and customer in- teraction. With our measures, activities and initiatives for every- thing from training formats for employees and managers to workshops, conferences, guidelines and target group-speciﬁc communication and awareness-raising measures, our diversity management system makes a major contribution to the further development of our corporate culture. Targeted support for women on the basis of the best-mix prin- ciple was a central component of our diversity management activities even before the legislation on the equal participation of women and men in management positions went into eﬀect. Such support has also included and continues to include ﬂexi- ble working-time arrangements, company nurseries and spe- cial mentoring programs for women. To meet the new legal re- quirements, the Board of Management has deﬁned targets for the proportion of women at the two management levels below the Board of Management and a deadline for achieving those targets. The details are described in a separate section. Inde- pendently of the legal requirements, Daimler continues to af- ﬁrm the goal it already set itself in 2006 of increasing the pro- portion of women in executive positions at the Group to 20% by 2020. At the end of 2017, this proportion amounted to 17.6% (2016: 16.7%). D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT 207 Composition and mode of operation of the Supervisory Board and its committees Supervisory Board In accordance with the German Codetermination Act (MitbestG), the Supervisory Board of Daimler AG comprises 20 members. Half of them are elected by the shareholders at the Sharehold- ers’ Meeting. The other half comprises members who are elected by the Group’s employees who work in Germany. The members representing the shareholders and the members representing the employees are equally obliged by law to act in the Company’s best interests. Information on major functions and curricula vitae of the mem- bers of the Supervisory Board aside from their positions on the Supervisory Board of Daimler AG are posted on our web- site at w daimler.com/dai/sb and can also be found on E pages 70 f of the Annual Report 2017. The Supervisory Board is to be composed so that its members together are knowledgeable about the business sector in which the Company operates and also dispose of the knowledge, skills and specialist experience that are required for the proper execution of their tasks. According to the law on the equal par- ticipation of women and men in management positions, at least 30% of the members of the Supervisory Board of Daimler AG must be women and at least 30% must be men. The details are described in a separate section: E page 209. With regard to its composition on the basis of the further development of the existing catalog of criteria for selecting Supervisory Board can- didates, and with consideration of the targets that have already been deﬁned for the Supervisory Board’s composition, the Supervisory Board has also created an overall requirements proﬁle combining a skills proﬁle and a diversity concept for the entire Supervisory Board. The details of the overall requirements proﬁle are also described in a separate section: E pages 211 ﬀ. Proposals by the Supervisory Board of candidates for elec- tion by the Shareholders’ Meeting as members representing the shareholders of Daimler AG, for which the Nomination Commit- tee makes recommendations, aim at fulﬁlling the overall requirements proﬁle of the Supervisory Board as a whole. The members of the Supervisory Board attend on their own re- sponsibility courses of training and further training that might be necessary for the performance of their tasks and are sup- ported by the Company in doing so. Such courses may address corporate governance, changes brought about by new legisla- tion, or the launch of new products and pioneering technolo- gies, for example. New members of the Supervisory Board are oﬀered an “Onboarding” program that gives them the opportu- nity to exchange views with members of the Board of Manage- ment and other executives on current issues related to the var- ious areas of responsibility of the Board of Management, and thus obtain an overview of important topics at the Company. The Supervisory Board monitors and advises the Board of Man- agement with regard to its management of the Company. At regular intervals, the Board of Management reports to the Su- pervisory Board on corporate strategy, corporate planning, revenue development, proﬁtability, business development and the situation of the Group, as well as on the internal control system, the risk management system and the compliance man- agement system. The Supervisory Board has retained the right of approval for transactions of fundamental importance. Fur- thermore, the Supervisory Board has speciﬁed the information and reporting duties of the Board of Management to the Super- visory Board, to the Audit Committee and — between the meet- ings of the Supervisory Board — to the Chairman of the Super- visory Board. The Supervisory Board’s duties include appointing and recalling the members of the Board of Management. Initial appointments are usually made for a period of three years. In accordance with the German law requiring equal participation of women and men in executive positions, the Supervisory Board has deﬁned a target for the proportion of women on the Board of Manage- ment and a deadline for achieving this target. The details are described in a separate section: E page 209. With regard to the composition of the Board of Management, the Supervisory Board has also adopted a diversity concept that is embedded i n an overall requirements proﬁle. The details of this concept are also described in a separate section: E page 210 The Supervisory Board decides on the system of remuneration for the Board of Management, reviews it regularly and deter- mines the total individual remuneration of each member of the Board of Management with consideration of the ratio of Board of Management remuneration to the remuneration of the se- nior executives and the workforce as a whole, also with regard to development over time. For this comparison, the Supervi- sory Board has deﬁned the senior executives by applying Daim- ler’s internal terminology for the hierarchical levels and has de- ﬁned the workforce of Daimler AG in Germany as the relevant workforce. Variable components of remuneration are generally based on an assessment period that lasts several years and is essentially future-oriented. Multi-year variable remuneration components are not paid out until they come due. The Supervi- sory Board has set upper limits for the individual Board of Man- agement remuneration in total and with regard to its variable components. Further information on Board of Management re- muneration can be found in the Remuneration Report on E pages 136 ﬀ of the Annual Report 2017. The Supervisory Board reviews the annual ﬁnancial state- ments, the annual consolidated ﬁnancial statements and the combined management report of the Company and the Group, as well as the proposal for the appropriation of distributable proﬁts. Following discussions with the external auditors and taking into consideration the audit reports of the external audi- tors and the results of the review by the Audit Committee, the Supervisory Board states whether, a(cid:5)er the ﬁnal results of its own review, any objections are to be raised. If that is not the case, the Supervisory Board approves the ﬁnancial statements and the combined management report. Upon being approved, the annual ﬁnancial statements are adopted. The Supervisory Board reports to the Shareholders’ Meeting on the results of its own review and on the manner and scope of its supervision of the Board of Management during the previous ﬁnancial year. The Report of the Supervisory Board for the year 2017 is avail- able on E pages 64 ﬀ of the Annual Report 2017 and on the Internet at w daimler.com/dai/sb. For ﬁnancial year 2017, Daimler AG produced for the ﬁrst time a separate combined non-ﬁnancial report for the Company and the Group in accordance with the requirements of legislation for implementing an EU CSR directive in Germany. The Supervi- sory Board commissioned an external audit of this non-ﬁnancial report within the framework of a limited assurance engagement and then approved the report a(cid:5)er consulting with the external auditor and examining the report itself. 208 D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT The Supervisory Board has given itself a set of rules of proce- dure, which regulate not only its duties and responsibilities and the personal requirements placed upon its members, but above all the convening and preparation of its meetings and the procedure of passing resolutions. The rules of procedure of the Supervisory Board can be viewed on our website at w daimler.com/dai/rop Meetings of the Supervisory Board are regularly prepared in separate discussions of the members representing the employ- ees and of the members representing the shareholders with the members of the Board of Management. Each Supervisory Board meeting included a so-called executive session for dis- cussions of the Supervisory Board in the absence of the mem- bers of the Board of Management. The Supervisory Board members can also take part in the meetings by means of con- ference calls or video conferences. However, this is generally not the case. The Supervisory Board has formed four committees, which perform to the extent legally permissible the tasks assigned to them in the name of and on behalf of the entire Supervisory Board. The committee chairpersons report to the entire Super- visory Board on the committees’ work at the latest in the meet- ing of the Supervisory Board following each committee meet- ing. The Supervisory Board has issued rules of procedure for each of its committees. Those rules of procedure can be viewed on our website at w daimler.com/dai/rop. Information on the current composition of these committees can be viewed at w daimler.com/dai/sbc and is also available on E page 71 of the Annual Report 2017. Presidential Committee The Presidential Committee is composed of the Chairman of the Supervisory Board, his Deputy, and two other members, who are elected by a majority of the votes cast on the relevant resolution of the Supervisory Board. The Presidential Committee makes recommendations to the Supervisory Board on the appointment of members of the Board of Management, whereby it takes into account the over- all requirements proﬁle it has deﬁned, including the diversity concept, for the position to be ﬁlled, as well as the Supervisory Board’s target for the proportion of women on the Board of Management. It submits proposals to the Supervisory Board on the design of the remuneration system for the Board of Management and on the appropriate total individual remunera- tion of its members. In this context, it follows the relevant recommendations of the German Corporate Governance Code. The Presidential Committee is also responsible for the Board of Management members’ contractual aﬀairs. In addition, it decides on the granting of approval for sideline activities of the members of the Board of Management, reports to the Supervi- sory Board regularly and without delay on consents it has is- sued, and once a year submits to the Supervisory Board for its approval a complete list of the sideline activities of each mem- ber of the Board of Management. In addition, the Presidential Committee decides on questions of corporate governance, on which it also makes recommenda- tions to the Supervisory Board. It supports and advises the Chairman of the Supervisory Board and his Deputy and pre- pares the meetings of the Supervisory Board within the limits of its responsibilities. Nomination Committee The Nomination Committee is composed of at least three members, who are elected by a majority of the votes cast by the members of the Supervisory Board representing the share- holders. It is the only Supervisory Board Committee consisting solely of members representing the shareholders and makes recommendations to the Supervisory Board concerning per- sons to be proposed for election as members of the Supervisory Board representing the shareholders at the Shareholders’ Meeting. In doing so, the Nomination Committee takes into consideration the requirements of the German law regulating equal participation of women and men in executive positions, the recommendations of the German Corporate Governance Code and the speciﬁc goals that the Supervisory Board has set for its own composition. The recommendations made by the Nomination Committee aim at fulﬁlling the overall requirements proﬁle — including the skills proﬁle for the entire Supervisory Board. Audit Committee The Audit Committee is composed of four members, who are elected by a majority of the votes cast on the relevant resolu- tion of the Supervisory Board. The Chairman of the Supervi- sory Board is not simultaneously the Chairman or a member of the Audit Committee. The Chairman of the Supervisory Board attends the meetings of the Audit Committee as a guest. Both the Chairman of the Audit Committee, Dr. Clemens Börsig, and the other shareholder representative on the Audit Commit- tee, Joe Kaeser, fulﬁll the criteria for independence and have expertise in the ﬁeld of accounting, as well as special knowl- edge and experience with regard to auditing and methods of internal control. Due to his work at Robert Bosch GmbH and his long-standing membership of the Supervisory Board of Daimler AG, Dr. Clemens Börsig is furthermore very familiar with the automotive industry. The Audit Committee deals with the supervision of the account- ing and its process as well as with the annual external audit. At least once a year, it discusses with the Board of Management the eﬀectiveness and functionality of the risk management system, the internal control and auditing system and the com- pliance management system. It regularly receives reports on the work of the Internal Auditing department and the Compli- ance Organization. At least four times a year, the Audit Com- mittee receives a report from the whistleblower system BPO (Business Practices Oﬃce) on complaints and information about any breaches of regulations or guidelines by high-level executives, as well as violations by other employees of the regulations in a deﬁned catalog of legal provisions. It regularly receives information about the handling of these complaints and notiﬁcations. D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT 209 The Audit Committee discusses with the Board of Management the interim reports before they are published. On the basis of the report of the external auditors, the Audit Committee re- views the annual company ﬁnancial statements and the annual consolidated ﬁnancial statements, as well as the management report of the Company and the Group, and discusses them with the external auditors. The Audit Committee makes a pro- posal to the Supervisory Board on the adoption of the annual company ﬁnancial statements of Daimler AG, on the approval of the annual consolidated ﬁnancial statements, and on the ap- propriation of proﬁts. The Committee also makes recommen- dations for the Supervisor Board’s proposal on the election of external auditors, assesses those auditors’ suitability, qualiﬁ- cations and independence, and, a(cid:5)er the external auditors are elected by the Shareholders’ Meeting, it engages them to con- duct the audit of the annual company and consolidated ﬁnan- cial statements and to review the interim reports, negotiates an audit fee, and determines the focus of the annual audit. The external auditors report to the Audit Committee on all account- ing matters that might be regarded as critical and on any mate- rial weaknesses of the internal control and risk management system with regard to accounting that might be discovered during the audit. Finally, the Audit Committee approves permitted services that are not directly related to the annual audit and which are pro- vided by the ﬁrm of external auditors or its aﬃliates to Daimler AG or to companies of the Daimler Group. Mediation Committee The Mediation Committee is composed of the Chairman of the Supervisory Board and his Deputy, as well as one member of the Supervisory Board representing the employees and one member elected with the majority of the votes cast of the Su- pervisory Board members representing the shareholders. It is formed solely to perform the functions laid down in Section 31 Subsection 3 of the German Codetermination Act (MitbestG). Accordingly, the Mediation Committee has the task of making proposals on the appointment of members of the Board of Management if in the ﬁrst vote the majority required for the appointment of a Board of Management member of two thirds of the members of the Supervisory Board is not achieved. As in previous years, the Mediation Committee did not have to take any action in 2017. Germany’s law on the equal participation of women and men in executive positions In accordance with the German law requiring equal participa- tion of women and men in executive positions in both the pri- vate and the public sector, the supervisory boards of listed companies or companies subject to Germany’s system of co- determination have to set a target for the proportion of women on the board of management. The board of management of such a company has to set a target for the proportion of women at the two management levels below that of the board of man- agement. If the proportions of women at the time when these targets are set by the Board of Management and the Supervi- sory Board are below 30%, the targets may not be lower than the proportions already reached. At the same time that the targets are set, the boards have to set periods for their achieve- ment, which may not be longer than ﬁve years. On December 8, 2016, the Supervisory Board passed a resolu- tion stipulating that the target ﬁgure for the proportion of women on the Board of Management of Daimler AG would be 12.5%, while the deadline would be December 31, 2020. As of Decem- ber 31, 2017, the eight-member Board of Management in- cluded two women, Renata Jungo Brüngger and Britta Seeger. This means that women account for 25% of the Board of Man- agement members. On November 8, 2016, the Board of Management passed a resolution stipulating a target of 15% women for both the ﬁrst and second management levels below the Board of Manage- ment, with a deadline of December 31, 2020. At the time of the resolution, the proportion of women in the ﬁrst and second management levels below the Board of Management was 8.0% and 12.4% respectively. As of December 31, 2017, the propor- tion of women at the ﬁrst management level below the Board of Management was 8.7%, at the second level it was 11.9%. Since 2016, listed companies that have supervisory boards in which shareholders and employees are equally represented are required to have a proportion of at least 30% women and 30% men. This requirement has to be fulﬁlled by the Supervi- sory Board as a whole. If the side of the Supervisory Board representing the shareholders or the side representing the em- ployees objects to the Chairman of the Supervisory Board about the application of the ratio to the entire Supervisory Board before the election, the minimum ratio is to apply sepa- rately to the shareholders’ side and to the employees’ side for that election. On December 31, 2017, 30% of the shareholder representa- tives in the Supervisory Board of Daimler AG were women (Sari Baldauf, Andrea Jung and Petraea Heynike), while 70% were men. On that date, 20% of the employee representatives on the Supervisory Board were women (Elke Tönjes-Werner and Sib- ylle Wankel), while 80% were men. In its meeting on December 7, 2017, the Supervisory Board considered its nominations for the election at the Shareholders’ Meeting 2018 and came to the conclusion that the shareholders and employee representa- tives should achieve the legally required share of women board members separately. Before this background the shareholder representatives declared that they object to the Supervisory Board’s joint fulﬁllment of the legally required gender ratio. Therea(cid:5)er, based on the recommendation of the Nomination Committee, the Supervisory Board decided to nominate Sari Baldauf as well as Dr. Jürgen Hambrecht again and Marie Wieck for the ﬁrst time for election to the Supervisory Board by the Shareholders’ Meeting in 2018. The legally required gender ra- tio will be met on the shareholder representatives’ side if these persons are elected to the Supervisory Board, provided that no other changes occur. The next election of employee represen- tatives to the Supervisory Board will also take place in 2018. Along with Daimler AG itself, there are other Group companies subject to codetermination law. These companies have deﬁned their own targets for the proportion of women on their supervi- sory boards, executive management bodies and the two levels below the board or executive management level, and have also set deadlines for target achievement. Relevant information here has been published in accordance with applicable law. 210 D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT Overall requirements proﬁles for the composition of the Board of Management and the Supervisory Board In terms of the composition of the Board of Management and the Supervisory Board, Daimler AG utilizes diversity concepts that focus on aspects such as age, gender, education and pro- fessional background. For this reason, the Company was re- quired to describe these concepts in its declaration on corpo- rate governance for the ﬁrst time for ﬁnancial year 2017, and to also explain the aims of the diversity concepts, the manner in which they are implemented and the results achieved with them in the ﬁnancial year. The Supervisory Board has combined the diversity concepts with the requirements of the German law regulating equal participation of women and men in execu- tive positions and the speciﬁc targets for the composition of executive management bodies as deﬁned by the recommenda- tions of the German Corporate Governance Code. These com- bined requirements are presented in the overall requirements proﬁles for the composition of the Board of Management and the Supervisory Board described below. The requirements pro- ﬁles also serve as the basis for long-term succession planning. Board of Management The requirements proﬁle for the Board of Management of Daimler AG aims at a Board of Management as diverse, mutually sup- portive and eﬀective as possible. The Board of Management as a whole should possess the knowledge, skills and experience required for the proper execution of its tasks and be composed of members whose varied personal backgrounds and experi- ences embody the desired management philosophy. Decisions regarding appointments to the Board of Management are al- ways governed by the Company’s interests under consideration of all circumstances in each individual case. The requirements proﬁle for the Board of Management includes in particular the following aspects, which are to be taken into account as far as possible when making decisions on appoint- ments to the Board of Management: – The members of the Board of Management should have dif- ferent educational and professional backgrounds, whereby at least two members should have a technical background. With Dr. Dieter Zetsche and Wilfried Porth, the Board of Man- agement currently has two members who are engineers. Bodo Uebber is an industrial engineer. Since taking over as Head of Group Research & Mercedes-Benz Cars Develop- ment on January 1, 2017, Ola Källenius has sustainably dis- played the expertise he acquired in various technical man- agement positions throughout the Company. – In order to meet the requirements of the German law requir- ing equal participation of women and men in executive posi- tions, the Supervisory Board deﬁned on December 8, 2016, a target of 12.5% for the proportion of women on the Board of Management, with a deadline of December 31, 2020. This means that of the eight current members of the Board of Management, at least one member must be a woman. The Board of Management currently has two female members, Renata Jungo Brüngger and Britta Seeger. This means the proportion of women on the Board of Management is cur- rently 25%. – In accordance with the recommendations of the German Cor- porate Governance Code, the Supervisory Board has set an age limit for members of the Board of Management. As a rule, 62 years of age serves as orientation for age-related discharge. When it set this age limit, the Supervisory Board deliberately decided in favor of a ﬂexible rule allowing the required scope for the appropriate assessment of the circum- stances of each individual case. Seven of the eight Board of Management members are younger than the age limit. Dr. Di- eter Zetsche was older than the age limit when he began his current term of oﬃce in January 2017. The Supervisory Board nevertheless reappointed Dr. Zetsche as Chairman of the Board of Management in recognition of his being primarily re- sponsible for the Company’s successful strategy and its im- plementation. This decision was taken in the best interest of the Company in that it enables the continuation of leadership at the top executive level that is needed to ensure the sus- tained success of the Company. – In addition, a suﬃcient generational mix among Board of Management members is to be taken into account in appoint- ment decisions in the future, whereby if possible at least three members of the Board of Management should be 57 years of age or younger at the beginning of their respective term of oﬃce. Five members of the Board of Management — Renata Jungo Brüngger, Ola Källenius, Britta Seeger, Huber- tus Troska and Bodo Uebber — currently meet this requirement. – The composition of the Board of Management should also take into account internationality in the sense of varied cul- tural backgrounds or international experience through as- signments abroad lasting several years, whereby if possible at least one member of the Board of Management should come from a country other than Germany. Irrespective of the many years of international experience of a large majority of members of the Board of Management, this target is cur- rently overachieved due to the international origins of Renata Jungo Brüngger and Ola Källenius. – The rules of procedure of the Board of Management stipulate that no member of the Board of Management is a member of more than three supervisory boards of listed companies out- side the Daimler Group or of similar boards or committees at companies outside the Daimler Group that have comparable requirements. This stipulation has been met. The only listed company in which Hubertus Troska is a member of a supervi- sory board or similar board outside the Daimler Group is BAIC Motor Corporation Ltd. His other board memberships are at joint ventures that fall within his areas of responsibility. The aspects described above are to be taken into consideration when making Board of Management appointments. On the basis of a target proﬁle that takes into account speciﬁc qualiﬁcation requirements and the above-mentioned criteria, the Presiden- tial Committee creates a shortlist of available candidates whom it interviews. It then recommends a candidate to the Super- visory Board for its approval and includes an explanation of its recommendation. Decisions regarding appointments to the Board of Management are always governed by the Company’s interests under consideration of all circumstances in each indi- vidual case. D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT 211 Supervisory Board In accordance with applicable law, the Supervisory Board is to be composed so that its members together are familiar with the business sector in which the Company operates. The requirements proﬁle for the Supervisory Board of Daimler AG aims at a Supervisory Board as diverse and mutually sup- portive as possible. The Supervisory Board as a whole must understand the Company’s business model and also possess the knowledge, skills and experience needed to properly exe- cute its task of supervising and advising the Board of Manage- ment, in particular specialized knowledge in the areas of ﬁ- nance, accounting, annual audits, risk management, methods of internal control and compliance. The members of the Super- visory Board should complement one another with regard to their specialist knowledge and professional experience in such a manner as to ensure that the Supervisory Board can utilize the most broadly based wealth of experience and speciﬁc ex- pertise possible when making decisions. The Supervisory Board also views the diversity of its members in terms of age, gender, internationality and other personal attributes as an im- portant foundation for eﬀective cooperation. The foundation for Supervisory Board decisions regarding election proposals to the Shareholders’ Meeting is always the Company’s inter- ests under consideration of all circumstances in each individ- ual case. On the basis of the further development of the existing catalog of criteria for selecting Supervisory Board candidates, and with consideration of the targets that have already been deﬁned for the Supervisory Board’s composition, the requirements proﬁle for the Supervisory Board includes the following aspects in particular: – The members of the Supervisory Board should have diﬀerent educational and professional backgrounds. At least ﬁve members should have completed a vocational technical train- ing or education program or possess speciﬁc technological knowledge in ﬁelds such as information technology (including digitization), chemistry, mechanical engineering or electrical engineering. Decisions related to the composition of the Super- visory Board should also take into account the fact that it may be necessary to obtain new skills and knowledge in order to be able to address product and market developments. Irrespective of the speciﬁc knowledge acquired by many mem- bers of the Supervisory Board in the above-mentioned areas, Dr. Jürgen Hambrecht, Dr. Bernd Pischets rieder and Dr. Frank Weber (two shareholder representatives and one employee representative) have related university degrees, while another ﬁve employee representatives have completed vocational training in the above-mentioned ﬁelds or similar areas. – The gender composition of the Supervisory Board meets the requirements of Germany’s law on the equal participation of women and men in executive positions, which stipulates that at least 30% of the members of the Supervisory Board must be women and at least 30% must be men. This quota has been binding for all new appointments since January 1, 2016. The Supervisory Board currently has three women who rep- resent shareholders and two women who represent employ- ees. The proportion of women is thus 30% among the share- holder representatives and 20% among the employee representatives. The next election of employee representa- tives to the Supervisory Board will take place in 2018. – The rules of procedure of the Supervisory Board stipulate that candidates for election who are to hold the position for a full term of oﬃce should generally not be over the age of 72 at the time of the election. In specifying this age limit, the Supervisory Board has intentionally refrained from stipulat- ing a strict upper age limit and instead decided in favor of a ﬂexible general limit that leaves the scope to appropriately assess each individual case, keeps the range of potential Supervisory Board candidates suﬃciently broad and allows reelection. In deciding to propose Dr. Manfred Bischoﬀ for reelection as a shareholder representative on the Supervi- sory Board to the Shareholders’ Meeting in 2016, it used this scope a(cid:5)er careful consideration and proper assessment. All other members of the Supervisory Board and the candidates Sari Baldauf, Dr. Jürgen Hambrecht and Marie Wieck to be proposed for election at the 2018 Shareholders’ Meeting had not or will have not reached the age limit at the time of their election. – A suﬃcient generational mix among Supervisory Board mem- bers is now also to be taken into account in appointment decisions. In the future, at least eight members of the Super- visory Board should be 62 years of age or younger at the time of their election or reelection. Among the current mem- bers of the Supervisory Board, all except Petrae Heynicke, Dr. Manfred Bischoﬀ, Dr. Clemens Börsig, Dr. Jürgen Ham- brecht and Dr. Bernd Pischetsrieder (i.e. 15 members) were 62 or younger at the time they were elected to their current term. – In order to ensure suﬃcient internationality, for example by means of many years of international experience, the Super- visory Board has set a target of a proportion of at least 30% of international members representing the shareholders, and the resulting proportion of at least 15% of the entire Supervi- sory Board. Irrespective of the many years of international experience of a large majority of the shareholder representa- tives on the Supervisory Board, this target is currently signiﬁ- cantly overachieved with 30% for the entire Supervisory Board due to the international origins of Bader Al Saad, Sari Baldauf, Petraea Heynike, Andrea Jung and Dr. Paul Achleitner on the shareholders’ side (50%) and Valter Sanches on the employees’ side. – At least half of the members of the Supervisory Board repre- senting the shareholders should have · neither an advisory nor a board function for a customer, supplier, creditor, or other third party, · nor a business or personal relationship to the company or its boards whose speciﬁc design could cause a conﬂict of interests. Under the premise that the performance of Supervisory Board duties as an employee representative does not by itself constitute a potential conﬂict of interest as deﬁned by the German Corporate Governance Code, the requirements de- scribed here shall also be met by at least 15 members of the Supervisory Board in the future. 212 D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT As described in the report of the Supervisory Board on E pages 64 ﬀ of the Annual Report 2017, there were indi- vidual cases concerning three Supervisory Board members in particular situations during the reporting period where there might have been the appearance of a potential conﬂict of interest at the time a Board of Management report was submitted to the Supervisory Board. The Supervisory Board members in question in these cases refrained from being present during the presentation of a Board of Management report regarding the issue that might have been aﬀected by a potential conﬂict of interest. As a result, in the case of at least half of the shareholder rep- resentatives on the Supervisory Board and at least 15 mem- bers of the entire Supervisory Board, there were no indications of a potential conﬂict of interest during the reporting period based on the premise described above. No actual instances of conﬂicts of interest were reported during ﬁnancial year 2017. does not contain a conclusive deﬁnition of independence but instead presents examples of circumstances that would call the independence of a Supervisory Board member into ques- tion. Within the meaning of the German Corporate Governance Code, a Supervisory Board member is to be considered non- independent if he or she has a personal or business relation- ship with the Company, its governing bodies, a controlling shareholder or a company aﬃliated with a controlling share- holder that may cause a substantial and not merely tempo- rary conﬂict of interest. It is the responsibility of the Supervi- sory Board to evaluate the independence of its members on the basis of such criteria. The Kuwait Investment Authority is not a controlling shareholder of Daimler AG that could attain an eﬀective majority at an Shareholders’ Meeting. No other discernible circumstances exist that might call into question the independence of Bader Al Saad. The Chairman of the Supervisory Board, Dr. Manfred Bischoﬀ, is a former member of the Board of Management. – In order to ensure the independent advice to, and supervi- sion of, the Board of Management by the Supervisory Board, the rules of procedure of the Supervisory Board stipulate that more than half of the members of the Supervisory Board representing the shareholders are to be independent as de- ﬁned by the German Corporate Governance Code and that no person may be a member of the Supervisory Board who is a member of a board of, or advises, a signiﬁcant competitor of the Daimler Group. Under the premise that the performance of Supervisory Board duties as an employee representative does not by itself call into question the independence of such an employee repre- sentative as deﬁned by the German Corporate Governance Code, at least 15 members of the Supervisory Board are also to be independent in the future. In addition, the Supervisory Board may not include more than two former members of the Board of Management of Daimler AG or anyone who is a member of a board of, or advises, a signiﬁcant competitor of the Daimler Group. Under the premise described above, there are, in the view of the Supervisory Board, at present no indications for any of the members of the Supervisory Board that relevant relation- ships or circumstances exist, in particular with the Company, members of the Board of Management or other Supervisory Board members, that could be construed as a substantial and permanent conﬂict of interest that would compromise their independence. No member of the Supervisory Board is a member of a board of, or advises, a signiﬁcant competitor. With regard to Supervisory Board member Bader Al Saad, the Supervisory Board takes the view that his function as a member of the Executive Committee of the Board of Direc- tors of Kuwait Investment Authority does not compromise his independence within the meaning of the German Corporate Governance Code. The German Corporate Governance Code – The rules of procedure of the Supervisory Board also deﬁne a general time limit for Supervisory Board membership. As a result, only candidates who have not yet been members of the Supervisory Board for three full terms of oﬃce at the time of their election should generally be nominated for membership of the Supervisory Board for a full term of oﬃce. This general length of service on the Supervisory Board has not been ex- ceeded by any current member, and the candidates Sari Baldauf, Dr. Jürgen Hambrecht and Marie Wieck nominated for election at the Shareholders’ Meeting in 2018 also meet this requirement. – Candidates for membership of the Supervisory Board and members of the Supervisory Board must have suﬃcient time available to perform their duties. They must also be willing and able to dedicate themselves to their tasks and participate in all courses of training and further training that might be necessary for the performance of their tasks. Prior to issuing its recommendations, the Supervisory Board determines whether the candidate in question will have suﬃcient time available to perform his or her duties on the Supervisory Board. – In order to ensure compliance with the associated recommen- dation in the German Corporate Governance Code, the rules of procedure already stipulate that no member of the Super- visory Board who is also a member of the board of manage- ment of a listed company may hold more than three member- ships on supervisory boards of listed companies (including his or her membership of the Supervisory Board of Daimler AG) or on bodies of other companies with similar requirements outside of the group of his Board of Management member- ship. One member of the Supervisory Board is a member of the board of management of a listed company, but has not exceeded the maximum number of memberships. D | CORPORATE GOVERNANCE | DECLARATION ON CORPORATE GOVERNANCE, CORPORATE GOVERNANCE REPORT 213 In the case of Supervisory Board members who are not also members of the board of management of a listed company, the legal limit of membership of ten statutorily constituted supervisory boards applies, whereby chairmanship of a super- visory board counts double. In order to ensure that members of the Supervisory Board have suﬃcient time to fulﬁll their mandate, Supervisory Board members who are not also mem- bers of the board of management of a listed company shall in the future generally be permitted membership of a maximum of eight supervisory boards (including that of Daimler AG), whereby chairmanship of a supervisory board counts double. This maximum number was not exceeded by any member of the Supervisory Board during the reporting year. Proposals by the Supervisory Board of candidates for election by the Shareholders’ Meeting as Supervisory Board members representing the shareholders of Daimler AG, for which the Nomination Committee makes recommendations, shall in the future take into consideration not only the requirements of applicable law, the Articles of Incorporation and the German Corporate Governance Code, but also the aspects described above and aim at fulﬁlling the overall requirements proﬁle for the Supervisory Board as a whole. On the basis of a target pro- ﬁle that takes into account speciﬁc qualiﬁcation requirements and the above-mentioned criteria, the Nomination Committee creates a shortlist of available candidates with whom it conducts structured discussions in which it also determines whether the candidate in question will have suﬃcient time available to per- form his or her duties on the Supervisory Board with due care. The Nomination Committee then recommends a candidate to the Supervisory Board for its approval and includes an explana- tion of its recommendation. The foundation for Supervisory Board decisions regarding election proposals to the Sharehold- ers’ Meeting is always the Company’s interests under consid- eration of all circumstances in each individual case. Shareholders and the Shareholders’ Meeting The shareholders exercise their membership rights, in particular their information and voting rights, at the Shareholders’ Meet- ing. Each share in Daimler AG entitles its owner to one vote. There are no multiple voting rights, preferred voting rights, or maximum voting rights at Daimler AG. Documents and informa- tion related to the Shareholders’ Meeting can be found on our website at w daimler.com/ir/am. The Shareholders’ Meeting is generally held within four months of the end of a ﬁnancial year. The Company facilitates the personal exercise of the share- holders’ rights and proxy voting in a variety of ways, such as by appointing Company proxies who are strictly bound by the shareholders’ voting instructions and who are available during the Shareholders’ Meeting. Absentee voting is also possible. It is possible to authorize the Daimler-appointed proxies and give them voting instructions or to cast absentee votes by using the e-service for shareholders. We maintain close contacts with our shareholders in the context of our comprehensive investor relations and public relations activities. We regularly and comprehensively inform our share- holders, ﬁnancial analysts, shareholder associations, the media and the interested public about the situation of the Group and inform them without delay about any signiﬁcant changes in its business. Within reasonable limits, the Chairman of the Supervi- sory Board is also prepared to talk to investors about speciﬁc Supervisory Board issues. In addition to other methods of communication, we also make extensive use of the Company’s website for our investor rela- tions activities. All of the important information disclosed in 2017, including annual and interim reports, press releases, voting rights notiﬁcations from major shareholders, presentations, and audio recordings of analyst and investor events and confer- ence calls, as well as the ﬁnancial calendar, can be found at w daimler.com/investors. All the dates of important disclo- sures such as annual reports and interim reports and the dates of the Shareholders’ Meeting, the annual press conference and the analyst conferences are announced in advance in the ﬁ- nancial calendar. The ﬁnancial calendar can also be found inside the rear cover of this Annual Report. NON-FINANCIAL FACTORS ARE BECOMING INCREASINGLY IMPORTANT FOR THE GROUP’S SUCCESS! On the following pages, we publish for the ﬁrst time a non-ﬁnancial report in accordance with Sections 289b – 289e, 315b and c of the German Commercial Code (HGB). This report applies to Daimler AG and to the Daimler Group. It contains the main information on the aspects of environmental, employee and social matters, combating corruption and bribery, and respect for human rights. E | Non-Financial Report E | NON-FINANCIAL REPORT | CONTENTS 215 Sustainability at Daimler Our Sustainability Strategy 2030 Sustainable corporate governance Sustainability in our supply chain Environmental issues Climate protection Clean air Conservation of resources Environmental protection in production Mobility services Employee issues 216 216 217 217 218 218 219 221 221 221 222 223 Partnership with the employees 223 High attractiveness as an employer 224 A competitive workforce Health management and safety at work 226 Social issues Stakeholder dialogue Political dialogue and representation of interests Compliance Our Compliance Management System Anticorruption compliance Antitrust compliance Technical compliance Human rights compliance Other compliance issues Statement on the review of the Non-Financial Report 227 227 228 229 229 231 231 232 232 233 234 The information provided in this report is presented in conformity with the GRI Stan- dards of the Global Reporting Initiative, insofar as this complies with applicable law. Some aspects are presented in accordance with internal guidelines and deﬁnitions. Information on our business model E page 90 ﬀ of the Annual Report 2017 and on non-ﬁnancial risks connected with the aspects presented in this report (Risk and Opportunity Report E pages 167, 168 of the Annual Report 2017) is provided in the Combined Management Report in the Annual Report 2017. Further information on our sustainability activities can be found online at w daimler. com/sustainability and in our annual Sustainability Report, which can be downloaded there as a PDF data ﬁle. 216 E | NON-FINANCIAL REPORT | SUSTAINABILITY AT DAIMLER Sustainability at Daimler For Daimler, acting in line with the principles of sustainability means striving to achieve long-term business success. Sustainability is a basic principle of our corporate strategy as well as a metric for our success as a company. We aim to make our activities compatible with the interests of the environment and society. One of our core tasks is to oﬀer safe, fuel-eﬃcient and low-emission vehicles. Our Sustainability Strategy 2030 We believe that a long-term sustainability strategy and eﬀec- tive sustainability management are the preconditions for ensuring that we remain one of the world’s leading automobile manufacturers in the future. As part of our Group-wide sus- tainability strategy, we set targets and deﬁne target indicators. Taken together, all of these targets form our comprehensive target program for the medium and long terms. In the year under review we involved the relevant stakeholders in the restructuring of our sustainability strategy and reorga- nized our priorities with the help of a multistage materiality analysis. We have focused on the areas that are signiﬁcantly inﬂuenced by our business model and our value chain — areas where we can actually bring about change. Our Sustainability Strategy 2030 concentrates on four focal topics: 1. Vehicles 2. Digitalization 3. Mobility services 4. Responsible conduct Through our Sustainability Strategy 2030, we would like to explicitly help to achieve the Sustainable Development Goals (SDGs) that were approved by the United Nations in Septem- ber 2015. Our four prioritized focal topics and the sustainabil- ity-related activities that underlie them support the following Sustainable Development Goals (SDGs) in particular: – SDG 8 — Decent Work and Economic Growth By developing and implementing a risk-based management approach to respecting and upholding human rights in our own units and our supply chain, we support the implementa- tion of decent work as deﬁned by SDG 8. – SDG 9 — Industry, Innovation and Infrastructure Through the advanced development of automated and auton- omous driving and the expected beneﬁts for safety and cli- mate protection, we demonstrate the long-term potential of digital innovations. – SDG 11 — Sustainable Cities and Communities As the global leader for ﬂexible car sharing (car2go), we sup- port the creation of sustainable urban spaces for traﬃc and community life. – SDG 12 — Responsible Consumption and Production By signiﬁcantly reducing and reinforcing the material cycles of primary raw materials that are needed for our e-drive sys- tem, we are setting the course for sustainable production models in line with this SDG. – SDG 13 — Climate Change By setting ambitious targets for reducing the emissions of our ﬂeets, we are helping to protect the planet from the eﬀects of climate change. The Daimler Sustainability Strategy 2030 determines the structure of our sustainability management activities and our annual sustainability reporting. In addition, when we identiﬁed the key aspects to be addressed by this non-ﬁnancial report, we took the focal topics of our sustainability strategy as our starting point. However, in some cases we emphasize diﬀerent aspects because of the divergent requirements set by the standards and laws that are relevant to this report. E | NON-FINANCIAL REPORT | SUSTAINABILITY AT DAIMLER 217 Sustainable corporate governance Our sustainability objectives and their management are part of our corporate governance system and are also incorporated into the targets of our executives. In the case of suppliers selected on a risk basis, our employees ask speciﬁc questions during their on-site assessments con- cerning compliance with sustainability standards. We also con- duct a more thorough assessment whenever this is necessary. We have established a complaint-management process that enables individuals to draw attention to possible human rights violations at suppliers. In this context, we work together closely with the world employee committee. We bring together all the available information and take action only if the reports are well-founded. The suppliers are requested to respond to the accusations; a(cid:5)er that, the responsible management commit- tees assess the facts of the case and take the necessary mea- sures. This can lead up to the termination of a business rela- tionship. In addition to the complaint-management process, information on misconduct can always be submitted to the whistleblower system BPO established by Daimler. E page 229 In the year under review, reports were received concerning suspected violations by suppliers of rules concerning working conditions and the treatment of employees, which we are sys- tematically investigating. The Corporate Sustainability Board (CSB) is our central man- agement body for all sustainability issues. The CSB is headed by Renata Jungo Brüngger (the Board of Management member responsible for Integrity and Legal Aﬀairs) and Ola Källenius (the Board of Management member responsible for Group Research & Mercedes-Benz Cars Development). The opera- tional work is done by the Corporate Sustainability Oﬃce (CSO), which consists of representatives from the specialist units and the business divisions. Integrity, compliance and legal responsibility are the corner- stones of our sustainable corporate governance and serve as the basis of all our actions. Our Integrity Code deﬁnes the guidelines for our daily business conduct, oﬀers our employees orientation and helps them make the right decisions even in diﬃcult business situations. The Integrity Code is supplemented by other in-house principles and guidelines. The ten principles of the UN Global Compact provide a funda- mental guideline for our business operations. As a founding member and part of the LEAD group, we are strongly commit- ted to the Global Compact. Our internal principles and guide- lines are founded on this international frame of reference and other international principles, including the Core Labor Stan- dards of the International Labor Association (ILO) and the OECD Guidelines for Multinational Enterprises. Sustainability in our supply chain Our commitment to sustainable corporate management does not end at the factory gates. We also urgently require our direct suppliers all over the world to comply with our sustain- ability standards. Moreover, we expect them to behave with integrity and in conformity with all the applicable rules and regulations. Our direct suppliers are subject to our Supplier Sustainability Standards, which require, among other things, compliance with wide-ranging environmental regulations and respect for human rights. Our direct suppliers commit them- selves to observing our sustainability standards, communicat- ing them to their employees and passing them along to their own supplier companies. We support them in these activities by regularly providing them with information as well as training and qualiﬁcation measures. To ensure that our direct suppliers comply with the sustainabil- ity standards, we regularly conduct a risk analysis of our sup- pliers according to country and product group. We use regular database research to discover any violations of our sustainabil- ity and compliance rules by our current suppliers. We system- atically follow up all reports of violations. With the help of an online survey, we also question our main suppliers about their sustainability management and their communication of these requirements to their upstream value chains. On the basis of the results, we reach agreements with our suppliers on improving their sustainability performance. 218 E | NON-FINANCIAL REPORT | ENVIRONMENTAL ISSUES Environmental Issues Protecting the environment is a primary corporate objective of our Group. Environmental protection is not separate from other objectives at Daimler; instead, it is an integral component of a corpo- rate strategy aimed at long-term value creation. The environmental and energy-related guidelines approved by the Board of Management deﬁne the environmental and energy-related policy of the Daimler Group. They also express our commitment to integrated environmental protection that addresses the underlying factors with an impact on the environment, assesses the environmental eﬀects of production processes and products in advance, and takes these ﬁndings into account in corporate decision making. Climate protection Product development A vehicle’s environmental impact is largely decided during the ﬁrst stages of its development. The earlier we integrate envi- ronmentally responsible product development (Design for Envi- ronment, DfE) into the development process, the more eﬃ- ciently we can minimize the impact on the environment. For every vehicle model and every engine variant, we have cat- alogues of speciﬁcations that deﬁne the characteristics and target values that must be achieved. These speciﬁcations include requirements concerning fuel consumption and emis- sions limit values for CO2 and nitrogen oxides. During the development process we regularly monitor compliance with these speciﬁcations. In a committee situated directly below the Board of Manage- ment level, the managers responsible for each vehicle model series evaluate the results of this monitoring process and decide on any necessary corrective measures. If corrections are needed, the responsible member of the Board of Manage- ment is included in the decision-making. If the situation con- tinues to escalate, the managing body of the respective division is also included. The CO2 process in vehicle development All of the divisions integrate all vehicle-related goals, including those that are relevant to the environment, into their vehicle development process according to a similar pattern. The chart (cid:202) E.01 shows the Mercedes-Benz Development System (MDS) as an example. In many markets there are ﬂeet targets for the fuel consump- tion and CO2 emissions of cars and light commercial vehicles — in other words, overall targets for all the vehicles sold in a given market. The corresponding controlling process for reach- ing the CO2 ﬂeet consumption target for Cars Europe (EU 28) is shown as an example. The key factors for determining the target values for fuel consumption and CO2 emissions are the technological possi- bilities, the legal requirements including the ﬂeet targets for fuel consumption, and customer wishes. The body responsible for complying with these goals is the CO2 steering committee, which is headed by the Board of Management member responsi- ble for Group Research and Mercedes-Benz Cars Development. The ﬂeet values for CO2 emissions are calculated on the basis of the fuel economy ﬁgures of the vehicles available on the market and the fuel economy speciﬁcations and prognoses for vehicles that are still in the development phase. These values are combined with the sales forecasts to arrive at the projected ﬂeet consumption values for CO2 emissions. The actual values may deviate from the projected target values because of various external factors such as alterations in the sales structure, changes in the political framework conditions or changes in the fuel consumption target values of the vehi- cles that are still in the development phase. In case of a devia- tion, the CO2 steering committee organizes an assessment of various options and then decides on the measures to be initiated. If the need for adjustment is especially urgent, the process is escalated to the responsible managing body. From a strategic standpoint, this process takes place over a period of approximately ten years. CO2 emissions per car: 125 g/km We are working hard to reduce the fuel consumption of our vehicles. As early as 2015, we were able to reduce the CO2 emissions of newly registered vehicles from Mercedes-Benz Cars in the EU to an average of 123 grams per kilometer. This means we achieved our 2016 target of 125 g/km ahead of schedule. In 2017, emissions rose slightly to 125 g/km because of the shi(cid:5) in sales toward vehicles equipped with higher-quality appointments. The new WLTP test cycle Since September 2017, all of our new car models in Europe have been certiﬁed according to the Worldwide Harmonized Light Vehicles Test Procedure (WLTP). This test procedure includes numerous changes compared to the previous New European Driving Cycle (NEDC). The changes include higher average and maximum speeds, more dynamic handling, gliding inertial masses instead of inertia classes, a smaller standstill E | NON-FINANCIAL REPORT | ENVIRONMENTAL ISSUES 219 E.01 Vehicle product creation process for individual vehicles Architecture decision Project start J Concept specifica- tions I Initial specifica- tions H Approval of specifications G F E D Launch of body-in-white production C Launch of production test B Job No. 1 A Basic development of the overall vehicle, validation modules Vehicle-specific integration and validation Principle suitability Concept suitability Series production suitability Functionality Testworthiness Series support measures Customer appeal X = Quality gate Clean air New RDE emission legislation In order to more accurately correlate exhaust gas emissions from real-life driving operation with the threshold values of the test cycle, a new mandatory testing process has been intro- duced in Europe. Since the introduction of the Real Driving Emissions (RDE) test procedure in September 2017, vehicles must, among other things, have the number of particulates and the concentration of nitrogen oxides determined with the help of a mobile emission measurement system. The new testing process supplements the mandatory exhaust gas tests that are still conducted on test rigs. The RDE threshold values have applied since September 2017 to newly registered vehicle models. Starting in September 2019, they will apply to all new vehicles. During the first stage, the Euro 6 threshold value for certification may be exceeded by a factor of 2.1. During the second stage, which will start in September 2020 or 2021, the Euro 6 threshold value may be exceeded by a factor of 1.5. share of total fuel consumption, and consideration of optional extras and the quiescent current requirement. Overall, these changes are leading to more realistic, but also higher, fuel economy values. In order to obtain data that is comparable, the fleet emissions of the individual automakers are now being calculated back from the certification values of the WLTP test cycle to the CO2 fleet values of the New European Driving Cycle (NEDC). The transition to WLTP basically means for all manufacturers that the requirements regarding a fleet’s fuel consumption, and thus its CO2 emissions, have become much more stringent. However, this transition did not yet have significant effects in 2017. By means of extensive investment in innovative drive technologies and a comprehensive expansion of the product range with more than 50 electrified models, Daimler/Mercedes- Benz Cars is preparing to achieve the more stringent EU tar- gets. At the same time, strong customer demand for SUVs is leading to a shift of the structural mix towards mid-sized and large automobiles, which presents us with a significant chal- lenge to meet the targets of the European Union in 2021. We continue to work hard to meet all statutory CO2 require- ments, including the very challenging EU limits for 2021. As we often emphasize, the fulfillment of these challenging fleet targets depends not only on offering appealing and highly efficient products with electric drive systems, but also on our customers’ actual decisions to buy those models. In order to optimally position ourselves in this respect, we are systemati- cally changing over our product range to the latest engine generations, and are also systematically electrifying our port- folio with plug-in hybrids and all-electric vehicles. E pages 124 ff of the Annual Report 2017 220 E | NON-FINANCIAL REPORT | ENVIRONMENTAL ISSUES E.02 Methodology for assessing environmental risks Feedback to plant management and divisional management Environmental management Emissions into the atmosphere Discharge into bodies of water Waste management Emissions into the atmosphere s a e r a c i p o T Soil/groundwater contamination Emissions into the atmosphere Dealing with hazardous materials Inspection of documents Interviews Tours Implementing measures at the plants High tech against pollutants Our goal is to fulﬁll emission requirements as far in advance as possible and to reduce potential risks for humans and environ- ment. In order to comply with the tougher requirements of the RDE regulations, we have had to make, and are still making, extensive changes, at considerable expense, to the drivetrains of our vehicles. Especially signiﬁcant in this regard is the exhaust gas a(cid:5)ertreatment near the engine. In the past, for most of the vehicle models of many manufacturers, catalytic converters and diesel particulate ﬁlter (DPF) systems were mounted on the underbody of the vehicle, relatively far from the engine. In the new Mercedes-Benz diesel engines, we have successfully managed to position the entire exhaust gas a(cid:5)ertreatment system extremely close to the engine. As a result, the system is heated up very rapidly and doesn’t quickly cool oﬀ. As a result, the working temperature needed by the system is reached considerably faster. This enables more eﬀec- tive exhaust gas a(cid:5)ertreatment and signiﬁcantly reduces the NOx emissions in stationary testing situations and also in the RDE testing procedure in real-life driving operation. Plan for the future of diesel vehicles We are convinced that diesel engines will continue to be an integral part of the drive-system mix, not least due to their low CO2 emissions. For this reason, the Daimler Board of Manage- ment approved a comprehensive plan for the future of diesel engines in July 2017. The plan calls for a massive expansion of the previously introduced voluntary service measures for vehicles already in customers’ hands, as well as the rapid market launch of a completely new diesel engine family. As early as March 2017, Mercedes-Benz began oﬀering its compact- class customers an improvement in NOX emissions for one engine variant. The company is also carrying out voluntary ser- vice measures for V-Class customers. In order to eﬀectively lower the emissions of other model series, we decided in July 2017 to extend the service measures, which are free of charge for our customers, to encompass more than three million Mercedes-Benz vehicles at a cost of approximately €285 million. The measures are being carried out for most Euro 5 and Euro 6 vehicles in Europe and other markets in close cooperation with vehicle registration authorities. As early as 2016, Mercedes-Benz began oﬀering diesel vehi- cles that were able to meet the Real Driving Emissions (RDE) limit values long before they went into eﬀect in the EU in 2017. This achievement was made possible by an all-new modular family of eﬃcient and low-emission diesel engines. In the future, this modular engine family will be utilized across the entire product range of Mercedes-Benz Cars and also at Mercedes- Benz Vans. The ﬁrst engines of this family — the four-cylinder OM654 and the six-cylinder OM656 — are already on the road. The new engines’ exemplary emission values have also been validated by measurements conducted at independent institutes. Additional measures were added to this initiative for better air quality following a summit meeting between the government and the automotive industry in Berlin in August 2017. In order to modernize the ﬂeet of vehicles on the road eﬀectively, we are oﬀering owners of Euro 1 to Euro 4 diesel cars an “environ- ment bonus” of €2,000 if they trade in their vehicles for a new Euro 6 diesel-powered car or a plug-in hybrid from Mercedes- Benz. We are also supporting the introduction of vehicles that meet the stricter emission limits of the RDE testing procedure. Daimler is participating in the mobility fund that has been jointly launched by the German government and German industry, in line with our company’s market share. This fund will primarily be used to ﬁnance measures that improve traﬃc ﬂows in inner cities. Conservation of resources Consistently high recyclability To make our vehicles more environmentally friendly, we are working to continuously reduce the resources our automobiles consume over their entire life cycles. During the development process of a vehicle, we prepare a recy- cling concept for each vehicle model in which all of its compo- nents and materials are examined with a view to their suitability for the various stages of the recycling process. As a result, all Mercedes-Benz car models are up to 85% recyclable and up to 95% recoverable. The key aspects of our activities in the area of recycling are: – the resale of tested and certiﬁed used parts through the Mercedes-Benz Used Parts Center (GTC), – the remanufacturing of used parts, and – the workshop waste disposal system MeRSy (Mercedes-Benz Recycling System). Production-related environmental protection Our commitment to the environment is an integral component of our corporate strategy, which focuses on increasing the value of the company over the long term. For this reason, we have established environmental management systems at our manufacturing locations with the goal of ensuring that we can produce our vehicles safely, eﬃciently and at a high level of quality in an environmentally friendly manner that complies with all legal stipulations. We also carry out environmental risk assessments at all production locations in which the Group has a majority interest in the ownership structure. We have achieved a high level of air quality control, climate protection and resource conservation (in terms of water con- sumption, waste management and soil conservation). We intend to maintain this high level with the help of the Daimler Group standards. The environmental and energy-related guidelines approved by the Board of Management deﬁne the environmental and energy-related policy of the Daimler Group. The guidelines also express our commitment to integrated environmental protection. That begins with the assessment of the causes of environment problems and takes into account the environmental eﬀects of production processes and products as early as the planning and development phases. Environmental protection measures at our production locations are coordinated across business units by three regional com- mittees (Germany/Europe, North and South America, and Asia) that are centrally managed. These measures are regulated in line with a Group guideline and organizational and technical standards. E | NON-FINANCIAL REPORT | ENVIRONMENTAL ISSUES 221 The environmental measures are monitored by external audi- tors (ISO 14001 certiﬁcation, EMAS validation) and by internal environmental risk assessments (the due diligence process). We conduct training sessions through the respective local organizations. The important content of our training sessions includes water pollution control, wastewater treatment, emergency management in case of environmentally relevant malfunctions, and the planning of plants and workplaces in accordance with environmental protection principles. Minimizing environmental risks In 1999 we developed a methodology for assessing environmen- tal risks (environmental due diligence) as a tool for preventing risks to the environment and complying with statutory require- ments. We have applied this methodology throughout the Group since 2000, both internally and also externally in connec- tion with our acquisition plans. During this period we have conducted three complete risk assessments at the Daimler production plants of Mercedes-Benz Cars, Mercedes-Benz Vans, Daimler Trucks and Daimler Buses. The results of these assessments were reported to the management of the loca- tions, and summaries were provided to the management of the respective divisions. The fourth round of environmental risk assessments began in 2014. A number of new risk aspects have been integrated into the topic areas. Nonetheless, we have not changed the methods or the tools, because we want these results to be comparable with the results of the assessments that have already been carried out. (cid:202) E.02 In this way, all the production locations are being visited and assessed in ﬁve-year cycles according to well-established and standardized procedures. The results are reported to the plant and divisional managements, and the Group annually assesses the implementation of the recommendations for minimizing risks at the locations. In this way, we are striving to enforce the high environmental standards to which we have committed ourselves at all of our production locations around the world. In 2017 we were also able to audit all the locations of the Daimler Buses division. The most important results were in the areas of rainwater pollution and rainwater drainage, as well as the proper storage of hazardous substances. Mobility services In addition to our products’ high level of environmental com- patibility and our environmentally friendly and eﬃcient produc- tion processes, we also strive to provide innovative mobility services on the road to emission-free driving. That’s why we have developed a range of pioneering mobility concepts and are forging ahead with innovative approaches — from the car- sharing provider car2go and the mobility platform moovel to the taxi app mytaxi and our participation in the coach company FlixBus and the Bus Rapid Transit (BRT) system. Recent addi- tions to this list were the service portal Blacklane and Croove, a car rental service operated by and for private individuals. 222 E | NON-FINANCIAL REPORT | EMPLOYEE ISSUES Employee Issues The success of Daimler AG and its subsidiaries is largely dependent on the skills and commitment of our employees. More than 289,000 people promote our company’s success worldwide by contributing their concepts and ideas to their respective tasks and work processes and by helping to make improvements and create innovations. Trusting relationships with employees are therefore more than just an ethical and legal requirement for us — without them we would not be able to conduct our business successfully. General figures regarding the development of our workforce numbers can be found in the Employees section of the Man agement Report. E page 129 f of the Annual Report 2017 In order to recruit, develop and retain highly qualified staff, we are continuously striving to further improve our attractiveness as an employer. Because our managers should motivate their employees to achieve top performance, it is crucial that we equip our managers with outstanding leadership skills. In addi tion, we want to take on social responsibility and let diversity flourish in our global company. A professional HR organization and efficient operating processes form the basis for the implementation of these overarching goals, from which we have derived key areas of action that are linked to clearly defined objectives. The main control tool we use is our HR Scorecard, which uses key performance indicators concerning demographic develop ment, diversity and sick rates to provide information about the sustainability of human resources measures and processes in the individual areas of action. E.03 HR Strategy 2025 Daimler – best Team We provide innovative & efficient HR solutions to… Competitive Workforce Excellent leadership Employer of choice Profitability …attract, develop and retain the right people …enable our management to shape the framework of the future …foster a diverse, empowering & inspiring culture …ensure continuous competiveness 1 0 11 00 01 10 011 110 100 0100 100 0101 10100 01111 00011 1000001 001111001 0 10 111 010 101 0 1 0 001 0 0 110 011 1001 0010 1100 1 10 01 101 1101 0010 Digitalization 0 11 10 00 011 01010 01 11 1011 10100 Operational Excellence in HR and we act as one team 0 1 11 01 00 11 010 101 1010 1101 0001 10110 001001 111110 110100 101000101 0101111010 Vision Mission Strategic Pillar Mission Basic E | NON-FINANCIAL REPORT | EMPLOYEE ISSUES 223 Partnership with the employees High attractiveness as an employer We want to work together with our employees as partners, respect their interests and get them involved in the company by continuously providing them with information and enabling them to participate in decision-making processes. To achieve these goals, we are guided not only by the International Labor Organization’s (ILO) work and social standards but also by our “Principles of Social Responsibility.” In these principles, we commit ourselves, among other things, to respect key employee rights, ranging from the provision of equal opportunities to the right to receive equal pay for equal work. Violations of these principles can be reported to the whistleblower system BPO, which adresses further investigations to the pertinent units. Our employees have the right to organize themselves in labor unions. We also ensure this right in countries in which freedom of association is not legally protected. We work together con- structively with the employee representatives and the trade unions. Important partners here include the local works coun- cils, the European Works Council and the World Employee Committee (WEC). We have signed collective bargaining agree- ments for all of the employees at Daimler AG, and this also applies to the majority of our employees throughout the Group. In a variety of committees, we regularly inform the employee representatives about the economic situation and all of the key changes at Daimler AG and the Group. We conclude agree- ments with the respective workers’ representative bodies con- cerning the eﬀects of our decisions on the employees. In Ger- many, comprehensive regulations to this eﬀect are contained in the Works Council Constitution Act. We notify our employ- ees about far-reaching changes early on. One result of the ongoing dialogue between the corporate management and the employees’ association was the renewal of the company-wide “Safeguarding the Future of Daimler” agreement in 2015. This accord, which is valid until 2020, enables the company to respond to the “future plan” agree- ments that have been reached at many of the locations of Daimler AG with concrete investment commitments, ﬂexible personnel assignment models and the possibility of selectively increasing staﬃng requirements. As a result, we can make use of market opportunities and better absorb ﬂuctuations in demand. The company-wide agreement essentially protects all of the employees of Daimler AG in Germany from being laid oﬀ until the end of 2020. The expansion of this Safeguarding the Future agreement is also an integral part of the “Project Future” and is being implemented in close cooperation with the employee representatives. If “Project Future” is imple- mented, Daimler AG’s Safeguarding the Future agreement will be extended until 2029, thus in principle excluding terminations for operational reasons until December 31, 2029. Another key point of this reconciliation of interests for the employees is the nearly full funding of the pension obligations. With regard to the latter, Daimler contributed €3 billion to Daimler AG’s German pension assets in the fourth quarter of the year under review. Our activities and measures for enhancing our attractiveness as an employer are designed to enable us to recruit and retain a suﬃcient number of specialized employees and qualiﬁed man- agers in the competition for talented staﬀ. Our primary objec- tives here are to ensure attractive and fair compensation and to establish and maintain a work culture that enables outstand- ing performance and a high level of motivation and satisfaction among our employees and managers. Attractive and fair remuneration We remunerate work in accordance with the same principles at all our aﬃliates around the world. Our Corporate Compensa- tion Policy, which is valid for all groups of employees, estab- lishes the framework conditions and minimum requirements for the design of the remuneration systems. Internal audits are conducted on a random basis to make sure these conditions and requirements are met. In our desire to oﬀer salaries and beneﬁts that are customary in the industry and the respective markets, we also give consideration to local market conditions within the speciﬁed framework. The salaries are determined on the basis of the employees’ tasks and performance, and in line with their qualiﬁcations and experience. In setting the remu- neration of the employees we are not guided by gender or place of origin, but exclusively by the employee’s job and responsibility. The general remuneration level is signiﬁcantly above the legal minimum wages that apply to many locations. In cases where Daimler AG and its Group companies have signed collective bargaining agreements, they o(cid:5)en also oﬀer voluntary beneﬁts that are agreed upon with the respective employees’ associa- tions. These beneﬁts primarily consist of employer-funded retire- ment contributions as well as proﬁt-sharing agreements for the respective company. For example, the eligible employees of Daimler AG will receive a proﬁt-sharing payout of €5,700 (2016: € 5,400) for 2017. In addition, our employees can avail themselves of a wide variety of sports facilities and social ame- nities, ranging from daycare centers to the counseling service for people in extreme situations. In 2017, the Group spent €18.2 billion (thereof Daimler AG: €11.5 billion) on wages and salaries, €3.3 billion (thereof Daimler AG: €1.8 billion) on social welfare services, and €0.7 billion (thereof Daimler AG: €0.6 billion) on retirement beneﬁts for a workforce numbering 289,530 on average (thereof Daimler AG: 151,091). Modern working conditions Working conditions are being increasingly inﬂuenced by work- ing hours, workplaces, the work environment, the level of employee empowerment and a state-of-the-art management culture. The length of our employees’ workweek is generally regulated by the company or by a collective bargaining agree- ment. In Germany, overtime is only performed within the framework of a requirements planning forecast and has to be approved by the employee representatives. In general, we allocate working times in such a way that remuneration remains stable even if the amount of work sometimes ﬂuctuates. This is made possible by a time-account system. 224 E | NON-FINANCIAL REPORT | EMPLOYEE ISSUES Flexible working arrangements Today’s living and working conditions require working times to be ﬂexibly organized in accordance with individual needs. Our approach is therefore to challenge our employees to achieve top performance and support their eﬀorts to do so, rather than focusing on their mere presence at work. For this reason, we also seek to improve performance by helping employees and manag- ers reconcile their professional and personal responsibilities. We also boost employees’ ﬂexibility and self-determination by giving them the opportunity for mobile working. An associated company agreement has been in force at Daimler AG since December 2016. The agreement gives employees the right to mobile working if the task permits. We also promote job sharing, in which two employees share the same task/position and work together up to 60 hours per week. This provides managers in particular with a means of reconciling the needs of work and family. Furthermore, company agreements at Daimler AG enable employees to suspend their careers for several years for a qual- iﬁcation program or a sabbatical or to provide home care — with the promise that they can return to Daimler AG a(cid:5)erwards. We encourage all employees who take parental leave to subse- quently return to their jobs at the company because we value their knowledge and experience. In Germany, we oﬀer 710 places in daycare centers in close proximity to our company locations as well as more than 180 reserved places at cooperating facili- ties. In addition, we cooperate with a third party that assists employees in ﬁnding childcare providers. In 2017, around 3,950 employees at Daimler AG availed them- selves of the opportunity to take parental leave. Moreover, around 500 employees took advantage of the opportunity to take oﬀ work for a prolonged period. In mid-2017, more than 160 employees were working in job-sharing positions at the team and department levels. Leadership 2020 — further development of the management culture Our business is changing at a rapid pace. In order to remain successful in the future, we are changing our management cul- ture and the way we cooperate. This is why we launched the Leadership 2020 initiative in 2016. Employees from more than 40 countries and all levels of management are currently work- ing on Daimler’s future management culture. Guidance is pro- vided by new management principles that, among other things, make the company faster and more ﬂexible and boost its inno- vative potential. Procedures, processes and structures are being called into question and changed in eight “game chang- ers.” In its meetings, the Board of Management of Daimler AG regularly discusses the initiative’s progress and decides which measures need to be taken. Successful employee survey Our Group-wide employee survey is a key indicator of where we currently stand from the point of view of our employees, and what we need to do to improve the company in the future. In September 2016, nearly 263,000 employees in more than 40 countries were invited to participate in the survey and express their opinions to us. The outstanding participation rate of 76% underscores our employees’ interest and their willing- ness to actively help shape the further development of the company. Overall, the results of the survey were much better than those from previous years. Some of the production facilities in certain countries identiﬁed areas of action for the reconciliation of the needs of work and family, communication, individual development opportunities and working conditions. These topics are now being addressed during the follow-up process. In 2018, we will reorganize the employee survey in order to measure and promote the company’s continued cul- tural development. Our employees’ great loyalty to the company is also expressed by the amount of time they have worked for Daimler. During the year under review the average number of years our employ- ees have worked for Daimler decreased slightly to 16.1 years (2016: 16.3 years). In Germany, employees had worked for the Group for an average of 19.5 years at the end of 2017 (2016: 19.5 years). The comparative ﬁgure for Daimler AG was 20.3 years (2016: 20.1 years). Daimler employees outside Germany had worked for the Group for an average of 11.0 years (2016: 11.3 years). In 2017, our labor turnover amounted to 5.1% world- wide (2016: 6.7%). A competitive workforce We can only be successful if we have a skilled and high-per- forming workforce. We therefore aim to continuously develop our employees and make sure they stay competitive. We are pursuing this goal by implementing measures in four overarch- ing areas of action: diversity management, the securing of young talent, qualiﬁcation, and health management and occu- pational safety. Diversity management Daimler promotes the diversity and heterogeneity of its employees, because they serve as the basis of a high-perform- ing company. As a result, diversity management is included in our corporate strategy. The various skills and talents of our workforce enable us as a global company to eﬀectively reﬂect the diversity of our customers, suppliers and investors around the world. Daimler’s more than 289,000 employees from over 160 countries provide the Group with a vibrant mixture of cultures and ways of life. We utilize this diversity to put together optimized teams. Most of our managers abroad come from the respective regions. We promote the cultural diversity of our employees with worldwide staﬀ assignments, mentoring, intercultural skills training and targeted recruiting measures. International candidates account for more than one third of the people recruited through our CAReer trainee program. Our aim is to increase the share of women in management posi- tions to 20% by the year 2020. More than 17% of our execu- tives in middle and upper management currently are women. For Daimler AG, we signed a company-wide agreement for the advancement of women. It stipulates a target corridor for the proportion of women in the total workforce, in vocational training and in Level 4 and 5 management positions. In order to achieve our goals, we have installed an ongoing internal report- ing and planning system. E | NON-FINANCIAL REPORT | EMPLOYEE ISSUES 225 E.04 Share of women In percent Share of women (worldwide) Share of women (Daimler AG) Share of women in Level 4 management positions (Daimler AG) Women in senior management positions Levels 1–3 (worldwide) Share of women at the second management level below that of the Board of Management (Daimler AG) Share of women at the first management level below that of the Board of Manage- ment (Daimler AG) Share of women on the Board of Manage- ment Share of women on the Supervisory Board 2017 2016 18.5 16.1 18.0 17.6 17.7 15.5 17.2 16.7 11.9 12.4 8.7 25.0 25.0 8.1 12.5 25.0 E.05 Accident figures1 Incidence of accidents Number of accidents (worldwide) 2,766 3,444 2017 2016 Incidence of accidents (worldwide, number of work-related accidents that resulted in at least one lost day per 1 million hour of attendance) Accident downtime (worldwide, number of lost days per 1 million hours of attendance) Number of deaths as a result of work- related accidents Number of employee deaths as a result of work-related accidents Number of deaths of third-party employees as a result of work-related accidents2 Rate 7.5 9.4 106 123 1 0 1 4 2 2 1 Coverage rate of Daimler production locations (Mercedes-Benz Cars, Daimler Trucks, Daimler Buses, Mercedes-Benz Vans) world- wide: >98%. 2 Unfortunately, a third-party employee suffered a fatal work-related accidents in the United States in 2017. The age differences at the company will rise in the future due to the increase in the retirement age and the extension of peo- ple’s working lives. The average age of our global workforce in 2017 was 42.8 years (2016: 42.7). Our employees at Daimler AG were 44.7 years old on average (2016: 44.5). Demographic development will cause the average age to continue to rise in the years ahead. However, the proportion of older employees will decrease again over the long term because many baby boomers will retire from the company. We consider this trans- formation to be an opportunity, and we are adjusting the framework conditions accordingly. Our generation management system focuses on measures for maintaining the performance and health of younger and older employees as well as for pro- moting cooperation between people of different ages. Once every quarter, the Board of Management discusses our diversity management activities and the associated results. We also hold discussions with external stakeholders as part of our involvement in the Diversity Charter, of which we are a founding member. Securing young talent Daimler takes a holistic approach to securing young talent. Our “Genius” initiative gives children and teenagers valuable insights into future technologies and information about jobs in the automotive industry. Along with technical and commercial apprenticeships and courses of study at the Cooperative Uni- versity, we also conduct various activities that address young talents. We offer extensive possibilities to personally interact with the company via social media, hackathons, competitions and internships. After completing their college degrees, gradu- ates can directly join our company or launch their careers at Daimler by taking part in our global CAReer training program. In 2017 we hired 97 trainees through our CAReer program. About 47% of the trainees were women and more than one third were international participants. We recruit most of the young talent we need through our industrial-technical and commercial apprenticeships and the courses of study at the Cooperative University, which had 194 students in 2017. At the end of 2017, we had 8,097 trainees throughout the Group (2016: 7,960), 4,409 (2016: 4,824) of them at Daimler AG. During the year under review, 1,278 (2016: 1,662) young people began an apprenticeship at Daimler AG; 1,197 (2016: 1,448) were hired after completing their apprenticeships. The costs for vocational training for Daimler AG totaled €114 million in 2017 (2016: €110 million). Programs such as “Facharbeiter im Fokus” and the new team leader development program ensure that employees are exten- sively qualified according to uniform standards. The participants are given the opportunity to obtain good career prospects and plan concrete development goals. Our company’s sustained success is closely linked to the high quality of our managers. 226 E | NON-FINANCIAL REPORT | EMPLOYEE ISSUES That’s why we focus especially on the development of talented young managers. We validate young employees’ leadership potential in our PV44 in-house assessment center, which uses a uniform standard for all of our locations. The Board of Management member responsible for human resources regularly receives reports about the measures and results of our training activities and the development paths of the people who enter the company via our CAReer program. Qualification We provide our staﬀ with training and continuing education opportunities for their professional and personal development throughout their careers. At least once a year, employees discuss qualiﬁcation topics with their managers and agree on appropriate measures. The company agreement on qualiﬁca- tion regulates continuing education at Daimler AG. This agree- ment also stipulates that employees can leave the company for up to ﬁve years in order to learn additional skills and are guaranteed that they can return. In 2017, around 370 employ- ees availed themselves of this opportunity. Our production locations are responsible for the qualiﬁcation of managers and specialized employees in manufacturing. The Global Training unit safeguards and increases the skills of our employees at the Mercedes-Benz sales organization by having 700 trainers instruct about 200,000 participants each year at 100 training locations in 80 countries around the world. A total of 1.2 million training courses are held each year. The Daimler Corporate Academy program helps the Group develop a new management culture and world of work. In 2017, the Corporate Academy enabled a total of 63,000 specialized employees and managers from more than 50 locations to develop themselves further personally and professionally. At Daimler AG, we spent €121 million on the training and qualiﬁcation of our employees in the year under review (2016: €122 million). On average, every employee spent three days on qualiﬁcation courses in 2017 (2016: three days). Health management and safety at the workplace We want to maintain our employees’ health and physical well- being for the long term. To this end, the Daimler Group has uniform preventive healthcare standards in place worldwide. As part of Daimler AG’s health management approach, we develop and implement anticipatory solutions that range from the job-related “Daimler GesundheitsCheck” and the ergo- nomic design of workstations to the IT system that makes it easier to permanently reintegrate employees suﬀering from limitations imposed by their health. Our Health & Safety unit is responsible for occupational health and safety, company health-promotion eﬀorts, ergonomics, counseling service and integration management. Health man- agement and work safety are also governed by our risk man- agement systems. Company health promotion is aimed at motivating employees to develop healthy lifestyles and reinforcing their sense of per- sonal responsibility regarding health issues. This objective is promoted worldwide with the help of campaigns, counseling and qualiﬁcation oﬀerings, as well as therapeutic and rehabili- tation measures. All of our plants in Germany have health cen- ters on their premises or cooperate with health centers located near the plants. Occupational safety is ﬁrmly embedded at all levels of Daimler and is addressed by an extensive portfolio of measures for the prevention of work accidents, work-related illnesses and occupational diseases. Our Center of Competence Safety cre- ates the associated Group-wide guidelines. We have standard- ized key occupational health and safety processes in order to enable the creation and advancement of integrated processes and systems. Every manager at Daimler is responsible for ensuring that all internal guidelines and legal requirements for occupational health and safety are complied with. Every organizational unit within the Daimler Group has to approve and pursue occupational safety objectives on a regu- lar basis in accordance with our globally valid occupational health and safety guidelines and occupational safety strategy and the results of internal audits and reviews. The content and criteria of our internal occupational safety management system correspond to the standards of BS OHSAS 18001 and are regularly updated. The Board of Management receives a Health & Safety report at regular intervals and is, among other things, given monthly updates about the frequency of accidents. A Group crisis unit, in which the Board of Management is also involved, enables Daimler to respond quickly to various incidents such as serious accidents and pandemics. E | NON-FINANCIAL REPORT | SOCIAL ISSUES 227 Social Issues As a global automotive company, we operate in an environment that is subject to a variety of societal, social and political inﬂuencing factors. In order to ensure we can continue operating eﬀectively in the future, we need to make our company’s interests understandable to governments and society, and also address the concerns of social groups. We therefore regularly share information with our stakeholders and communicate our interests in an open and fair dialogue with governments and political representatives. Stakeholder dialogue We seek to engage with all stakeholders in order to share views and experiences and discuss controversial issues in a con- structive manner. Our goal here in every situation is to achieve a fruitful dialogue that beneﬁts all parties. We deﬁne stakeholders as individuals and organizations that have legal, ﬁnancial, ethical or ecological expectations regard- ing Daimler. One of the criteria for identifying and weighting stakeholders is the extent to which a person or group is aﬀected by our company’s decisions or, conversely, can inﬂuence such decisions. Our primary stakeholders are our employees, custom- ers, creditors and shareholders, as well as our suppliers. However, we also communicate regularly with civil groups such as NGOs, as well as with analysts, professional associations, trade unions, the media, scientists, politicians, municipalities and residents and neighbors in the communities where we operate. Dialogue at the Group level In order to maintain eﬀective relationships with our stakehold- ers, we have deﬁned areas of responsibility, communication channels and dialogue formats that are valid throughout the Daimler Group. Our Corporate Responsibility Management department is responsible for establishing an institutionalized and proactive dialogue with our stakeholders. This dialogue is then coordinated by our Corporate Sustainability Board and the Corporate Sustainability Oﬃce. The central format for our stakeholder dialogue is the Daimler Sustainability Dialogue, which has been held annually in Stuttgart since 2008 and brings various stakeholder groups together with representa- tives of our Board of Management and executive management. Each Sustainability Dialogue event focuses on sharing ideas in a variety of themed workshops. The Daimler representatives obtain feedback from the external participants and work together with the stakeholders to achieve agreed-upon targets throughout the course of the year. They then report at the event in the following year on the progress made in the interim. We held our tenth Daimler Sustainability Dialogue in Stuttgart during the year under review. In order to discuss local challenges and promote the implemen- tation of sustainability standards around the world, we organize Daimler Sustainability Dialogue events in other countries as well. Such dialogue events have been held in China, Japan, the United States and Argentina. During the year under review, external experts and stakeholders also attended the ﬁ(cid:5)h Daimler Sustainability Dialogue in Beijing, where they spoke to Daimler representatives about environmental protection, economics, human resources, and integrity and legal aﬀairs. The Advisory Board for Integrity and Corporate Responsi- bility has been an important source of input for Daimler since 2012. The board’s independent members from the ﬁelds of sci- ence and business, as well as from civic organizations, utilize an external point of view to oﬀer critical and constructive sup- port for the integrity and corporate responsibility process at Daimler. Board members have extensive experience with issues related to ethical conduct and transportation and environmen- tal policy and contribute their diﬀerent points of view to discus- sions. The board holds regular meetings with members of the Board of Management and other Daimler executives. During the year under review, the Advisory Board also held a joint meet- ing with the Board of Management and the Supervisory Board. Meetings of the Advisory Board during the reporting year focused on current topics and challenges, including ethical aspects in connection with autonomous driving, methods for measuring progress with regard to integrity, the current debate on emissions, Daimler’s approach to respecting human rights, and the development of a management culture for the digital age. We also utilize online and print media, discussions with experts, workshops, local and regional dialogue events and stakeholder surveys for our dialogue with stakeholders. For example, as part of the process for validating our new Sustainability Strat- egy 2030, we once again conducted an extensive online survey of our stakeholders in 2017. This survey basically conﬁrmed the prioritization of focus topics carried out within the frame- work of our strategy process. Representatives from various specialist units at Daimler participate in associations, commit- tees and sustainability initiatives such as the UN Global Com- pact and econsense — Forum for Sustainable Development of German Business. We also stage interdisciplinary conferences as a way to conduct an active dialogue with stakeholders. One example is the second specialist conference on ethics and the legal situation with regard to autonomous driving, which was held in October 2017. We regularly receive inquiries from stakeholders concerning var- ious sustainability-related topics. These inquiries are addressed directly by speciﬁc specialist departments and units in a decen- tralized manner. This approach brings our stakeholders closer to our business operations and enables specialized knowledge to be directly incorporated into the dialogue. Reports on stake- holder inquiries are also presented in the meetings of our Sus- tainability Board and Sustainability Oﬃce. These reports are used to formulate key strategic policies for sustainability man- agement. The Sustainability Board and the Sustainability Oﬃce also serve as coordination centers for dialogue with our stake- holders on interdisciplinary issues. 228 E | NON-FINANCIAL REPORT | SOCIAL ISSUES Dialogue on the local and regional levels We also engage in a dialogue with the stakeholders at our loca- tions. One example here is our planned Testing and Technology Center in Immendingen on the Danube. We sought to engage in a dialogue with the people in the region and address their con- cerns from the very beginning. Our Daimler Forum Immendingen also makes it possible for local residents to obtain information on the status of the project at any given time. In connection with speciﬁc occasions and projects, we address questions, concerns, criticism and suggestions made by stake- holders at our locations and conduct an open-ended dialogue with them. We also stage proactive dialogue and information events on current topics. The results of all of our dialogue mea- sures are incorporated into decision-making and decision- implementation processes at the company. as vehicle safety, emission regulations, new mobility concepts and electric mobility. Other important issues include trade policy, location-speciﬁc matters, education and human resources policy. The management guideline on Lobbying and Political Donations governs, among other things, the use of lobbying instruments and other methods for making our interests known in the political realm. We represent the company’s interests through dialogue with decision-makers, including elected oﬃcials or politicians who have been nominated for oﬃce, government oﬃcials, and representatives of political interest groups, trade organizations, business associations and government agencies. Participation in specialized government committees and product sales to ministries, government agencies and diplomatic missions are part of our business operations and therefore not considered a component of lobbying. Political dialogue and representation of interests As a company with global operations, we have to deal with a wide range of political changes and decisions that impact our business activities. In order to safeguard the future of the Daimler Group, it is therefore important that we represent the interests of our company in an open dialogue with govern- ments, associations, organizations and various groups in society. Conversely, such a dialogue also allows us to hear their con- cerns and consider their interests. Our principles for political dialogue and communicating our interests form the basis of responsible lobbying in compliance with all laws and regulations. This also includes the idea of maintaining neutrality when dealing with political parties and representatives of interest groups. The aim of our discussions with political decision-makers is to achieve greater planning security and contribute our ideas to processes of social change. We focus here on issues such Our central coordinating body for political dialogue at the national and international levels is the External Aﬀairs and Public Policy department, which falls under the responsibility of the Chairman of the Board of Management. This department oper- ates a global network with oﬃces in Berlin, Brussels, Beijing, Singapore, Stuttgart and Washington and also has corporate representations in other key markets. In order to ensure that political lobbying activities are coordinated, and also to avoid political target groups being addressed in an uncoordinated manner, employees in the External Aﬀairs and Public Policy department must be registered. The Group-wide Lobbyists Register ensures that political lob- bying is carried out in accordance with applicable regulations and ethical standards. The register also helps us meet the reg- istration requirements of public institutions. As in previous years, Daimler AG made donations totaling €320,000 to political parties in 2017. Of this total, the CDU and SPD each received €100,000, and the FDP, CSU and Bündnis 90/the Green Party €40,000 each. All donations to political parties require a Board of Management resolution. E.06 Sample stakeholder dialogue instruments Information Dialogue Participation – Annual Daimler Sustainability Report and regional sustainability reports (e.g. Daimler China Sustainability Report) – Blogs and social media – Intranet and internal communication – Press and public relations work – Plant tours, receptions, Mercedes-Benz Museum – Sustainability newsletter and magazines – Environmental statements of the plants – Stakeholder survey and materiality analysis – Advisory Board for Integrity and Corporate Responsibility – Peer review within the framework of sustain- ability initiatives such as the UN Global Com- pact – Consultation of stakeholders in thematic working groups (environment, human rights etc.) – Annual Daimler Sustainability Dialogue (Germany/regions) – Group-wide internal integrity dialogue – Conferences on social issues; debates – Daimler Supplier Portal – Membership in sustainability initiatives and networks – Local dialogue with residents and communi- ties – Dialogue concerning speciﬁc occasions and projects – Board of Management involvement in the Ethics Commission on Automated and Con- nected Driving (German Ministry of Transport and Digital Infrastructure) – New dialogue formats for future-oriented is- sues: think tanks, hackathons, idea competi- tions E | NON-FINANCIAL REPORT | COMPLIANCE 229 Compliance Compliance is an indispensable part of the culture of integrity at Daimler. For us, compliance means acting in conformance with laws and regulations. Our objective here is to ensure that all Daimler employees worldwide are always able to carry out their work in a manner that is in conformance with applicable laws, regulations, voluntary commitments and our basic values, as set out in binding form in our Integrity Code. Our activities focus on compliance with all applicable anti-corrup- tion regulations, the maintenance and promotion of fair competition, adherence to legal and regu- latory stipulations related to product development, respect for and preservation of human rights, compliance with data protection laws, compliance with sanctions lists and the prevention of money laundering. Our Compliance Management System Our Compliance Management System (CMS) consists of basic principles and measures intended to ensure rule-based behavior throughout the company. The CMS is based on national and international standards and is applied on a global scale at all Daimler AG units and majority holdings. The CMS consists of seven elements that build on one another. (cid:202)(cid:3)E.07 Our compliance values and goals Our Compliance Management System (CMS) is designed to help Daimler and its employees avoid inappropriate or illegal behavior. The measures needed for this are deﬁned by Group Compliance and the Legal department in a process that also takes the company’s business requirements into account. Our compliance organization Group Compliance and the Legal department play a major role in ensuring that applicable regulations are adhered to through- out the Group. Our compliance organization is structured in a divisional and regional manner, while our Legal department is organized regionally and along the value chain. These structures enable us to provide optimal support and advice to our divisions. A contact person is made available to each function, division and region. In addition, a global network of local contact persons make sure that our standards are met throughout the Group and also help local management at selected Daimler facilities and sales companies implement our compliance program. Compliance risks We systematically pursue the goal of minimizing compliance risks, and we analyze and assess the compliance risks of all our business units every year. These analyses are based on centrally compiled information on all business units and take into account speciﬁc additional details in line with the given risk assessment. The results of the analyses form the basis of our risk management. Compliance program Our compliance program comprises all the principles and mea- sures designed to reduce compliance risks and prevent violations of regulations and laws. The individual measures, which are based on the knowledge gained through our systematic com- pliance analyses, focus on the following aspects: The whistleblower system BPO (Business Practices Office) enables Daimler employees and external whistleblowers to report misconduct anywhere in the world. The BPO is available around the clock to receive information that is sent by e-mail or normal mail. Such information can also be provided to the BPO by calling an external toll-free hotline or by ﬁlling out a special form. Reports can be submitted anonymously if local laws permit this. In Germany, reports to the BPO can also be submitted via a neutral intermediary, who in this case is an inde- pendent external attorney. The information provided to the BPO enables us to learn about potential risks and speciﬁc vio- lations and thus prevent damage to the company and its repu- tation. A globally valid corporate policy aims to ensure a fair and transparent approach that takes into account the principle of proportionality for the aﬀected parties, while also giving protection to whistleblowers. In an eﬀort to increase trust in our whistleblower system and make it even better known within the Group, we have established a continuous communi- cation process that includes the periodic provision of informa- tion to employees about the type and number of reported vio- lations, as well as the staging of informational and dialogue events at our locations. A total of 95 new BPO cases were opened in 2017. During the year under review, 96 cases were closed, 61 of them “with merit,” which means the initial suspicion was conﬁrmed. Three of these cases were categorized as “corruption.” E.07 Daimler Compliance Management System (CMS) I. Compliance values VII. Monitoring & improvement II. Compliance goals VI. Communication & training III. Compliance organization V. Compliance program IV. Compliance risks 230 E | NON-FINANCIAL REPORT | COMPLIANCE With regard to those cases that are closed “with merit,” appro- priate response measures are decided in line with the princi- ples of proportionality and fairness. Such measures are only taken if the investigation of the case in question leaves no doubt of misconduct on the part of the accused individual(s). Measures taken in 2017 included the issuing of verbal and writ- ten warnings and ﬁnal warnings, as well as seperation agree- ments and extraordinary terminations. In some cases, there were claims for damages, while in others those guilty of viola- tions stepped down voluntarily. Compliance on the part of our business partners. We also require our business partners to adhere to clear compliance requirements because we regard our business partners’ integ- rity and behavior in conformity with regulations as an indis- pensable precondition for trusting cooperation. In the selec- tion of our direct business partners, we therefore ensure that they comply with the law and observe ethical principles. In ﬁnancial year 2017, we began reviewing our standardized pro- cess for examining all of our business partners (Business Part- ner Due Diligence Process) and implementing ongoing monitor- ing measures to increase process eﬀectiveness and eﬃciency. Back in 2016, we published a “Compliance Awareness Module” that can be made available to our business partners on request and is designed to increase their awareness of the latest com- pliance requirements. We also reserve the right to terminate cooperation with business partners who fail to comply with our standards. For the expectations we place on our business part- ners, see also w daimler.com/nh/ugb. Communication and training Our extensive training courses are based on our Integrity Code. The integrated training program is deﬁned on the basis of an annual planning cycle that includes everything from a needs analysis to the implementation of the program and a monitor- ing process. Among other things, the program covers the top- ics of integrity, compliance (including corruption prevention and technical compliance), data protection and antitrust law. Depending on the risk and the target group, we use classroom training or digital learning techniques such as web-based train- ing courses. Every employee with e-mail access who works at a Daimler- controlled company can participate in a web-based and target group-focused training program consisting of several modules — a basic module, a management module (for managers) and expert modules on antitrust law, data protection, procurement, sales, and non-cash rewards for employees etc. This program is being continuously expanded in line with the requirements of speciﬁc target groups. With the exception of industrial employees, employees are automatically assigned mandatory modules relevant to their role and function. This ensures that each employee is given exactly the modules needed for his or her line of work. These training modules are assigned when an employee is hired, pro- moted, or transferred to a position that involves a heightened risk. This approach ensures that all personnel changes are properly addressed. In general, the program must be repeated every three years. A new mandatory version of the training program was rolled out at the end of the year under review. The web-based train- ing courses are supplemented by classroom training sessions that are conducted by central or local trainers. We provide our internal trainer network with modular training documents and materials for the methodical implementation of the courses. Such materials include a guideline for trainers and explanatory videos that can be used in a target group-speciﬁc manner in accordance with the risks associated with the functions of the participants. A total of approximately 96,300 employees from various hierarchy levels attended a classroom training course or participated in web-based training courses in 2017. Our integrated training program also includes target group-spe- ciﬁc qualiﬁcation measures that help staﬀ at Group Compli- ance and the Legal department address changes to regulations and the legal framework. In addition, all new employees at both departments attend a special practical seminar that oﬀers a comprehensive introduction to this topic. All of these training measures contribute to the permanent establishment of ethical and compliant behavior at the company and also help our employees deal with speciﬁc issues that can occur at work. The same is true of the new Daimler app for integrity, compliance and legal aﬀairs. The app can be down- loaded and used by all employees with an iOS company owned device. Among other things, the app enables mobile access to information on corruption prevention and antitrust law. We have also further expanded our qualiﬁcation and consulting program for individuals who perform supervisory and manage- ment functions. New members of executive bodies at companies in which Daimler is the majority shareholder are given a com- pact overview of key aspects of corporate governance via the Corporate Governance Navigator, which is a target group- focused program that supports them in their new role by pro- viding information on their tasks and responsibilities, contact partners, and units that deal with central issues addressed by the Integrity and Legal Aﬀairs division and adjacent units. In addition to our internal training measures, our training pro- gram also includes special courses on integrity and compli- ance (including corruption prevention) that are oﬀered to our business partners in line with their speciﬁc risks. The courses are oﬀered as web-based training or classroom training ses- sions. Daimler informs its business partners about the courses and invites them to participate. Monitoring and improvements Every year, we review the eﬀectiveness and eﬃciency of our Compliance Management System and adapt it to global devel- opments, changed risks and new legal requirements. We also monitor important core processes during the year on the basis of key performance indicators (KPIs) that include process dura- tion and quality. To determine these indicators, we check, among other things, whether formal requirements are met and all information is complete. In addition, we analyze the knowledge gained through independent internal and external assessments and participate in selected benchmark studies. These activities are used to deﬁne any required improvement measures, which are implemented by the responsible units and departments and then monitored on a regular basis. The relevant management bodies continuously receive reports on these monitoring activities. E | NON-FINANCIAL REPORT | COMPLIANCE 231 Antitrust compliance Our Group-wide Antitrust Compliance Program is oriented to national and international standards. The program establishes a binding, globally valid Daimler standard that deﬁnes how matters of competition law are to be assessed. The Daimler standard is based on the standards of the European antitrust authorities and courts. The objective of the Daimler standard is a uniform level of compliance and advice in all countries and thus compliance with all local and international antitrust laws. By means of an advisory hotline set up by our Legal depart- ment, as well as guidelines and practical support, we help our employees around the world recognize situations that might be critical from an antitrust perspective, and also act in com- pliance with regulations in their daily work, especially when dealing with competitors, cooperating with dealers and general agencies around the world, and participating in business asso- ciation committees. In addition to Daimler’s Legal department and its specialist advisers, the Group’s global units and their employees can turn to legal advisers in local at-risk units, who also ensure that our standards are consistently upheld. We also utilize a variety of communication measures to make our employees aware of the importance of competition and anti- trust laws and issues. The results of our annual compliance risk analysis serve as the basis for the formulation of measures that address antitrust risks. The responsibility for designing, implementing and moni- toring measures lies with each company’s management. Man- agers in turn cooperate closely with Integrity and Legal Aﬀairs, which also provides information on how to implement the mea- sures eﬀectively. The at-risk units in particular must regularly systematically assess the adequacy and eﬀectiveness of locally implemented antitrust compliance measures. In addition, our Legal and Corporate Audit departments conduct additional mon- itoring activities at our company’s units, as well as random audits of at-risk units on the basis of a predeﬁned audit plan in order to ensure that antitrust laws are complied with and internal processes are carried out properly. This helps us con- tinuously improve the eﬀectiveness of our Antitrust Compli- ance Program and adapt it to global developments and new legal requirements. The associated methods and processes are being constantly reﬁned and improved. In order to ensure an independent external assessment of our Antitrust Compliance Program, KPMG AG Wirtscha(cid:5)sprü- fungsgesellscha(cid:5) audited the Compliance Management System for antitrust law in accordance with the 980 standard of the Institute of Public Auditors in Germany. This audit, which was based on the principles of appropriateness and eﬀective imple- mentation, was successfully completed at the end of 2016. Involvement of company management Our divisional and regional compliance managers report to the Chief Compliance Oﬃcer. This guarantees the compliance managers’ independence from the business divisions. The Chief Compliance Oﬃcer and Group General Counsel report directly to the Member of the Board of Management for Integ rity and Legal Aﬀairs and to the Audit Committee of the Supervi- sory Board. They also report four times each year to the Board of Management of Daimler AG on matters such as the status of the Compliance Management System and its further develop- ment, the status of the whistleblower system and, if necessary, on other topics. In addition, the Group General Counsel regu- larly reports to the Antitrust Steering Committee and the Group Risk Management Committee, to which the Chief Com- pliance Oﬃcer also reports. Important non-financial reporting topics Eliminating corruption, preventing cartel arrangements and ensuring compliance with technical regulations — we introduced our Compliance Management System in order to address exactly these issues, which are extremely important to us. Our Group-wide approach to respecting and upholding human rights is also based on the Daimler CMS. Anti-corruption compliance Daimler has committed itself to ﬁghting corruption in its own business activities. Along with complying with all applicable laws, this also involves adhering to the rules of the OECD Con- vention on Combating Bribery of Foreign Public Oﬃcials in International Business Transactions (1997) and the United Nations Convention against Corruption (2003). As a founding member of the UN Global Compact and a part of its LEAD Group, Daimler also seeks to ensure that not only the company itself but also its business partners and customers act in accordance with the principles of the UN Global Compact. The most important goals here are to ﬁght corruption around the world in order to enable fair competition, eliminate the damage corruption does to society and thus improve conditions for everyone. Our anti-corruption compliance program is based on our com- prehensive Compliance Management System. The program is globally valid and primarily consists of the following compo- nents: integrated risk assessment, risk-based measures for avoiding corruption in all business activities (e.g. reviews of business partners and transactions), and special care in con- tacts with authorities and public oﬃcials. Our risk-minimization measures focus in particular on sales companies in high-risk countries and business relationships with wholesalers and gen- eral agencies worldwide. The responsibility for implementing and monitoring measures lies with each company’s management, which cooperates closely with the specialist units within Integrity and Legal Aﬀairs. Daimler places the same strict requirements on all of its activi- ties around the world. In addition, we continuously improve our methods and processes and use a variety of communication measures to make our employees aware of the importance of ﬁghting corruption. Among other things, we released a ﬁlm and set up a separate website to address this issue during the year under review. Further information on communication and train- ing: E page 230 232 E | NON-FINANCIAL REPORT | COMPLIANCE Technical compliance Human rights compliance As part of our eﬀorts to continuously improve our products, technologies and organization, we repeatedly examine new development possibilities and also optimize our processes. This includes adjusting and improving our existing Compliance Management System — for example in terms of compliance with technical regulations. In order to address the speciﬁc risks associated with the prod- uct development process, we combined all existing systems and additional measures and processes at Mercedes-Benz Cars into a technical Compliance Management System (tCMS) dur- ing the reporting year. This system includes fundamental princi- ples and elements intended to ensure ethical conduct and work processes throughout the Group and compliance with applicable laws. Measures are currently under way to intro- duce the tCMS at Mercedes-Benz Vans, Daimler Trucks and Daimler Buses. Our technical Compliance Management System helps create clarity with regard to compliance with technical regulations and also oﬀers guidance with regard to these regulations, which can be very complicated. These questions are jointly examined and answered in an interdisciplinary process that takes into account legal and technical criteria. The tCMS addresses both the complexity of regulatory requirements and ongoing devel- opments in the automotive industry. Employees at Group Research and Development are supported here by a network of disseminators — direct contact partners for questions concerning technical compliance in their areas of responsibility. This network of disseminators is being expanded throughout the Group. We also employ various communication measures to raise awareness among selected target groups. Such measures include special dialogue events and guidelines on integrity, compliance and legal considerations in the prod- uct development process. For example, some 3,600 employees at Mercedes-Benz Cars Development had taken part in class- room training courses on technical compliance by the end of 2017. Technical compliance is managed Group-wide by an internal team consisting of employees with expertise in various ﬁelds, such as development, legal aﬀairs, integrity and compliance. The Board of Management members responsible for Integrity and Legal Aﬀairs and Group Research and Development receive regular reports on the status of the technical Compli- ance Management System. Daimler has been working on a company-speciﬁc approach to human rights since 2008. In 2011 we began developing a sys- tematic due diligence approach for our company, initially on the basis of the Human Rights Compliance Assessments of the Danish Institute for Human Rights. Since 2015, we have been working with the Daimler Human Rights Respect System (HRRS), which we developed ourselves with the specifsic requirements of the company in mind. The protection of human rights is also a key component of our Group-wide sustainability strategy. We are committed to proving to the greatest extent possible that these elementary rights are respected and upheld throughout our organization, our partners and by our suppliers as well. The UN Guiding Prin- ciples on Business and Human Rights and Germany’s National Action Plan on Business and Human Rights deﬁne the associ- ated principles and due diligence obligations. It is our aim to fulﬁll these obligations and we are therefore gradually expand- ing our Human Rights Respect System (HRRS) as our Due Dili- gence Framework, including regular consultations with exter- nal stakeholders. As a proactive risk management system for human rights, the HRRS is designed with the aim to identify and avoid systemic risks and potential negative impacts of our business activities on human rights early on. The HRRS thus primarily protects third parties and is aimed at exerting its eﬀect along at our supply chain as well. Along with rele- vant legislation, we also focus on multinational initiatives and frameworks, in particular the UN Guiding Principles on Busi- ness and Human Rights and the principles of the UN Global Compact. In line with the expectations regarding a human rights policy expressed in these documents, we have clearly deﬁned what we expect from all of our employees and business partners. These expectations are formulated in our Integrity Code, our Supplier Sustainability Standards and our supplier agreements. The responsibility for human rights issues lies with the Integrity and Legal Aﬀairs division. The HRRS, which orientates itself on our Group-wide Compliance Management System (CMS), utilizes a risk-based approach in its focus on Daimler majority holdings (including production locations) and our supply chain. Also part of the HRRS is the consultation and exchange with rights holders, for example our employees and their representatives. We continue to develop the HRRS and implement it step by step. In the last two years, for example, we conducted two HRRS pilot projects for Daimler majority-owned companies at our international locations and, where necessary, initiated improvements and also identiﬁed best practices for other loca- tions. We were also able to further improve the system we use to classify all Daimler majority holdings in terms of human rights risks. We are working to ﬁrmly establish the HRRS for Daimler majority-owned companies by 2020 at all our loca- tions thereby supplementing the already existing decentralized measures with a dedicatd system. E | NON-FINANCIAL REPORT | COMPLIANCE 233 Other compliance issues It is very important to Daimler to minimize all legal and economic risks. Along with the issues described above, our Compliance Management System therefore also addresses other issues, such as compliance with our data protection policy and data protec- tion legislation, the prevention of money laundering and com- pliance with sanctions lists. Data protection compliance The Corporate Data Protection department provides worldwide support to all Group companies and helps ensure compliance with data protection requirements. The Chief Oﬃcer Corporate Data Protection is independent and reports directly to the Board of Management member for Integrity and Legal Aﬀairs. The annual data protection report is submitted to the Supervisory Board. Our Corporate Data Protection Policy creates Group- wide standards for handling the data of employees, customers and business partners, and also meets the requirements of current European data protection laws. Preparations are now under way for implementation of the new European data pro- tection regulation that will go into eﬀect in May 2018. The Cor- porate Data Protection department is the point of contact for data protection complaints. It also carries out checks and audits, raises employees’ awareness of data protection and advises the relevant specialist departments. Product-related advice focuses on data protection for connected vehicles and auto- mated driving functions, as well as mobility services. Anti-money laundering compliance Our Anti-Money Laundering Policy is designed to prevent money laundering and the ﬁnancing of terrorism in the trade with goods and in activities carried out by Daimler Financial Services. It is meant to proving that legislation in various countries is complied with throughout the Group, and that internal regula- tions that go beyond such legislation are complied with as well. The Chief Compliance Oﬃcer serves as the anti-money laun- dering oﬃcer of Daimler AG as a distributor of goods. An Anti- Money Laundering Policy of competence supports the Chief Compliance Oﬃcer in the management and coordination of money laundering prevention measures. The Divisional Compli- ance Oﬃce Financial Services coordinates and supports the implementation of the Anti-Money Laundering Policy at Daimler Financial Services. Sanctions compliance We have introduced a risk-focused, system-based process at relevant specialist departments and Daimler AG-controlled holdings that ensures compliance with EU and US sanctions and internal regulations. The Center of Competence CSL (Checks against Sanctions Lists/Sanctions Compliance) pro- vides implementation support to the relevant specialist depart- ments and the Daimler AG-controlled holdings. Due diligence with the Human Rights Respect System The HRRS is designed to identify and avoid systemic risks and possible negative eﬀects of our business activities on human rights early on. It consists of four steps that are to be applied to Daimler majority-owned companies and the supply chain: 1. Identiﬁcation of potential human rights risks (risk assess- ment) 2. Deﬁnition, implementation and management of preventive measures and countermeasures (program implementation) 3. Monitoring of the eﬀectiveness of the measures, in particu- lar at high-risk units and in supply chains that are at a high risk of human rights violations (monitoring) 4. Periodic internal reporting on relevant issues, compliance with external reporting requirements (reporting) Identification of human rights risks at Daimler majority holdings The risk assessment is a two-step process. The ﬁrst step involves a categorization of the majority holdings on the basis of predeﬁned criteria, such as the risk situation in speciﬁc countries and risks associated with speciﬁc business opera- tions. In the second step, units that display a heightened human rights risk are subject to an on-site assessment. To this end, a modular approach was developed that makes it possible to take into account fundamental human rights standards such as those deﬁned in the Universal Declaration of Human Rights and the Core Labor Standards of the International Labor Orga- nization (ILO). In 2017 we used the experience gained with the pilot projects to make adjustments to our previous two-step risk assessment process. We also had external stakeholders verify the HRRS in general and our risk assessment methodology in particular. During this veriﬁcation process, we were given valuable sug- gestions for further adapting and expanding the system. We are also currently developing an eﬀective approach to program implementation, monitoring and reporting. Identification of human rights risks in our supply chain Since 2008 we have deﬁned our expectations towards our suppliers regarding sustainability in our Supplier Sustainability Standards. Stipulations concerning working conditions and human rights are key components of these. In order to ensure that we can meet our human-rights due-diligence obligations even more systematically, we are gradually introducing the HRRS in our supply chain as well. To this end, clear risk classiﬁca- tions for Daimler supply chains were developed in line with speciﬁc product areas (e.g. production materials or services) in 2017. This also includes minerals commonly associated with conﬂicts. We are utilizing our risk-based approach in order to determine which supplier products and at which stages of our extensive supply chain we should take targeted and appropri- ate measures beyond our direct suppliers. Involvement at the executive level The member of the Board of Management responsible for Integ- rity and Legal Aﬀairs is regularly informed on human rights activities at regular intervals. This is supplemented by regular reports submitted to the Board of Management and the Corpo- rate Sustainability Board (CSB), as well as to the Procurement Council (PC) within the framework of our sustainability strategy. 234 E | NON-FINANCIAL REPORT | INDEPENDENT AUDITOR’S REPORT Independent Auditor’s Report Concerning a Limited Assurance Engagement on the Non-Financial Group Reporting To the Supervisory Board of Daimler AG, Stuttgart We have performed an independent limited assurance engage- ment on the separate combined Non-Financial Report of Daimler AG and the Group as well as the by reference qualiﬁed parts “Business model”, “Legal risks” and “Non-Financial risks” according to §§ 315b and 315c in conjunction with 289b to 289e (further “Report“) of Daimler AG, Stuttgart (further “Daimler”) for the business year from January 1 to December 31, 2017. Management’s Responsibility The legal representatives of Daimler are responsible for the preparation of the Report in accordance with §§ 315b and 315c in conjunction with 289b to 289e HGB. This responsibility of the legal representatives includes the selec- tion and application of appropriate methods to prepare the Non-Financial Report and the use of assumptions and estimates for individual sustainability disclosures which are reasonable under the given circumstances. Furthermore, the responsibility includes designing, implementing and maintaining systems and processes relevant for the preparation of the Non-Financial Report in a way that is free of – intended or unintended – material misstatements. Independence and quality assurance on the part of the auditing firm We are independent from the company in accordance with the requirements of independence and quality assurance set out in legal provisions and professional pronouncements and have fulﬁlled our additional professional obligations in accordance with these requirements. Our audit ﬁrm applies the legal provisions and professional pronouncements for quality assurance, in particular the pro- fessional code for German Public Auditors and Chartered Accountants (in Germany) and the quality assurance standard of the German Institute of Public Auditors (Institut der Wirtscha(cid:5)sprüfer, IDW) regarding quality assurance require- ments in audit practice (IDW QS 1). Practitioner’s Responsibility Our responsibility is to express a conclusion based on our work performed of the Report within a limited assurance engagement. We conducted our work in accordance with the International Standard on Assurance En-gagements (ISAE) 3000 (Revised): “Assurance Engagements other than Audits or Reviews of His- torical Financial Information” published by IAASB. This Stan- dard requires that we plan and perform the assurance engage- ment to obtain limited assurance whether any matters have come to our attention that cause us to believe that the Report E | NON-FINANCIAL REPORT | INDEPENDENT AUDITOR’S REPORT 235 for the period from January 1 2017 to December 31, 2017, has not been prepared, in all material respects in accordance with §§ 315b and 315c in conjunction with 289b to 289e HGB. We do not, however, issue a separate conclusion for each sustain- ability disclosure. In a limited assurance engagement the evi- dence gathering procedures are more limited than in a reason- able assurance engagement and therefore less assurance is obtained than in a reasonable assurance engagement. The choice of audit procedures is subject to the auditor’s own judgement. Within the scope of our engagement, we performed amongst others the following procedures: – Interviews with employees on group level who are responsi- ble for the materiality analysis to get an understanding of the process for identifying material topics and respective report boundaries for Daimler – A risk assessment, including a media research, of relevant information about the sustainability performance of Daimler in the reporting period Limited liability This report is issued for purposes of the Supervisory Board of Daimler AG, Stuttgart, only. We assume no responsibility with regard to any third parties. Our assignment for the Supervisory Board of Daimler AG, Stuttgart, and professional liability is governed by the General Conditions of Assignment for Wirtscha(cid:5)sprüfer and Wirtscha(cid:5)sprüfungsgesellscha(cid:5)en (Allgemeine Au(cid:5)ragsbedin- gungen für Wirtscha(cid:5)sprüfer und Wirtscha(cid:5)sprüfungsgesell- scha(cid:5)en) in the version dated January 1, 2017 w https:// kpmg.de/bescheinigungen/lib/aab_englisch.pdf. By reading and using the information contained in this report, each recipi- ent conﬁrms notice of provisions of the General Conditions of Assignment (including the limitation of our liability for negli- gence to EUR 4 Mio as stipulated in No. 9) and accepts the validity of the attached General Conditions of Assignment with respect to us. – Assessment of the design and implementation of systems Stuttgart, February 9, 2018 and processes for the collection, processing and monitoring of information on environmental, employee and social mat- ters, human rights, corruption and bribery, including data consolidation – Interviews with employees on group level who are responsi- ble for the collection of the information to concepts, due dili- gence processes, results and risks, the conduction of internal controls and the information consolidation KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) – Evaluation of selected internal and external documents – Analytical evaluation of data and trends of quantitative infor- Dr. Thümler Auditor Mokler Auditor mation which are reported by all sites on group level – Assessment of local data collection and reporting processes and reliability of reported data via a sampling survey in Stutt- gart and Mannheim (both Germany). – Assessment of the overall presentation of the information Conclusion Based on the procedures performed and the evidence received to obtain assurance, nothing has come to our attention that causes us to believe that the Report of Daimler for the business year from January 1 to December 31, 2017 is not prepared, in all material respects, in accordance with §§ 315b and 315c in conjunction with 289b to 289e HGB. WE HAVE A SOUND FINANCIAL BASIS! The Consolidated Financial Statements presented as follows have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). They also comply with additional requirements set forth in Section 315e (paragraph 1) of the German Commercial Code (HGB). F | CONSOLIDATED FINANCIAL STATEMENTS | CONTENTS 237 F | Consolidated Financial Statements Consolidated Statement of Income Consolidated Statement of of Comprehensive Income/Loss Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements 238 239 240 241 242 244 1. Signiﬁcant accounting policies 244 2. Accounting estimates and management judgments 255 256 3. Consolidated Group 258 4. Revenue 258 5. Functional costs 260 6. Other operating income and expense 260 7. Other ﬁnancial income/expense, net 260 8. Interest income and interest expense 261 9. Income taxes 264 10. Intangible assets 265 11. Property, plant and equipment 266 12. Equipment on operating leases 267 13. Equity-method investments 270 14. Receivables from ﬁnancial services 271 15. Marketable debt securities 271 16. Other ﬁnancial assets 272 17. Other assets 272 18. Inventories 272 19. Trade receivables 273 20. Equity 275 21. Share-based payment 22. Pensions and similar obligations 23. Provisions for other risks 24. Financing liabilities 25. Other ﬁnancial liabilities 26. Deferred income 27. Other liabilities 28. Consolidated statement of cash ﬂows 29. Legal proceedings 30. Financial guarantees, contingent liabilities and other ﬁnancial obligations 31. Financial instruments 32. Management of ﬁnancial risks 33. Segment reporting 34. Capital management 35. Earnings per share 36. Related party relationships 37. Remuneration of the members of the Board of Management and the Supervisory Board 38. Principal accountant fees 39. Additional information 276 282 283 284 284 284 285 286 287 290 298 305 309 309 310 311 312 312 238 F | CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF INCOME Consolidated Statement of Income F.01 In millions of euros Revenue Cost of sales Gross proﬁt Selling expenses General administrative expenses Research and non-capitalized development costs Other operating income Other operating expense Proﬁt/loss on equity-method investments, net Other ﬁnancial income/expense, net Interest income Interest expense Proﬁt before income taxes1 Income taxes Net proﬁt thereof proﬁt attributable to non-controlling interests thereof proﬁt attributable to shareholders of Daimler AG Earnings per share (in euros) for proﬁt attributable to shareholders of Daimler AG Basic Diluted 1 The reconciliation of Group EBIT to proﬁt before income taxes is presented in Note 33. Note 2017 2016 4 5 5 5 5 6 6 13 7 8 8 9 35 164,330 -129,999 34,331 -12,965 153,261 -121,298 31,963 -12,226 -3,809 -5,938 2,824 -1,042 1,498 -230 214 -582 14,301 -3,437 10,864 339 10,525 -3,419 -5,257 2,350 -1,298 502 275 230 -546 12,574 -3,790 8,784 258 8,526 9.84 9.84 7.97 7.97 The accompanying notes are an integral part of these consolidated ﬁnancial statements. F | CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/LOSS 239 Consolidated Statement of Comprehensive Income/Loss1 F.02 In millions of euros Net proﬁt Currency translation adjustments Financial assets available-for-sale Unrealized gains/losses (pre-tax) Reclassiﬁcations to proﬁt and loss (pre-tax) Taxes on unrealized gains/losses and on reclassiﬁcations Financial assets available-for-sale (a(cid:5)er tax) Derivative ﬁnancial instruments Unrealized gains/losses (pre-tax) Reclassiﬁcations to proﬁt and loss (pre-tax) Taxes on unrealized gains/losses and on reclassiﬁcations Derivative ﬁnancial instruments (a(cid:5)er tax) Equity-method investments Unrealized gains/losses (pre-tax) Equity-method investments (a(cid:5)er tax) Items that may be reclassiﬁed to proﬁt/loss Actuarial gains/losses from pensions and similar obligations (pre-tax) Taxes on actuarial gains/losses from pensions and similar obligations Actuarial gains/losses from pensions and similar obligations (a(cid:5)er tax) Items that will not be reclassiﬁed to proﬁt/loss Other comprehensive income/loss, net of taxes Total comprehensive income Daimler Group Shareholders of Daimler AG Non- controlling interests Daimler Group Shareholders of Daimler AG Non- controlling interests 2017 2017 2017 2016 2016 2016 10,864 -2,664 10,525 -2,596 339 -68 18 -1 -3 14 2,519 -36 -741 1,742 25 25 -883 -108 -19 -127 -127 -1,010 9,854 17 -1 -3 13 2,523 -36 -742 1,745 25 25 -813 -106 -19 -125 -125 -938 9,587 1 - - 1 -4 - 1 -3 - - -70 -2 - -2 -2 -72 267 8,784 696 -448 -621 1 -1,068 123 1,512 -495 1,140 -12 -12 756 8,526 697 -448 -621 1 -1,068 126 1,512 -496 1,142 -12 -12 759 -1,994 -1,994 748 748 -1,246 -1,246 -490 8,294 -1,246 -1,246 -487 8,039 258 -1 – – – – -3 – 1 -2 – – -3 – – – – -3 255 1 See Note 20 for other information on comprehensive income/loss. The accompanying notes are an integral part of these consolidated ﬁnancial statements. 240 F | CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF FINANCIAL POSITION Consolidated Statement of Financial Position F.03 In millions of euros Assets Intangible assets Property, plant and equipment Equipment on operating leases Equity-method investments Receivables from ﬁnancial services Marketable debt securities Other ﬁnancial assets Deferred tax assets Other assets Total non-current assets Inventories Trade receivables Receivables from ﬁnancial services Cash and cash equivalents Marketable debt securities Other ﬁnancial assets Other assets Total current assets Total assets Equity and liabilities Share capital Capital reserves Retained earnings Other reserves Treasury shares Equity attributable to shareholders of Daimler AG Non-controlling interests Total equity Provisions for pensions and similar obligations Provisions for income taxes Provisions for other risks Financing liabilities Other ﬁnancial liabilities Deferred tax liabilities Deferred income Other liabilities Total non-current liabilities Trade payables Provisions for income taxes Provisions for other risks Financing liabilities Other ﬁnancial liabilities Deferred income Other liabilities Total current liabilities Total equity and liabilities The accompanying notes are an integral part of these consolidated ﬁnancial statements. Note At December 31, 2016 2017 10 11 12 13 14 15 16 9 17 18 19 14 15 16 17 20 22 23 24 25 9 26 27 23 24 25 26 27 13,735 27,981 47,714 4,818 46,413 990 3,221 2,853 1,145 12,098 26,381 46,942 4,098 42,881 1,100 2,899 3,870 667 148,870 140,936 25,686 11,990 39,374 12,072 9,073 3,580 4,960 25,384 10,614 37,626 10,981 9,648 2,837 4,962 106,735 255,605 102,052 242,988 3,070 11,742 47,682 1,529 – 64,023 1,291 65,314 5,767 1,046 7,192 3,070 11,744 40,794 2,342 – 57,950 1,183 59,133 9,034 966 6,632 78,378 70,398 2,589 2,402 5,802 10 103,186 12,474 560 10,052 48,746 8,933 3,668 2,672 87,105 255,605 3,327 3,467 5,559 15 99,398 11,567 751 9,427 47,288 9,542 3,444 2,438 84,457 242,988 F | CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF CASH FLOWS 241 Consolidated Statement of Cash Flows1 2017 2016 14,301 5,676 -1,507 -453 -1,455 -1,592 1,288 -11,145 -3,681 -48 843 -3,879 -1,652 -6,744 -3,414 812 41 -1,146 418 -6,729 7,266 -22 -9,518 751 63,116 -47,073 -3,477 -250 114 -42 -10 13,129 -868 1,091 10,981 12,072 12,574 5,478 -1,064 -46 -1,272 -962 757 -6,848 -4,209 2,150 103 -2,950 3,711 -5,889 -2,944 366 -3,650 -334 79 -7,724 5,394 36 -14,666 503 50,723 -35,463 -3,477 -201 65 -38 -103 12,009 -9 1,045 9,936 10,981 F.04 In millions of euros Proﬁt before income taxes Depreciation and amortization/impairments Other non-cash expense and income Gains (-)/losses (+) on disposals of assets Change in operating assets and liabilities Inventories Trade receivables Trade payables Receivables from ﬁnancial services Vehicles on operating leases Other operating assets and liabilities Dividends received from equity-method investments Income taxes paid Cash used for/provided by operating activities Additions to property, plant and equipment Additions to intangible assets Proceeds from disposals of property, plant and equipment and intangible assets Acquisition of Athlon Car Lease International B.V. Investments in shareholdings Proceeds from disposals of shareholdings Acquisition of marketable debt securities Proceeds from sales of marketable debt securities Other Cash used for investing activities Change in short-term ﬁnancing liabilities Additions to long-term ﬁnancing liabilities Repayment of long-term ﬁnancing liabilities Dividend paid to shareholders of Daimler AG Dividends paid to non-controlling interests Proceeds from the issue of share capital Acquisition of treasury shares Acquisition of non-controlling interests in subsidiaries Cash provided by ﬁnancing activities Eﬀect of foreign exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 1 See note 28 for other information on consolidated statements of cash ﬂows. The accompanying notes are an integral part of these consolidated ﬁnancial statements. 242 F | CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated Statement of Changes in Equity1 F.05 In millions of euros Share capital Capital reserves Retained earnings2 Currency translation Balance at January 1, 2016 3,070 11,917 Net proﬁt Other comprehensive income/loss before taxes Deferred taxes on other comprehensive income Total comprehensive income/loss Dividends Capital increase/Issue of new shares Acquisition of treasury shares Issue and disposal of treasury shares Changes in ownership interests in subsidiaries Other – – – – – – – – – – Balance at December 31, 2016 3,070 – – – – – – – – -170 -3 11,744 Balance at January 1, 2017 3,070 11,744 Net proﬁt Other comprehensive income/loss before taxes Deferred taxes on other comprehensive income Total comprehensive income/loss Dividends Changes in the consolidated group Capital increase/Issue of new shares Acquisition of treasury shares Issue and disposal of treasury shares Changes in ownership interests in subsidiaries Other – – – – – – – – – – – – – – – – – – – – 5 -7 36,991 8,526 -1,994 748 7,280 -3,477 – – – – – 40,794 40,794 10,525 -106 -19 10,400 -3,477 -35 – – – – – 2,145 – 697 – 697 – – – – – – 2,842 2,842 – -2,596 – -2,596 – – – – – – – Financial assets available for sale 1,121 – -1,069 1 -1,068 – – – – – – 53 53 – 16 -3 13 – – – – – – – Balance at December 31, 2017 3,070 11,742 47,682 246 66 1 See Note 20 for other information on changes in equity. 2 Retained earnings also include items that will not be reclassiﬁed to the consolidated income statement. Actuarial losses from pensions and similar obligations amount to €7,562 million net of tax in 2017 (2016: €7,437 million net of tax). The accompanying notes are an integral part of these consolidated ﬁnancial statements. F | CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 243 Other reserves items that may be reclassiﬁed in proﬁt/loss Share of investments accounted for using the equity method Derivative ﬁnancial instruments -1,679 – 1,638 -496 1,142 – – – – – – -537 -537 – 2,487 -742 1,745 – – – – – – – 1,208 -4 – -12 – -12 – – – – – – -16 -16 – 25 – 25 – – – – – – – 9 Equity attributable to shareholders of Daimler AG Treasury share Non- controlling interests Total equity In millions of euros – – – – – – – -38 38 – – – – – – – – – – – -42 42 – – – 53,561 8,526 -740 253 8,039 -3,477 – -38 38 -170 -3 1,063 258 -4 1 255 -201 35 – – 35 -4 54,624 Balance at January 1, 2016 8,784 Net proﬁt -744 254 Other comprehensive income/loss before taxes Deferred taxes on other comprehensive income 8,294 Total comprehensive income/loss -3,678 Dividends 35 -38 38 Capital increase/Issue of new shares Acquisition of treasury shares Issue and disposal of treasury shares -135 Changes in ownership interests in subsidiaries -7 Other 57,950 1,183 59,133 Balance at December 31, 2016 57,950 10,525 -174 -764 9,587 -3,477 -35 – -42 42 5 -7 1,183 59,133 Balance at January 1, 2017 339 -73 1 267 -250 – 56 – – 24 11 10,864 Net proﬁt -247 -763 Other comprehensive income/loss before taxes Deferred taxes on other comprehensive income 9,854 Total comprehensive income/loss -3,727 Dividends -35 56 -42 42 29 4 Changes in the consolidated group Capital increase/Issue of new shares Acquisition of treasury shares Issue and disposal of treasury shares Changes in ownership interests in subsidiaries Other 64,023 1,291 65,314 Balance at December 31, 2017 244 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements 1. Signiﬁcant accounting policies General information The consolidated ﬁnancial statements of Daimler AG and its subsidiaries (“Daimler” or “the Group”) have been prepared in accordance with Section 315e of the German Commercial Code (HGB) and comply with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). Daimler AG is a stock corporation organized under the laws of the Federal Republic of Germany. The Company is entered in the Commercial Register of the Stuttgart District Court under No. HRB 19360 and its registered oﬃce is located at Mercedesstraße 137, 70327 Stuttgart, Germany. The consolidated ﬁnancial statements of Daimler AG are presented in euros (€). Unless otherwise stated, all amounts are stated in millions of euros. All ﬁgures shown are rounded in accordance with standard business rounding principles. The Board of Management authorized the consolidated ﬁnancial statements for publication on February 9, 2018. Basis of preparation Applied IFRSs The accounting policies applied in the consolidated ﬁnancial statements comply with the IFRSs required to be applied in the EU as of December 31, 2017. IFRSs issued, EU endorsed and initially adopted in the reporting period IFRSs with mandatory initial application in the EU as of January 1, 2017 had no signiﬁcant impact on the consolidated ﬁnancial statements. IFRSs issued, EU endorsed and not yet adopted In May 2014, the IASB published IFRS 15 Revenue from Contracts with Customers. It replaces existing guidance for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Pro- grammes. The new standard lays down a comprehensive framework for determining in which amount and at which date revenue is recognized. The new standard speciﬁes a uniform, ﬁve-step model for revenue recognition, which is generally to be applied to all contracts with customers. As a result of IFRS 15, new items are introduced in the statement of ﬁnancial position: “Contract assets” and “Contract liabilities.” These items can arise through advance payment or advance delivery at the contract level. In addition, disclosure requirements are extended. Application of IFRS 15 is mandatory at the latest for reporting periods beginning on or a(cid:5)er January 1, 2018. Early adoption is permitted. Daimler will apply IFRS 15 for the ﬁrst time for the ﬁnancial year beginning on January 1, 2018. Daimler plans for retrospective ﬁrst-time application so that the comparative period is presented according to IFRS 15. Eﬀects on Daimler may occur in particular with regard to the date of recognition of sales incentives and also with regard to the sale of vehicles for which the Group enters into a repurchase obligation or grants a residual-value guarantee. The latter are currently reported as operating leases. Under IFRS 15, such vehicle sales can necessitate the reporting of a sale with the right of return. Additionally, the accounting of contract manu- facturing may lead to eﬀects. Under a contract manufacturing agreement Daimler sells assets to a third-party manufacturer from which Daimler buys back the manufactured products a(cid:5)er completion of the commissioned work. If the sale of the assets is not accompanied by the transfer of control to the third-party manufacturer no revenue will be recognized under IFRS 15. The statement of ﬁnancial position will be aﬀected in particular by the separate presentation of “Contract liabilities.” F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 245 Group-wide investigation of the eﬀects on the consolidated ﬁnancial statements of adopting IFRS 15 has been completed. The application of IFRS 15 is not expected to have any major impact on the Group’s proﬁtability, liquidity and capital resources or ﬁnancial position. The preliminary opening balance for January 1, 2017 will show an increase in equity of approximately €0.1 billion compared to the ﬁgure disclosed as of December 31, 2016. The option that contracts concluded before January 1, 2017 need not be reassessed under IFRS 15 has been made use of. However, the determination of the eﬀects for the comparative period 2017 has not yet been ﬁnalized at the time of publication of the consolidated ﬁnancial statements. The IASB published Amendments to IFRS 15 in April 2016. These changes allow for transitional arrangements for modiﬁed and fulﬁlled contracts, and clarify the identiﬁcation of performance obligations, principal-agent relationships, and licenses. The application of these amendments is also not expected to have any major impact on the Group’s proﬁtability, liquidity and capital resources or ﬁnancial position. In July 2014, the IASB published IFRS 9 Financial Instruments, which replaces IAS 39. IFRS 9 includes a uniform model for classiﬁcation and measurement methods (including impairments) for ﬁnancial instruments. It also includes regulations for general hedge accounting. IFRS 9 requires additional notes disclosure, resulting from the amendment to IFRS 7 Financial Instruments – Disclosures. Eﬀects result above all from the fact that the new regulations for recognizing impairments also include expected future losses, whereas IAS 39 only requires the recognition of impairments that have already occurred. Especially receivables from ﬁnancial services in the Daimler Financial Services segment are aﬀected. All equity instruments are to be measured at fair value, either through proﬁt or loss or at fair value through other comprehensive income. If changes in carrying amounts are recognized in other comprehensive income, they are no longer to be reclassiﬁed to proﬁt or loss when these instruments are sold. In addition, some debt instruments will be measured at fair value through proﬁt or loss due to the new classiﬁcation requirements of IFRS 9. Possible eﬀects can be in higher ﬂuctuations in carrying amounts and ﬂuctuations in the income statement and/or the statement of other comprehensive income. Additional eﬀects will result from the possibility to exclude certain components of derivatives from designation to a hedge relationship and to defer the changes in these components’ fair value in other comprehensive income. This change applies for example to the fair value of options whose changes in carrying amounts are regularly remeasured through proﬁt and loss during the term of the options according to IAS 39. The newly introduced possibility to designate risk components of non-ﬁnancial hedged items will facilitate hedge accounting for commodities. Application of IFRS 9 is mandatory at the latest for reporting periods beginning on or a(cid:5)er January 1, 2018. Early adoption is permitted. Daimler will apply IFRS 9 for the ﬁrst time for the ﬁnancial year beginning on January 1, 2018. In compliance with the transitional regulations, Daimler will not adjust the prior-year ﬁgures and will present the accumulated transitional eﬀects in retained earnings. One exception to this is the recognition through other comprehensive income of certain undesignated components of derivatives, which is to be applied retrospectively to the comparative ﬁgures. Examination of the eﬀects on the consolidated ﬁnancial statements of applying IFRS 9 with regard to classiﬁcation and measurement, impairment and hedge accounting indicates that no material impact on the Group’s proﬁtability, liquidity and capital resources or ﬁnancial position is to be expected from the transition to IFRS 9. In January 2016, the IASB published IFRS 16 Leases, replacing IAS 17 and IFRIC 4 and other interpretations. IFRS 16 abolishes for lessees the previous classiﬁcation of leasing agreements as either operating or ﬁnance leases. Instead, IFRS 16 intro- duces a single lessee accounting model, requiring lessees to recognize assets for the right to use as well as leasing liabilities for leases with a term of more than twelve months. This means that leases that were previously not reported in the statement of ﬁnancial position will have to be reported in the future – very similar to the current accounting of ﬁnance leases. Lease accounting for lessors has been taken over almost identically from IAS 17 into IFRS 16. IFRS 16 is to be applied to annual reporting periods beginning on or a(cid:5)er January 1, 2019; early adoption is permitted if IFRS 15 is already applied. The eﬀects on the consolidated ﬁnancial statements of the application of IFRS 16 are currently being examined. Daimler will probably apply IFRS 16 for the ﬁrst time for the ﬁnancial year beginning on January 1, 2019. Daimler currently plans, in com- pliance with the transition regulations, not to adjust the prior- year ﬁgures and to present the accumulated transitional eﬀects in retained earnings. IFRSs issued but neither EU endorsed nor yet adopted In May 2017, the IASB issued IFRS 17 Insurance Contracts. IFRS 17 replaces the currently applicable IFRS 4. It establishes more transparency and comparability with regard to the recognition, measurement, presentation and disclosure of insurance contracts with the insurer. The application of IFRS 17 is mandatory for reporting periods beginning on or a(cid:5)er January 1, 2021. Early adoption is permitted. Daimler currently does not expect any material impacts on the Group’s proﬁtability, liquidity and capital resources or ﬁnancial position due to the application of IFRS 17. Early adoption is not currently planned. In addition, further standards and interpretations have been approved which are not expected to have a material impact on the consolidated ﬁnancial statements. Presentation Presentation in the consolidated statement of ﬁnancial position diﬀerentiates between current and non-current assets and liabilities. Assets and liabilities are classiﬁed as current if they are expected to be realized or settled within one year or within a longer and normal operating cycle. Deferred tax assets and liabilities as well as assets and provisions for pensions and similar obligations are generally presented as non-current items. The consolidated statement of income is presented using the cost-of-sales method. 246 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Measurement The consolidated ﬁnancial statements have been prepared on the historical-cost basis with the exception of certain items such as available-for-sale ﬁnancial assets, derivative ﬁnancial instruments, hedged items, and pensions and similar obliga- tions. The measurement models applied to those exceptions are described below. Principles of consolidation The consolidated ﬁnancial statements include the ﬁnancial statements of Daimler AG and the ﬁnancial statements of all subsidiaries, including structured entities which are directly or indirectly controlled by Daimler AG. Control exists if the parent company has the power of decision over a subsidiary based on voting rights or other rights, if it participates in positive and negative variable returns from a subsidiary, and if it can aﬀect these returns by its power of decision. Structured entities which are controlled also have to be consoli- dated. Accordingly, the assets and liabilities remain in the consolidated statement of ﬁnancial position. Structured entities are entities which have been designed so that voting or similar rights are not relevant in deciding who controls the entity. This is the case for example if voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. The ﬁnancial statements of consolidated subsidiaries which are included in the consolidated ﬁnancial statements are generally prepared as of the reporting date of the consolidated ﬁnancial statements. The ﬁnancial statements of Daimler AG and its subsidiaries included in the consolidated ﬁnancial statements are prepared using uniform recognition and measurement principles. All intercompany assets and liabilities, equity, income and expenses as well as cash ﬂows from transactions between consolidated entities are entirely eliminated in the course of the consolidation process. Business combinations are accounted for using the purchase method. Changes in equity interests in Group subsidiaries that reduce or increase Daimler’s percentage ownership without loss of control are accounted for as an equity transaction between owners. Investments in associated companies, joint ventures or joint operations An associated company is an entity over which the Group has signiﬁcant inﬂuence. Signiﬁcant inﬂuence is the power to participate in the ﬁnancial and operating policy decisions of the investee. Associated companies are generally accounted for using the equity method. For entities over which Daimler has joint control together with a partner (joint arrangements), it is necessary to diﬀerentiate whether a joint operation or a joint venture exists. In a joint ven- ture, the parties that have joint control of the arrangement have rights to the net assets of the arrangement. For joint ven- tures, the equity method has to be applied. A joint operation exists when the jointly controlling parties have direct rights to the assets and obligations for the liabilities. In this case, the prorated assets and liabilities and the prorated income and expenses are generally to be recognized (proportionate consolidation). Joint operations that have no signiﬁcant impact on the consolidated ﬁnancial statements are generally accounted for using the equity method. In the special event that the ﬁnancial statements of associated companies, joint ventures or joint operations should not be available in good time, the Group’s proportionate share of the results of operations is included in Daimler’s consolidated ﬁnancial statements with a one to three-month time lag. Signiﬁcant events or transactions are accounted for without a time lag, however (see also Note 13). Subsidiaries measured at amortized cost Subsidiaries, associated companies, joint ventures and joint operations whose business is non-active or of low volume and that individually and in sum are not material for the Group and the fair presentation of ﬁnancial position, liquidity and capital resources, and proﬁtability are generally measured at amortized cost in the consolidated ﬁnancial statements. Foreign currency translation Transactions in foreign currency are translated at the relevant foreign exchange rates prevailing at the transaction date. In subsequent periods, assets and liabilities denominated in foreign currency are translated using period-end exchange rates; gains and losses from this measurement are recognized in proﬁt and loss (except for gains and losses resulting from the translation of available-for-sale equity instruments, which are recognized in other comprehensive income/loss). Assets and liabilities of foreign companies for which the functional currency is not the euro are translated into euros using period-end exchange rates. The translation adjustments are presented in other comprehensive income/loss. The components of equity are translated using historical rates. The statements of income and cash ﬂows are translated into euros using average exchange rates during the respective periods. The exchange rates of the US dollar, the British pound, the Japanese yen, the Chinese renminbi and the Russian ruble – the most signiﬁcant foreign currencies for Daimler – were as shown in table (cid:202) F.06. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 247 Accounting policies Revenue recognition Revenue from sales of vehicles, service parts and other related products is recognized when the risks and rewards of owner- ship of the goods are transferred to the customer, the amount of revenue can be estimated reliably and collectability is rea- sonably assured. Revenue is recognized net of sales reductions such as cash discounts and sales incentives granted. Daimler uses a variety of sales promotion programs dependent on various market conditions in individual countries as well as the respective product life cycles and product-related factors (such as amounts of discounts oﬀered by competitors, excess industry production capacity, the intensity of market competition and consumer demand for the products). These programs comprise cash oﬀers to dealers and customers as well as lease subsidies or loans at reduced interest rates. Revenue also includes revenue from the rental and leasing business as well as interest from the ﬁnancial services business at Daimler Financial Services. The revenue from the rental and leasing business results from operating leases and is recog- nized on a straight-line basis over the periods of the contracts. In addition, sales revenue is generated at the end of lease contracts from the subsequent sale of the vehicles. Revenue from receivables from ﬁnancial services is recognized using the eﬀective interest method. When loans are issued below market rates, related receivables are recognized at present value and revenue is reduced for the interest incentive granted. If subsidized leasing fees are agreed upon in connection with ﬁnance leases, revenue from the sale of a vehicle is reduced by the amount of the interest incentive granted. The Group oﬀers extended, separately priced extended warranties for certain products. Revenue from these contracts is deferred and recognized over the contract period in pro- portion to the costs expected to be incurred based on historical information. In circumstances in which there is insuﬃcient historical information, income from extended warranty contracts is recognized on a straight-line basis. A loss on these contracts is recognized in the current period if the sum of the expected costs for services under the contract exceeds unearned revenue. For multiple-element arrangements, such as when vehicles are sold with free or reduced-in-price maintenance programs or with free online services, the Group allocates revenue to the various elements based on their estimated fair values. Research and non-capitalized development costs Expenditure for research and development that does not meet the conditions for capitalization according to IAS 38 Intangible Assets is expensed as incurred. Borrowing costs Borrowing costs are expensed as incurred unless they are directly attributable to the acquisition, construction or production of a qualifying asset and are therefore part of the cost of that asset. Depreciation of the capitalized borrowing costs is presented within cost of sales. Government grants Government grants related to assets are deducted from the carrying amount of the asset and are recognized in earnings over the life of a depreciable asset as a reduced depreciation expense. Government grants which compensate the Group for expenses are recognized as other operating income in the same period as the expenses themselves. F.06 Exchange rates Average exchange rate on December 31 Average exchange rates during the respective period USD 1 € = GBP 1 € = JPY 1 € = CNY 1 € = 2017 RUB 1 € = USD 1 € = GBP 1 € = JPY 1 € = CNY 1 € = 2016 RUB 1 € = 1.1993 0.8872 135.0100 7.8044 69.3920 1.0541 0.8562 123.4000 7.3202 64.3000 First quarter Second quarter Third quarter Fourth quarter 1.0648 1.1021 1.1746 1.1776 0.8601 121.0100 7.3353 62.5218 0.8611 122.5800 7.5597 63.1033 0.8978 130.3500 7.8340 69.2851 0.8875 132.9100 7.7899 68.8150 1.1020 1.1292 1.1166 1.0789 0.7704 127.0000 7.2101 82.4506 0.7868 121.9500 7.3788 74.3348 0.8497 114.2900 7.4431 72.1154 0.8691 117.9200 7.3691 67.9975 248 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Proﬁt/loss from equity-method investments This item includes all income and expenses in connection with investments accounted for using the equity method. In addition to the prorated proﬁts and losses from ﬁnancial investments, it also includes proﬁts and losses resulting from the sale of equity interests or the remeasurement of equity interests following a loss of signiﬁcant inﬂuence. Daimler’s share of dilution gains and losses occurring if the Group or other owners do not participate in capital increases of companies in which shares are held and accounted for using the equity method are also included in proﬁt/loss from equity-method investments. This item also includes losses on the impairment of an investment’s carrying amount and/or gains on the reversal of such impairments. Other ﬁnancial income/expense, net Other ﬁnancial income/expense, net includes all income and expense from ﬁnancial transactions which are not included in interest income and/or interest expense, and for Daimler Financial Services are not included in revenue and/or cost of sales. For example, expense from the compounding of interest on provisions for other risks is recorded in this line item. Furthermore, income and expenses from equity interests are included in other ﬁnancial income/expense, net, if such income or expenses are not presented under equity-method investments. Interest income and interest expense Interest income and interest expense include interest income from investments in securities, cash and cash equivalents as well as interest expense from liabilities. Furthermore, interest and changes in fair values related to interest rate hedging activities as well as income and expense resulting from the allocation of premiums and discounts are included. The inter- est components of deﬁned beneﬁt pension obligations and other similar obligations as well as of the plan assets available to cover these obligations are also presented in this line item. For the segment Daimler Financial Services interest income and expense and gains or losses from derivative ﬁnancial instruments from ﬁnancial services business are disclosed under revenue and cost of sales respectively. Income taxes Income taxes are comprised of current income taxes and deferred taxes. Current income taxes are calculated based on the respective local taxable income and local tax rules for the period. In addition, current income taxes presented for the period include adjustments for uncertain tax payments or tax refunds for periods not yet ﬁnally assessed, including interest expense and penalties on the underpayment of taxes. For the case that amounts declared as expenses in the tax returns might not be recognized (uncertain tax positions), a provision for income taxes is recognized. The amount is based on the best possible assessment of the expected tax payment. Tax refund claims from uncertain tax positions are recognized when it is predominantly likely and thus reasonably expected that they can be realized. Only in the case of tax loss carry- forwards or unused tax credits, no provision for taxes or tax claim is recognized for these uncertain tax positions. Instead, the deferred tax assets for the unused tax loss carryforwards or tax credits are to be adjusted. Changes in deferred tax assets and liabilities are generally recognized through proﬁt and loss in deferred taxes in the consolidated statement of income, except for changes recognized in other comprehensive income/loss or directly in equity. Deferred tax assets or liabilities are calculated on the basis of temporary diﬀerences between the tax basis and the ﬁnancial reporting of assets and liabilities including diﬀerences from consolidation, on unused tax loss carryforwards and unused tax credits. Measurement is based on the tax rates expected to be eﬀective in the period in which an asset is recognized or a liability is settled. For this purpose, the tax rates and tax rules are used which have been enacted at the reporting date or are soon to be enacted. Daimler recognizes a valuation allowance for deferred tax assets when it is unlikely that a corresponding amount of future taxable proﬁt will be available against which the deductible temporary diﬀerences, tax loss carryforwards and tax credits can be utilized. Deferred tax liabilities for taxable temporary diﬀerences in connection with investments in subsidiaries, branches, associates and interests in joint arrangements are not recognized if the Group is able to control the timing of the reversal of the temporary diﬀerence and it is probable that the temporary diﬀerence will not reverse in the foreseeable future. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 249 Earnings per share Basic earnings per share are calculated by dividing proﬁt attributable to shareholders of Daimler AG by the weighted average number of shares outstanding. As nothing occurred in the years 2017 and 2016 that resulted in any dilution, diluted earnings per share were the same as basic earnings per share in those years. Intangible assets Intangible assets are measured at acquisition or manufacturing cost less accumulated amortization. If necessary, accumulated impairment losses are recognized. Intangible assets with indeﬁnite useful lives are reviewed annually to determine whether indeﬁnite-life assessment continues to be appropriate. If not, the change in the useful-life assessment from indeﬁnite to ﬁnite is made on a prospective basis. Intangible assets other than development costs with ﬁnite useful lives are generally amortized on a straight-line basis over their useful lives (three to ten years). The amortization period for intangible assets with ﬁnite useful lives is reviewed at least at each year-end. Changes in expected useful lives are treated as changes in accounting estimates. The amortization expense on intangible assets with ﬁnite useful lives is recorded in functional costs. Development costs for vehicles and components are recognized if the conditions for capitalization according to IAS 38 are met. Subsequent to initial recognition, the asset is carried at cost less accumulated amortization and accumulated impairment losses. Capitalized development costs include all direct costs and allocable overheads and are amortized on a straight-line basis over the expected product life cycle (a maximum of ten years). Amortization of capitalized development costs is an element of manufacturing costs and is allocated to those vehicles and components by which they were generated and is included in cost of sales when the inventory (vehicles) is sold. Goodwill For acquisitions, goodwill represents the excess of the con- sideration transferred over the fair values assigned to the iden- tiﬁable assets proportionally acquired and liabilities assumed. Goodwill is accounted for at the subsidiaries in the functional currency of those subsidiaries. In connection with obtaining control, non-controlling interest in the acquiree is principally recognized at the proportionate share of the acquiree’s identiﬁable assets, which are measured at fair value. Property, plant and equipment Property, plant and equipment are measured at acquisition or manufacturing costs less accumulated depreciation. If necessary, accumulated impairment losses are recognized. The costs of internally produced equipment and facilities include all direct costs and allocable overheads. Acquisition or manufacturing costs include the estimated costs, if any, of dismantling and removing the item and restoring the site. Property, plant and equipment are depreciated over the useful lives as shown in table (cid:202) F.07. Leasing Leasing includes all arrangements that transfer the right to use a speciﬁed asset for a stated period of time in return for a payment, even if the right to use such asset is not explicitly described in an arrangement. The Group is a lessee of property, plant and equipment and a lessor of its products. It is evaluated on the basis of the risks and rewards of a leased asset whether the ownership of the leased asset is attributed to the lessee (ﬁnance lease) or to the lessor (operating lease). Daimler as lessee In the case of an operating lease, the lease payments or rental payments are expensed on a straight-line basis in the consolidated statement of income. Assets carried as ﬁnance leases are measured at the beginning of the (lease) contract at the lower of the present value of the minimum lease payments and the fair value of the leased object, and in the following periods less accumulated depreciation and other accumulated impairment losses. Depreciation is on a straight-line basis; residual values of the assets are given due consideration. Payment obligations resulting from future lease payments are discounted and disclosed under ﬁnancing liabilities. F.07 Useful lives of property, plant and equipment Buildings and site improvements Technical equipment and machinery Other equipment, factory and oﬃce equipment 10 to 50 years 6 to 25 years 3 to 30 years 250 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Daimler reviews on each reporting date whether there is any objective indication of impairments or impairment reversals of equity-method investments. If such indications exist, the Group determines the impairment loss or reversal to be recognized. If the carrying amount exceeds the recoverable amount of an investment, the carrying amount is written down to the recoverable amount. The recoverable amount is the greater of fair value less costs to sell and value in use. An impairment reversal is carried out if there is objective evidence for an impair- ment reversal. If such an assessment is made, the recoverable amount is remeasured. The amount of an impairment reversal is limited to the amount by which an asset has been impaired. Gains or losses (to be eliminated) from transactions with com- panies accounted for using the equity method are recognized through proﬁt and loss with corresponding adjustments of the investments’ carrying amounts. Impairment of non-current non-ﬁnancial assets Daimler assesses at each reporting date whether there is an indication that an asset may be impaired or whether there is an indication that a previously recognized impairment loss may be reversed. If such indication exists, Daimler estimates the recoverable amount of the asset. The recoverable amount is determined for each individual asset unless the asset gener- ates cash inﬂows that are not largely independent of those from other assets or groups of assets (cash-generating units). In addition, goodwill and other intangible assets with indeﬁnite useful lives are tested annually for impairment; this takes place at the level of the cash-generating units. If the carrying amount of an asset or of a cash-generating unit exceeds the recoverable amount, an impairment loss is recognized for the diﬀerence. The recoverable amount is the higher of fair value less costs of disposal and value in use. For cash-generating units, Daimler in a ﬁrst step determines the respective recoverable amount as value in use and compares it with the respective carrying amount (including goodwill). The cash-generating units are generally deﬁned as the reporting segments. At Daimler Financial Services, impairment tests are carried out below the segment level. There is a diﬀerentiation between the two cash-generating units Daimler Financial Services Classic (typical ﬁnancial services business) and Daimler Financial Services Mobility (innovative mobility services). Sale and lease back The same accounting principles apply to assets if Daimler sells such assets and leases them back from the buyer. Daimler as lessor Operating leases relate to vehicles that the Group produces itself and leases to third parties or to vehicles that the Group sells and grants a buy-back or residual-value guarantee. These vehicles are capitalized at (depreciated) cost of production under leased equipment in the vehicle segments and are depreciated over the contract term on a straight-line basis with consideration of the expected residual values. Changes in the expected residual values lead either to prospective adjust- ments of the scheduled depreciation or to an impairment loss if necessary. Operating leases also relate to vehicles, primarily Group products that Daimler Financial Services acquires from non-Group dealers or other third parties and leases to end customers. These vehicles are presented at (amortized) cost of acquisition under leased equipment in the Daimler Financial Services segment. If these vehicles are Group products and are subsidized, the subsidies are deducted from the cost of acquisition. A(cid:5)er revenue is received from the sale to independent dealers, these Group products generate revenue from lease payments and subsequent resale on the basis of the separate leasing contracts. The revenue received from the sale of Group products to the dealers is estimated by the Group as being of the magnitude of the respective addition to leased equipment at Daimler Financial Services. In 2017, additions to leased equipment from these vehicles at Daimler Financial Services amounted to approximately €13 billion (2016: approximately €13 billion). In the case of ﬁnance leases, the Group presents the receivables under receivables from ﬁnancial services in an amount corresponding to the net investment of the lease agreements. The net investment of a lease agreement is the gross invest- ment (future minimum lease payments and non-guaranteed residual value) discounted at the rate upon which the lease agreement is based. Equity-method investments On the date of acquisition, a positive diﬀerence between cost of acquisition and Daimler’s share of the fair values of the identiﬁable assets and liabilities of the associated company or joint venture is determined and recognized as investor level goodwill. The goodwill is included in the carrying amount of the equity-method investment. With step acquisition of an equity interest by which signiﬁcant inﬂuence or joint control is achieved for the ﬁrst time, the investment is generally accounted for on the basis of IFRS 3 Business Combinations. This means that the previously held equity interest is remeasured on the date of acquisition; any resulting gain or loss is recognized through proﬁt and loss. If an equity interest in an existing associated company is increased without change in signiﬁcant inﬂuence, goodwill is determined only for the additionally acquired interest; the previous investment is not remeasured at fair value. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 251 Value in use is measured by discounting expected future cash ﬂows from the continuing use of the cash-generating units using a risk-adjusted interest rate. Future cash ﬂows are deter- mined on the basis of the long-term planning, which is approved by the Management and which is valid at the date when the impairment test is conducted. This planning is based on expectations regarding future market share, the general development of respective markets as well as the products’ proﬁtability. The multi-year planning comprises a planning horizon until 2025 and therefore mainly covers the product life cycles of our automotive business. The rounded risk-adjusted interest rates used to discount cash ﬂows, which are calculated for each cash-generating unit, are unchanged from the previous year at 8% a(cid:5)er taxes for the cash-gener- ating units of the automotive business. For the cash-generating unit Daimler Financial Services Classic, a risk-adjusted interest rate of 9% a(cid:5)er taxes is applied (unchanged from the previous year); for Daimler Financial Services Mobility, the risk-adjusted interest rate is 15% a(cid:5)er taxes (2016: 14%). Whereas the discount rate for the cash-generating unit Daimler Financial Services Classic represents the cost of equity, the risk-adjusted interest rate for the other cash-generating units is based on the weighted average cost of capital (WACC). These are calculated based on the capital asset pricing model (CAPM) taking into account current market expectations. In calculating the risk- adjusted interest rate for impairment test purposes, speciﬁc peer group information is used for beta factors, capital-structure data and cost of debt. Periods not covered by the forecast are taken into account by recognizing a residual value (terminal value), which generally does not consider any growth rates. In addi- tion, several sensitivity analyses are conducted. These show that generally even in the case of more unfavorable premises for main inﬂuencing factors with respect to the original planning, no need for impairment exists. If value in use is lower than the carrying amount, fair value less costs of disposal is additionally calculated to determine the recoverable amount. An assessment for assets other than goodwill is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may be reversed. If this is the case, Daimler records a partial or entire reversal of the impairment; the carrying amount is thereby increased to the recoverable amount. However, the increased carrying amount may not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized in prior years. Non-current assets held for sale and disposal groups The Group classiﬁes non-current assets or disposal groups as held for sale if the conditions of IFRS 5 Non-current assets held for sale and discontinued operations are fulﬁlled. In this case, the assets or disposal groups are no longer depreciated but measured at the lower of carrying amount and fair value less costs to sell. If fair value less costs to sell subsequently increases, any impairment loss previously recognized is reversed. This reversal is restricted to the impairment loss previously recognized for the assets or disposal group concerned. The Group generally discloses these assets or disposal groups separately in the consolidated statement of ﬁnancial position. Inventories Inventories are measured at the lower of acquisition or manu- facturing cost and net realizable value. The net realizable value is the estimated selling price less estimated costs of completion and estimated costs to sell. The acquisition or manufacturing costs of inventories are generally based on the speciﬁc identiﬁcation method and include costs incurred in acquiring the inventories and bringing them to their existing location and condition. Costs for large numbers of inventories that are interchangeable are allocated under the average cost formula. In the case of manufactured inventories and work in progress, acquisition or manufacturing cost also includes production overheads based on normal capacity. Financial instruments A ﬁnancial instrument is any contract that gives rise to a ﬁnancial asset of one entity and a ﬁnancial liability or equity instrument of another entity. Financial instruments in the form of ﬁnancial assets and ﬁnancial liabilities are generally presented sepa- rately. Financial instruments are recognized as soon as Daimler becomes a party to the contractual provisions of the ﬁnancial instrument. In the case of purchases or sales of ﬁnancial assets through the regular market, Daimler uses the transaction date as the date of initial recognition or derecognition. Upon initial recognition, ﬁnancial instruments are measured at fair value. For the purpose of subsequent measurement, ﬁnancial instruments are allocated to one of the categories mentioned in IAS 39 Financial Instruments: Recognition and Measurement. Transaction costs directly attributable to acquisition or issuance are considered by determining the carrying amount if the ﬁnancial instruments are not measured at fair value through proﬁt or loss. 252 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial assets Financial assets primarily comprise receivables from ﬁnancial services, trade receivables, receivables from banks, cash on hand, derivative ﬁnancial assets and marketable securities and ﬁnancial investments. Financial assets at fair value through proﬁt or loss. Financial assets at fair value through proﬁt or loss include those ﬁnan- cial assets designated as held for trading. Derivatives, including embedded derivatives separated from the host contract, which are not classiﬁed as hedging instru- ments in hedge accounting, as well as shares and marketable debt securities acquired for the purpose of selling in the near term are classiﬁed as held for trading. Gains or losses on these ﬁnancial assets are recognized in proﬁt or loss. Loans and receivables. Loans and receivables are non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market, such as receivables from ﬁnancial services or trade receivables. A(cid:5)er initial recognition, loans and receivables are subsequently carried at amortized cost using the eﬀective interest method less any impairment losses. Gains and losses are recognized in the statement of income when the loans and receivables are impaired or derec- ognized. Interest eﬀects on the application of the eﬀective interest method are also recognized in proﬁt or loss. Available-for-sale ﬁnancial assets. Available-for-sale ﬁnancial assets are non-derivative ﬁnancial assets that are designated as available for sale or that are not classiﬁed in any of the preceding categories. This category includes equity instruments and debt instruments such as government bonds, corporate bonds and commercial paper. A(cid:5)er initial measurement, available-for-sale ﬁnancial assets are measured at fair value, with unrealized gains or losses being recognized in other comprehensive income/loss. If objective evidence of impairment exists or if changes occur in the fair value of a debt instrument resulting from currency ﬂuctuations, these changes are recognized in proﬁt or loss. Upon disposal of ﬁnancial assets, the accumulated gains and losses recognized in other comprehensive income/loss resulting from measure- ment at fair value are recognized in proﬁt or loss. If a reliable estimate cannot be made of the fair value of an unquoted equity instrument, such as an investment in a German limited liability company, this instrument is measured at cost (less any impairment losses). Interest earned on available-for-sale ﬁnancial assets is generally reported as interest income using the eﬀective interest method. Dividends are recognized in proﬁt or loss when the right of payment has been established. Cash and cash equivalents. Cash and cash equivalents consist primarily of cash on hand, checks and demand deposits at banks, as well as debt instruments and certiﬁcates of deposits with a remaining term when acquired of up to three months, which are not subject to any material value ﬂuctuations. Cash and cash equivalents correspond with the classiﬁcation in the consolidated statement of cash ﬂows. Impairment of ﬁnancial assets At each reporting date, the carrying amounts of ﬁnancial assets other than those to be measured at fair value through proﬁt or loss are assessed to determine whether there is objective evidence of impairment. Objective evidence may exist for example if a debtor is facing serious ﬁnancial diﬃculties or there is a substantial change in the debtor’s technological, economic, legal or market environment. For quoted equity instruments, a signiﬁcant or prolonged decline in fair value is additional objective evidence of possible impairment. Daimler has deﬁned criteria for the signiﬁcance and duration of a decline in fair value. A decline in fair value is deemed signiﬁcant if it exceeds 20% of the carrying amount of the investment; a decline is deemed prolonged if the carrying amount exceeds the fair value for a period longer than nine months. Loans and receivables. If there are objective indications that the value of a loan or receivable has to be impaired, the amount of the impairment loss is measured as the diﬀerence between the carrying amount of the asset and the present value of expected future cash ﬂows (excluding expected future credit losses that have not yet been incurred), discounted at the original eﬀective interest rate of the ﬁnancial asset. The amount of the impairment loss is recognized in proﬁt or loss. If, in a subsequent reporting period, the amount of the impairment loss decreases and the decrease can be attributed objectively to an event occurring a(cid:5)er the impairment was recognized, the impairment loss recorded in prior periods is reversed and recognized in proﬁt or loss. In most cases, an impairment loss on loans and receivables (e.g. receivables from ﬁnancial services including ﬁnance lease receivables and trade receivables) is recorded using allowance accounts. The decision to account for credit risks using an allowance account or by directly reducing the receivable depends on the estimated probability of the loss of receivables. Available-for-sale ﬁnancial assets. If an available-for-sale ﬁnancial asset is impaired, the diﬀerence between its cost (net of any principal payment and amortization) and its current fair value (less any impairment loss previously recognized in the statement of income) is reclassiﬁed from other comprehensive income/loss to the statement of income. Reversals with respect to equity instruments classiﬁed as available for sale are recognized in other comprehensive income/loss. Reversals of impairment losses on debt instruments are recog- nized through the statement of income if the increase in fair value of the instrument can be objectively attributed to an event occurring a(cid:5)er the impairment losses were recognized in the consolidated statement of income. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 253 Oﬀsetting ﬁnancial instruments Financial assets and ﬁnancial liabilities are oﬀset and the net amount is presented in the consolidated statement of ﬁnancial position provided that an enforceable right currently exists to oﬀset the amounts involved, and there is an intention either to carry out the oﬀsetting on a net basis or to settle a liability when the related asset is sold. Financial liabilities Financial liabilities primarily include trade payables, liabilities to banks, bonds, derivative ﬁnancial liabilities and other liabilities. Financial liabilities measured at amortized cost. A(cid:5)er initial recognition, ﬁnancial liabilities are subsequently measured at amortized cost using the eﬀective interest method. Financial liabilities at fair value through proﬁt or loss. Financial liabilities at fair value through proﬁt or loss include ﬁnancial liabilities held for trading. Derivatives (including embedded derivatives separated from the host contract) which are not used as hedging instruments in hedge accounting, are classiﬁed as held for trading. Gains or losses on liabilities held for trading are recognized in proﬁt or loss. Derivative ﬁnancial instruments and hedge accounting The Group uses derivative ﬁnancial instruments exclusively for hedging ﬁnancial risks that arise from its commercial business or reﬁnancing activities. These are mainly interest rate risks, currency risks and commodity price risks. Embedded derivatives are separated from the host contract, which is not measured at fair value through proﬁt or loss, if an analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract. Derivative ﬁnancial instruments are measured at fair value upon initial recognition and at each subsequent reporting date. The fair value of listed derivatives is equal to their positive or negative market value. If a market value is not available, fair value is calculated using standard ﬁnancial valuation models such as discounted cash ﬂow or option pricing models. Derivatives are presented as assets if their fair value is positive and as liabilities if the fair value is negative. If the requirements for hedge accounting set out in IAS 39 are met, Daimler designates and documents the hedge relationship from the date a derivative contract is entered into as a fair value hedge, a cash ﬂow hedge or a hedge of a net investment in a foreign business operation. In a fair value hedge, the fair value of a recognized asset or liability or an unrecognized ﬁrm commitment is hedged. In a cash ﬂow hedge, the variability of cash ﬂows to be received or paid from expected transactions related to a recognized asset or liability or a highly probable forecast transaction are hedged. The documentation of the hedging relationship includes the objectives and strategy of risk management, the type of hedging relationship, the nature of the risk being hedged, the identiﬁcation of the hedging instrument and the hedged item, as well as a description of the method used to assess hedge eﬀectiveness. Hedging transactions are expected to be highly eﬀective in achieving oﬀsetting risks from changes in fair value or cash ﬂows and are regularly assessed to determine that they have actually been highly eﬀective throughout the ﬁnancial reporting periods for which they are designated. Changes in the fair value of derivative ﬁnancial instruments are recognized periodically in either proﬁt or loss or other com- prehensive income/loss, depending on whether the derivative is designated as a hedge of changes in fair value or cash ﬂows. For fair value hedges, changes in the fair value of the hedged item and the derivative are recognized in proﬁt or loss. For cash ﬂow hedges, fair value changes in the eﬀective portion of the hedging instrument a(cid:5)er taxes are recognized in other comprehensive income/loss. Amounts recognized in other comprehensive income/loss are reclassiﬁed to the state- ment of income when the hedged underlying transaction aﬀects the statement of income. The ineﬀective portions of fair value changes are recognized in proﬁt or loss. If derivative ﬁnancial instruments do not or no longer qualify for hedge accounting because the qualifying criteria for hedge accounting are not or are no longer met, the derivative ﬁnancial instruments are classiﬁed as held for trading and are measured at fair value through proﬁt or loss. 254 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Pensions and similar obligations The measurement of deﬁned beneﬁt plans for pensions and other post-employment beneﬁt obligations (medical care) in accordance with IAS 19 Employee Beneﬁts is based on the projected unit credit method. Plan assets invested to cover deﬁned beneﬁt pension obligations and other post-employment beneﬁt obligations (medical care) are measured at fair value and oﬀset against the corresponding obligations. For the valuation of deﬁned beneﬁt plans, diﬀerences between actuarial assumptions used and actual developments as well as changes in actuarial assumptions result in actuarial gains and losses, which have a direct impact on the consolidated statement of ﬁnancial position or on the consolidated statement of com- prehensive income/loss. The balance of deﬁned beneﬁt plans for pensions and other post-employment beneﬁt obligations and plan assets (net pension obligation or net pension assets) accrues interest at the discount rate used as a basis for the measurement of the gross pension obligation. The resulting net interest expense or income is recognized in proﬁt and loss under interest expense or interest income in the consolidated state- ment of income. The other expenses resulting from pension obligations and other post-employment beneﬁt obligations (medical care), which mainly result from entitlements acquired during the year under review, are taken into consideration in the functional costs in the consolidated statement of income. The discount factors used to calculate the present values of deﬁned beneﬁt pension obligations are to be determined – with maturities and currencies matching the pension payments – by reference to market yields at the end of the reporting period on high-quality corporate bonds in the respective markets. For very long maturities, there are no high-quality corporate bonds available as a benchmark. The respective discount factors are estimated by extrapolating current market rates along the yield curve. Gains or losses on the curtailment or settlement of a deﬁned beneﬁt plan are recognized in proﬁt or loss when the curtail- ment or settlement occurs. Provisions for other risks A provision is recognized when a liability to third parties has been incurred, an outﬂow of resources is probable and the amount of the obligation can be reasonably estimated. The amount recognized as a provision represents the best estimate of the obligation at the reporting date. Provisions with an original maturity of more than one year are discounted to the present value of the expenditures expected to settle the obligation at the end of the reporting period. If the criteria of the regulations on recognition and measurement of provi- sions are not fulﬁlled and the possibility of a cash outﬂow upon settlement is not unlikely, the item is to be presented as a contingent liability, insofar as it is adequately measurable. Provisions and contingent liabilities are regularly reviewed and adjusted as further information becomes available or circumstances change. A provision for expected warranty costs is recognized when a product is sold or when a new warranty program is initiated. Estimates for accrued warranty costs are primarily based on historical experience. Restructuring provisions are set up in connection with programs that materially change the scope of business performed by a segment or business unit or the manner in which business is conducted. In most cases, restructuring expenses include termination beneﬁts and compensation payments due to the termination of agreements with suppliers and dealers. Restructuring provisions are recognized when the Group has a detailed formal plan that has either commenced implementation or been announced. Share-based payment Share-based payment comprises cash-settled liability awards. Liability awards are measured at fair value at each balance sheet date until settlement and are classiﬁed as provisions. The proﬁt or loss of the period equals the addition to and/or the reversal of the provision during the reporting period and the dividend equivalent paid during the period, and is included in the functional costs. Presentation in the consolidated statement of cash ﬂows Interest paid as well as interest and dividends received are classiﬁed as cash provided by/used for operating activities. The cash ﬂows from short-term marketable debt securities with high turnover rates and signiﬁcant amounts are oﬀset and presented within cash provided by/used for investing activities. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 255 2. Accounting estimates and management judgements In the consolidated ﬁnancial statements, to a certain degree, estimates and management judgements have to be made which can aﬀect the amounts and reporting of assets and liabilities, the reporting of contingent assets and liabilities on the balance sheet date, and the amounts of income and expense reported for the period. The major items aﬀected by such estimates and management judgements are described as follows. Actual amounts may diﬀer from the estimates. Changes in the estimates and management judgements can have a material impact on the consolidated ﬁnancial statements. events and conditions and the estimated fair values and adequacy of collaterals. Changes in economic conditions can lead to changes in our customers’ creditworthiness and to changes in used-vehicle prices, which would have a direct eﬀect on the market values of the vehicles assigned as collateral. Changes to the estimation and assessment of these factors inﬂuence the allowance for credit losses with a resulting impact on the Group’s net proﬁt. See also Notes 14 and 32 for further information. Product warranties The recognition and measurement of provisions for product warranties is generally connected with estimates. Recoverable amounts of cash-generating units and equity-method investments In the context of impairment tests for non-ﬁnancial assets, estimates have to be made to determine the recoverable amounts of cash-generating units. Assumptions have to be made in particular with regard to future cash inﬂows and outﬂows for the planning period and the following periods. The estimates include assumptions regarding future market share and the growth of the respective markets as well as regarding the products’ proﬁtability. On the basis of the impair- ment tests carried out in 2017, the recoverable amounts are larger than the net assets of the Group’s cash-generating units, in most cases substantially larger. The Group provides various types of product warranties depend- ing on the type of product and market conditions. Provisions for product warranties are generally recognized when vehicles are sold or when new warranty programs are initiated. Based on historical warranty claim experience, assumptions have to be made on the type and extent of future warranty claims and customer goodwill, as well as on possible recall campaigns for each model series. These assessments are based on experience of the frequency and extent of vehicle faults and defects in the past. In addition, the estimates also include assumptions on the amounts of potential repair costs per vehicle and the eﬀects of possible time or mileage limits. The provisions are regularly adjusted to reﬂect new information. When objective evidence of impairment or impairment reversal is present, estimates and assessments also have to be made to determine the recoverable amount of an equity method ﬁnancial investment. The determination of the recoverable amount is based on assumptions regarding future business developments for the determination of the expected future cash ﬂows of that ﬁnancial investment. See Note 13 for the presentation of carrying amounts and fair values of equity- method ﬁnancial investments in listed companies. Recoverable amount of equipment on operating leases Daimler regularly reviews the factors determining the values of its leased vehicles. In particular, it is necessary to estimate the residual values of vehicles at the end of their leases, which constitute a substantial part of the expected future cash ﬂows from leased assets. In this context, assumptions are made regarding major inﬂuencing factors, such as the expected number of returned vehicles, the latest remarketing results and future vehicle model changes. Those assumptions are determined either by qualiﬁed estimates or by publications provided by expert third parties; qualiﬁed estimates are based, as far as publicly available, on external data with consideration of internally available additional information such as historical experience of price developments and recent sale prices. The residual values thus determined serve as a basis for depre- ciation; changes in residual values lead either to prospective adjustments of the depreciation or, in the case of a signiﬁcant decline in expected residual values, to impairment. If deprecia- tion is prospectively adjusted, changes in estimates of residual values do not have a direct eﬀect but are equally distributed over the remaining periods of the lease contracts. Collectability of receivables from ﬁnancial services The Group regularly estimates the risk of default on receivables from ﬁnancial services. Many factors are taken into consider- ation in this context, including historical loss experience, the size and composition of certain portfolios, current economic Further information on provisions for other risks is provided in Note 23. Legal proceedings Various legal proceedings, claims and governmental investiga- tions are pending against Daimler AG and its subsidiaries on a wide range of topics. If the outcome of such legal proceedings is detrimental to Daimler, the Group may be required to pay substantial compensatory and punitive damages, to undertake service actions or recall campaigns, to pay ﬁnes or to carry out other costly actions. Litigation and governmental investiga- tions o(cid:5)en involve complex legal issues and are connected with a high degree of uncertainty. Accordingly, the assessment of whether an obligation exists on the balance sheet date as a result of an event in the past, and whether a future cash out- ﬂow is likely and the obligation can be reliably estimated, largely depends on estimations by the management. Daimler regularly evaluates the current stage of legal proceedings, also with the involvement of external legal counsel. It is therefore possible that the amounts of provisions for pending or potential litigation will have to be adjusted due to future developments. Changes in estimates and premises can have a material eﬀect on the Group’s future proﬁtability. It is also possible that provisions accrued for some legal proceedings may turn out to be insuﬃcient once such proceedings have ended. Daimler may also become liable for payments in legal proceedings no provisions were established for. Although the ﬁnal resolution of any such proceedings could have a material eﬀect on Daimler’s operating results and cash ﬂows for a particular reporting period, Daimler believes that it should not materially aﬀect the Group’s ﬁnancial position. Further information on liability and litigation risks is provided in Note 29. 256 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Pensions and similar obligations The calculation of provisions for pensions and similar obligations and the related pension cost are based on various actuarial valuations. The calculations are subject to various assumptions on matters such as current actuarially developed probabilities (e.g. discount factors and cost-of-living increases), future ﬂuctuations with regard to age and period of service, and experience with the probability of occurrence of pension payments, annuities or lump sums. As a result of changed market or economic conditions, the probabilities on which the inﬂuencing factors are based, may diﬀer from current developments. The ﬁnancial eﬀects of deviations of the main factors are calculated with the use of sensitivity analyses. See Note 22 for further information. Income taxes The calculation of income taxes of Daimler AG and its subsid- iaries is based on the legislation and regulations applicable in the various countries. Due to their complexity, the tax items presented in the ﬁnancial statements are possibly subject to diﬀerent interpretation by taxpayers on the one hand and local tax authorities on the other hand. For the calculation of deferred tax assets, assumptions have to be made regarding future taxable income and the time of realization of the deferred tax assets. In this context, Daimler takes into consid- eration, among other things, the projected earnings from business operations, the eﬀects on earnings of the reversal of taxable temporary diﬀerences, and realizable tax strategies. As future business developments are uncertain and are some- times beyond Daimler’s control, the assumptions to be made in connection with accounting for deferred tax assets are connected with a substantial degree of uncertainty. On each balance sheet date, Daimler carries out impairment tests on deferred tax assets on the basis of the planned taxable income in future ﬁnancial years; if Daimler assesses that the proba- bility of future tax advantages being partially or fully unrealized is more than 50%, the deferred tax assets are impaired. Further information is provided in Note 9. 3. Consolidated Group Composition of the Group Table (cid:202) F.08 shows the composition of the Group. The aggregate balance sheet totals of the subsidiaries, associ- ated companies, joint ventures and joint operations accounted for at amortized cost whose business is non-active or of low volume and which are not material for the Group and the fair presentation of its proﬁtability, liquidity and capital resources and ﬁnancial position would amount to approximately 1% of the Group’s balance sheet total; the aggregate revenues and the aggregate net proﬁt would amount to approximately 1% of the Group’s revenue and net proﬁt. A detailed list of the companies included in the consolidated ﬁnancial statements and of the equity investments of Daimler Group pursuant to Section 313 of the German Commercial Code (HGB) is provided in the statement of investments. Fur- ther information is provided in Note 39. Structured entities The structured entities of the Group are rental companies, asset- backed-securities (ABS) companies and special funds. The purpose of the rental companies primarily is the acquisition, renting and management of assets. The ABS companies are primarily used for the Group’s reﬁnancing. The assets transferred to structured entities usually result from the Group’s leasing and sales ﬁnancing business. Those entities reﬁnance the purchase price by issuing securities. The special funds are set up in particular in order to diversify the capital investment strategy. At the reporting date, the Group has business relationships with 24 (2016: 20) controlled structured entities, of which 22 (2016: 18) are fully consolidated. In addition, the Group has relationships with 6 (2016: 5) non-controlled structured entities. The unconsolidated structured entities are not material for the Group’s proﬁtability, liquidity and capital resources and ﬁnancial position. Consolidated subsidiaries On June 30, 2016, Daimler signed the agreements for the acquisi- tion of 100% of the shares of Athlon Car Lease International B.V. (Athlon), a subsidiary of the Dutch Rabobank Group. Athlon is one of the leading providers of mobility solutions in Europe, especially of leasing and ﬂeet management for commercial customers. The transaction was closed on December 1, 2016. Upon closing, the purchase price of €1.1 billion was paid and ﬁnancial liabilities of the Athlon companies in an amount of approximately €2.7 billion were settled. In 2017, Daimler received total purchase price refunds of €41 million. Purchase- price allocation was ﬁnalized in the fourth quarter of 2017. In the context of allocated purchase-price diﬀerence of €637, €402 million was allocated to goodwill, €311 million to intangible assets and €6 million to other assets. €82 million was accounted for by deferred tax liabilities. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 257 Eﬀective as of June 30, 2016, Daimler placed its 3.1% interest in each of Renault S.A. (Renault) and Nissan Motor Company Ltd. (Nissan) at the amount of the fair value (€1,800 million) into the Daimler Pension Trust e.V. for the purpose of strength- ening the German pension plan assets over the long term. Before this transfer, the investments in Renault and Nissan were presented under other ﬁnancial assets. The investments were measured at fair value, whereby unrecognized gains were shown under other comprehensive income. The contribution of the shares led to other ﬁnancial income in an amount of €605 million, which was shown in the reconciliation in 2016. Joint operations accounted for using proportionate consolidation Daimler AG together with Nissan Motor Company Ltd. founded the joint operation Cooperation Manufacturing Plant Aguascalientes, S.A.P.I. de C.V. in Mexico in 2015. The company has been producing cars for the Inﬁniti brand since November 2017. Production for the Mercedes-Benz brand will start in 2018. Daimler and Nissan each hold a 50% interest in the company. The joint operation has been accounted for using proportionate consolidation since July 1, 2016. The company is allocated to the Mercedes-Benz Cars segment. Equity-method investments In May 2017, Daimler acquired for a purchase price of €0.3 bil- lion an interest of 15% in LSH Auto International Limited (LSHAI), which is responsible for the Mercedes-Benz retail business of Lei Shing Hong Group. LSHAI, a subsidiary of Lei Shing Hong Group, is one of the biggest Mercedes-Benz deal- ers worldwide. See Note 13 for further information. In January 2017, There Holding B.V. sold an equity interest of 15% in HERE International B.V to Intel Holdings B.V. and recognized a gain of €183 million in connection with the sale. See Note 13 for further information. F.08 Composition of the Group Consolidated subsidiaries Germany International Unconsolidated subsidiaries Germany International Joint operations accounted for using proportionate consolidation Germany International Joint operations accounted for using the equity method Germany International Joint ventures accounted for using the equity method Germany International Associated companies accounted for using the equity method Germany International Joint operations, joint ventures, associated companies and substantial other investments accounted for at (amortized) cost Germany International At December 31, 2016 2017 363 64 299 119 41 78 1 – 1 3 1 2 16 5 11 14 3 11 32 16 16 548 359 62 297 97 30 67 1 – 1 3 1 2 14 4 10 13 3 10 26 13 13 513 258 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F.09 Revenue In millions of euros Revenue from sales of goods Revenue from the rental and leasing business Interest from the ﬁnancial services business at Daimler Financial Services Revenue from sales of other services F.10 Cost of sales In millions of euros Expense of goods sold Depreciation of equipment on operating leases Reﬁnancing costs at Daimler Financial Services Impairment losses on receivables from ﬁnancial services Other cost of sales F.11 Optimization programs In millions of euros Mercedes-Benz Cars EBIT Cash ﬂow Provisions for optimization programs1 Daimler Trucks EBIT Cash ﬂow Provisions for optimization programs1 Mercedes-Benz Vans EBIT Cash ﬂow Provisions for optimization programs1 Daimler Buses EBIT Cash ﬂow Provisions for optimization programs1 4. Revenue 2017 2016 140,272 132,577 Table (cid:202) F.09 shows the composition of revenue at Group level. Revenue by segment (cid:202) F.81 and region (cid:202) F.83 is presented in Note 33. 18,394 15,997 5. Functional costs 4,609 1,055 4,146 541 164,330 153,261 Cost of sales Items included in cost of sales are shown in table (cid:202) F.10. Amortization expense of capitalized development costs in the amount of €1,310 million (2016: €1,268 million) is presented in expense of goods sold. Selling expenses In 2017, selling expenses amounted to €12,965 million (2016: €12,226 million). Selling expenses consist of direct selling costs as well as selling overhead expenses and comprise per- sonnel expenses, material costs and other selling costs. General administrative expenses General administrative expenses amounted to €3,809 million in 2017 (2016: €3,419 million). They consist of expenses which are not attributable to production, sales or research and development functions, and comprise personnel expenses, depreciation and amortization of ﬁxed and intangible assets, and other administrative costs. Research and non-capitalized development costs Research and non-capitalized development costs were €5,938 million in 2017 (2016: €5,257 million) and primarily comprise personnel expenses and material costs. Optimization programs Measures and programs with implementation costs that materially impacted the EBIT of the segments are brieﬂy described below. In the course of the organizational focus on the divisions, programs for restructuring the Group’s dealer network abroad were initiated in 2015, involving the sale of selected Daimler- owned dealerships. The restructuring was mainly completed in 2017. In the reporting period 2017, these measures resulted in income of €133 million (2016: net expense of €58 million). At December 31, 2016, the disposal group’s assets for those dealerships abroad amounted to €240 million and its liabilities amounted to €135 million. At December 31, 2017, only non- signiﬁcant assets and liabilities of the disposal group exist. Due to their minor impact on the Group’s ﬁnancial position, the assets and liabilities held for sale are not presented separately in the consolidated statement of ﬁnancial position. 2017 2016 - 114,054 - 107,925 - 7,978 - 6,652 - 2,187 - 1,789 - 500 - 5,280 - 499 - 4,433 - 129,999 - 121,298 2017 2016 105 203 8 - 160 - 17 3 13 24 2 1 2 – - 33 253 11 - 105 - 68 3 - 49 – 3 - 9 - 3 – 1 Amounts of provisions for optimization programs as of December 31. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 259 Table (cid:202) F.11 shows the eﬀects of the optimization programs on the key ﬁgures of the segments. F.13 Average number of employees F.12 Income and expenses associated with optimization programs In millions of euros Cost of sales Selling expenses General administrative expenses Research and non-capitalized development costs Other operating expenses Other operating income 2017 2016 - 93 - 16 - 27 - 38 – 133 - 41 - 127 - 108 - 8 - 2 - 45 94 - 196 2017 2016 143,586 140,591 80,155 24,823 17,978 12,621 10,367 81,810 23,763 17,937 10,880 9,976 289,530 284,957 Mercedes-Benz Cars1 Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services Other 1 Including proportionally 1,203 employees from proportionately consolidated companies in 2017 (2016: 337). Daimler Trucks anticipates expenses in connection with the optimization of ﬁxed costs, especially at the Mercedes-Benz brand, of approximately €0.2 billion, of which €172 million were recognized in 2017. Due to the employee-transfer opportunities within the Daimler Group, the expenses were lower than originally assumed. In the year 2016, a workforce-reduction program was implemented in Brazil. That program resulted in expenses of €91 million in the Daimler Trucks segment in 2016. In the year 2016, Mercedes-Benz Vans initiated a socially acceptable voluntary severance program for the Düsseldorf plant. In 2016, the program led to an expense of €38 million. In the reporting period 2017, this resulted in only a small amount of expenses. Beside gains and/or losses from the sale of selected operations of the Group’s current sales network, the EBIT eﬀects listed in table (cid:202) F.11 primarily relate to personnel measures and are included in the line items within the consolidated statement of income as shown in table (cid:202) F.12. Cash eﬀects resulting from the optimization programs are expected in the years 2018 and 2019. Personnel expenses and average number of employees Personnel expenses included in the consolidated statement of income amounted to €22,186 million in 2017 (2016: €21,141 million). The personnel expenses are composed of wages and salaries in the amount of €18,188 million (2016: €17,150 million), social contributions in the amount of €3,292 million (2016: €3,242 million) and expenses from pension obligations in the amount of €706 million (2016: €749 million). The average numbers of people employed are shown in table (cid:202) F.13. Information on the total remuneration of the current and former members of the Board of Management and the current members of the Supervisory Board is provided in Note 37. 260 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F.14 Other operating income In millions of euros Income from costs recharged to third parties Government grants and subsidies Gains on sales of property, plant and equipment Rental income not relating to sales ﬁnancing Income associated with optimization programs Other miscellaneous income F.15 Other operating expense In millions of euros Losses on sales of property, plant and equipment Expenses associated with optimization programs Other miscellaneous expenses F.16 Other ﬁnancial income/expense, net In millions of euros Income and expense from compounding and eﬀects from changes in discount rates of provisions for other risks Miscellaneous other ﬁnancial income/expense, net F.17 Interest income and interest expense In millions of euros Interest income Net interest income on the net assets of deﬁned beneﬁt pension plans Interest and similar income Interest expense Net interest expense on the net obligation from deﬁned beneﬁt pension plans Interest and similar expense 6. Other operating income and expense 2017 2016 The composition of other operating income is shown in table (cid:202) F.14. 1,309 107 1,219 144 385 149 133 741 24 126 94 743 2,824 2,350 Income from costs recharged to third parties includes income from licenses and patents, shipping costs and other costs charged to third parties, with related expenses primarily within the functional costs. Government grants and subsidies mainly comprise reimburse- ments relating to current part-time early retirement contracts and subsidies for alternative drive systems. Gains on sales of property, plant and equipment include gains of €267 million from the sale of real estate by Mitsubishi Fuso Truck and Bus Corporation at the Kawasaki site in Japan. Further information on income and expenses associated with optimization programs is provided in Note 5. 2017 2016 The composition of other operating expense is shown in table (cid:202) F.15. Other miscellaneous expense primarily comprises losses from disposals of current assets and changes in other provisions. In 2016, other operating expense included expenses of €400 million connected with a lawsuit. 7. Other ﬁnancial income/expense, net Table (cid:202) F.16 shows the components of other ﬁnancial income/ expense, net. In 2016, miscellaneous other ﬁnancial income included the recognition of gains of €605 million from the contribution of the shareholdings in Renault and Nissan to the German pension plan assets at fair value. Those gains were presented within other comprehensive income/loss until the transfer. 8. Interest income and interest expense Table (cid:202) F.17 shows the components of interest income and interest expense. - 117 - 111 – - 925 - 1,042 - 45 - 1,142 - 1,298 2017 2016 - 61 - 124 - 169 - 230 399 275 2017 2016 2 212 214 - 211 - 371 - 582 5 225 230 - 227 - 319 - 546 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 261 9. Income taxes Proﬁt before income taxes is comprised as shown in table (cid:202) F.18. Proﬁt before income taxes in Germany includes proﬁt/loss from equity-method investments if the equity interests in those companies are held by German companies. Table (cid:202) F.19 shows the components of income taxes. The current tax expense includes tax expenses at German and foreign companies of €268 million (2016: tax beneﬁts of €292 million) recognized for prior periods. The deferred tax expense/beneﬁt is comprised of the components shown in table (cid:202) F.20. For German companies, in 2017 and 2016, deferred taxes were calculated using a federal corporate income tax rate of 15%, a solidarity tax surcharge of 5.5% on each year’s federal corpo- rate income taxes, and a trade tax rate of 14%. In total, the tax rate applied for the calculation of German deferred taxes in both years amounted to 29.825%. For non-German companies, the deferred taxes at period-end were calculated using the tax rates of the respective countries. Table (cid:202) F.21 shows a reconciliation of expected income tax expense to actual income tax expense determined using the unchanged applicable German combined statutory tax rate of 29.825%. F.18 Proﬁt before income taxes In millions of euros German companies Non-German companies F.19 Components of income taxes In millions of euros Current taxes German companies Non-German companies Deferred taxes German companies Non-German companies 2017 2016 6,399 7,902 5,775 6,799 14,301 12,574 2017 2016 - 2,024 - 1,985 - 1,396 - 1,690 - 401 973 - 155 - 549 - 3,437 - 3,790 F.20 Components of deferred tax expense/beneﬁt In millions of euros Deferred taxes due to temporary diﬀerences due to tax loss carryforwards and tax credits 2017 2016 572 972 - 400 - 704 - 44 - 660 F.21 Reconciliation of expected income tax expense to actual income tax expense In millions of euros 2017 2016 Expected income tax expense - 4,265 - 3,750 Foreign tax rate diﬀerential Trade tax rate diﬀerential Tax law changes Change of valuation allowance on deferred tax assets Tax-free income and non-deductible expenses Other - 80 52 1,624 - 41 31 48 - 171 - 225 - 632 35 113 34 Actual income tax expense - 3,437 - 3,790 262 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F.22 Deferred tax assets and liabilities In millions of euros Deferred tax assets Deferred tax liabilities Deferred tax assets, net At December 31, 2016 2017 2,853 - 2,402 451 3,870 - 3,467 403 F.23 Split of tax assets and liabilities before oﬀset In millions of euros Intangible assets Property, plant and equipment Equipment on operating leases Inventories Receivables from ﬁnancial services Miscellaneous assets, mainly other ﬁnancial assets Tax loss carryforwards and unused tax credits Provisions for pensions and similar obligations Other provisions Liabilities Deferred income Miscellaneous liabilities Valuation allowances thereof on temporary diﬀerences thereof on tax loss carryforwards and tax credits Deferred tax assets, gross Development costs Other intangible assets Property, plant and equipment Equipment on operating leases Inventories Receivables from ﬁnancial services Miscellaneous assets Provisions for pensions and similar obligations Other provisions Miscellaneous liabilities At December 31, 2016 2017 48 134 2,319 977 392 51 340 1,798 1,129 328 6,423 6,019 1,813 2,256 671 1,861 931 1,332 2 16,903 - 1,291 - 194 - 1,097 15,612 - 3,060 - 127 - 1,574 - 5,211 - 55 - 1,302 - 377 891 2,348 1,518 1,702 2 18,382 - 1,248 - 235 - 1,013 17,134 - 2,625 - 274 - 1,654 - 7,919 - 68 - 1,124 - 620 - 3,082 - 2,098 - 147 - 226 - 139 - 210 Deferred tax liabilities, gross - 15,161 - 16,731 Deferred tax assets, net 451 403 The law signed in 2017 by the President of the United States of America for a comprehensive tax reform (“H.R. 1/Tax Cuts and Jobs Act”), includes the reduction of the nationwide federal corporate income tax rate for US-companies from 35% to 21%, starting on January 1, 2018. At yearend 2017, the reduction of the federal corporate income tax rate required the remea- surement of the deferred tax liabilities and deferred tax assets of the US-subsidiaries of Daimler. The resulting tax beneﬁt of €1,668 million is included in the line item tax law changes. In 2017 and 2016, the Group impaired deferred tax assets of foreign subsidiaries. The resulting tax expenses are included in the line item change of valuation allowance on deferred tax assets. Tax-free income and non-deductible expenses include all other eﬀects at foreign and German companies relating to tax-free income and non-deductible expenses, for instance tax-free gains included in net periodic pension costs at the German com- panies and tax-free results of our equity-method investments. In 2016, tax-free gains recognized on the contribution of our shares in Renault and Nissan into the German pension plan assets are shown in this line item. Furthermore, in 2017, the line item also includes tax expenses in connection with the interpretation of tax laws. In 2016, tax beneﬁts relating to tax assessments of prior years are included in this line item. Deferred tax assets and deferred tax liabilities are oﬀset if the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority and if there is the right to set oﬀ current tax assets against current tax liabilities. In the presentation of deferred tax assets and liabilities in the consolidated statement of ﬁnancial position, no diﬀerence is made between current and non-current. In the consolidated statement of ﬁnancial position, deferred tax assets and lia- bilities are presented as shown in table (cid:202) F.22. In respect of each type of temporary diﬀerence and in respect of each type of unutilized tax loss carryforwards and unutilized tax credits, the deferred tax assets and liabilities before oﬀset are summarized in table (cid:202) F.23. The development of deferred tax assets, net, is shown in table (cid:202) F.24. Including the items recognized in other comprehensive income/ loss (including items from equity-method investments), the expense for income taxes is comprised as shown in table (cid:202) F.25. In the consolidated statement of ﬁnancial position, the valuation allowances on deferred tax assets, which are mainly attribut- able to foreign companies, increased by €43 million compared to December 31, 2016. This is primarily a result of the addi- tional valuation allowances of €171 million recognized in net proﬁt. Furthermore, a decrease in the valuation allowance was recognized in equity, mainly due to currency translation. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 263 F.24 Change of deferred tax assets, net In millions of euros Deferred tax assets, net as of January 1 Deferred tax expense/beneﬁt in the ﬁnancial statement of income Change in deferred tax expense/beneﬁt on ﬁnancial assets available-for-sale included in other comprehensive income/loss Change in deferred tax expense/beneﬁt on derivative ﬁnancial instruments included in other comprehensive income/loss Change in deferred tax expense/beneﬁt on actuarial gains/losses from deﬁned beneﬁt pension plans Other changes1 Deferred tax assets, net as of December 31 2017 2016 403 572 1,069 - 704 - 3 1 - 741 - 495 - 19 239 451 748 - 216 403 1 Additions to the scope of consolidation in the amount of €-112 million are included in 2016. The other changes primarily relate to eﬀects from currency translation. F.25 Tax expense in equity In millions of euros Income tax expense in the consolidated ﬁnancial statement of income Income tax expense/beneﬁt recorded in other reserves 2017 2016 - 3,437 - 3,790 - 763 - 4,200 254 - 3,536 At December 31, 2017, the valuation allowance on deferred tax assets relates, among other things, to corporate income tax loss carryforwards (€904 million). €12 million of the deferred tax assets for corporate income tax loss carryforwards adjusted by a valuation allowance relates to tax loss carry- forwards which expire at various dates from 2018 through 2020, €258 million relates to tax loss carryforwards which expire at various dates from 2021 through 2027, €17 million relates to tax loss carryforwards which expire at various dates from 2028 through 2037 and €617 million relates to tax loss carryforwards which can be carried forward indeﬁnitely. Further- more, the valuation allowance primarily relates to temporary diﬀerences at non-German companies as well as net operating losses for state and local taxes at the US-companies. Daimler believes that it is more likely than not that those deferred tax assets cannot be utilized. In 2017 and prior years, the Group had tax losses at several subsidiaries in several countries. A(cid:5)er oﬀsetting the deferred tax assets with deferred tax liabilities, the deferred tax assets not subject to valuation allowances amounted to €135 million for those subsidiaries. Daimler believes it is more likely than not that future taxable income will be suﬃcient to allow utilization of the deferred tax assets. Daimler’s current estimate of the amount of deferred tax assets that is considered realizable may change in the future, neces- sitating higher or lower valuation allowances. The retained earnings of non-German subsidiaries are largely intended to be reinvested in those operations. The Group did not recognize deferred tax liabilities on retained earnings of non-German subsidiaries of €28,733 million (2016: €28,750 million) which are intended to be reinvested. If those earnings were paid out as dividends, an amount of 5% would be taxed under German taxation rules and, if applicable, with non-German withholding tax. Additionally, income tax consequences might arise if the dividends ﬁrst have to be distributed by a non-German subsidiary to a non-German holding company. Normally, the distribution would lead to an additional income tax expense. It is not practicable to estimate the amount of taxable temporary diﬀerences for these undistributed foreign earnings. The Group has various unresolved issues concerning open income tax years with the tax authorities in a number of jurisdictions. Daimler believes that it has recognized adequate provisions for any future income taxes that may be owed for all open tax years. As a result of future adjudications or changes in the opinions of the ﬁscal authorities, it cannot be ruled out that Daimler might receive tax refunds for previous years. 264 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. Intangible assets Intangible assets developed as shown in table (cid:202) F.26. At December 31, 2017, goodwill of €455 million (2016: €480 million) relates to the Daimler Financial Services segment, goodwill of €418 million (2016: €456 million) relates to the Daimler Trucks segment and goodwill of €180 million (2016: €185 million) relates to the Mercedes-Benz Cars segment. Non-amortizable intangible assets primarily relate to goodwill and development costs for projects which have not yet been completed (carrying amount at December 31, 2017: €5,086 million; 2016: €3,780 million). In addition, other intangible assets with a carrying amount of €255 million (2016: €266 million) are not amortizable. Other non-amortizable intangible assets are distribution rights in the vehicle segments with indeﬁnite useful lives as well as trademarks in the Daimler Trucks seg- ment with indeﬁnite useful lives. The Group plans to continue to use these assets unchanged. Table (cid:202) F.27 shows the line items of the consolidated statement of income in which total amortization expense for intangible assets is included. F.26 Intangible assets In millions of euros Acquisition or manufacturing costs Balance at January 1, 2016 Additions due to business combinations Other additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2016 Additions due to business combinations Other additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2017 Amortization/impairment Balance at January 1, 2016 Additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2016 Additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2017 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 Development costs (internally generated)2 Other intangible assets (acquired) Goodwill (acquired) 1,015 449 – – – 17 1,481 9 1 – - 34 - 71 1,386 288 – – – 5 293 – – – - 22 271 12,962 – 2,323 – - 1,335 13 13,963 – 2,779 – - 524 - 26 16,192 5,173 1,280 – - 1,334 17 5,136 1,323 – - 521 - 26 5,912 1,188 1,115 8,827 10,280 3,582 221 629 – - 100 52 4,384 16 755 – - 396 - 140 4,619 2,029 320 – - 89 41 2,301 445 – - 368 - 99 2,279 2,083 2,340 Total 17,559 670 2,952 – - 1,435 82 19,828 25 3,535 – - 954 - 237 22,197 7,490 1,600 – - 1,423 63 7,730 1,768 – - 889 - 147 8,462 12,098 13,735 1 Primarily changes from currency translation. 2 Including capitalized borrowing costs on development costs of €47 million (2016: €54 million). Amortization amounted to €13 million (2016: €12 million). F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 265 11. Property, plant and equipment Property, plant and equipment developed as shown in table (cid:202) F.28. In 2017, government grants of €50 million (2016: €151 million) were deducted from property, plant and equipment. Property, plant and equipment also include buildings, technical equipment and other equipment under ﬁnance lease arrange- ments and thus deemed to be owned by the Group with a carry- ing amount at December 31, 2017 of €320 million (2016: €178 million). In 2017, additions to and depreciation expense on assets under ﬁnance lease arrangements amounted to €204 million (2016: €7 million) and €34 million (2016: €40 million), respectively. F.27 Amortization expense for intangible assets in the consolidated statement of income In millions of euros Cost of sales Selling expenses General administrative expenses Research and non-capitalized development costs Other operating expense 2017 2016 1,585 1,443 89 45 48 1 74 37 36 10 1,768 1,600 F.28 Property, plant and equipment In millions of euros Acquisition or manufacturing costs Balance at January 1, 2016 Additions due to business acquisitions Other additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2016 Additions due to business acquisitions Other additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2017 Depreciation/impairment Balance at January 1, 2016 Additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2016 Additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2017 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 1 Primarily changes from currency translation. Land, leasehold improvements and buildings including buildings on land owned by others Technical equipment and machinery Other equipment, factory and oﬃce equipment Advance payments relating to plant and equipment and construction in progress 15,763 23,978 24,773 – 588 591 - 379 193 16,756 – 562 559 - 415 - 475 16,987 8,506 425 - 8 - 234 60 8,749 352 - 1 - 201 - 156 8,743 8,007 8,244 – 1,002 1,088 - 670 226 25,624 – 1,032 985 - 1,173 - 504 25,964 15,548 1,423 - 13 - 627 138 16,469 1,534 – - 1,084 - 289 16,630 9,155 9,334 7 1,407 607 - 742 296 26,348 – 1,752 803 - 796 - 709 27,398 18,983 2,043 21 - 649 220 20,618 2,035 1 - 640 - 549 21,465 5,730 5,933 2,846 1 2,692 - 2,286 - 69 305 3,489 – 3,603 - 2,347 - 123 - 152 4,470 1 – – – - 1 – – – – – – 3,489 4,470 Total 67,360 8 5,689 – - 1,860 1,020 72,217 – 6,949 – - 2,507 - 1,840 74,819 43,038 3,891 – - 1,510 417 45,836 3,921 – - 1,925 - 994 46,838 26,381 27,981 266 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. Equipment on operating leases The development of equipment on operating leases is shown in table (cid:202) F.29. At December 31, 2017, equipment on operating leases with a carrying amount of €8,684 million were pledged as security for liabilities from ABS transactions related to a securitization transaction of future lease payments on leased vehicles (December 31, 2016: €7,465 million) (see also Note 24). Minimum lease payments Non-cancelable future lease payments to Daimler for equipment on operating leases are due as presented in table (cid:202) F.30. F.29 Equipment on operating leases In millions of euros Acquisition or manufacturing costs Balance at January 1, 2016 Additions due to business acquisitions Other additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2016 Additions due to business acquisitions Other additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2017 Depreciation/impairment Balance at January 1, 2016 Additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2016 Additions Reclassiﬁcations Disposals Other changes1 Balance at December 31, 2017 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 1 Primarily changes from currency translation. F.30 Maturity of minimum lease payments for equipment on operating leases In millions of euros Maturity within one year between one and ﬁve years later than ﬁve years 48,091 3,560 23,504 – - 18,204 379 57,330 – 25,292 – - 19,657 - 3,446 59,519 9,149 6,652 – - 5,487 74 10,388 7,978 – - 5,904 - 657 11,805 46,942 47,714 At December 31, 2016 2017 7,922 8,607 71 7,660 8,306 63 16,600 16,029 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 267 13. Equity-method investments Table (cid:202) F.31 shows the carrying amounts and proﬁts/losses from equity-method investments. Table (cid:202) F.32 presents key ﬁgures on interests in associated companies accounted for using the equity method in the Group’s consolidated ﬁnancial statements. F.31 Summarized carrying amounts and proﬁts/losses from equity-method investments In millions of euros At December 31, 2017 Equity investment1 Equity result1 At December 31, 2016 Equity investment1 Equity result1 1 Including investor-level adjustments. Associated companies Joint ventures Joint operations 4,282 1,541 3,582 485 500 - 42 468 11 36 - 1 48 6 Total 4,818 1,498 4,098 502 F.32 Key ﬁgures on interests in associated companies accounted for using the equity-method BBAC BAIC Motor3 THBV (HERE) Others Total In millions of euros At December 31, 2017 Equity interest (in %) Stock market price1 Equity investment2 Equity result2 Dividend payment to Daimler4 At December 31, 2016 Equity interest (in %) Stock market price1 Equity investment2 Equity result2 Dividend payment to Daimler 49.0 – 2,130 1,143 1,134 49.0 – 2,141 678 – 10.1 832 777 290 29 10.1 647 557 - 176 16 33.3 – 732 121 – 33.3 – 611 - 56 – 643 - 13 273 39 4,282 1,541 3,582 485 1 Proportionate stock market prices. 2 Including investor-level adjustments. 3 The proportionate share of earnings of BAIC Motor Corporation Ltd. (BAIC Motor) is included in Daimler’s consolidated ﬁnancial statements with a three-month time lag. 4 The dividend from BBAC of €1,134 million was partly paid out in the year 2017 with an amount of €768 million. 268 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS BBAC Beijing Benz Automotive Co., Ltd. (BBAC) produces and distributes Mercedes-Benz passenger cars and spare parts in China. The investment and the proportionate share in the results of BBAC are allocated to the Mercedes-Benz Cars segment. In the ﬁrst quarter of 2017, Beijing Benz Automotive Co., Ltd. (BBAC) received a capital increase of €97 million from Daimler. The capital increase took place through the contribution of dividend receivables. Daimler plans to contribute equity of up to €0.4 billion, in accordance with its shareholding ratio, to BBAC in the coming years. In the ﬁrst quarter of 2017, the shareholders of BBAC approved the payout of a dividend. The amount of €401 million attributable to Daimler was paid out in the second quarter of 2017 and decreased the carrying amount of the investment accordingly. In the second quarter of 2017, the shareholders of BBAC approved the payout of another dividend. The amount of €733 million attributable to Daimler decreased the carrying amount of the investment accordingly. The ﬁrst half of that dividend was paid out in August 2017. The second half will be paid out in 2018. BAIC Motor BAIC Motor Corporation Ltd. (BAIC Motor) is the passenger car division of BAIC Group, one of the leading automotive companies in China. Directly or via subsidiaries, BAIC Motor is engaged in the business of researching, developing, manufacturing, selling, marketing and servicing automotive vehicles and related parts and components and all related services. Due to Daimler’s representation on the board of directors of BAIC Motor and other contractual arrangements, Daimler classiﬁes this investment as an investment in an associate, to be accounted for using the equity-method; in the segment reporting, the investment’s carrying amount and its proportionate share of proﬁt or loss are presented in the reconciliation of total segment’s assets to Group assets and total segments’ EBIT to Group EBIT, respectively. In the ﬁrst quarter of 2016, due to the lower stock-exchange price, the Group recognized an impairment loss of €244 million with respect to its investment in BAIC Motor. In the ﬁrst quarter of 2017, the impairment was fully reversed due to the increased share price. The eﬀect of the reversal amounts to €240 million including minor currency eﬀects. Both, the gain and the loss are included in the line item proﬁt/loss on equity- method investments, net. THBV (HERE) There Holding B.V. (THBV) was founded in 2015. Daimler, Audi and BMW each holds an interest in the company of 33.3%. THBV holds an interest in HERE International B.V. (HERE). Eﬀective December 4, 2015, HERE acquired the roadmap service HERE from Nokia Corporation. HERE is one of the biggest manufacturers of digital roadmaps for navigation systems worldwide. Future expected high resolution maps will be one of the fundamentals for future autonomous driving. THBV is accounted for in the consolidated ﬁnancial statements of Daimler AG as an associated company using the equity method, and is allocated to the Mercedes-Benz Cars segment. In 2015, Daimler’s proportionate share of its proﬁts and losses was included with a one-month time lag, which was cancelled as of December 31, 2016. In December 2016, THBV signed agreements on the sale of shares in its then 100% subsidiary, HERE. It was agreed to sell a 15% shareholding to Intel Holdings B.V. (Intel) and a 10% shareholding to a Chinese consortium consisting of NavInfo Co. Ltd., Tencent Holdings Ltd. and GIC Private Ltd. However, the transaction with the Chinese consortium was not com- pleted. During a regulatory review process, the Chinese consortium decided no longer to proceed with the transaction. The transaction with Intel was concluded on January 31, 2017. As a result, THBV now only has a signiﬁcant inﬂuence on HERE. Therefore, as of February 1, 2017, HERE is no longer fully consolidated in the ﬁnancial statements of THBV, but is presented as an associated company using the equity method. The change in the consolidation method led to the remea- surement of the HERE shares at fair value in the ﬁrst quarter of 2017. The income of €183 million from this transaction that is attributable to Daimler is included in proﬁt/loss on equity-method investments in the ﬁrst quarter of 2017. In December 2017, Daimler, Audi and BMW signed agreements on the sale of shares in THBV. It was agreed to sell interests of 5.9% in THBV to each of Robert Bosch Investment Nederland B.V. and Continental Automotive Holding Netherlands B.V. Both sales of shares involve equal numbers of shares currently owned by Daimler, Audi and BMW. Due to the remeasure- ment that already occurred in 2017 Daimler does not anticipate any signiﬁcant impact on earnings from these transactions. Completion of the transactions is expected in the ﬁrst quarter of 2018, a(cid:5)er receiving the approval of the relevant authorities. Due to the minor importance for the Group’s assets and liabilities, there is no separate presentation in the statement of ﬁnancial position of non-current assets available for sale. Table (cid:202) F.33 shows summarized IFRS ﬁnancial information a(cid:5)er purchase price allocation for the signiﬁcant associated companies which were the basis for equity-method accounting in the Group’s consolidated ﬁnancial statements. Other minor equity-method investments In 2017, minor equity-method investments include LSH Auto International Limited (LSHAI). In the second quarter of 2017, Daimler acquired an interest of 15% in LSHAI, which is responsible for the Mercedes-Benz retail business of Lei Shing Hong Group. LSHAI, a subsidiary of Lei Shing Hong Group, is one of the biggest Mercedes-Benz dealers worldwide. The transaction was concluded a(cid:5)er receiving the approval of the relevant antitrust authorities on May 22, 2017. The purchase price was €0.3 billion. Due to Daimler’s possibility to exercise a signiﬁcant inﬂuence on the board of directors of LSHAI, as well as other contractual agreements and signiﬁcant supply relations, the Group classiﬁes this investment as an investment in an associate, to be accounted for using the equity method; in the segment reporting, the investment’s carrying amount and its proportionate share of proﬁt or loss are presented in the reconciliation of total segment’s assets to Group assets and total segments’ EBIT to Group EBIT, respectively. Earnings of LSHAI are included in Daimler’s consolidated ﬁnancial statements with a three-month time lag. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 269 The equity-method result of joint ventures in 2017 includes impairments of investments of €125 million. Further information on equity-method investments is provided in Notes 3 and 36. Table (cid:202) F.34 shows summarized aggregated ﬁnancial information for the other minor equity-method investments a(cid:5)er purchase price allocation and on a pro rata basis. F.33 Summarized IFRS ﬁnancial information on signiﬁcant associated companies accounted for using the equity method In millions of euros Information on the statement of income Revenue Proﬁt/loss from continuing operations a(cid:5)er taxes Proﬁt/loss from discontinued operations a(cid:5)er taxes Other comprehensive income/loss Total comprehensive income/loss Information on the statement of ﬁnancial position and reconciliation to equity-method carrying amounts Non-current assets Current assets Non-current liabilities Current liabilities Equity (including non-controlling interest) Equity (excluding non-controlling interests) attributable to the Group Unrealized proﬁt (-)/loss (+) on sales to/purchases from Equity-method goodwill Other 2017 BBAC1 2016 BAIC Motor2 2016 2017 THBV3 (HERE) 2016 2017 15,373 2,350 – 23 11,673 1,449 – - 21 18,510 1,649 – 103 15,117 1,285 – – 2,373 1,428 1,752 1,285 4,558 7,058 741 6,335 4,540 4,354 6,520 694 5,623 4,557 13,089 10,140 3,077 10,954 9,198 13,280 10,005 2,333 11,584 9,368 71 -151 513 2 364 1,906 289 – – 2,195 1,240 - 1 -166 - 4 - 171 2,802 592 1,044 518 1,832 2,224 2,233 - 93 – - 1 - 91 – - 1 712 - 9 70 4 777 720 – 74 - 237 557 732 611 – – – – – – 732 611 Carrying amount of equity-method investment 2,130 2,141 1 BBAC: Figures for the statement of income relate to the period of January 1 to December 31. Figures for the statement of ﬁnancial position and the reconciliation to equity-method carrying amounts relate to the balance sheet date December 31. 2 BAIC Motor: Daimler recognizes its proportionate share of the proﬁts or losses of BAIC Motor Corporation Ltd. (BAIC Motor) with a three-month time lag. Figures for the statement of income relate to the period of October 1 to September 30. Figures for the statement of ﬁnancial position and the reconciliation to equity-method carrying amounts relate to the balance sheet date of September 30. 3 THBV: Figures for the 2016 statement of income relate to the period of December 5, 2015 to December 31, 2016. According to IFRS 5.34 the statement of income for 2016 was adjusted retrospectively. Figures for the statement of ﬁnancial position and the reconciliation to equity-method carrying amounts relate to the balance sheet date December 31. Revenue at THBV relates to HERE; revenue for the year 2017 is solely for the month of January until the change in the consolidation of HERE at THBV. F.34 Summarized aggregated ﬁnancial information on minor equity-method investments In millions of euros Summarized aggregated ﬁnancial information (pro rata) Proﬁt/loss from continuing operations a(cid:5)er taxes Proﬁt/loss from discontinued operations a(cid:5)er taxes Other comprehensive income/loss Total comprehensive income/loss Associated companies 2016 2017 Joint ventures 2016 2017 61 – -1 60 22 – - 1 21 - 28 – – - 28 - 28 – – - 28 270 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. Receivables from ﬁnancial services Table (cid:202) F.35 shows the components of receivables from ﬁnancial services. Types of receivables Receivables from sales ﬁnancing with customers include receivables from credit ﬁnancing for customers who purchased their vehicle either from a dealer or directly from Daimler. Receivables from sales ﬁnancing with dealers represent loans for ﬂoor ﬁnancing programs for vehicles sold by the Group’s automotive businesses to dealers or loans for assets purchased by dealers from third parties, primarily used vehicles traded in by dealers’ customers or real estate such as dealers’ show- rooms. Receivables from ﬁnance-lease contracts consist of receiv- ables from leasing contracts for which all substantial risks and rewards incidental to the leasing objects are transferred to the lessee. At December 31, 2017, ﬁnance-lease contracts included non-automotive assets from contracts of the ﬁnancial services business with third parties (leveraged leases) in the amount of €103 million (December 31, 2016: €165 million) Maturities of the ﬁnance-lease contracts are shown in table (cid:202) F.36. All cash ﬂow eﬀects attributable to receivables from ﬁnancial services are presented within cash provided by/used for operating activities in the consolidated statement of cash ﬂows. Allowances Changes in the allowance account for receivables from ﬁnancial services are shown in table (cid:202) F.37. The total expense from the impairment of receivables from ﬁnancial services amounted to €500 million in 2017 (2016: €499 million). Credit risks Table (cid:202) F.38 provides an overview of credit risks included in receivables from ﬁnancial services. Receivables not subject to an individual impairment assessment are grouped and subject to collective impairment allowances to cover credit losses. Further information on ﬁnancial risks and nature of risks is provided in Note 32. At December 31, 2017, receivables from ﬁnancial services with a carrying amount of €6,049 million (December 31, 2016: €5,909 million) were pledged as collateral for liabilities from ABS transactions (see also Note 24). F.35 Receivables from ﬁnancial services In millions of euros Sales ﬁnancing with customers Sales ﬁnancing with dealers Finance-lease contracts Gross carrying amount Allowances for doubtful accounts Net carrying amount F.36 Maturities of the ﬁnance lease contracts Current Non-current At December 31, 2017 Total Current Non-current At December 31, 2016 Total 15,737 16,065 7,976 39,778 - 404 39,374 27,044 3,061 16,774 46,879 - 466 46,413 42,781 19,126 24,750 86,657 - 870 85,787 14,803 16,302 7,012 38,117 - 491 37,626 26,288 2,970 14,186 43,444 - 563 42,881 41,091 19,272 21,198 81,561 - 1,054 80,507 In millions of euros Contractual future lease payments Unguaranteed residual values Gross investment Unearned ﬁnance income Gross carrying amount Allowances for doubtful accounts Net carrying amount At December 31, 2017 At December 31, 2016 < 1 year 1 year up to 5 years > 5 years Total < 1 year 1 year up to 5 years > 5 years Total 8,402 602 9,004 - 1,028 7,976 - 136 7,840 15,591 2,525 18,116 - 1,640 16,476 - 171 16,305 324 12 336 - 38 298 - 2 296 24,317 3,139 27,456 - 2,706 24,750 - 309 24,441 7,407 393 7,800 - 788 7,012 - 156 6,856 13,175 1,880 15,055 - 1,374 13,681 - 225 13,456 583 11 594 - 89 505 - 5 500 21,165 2,284 23,449 - 2,251 21,198 - 386 20,812 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 271 15. Marketable debt securities The marketable debt securities with a carrying amount of €10,063 million (2016: €10,748 million) are part of the Group’s liquidity management and comprise debt instruments classiﬁed as available-for-sale. When a short-term liquidity requirement is covered with quoted securities, those securities are presented as current assets. Further information on marketable debt securities is provided in Note 31. 16. Other ﬁnancial assets The line item other ﬁnancial assets presented in the consolidated statement of ﬁnancial position is comprised as shown in table (cid:202) F.39. Financial assets measured at fair value through proﬁt or loss relate exclusively to derivative ﬁnancial instruments which are not used in hedge accounting. At December 31, 2017, receivables with a carrying amount of €511 million (2016: €648 million) were pledged as collateral for liabilities (see also Note 24). Further information on other ﬁnancial assets is provided in Note 31. F.37 Changes in the allowance account for receivables from ﬁnancial services In millions of euros Balance at January 1 Additions Amounts written oﬀ Reversals Currency translation and other changes Balance at December 31 F.38 Credit risks included in receivables from ﬁnancial services In millions of euros Receivables, neither past due nor impaired individually Receivables past due, not impaired individually less than 30 days 30 to 59 days 60 to 89 days 90 to 119 days 120 days or more Total Receivables impaired individually 2017 2016 1,054 1,016 480 - 265 - 299 - 100 870 491 - 290 - 181 18 1,054 At December 31, 2016 2017 81,214 76,127 2,046 315 136 43 105 2,645 1,928 1,796 403 91 58 138 2,486 1,894 Net carrying amount 85,787 80,507 F.39 Other ﬁnancial assets In millions of euros Current At December 31, 2017 Total Non-current Current At December 31, 2016 Total Non-current Available-for-sale ﬁnancial assets thereof equity instruments recognized at fair value thereof equity instruments carried at cost Derivative ﬁnancial instruments used in hedge accounting Financial assets recognized at fair value through proﬁt or loss Other receivables and ﬁnancial assets – – – 1,235 54 2,291 3,580 1,173 171 1,002 1,144 28 876 3,221 1,173 171 1,002 2,379 82 3,167 6,801 – – – 653 81 2,103 2,837 811 166 645 1,077 25 986 2,899 811 166 645 1,730 106 3,089 5,736 272 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17. Other assets 19. Trade receivables Trade receivables are comprised as shown in table (cid:202) F.42. At December 31, 2017, €38 million of the trade receivables mature a(cid:5)er more than one year (2016: €49 million). Allowances Table (cid:202) F.43 shows changes in the allowance account for trade receivables. The total expense from the impairment of trade receivables amounted to €131 million in 2017 (2016: €97 million). Credit risks Table (cid:202) F.44 provides an overview of credit risks included in trade receivables. Receivables not subject to an individual impairment assessment are grouped and subject to collective impairment allowances to cover credit losses. Further information on ﬁnancial risk and types of risk is provided in Note 32. Non-ﬁnancial other assets are comprised as shown in table (cid:202) F.40. Other expected reimbursements predominantly relate to recovery claims from our suppliers in connection with issued product warranties. 18. Inventories Inventories are comprised as shown in table (cid:202) F.41. The amount of write-down of inventories to net realizable value recognized as expense in cost of sales was €411 million in 2017 (2016: €842 million). Inventories that are expected to be recovered or settled a(cid:5)er more than twelve months amounted to €954 million at December 31, 2017 (December 31, 2016: €974 million) and are primarily spare parts. As collateral for certain vested employee beneﬁts in Germany, the value of company cars and demonstration cars at Mercedes-Benz Cars and Mercedes-Benz Vans included in inventories at Daimler AG were pledged as collateral to the Daimler Pension Trust e.V. in an amount of €1,033 million at December 31, 2017 (December 31, 2016: €1,008 million). In addition, inventories with a carrying amount of €419 million at December 31, 2017 (December 31, 2016: €296 million) were pledged as collateral for liabilities from ABS transactions (see also Note 24). The carrying amount of inventories recognized during the period by taking possession of collateral held as security amounted to €112 million at December 31, 2017 (December 31, 2016: €126 million). Those assets are utilized in the context of normal business operations. F.40 Other assets In millions of euros Current At December 31, 2017 Total Non-current Current At December 31, 2016 Total Non-current Reimbursements due to income tax refunds Reimbursements due to other tax refunds Reimbursements due to the Medicare Act (USA) Other expected reimbursements Prepaid expenses Others 510 2,832 – 274 632 712 249 262 68 211 112 243 759 3,094 68 485 744 955 734 2,905 – 191 566 566 4,960 1,145 6,105 4,962 51 38 72 173 112 221 667 785 2,943 72 364 678 787 5,629 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 273 20. Equity See also the consolidated statement of changes in equity (cid:202) F.05. Share capital The share capital (authorized capital) is divided into no-par- value shares. All shares are fully paid up. Each share confers the right to one vote at the Annual Shareholders’ Meeting of Daimler AG and, if applicable, with the exception of any new shares potentially not entitled to dividends, to an equal portion of the proﬁts as deﬁned by the dividend distribution decided upon at the Annual Shareholders’ Meeting. Each share represents a proportionate amount of approximately €2.87 of the share capital. F.41 Inventories In millions of euros Raw materials and manufacturing supplies Work in progress Finished goods, parts and products held for resale Advance payments to suppliers Since January 1, 2016, there has been no change in the number of shares outstanding/issued. The number at December 31, 2017 is 1,070 million, unchanged from December 31, 2016. F.42 Trade receivables At December 31, 2016 2017 2,655 3,373 2,723 3,814 19,361 18,609 297 238 25,686 25,384 At December 31, 2016 2017 Approved capital The Annual Shareholders’ Meeting held on April 9, 2014 authorized the Board of Management, with the consent of the Supervisory Board, to increase the share capital of Daimler AG in the period until April 8, 2019 by a total of €1.0 billion in one lump sum or by separate partial amounts at diﬀerent times by issuing new, registered no-par-value shares in exchange for cash and/or non-cash contributions (Approved Capital 2014). The new shares are generally to be oﬀered to the shareholders for subscription (also by way of indirect subscription pursuant to Section 186 Subsection 5 Sentence 1 of the German Stock Corporation Act (AktG)). Among other things, the Board of Management was authorized with the consent of the Supervisory Board to exclude shareholders’ subscription rights under certain conditions and within deﬁned limits. Approved Capital 2014 has not yet been utilized. In millions of euros Gross carrying amount Allowances for doubtful accounts Net carrying amount 12,290 - 300 11,990 10,954 - 340 10,614 F.43 Changes in the allowance account for trade receivables In millions of euros Balance at January 1 Charged to costs and expenses Amounts written oﬀ Currency translation and other changes Balance at December 31 F.44 Credit risks included in trade receivables In millions of euros Receivables, neither past due nor impaired individually Receivables past due, not impaired individually less than 30 days 30 to 59 days 60 to 89 days 90 to 119 days 120 days or more Total Receivables impaired individually 2017 2016 340 63 - 107 4 300 392 - 10 - 62 20 340 At December 31, 2016 2017 7,720 7,081 1,228 164 61 70 103 1,626 2,644 813 127 39 27 142 1,148 2,385 Net carrying amount 11,990 10,614 274 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Conditional capital By resolution of the Annual Shareholders’ Meeting on April 1, 2015, the Board of Management is authorized, with the consent of the Supervisory Board, until March 31, 2020 to issue convertible and/or warrant bonds or a combination of these instruments (“bonds”) with a total face value of up to €10.0 billion and a maturity of no more than ten years. The Board of Management is allowed to grant the holders of these bonds conversion or warrant rights for new registered no-par-value shares in Daimler AG with an allocable portion of the share capital of up to €500 million in accordance with the details deﬁned in the terms and conditions of the bonds. The bonds can be oﬀered in exchange for cash and/or non-cash contributions, in particular for shares in other companies. The terms and conditions of the bonds can include warranty obligations or conversion obligations. The bonds can be issued once or several times, wholly or in installments, or simulta- neously in various tranches as well by aﬃliates of the Company within the meaning of Sections 15 et seq. of the German Stock Corporation Act (AktG). Among other things, the Board of Man- agement was authorized to exclude shareholders’ subscription rights for the bonds under certain conditions and within deﬁned constraints with the consent of the Supervisory Board. This authorization to issue convertible and/or warrant bonds has not yet been utilized. In order to fulﬁll the conditions of the above-mentioned autho- rization, the Annual Shareholders’ Meeting on April 1, 2015 also resolved to increase the share capital conditionally by an amount of up to €500 million (Conditional Capital 2015). Treasury shares By resolution of the Annual Shareholders’ Meeting on April 1, 2015, the Company is authorized until March 31, 2020 to acquire treasury shares in a volume up to 10% of the share capital issued as of the day of the resolution to be used for all legal purposes. The shares can be used, amongst other things excluding share- holders’ subscription rights, for business combinations or to acquire companies or to be sold to third parties for cash at a price that is not signiﬁcantly lower than the stock-exchange price of the Company’s shares. The acquired shares can also be used to fulﬁll obligations from issued convertible bonds and/or bonds with warrants and to be issued to employees of the Company and employees and board members of the Company’s aﬃliates pursuant to Sections 15 et seq. of the German Stock Corporation Act (AktG). The treasury shares can also be canceled. In a volume up to 5% of the share capital issued as of the day of the resolution, the Company was authorized to acquire treasury shares also by using derivatives (put options, call options, forward purchases or a combination of these instruments), whereas the term of a derivative must not exceed 18 months and must not end later than March 31, 2020. The Board of Management is further authorized, with the consent of the Supervisory Board, to exclude shareholders’ subscription rights. The authorization to acquire treasury shares was not exercised in the reporting period. As was the case at December 31, 2016, no treasury shares are held by Daimler AG at December 31, 2017. Employee share purchase plan In 2017, 0.6 million Daimler shares representing €1.7 million or 0.06% of the share capital were purchased for a price of €42 million and reissued to employees (2016: 0.6 million Daimler shares representing €1.7 million or 0.05% of the share capital were purchased for a price of €38 million). Capital reserves Capital reserves primarily comprise premiums arising on the issue of shares as well as expenses relating to the exercise of the up to 2014 exercisable stock option plans and the issue of employee shares, eﬀects from changes in ownership interests in consolidated entities and directly attributable related transaction costs. Retained earnings Retained earnings comprise the accumulated net proﬁts and losses of all companies included in Daimler’s consolidated ﬁnancial statements, less any proﬁts distributed. In addition, the eﬀects of remeasuring deﬁned beneﬁt plans as well as the related deferred taxes are presented within retained earnings. Dividend Under the German Stock Corporation Act (AktG), the dividend is paid out of the distributable proﬁt reported in the annual ﬁnancial statements of Daimler AG (parent company only) in accordance with the German Commercial Code (HGB). For the year ended December 31, 2017, the Daimler management will propose to the shareholders at the Annual Shareholders’ Meeting to pay out €3,905 million of the distributable proﬁt of Daimler AG as a dividend to the shareholders, equivalent to €3.65 per no-par-value share entitled to a dividend (2016: €3,477 million and €3.25 per no-par-value share entitled to a dividend respectively). Other reserves Other reserves comprise accumulated unrealized gains/losses from currency translation of the ﬁnancial statements of the consolidated foreign companies and accumulated unrealized gains/losses on the measurement of ﬁnancial assets available- for-sale, derivative ﬁnancial instruments and equity-method investments. Table (cid:202) F.02 shows the details of changes in other reserves in other comprehensive income/loss. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 275 21. Share-based payment As of December 31, 2017, the Group has the 2014–2017 Performance Phantom Share Plans (PPSP) outstanding. The PPSP are cash-settled share-based payment instruments and are measured at their respective fair values at the balance sheet date. The PPSP are paid out at the end of the stipulated holding period; earlier, pro-rated payoﬀ is possible in the case of beneﬁts leaving the Group only if certain deﬁned conditions are met. PPSP 2013 was paid out as planned in the ﬁrst quarter of 2017. Moreover, 50% of the annual bonus of the members of the Board of Management is paid out a(cid:5)er a waiting period of one year. The actual payout is determined by the development of Daimler shares compared to an automobile related index (Auto-STOXX). The fair value of this medium-term annual bonus, which depends on this development, is measured by using the intrinsic value at the reporting date. Table (cid:202) F.46 shows expenses in the consolidated statement of income resulting from the rights of current members of the Board of Management. The details shown in table (cid:202) F.46 do not represent any paid or committed remuneration, but refer to expenses calculated according to IFRS. Details of the remuneration of the members of the Board of Management in 2017 can be found in the Remuneration Report. E Management Report from page 136 F.45 Eﬀects of share-based payment Expense 2016 2017 Provision At December 31, 2016 2017 In millions of euros PPSP - 98 - 62 191 284 The pre-tax eﬀects of share-based payment arrangements for the executive managers of the Group and the members of the Board of Management of Daimler AG on the consolidated statement of income and consolidated statement of ﬁnancial position are shown in table (cid:202) F.45. Medium-term compo- nent of annual bonus of the members of the Board of Management - 7 - 105 - 5 - 67 13 204 14 298 F.46 Expenses in the consolidated statement of income resulting from share-based payments of current members of the Board of Management In millions of euros PPSP Medium-term component of the annual bonus In millions of euros PPSP Medium-term component of the annual bonus In millions of euros PPSP Medium-term component of the annual bonus In millions of euros PPSP Medium-term component of the annual bonus Dr. Dieter Zetsche 2016 2017 Dr. Wolfgang Bernhard1 2017 2016 2017 Martin Daum2 2016 - 3.9 - 1.8 - 3.8 - 1.4 - 0.2 – - 1.6 - 0.6 - 0.8 - 0.7 – – Renata Jungo Brüngger 2016 2017 2017 Ola Källenius 2016 2017 Wilfried Porth 2016 - 0.8 - 0.7 - 0.5 - 0.6 - 1.2 - 0.7 - 0.7 - 0.5 - 1.6 - 0.7 - 1.6 - 0.5 2017 Britta Seeger3 2016 Hubertus Troska 2016 2017 2017 Bodo Uebber 2016 - 0.4 - 0.8 – – - 1.6 - 0.7 - 1.5 - 0.5 - 1.9 - 0.9 - 1.8 - 0.6 Prof. Dr. Thomas Weber4 2017 2016 – – - 1.6 - 0.5 1 Appointment to the Board of Management ended on February 10, 2017. Amounts are included pro rata for 2017. 2 Appointed to the Board of Management as of March 1, 2017. 3 Appointed to the Board of Management as of January 1, 2017. 4 Appointment to the Board of Management ended on December 31, 2016. 276 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Performance Phantom Share Plans In 2017, the Group adopted a Performance Phantom Share Plan (PPSP), similar to those used in previous years, under which eligible employees are granted phantom shares entitling them to receive cash payments a(cid:5)er four years. During the four- year period between the allocation of the preliminary phantom shares and the payout of the plan at the end of the term, the phantom shares earn a dividend equivalent in the amount of the actual dividend paid on ordinary Daimler shares. The amount of cash paid to eligible employees at the end of the holding period is based on the number of vested phantom shares (determined over a three-year performance period) multiplied by the quoted price of Daimler’s ordinary shares (calculated as an average price over a speciﬁed period at the end of the four-year plan period). The vesting period is therefore four years. For the existing plans, the quoted price of Daimler’s ordinary shares to be used for the payout is limited to 2.5 times the Daimler share price at the date of grant. Furthermore, the payout for the members of the Board of Management is also limited to 2.5 times the allotment value used to determine the preliminary number of phantom shares. The limitation of the payout for the members of the Board of Management also includes the dividend equivalent. Determination of the number of phantom shares that vest of the paid-out PPSP 2013 is based on return on net assets derived from internal targets and return on sales (RoS) compared with benchmarks oriented towards competitors. The number of phantom shares that vest of the PPSPs granted in 2014 to 2017 will be based on the relative share performance, which measures the development of the price of a share price index based on a competitor group including Daimler, and the RoS compared with benchmarks oriented towards competitors. Special rules apply for the members of the Board of Management: Daimler’s RoS must be not equal to but higher than that of the competitors in order to achieve the same target achievement as the other plan participants. For the PPSP granted in 2015 and until 2017, an additional limit on target achievement was agreed upon for the reference parameter RoS for the members of the Board of Management. In the case of target achievement between 195% and 200%, an additional comparison is made on the basis of the RoS achieved in absolute terms. If the actual RoS for the automotive business is below the strategic target (currently 9%) in the third year of the performance period, target achievement is limited to 195%. The Group recognizes a provision for awarding the PPSP in the consolidated statement of ﬁnancial position. Since payment per vested phantom share depends on the quoted price of Daimler’s ordinary shares, that quoted price essentially represents the fair value of each phantom share. The proportionate remuneration expenses from the PPSP recognized in the individual years are measured based on the price of Daimler ordinary shares and the estimated target achievement. 22. Pensions and similar obligations Table (cid:202) F.47 shows the composition of provisions for pension beneﬁt plans and similar obligations. At the Daimler Group, deﬁned beneﬁt pension obligations exist as well as, to a smaller extent, deﬁned contribution pension obligations, speciﬁc to the various countries. In addition, healthcare beneﬁt obligations are recognized outside Germany. Deﬁned beneﬁt pension plans Provisions for pension obligations are made for deﬁned commitments to active and former employees of the Daimler Group and their survivors. The deﬁned beneﬁt pension plans provided by Daimler generally vary according to the economic, tax and legal circumstances of the country concerned. Most of the deﬁned beneﬁt pension plans also provide beneﬁts in the case of invalidity and death. The Group’s main German and non-German pension plans are described below. German plans Most employees in Germany have deﬁned beneﬁt pension plans; most of the pension plans for the active workforce are based on individual retirement beneﬁt accounts, to which the Company makes annual contributions. The amount of the contributions for employees paid according to wage-tariﬀ agreements depends on the tariﬀ classiﬁcation in the respec- tive year, and for executives it depends on their respective income. For the commitments to retirement beneﬁts made until 2011, the contributions continue to be converted into capital components and credited to the individual pension account with the application of ﬁxed factors related to each employee’s age. The conversion factors include a ﬁxed value increase. The pension plans were newly structured for new entrants in 2011 to reduce the risks associated with deﬁned beneﬁt plans. New entrants now beneﬁt from value increases of the contributions through an investment fund with a special lifecycle model. The Company guarantees at a minimum the value of the contributions paid in. Pension payments are made either as a life annuity, twelve annual installments, or a single lump sum. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 277 The fair value of plan assets is predominantly determined by the situation on the capital markets. Unfavorable develop- ments, especially of equity prices and ﬁxed-interest securities, could reduce that fair value. The diversiﬁcation of fund assets, the engagement of asset managers using quantitative and qualitative analyses, and the continual monitoring of performance and risk help to reduce associated investment risk. The Group regularly makes additional contributions to the plan assets in order to cover future obligations from deﬁned beneﬁt pension plans. Furthermore, in 2017, the Group made an extraordi- nary contribution of €3.0 billion into the German pension plan assets, in order to sustainably strengthen them. In 2016, shares in Renault and Nissan with a fair value of €1.8 billion were contributed to the German plan assets. As a general principle, it is the Group’s objective to design new pension plans as deﬁned beneﬁt plans based on capital components or on annual contributions, or as deﬁned contribution plans. F.47 Composition of provisions for pensions and similar obligations December 31, 2016 2017 In millions of euros Provision for pension beneﬁts 4,625 7,847 Provision for other post-employment beneﬁts 1,142 5,767 1,187 9,034 In addition, previously concluded deﬁned beneﬁt plans exist which primarily depend on employees’ wage-tariﬀ classiﬁcation upon transition into the beneﬁt phase and which foresee a life annuity. As well as the employer-ﬁnanced pension plans granted by German companies, the employees of some companies are also oﬀered various earnings-conversion models. Most of the pension obligations in Germany relating to deﬁned beneﬁt pension plans are funded by assets invested in long- term outsourced funds. Contractual trust arrangements (CTA) exist between Daimler AG as well as some subsidiaries in Germany and the Daimler Pension Trust e.V. The Daimler Pension Trust e.V. acts as a collateral trust fund. In Germany, there are no statutory or regulatory minimum funding requirements. Non-German plans Signiﬁcant plans exist primarily in the United States and Japan. They comprise plans relating to ﬁnal salaries as well as plans relating to salary based components. Most of the obligations outside Germany from deﬁned beneﬁt pension plans are funded by assets outplaced into long-term investment funds. Risks from deﬁned beneﬁt pension plans The general requirements with regard to retirement beneﬁt models are laid down in the Pension Policy, which has Group-wide validity. Accordingly, the committed beneﬁts are intended to contribute to additional ﬁnancial security during retirement, and in the case of death or invalidity to be capable of being planned and fulﬁlled by the respective company of the Group and to have a low-risk structure. In addition, a committee exists that approves new pension plans and amendments to existing pension plans as well as guidelines relating to com- pany retirement beneﬁts. The obligations from deﬁned beneﬁt pension plans and the pension plan assets can be subject to ﬂuctuations over time. This can cause the funded status to be negatively or positively impacted. Fluctuations in the deﬁned beneﬁt pension obligations result at the Daimler Group in particular from changes in ﬁnancial assumptions such as discount rates and increases in the cost of living, but also from changes in demographic assumptions such as adjusted life expectancies. With most of the German plans, expected long-term wage and salary increases do not have an impact on the amount of the obligation. 278 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of the net obligation from deﬁned beneﬁt pension plans The development of the relevant factors is shown in table (cid:202) F.48. Market prices are available for equities and bonds due to their listing in active markets. Most of the bonds have investment grade ratings. They include government bonds of very good creditworthiness. Composition of plan assets Plan assets and income from plan assets are used solely to pay pension beneﬁts and to administer the plans. The composition of the Group’s pension plan assets is shown in table (cid:202) F.49. The investment strategy is reviewed regularly and adjusted if deemed necessary. The investment strategy is determined by Investment Committees, which are generally composed of representatives of the Finance and Human Resources depart- ments. The pension plan assets are generally oriented towards the structure of the pension obligations. F.48 Present value of deﬁned beneﬁt pension obligations and fair value of plan assets In millions of euros Present value of the deﬁned beneﬁt obligation at January 1 Current service cost Interest cost Contributions by plan participants Actuarial gains (-)/losses from changes in demographic assumptions Actuarial gains (-)/losses from changes in ﬁnancial assumptions Actuarial gains (-)/losses from experience adjustments Actuarial gains (-)/losses Past service cost, curtailments and settlements Pension beneﬁts paid Currency exchange-rate changes and other changes1 Present value of the deﬁned beneﬁt obligation at December 31 December 31, 2017 Non-German Plans German Plans December 31, 2016 Non-German Plans German Plans Total Total 31,173 26,982 4,191 27,640 23,803 3,837 687 648 58 - 23 1,076 2 1,055 - 117 - 973 - 787 591 495 54 - 13 419 - 55 351 – - 744 17 96 153 4 - 10 657 57 704 - 117 - 229 - 804 601 750 71 - 11 3,021 5 3,015 - 37 - 932 65 512 595 66 6 2,733 - 21 2,718 20 - 748 16 89 155 5 - 17 288 26 297 - 57 - 184 49 31,744 27,746 3,998 31,173 26,982 4,191 Fair value of plan assets at January 1 23,384 20,315 3,069 20,226 17,306 2,920 Interest income from plan assets Actuarial gains/losses (-) Actual return on plan assets Contributions by the employer Contributions by plan participants Settlements Pension beneﬁts paid Currency exchange-rate changes and other changes1 489 996 1,485 3,692 58 – - 910 - 494 377 541 918 3,596 54 – - 702 16 Fair value of plan assets at December 31 27,215 24,197 Funded status thereof recognized in other assets thereof recognized in provisions for pensions and similar obligations 1 Including reclassiﬁcations to provisions for other risks. - 4,529 96 - 3,549 – 112 455 567 96 4 – - 208 - 510 3,018 - 980 96 582 994 1,576 2,427 71 - 52 - 868 4 465 830 1,295 2,337 66 – - 705 16 23,384 20,315 117 164 281 90 5 - 52 - 163 - 12 3,069 - 7,789 58 - 6,667 – - 1,122 58 - 4,625 - 3,549 - 1,076 - 7,847 - 6,667 - 1,180 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 279 Pension cost The components of pension cost included in the consolidated statement of income are shown in table (cid:202) F.50. F.49 Composition of plan assets In millions of euros Energy, commodities and utilities Financials Healthcare Industrials1 Consumer goods Technology and telecommunication Others Equities Government bonds Corporate bonds Securitized bonds Bonds Other exchange-traded instruments Total exchange-traded instruments Alternative investments2 Real estate Other non-exchange-traded instruments Cash and cash equivalents Total non-exchange-traded instruments Fair value of plan assets thereof fair value of own transferable ﬁnancial instruments thereof fair value of self-used plan assets At December 31, 2017 Non-German Plans German Plans Total 959 1,193 547 2,535 1,149 1,127 46 7,556 4,658 9,485 46 831 1,027 440 2,440 942 932 – 6,612 3,844 8,556 30 14,189 12,430 5 1 21,750 19,043 512 537 418 3,998 5,465 27,215 – 50 388 436 378 3,952 5,154 24,197 – 50 128 166 107 95 207 195 46 944 814 929 16 1,759 4 2,707 124 101 40 46 311 3,018 – – 1 Including the shares in Renault and Nissan in the amount of €2,010 (in 2016: €2,178) million. 2 Alternative investments mainly comprise private equity. F.50 Pension cost In millions of euros Current service cost Past service cost, curtailments and settlements Net interest expense Net interest income German Plans 2017 Non-German Plans - 591 – - 118 – - 709 - 96 117 - 43 2 - 20 Total - 687 117 - 161 2 - 729 At December 31, 2016 Non-German Plans German Plans 907 1,147 559 2,783 1,146 981 – 7,523 3,397 7,547 5 10,949 3 18,475 480 450 57 853 1,840 20,315 – 64 141 219 105 110 228 186 43 1,032 1,041 665 52 1,758 2 2,792 75 120 42 40 277 3,069 – – German Plans 2016 Non-German Plans - 512 - 20 - 130 – - 662 - 89 5 - 43 5 - 122 Total 1,048 1,366 664 2,893 1,374 1,167 43 8,555 4,438 8,212 57 12,707 5 21,267 555 570 99 893 2,117 23,384 – 64 Total - 601 - 15 - 173 5 - 784 280 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Measurement assumptions The measurement date for the Group’s deﬁned beneﬁt pension obligations and plan assets is generally December 31. The measurement date for the Group’s net periodic pension cost is generally January 1. The assumptions used to calculate the deﬁned beneﬁt obligations vary according to the economic conditions of the countries in which the pension plans are situated. Calculation of the deﬁned beneﬁt obligation uses life expectancy for the German plans based on the 2005 G mortality tables of K. Heubeck. For non-German plans, comparable country-speciﬁc calculation methods are used. Table (cid:202) F.51 shows the signiﬁcant weighted average measure- ment factors used to calculate pension beneﬁt obligations. Sensitivity analysis An increase or decrease in the main actuarial assumptions would aﬀect the present value of the deﬁned beneﬁt pension obligations as shown in table (cid:202) F.52. The calculations carried out by actuaries were done in isolation for the evaluation parameters regarded as important. This means that if there is a simultaneous change in several param- eters, the individual results cannot be summed due to correla- tion eﬀects. With a change in the parameters, the sensitivities shown cannot be used to derive a linear development of the deﬁned beneﬁt obligation. For the calculation of the sensitivity of life expectancy, by means of ﬁxed (non-age-dependent) factors for a reference person, a life expectancy one year higher or one year lower is achieved. Eﬀect on future cash ﬂows Daimler currently plans to make contributions of €0.7 billion to its pension plans for the year 2018; the ﬁnal amount is usually set in the fourth quarter of a ﬁnancial year. In addition, the Group expects to make pension beneﬁt payments of €1.0 billion in 2018. Deﬁned contribution pension plans Under deﬁned contribution pension plans, Daimler makes deﬁned contributions to external insurance policies or invest- ment funds. There are fundamentally no further contractual obligations or risks for Daimler in excess of the deﬁned contri- butions. The Group also pays contributions to governmental pension schemes. In 2017, the total cost from deﬁned contri- bution plans amounted to €1.6 billion (2016: €1.5 billion). Of those payments €1.5 billion (2016: €1.4 billion) was related to governmental pension plans. Multi-employer plans Daimler participates in some collectively bargained deﬁned beneﬁt pension plans maintained by more than one employer. The Group presents several of these plans in its consolidated ﬁnancial statements as deﬁned contribution plans because the information required to use deﬁned beneﬁt accounting is not available in a timely manner or in suﬃcient detail. The Group cannot exercise direct control over such plans and the plan trustees have no legal obligation to share information directly with participating employers. Higher contributions by the Group to such a pension plan could be required in particular when an underfunded status exceeds a speciﬁc level. Exit from such a plan can lead to the companies involved having to oﬀset the potential future shortfall relating to their share of the plan. Furthermore, the possibility exists that Daimler can be liable for other participants’ obligations. The multi-employer pension plans previously included a pension plan in the NAFTA region, for which the information required to use beneﬁt accounting for deﬁned beneﬁt plans was available for the ﬁrst time in 2017. The company withdrew from the plan by the end of November 2017. The settlement of the plan resulted in a gain for Daimler Trucks of €117 million. The EBIT eﬀect is presented in cost of sales in the consolidated statement of income. The present value of future ﬁnancial obligations is presented in provisions for other risks as of December 31, 2017. As a result, multi-employer plans at the Daimler Group are classiﬁed as not material at December 31, 2017. The weighted average duration of the deﬁned beneﬁt obligations is shown in table (cid:202) F.53. Other post-employment beneﬁts Certain foreign subsidiaries of Daimler, mainly in the United States, provide their employees with post-employment health care beneﬁts with deﬁned entitlements, which have to be accounted for as deﬁned beneﬁt plans. These obligations are funded to a small extent through reimbursement rights and plan assets. Table (cid:202) F.54 shows key data for other post- employment beneﬁts. Signiﬁcant risks in connection with commitments for other post-employment beneﬁts (medical care) relate to rising healthcare costs and lower contributions to those costs from the public sector. In addition, these plans are subject to the usual risks for deﬁned beneﬁt plans, in particular the risk of changes in discount rates. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 281 F.51 Signiﬁcant factors for the calculation of pension beneﬁt obligations In percent Discount rates Expected increase in cost of living1 German Plans At December 31, 2016 2017 Non-German Plans At December 31, 2016 2017 1.8 1.7 1.9 1.7 3.7 – 3.9 – 1 For German Plans, expected increases in cost of living may aﬀect – depending on the design of the pension plan – the obligation to the Group’s active employees as well as retirees and their survivors. For most non-German Plans, expected increases in cost of living do not have a material impact on the amount of the obligation. F.52 Sensitivity analysis for the present value of deﬁned beneﬁt pension obligation December 31, 2017 Non-German Plans German Plans Total In millions of euros Sensitivity for discount rates Sensitivity for discount rates Sensitivity for expected increases in cost of living Sensitivity for expected increases in cost of living Sensitivity for life expectancy Sensitivity for life expectancy + 0.25% - 0.25% + 0.10% - 0.10% + 1 year - 1 year - 1,184 1,308 - 1,045 1,113 109 - 107 487 - 437 90 - 89 417 - 366 - 139 195 19 - 18 70 - 71 December 31, 2016 Non-German Plans German Plans - 1,040 1,090 83 - 100 407 - 375 - 153 157 22 - 20 68 - 73 Total - 1,193 1,247 105 - 120 475 - 448 F.53 Weighted average duration of the deﬁned beneﬁt obligations In years German Plans Non-German Plans F.54 Key data for other post-employment beneﬁts In millions of euros Present value of deﬁned beneﬁt obligations Fair value of plan assets and reimbursement rights Funded status Net periodic cost for other post-employment beneﬁts 2017 2016 16 17 17 17 2017 2016 1,142 1,187 68 72 - 1,074 - 1,115 - 71 - 75 282 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. Provisions for other risks The development of provisions for other risks is summarized in table (cid:202) F.55. Product warranties Daimler issues various types of product warranties, under which it generally guarantees the performance of products delivered and services rendered for a certain period. The provision for these product warranties covers expected costs for legal and contractual warranty claims as well as expected costs for goodwill consessions and recall campaigns. The utilization date of product warranties depends on the incidence of the warranty claims and can span the entire term of the product warranties. The cash outﬂow for non-current product warranties is principally expected within a period until 2020. Personnel and social costs Provisions for personnel and social costs primarily comprise expected expenses of the Group for employee anniversary bonuses, proﬁt sharing arrangements and management bonuses as well as early retirement and partial retirement plans. The additions recorded to the provisions for proﬁt sharing and man- agement bonuses in the reporting year usually result in cash outﬂows in the following year. The cash outﬂow for non-current provisions for personnel and social costs is primarily expected within a period until 2028. F.55 Provisions for other risks In millions of euros Balance at December 31, 2016 thereof current thereof non-current Additions Utilizations Reversals Compounding and eﬀects from changes in discount rates Currency translation and other changes Balance at December 31, 2017 thereof current thereof non-current Other Provisions for other risks include obligations for expected reductions in revenue already recognized, such as bonuses, discounts and other price reduction commitments. They also include expected costs in connection with liability and litigation risks as well as risks from legal proceedings, provisions for optimization programs, provisions for environmental protection risks, as well as provisions for other taxes and various other risks which cannot be allocated to any other class of provision. Further information on other provisions for other risks is provided in Notes 5 and 29. Product warranties Personnel and social costs Other Total 6,102 2,512 3,590 3,414 - 2,576 - 217 15 - 84 6,654 3,135 3,519 4,260 2,181 2,079 2,379 - 2,030 - 134 35 - 85 4,425 2,209 2,216 5,697 4,734 963 4,179 - 2,934 - 578 11 - 210 6,165 4,708 1,457 16,059 9,427 6,632 9,972 - 7,540 - 929 61 - 379 17,244 10,052 7,192 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 283 24. Financing liabilities The composition of ﬁnancing liabilities is shown in table (cid:202) F.56. Liabilities from ﬁnance leases relate to leases of property, plant and equipment which transfer substantially all risks and rewards to the Group as lessee. Future minimum lease payments under ﬁnance leases amounted to €496 million at December 31, 2017 (2016: €361 million). The reconciliation of future minimum lease payments from ﬁnance lease arrange- ments to the corresponding liabilities is shown in table (cid:202) F.57. F.56 Financing liabilities In millions of euros Notes/bonds Commercial paper Liabilities to ﬁnancial institutions Deposits in the direct banking business Liabilities from ABS transactions Liabilities from ﬁnance leases Loans, other ﬁnancing liabilities Current At December 31, 2017 Total Non-current Current At December 31, 2016 Total Non-current 13,785 1,045 17,583 9,450 6,214 27 642 53,288 – 16,972 2,010 4,823 325 960 67,073 1,045 34,555 11,460 11,037 352 1,602 13,820 1,701 16,528 8,876 5,823 30 510 49,260 – 13,146 2,766 4,745 203 278 63,080 1,701 29,674 11,642 10,568 233 788 48,746 78,378 127,124 47,288 70,398 117,686 F.57 Reconciliation of minimum lease payments to liabilities from ﬁnance lease arrangements In millions of euros Maturity within one year between one and ﬁve years later than ﬁve years Future minimum lease payments at December 31, 2016 2017 Interest included in future minimum lease payments at December 31, 2016 2017 Liabilities from ﬁnance lease arrangements at December 31, 2016 2017 39 150 307 496 42 161 158 361 12 61 71 144 12 68 48 128 27 89 236 352 30 93 110 233 284 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. Other ﬁnancial liabilities 26. Deferred income The composition of other ﬁnancial liabilities is shown in table (cid:202) F.58. The composition of deferred income is shown in table (cid:202) F.59. Financial liabilities measured at fair value through proﬁt or loss relate exclusively to derivative ﬁnancial instruments which are not used in hedge accounting. 27. Other liabilities Table (cid:202) F.60 shows the composition of other liabilities. Further information on other ﬁnancial liabilities is provided in Note 31. F.58 Other ﬁnancial liabilities In millions of euros Derivative ﬁnancial instruments used in hedge accounting Financial liabilities recognized at fair value through proﬁt or loss Liabilities from residual value guarantees Liabilities from wages and salaries Accrued interest expenses Deposits received Other Miscellaneous other ﬁnancial liabilities F.59 Deferred income In millions of euros Current At December 31, 2017 Total Non-current Current At December 31, 2016 Total Non-current 168 62 1,108 1,292 905 496 4,902 8,703 8,933 528 49 1,217 25 – 539 231 2,012 2,589 696 111 2,325 1,317 905 1,035 5,133 10,715 11,522 1,312 107 1,062 1,107 883 477 4,594 8,123 9,542 1,151 79 1,230 48 – 556 263 2,097 3,327 2,463 186 2,292 1,155 883 1,033 4,857 10,220 12,869 Current At December 31, 2017 Total Non-current Current At December 31, 2016 Total Non-current Deferral of revenue from multi-year service and maintenance agreements Deferral of sales revenue received from sales with residual-value guarantees Deferral of advance rental payments received from operating lease arrangements Other deferred income 1,714 3,381 534 824 596 963 900 558 3,668 5,802 5,095 1,497 1,724 1,154 9,470 1,748 3,450 498 839 359 950 823 336 3,444 5,559 5,198 1,448 1,662 695 9,003 F.60 Other liabilities In millions of euros Income tax liabilities Other tax liabilities Miscellaneous other liabilities Current At December 31, 2017 Total Non-current Current At December 31, 2016 Total Non-current 413 1,871 388 2,672 9 1 – 10 422 1,872 388 2,682 304 1,792 342 2,438 10 1 4 15 314 1,793 346 2,453 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 285 F.61 Changes in other operating assets and liabilities In millions of euros Provisions Financial instruments Miscellaneous other assets and liabilities 2017 2016 - 1,467 - 108 1,527 - 48 341 165 1,644 2,150 F.62 Cash ﬂows included in cash used for/ provided by operating activities In millions of euros Interest paid Interest received Dividends received from equity-method investments Dividends received from other shareholdings 2017 2016 - 304 187 843 52 - 229 211 103 85 F.63 Changes in liabilities arising from ﬁnancing activities In millions of euros Cash ﬂows Obtaining or losing control of subsidiaries Changes in foreign exchange rates Fair value changes Other changes 2017 16,794 – - 7,135 - 119 - 325 28. Consolidated statement of cash ﬂows Calculation of funds At December 31, 2017 similar to the prior year, cash and cash equivalents included restricted funds of less than €1 million. Cash used for/ provided by operating activities Changes in other operating assets and liabilities are shown in table (cid:202) F.61. The decrease in provisions in the reporting year mainly resulted from provisions for pensions and similar obligations primarily due to an extraordinary contribution to the German pension plan assets. Table (cid:202) F.62 shows cash ﬂows included in cash used for/ provided by operating activities. The line item other non-cash expense and income within the reconciliation of proﬁt before income taxes to cash provided by operating activities in the reporting year primarily comprised the Group’s share in the proﬁt/loss of companies accounted for using the equity method (see Note 13). In the prior year, the reconciling item mainly comprised the Group’s share in the proﬁt/loss of companies accounted for using the equity method. An additional eﬀect resulted from the income related to the contribution of the shares of Renault S.A. and Nissan Motor Company Ltd. into the pension plan assets. Cash used for investing activities In the prior year the cash ﬂow was aﬀected by the acquisition of Athlon Car Lease International B.V. The consideration paid for the acquisition comprised the purchase price amounting to €1,100 million and ﬁnancing liabilities settled upon ﬁnalizing the transaction in an amount of €2,741 million. The consideration was reduced by the acquired cash and cash equivalents amounting to €191 million. Cash provided by ﬁnancing activities Cash provided by ﬁnancing activities includes cash ﬂows from hedging the currency risks of ﬁnancial liabilities. In 2017, cash provided by ﬁnancing activities included payments for the reduction of outstanding ﬁnance lease liabilities of €39 million (2016: €43 million). Table (cid:202) F.63 includes changes in liabilities arising from ﬁnancing activities, divided into cash and non-cash components, which have to be prospectively disclosed starting January 1, 2017. 286 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. Legal proceedings Various legal proceedings, claims and governmental investiga- tions (legal proceedings) are pending against Daimler AG and its subsidiaries on a large number of topics, including vehicle safety, emissions, fuel economy, ﬁnancial services, dealer, supplier and other contractual relationships, intellectual property rights, product warranties, environmental matters, antitrust matters (including actions for damages) and shareholder matters. Legal proceedings relating to products deal with claims on account of alleged vehicle defects. Some of these claims are asserted by way of class action suits. If the outcome of such legal proceedings is detrimental to Daimler, the Group may be required to pay substantial compensatory and punitive damages or to undertake service actions, recall campaigns, monetary penalties or other costly actions. Some of these proceedings may have an impact on the Group’s reputation. As already reported, several consumer class-action law- suits were ﬁled against Mercedes-Benz USA, LLC (MBUSA) in federal courts in the United States in early 2016. The main allegation was the use of devices that impermissibly impair the eﬀectiveness of emission control systems in reducing nitrogen-oxide (NOX) emissions and which cause excessive emissions from vehicles with diesel engines. In addition, plaintiﬀs alleged that consumers were deliberately deceived in connection with the advertising of Mercedes-Benz diesel vehicles. Those consumer class actions were consolidated into one class action pending against both Daimler AG and MBUSA in the US District Court for the District of New Jersey, in which the plaintiﬀs asserted various grounds for monetary relief on behalf of a nation-wide class of persons or entities who owned or leased certain models of Mercedes-Benz diesel vehicles as of February 18, 2016. Daimler AG and MBUSA moved to dismiss the lawsuit in its entirety. By order dated December 6, 2016, the court granted Daimler AG’s and MBUSA’s motion to dismiss and dismissed the lawsuit without prejudice, based on plain- tiﬀs’ failure to allege with suﬃcient speciﬁcity the advertising that they contended had misled them. Plaintiﬀs subsequently ﬁled an amended class action complaint in the same court making similar allegations. The amended complaint also adds as defen- dants Robert Bosch LLC and Robert Bosch GmbH (collectively; “Bosch”), and alleges that Daimler AG and MBUSA conspired with Bosch to deceive US regulators and consumers. Daimler AG and MBUSA view the lawsuit as being without merit and will defend against the claims. Another consumer class-action lawsuit against Daimler AG and other companies of the Group containing similar allegations was ﬁled in Canada in April 2016. On June 29, 2017, the court granted a procedural motion to certify certain issues for class treatment. Daimler also regards this lawsuit as being without merit and will defend against the claims. On July 14, 2017, an additional class action was ﬁled in the Superior Court of California, Los Angeles County, against Daimler AG and other companies of the Group, alleging similar claims as the existing US class action. That action was removed to federal court and, on October 31, 2017, was transferred to the District of New Jersey. On December 21, 2017 the parties stipulated to dismiss, without prejudice, that lawsuit. It may be ﬁled again under speciﬁc conditions, but Daimler also regards this lawsuit as being without merit. Several state and federal authorities and institutions worldwide have inquired about and/or are investigating test results, the emission control systems used in Mercedes-Benz diesel vehicles and/or Daimler’s interaction with the relevant state and federal authorities as well as related legal issues and implications, including, but not limited to, under applicable environmental, securities, criminal and antitrust laws. These authorities and institutions include, among others, the U.S. Department of Justice (DOJ), which in April 2016 requested that Daimler AG review its certiﬁcation and admissions processes related to exhaust emissions of diesel vehicles in the United States by way of an internal investigation in cooperation with the DOJ, the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB) and other US state authorities, the U.S. Securities and Exchange Commission (SEC), the European Commission, with which Daimler AG has ﬁled a leniency applica- tion, as well as national cartel authorities and other authorities of various foreign states as well as the German Federal Financial Supervisory Authority (BaFin) and the German Federal Motor Transport Authority (KBA), the diesel emissions committee of inquiry of the German Parliament and the Stuttgart district attorney’s oﬃce. The Stuttgart district attorney’s oﬃce is con- ducting criminal investigation proceedings against Daimler employees concerning the suspicion of fraud and criminal advertising, and searched the premises of Daimler at several locations in Germany. Daimler continues to fully cooperate with the DOJ and the other authorities and institutions. As these inquiries, investigations and the replies to these information requests as well as Daimler’s internal investigation are ongoing, we rely on IAS 37.92 in not disclosing any further information on whether or not, or to what extent, provisions have been rec- ognized and/or contingent liabilities have been disclosed. Starting on July 25, 2017, a number of class actions have been ﬁled in the United States and Canada against Daimler AG and other manufacturers of automobiles as well as various of their North American subsidiaries. Plaintiﬀs allege to have suﬀered damages because defendants engaged in anticom- petitive behavior relating to vehicle technology, costs, suppliers, markets, and other competitive attributes, including diesel emissions control technology, since the 1990s. On October 4, 2017, all pending US class actions were centralized in one pro- ceeding by the Judicial Panel on Multidistrict Litigation and transferred to the U.S. District Court for the Northern District of California. Daimler AG and the other Daimler group aﬃliates respectively aﬀected regard the US and Canadian lawsuits as being without merit, and will defend against the claims. In this context, Daimler AG may now disclose that it ﬁled an application for immunity from ﬁnes (leniency application) with the European Commission some time ago. In late October 2017, the European Commission conducted preannounced inspections with Daimler in Stuttgart (as well as further inspections with other manufacturers) in order to further clarify the facts of the case. Currently, it continues to be uncertain whether the European Commission will initiate formal antitrust proceedings. At present, Daimler does not expect this unquan- tiﬁable contingent liability to have any material impact on its proﬁtability, cash ﬂow and ﬁnancial situation. Following the settlement decision by the European Commission adopted on July 19, 2016, concluding the trucks antitrust proceedings, Daimler AG faces customers’ claims for damages to a considerable degree. Respective legal actions have been initiated in various states in and outside of Europe. Appropriate legal remedies are taken to defend the company. In accor- dance with IAS 37.92, no further information is disclosed with respect to whether, or to what extent, provisions have been F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 287 recognized and/or contingent liabilities have been disclosed, so as not to prejudice Daimler AG’s position. On June 23, 2016, the German Federal Cartel Oﬃce carried out dawn raids at several car manufacturers and suppliers, including Daimler AG, with regard to steel purchasing. Daimler is cooperating in full with the authority. In accordance with IAS 37.92, no further information is disclosed with respect to whether, or to what extent, provisions have been recognized and/or contingent liabilities have been disclosed, so as not to prejudice Daimler AG’s position. As already reported, in August 2016, Mercedes-Benz Canada (MB Canada) was added as a defendant to a putative nation- wide class action pending in Ontario Superior Court. The main allegation in the matter is that MB Canada, along with Takata entities and many other companies that sold vehicles equipped with Takata airbag inﬂators, was allegedly negligent in selling such vehicles, purportedly not recalling them quickly enough, and failing to provide an allegedly adequate replacement airbag inﬂator. In addition, on June 28, 2017, Takata entities along with Daimler AG and MBUSA were named as defendants in a US nation-wide class action, which was ﬁled in New Jersey federal court and includes allegations that are similar to the Canadian action. In the third quarter of 2017, the New Jersey lawsuit was transferred to federal court in the Southern District of Florida for consolidation with other multi-district litigation proceedings. The previously reported lawsuit ﬁled by the State of New Mexico, which also made similar claims against MBUSA and many other companies that sold vehicles equipped with Takata airbag inﬂators, was dismissed without prejudice on June 22, 2017. It may, however, be ﬁled again under speciﬁc conditions. Daimler AG continues to regard all these lawsuits brought with regard to Mercedes-Benz vehi- cles as being without merit, and the Daimler Group aﬃliates respectively aﬀected will further defend themselves against the claims. The Federal Republic of Germany initiated arbitration proceed- ings against Daimler Financial Services AG, Deutsche Telekom AG and Toll Collect GbR and submitted its statement of claims in August 2005. It seeks damages, contractual penalties and the transfer of intellectual property rights to Toll Collect GmbH. In particular, the Federal Republic of Germany is claiming – lost revenue of €3.33 billion for the period September 1, 2003 through December 31, 2004 plus interest at 5% per annum above the respective base rate since submission of claims (an amount of €2 billion as at the date of September 29, 2014), – contractual penalties of approximately €1.65 billion through July 31, 2005 plus interest at 5% per annum above the respective base rate since submission of claims (an amount of €225 million as at the date of September 29, 2014) and – reﬁnancing costs of €196 million. Since, among other things, some of the contractual penalties are dependent on time and further claims for contractual penalties have been asserted by the Federal Republic of Germany, the amount claimed as contractual penalties may increase. The defendants submitted their response to the statement of claims on June 30, 2006. The Federal Republic of Germany delivered its reply to the arbitrators on February 15, 2007, and the defendants delivered their rebuttal on October 1, 2007 (see also Note 30). The arbitrators held the ﬁrst hearing on June 16 and 17, 2008. Additional briefs from the claimant and the defendants have been ﬁled since then. A hearing of witnesses and experts took place between December 6 and 14, 2010. The parties submitted further written statements on July 15 and November 15, 2011. A(cid:5)er the Tribunal’s President resigned for personal reasons as of March 30, 2012, the new President was determined by the Administrative Court in Berlin as of October 29, 2012. In the meantime, further briefs were exchanged and the arbitrators held further hearings in May and October 2014, in June 2015 and June 2016 as well as in March, July and September 2017. In the ﬁrst half of 2017, the sharehold- ers Deutsche Telekom AG and Daimler Financial Services AG asserted counterclaims relating to breaches of duty by the Federal Republic of Germany with regard to the delay in the start of the toll system. Daimler considers the claims of the Federal Republic of Germany to be without merit and will continue to defend itself. The Group recognizes provisions in connection with pending or threatened proceedings to the extent a loss is probable and can be reasonably estimated. Such provisions are recognized in the Group’s consolidated ﬁnancial statements and are based on estimates. If quantiﬁable, contingent liabilities in connection with legal proceedings are disclosed in the Group’s consolidated ﬁnancial statements. Risks resulting from legal proceedings sometimes cannot be assessed reliably or only to a limited extent. Consequently, provisions recognized for some legal proceedings may turn out to be insuﬃcient once such proceedings have ended. The Group may also become liable for payments in legal proceedings for which no provisions were recognized and/or contingent liabilities were disclosed. Uncertainty exists with regard to the amounts or due dates of possible cash outﬂows. Although the ﬁnal resolution of any such proceedings could materially aﬀect Daimler’s operating results and cash ﬂows for a particular reporting period, Daimler believes that it should not exert a sustained inﬂuence on the Group’s ﬁnancial position. 30. Financial guarantees, contingent liabilities and other ﬁnancial obligations Financial guarantees Financial guarantees principally represent contractual arrange- ments. These guarantees generally provide that in the event of default or non-payment by the primary debtor, the Group will be required to settle such ﬁnancial obligations. The maximum potential obligation resulting from these guarantees amounted to €667 million at December 31, 2017 (2016: €784 million) and includes liabilities recognized in the amount of €141 million (2016: €169 million). Contingent liabilities Table (cid:202) F.64 shows estimates of the ﬁnancial eﬀects of contingent liabilities at December 31, 2017. F.64 Composition of contingent liabilities In millions of euros Guarantees under buyback commitments Other contingent liabilities At December 31, 2016 2017 1,608 589 2,197 1,726 268 1,994 288 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Guarantees under buyback commitments represent arrangements whereby the Group guarantees speciﬁed trade-in or resale values for sold vehicles. Such guarantees provide the holder with the right to return purchased vehicles to the Group, the right being primarily contingent on the future purchase of vehicles or services. The amounts of the buyback commitments are close to the fair values of the vehicles to be taken back. The provisions recognized in connection with these buyback commitments, amounted to €125 million at December 31, 2017 (2016: €95 million). On the other hand, residual value guarantees related to arrangements for which revenue recognition is precluded due to the Group’s obligation to repurchase assets are included in other ﬁnancial liabilities. At December 31, 2017, the best estimate for potential obli- gations from other contingent liabilities was €589 million (2016: €268 million). Some contingent liabilities are not quantiﬁable. This applies in particular to the assessment of the legal risks arising from the class-action lawsuits mentioned in Note 29. Furthermore, in 2002, our subsidiary Daimler Financial Services AG, Deutsche Telekom AG and Compagnie Financière et Indus- trielle des Autoroutes S.A. (Coﬁroute) entered into a consortium agreement in order to jointly develop, install and operate under a contract with the Federal Republic of Germany (operating agreement) a system for the electronic collection of tolls for all commercial vehicles over 12 tons gross vehicle weight using German highways. A(cid:5)er concluding supplementary agreements to the operating agreement with the Federal Republic of Germany tolls are now charged for vehicles over 7.5 tons gross vehicle weight and on speciﬁc sections of federal highways. Daimler Financial Services AG and Deutsche Telekom AG each hold a 45% equity interest and Coﬁroute holds the remaining 10% equity interest in both the consortium (Toll Collect GbR) and the joint venture company (Toll Collect GmbH) (together Toll Collect). According to the operating agreement, the toll collection system had to be operational no later than August 31, 2003. A(cid:5)er a delay of the launch date of the toll collection system, which resulted in a loss of revenue for Toll Collect and in payments of contractual penalties for delays, the toll collection system was introduced on January 1, 2005 with on-board units that allowed for slightly less than full technical performance in accordance with the technical speciﬁcation (phase 1). On January 1, 2006, the toll collection system was installed and started to operate with full eﬀectiveness as speciﬁed in the operating agreement (phase 2). On December 20, 2005, Toll Collect GmbH received a preliminary operating permit as speciﬁed in the operating agreement. Toll Collect GmbH expects to receive the ﬁnal operating permit, and continues to operate the toll collection system under the preliminary operating permit in the interim. Failure to perform various obligations under the operating agreement may result in penalties, additional revenue reductions and damage claims that could become signiﬁcant over time. However, penalties and revenue reductions are capped at €150 million per year until the ﬁnal operating permit has been issued and at €100 million per year following the issuance of the ﬁnal operating permit. These cap amounts are subject to a 3% increase for every year of operation. Beginning in June 2006, the Federal Republic of Germany began reducing monthly payments to Toll Collect GmbH by €8 million in partial set-oﬀ against amounts claimed in the arbitration proceedings referred to below. This oﬀsetting may require the consortium members to provide additional operating funds to Toll Collect GmbH. The operating agreement calls for the submission of all disputes related to the toll collection system to arbitration. The Federal Republic of Germany has initiated arbitration proceedings against Daimler Financial Services AG, Deutsche Telekom AG and the consortium. According to the statement of claims received in August 2005, the Federal Republic of Germany is seeking damages including contractual penalties and reimbursement of lost revenue that allegedly arose from delays in the oper- ability of the toll collection system. See Note 29 for additional information. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 289 Other ﬁnancial obligations The Group has ﬁnancial obligations resulting from non-cancelable long-term rental agreements and operat- ing leases for property, plant and equipment; the contracts partially include renewal or purchase options and price-escalation clauses. In 2017, Daimler recognized expense payments from operating leases of €563 million (2016: €539 million). Table (cid:202) F.65 provides an overview of when future minimum lease payments under non-cancelable long-term rental and lease agreements fall due (nominal amounts). Furthermore, other ﬁnancial obligations exist from the acquisition of intangible assets, property, plant and equipment and lease property of €4,876 million (2016: €3,977 million). In addition, the Group had issued irrevocable loan commitments as of December 31, 2017. These loan commit- ments had not been utilized as of that date. An overview of the maturities of irrevocable loan commitments is shown in Table (cid:202) F.79 in Note 32. F.65 Future minimum lease payments under non-cancelable long-term rental and lease agreements (nominal amounts) In millions of euros Maturity not later than one year later than one year and not later than ﬁve years later than ﬁve years At December 31, 2016 2017 698 596 1,421 890 3,009 1,335 597 2,528 Each of the consortium members (including Daimler Financial Services AG) has provided guarantees supporting the obli- gations of Toll Collect GmbH towards the Federal Republic of Germany relating to the completion and operation of the toll collection system, which are subject to speciﬁc triggering events. In addition, Daimler AG has guaranteed bank loans obtained by Toll Collect GmbH. The guarantees are described in detail below: – Guarantee of bank loans. Daimler AG issued a guarantee to third parties up to a maximum amount of €100 million for bank loans which could be obtained by Toll Collect GmbH. This amount represents the Group’s 50% share of Toll Collect GmbH’s external ﬁnancing guaranteed by its shareholders. – Equity maintenance undertaking. The consortium members have the obligation to contribute, on a joint and several basis, additional funds to Toll Collect GmbH as may be nec- essary for Toll Collect GmbH to maintain a minimum equity (based on German Commercial Code accounting principles) of 15% of total assets (a so-called “equity maintenance undertaking”). This obligation will terminate on August 31, 2018, when the extended operating agreement expires, or earlier if the agreement is terminated. Such obligation may arise if Toll Collect GmbH is subject to revenue reductions caused by underperformance, if the Federal Republic of Germany is successful in claiming lost revenue against Toll Collect GmbH for any period the system was not fully operational, or if Toll Collect GmbH incurs penalties that may become payable under the above mentioned agree- ments. If such penalties, revenue reductions or other events reduce Toll Collect GmbH’s equity to a level below the minimum equity percentage agreed upon, the consortium members are obligated to fund Toll Collect GmbH’s opera- tions to the extent necessary to reach the required minimum equity. Coﬁroute’s risks and obligations are limited to €70 million. Daimler Financial Services AG and Deutsche Telekom AG are jointly obliged to indemnify Coﬁroute for amounts exceeding this limitation. While Daimler’s maximum future obligation resulting from the guarantee of the bank loan can be determined (2017: €100 million), the Group is unable to reasonably estimate the amount or range of amounts of possible loss resulting from the ﬁnancial guarantee in form of the equity maintenance undertaking due to the various uncertainties described above, although it could be material. Only the guarantee for the bank loan is included in the above disclosures for ﬁnancial guarantees. Obligations from product warranties and extended product warranties are not included in the above disclosures. See Note 23 for provisions relating to such obligations. 290 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. Financial instruments Carrying amounts and fair values of ﬁnancial instruments The fair values of ﬁnancial instruments were calculated on the basis of market information available on the balance sheet date. The following methods and premises were used: Table (cid:202) F.66 shows the carrying amounts and fair values of the respective classes of the Group’s ﬁnancial instruments. The fair value of a ﬁnancial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Given the varying inﬂuencing factors, the reported fair values can only be viewed as indicators of the prices that may actually be achieved on the market. Receivables from ﬁnancial services The fair values of receivables from ﬁnancial services with variable interest rates are estimated to be equal to the respective carrying amounts because the interest rates agreed and those available in the market do not signiﬁcantly diﬀer. The fair values of receivables from ﬁnancial services with ﬁxed interest rates are determined on the basis of discounted expected future cash ﬂows. F.66 Carrying amounts and fair values of ﬁnancial instruments In millions of euros Financial assets Receivables from ﬁnancial services Trade receivables Cash and cash equivalents Marketable debt securities Available-for-sale ﬁnancial assets Other ﬁnancial assets Available-for-sale ﬁnancial assets thereof equity instruments measured at fair value thereof equity instruments measured at cost Financial assets recognized at fair value through proﬁt or loss Derivative ﬁnancial instruments used in hedge accounting Other receivables and ﬁnancial assets Financial liabilities Financing liabilities Trade payables Other ﬁnancial liabilities Financial liabilities recognized at fair value through proﬁt or loss Derivative ﬁnancial instruments used in hedge accounting Miscellaneous other ﬁnancial liabilities At December 31, 2017 At December 31, 2016 Carrying amount Fair value Carrying amount Fair value 85,787 11,990 12,072 86,136 11,990 12,072 80,507 10,614 10,981 80,851 10,614 10,981 10,063 10,063 10,748 10,748 1,173 171 1,002 82 2,379 3,167 1,173 171 1,002 82 2,379 3,167 811 166 645 106 1,730 3,089 811 166 645 106 1,730 3,089 126,713 127,062 118,586 118,930 127,124 12,474 111 696 10,715 151,120 128,437 12,474 111 696 10,715 152,433 117,686 11,567 186 2,463 10,220 142,122 118,929 11,567 186 2,463 10,220 143,365 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 291 Financing liabilities The fair values of bonds, loans, commercial paper, deposits in the direct banking business and liabilities from ABS transac- tions are calculated as present values of the estimated future cash ﬂows. Market interest rates for the appropriate terms are used for discounting. Trade payables Due to the short maturities of these ﬁnancial instruments, it is assumed that their fair values are equal to the carrying amounts. Other ﬁnancial liabilities Financial liabilities measured at fair value through proﬁt or loss comprise derivative ﬁnancial instruments not used in hedge accounting. For information regarding these ﬁnancial instruments as well as derivative ﬁnancial instruments used in hedge accounting, see the notes above under marketable debt securities and other ﬁnancial assets. Miscellaneous other ﬁnancial liabilities are carried at amortized cost. Because of the predominantly short maturities of these ﬁnancial instruments, it is assumed that the fair values approximate the carrying amounts. The discounting is based on the current interest rates at which similar loans with identical terms could have been obtained as of December 31, 2017 and December 31, 2016. Trade receivables and cash and cash equivalents Due to the short terms of these ﬁnancial instruments and the fundamentally lower credit risk, it is assumed that their fair values are equal to the carrying amounts. Marketable debt securities and other ﬁnancial assets Financial assets available-for-sale include: – debt and equity instruments measured at fair value; these instruments were measured using quoted market prices at December 31. If quoted market prices were not available for these debt and equity instruments the fair value measurement is based on inputs that are either directly or indirectly observable on active markets. – equity interests measured at cost; fair values could not be determined for these ﬁnancial instruments because no stock exchange or market prices are available. These equity interests comprise investments in non-listed companies for which no objective evidence existed at the balance sheet date that these assets were impaired and whose fair values cannot be determined with suﬃcient reliability. It is assumed that the fair values approximate the carrying amounts of these ﬁnancial instruments. Daimler does not intend to sell the equity interests which are presented at December 31, 2017. Financial assets measured at fair value through proﬁt or loss include derivative ﬁnancial instruments not used in hedge accounting. These ﬁnancial instruments as well as derivative ﬁnancial instruments used in hedge accounting comprise: – derivative currency hedging contracts; the fair values of cross currency interest rate swaps are determined on the basis of the discounted estimated future cash ﬂows using market interest rates appropriate to the remaining terms of the ﬁnancial instruments. The valuation of currency forwards is based on market quotes of forward curves; currency options were measured using option pricing models using market data. – derivative interest rate hedging contracts; the fair values of interest rate hedging instruments (e.g. interest rate swaps) are calculated on the basis of the discounted estimated future cash ﬂows using the market interest rates appropriate to the remaining terms of the ﬁnancial instruments. – derivative commodity hedging contracts; the fair values of commodity hedging contracts (e.g. commodity forwards) are determined on the basis of current reference prices with consideration of forward premiums and discounts. Other receivables and assets are carried at amortized cost. Because of the predominantly short maturities of these ﬁnancial instruments, it is assumed that the fair values approximate the carrying amounts. 292 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Oﬀsetting of ﬁnancial instruments Measurement hierarchy The Group concludes derivative transactions in accordance with the master netting arrangements (framework agreement) of the International Swaps and Derivatives Association (ISDA) and other appropriate national framework agreements. However, these arrangements do not meet the criteria for netting in the consolidated statement of ﬁnancial position, as they allow netting only in the case of future events such as default or insolvency on the part of the Group or the counterparty. Table (cid:202) F.67 shows the carrying amounts of the derivative ﬁnancial instruments subject to the described arrangements as well as the possible ﬁnancial eﬀects of netting in accor- dance with the master netting arrangements. Table (cid:202) F.68 provides an overview of the classiﬁcation into measurement hierarchies of ﬁnancial assets and liabilities measured at fair value (according to IFRS 13). At the end of each reporting period, Daimler reviews the neces- sity of reclassiﬁcation between the measurement hierarchies. For the determination of the credit risk from derivative ﬁnancial instruments which are allocated to Level 2 measurement hierar- chy, portfolios managed on basis of net exposure are applied. Table (cid:202) F.69 shows into which measurement hierarchy (according to IFRS 13) the fair values of the ﬁnancial assets and liabilities are classiﬁed which are not measured at fair value in the consolidated statement of ﬁnancial position. F.67 Disclosure for recognized ﬁnancial instruments that are subject to an enforceable master netting arrangement or similar agreement At December 31, 2017 At December 31, 2016 Gross and net amounts of financial instru- ments in the balance sheet Amounts subject to a master netting arrangement Gross and net amounts of financial instru- ments in the balance sheet Amounts subject to a master netting arrangement Net amounts Net amounts In millions of euros Other ﬁnancial assets1 Other ﬁnancial liabilities2 2,461 807 - 566 - 566 1,895 241 1,836 2,649 - 1,393 - 1,393 443 1,256 1 The other ﬁnancial assets which are subject to a master netting arrangement comprise derivative ﬁnancial instruments that are included in hedge accounting and ﬁnancial assets measured at fair value through proﬁt or loss (see Note 16). 2 The other ﬁnancial liabilities which are subject to a master netting arrangement comprise derivative ﬁnancial instruments that are included in hedge accounting and ﬁnancial liabilities measured at fair value through proﬁt or loss (see Note 25). F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 293 F.68 Measurement hierarchy of ﬁnancial assets and liabilities measured at fair value Total Level 11 At December 31, 2017 Level 33 Level 22 Total Level 11 At December 31, 2016 Level 33 Level 22 In millions of euros Financial assets measured at fair value Financial assets available-for-sale 10,234 6,721 3,513 thereof equity instruments measured at fair value thereof marketable debt securities Financial assets measured at fair value through proﬁt or loss Derivative ﬁnancial instruments used in hedge accounting Liabilities measured at fair value Financial liabilities measured at fair value through proﬁt or loss Derivative ﬁnancial instruments used in hedge accounting 171 10,063 82 2,379 12,695 111 696 807 106 6,615 – – 6,721 – – – 65 3,448 82 2,379 5,974 111 696 807 – – – – – – – – – 10,914 5,164 5,750 166 10,748 106 1,730 12,750 186 2,463 2,649 93 5,071 – – 5,164 – – – 73 5,677 106 1,730 7,586 186 2,463 2,649 – – – – – – – – – 1 Fair value measurement is based on quoted prices (unadjusted) in active markets for these or identical assets or liabilities. 2 Fair value measurement is based on inputs that are observable on active markets either directly (i.e. as prices) or indirectly (i.e. derived from prices). 3 Fair value measurement is based on inputs for which no observable market data is available. F.69 Measurement hierarchy of ﬁnancial assets and liabilities not measured at fair value In millions of euros Total Level 11 At December 31, 2017 Level 33 Level 22 Total Level 11 At December 31, 2016 Level 33 Level 22 Fair values of ﬁnancial assets measured at cost Receivables from ﬁnancial services 86,136 – 86,136 Fair values of ﬁnancial liabilities measured at cost Financing liabilities thereof bonds thereof liabilities from ABS transactions thereof other ﬁnancing liabilities 128,437 68,422 11,081 48,934 58,496 57,715 781 – 69,941 10,707 10,300 48,934 – – – – – 80,851 – 80,851 118,929 63,944 10,948 44,037 56,171 54,800 1,371 62,758 9,144 9,577 - 44,037 – – – – – 1 Fair value measurement is based on quoted prices (unadjusted) in active markets for these or identical assets or liabilities. 2 Fair value measurement is based on inputs that are observable on active markets either directly (i.e. as prices) or indirectly (i.e. derived from prices). 3 Fair value measurement is based on inputs for which no observable market data is available. 294 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Measurement categories The carrying amounts of ﬁnancial instruments presented according to IAS 39 measurement categories are shown in table (cid:202) F.70. Net gains or losses Table (cid:202) F.71 shows the net gains or losses of ﬁnancial instruments included in the consolidated statement of income (excluding derivative ﬁnancial instruments used in hedge accounting). Net gains/losses of ﬁnancial assets and liabilities measured at fair value through proﬁt or loss primarily include gains and losses attributable to changes in fair values. Net gains on available-for-sale ﬁnancial assets mainly include income from the measurement of equity interests as well as gains realized on their disposal. In 2016, these gains primarily comprise income of €605 million from the transfer of the investments in Renault and Nissan into the Daimler Pension Trust e.V. (see Note 3). Net losses on loans and receivables mainly include impairment losses that are charged to cost of sales, selling expenses and other ﬁnancial income/expense, net. Foreign currency gains and losses are also included. Net gains/losses on ﬁnancial liabilities measured at (amortized) cost mainly include gains and losses from currency translation. F.70 Carrying amounts of ﬁnancial instruments presented according to IAS 39 measurement categories In millions of euros Assets Receivables from ﬁnancial services1 Trade receivables Other receivables and ﬁnancial assets Loans and receivables Marketable debt securities Other ﬁnancial assets Available-for-sale ﬁnancial assets Financial assets measured at fair value through proﬁt or loss2 Liabilities Trade payables Financing liabilities3 Other ﬁnancial liabilities4 Financial liabilities measured at (amortized) cost At December 31, 2016 2017 61,346 11,990 3,167 76,503 10,063 1,173 11,236 59,695 10,614 3,089 73,398 10,748 811 11,559 82 106 12,474 11,567 126,772 117,453 10,574 10,051 149,820 139,071 Financial liabilities measured at fair value through proﬁt or loss2 111 186 The table above does not include cash and cash equivalents or the carrying amounts of derivative ﬁnancial instruments used in hedge accounting as these ﬁnancial instruments are not assigned to an IAS 39 measurement category. 1 This does not include lease receivables of €24,441 million as of December 31, 2017 (2016: €20,812 million) as these are not assigned to an IAS 39 measurement category. 2 Financial instruments classiﬁed as held for trading purposes. These ﬁgures comprise ﬁnancial instruments that are not used in hedge accounting. 3 This does not include liabilities from ﬁnance leases of €352 million as of December 31, 2017 (2016: €233 million) as these are not assigned to an IAS 39 measurement category. 4 This does not include liabilities from ﬁnancial guarantees of €141 million as of December 31, 2017 (2016: €169 million) as these are not assigned to an IAS 39 measurement category. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 295 Total interest income and total interest expense Total interest income and total interest expense for ﬁnancial assets or ﬁnancial liabilities that are not measured at fair value through proﬁt or loss are shown in table (cid:202) F.72. See Note 1 for qualitative descriptions of accounting for ﬁnancial instruments (including derivative ﬁnancial instruments). Information on derivative ﬁnancial instruments Use of derivatives The Group uses derivative ﬁnancial instruments exclusively for hedging ﬁnancial risks that arise from its commercial business or reﬁnancing activities. These are mainly interest rate risks, currency risks and commodity price risks. For these hedging purposes, the Group mainly uses currency forward transac- tions, cross currency interest rate swaps, interest rate swaps, options and commodity forwards. Fair values of hedging instruments Table (cid:202) F.73 shows the fair values of hedging instruments at the end of the reporting period. Fair value hedges The Group uses fair value hedges primarily for hedging interest rate risks. Net gains and losses from these hedging instruments and the changes in the value of the underlying transactions are shown in table (cid:202) F.74. F.71 Net gains/losses In millions of euros 2017 2016 Financial assets and liabilities recognized at fair value through proﬁt or loss1 Available-for-sale ﬁnancial assets Loans and receivables Financial liabilities measured at (amortized) cost 131 27 - 542 - 50 - 229 735 - 346 - 165 1 Financial instruments classiﬁed as held for trading; these amounts relate to ﬁnancial instruments that are not used in hedge accounting. F.72 Total interest income and total interest expense In millions of euros Total interest income Total interest expense F.73 Fair values of hedging instruments In millions of euros Fair value hedges Cash ﬂow hedges Hedges of net investments in foreign operations F.74 Net gains/losses from fair value hedges In millions of euros Net gains/losses from hedging instruments Net gains/losses from underlying transactions 2017 2016 4,579 - 2,415 4,166 - 1,932 At December 31, 2016 2017 - 68 1,751 - 180 72 - 805 - 157 2017 2016 - 329 - 195 349 187 296 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F.75 Unrealized gains/losses from cash ﬂow hedges In millions of euros 2017 2016 Unrealized gains/losses 2,525 125 F.76 Reclassiﬁcations of pre-tax gains/losses from equity to the statement of income In millions of euros Revenue Cost of sales Interest income Interest expense 2017 2016 - 6 34 – - 1 27 - 1,423 - 86 – - 2 - 1,511 Cash ﬂow hedges The Group uses cash ﬂow hedges for hedging currency risks, interest rate risks and commodity price risks. Unrealized pre-tax gains and losses on the measurement of derivatives, which are recognized in other comprehensive income, are shown in table (cid:202) F.75. Table (cid:202) F.76 provides an overview of the reclassiﬁcations of pre-tax gains/losses from equity to the statement of income for the period. Net proﬁt for 2017 includes net gains (before income taxes) of €11 million (2016: net losses (before income taxes) of €8 million) attributable to the ineﬀectiveness of derivative ﬁnancial instruments entered into for hedging purposes (hedge-ineﬀectiveness). The maturities of the interest rate hedges and cross currency interest rate hedges as well as of the commodity hedges correspond with those of the underlying transactions. The real- ization of the underlying transactions of the cash ﬂow hedges is expected to correspond with the maturities of the hedging transactions shown in table (cid:202) F.77. As of December 31, 2017, Daimler utilized derivative instruments with a maximum maturity of 39 months (2016: 44 months) as hedges for currency risks arising from future transactions. Hedges of net investments in foreign operations Daimler also partially hedges the foreign currency risk of selected investments with the application of derivative or non- derivative ﬁnancial instruments. Nominal values of derivative ﬁnancial instruments Table (cid:202) F.77 shows the nominal values of derivative ﬁnancial instruments entered into for the purpose of hedging currency risks, interest rate risks and commodity price risks that arise from the Group’s operating and/or ﬁnancing activities. Hedging transactions for which the eﬀects from the measurement of the hedging instrument and the underlying transaction to a large extent oﬀset each other in the consolidated statement of income mostly not classify for hedge accounting. Even if derivative ﬁnancial instruments do not or no longer qualify for hedge accounting, these instruments are still hedging ﬁnancial risks from the operating business. A hedging instrument is terminated when the hedged item no longer exists or is no longer expected to occur. Explanations of the hedging of exchange rate risks, interest rate risks and commodity price risks can be found in Note 32 in the sub-item ﬁnance market risk. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 297 F.77 Nominal values of derivative ﬁnancial instruments In millions of euros Hedging of currency risks from receivables/liabilities Forward exchange contracts thereof cash ﬂow hedges Cross currency interest rate swaps thereof cash ﬂow hedges thereof fair value hedges Nominal values At December 31, 2017 Maturity > 1 year Maturity ≤ 1 year At December 31, 2016 Nominal values 6,267 3,380 5,811 3,238 1,676 6,259 3,380 2,153 1,559 361 8 – 3,658 1,679 1,315 Hedging of currency risks from forecasted transactions Forward exchange contracts and currency options thereof cash ﬂow hedges 45,996 45,542 30,506 30,061 15,490 15,481 Hedging of currency risks of net investments in foreign operations Currency swaps thereof hedging of net investments in foreign operations Hedging of interest rate risks from receivables/liabilities Interest rate swaps thereof cash ﬂow hedges thereof fair value hedges Hedging of commodity price risks from forecasted transactions Forward commodity contracts thereof cash ﬂow hedges Total nominal values of derivative ﬁnancial instruments thereof cash ﬂow hedges thereof fair value hedges – – 49,934 9,694 35,731 742 649 108,750 62,503 37,407 – – 2,395 1,485 572 495 403 41,808 36,888 933 – – 47,539 8,209 35,159 247 246 66,942 25,615 36,474 5,921 – 6,020 3,453 1,622 56,591 55,925 – – 49,483 2,183 41,856 1,128 959 119,143 62,520 43,478 298 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. Management of ﬁnancial risks Credit risk General information on ﬁnancial risks As a result of its businesses and the global nature of its opera- tions, Daimler is exposed in particular to market risks from changes in foreign currency exchange rates and interest rates, while commodity price risks arise from procurement. An equity price risk results from investments in listed companies (especially BAIC Motor). In addition, the Group is exposed to credit risks from its leasing and ﬁnancing activities and from its operating business (trade receivables). With regard to the leasing and ﬁnancing activities, credit risks arise from operating lease contracts, ﬁnance lease contracts and ﬁnancing contracts. Furthermore, the Group is exposed to liquidity and country risks relating to its credit and market risks or a deterioration of its operating business or ﬁnancial market disturbances. If these ﬁnancial risks materialize, they could adversely aﬀect Daimler’s proﬁtability, liquidity and capital resources and ﬁnancial position. Daimler has established internal guidelines for risk controlling procedures and for the use of ﬁnancial instruments, including a clear segregation of duties with regard to ﬁnancial activities, settlement, accounting and the related controlling. The guide- lines upon which the Group’s risk management processes for ﬁnancial risks are based are designed to identify and analyze these risks throughout the Group, to set appropriate risk limits and controls and to monitor the risks by means of reliable and up-to-date administrative and information systems. The guidelines and systems are regularly reviewed and adjusted to changes in markets and products. The Group manages and monitors these risks primarily through its operating and ﬁnancing activities and, if required, through the use of derivative ﬁnancial instruments. Daimler uses derivative ﬁnancial instruments exclusively for hedging ﬁnancial risks that arise from its commercial business or reﬁnancing activities. Without these derivative ﬁnancial instru- ments, the Group would be exposed to higher ﬁnancial risks (additional information on ﬁnancial instruments and especially on the nominal values of the derivative ﬁnancial instruments used is included in Note 31). Daimler regularly evaluates its ﬁnancial risks with due consideration of changes in key economic indicators and up-to-date market information. Any market sensitive instruments including equity and debt securities that the plan assets hold to ﬁnance pension and other post-employment healthcare beneﬁts are not included in the following quantitative and qualitative analysis. See Note 22 for additional information on Daimler’s pension and other post-employment beneﬁts. Credit risk is the risk of economic loss arising from a counter- party’s failure to repay or service debt in accordance with the contractual terms. Credit risk encompasses both the direct risk of default and the risk of a deterioration of creditworthi- ness as well as concentration risks. The maximum risk positions of ﬁnancial assets which are generally subject to credit risk are equal to their carrying amounts (without consideration of collateral, if available). Table (cid:202) F.78 shows the maximum risk positions. Liquid assets Liquid assets consist of cash and cash equivalents and market- able debt securities classiﬁed as available-for-sale. With the investment of liquid assets, banks and issuers of securities are selected very carefully and diversiﬁed in accordance with a limit system. In the recent years, the limit methodology was continuously enhanced to counteract the decline of the creditworthiness of the banking sector in the course of the ﬁnancial crisis. Liquid assets are mainly held at ﬁnancial institutions within and outside Europe with high creditworthi- ness, as bonds issued by German federal states and as money market funds. At the same time, the Group has increased the number of ﬁnancial institutions with which investments are made. In connection with investment decisions, priority is placed on the borrower’s very high creditworthiness and on balanced risk diversiﬁcation. The limits and their utilizations are reassessed continuously. In this assessment, Daimler also considers the credit risk assessment of its counterparties by the capital markets. In line with the Group’s risk policy, most liquid assets are held in investments with an external rating of “A” or better. Receivables from ﬁnancial services Daimler’s ﬁnancing and leasing activities are primarily focused on supporting the sales of the Group’s automotive products. As a consequence of these activities, the Group is exposed to credit risk, which is monitored and managed based on deﬁned standards, guidelines and procedures. Daimler manages its credit risk irrespective of whether it is related to a ﬁnancing contract or to an operating lease or a ﬁnance lease contract. For this reason, statements concerning the credit risk of Daimler Financial Services refer to the entire ﬁnancing and leasing business, unless speciﬁed otherwise. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 299 Exposure to credit risk from ﬁnancing and lease activities is monitored based on the portfolio subject to credit risk. The portfolio subject to credit risk is an internal control quantity that consists of wholesale and retail receivables from ﬁnancial services and the portion of the operating lease portfolio that is subject to credit risk. Receivables from ﬁnancial services comprise claims arising from ﬁnance lease contracts and repayment claims from ﬁnancing loans. The operating lease portfolio is reported under equipment on operating leases in the Group’s consolidated ﬁnancial statements. Overdue lease payments from operating lease contracts are recognized in trade receivables. In addition, the Daimler Financial Services segment is exposed to credit risk from irrevocable loan commitments to retailers and end customers. At December 31, 2017, irrevocable loan commitments of Daimler Financial Services amounted to €1,880 million (2016: €1,493 million). These loan commitments had a maturity of less than one year. The Daimler Financial Services segment has guidelines setting the framework for eﬀective risk management at a global as well as at a local level. In particular, these rules deal with mini- mum requirements for all risk-relevant credit processes, the deﬁnition of ﬁnancing products oﬀered, the evaluation of customer quality, requests for collateral as well as the treatment of unsecured loans and non-performing claims. The limitation of concentration risks is implemented primarily by means of global limits, which refer to single customer exposures. As of December 31, 2017, exposure to the biggest 15 customers did not exceed 4.0% (2016: 5.4%) of the total portfolio. With respect to its ﬁnancing and lease activities, the Group holds collateral for customer transactions. The value of collateral generally depends on the amount of the ﬁnanced assets. The ﬁnanced vehicles usually serve as collateral. Furthermore, Daimler Financial Services mitigates the credit risk from ﬁnancing and lease activities, for example through advance payments from customers. Scoring systems are applied for the assessment of the default risk of retail and small business customers. Corporate customers are evaluated using internal rating instruments. Both evaluation processes use external credit bureau data if available. The scoring and rating results as well as the availability of security and other risk mitigation instruments, such as advance payments, guar- antees and, to a lower extent, residual debt insurances, are essential elements for credit decisions. Signiﬁcant loans and leases to corporate customers are tested individually for impairment. An individual loan or lease is considered impaired when there is objective evidence that the Group will be unable to collect all amounts due as speciﬁed by the contractual terms. Examples of objective evidence that loans or lease receivables may be impaired include the following factors: signiﬁcant ﬁnancial diﬃculty of the borrower, a rising probability that the borrower will become bankrupt, delinquency in his installment payments, and restructured or renegotiated contracts to avoid immediate default. Loans and ﬁnance lease receivables related to retail or small business customers are grouped into homogeneous pools and collectively assessed for impairment. Impairments are required for example if there are adverse changes in the payment status of the borrowers included in the pool, adverse changes in expected loss frequency and severity, and adverse changes in economic conditions. Within the framework of testing for impairment, existing collateral is generally given due consideration. In that context, any excess collateral of individual customers is not netted oﬀ with insuﬃcient collateral of other customers. The maxi- mum credit risk is limited by the fair value of collateral (e.g. ﬁnanced vehicles). F.78 Maximum risk positions of ﬁnancial assets and loan commitments In millions of euros Liquid assets Receivables from ﬁnancial services Trade receivables Derivative ﬁnancial instruments used in hedge accounting (assets only) Derivative ﬁnancial instruments not used in hedge accounting (assets only) Loan commitments Other receivables and ﬁnancial assets see also Note Maximum risk position 2017 Maximum risk position 2016 22,135 21,729 14 19 85,787 11,990 80,507 10,614 16 2,379 1,730 16 30 16 82 1,894 106 1,502 3,167 3,089 300 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS If, in connection with contracts, a worsening of payment behavior or other causes of a need for impairment are recog- nized, collection procedures are initiated by claims manage- ment to obtain the overdue payments of the customer, to take possession of the asset ﬁnanced or leased or, alternatively, to renegotiate the impaired contract. Restructuring policies and practices are based on the indicators or criteria which, in the judgment of local management, indicate that repayment will probably continue and that the total proceeds expected to be derived from the renegotiated contract exceed the expected proceeds to be derived from repossession and remarketing. Appropriate provisions are recognized for the risks inherent in trade receivables. For this purpose, all receivables are regularly reviewed and impairments are recognized if there is any objective indication of non-performance or other contractual violations. In general, substantial individual receiv- ables and receivables whose realizability is jeopardized are assessed individually. In addition, taking country-speciﬁc risks and any collateral into consideration, the other receivables are grouped by similarity of contract and tested for impairment collectively. One important factor for the deﬁnition of the impairment to be recognized is the respective country risk. The allowance ratio decreased compared to the already low level of the previous year. Further information on trade receivables and the status of impairments recognized is provided in Note 19. Further details on receivables from ﬁnancial services and the balance of the recorded impairments are provided in Note 14. Trade receivables Trade receivables are mostly receivables from worldwide sales activities of vehicles and spare parts. The credit risk from trade receivables encompasses the default risk of customers, e.g. dealers and general distribution companies, as well as other corporate and private customers. Daimler manages its credit risk from trade receivables using appropriate IT applications and databases on the basis of internal guidelines which have to be followed globally. Derivative ﬁnancial instruments The Group uses derivative ﬁnancial instruments exclusively for hedging ﬁnancial risks that arise from its commercial business or reﬁnancing activities. Daimler manages its credit risk exposure in connection with derivative ﬁnancial instru- ments through a limit system, which is based on the review of each counterparty’s ﬁnancial strength. This system limits and diversiﬁes the credit risk. As a result, Daimler is exposed to credit risk only to a small extent with respect to its derivative ﬁnancial instruments. In accordance with the Group’s risk policy, most derivatives are contracted with counterparties which have an external rating of “A” or better. A signiﬁcant part of the trade receivables from each country’s domestic business is secured by various country-speciﬁc types of collateral. This collateral includes conditional sales, guarantees and sureties as well as mortgages and cash deposits. In order to prevent the credit risk Daimler assesses the creditworthiness of the counterparties. For trade receivables from export business, Daimler also evaluates each general distribution company’s creditworthiness by means of an internal rating process and its country risk. In this context, the year-end ﬁnancial statements and other relevant information on the general distribution companies such as payment history are used and assessed. Depending on the creditworthiness of the general distribution companies, Daimler usually establishes credit limits and limits credit risks with the following types of collateral: – credit insurances, – ﬁrst-class bank guarantees and – letters of credit. These procedures are deﬁned in the export credit guidelines, which have Group-wide validity. Other receivables and ﬁnancial assets With respect to other receivables and ﬁnancial assets in 2017 and 2016, Daimler is exposed to credit risk only to a small extent. Liquidity risk Liquidity risk comprises the risk that a company cannot meet its ﬁnancial obligations in full. Daimler manages its liquidity by holding adequate volumes of liquid assets and by maintaining syndicated credit facilities in addition to the cash inﬂows generated by its operating business. Additionally, the possibility to securitize receivables of ﬁnancial services business (ABS transactions) also reduces the Group’s liquidity risk. Liquid assets comprise cash and cash equivalents as well as debt instruments classiﬁed as held for sale. The Group can dispose of these liquid assets at short notice. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 301 In general, Daimler makes use of a broad spectrum of ﬁnancial instruments to cover its funding requirements. Depending on funding requirements and market conditions, Daimler issues commercial paper, bonds and ﬁnancial instruments secured by receivables in various currencies. Bank credit lines are also used to cover ﬁnancing requirements. These credit lines include a syndicated €9.0 billion credit facility of Daimler AG which was signed with a syndicate of international banks in September 2013 with a term until September 2020. This syndicated facility can be used to ﬁnance general corporate purposes and serves as a back-up for commercial paper draw- ings. At December 31, 2017, this facility had not been utilized. Potential downgrades of Daimler’s credit ratings could have a negative impact on the Group’s ﬁnancing. In addition, customer deposits at Mercedes-Benz Bank are used as a further source of reﬁnancing. The funds raised are used to ﬁnance working capital and capital expenditure as well as the cash needs of the lease and ﬁnancing business and unexpected liquidity needs. In accord- ance with internal guidelines, the refunding of the lease and ﬁnancing business is generally carried out with matching maturities so that ﬁnancing liabilities have the same maturity proﬁle as the leased assets and the receivables from ﬁnancial services. At December 31, 2017, liquidity amounted to €22.1 billion (2016: €21.7 billion). In 2017, signiﬁcant cash inﬂows resulted from the positive business development of the automotive business segments. One cash inﬂow of €0.8 billion resulted from the dividend distributed by Beijing Benz Automotive Co., Ltd. Cash outﬂows resulted in particular from the portfolio growth of the leasing and sales ﬁnance activities at Daimler Financial Services as well as from the intensiﬁed investment oﬀensive. In addition, there were cash outﬂows of €3.0 billion for the extraordinary con- tribution to the pension plan assets of Daimler AG. From an operating point of view, the management of the Group’s liquidity exposures is centralized by a daily cash pooling pro- cess. This process enables Daimler to manage its liquidity surplus and liquidity requirements according to the actual needs of the Group and each subsidiary. The Group’s short-term and mid-term liquidity management takes into account the maturities of ﬁnancial assets and ﬁnancial liabilities and estimates of cash ﬂows from the operating business. Table (cid:202) F.79 provides an overview of how the future liquidity situation of the Group is aﬀected by the cash ﬂows from liabilities and ﬁnancial guarantees as of December 31, 2017. Information on the Group’s ﬁnancing liabilities is also provided in Note 24. F.79 Liquidity runoﬀ for liabilities and ﬁnancial guarantees1 In millions of euros Financing liabilities2 Derivative ﬁnancial instruments3 Trade payables4 Miscellaneous other ﬁnancial liabilities excluding accrued interest Irrevocable loan commitments of the Daimler Financial Services segment and of Daimler AG5 Financial guarantees6 Total 2018 2019 2020 2021 2022 ≥ 2023 135,329 51,156 29,656 21,122 9,996 5,813 17,586 368 170 12,474 12,459 9,810 7,798 1,894 667 1,894 667 110 12 863 – – - 15 2 447 – – - 4 1 – – 285 153 – – – – 107 – 264 – – 160,542 74,144 30,641 21,556 10,278 5,966 17,957 1 The amounts were calculated as follows: (a) If the counterparty can request payment at diﬀerent dates, the liability is included on the basis of the earliest date on which Daimler can be required to pay. The customer deposits of Mercedes-Benz Bank are mostly considered in this analysis to mature within the ﬁrst year. (b) The cash ﬂows of ﬂoating interest ﬁnancial instruments are estimated on the basis of forward rates. 2 The stated cash ﬂows of ﬁnancing liabilities consist of their undiscounted principal and interest payments. 3 The undiscounted sum of the net cash outﬂows of the derivative ﬁnancial instruments is shown for the respective year. For individual periods, this may also include negative cash ﬂows from derivatives with an overall positive fair value. 4 The cash outﬂows of trade payables are undiscounted. 5 The maximum available amounts are stated. 6 The maximum potential obligations under the issued guarantees are stated. It is assumed that the amounts are due within the ﬁrst year. 302 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Country risk The value at risk calculations employed: Country risk is the risk of economic loss arising from changes of political, economic, legal or social conditions in the respective country, e.g. resulting from sovereign measures such as expropriation or interdiction of foreign currency transfers. Daimler is exposed to country risk mainly resulting from cross-border funding or collateralization of Group companies and customers (for example, Turkey), from investments in subsidiaries and joint ventures as well as from cross-border trade receivables (for example, China). Country risks also arise from cross-border cash deposits at ﬁnancial institutions. Daimler manages these risks via country exposure limits (e.g. for export credits or for hard currency portfolios of ﬁnancial services entities) and via insurance of equity investments in high-risk countries. An internal rating system serves as a basis for Daimler’s risk-oriented country exposure management; it assigns all countries to risk classes, with consideration of external ratings and capital market indications of country risks. Finance market risks The global nature of its businesses exposes Daimler to sig- niﬁcant market risks resulting from ﬂuctuations in foreign currency exchange rates and interest rates. In addition, the Group is exposed to market risks in terms of commodity price risk associated with its business operations, which the Group hedges for certain metals partially through derivative ﬁnancial instruments. The Group is also exposed to equity price risk in connection with its investments in listed com- panies (including BAIC Motor). If these market risks materialize, they will adversely aﬀect the Group’s proﬁtability, liquidity and capital resources and ﬁnancial position. Daimler manages market risks to minimize the impact of ﬂuctuations in foreign exchange rates, interest rates and commodity prices on the results of the Group and its segments. The Group calculates its overall exposure to these market risks to provide the basis for hedging decisions, which include the selection of hedging instruments and the determination of hedging volumes and the corresponding periods. Decisions regarding the management of market risks resulting from ﬂuctuations in foreign exchange rates, interest rates (asset-/liability management) and commodity prices are regularly made by the relevant Daimler risk management committees. Exposures are the basis of the hedging strategies and are updated regularly. As part of its risk management system, Daimler employs value at risk analyses. In performing these analyses, Daimler quanti- ﬁes its market risk due to changes in foreign currency exchange rates and interest rates and certain commodity prices on a regular basis by predicting the potential loss over a target time horizon (holding period) and conﬁdence level. – express potential losses in fair values, and – assume a 99% conﬁdence level and a holding period of ﬁve days. Daimler calculates the value at risk for exchange rate and interest rate risk according to the variance-covariance approach. The value at risk calculation method for commodity hedging instruments is based on a Monte Carlo simulation. When calculating the value at risk by using the variance- covariance approach, Daimler ﬁrst computes the current market value of the Group’s ﬁnancial instruments portfolio. Then the sensitivity of the portfolio value to changes in the relevant market risk factors, such as particular foreign currency exchange rates or interest rates of speciﬁc maturities, is quantiﬁed. Based on volatilities and correlations of these market risk factors, which are obtained from the RiskMetrics™ dataset, a statistical distribution of potential changes in the portfolio value at the end of the holding period is computed. The loss which is reached or exceeded with a probability of only 1% can be derived from this calculation and represents the value at risk. The Monte Carlo simulation uses random numbers to generate possible changes in market risk factors consistent with current market volatilities. The changes in market risk factors allow the calculation of a possible change in the portfolio value over the holding period. Running multiple iterations of this simulation leads to a distribution of portfolio value changes. The value at risk can be determined based on this distribution as the portfolio value loss which is reached or exceeded with a probability of 1%. Oriented towards the risk management standards of the international banking industry, Daimler maintains its ﬁnancial controlling unit independent of operating Corporate Treasury and with a separate reporting line. Exchange rate risk Transaction risk and currency risk management. The global nature of Daimler’s businesses exposes cash ﬂows and earnings to risks arising from ﬂuctuations in exchange rates. These risks primarily relate to ﬂuctuations between the euro and the US dollar, the Chinese renminbi, the British pound and other currencies such as currencies of growth markets. In the operating vehicle business, the Group’s exchange rate risk primarily arises when revenue is generated in a currency that is diﬀerent from the currency in which the costs of generating the revenue are incurred (transaction risk). When the revenue is converted into the currency in which the costs are incurred, it may be inadequate to cover the costs if the value of the currency in which the revenue is generated declined in the interim relative to the value of the currency in which the costs were incurred. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 303 This risk exposure primarily aﬀects the Mercedes-Benz Cars segment, which generates a major portion of its revenue in foreign currencies and incurs manufacturing costs primarily in euros. The Daimler Trucks segment is also subject to transaction risk, but to a lesser extent because of its global production network. The Mercedes-Benz Vans and Daimler Buses segments are also directly exposed to transaction risk, but also only to a minor degree compared to the Mercedes- Benz Cars segment. In addition, the Group is indirectly exposed to transaction risk from its equity-method investments. Cash inﬂows and outﬂows of the business segments are oﬀset if they are denominated in the same currency. This means that the exchange rate risk resulting from revenue generated in a particular currency can be oﬀset by costs in the same currency, even if these costs are not directly related to the revenue. As a result, only the net exposure is subject to transaction risk. The Group’s currency exposure is reduced by natural hedging to the extent that currency exposures of the operating businesses of individual segments oﬀset each other partially at Group level, thereby reducing overall currency exposure. These natural hedges eliminate the need for hedging to the extent of the matched exposures. To provide an additional natural hedge against any remaining transaction risk exposure, Daimler generally strives to increase cash outﬂows in the same currencies in which the Group has a net excess inﬂow. In order to mitigate the impact of currency exchange rate ﬂuctuations for the operating business (future transactions), Daimler continually assesses its exposure to exchange rate risks and hedges a portion of those risks by using derivative ﬁnancial instruments. Daimler’s Foreign Exchange Committee (FXCo) manages the Group’s exchange rate risk and its hedging transactions through currency derivatives. The FXCo consists of representatives of the relevant segments and central functions. The Corporate Treasury department aggregates foreign currency exposures from Daimler’s subsidiaries and operative units and implements the FXCo’s decisions concerning foreign currency hedging through transactions with international ﬁnancial institutions. Any over-hedge caused by changes in exposure is generally reversed by taking suitable measures without delay. Risk Controlling regularly informs the Board of Management of the actions taken by Corporate Treasury based on the FXCo’s decisions. The Group’s targeted hedge ratios for forecasted operating cash ﬂows in foreign currency are indicated by a reference model. On the one hand, the hedging horizon is naturally limited by uncertainty related to cash ﬂows that lie far in the future; on the other hand, it may also be limited by the fact that appropriate currency contracts are not available. This refer- ence model aims to limit risks for the Group from unfavorable movements in exchange rates while preserving some ﬂexibility to participate in favorable developments. Based on this refer- ence model and depending on the market outlook, the FXCo determines the hedging horizon, which usually varies from one to ﬁve years, as well as the average hedge ratios. Reﬂec- ting the character of the underlying risks, the hedge ratios decrease with increasing maturities. At year-end 2017, foreign exchange management showed an unhedged position in the automotive business for the underlying forecasted cash ﬂows in US dollars in calendar year 2018 of 21%, for the underlying forecasted cash ﬂows in Chinese renminbi in calendar year 2018 of 22%, as well as for the underlying forecasted cash ﬂows in British pounds in calendar year 2018 of 28%. The hedged position of the operating vehicle businesses is inﬂuenced by the amount of derivative currency contracts held. The derivative ﬁnancial instruments used to cover foreign currency exposure are primarily forward foreign exchange contracts and currency options. Daimler’s guidelines call for a mixture of these instruments depending on the assessment of market conditions. Value at risk is used to measure the exchange rate risk inherent in these derivative ﬁnancial instruments. Table (cid:202) F.80 shows the period-end, high, low and average value at risk ﬁgures of the exchange rate risk for the 2017 and 2016 portfolios of derivative ﬁnancial instruments, which were entered into primarily in connection with the operative vehicle businesses. Average exposure has been computed on an end-of-quarter basis. The oﬀsetting transactions underlying the derivative ﬁnancial instruments are not included in the following value at risk presentation. See also table (cid:202) F.77 for the nominal volumes on the balance sheet date of derivative currency instruments entered into to hedge the currency risk from forecasted transactions. F.80 Value at risk for exchange rate risk, interest rate risk and commodity price risk Period-end High Low 2017 Average Period-end High Low 2016 Average In millions of euros Exchange rate risk (from derivative ﬁnancial instruments) Interest rate risk Commodity price risk (from derivative ﬁnancial instruments) 779 43 14 877 48 25 779 43 14 815 46 17 912 50 43 1,525 90 44 812 42 34 1,182 62 39 304 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In 2017, the development of the value at risk from foreign currency hedging was mainly driven by changes of nominals and foreign currency rate volatilities. The Group’s investments in liquid assets or reﬁnancing activities generally are not allowed to result in currency risk. Transaction risks arising from liquid assets or payables in foreign currencies that result from the Group’s investment or reﬁnancing on money and capital markets are generally hedged against currency risks at the time of investing or reﬁ- nancing in accordance with Daimler’s internal guidelines. The Group uses appropriate derivative ﬁnancial instruments (e.g. cross currency interest rate swaps) to hedge against currency risk. Since currency risks arising from the Group’s investment or reﬁnancing in foreign currencies and the respective hedging transactions principally oﬀset each other, these ﬁnancial instruments are not included in the value at risk calculation presented. Eﬀects of currency translation. For purposes of Daimler’s consolidated ﬁnancial statements, the income and expenses and the assets and liabilities of subsidiaries located outside the euro zone are converted into euros. Therefore, period-to- period changes in average exchange rates may cause trans- lation eﬀects that have a signiﬁcant impact on, for example, revenue, segment results (EBIT) and assets and liabilities of the Group. Unlike exchange rate transaction risk, exchange rate translation risk does not necessarily aﬀect future cash ﬂows. The Group’s equity position reﬂects changes in book values caused by exchange rates. In general, Daimler does not hedge against exchange rate translation risk. Interest rate risk Daimler uses a variety of interest rate sensitive ﬁnancial instruments to manage the liquidity needs of its day-to-day operations. A substantial volume of interest rate sensitive assets and liabilities results from the leasing and sales ﬁnanc- ing business operated by the Daimler Financial Services segment. The Daimler Financial Services companies enter into transactions with customers that primarily result in ﬁxed- rate receivables. Daimler’s general policy is to match funding in terms of maturities and interest rates wherever economically feasible. However, for a limited portion of the receivables port- folio in selected and developed markets, the Group does not match funding in terms of maturities in order to take advantage of market opportunities. As a result, Daimler is exposed to risks due to changes in interest rates. In this regard, the Group is not exposed to any liquidity risks. An asset/liability committee consisting of members of the Daimler Financial Services segment and the Corporate Treasury department manages the interest rate risk relating to Daimler’s leasing and ﬁnancing activities by setting targets for the interest rate risk position. The Treasury Risk Management department and the local Daimler Financial Services companies are jointly responsible for achieving these targets. As separate functions, the Daimler Financial Services Risk Management and the Daimler Financial Services Control- ling & Reporting department monitors target achievement on a monthly basis. In order to achieve the targeted interest rate risk positions in terms of maturities and interest rate ﬁxing periods, Daimler also uses derivative ﬁnancial instruments such as interest rate swaps. Daimler assesses its interest rate risk position by comparing assets and liabilities for corre- sponding maturities, including the impact of the relevant derivative ﬁnancial instruments. Derivative ﬁnancial instruments are also used in conjunction with the reﬁnancing related to the automotive segments. Daimler coordinates the funding activities of the automotive and ﬁnancial services businesses at the Group level. Table (cid:202) F.80 shows the period-end, high, low and average value at risk ﬁgures of the interest rate risk for the 2017 and 2016 portfolio of interest rate sensitive ﬁnancial instruments and derivative ﬁnancial instruments of the Group, including the ﬁnancial instruments of the leasing and sales ﬁnancing business. In this respect, the table shows the interest rate risk regarding the unhedged position of interest rate sensitive ﬁnancial instruments. The average values have been computed on an end-of-quarter basis. In the course of 2017, changes of the value at risk of interest rate sensitive ﬁnancial instruments were primarily determined by the development of interest rate volatilities. Commodity price risk Daimler is exposed to the risk of changes in commodity prices in connection with procuring raw materials and manufacturing supplies used in production. A small portion of the raw material price risk, primarily relating to forecasted procurement of certain metals, is mitigated with the use of derivative ﬁnancial instruments. For precious metals, central commodity management shows an unhedged position of 38% of the forecasted commodity purchases at year-end 2017 for calendar year 2018. The corre- sponding ﬁgure at year-end 2016 was 27% for calendar year 2017. Table (cid:202) F.80 shows the period-end, high, low and average value at risk ﬁgures of the commodity price risk for the 2017 and 2016 portfolio of derivative ﬁnancial instruments used to hedge raw material price risk. Average exposure has been computed on an end-of-quarter basis. The transactions underlying the derivative ﬁnancial instruments are not included in the value at risk presentation. See also table (cid:202) F.77 for the nominal values of derivative commodity price hedges at the balance sheet date. Compared to the previous year, the value at risk of commodity derivatives has decreased. The main reasons for this develop- ment were the decrease in nominal hedge volumes and lower commodity-price volatilities. Equity price risk Daimler predominantly holds investments in shares of companies which are classiﬁed as long-term investments or which are accounted for using the equity method, such as BAIC Motor. Therefore, the Group does not include these investments in a market risk assessment. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 305 33. Segment reporting Reportable segments The reportable segments of the Group are Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services. The segments are largely organized and managed separately, according to nature of products and services provided, brands, distribution channels and proﬁle of customers. The vehicle segments develop and manufacture passenger cars, trucks, vans and buses. The Mercedes-Benz Cars segment comprises premium vehicles of the Mercedes-Benz brand including the brands Mercedes-AMG and Mercedes-Maybach, and small cars under the smart brand, as well as the brand Mercedes me. Electric products will be marketed under the EQ brand in the future. Daimler Trucks distributes its trucks under the brand names Mercedes-Benz, Freightliner, Western Star, FUSO and BharatBenz. Furthermore, buses under the brands Thomas Built Buses and FUSO are included in the Daimler Trucks range of products. The vans of the Mercedes-Benz Vans segment are primarily sold under the brand name Mercedes- Benz and also under the Freightliner brand. Daimler Buses sells completely built-up buses under the brand names Mercedes- Benz and Setra. In addition, Daimler Buses produces and sells bus chassis. The vehicle segments also sell related spare parts and accessories. The Daimler Financial Services segment supports the sales of the Group’s vehicle segments worldwide. Its product portfolio primarily comprises tailored ﬁnancing and leasing packages for end-customers and dealers, brokering of automotive insurance and banking services. The segment also provides services such as ﬂeet management in Europe, which primarily takes place through the Athlon brand, which was acquired in 2016. Furthermore, Daimler Financial Services is active in the area of innovative mobility services, in particular under the brands moovel, mytaxi and car2go. Management and reporting system The Group’s management reporting and controlling systems principally use accounting policies that are the same as those described in Note 1 in the summary of signiﬁcant accounting policies according to IFRS. EBIT comprises gross proﬁt, selling and general administrative expenses, research and non-capitalized development costs, other operating income/expense, and our share of proﬁt/loss from equity-method investments, net, as well as other ﬁnancial income/expense, net. Although amortization of capitalized borrowing costs is included in cost of sales, it is not included in EBIT. Intersegment revenue is generally recorded at values that approximate third-party selling prices. Segment assets principally comprise all assets. The vehicle seg- ments’ assets exclude income tax assets, assets from deﬁned beneﬁt pension plans and other post-employment beneﬁt plans, and certain ﬁnancial assets (including liquidity). Segment liabilities principally comprise all liabilities. The vehicle segments’ liabilities exclude income tax liabilities, liabilities from deﬁned beneﬁt pension plans and other post-employment beneﬁt plans, and certain ﬁnancial liabilities (including ﬁnancing liabilities). Daimler Financial Services’ performance is measured on the basis of return on equity, which is the usual procedure in the banking business. The residual value risks associated with the Group’s operating leases and ﬁnance lease receivables are generally borne by the vehicle segments that manufactured the leased equipment. Risk sharing is based on agreements between the respective vehicle segments and Daimler Financial Services; the terms vary by vehicle segment and geographic region. Non-current assets consist of intangible assets, property, plant and equipment and equipment on operating leases. Capital expenditures for intangible assets and property, plant and equipment reﬂect the cash-eﬀective additions to these intangible assets and property, plant and equipment as far as they do not relate to capitalized borrowing costs, goodwill or ﬁnance leases. Depreciation and amortization may also include impairments as far as they do not relate to goodwill impairment pursuant to IAS 36. The Group measures the performance of its operating segments through a measure of segment proﬁt or loss which is referred to as “EBIT” in our management and reporting system. Amortization of capitalized borrowing costs is not included in the amortization of intangible assets or depreciation of property, plant and equipment since it is not considered as part of EBIT. 306 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reconciliation Reconciliation includes corporate items for which headquarters are responsible. Transactions between the segments are eliminated in the context of consolidation and the eliminated amounts are included in the reconciliation. The eﬀects of certain legal proceedings and compliance issues are excluded from the operating results and liabilities of the segments if such items are not indicative of the segments’ performance, since the related results of operations may be distorted by the amount and the irregular nature of such events. Reconciliation also includes corporate projects, proﬁts and losses on derivative ﬁnancial transactions allocated to head- quarters and equity interests not allocated to the segments. Information related to geographic areas With respect to information about geographical regions, revenue is allocated to countries based on the location of the customer; non-current assets are presented according to the physical location of these assets. Table (cid:202) F.81 presents segment information as of and for the years ended December 31, 2017 and 2016. Mercedes-Benz Cars In the year 2017, Mercedes-Benz Cars segment’s earnings include expenses for voluntary service activities in connection with a comprehensive plan for diesel engines and expenses for a speciﬁc vehicle recall of in total €425 million. On the other hand, the remeasurement of the equity investment in THERE Holding B.V. had a positive eﬀect of €183 million on EBIT. In the year 2016, expenses of €480 million in connection with Takata airbags and of €238 million in connection with the remea- surement of inventories impacted earnings negatively. The optimization programs led to a cash inﬂow of €203 million (2016: €253 million) (see also Note 5). F.81 Segment information In millions of euros 2017 External revenue Intersegment revenue Total revenue Mercedes- Benz Cars Daimler Trucks Mercedes- Benz Vans Daimler Buses Daimler Financial Services Total Segments Recon- ciliation Daimler Group 90,992 3,703 94,695 34,182 1,525 35,707 12,601 563 13,164 4,246 105 4,351 22,309 164,330 – 164,330 1,466 7,362 23,775 171,692 - 7,362 - 7,362 – 164,330 Segment proﬁt (EBIT) 9,207 2,380 1,181 243 1,970 14,981 - 299 14,682 thereof proﬁt/loss from equity-method investments thereof proﬁt/loss from compounding and eﬀects from changes in discount rates of provisions for other risks 1,198 - 3 43 - 33 - 17 - 5 3 - 2 1 1,242 256 1,498 - 4 - 61 – - 61 Segment assets 70,191 21,762 8,743 3,928 149,986 254,610 995 255,605 thereof carrying amounts of equity-method investments 2,930 491 180 9 148 3,758 1,060 4,818 Segment liabilities 44,610 13,903 5,761 2,972 137,608 204,854 - 14,563 190,291 Additions to non-current assets 16,034 2,350 2,000 474 14,896 35,754 thereof investments in intangible assets thereof investments in property, plant and equipment Depreciation and amortization of non-current assets thereof amortization of intangible assets thereof depreciation of property, plant and equipment 2,668 97 4,843 1,028 5,334 1,540 1,230 2,832 291 791 525 710 447 84 198 33 94 90 43 3,413 6,718 279 5,979 13,579 18 75 131 1,754 24 3,920 22 1 26 88 1 1 35,776 3,414 6,744 13,667 1,755 3,921 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 307 Daimler Trucks In 2017, expenses of €172 million for ﬁxed-cost optimizations aﬀected EBIT negatively. On the other hand, the sale of real estate by Mitsubishi Fuso Truck and Bus Corporation at the Kawasaki site in Japan increased earnings by €267 million. In addition, the settlement of a pension plan in the NAFTA region had a positive impact of €117 million on EBIT. In the year 2016, expenses of €91 million resulted from Daimler Trucks’ workforce adjustments. Mercedes-Benz Vans In the year 2016, expenses of €83 million in connection with Takata airbags had a negative eﬀect on EBIT. Daimler Buses In the reporting year, there were no signiﬁcant issues at the Daimler Buses segment. Daimler Financial Services The interest income and interest expense of Daimler Financial Services are included in revenue and cost of sales, and are presented in Notes 4 and 5. In millions of euros 2016 External revenue Intersegment revenue Total revenue Mercedes- Benz Cars Daimler Trucks Mercedes- Benz Vans Daimler Buses Daimler Financial Services Total Segments Recon- ciliation Daimler Group 85,785 3,499 89,284 31,719 1,468 33,187 12,298 537 12,835 4,101 75 4,176 19,358 1,302 20,660 153,261 6,881 160,142 – 153,261 - 6,881 - 6,881 – 153,261 Segment proﬁt (EBIT) 8,112 1,948 1,170 249 1,739 13,218 - 316 12,902 thereof proﬁt/loss from equity-method investments thereof proﬁt/loss from compounding and eﬀects from changes in discount rates of provisions for other risks 627 38 12 - 82 - 27 - 10 1 - 4 - 1 - 5 677 - 175 502 - 128 4 - 124 Segment assets 65,024 22,110 7,351 3,841 141,842 240,168 2,820 242,988 thereof carrying amounts of equity-method investments 2,812 545 118 11 55 3,541 557 4,098 Segment liabilities 41,133 13,423 5,393 2,954 131,394 194,297 - 10,442 183,855 Additions to non-current assets 14,289 2,403 1,526 476 13,461 32,155 - 10 32,145 thereof investments in intangible assets thereof investments in property, plant and equipment Depreciation and amortization of non-current assets thereof amortization of intangible assets thereof depreciation of property, plant and equipment 2,272 121 4,147 1,243 5,061 1,547 1,161 2,799 279 802 457 373 445 70 196 18 97 76 37 2,944 5,897 266 4,772 12,091 16 75 62 18 1,588 3,890 – - 8 52 – 1 2,944 5,889 12,143 1,588 3,891 308 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reconciliations Reconciliations of the segment amounts to the respective items included in the consolidated ﬁnancial statements are shown in table (cid:202) F.82. In 2017, the line item Equity-method investments comprises the reversal of an impairment of €240 million of Daimler’s equity investment in BAIC Motor. In 2016, the impairment of €244 million of the equity investment in BAIC Motor had a negative eﬀect on EBIT. In addition, both years primarily comprise the Group’s proportionate share of proﬁts and losses of BAIC Motor. In 2017, the line item Other corporate items primarily comprises expenses related to legal proceedings. In the year 2016, expenses of €400 million related to a legal proceeding and losses of €241 million from currency transactions not allocated to business operations, aﬀected the EBIT negatively. On the other hand, income of €605 million from the contribution of shares in Renault and Nissan to pension plan assets had a positive eﬀect on earnings. Revenue and non-current assets by region Revenue from external customers and non-current assets by region are shown in table (cid:202) F.83. F.82 Reconciliation to Group ﬁgures In millions of euros 2017 2016 Total of segments’ proﬁt (EBIT) 14,981 13,218 Equity-method investments Other corporate items Eliminations Group EBIT Amortization of capitalized borrowing costs1 Interest income Interest expense 256 - 510 - 45 - 175 - 158 17 14,682 12,902 - 13 214 - 582 - 12 230 - 546 Proﬁt before income taxes 14,301 12,574 Total of segments’ assets 254,610 240,168 Carrying amount of equity-method investments2 Income tax assets3 Unallocated ﬁnancial assets (including liquidity) and assets from pensions and similar obligations3 1,060 2,665 557 3,744 20,133 19,550 Other corporate items and eliminations - 22,863 - 21,031 Group assets 255,605 242,988 Total of segments’ liabilities Income tax liabilities3 Unallocated ﬁnancial liabilities and liabilities from pensions and similar obligations3 204,854 194,297 946 809 6,556 9,190 Other corporate items and eliminations - 22,065 - 20,441 Group liabilities 190,291 183,855 1 Amortization of capitalized borrowing costs is not considered in the internal performance measure “EBIT” but is included in cost of sales. 2 In 2016 mainly comprises the carrying amount of the investment in BAIC Motor and in 2017 mainly comprises the carrying amount of the investments in BAIC Motor and LSHAI. 3 Unless allocated to Daimler Financial Services. F.83 Revenue and non-current assets by region In millions of euros Europe thereof Germany NAFTA region thereof United States Asia thereof China Other markets 2017 68,437 23,939 46,916 40,459 38,766 18,280 10,211 Revenue 2016 Non-current assets 2016 2017 63,417 23,509 44,960 39,169 35,562 15,984 9,322 59,583 42,998 25,510 22,623 2,510 166 1,827 89,430 54,054 39,074 26,898 24,118 2,482 140 1,987 85,421 164,330 153,261 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 309 34. Capital management 35. Earnings per share The calculation of basic and diluted earnings per share is based on net proﬁt attributable to shareholders of Daimler AG. Following the expiration of the stock option plan in 2014, dilutive eﬀects no longer exist. The proﬁt attributable to shareholders of Daimler AG (basic and diluted) amounts to €10,525 million (2016: €8,526 million). The weighted average number of shares outstanding (basic and diluted) amounts to 1,069.8 million (2016: 1,069.8 million). F.84 Average net assets In millions of euros Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Daimler Financial Services1 Net assets of the segments Equity-method investments2 Assets and liabilities from income taxes3 Other corporate items and eliminations3 Net assets Daimler Group 2017 2016 23,975 22,345 8,421 2,385 978 11,165 46,924 941 2,141 - 1,492 48,514 8,448 1,739 887 10,000 43,419 555 3,372 - 292 47,054 1 Equity. 2 Unless allocated to the segments. 3 Unless allocated to Daimler Financial Services. “Net assets” and “value added” represent the basis for capital management at Daimler. The assets and liabilities of the segments in accordance with IFRS provide the basis for the determination of net assets at Group level. The vehicle segments are accountable for the operational net assets; all assets, liabilities and provisions which they are responsible for in day- to-day operations are therefore allocated to them. Performance measurement at Daimler Financial Services is on an equity basis, in line with the usual practice in the banking business. Net assets at Group level additionally include assets and liabilities from income taxes as well as other corporate items and eliminations. The average annual net assets are calculated from the average quarterly net assets. The average quarterly net assets are calculated as an average of the net assets at the beginning and the end of the quarter and are shown in table (cid:202) F.84. The cost of capital of the Group’s average net assets is reﬂected in value added. Value added shows the extent to which the Group achieves or exceeds the minimum return requirements of the shareholders and creditors, thus creating additional value. The required rate of return on net assets, and thus the cost of capital, are derived from the minimum rates of return that investors expect on their invested capital. The Group’s cost of capital comprises the cost of equity as well as the costs of debt and pension obligations unless these are allocated to Daimler Financial Services; in addition, the expected returns on liquidity and on the plan assets of the pension funds which are not allocated to Daimler Financial Services are considered with the opposite sign. In the reporting period, the cost of capital used for our internal capital management amounted to 8% a(cid:5)er taxes. The objective of capital management is to increase value added among other things by optimizing the cost of capital. This is achieved on the one hand by the management of the net assets, for instance by optimizing working capital, which is within the operational responsibility of the segments. In addition, taking into account legal regulations, Daimler strives to optimize the costs and risks of its capital structure and, consequently, the cost of capital, with due consideration of applicable law. Examples of this include a balanced relationship between equity and ﬁnancial liabilities as well as an appropriate level of liquidity, oriented towards the operational requirements. 310 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 36. Related party relationships Related parties are deemed to be associated companies, joint ventures, joint operations and unconsolidated subsidiaries, as well as persons who exercise a signiﬁcant inﬂuence on the ﬁnancial and business policy of the Daimler Group. The latter category includes all persons in key positions and their close family members. At the Daimler Group, those persons are the members of the Board of Management and of the Supervisory Board. Most of the goods and services supplied within the ordinary course of business between the Group and related parties comprise transactions with associated companies, joint ven- tures and joint operations, and are shown in table (cid:202) F.85. Associated companies A large proportion of the Group’s sales of goods and services with associated companies as well as receivables relates to business relations with LSH Auto International Limited (LSHAI) and with Beijing Benz Automotive Co., Ltd. (BBAC). In 2017, Daimler acquired a 15% stake in LSHAI. In the reporting period, Daimler sold the Group’s own Mercedes-Benz dealership in Melbourne, Australia, to LSHAI. The purchases of goods and services shown in table (cid:202) F.85 were primarily from LSH Auto International Limited and MBtech Group GmbH & Co. KGaA (MBtech Group). MBtech Group develops, integrates and tests components, systems, modules and vehicles worldwide. Joint ventures Signiﬁcant sales of goods and services took place with Fujian Benz Automotive Co., Ltd. (FBAC), as well as with DAIMLER KAMAZ RUS OOO, a company established with Kamaz PAO, another of the Group’s associated companies. On November 7, 2016, the joint venture Shenzhen BYD Daimler New Technology Co., Ltd. was renamed as Shenzhen DENZA New Energy Automotive Co., Ltd. (DENZA). DENZA is allocated to the Mercedes-Benz Cars segment. Daimler provided guarantees in a total amount of RMB 1,250 million (€160 million) to external banks which provided two loans to DENZA. As of December 31, 2017, loans amounting to RMB 705 million (€90 million) were utilized. In addition, Daimler provided a shareholder loan of RMB 250 million (€32 million) to DENZA, which is fully utilized. In accordance with its shareholding ratio, Daimler contributed additional equity of RMB 500 million (€64 million) to DENZA in July 2017. In connection with its 45% equity interest in Toll Collect GmbH, Daimler has issued guarantees which are not shown in table (cid:202) F.85 (€100 million at December 31, 2017 and at December 31, 2016). F.85 Transactions with related parties In millions of euros Associated companies thereof LSHAI1 thereof BBAC Joint ventures Joint operations Sales of goods and services and other income Purchases of goods and services and other expense 2017 2016 2017 2016 Receivables At December 31,2 2016 2017 Payables At December 31,3 2016 2017 9,507 5,177 3,933 946 46 3,586 – 3,262 507 40 703 298 80 75 278 428 – 59 64 288 2,827 1,075 1,673 183 28 1,233 – 1,178 150 38 253 127 65 115 54 89 – 27 110 30 1 Since the equity interest in LSHAI was acquired in May 2017, business relations with LSHAI are reported from June 2017 onward. 2 A(cid:5)er write-downs totaling €52 million (2016: €51 million). 3 Including liabilities from default risks from guarantees for related parties. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 311 The members of the Supervisory Board are solely granted short-term ﬁxed remuneration for their board and committee activity, the amounts of which depend on their functions in the Supervisory Board. With the exception of remuneration paid to the members representing the employees in accordance with their contracts of employment, no remuneration was paid in 2017 for services provided personally beyond board and committee activities, in particular for advisory or agency services. No advance payments or loans were made or abated to members of the Board of Management or to the members of the Supervisory Board of Daimler AG in 2017. The payments made in 2017 to former members of the Board of Management of Daimler AG and their survivors amounted to €19.0 million (2016: €15.6 million). The pension provisions for former members of the Board of Management and their survivors amounted to €270.5 million as of December 31, 2017 (2016: €252.9 million). Information regarding the remuneration of the members of the Board of Management and of the Supervisory Board is disclosed on an individual basis in the Remuneration Report, which is part of the combined Management Report. E Management Report from page 136 F.86 Remuneration of the members of the Board of Management and the Supervisory Board In millions of euros 20171 2016 Remuneration of the Board of Management Fixed remuneration (base salary) Short-term variable remuneration (50% of annual bonus) Mid-term variable remuneration (50% of annual bonus, “deferral”) Variable remuneration with a long-term incentive eﬀect (PPSP) Post-employment beneﬁts (service cost) Termination beneﬁts Remuneration of the Supervisory Board 9.5 7.7 7.0 12.4 2.0 – 38.6 4.2 42.8 10.0 5.8 5.2 13.1 2.8 – 36.9 3.5 40.4 1 Including the Board of Management remuneration paid to Dr. Wolfgang Bernhard until February 10, 2017. Joint operations Joint operations primarily relate to signiﬁcant business trans- actions with Beijing Mercedes-Benz Sales Service Co., Ltd. and EM-motive GmbH. Note 13 provides details of the business operations of the signiﬁcant associated companies and joint ventures, as well as signiﬁcant transactions in the years 2017 and 2016. Contributions to plan assets In 2017 and 2016, the Group made contributions of €3,692 million and €2,427 million to its external funds to cover pension and other post-employment beneﬁts. See also Note 22 for further information. Board members Throughout the world, the Group has business relationships with numerous entities that are customers and/or suppliers of the Group. Those customers and/or suppliers include com- panies that have a connection with some of the members of the Board of Management or of the Supervisory Board and close family members of those board members of Daimler AG or of its subsidiaries. Board of Management and Supervisory Board members and close family members of those board members may also purchase goods and services from Daimler AG or its subsidiar- ies as customers. When such business relationships exist, transactions are concluded on the basis of customary market conditions. See Note 37 for information on the remuneration of board members. 37. Remuneration of the members of the Board of Management and the Supervisory Board Remuneration granted to the members of the Board of Management and the Supervisory Board who were active as of December 31, 2017, aﬀected net proﬁt for the year ended December 31 as shown in table (cid:202) F.86. Expenses for variable remuneration of the Board of Management with a long-term incentive eﬀect, as shown in table (cid:202) F.86, result from the ongoing measurement at fair value at each balance sheet date of all rights granted and not yet due under the Performance Phantom Share Plans (PPSP), i.e. for the plans of the years 2014–2017. In 2017, the active members of the Board of Management were granted 151,157 (2016: 162,033) phantom shares in connection with the PPSP; the fair value of these phantom shares at the grant date was €10.2 million (2016: €10.2 million). See Note 21 for additional information on share-based payment of the members of the Board of Management. According to Section 314 Subsection 1 Number 6a of the German Commercial Code (HGB) the overall remuneration granted to the members of the Board of Management, excluding service cost resulting from entitlements to post-employment beneﬁts, amounted to €35.0 million (2016: €31.8 million). 312 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 38. Principal accountant fees The shareholders of Daimler AG elected KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) as the external auditor at the Annual Shareholders’ Meeting held on March 29, 2017. Table (cid:202) F.87 shows the fees for services provided by KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) and the companies of the worldwide KPMG network to Daimler AG, the subsidiaries and the joint operations that are included in the Group’s consolidated ﬁnancial statements for the respective reporting periods. The review of the interim ﬁnancial statements (2016: €5 million), the audit of the accounting-related internal control system (2016: €3 million), as well as additional audit services that are caused by an audit or are made use of within an audit such as for instance accounting-related IT and process audits accompanying projects (2016: €5 million) have to be assigned to Audit Services as of the 2017 ﬁnancial year due to underlying regulations. F.87 Accountant fees In millions of euros Audit Services thereof KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) Other Attestation Services thereof KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) Tax Services thereof KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) Other Services thereof KPMG AG Wirtscha(cid:5)sprüfungsgesellscha(cid:5) 2017 2016 44 21 9 7 1 1 6 5 39 21 7 4 2 1 5 4 60 53 The previous year’s ﬁgures for Other Attestation Services have been reduced accordingly. Other Attestation Services comprise in particular audits in connection with non-accounting-related IT systems and processes. Audits in connection with compliance management systems, the issuance of comfort letters, non- ﬁnancial disclosures and reports as well as the application of funds audits are also included. The tax advisory services primarily comprise tax advice in conjunction with value-added tax. Other Services were performed primarily in connection with non-accounting-relevant processes, the implementation of new standards and M&A activities. 39. Additional information German Corporate Governance Code The Board of Management and the Supervisory Board of Daimler AG have issued a declaration pursuant to Section 161 of the German Stock Corporation Act (AktG) and have made it permanently available to their shareholders on Daimler’s website at whttps://www.daimler.com/documents/ company/corporate-governance/declarations/daimler- declaration-en-12-2017.pdf. Information on investments The statement of investments of the Daimler Group pursuant to Section 313 Subsection 2 No. 1–6 of the German Commercial Code (HGB) is presented in table (cid:202) F.88. In general coopera- tions without capital share are not reported. Information on equity and earnings and information on investments pursuant to Section 313 Subsection 2 No. 4 of the German Commercial Code is omitted insofar as, pursuant to Section 313 Subsection 3 Sentence 4 of the HGB, such information is of minor rele- vance for a fair presentation of the proﬁtability, liquidity and capital resources, and ﬁnancial position of the Daimler Group. In addition, the statement of investments indicates which consolidated companies make use of the exemption pursuant to Section 264 Subsection 3 of the HGB and/or Section 264b of the HGB. The consolidated ﬁnancial statements of Daimler AG release those subsidiaries from the requirements that would otherwise apply. F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 313 Domicile, Country Capital share in %1 Footnote F.88 Name of the Company I. Consolidated subsidiaries Athlon Beheer International B.V. Athlon Beheer Nederland B.V. Athlon Car Lease Belgium N.V. Athlon Car Lease International B.V. Athlon Car Lease Italy S.R.L. Athlon Car Lease Nederland B.V. Athlon Car Lease Polska Sp.z.o.o Athlon Car Lease Portugal, lda Athlon Car Lease Rental Services B.V. Athlon Car Lease Rental Services Belgium N.V. Athlon Car Lease S.A.S. Athlon Car Lease Spain, S.A. Athlon Dealerlease B.V. Athlon France S.A.S. Athlon Germany GmbH Athlon Mobility Consultancy B.V. Athlon Mobility Consultancy N.V. Athlon Rental Germany GmbH Athlon Sweden AB Athlon Switzerland AG AutoGravity Corporation Banco Mercedes-Benz do Brasil S.A. Almere, Netherlands Almere, Netherlands Machelen, Belgium Almere, Netherlands Rome, Italy Almere, Netherlands Warsaw, Poland Oeiras, Portugal Almere, Netherlands Machelen, Belgium Le Bourget, France Barcelona, Spain Almere, Netherlands Le Bourget, France Düsseldorf, Germany Amsterdam, Netherlands Machelen, Belgium Düsseldorf, Germany Malmö, Sweden Schlieren, Switzerland Irvine, USA São Paulo, Brazil Brooklands Estates Management Limited Milton Keynes, United Kingdom Campo Largo Comercio de Veículos e Peças Ltda. São Bernardo do Campo, Brazil car2go Canada Ltd. car2go China Co., Ltd. car2go Deutschland GmbH car2go Europe GmbH car2go Group GmbH car2go Iberia S.L.U. car2go Italia S.R.L. car2go N.A. LLC car2go Nederland B.V. car2go Österreich GmbH CARS Technik & Logistik GmbH CLIDET NO 1048 (Proprietary) Limited Conemaugh Hydroelectric Projects, Inc. DA Investments Co. LLC DAF Investments, Ltd. Daimler Australia/Paciﬁc Pty. Ltd. Daimler Automotive de Venezuela C.A. Daimler Buses North America Inc. Daimler Canada Finance Inc. Daimler Canada Investments Company Daimler Capital Services LLC Daimler Ceská republika Holding s.r.o. Daimler Colombia S. A. Daimler Compra y Manufactura Mexico S. de R.L. de C.V. Daimler Export and Trade Finance GmbH Daimler Finance North America LLC Daimler Financial Services Africa & Asia Paciﬁc Ltd. Daimler Financial Services AG Daimler Financial Services India Private Limited Vancouver, Canada Beijing, China Leinfelden-Echterdingen, Germany Leinfelden-Echterdingen, Germany Leinfelden-Echterdingen, Germany Madrid, Spain Milan, Italy Wilmington, USA Utrecht, Netherlands Vienna, Austria Wiedemar, Germany Centurion, South Africa Wilmington, USA Wilmington, USA Wilmington, USA Melbourne, Australia Valencia, Venezuela Oriskany, USA Montreal, Canada Halifax, Canada Wilmington, USA Prague, Czech Republic Bogota D.C., Colombia Mexico City, Mexico Berlin, Germany Wilmington, USA Singapore, Singapore Stuttgart, Germany Chennai, India 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.00 100.00 100.00 100.00 100.00 100.00 100.00 75.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 5 5 5 5 314 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name of the Company Domicile, Country Capital share in %1 Footnote Daimler Financial Services Japan Co., Ltd. Daimler Financial Services México, S. de R.L. de C.V. Daimler Financial Services, S.A. de C.V., S.O.F.O.M., E.N.R. Daimler Fleet Management GmbH Daimler Fleet Management Singapore Pte. Ltd. Kawasaki, Japan Mexico City, Mexico Mexico City, Mexico Stuttgart, Germany Singapore, Singapore Daimler Fleet Management South Africa (Pty.) Ltd. Centurion, South Africa Daimler Fleet Management UK Limited Milton Keynes, United Kingdom Daimler Fleet Services A.S. Daimler FleetBoard GmbH Daimler Greater China Ltd. Daimler Grund Services GmbH Daimler India Commercial Vehicles Private Limited Daimler Insurance Agency LLC Daimler Insurance Services GmbH Daimler Insurance Services Japan Co., Ltd. Istanbul, Turkey Stuttgart, Germany Beijing, China Schönefeld, Germany Chennai, India Wilmington, USA Stuttgart, Germany Tokyo, Japan Daimler Insurance Services UK Limited Milton Keynes, United Kingdom Daimler International Finance B.V. Daimler Investments US Corporation Daimler Manufactura, S. de R.L. de C.V. Daimler Mexico, S.A. de C.V. Daimler Mobility Services GmbH Daimler Motors Investments LLC Daimler Nederland B.V. Daimler Nederland Holding B.V. Daimler North America Corporation Daimler North America Finance Corporation Daimler Northeast Asia Parts Trading and Services Co., Ltd. Daimler Parts Brand GmbH Daimler Re Brokers GmbH Utrecht, Netherlands Wilmington, USA Mexico City, Mexico Mexico City, Mexico Leinfelden-Echterdingen, Germany Wilmington, USA Utrecht, Netherlands Utrecht, Netherlands Wilmington, USA Newark, USA Beijing, China Stuttgart, Germany Bremen, Germany Daimler Re Insurance S.A. Luxembourg Luxembourg, Luxembourg Daimler Real Estate GmbH Daimler Retail Receivables LLC DAIMLER SERVICIOS CORPORATIVOS MEXICO S. DE R.L. DE C.V. Daimler South East Asia Pte. Ltd. Daimler Truck and Bus Australia Paciﬁc Pty. Ltd. Daimler Trucks and Buses (China) Ltd. Daimler Trucks Canada Ltd. Daimler Trucks Korea Ltd. Daimler Trucks North America LLC Daimler Trucks Remarketing Corporation Daimler Trust Holdings LLC Daimler Trust Leasing Conduit LLC Daimler Trust Leasing LLC Daimler UK Limited Daimler Vans Hong Kong Limited Daimler Vans USA, LLC Daimler Vehículos Comerciales Mexico S. de R.L. de C.V. Berlin, Germany Farmington Hills, USA Mexico City, Mexico Singapore, Singapore Mulgrave, Australia Beijing, China Mississauga, Canada Seoul, South Korea Wilmington, USA Portland, USA Farmington Hills, USA Wilmington, USA Farmington Hills, USA Milton Keynes, United Kingdom Hong Kong, China Wilmington, USA Mexico City, Mexico Daimler Vermögens- und Beteiligungsgesellscha(cid:5) mbH Stuttgart, Germany Daimler Verwaltungsgesellscha(cid:5) für Grundbesitz mbH Schönefeld, Germany Daimler Vorsorge und Versicherungsdienst GmbH Daiprodco Mexico S. de R.L. de C.V. Detroit Diesel Corporation Detroit Diesel Remanufacturing LLC Berlin, Germany Mexico City, Mexico Detroit, USA Detroit, USA 100.00 100.00 100.00 100.00 100.00 65.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 74.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 67.55 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 5 5 5 5 5 5 5 5 5 5 5 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 315 Name of the Company Domicile, Country Capital share in %1 Footnote Detroit Diesel Remanufacturing Mexicana, S. de R.L. de C.V. Toluca, Mexico Detroit Diesel-Allison de Mexico, S. de R.L. de C.V. San Juan Ixtacala, Mexico Deutsche Accumotive GmbH & Co. KG Kirchheim unter Teck, Germany EHG Elektroholding GmbH EvoBus (Schweiz) AG EvoBus (U.K.) Ltd. EvoBus Austria GmbH EvoBus Belgium N.V. EvoBus Ceská republika s.r.o. EvoBus Danmark A/S EvoBus France S.A.S.U. EvoBus GmbH EvoBus Ibérica, S.A.U. EvoBus Italia S.p.A. EvoBus Nederland B.V. EvoBus Polska Sp. z o.o. EvoBus Portugal, S.A. EvoBus Sverige AB Freightliner Custom Chassis Corporation Friesland Lease B.V. Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 1 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 2 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 3 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 4 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 5 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 6 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Alpha 7 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Beta OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Delta OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Epsilon OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Gamma 1 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Gamma 2 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Gamma 3 OHG Grundstücksverwaltungsgesellscha(cid:5) Daimler AG & Co. Gamma 4 OHG Grundstücksverwaltungsgesellscha(cid:5) EvoBus GmbH & Co. OHG Hailo Network Iberia S.L. Hailo Network IP Limited Highway 2015-I. B.V. Intelligent Apps GmbH Interleasing Luxembourg S.A. Invema Assessoria Empresarial Ltda Koppieview Property (Pty) Ltd LBBW AM – Daimler Re Insurance LBBW AM – MBVEXW Stuttgart, Germany Kloten, Switzerland Coventry, United Kingdom Wiener Neudorf, Austria Kobbegem-Asse, Belgium Prague, Czech Republic Koege, Denmark Sarcelles, France Stuttgart, Germany Sámano, Spain Bomporto, Italy Nijkerk, Netherlands Wolica, Poland Mem Martins, Portugal Vetlanda, Sweden Gaﬀney, USA Drachten, Netherlands Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Schönefeld, Germany Madrid, Spain London, United Kingdom Amsterdam, Netherlands Hamburg, Germany Windhof, Luxembourg São Paulo, Brazil Zwartkop, South Africa Luxembourg, Luxembourg Stuttgart, Germany 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.11 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 0.00 78.98 100.00 100.00 100.00 0.00 0.00 5 5 5 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 5, 8 3 3 3 316 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name of the Company Domicile, Country Capital share in %1 Footnote Li-Tec Battery GmbH Mascot Truck Parts Canada Ltd (2017) Mascot US LLC MBarc Credit Canada Inc. MDC Power GmbH MDC Technology GmbH Kamenz, Germany Mississauga, Canada Wilmington, USA Mississauga, Canada Kölleda, Germany Arnstadt, Germany Mercedes AMG High Performance Powertrains Ltd Brixworth, United Kingdom Mercedes pay AG Mercedes pay S.A. Mercedes-AMG GmbH Küsnacht, Switzerland Luxembourg, Luxembourg Aﬀalterbach, Germany Mercedes-Benz - Aluguer de Veículos, Unipessoal Lda. Mem Martins, Portugal Mercedes-Benz (China) Ltd. Mercedes-Benz (Thailand) Limited Mercedes-Benz (Yangzhou) Parts Distribution Co., Ltd. Mercedes-Benz Accessories GmbH Mercedes-Benz AG & Co. Grundstücksvermietung Objekte Leipzig und Magdeburg KG Mercedes-Benz Antwerpen N.V. Mercedes-Benz Argentina S.A. Mercedes-Benz Asia GmbH Mercedes-Benz Assuradeuren B.V. Mercedes-Benz Australia/Paciﬁc Pty Ltd Mercedes-Benz Auto Finance Ltd. Mercedes-Benz Auto Lease Trust 2015-B Mercedes-Benz Auto Lease Trust 2016-1 Mercedes-Benz Auto Lease Trust 2016-2 Mercedes-Benz Auto Lease Trust 2016-A Mercedes-Benz Auto Lease Trust 2016-B Mercedes-Benz Auto Lease Trust 2017-A Mercedes-Benz Auto Receivables Trust 2013-1 Mercedes-Benz Auto Receivables Trust 2014-1 Mercedes-Benz Auto Receivables Trust 2015-1 Mercedes-Benz Auto Receivables Trust 2016-1 Mercedes-Benz Bank AG Mercedes-Benz Bank GmbH Mercedes-Benz Bank Polska S.A. Mercedes-Benz Bank Rus OOO Mercedes-Benz Bank Service Center GmbH Mercedes-Benz Banking Service GmbH Mercedes-Benz Belgium Luxembourg S.A. Mercedes-Benz Bordeaux S.A.S. Beijing, China Bangkok, Thailand Yangzhou, China Stuttgart, Germany Düsseldorf, Germany Antwerp, Belgium Buenos Aires, Argentina Stuttgart, Germany Utrecht, Netherlands Melbourne, Australia Beijing, China Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Wilmington, USA Stuttgart, Germany Salzburg, Austria Warsaw, Poland Moscow, Russian Federation Berlin, Germany Saarbrücken, Germany Brussels, Belgium Begles, France Mercedes-Benz Broker Biztositási Alkusz Hungary K(cid:5). Budapest, Hungary Mercedes-Benz Brooklands Limited Milton Keynes, United Kingdom Mercedes-Benz Canada Inc. Mercedes-Benz Capital Rus OOO Mercedes-Benz Cars UK Limited Mercedes-Benz Ceská republika s.r.o. Mercedes-Benz CharterWay España, S.A. Mercedes-Benz CharterWay Gesellscha(cid:5) mit beschränkter Ha(cid:5)ung Mercedes-Benz CharterWay S.A.S. Mercedes-Benz CharterWay S.r.l. Toronto, Canada Moscow, Russian Federation Milton Keynes, United Kingdom Prague, Czech Republic Alcobendas, Spain Berlin, Germany Montigny-le-Bretonneux, France Trent, Italy Mercedes-Benz Comercial, Unipessoal Lda. Mem Martins, Portugal Mercedes-Benz Compañía Financiera Argentina S.A. Buenos Aires, Argentina Mercedes-Benz Connectivity Services GmbH Mercedes-Benz Corretora de Seguros Ltda Stuttgart, Germany São Paulo, Brazil 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 75.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.98 5 5 5 5 5 3 5 3 3 3 3 3 3 3 3 3 3 5 5 5 5 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 317 Name of the Company Domicile, Country Capital share in %1 Footnote Mercedes-Benz CPH A/S Horsholm, Denmark Mercedes-Benz Credit Pénzügyi Szolgáltató Hungary Zrt. Budapest, Hungary Mercedes-Benz Danmark A/S Mercedes-Benz Dealer Bedrijven B.V. Copenhagen, Denmark The Hague, Netherlands Mercedes-Benz do Brasil Assessoria Comercial Ltda. São Paulo, Brazil Mercedes-Benz do Brasil Ltda. Mercedes-Benz Drogenbos N.V. Mercedes-Benz Espana, S.A.U. Mercedes-Benz Finance Co., Ltd. São Bernardo do Campo, Brazil Drogenbos, Belgium Alcobendas, Spain Tokyo, Japan Mercedes-Benz Financial Services Australia Pty. Ltd. Melbourne, Australia Mercedes-Benz Financial Services Austria GmbH Mercedes-Benz Financial Services BeLux NV Salzburg, Austria Brussels, Belgium Mercedes-Benz Financial Services Canada Corporation Mississauga, Canada Mercedes-Benz Financial Services Ceská republika s.r.o. Prague, Czech Republic Mercedes-Benz Financial Services España, E.F.C., S.A. Alcobendas, Spain Mercedes-Benz Financial Services France S.A. Montigny-le-Bretonneux, France Mercedes-Benz Financial Services Hong Kong Ltd. Mercedes-Benz Financial Services Italia SpA Mercedes-Benz Financial Services Korea Ltd. Mercedes-Benz Financial Services Nederland B.V. Mercedes-Benz Financial Services New Zealand Ltd Mercedes-Benz Financial Services Portugal - Sociedade Financeira de Crédito S.A. Hong Kong, China Rome, Italy Seoul, South Korea Utrecht, Netherlands Auckland, New Zealand Mem Martins, Portugal Mercedes-Benz Financial Services Rus OOO Moscow, Russian Federation Mercedes-Benz Financial Services Schweiz AG Mercedes-Benz Financial Services Slovakia s.r.o. Schlieren, Switzerland Bratislava, Slovakia Mercedes-Benz Financial Services South Africa (Pty) Ltd Centurion, South Africa Mercedes-Benz Financial Services Taiwan Ltd. Taipei, Taiwan Mercedes-Benz Financial Services UK Limited Milton Keynes, United Kingdom Mercedes-Benz Financial Services USA LLC Mercedes-Benz Finans Danmark A/S Mercedes-Benz Finans Sverige AB Mercedes-Benz Finansal Kiralama Türk A.S. Mercedes-Benz Finansman Türk A.S. Mercedes-Benz Försäljnings AB Mercedes-Benz France S.A.S. Mercedes-Benz Gent N.V. Mercedes-Benz Grand Prix Ltd. Mercedes-Benz Hellas S.A. Mercedes-Benz Hong Kong Limited Mercedes-Benz India Private Limited Mercedes-Benz Insurance Broker S.R.L. Mercedes-Benz Insurance Services Nederland B.V. Mercedes-Benz Insurance Services Taiwan Ltd. Mercedes-Benz Italia S.p.A. Mercedes-Benz Japan Co., Ltd. Mercedes-Benz Korea Limited Mercedes-Benz Leasing (Thailand) Co., Ltd. Mercedes-Benz Leasing Co., Ltd. Mercedes-Benz Leasing do Brasil Arrendamento Mercantil S.A. Mercedes-Benz Leasing GmbH Mercedes-Benz Leasing Hrvatska d.o.o. Mercedes-Benz Leasing IFN S.A. Mercedes-Benz Leasing K(cid:5). Mercedes-Benz Leasing Polska Sp. z o.o. Wilmington, USA Copenhagen, Denmark Malmö, Sweden Istanbul, Turkey Istanbul, Turkey Malmö, Sweden Montigny-le-Bretonneux, France Gent, Belgium Brackley, United Kingdom Kiﬁssia, Greece Hong Kong, China Pune, India Voluntari, Romania Utrecht, Netherlands Taipei, Taiwan Rome, Italy Tokyo, Japan Seoul, South Korea Bangkok, Thailand Beijing, China Barueri, Brazil Stuttgart, Germany Zagreb, Croatia Bucharest, Romania Budapest, Hungary Warsaw, Poland 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.00 100.00 80.00 100.00 100.00 100.00 100.00 100.00 75.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 60.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00 100.00 65.00 100.00 100.00 100.00 100.00 100.00 100.00 5 318 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name of the Company Domicile, Country Capital share in %1 Footnote Mercedes-Benz Leasing Taiwan Ltd. Mercedes-Benz Leasing Treuhand GmbH Mercedes-Benz Ludwigsfelde GmbH Mercedes-Benz Malaysia Sdn. Bhd. Mercedes-Benz Manhattan, Inc. Mercedes-Benz Manufacturing (Thailand) Limited Mercedes-Benz Manufacturing Hungary K(cid:5). Mercedes-Benz Master Owner Trust Mercedes-Benz Mexico, S. de R.L. de C.V. Mercedes-Benz Minibus GmbH Mercedes-Benz Mitarbeiter-Fahrzeuge Leasing GmbH Mercedes-Benz Molsheim S.A.S. Mercedes-Benz Nederland B.V. Mercedes-Benz New Zealand Ltd Mercedes-Benz Ninove N.V. Mercedes-Benz Österreich GmbH Mercedes-Benz Paris SAS Taipei, Taiwan Stuttgart, Germany Ludwigsfelde, Germany Kuala Lumpur, Malaysia Wilmington, USA Bangkok, Thailand Kecskemét, Hungary Wilmington, USA Mexico City, Mexico Dortmund, Germany Stuttgart, Germany Molsheim, France Utrecht, Netherlands Auckland, New Zealand Ninove, Belgium Salzburg, Austria Port-Marly, France Mercedes-Benz Parts Logistics Ibérica, S.L.U. Azuqueca de Henares, Spain Mercedes-Benz Parts Logistics UK Limited Milton Keynes, United Kingdom Mercedes-Benz Parts Manufacturing & Services Ltd. Mercedes-Benz Polska Sp. z.o.o Mercedes-Benz Portugal, S.A. Mercedes-Benz PRAHA s.r.o. Mercedes-Benz Renting, S.A. Mercedes-Benz Research & Development North America, Inc. Shanghai, China Warsaw, Poland Mem Martins, Portugal Prague, Czech Republic Alcobendas, Spain Wilmington, USA Mercedes-Benz Retail Group UK Limited Milton Keynes, United Kingdom Mercedes-Benz Retail, S.A. Madrid, Spain Mercedes-Benz Risk Solutions South Africa (Pty.) Ltd. Centurion, South Africa Mercedes-Benz Roma S.p.A. Mercedes-Benz Romania S.R.L. Mercedes-Benz Russia AO Mercedes-Benz Schweiz AG Mercedes-Benz Service Leasing S.R.L. Mercedes-Benz Services Correduria de Seguros, S.A. Mercedes-Benz Services Malaysia Sdn Bhd Mercedes-Benz Sigorta Aracilik Hizmetleri A.S. Mercedes-Benz Sosnowiec Sp. z o.o. Mercedes-Benz South Africa Ltd Mercedes-Benz Sverige AB Mercedes-Benz Taiwan Ltd. Mercedes-Benz Trucks España S.L.U. Mercedes-Benz Trucks UK Limited Mercedes-Benz Türk A.S. Mercedes-Benz U.S. International, Inc. Mercedes-Benz Ubezpieczenia Sp. z o.o. Mercedes-Benz USA, LLC Mercedes-Benz V.I. Lyon SAS Mercedes-Benz V.I. Paris Ile de France SAS Mercedes-Benz Vans Australia Paciﬁc Pty. Ltd. Mercedes-Benz Vans España, S.L.U. Mercedes-Benz Vans Mobility GmbH Mercedes-Benz Vans UK Limited Mercedes-Benz Vans, LLC Mercedes-Benz Versicherung AG Rome, Italy Bucharest, Romania Moscow, Russian Federation Schlieren, Switzerland Bucharest, Romania Alcobendas, Spain Petaling Jaya, Malaysia Istanbul, Turkey Sosnowiec, Poland Pretoria, South Africa Malmö, Sweden Taipei, Taiwan Alcobendas, Spain Milton Keynes, United Kingdom Istanbul, Turkey Vance, USA Warsaw, Poland Wilmington, USA Genas, France Wissous, France Mulgrave, Australia Madrid, Spain Berlin, Germany Milton Keynes, United Kingdom Wilmington, USA Stuttgart, Germany 100.00 100.00 100.00 51.00 100.00 100.00 100.00 0.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00 100.00 100.00 66.91 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 5 5 3 5 5 5 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 319 Name of the Company Domicile, Country Capital share in %1 Footnote Mercedes-Benz Vertrieb NFZ GmbH Mercedes-Benz Vertrieb PKW GmbH Mercedes-Benz Vietnam Ltd. Mercedes-Benz Warszawa Sp. z o.o. Mercedes-Benz Waterloo S.A. Mercedes-Benz Wavre S.A. Mercedes-Benz Wemmel N.V. Mercedes-Benz Wholesale Receivables LLC MFTA Canada, Inc. Mitsubishi Fuso Truck and Bus Corporation MITSUBISHI FUSO TRUCK EUROPE - Sociedade Europeia de Automóveis, S.A. Mitsubishi Fuso Truck of America, Inc. moovel Group GmbH moovel North America, LLC Multiﬂeet G.I.E myTaxi Iberia SL mytaxi Network Ireland Ltd. mytaxi Network Ltd. N.V. Mercedes-Benz Aalst N.V. Mercedes-Benz Mechelen NuCellSys GmbH P.T. Mercedes-Benz Distribution Indonesia P.T. Mercedes-Benz Indonesia P.T. Star Engines Indonesia Renting del Pacíﬁco S.A.C. Stuttgart, Germany Stuttgart, Germany Ho Chi Minh City, Vietnam Warsaw, Poland Braine-L'Alleud, Belgium Wavre, Belgium Wemmel, Belgium Wilmington, USA Toronto, Canada Kawasaki, Japan Tramagal, Portugal Logan Township, USA Stuttgart, Germany Portland, USA Le Bourget, France Barcelona, Spain Dublin, Ireland London, United Kingdom Erembodegem, Belgium Mechelen, Belgium Kirchheim unter Teck, Germany Jakarta, Indonesia Bogor, Indonesia Bogor, Indonesia Lima, Peru Sandown Motor Holdings (Pty) Ltd Bryanston, South Africa SelecTrucks of America LLC SelecTrucks of Toronto, Inc. Setra of North America, Inc. Silver Arrow Australia Trust 2017-1 SILVER ARROW CHINA 2016-1 Auto Loan Asset Backed Notes Trust c/o CITIC Trust Co., Ltd. SILVER ARROW CHINA 2016-2 Auto Loan Asset Backed Notes Trust c/o CITIC Trust Co., Ltd. SILVER ARROW CHINA 2017-1 RETAIL AUTO LOAN ASSET BACKED NOTES TRUST c/o CITIC TRUST CO., LTD. SILVER ARROW CHINA 2017-2 RETAIL AUTO LOAN ASSET BACKED NOTES TRUST c/o CITIC TRUST CO., LTD. Portland, USA Mississauga, Canada Oriskany, USA Melbourne, Australia Beijing, China Beijing, China Beijing, China Beijing, China Silver Arrow Lease Facility Trust Silver Arrow S.A. smart France S.A.S. smart Vertriebs gmbh Special Lease Systems (SLS) B.V Star Assembly SRL Starexport Trading S.A. Sterling Truck Corporation Sumperská správa majetku k.s. Thomas Built Buses of Canada Limited Thomas Built Buses, Inc. Trona Cogeneration Corporation Ucaﬂeet S.A.S Wilmington, USA Luxembourg, Luxembourg Hambach, France Berlin, Germany Almere, Netherlands Sebes, Romania São Bernardo do Campo, Brazil Portland, USA Prague, Czech Republic Calgary, Canada High Point, USA Wilmington, USA Le Bourget, France Vierzehnte Vermögensverwaltungsgesellscha(cid:5) DVB mbH Stuttgart, Germany Western Star Trucks Sales, Inc Zuidlease B.V. 3218095 Nova Scotia Company Portland, USA Sittard, Netherlands Halifax, Canada 5 5 5 8 4 3 3 3 3 3 3 3 5 8 5 100.00 100.00 70.00 100.00 100.00 100.00 100.00 100.00 100.00 89.29 100.00 100.00 100.00 100.00 50.10 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 62.62 100.00 100.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 65.00 100.00 100.00 51.00 100.00 320 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name of the Company Domicile, Country Capital share in %1 Footnote II. Unconsolidated subsidiaries2 AEG Olympia Oﬃce GmbH Anota Fahrzeug Service- und Vertriebsgesellscha(cid:5) mbH Beat Chile SpA car2go Belgium SPRL car2go Danmark A/S car2go Sverige AB car2go UK Ltd. Stuttgart, Germany Berlin, Germany Santiago, Chile Brussels, Belgium Copenhagen, Denmark Stockholm, Sweden Milton Keynes, United Kingdom Circulo Cerrado S.A. de Ahorro para Fines Determinados Buenos Aires, Argentina Clever Tech S.R.L. Clever Tech Sud S.R.L. Cúspide GmbH Daimler AG & Co. Anlagenverwaltung OHG Daimler Commercial Vehicles (Thailand) Ltd. Daimler Commercial Vehicles Africa Ltd. Daimler Commercial Vehicles MENA FZE Bucharest, Romania Bucharest, Romania Stuttgart, Germany Schönefeld, Germany Bangkok, Thailand Nairobi, Kenya Dubai, United Arab Emirates Daimler Commercial Vehicles South East Asia Pte. Ltd. Singapore, Singapore Daimler Culture Development Co., Ltd. Beijing, China Daimler Financial Services UK Trustees Ltd. Daimler Gastronomie GmbH Daimler Group Services Berlin GmbH Daimler Group Services Madrid, S.A.U. Daimler Innovation Technology (China) Co., Ltd. Daimler International Assignment Services USA, LLC Daimler Mitarbeiter Wohnﬁnanz GmbH Daimler Parts Logistics Australia Pty. Ltd. Daimler Protics GmbH Daimler Purchasing Coordination Corp. Daimler Starmark A/S Daimler Trucks Asia Taiwan Ltd. Daimler TSS GmbH Daimler UK Share Trustee Ltd. Daimler UK Trustees Limited Milton Keynes, United Kingdom Esslingen am Neckar, Germany Berlin, Germany San Sebastián de los Reyes, Spain Beijing, China Wilmington, USA Stuttgart, Germany Mulgrave, Australia Leinfelden-Echterdingen, Germany Wilmington, USA Horsholm, Denmark Taipei, Taiwan Ulm, Germany Milton Keynes, United Kingdom Milton Keynes, United Kingdom Daimler Unterstützungskasse GmbH Stuttgart, Germany Deutsche Accumotive Verwaltungs-GmbH Kirchheim unter Teck, Germany Dreizehnte Vermögensverwaltungsgesellscha(cid:5) DVB mbH Stuttgart, Germany EvoBus Reunion S. A. EvoBus Russland OOO Familonet GmbH FLINC GmbH Fün(cid:5)e Vermögensverwaltungsgesellscha(cid:5) Zeus mbH LAB1886 GmbH Lapland Car Test Aktiebolag Legend Investments Ltd. LEONIE CORP DVB GmbH LEONIE DMS DVB GmbH LEONIE FS DVB GmbH LEONIE FSM DVB GmbH LEONIE PV AG LEONIE PV DVB GmbH LEONIE TB AG LEONIE TB DVB GmbH LEONORE IP GmbH Le Port, France Moscow, Russian Federation Hamburg, Germany Darmstadt, Germany Stuttgart, Germany Stuttgart, Germany Arvidsjaur, Sweden Milton Keynes, United Kingdom Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany Stuttgart, Germany MB GTC GmbH Mercedes-Benz Gebrauchtteile Center Neuhausen auf den Fildern, Germany MBition GmbH Berlin, Germany 8 3 7 100.00 100.00 100.00 100.00 100.00 100.00 100.00 72.17 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 50.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00 100.00 100.00 100.00 100.00 100.00 100.00 96.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 321 Name of the Company Domicile, Country Capital share in %1 Footnote Mercedes-Benz Adm. Consorcios Ltda. São Bernardo do Campo, Brazil Mercedes-Benz AG & Co. Grundstücksvermietung Objekte Baden-Baden und Dresden OHG Düsseldorf, Germany Mercedes-Benz Cars Middle East FZE Dubai, United Arab Emirates Mercedes-Benz Commercial Vehicles Iran GmbH Stuttgart, Germany Mercedes-Benz Consulting GmbH Leinfelden-Echterdingen, Germany Mercedes-Benz Customer Assistance Center Maastricht N.V. Maastricht, Netherlands Mercedes-Benz Egypt S.A.E. Mercedes-Benz Energy Americas LLC Mercedes-Benz Energy GmbH Mercedes-Benz ExTra LLC Mercedes-Benz Formula E Limited Mercedes-Benz G GmbH Mercedes-Benz Group Services Phils., Inc. Mercedes-Benz Hungária K(cid:5). Mercedes-Benz IDC Europe S.A.S. New Cairo, Egypt Wilmington, USA Kamenz, Germany Farmington Hills, USA Brackley, United Kingdom Raaba, Austria Cebu City, Philippines Budapest, Hungary Montigny-le-Bretonneux, France Mercedes-Benz Manufacturing Poland sp. zo. o. Warsaw, Poland Mercedes-Benz Manufacturing Rus Ltd Mercedes-Benz Museum GmbH Moscow, Russian Federation Stuttgart, Germany Mercedes-Benz Parts Logistics Eastern Europe s.r.o. Prague, Czech Republic Mercedes-Benz Project Consult GmbH Stuttgart, Germany Mercedes-Benz Research & Development Tel Aviv Ltd. Tel Aviv, Israel Mercedes-Benz Research and Development India Private Limited Bangalore, India Mercedes-Benz Slovakia s.r.o. Mercedes-Benz Solihull Ltd. Bratislava, Slovakia Milton Keynes, United Kingdom Mercedes-Benz Srbija i Crna Gora d.o.o.u likvidaciji Novi Beograd, Serbia Mercedes-Benz Trucks Ceská republika s.r.o. Mercedes-Benz Trucks Nederland B.V. Mercedes-Benz Vans Ceská republika s.r.o Mercedes-Benz Vans Mobility S.L. Mercedes-Benz Vans Nederland B.V. Mercedes-Benz Venezuela S.A. Mercedes-Benz.io GmbH Prague, Czech Republic Utrecht, Netherlands Prague, Czech Republic Alcobendas, Spain Utrecht, Netherlands Valencia, Venezuela Stuttgart, Germany MercedesService Card Beteiligungsgesellscha(cid:5) mbH Kleinostheim, Germany Mitsubishi Fuso Bus Manufacturing Co., Ltd. Toyama, Japan Monarch Cars (Tamworth) Ltd. Milton Keynes, United Kingdom Montajes y Estampaciones Metálicas, S.L. Esparraguera, Spain mytapp Portugal Unipessoal LDA mytaxi Austria GmbH MYTAXI ITALIA S.R.L. MYTAXI POLSKA SPÓLKA Z OGRANICZONA ODPOWIEDZIALNOSCIA mytaxi Sweden AB myTaxi Swiss GmbH myTaxi UG myTaxi UK Ltd. myTaxi USA Inc. Lisbon, Portugal Vienna, Austria Milan, Italy Warsaw, Poland Stockholm, Sweden Zug, Switzerland Hamburg, Germany London, United Kingdom New York, USA NAG Nationale Automobil-Gesellscha(cid:5) Aktiengesellscha(cid:5) Stuttgart, Germany ogotrac S.A.S. PABCO Co., Ltd. Porcher & Meﬀert Grundstücksgesellscha(cid:5) mbH & Co. Stuttgart OHG PT Daimler Commercial Vehicles Indonesia R.T.C. Management Company Limited Reva SAS Paris, France Ebina, Japan Schönefeld, Germany Jakarta, Indonesia Banbury, United Kingdom Cunac, France 3, 8 4 8 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00 100.00 100.00 51.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 88.89 100.00 322 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name of the Company Domicile, Country Capital share in %1 Footnote Ring Garage AG Chur Chur, Switzerland Sechste Vermögensverwaltungsgesellscha(cid:5) Zeus mbH Stuttgart, Germany SelecTrucks Comércio de Veículos Ltda SportChassis LLC Star Egypt For Import LLC Star Transmission srl STARKOM d.o.o. T.O.C (Schweiz) AG Taxibeat Ltd. UK Taxibeat Peru S.A. Taxibeat Teknoloji Hizmetleri A.S. trapoFit GmbH Zweite Vermögensverwaltungsgesellscha(cid:5) Zeus mbH Mauá, Brazil Clinton, USA New Cairo, Egypt Cugir, Romania Maribor, Slovenia Schlieren, Switzerland London, United Kingdom Lima, Peru Istanbul, Turkey Chemnitz, Germany Stuttgart, Germany III. Joint operations accounted for using the equity method Cooperation Manufacturing Plant Aguascalientes, S.A.P.I de C.V. Mexico City, Mexico IV. Joint operations accounted for using the equity method AFCC Automotive Fuel Cell Cooperation Corp. EM-motive GmbH Burnaby, Canada Hildesheim, Germany North America Fuel Systems Remanufacturing LLC Kentwood, USA V. Joint ventures accounted for using the equity method Beijing Foton Daimler Automotive Co., Ltd Daimler Kamaz Trucks Holding GmbH Enbase Power GmbH Fujian Benz Automotive Co., Ltd. IONITY Holding GmbH & Co. KG Polomex, S.A. de C.V. SelecTrucks of Atlanta LLC SelecTrucks of Houston LLC SelecTrucks of Houston Wholesale LLC SelecTrucks of Omaha LLC Shenzhen DENZA New Energy Automotive Co. Ltd. TASIAP GmbH Toll Collect GbR Toll Collect GmbH Via Netherlands B.V. Wagenplan B.V. Beijing, China Vienna, Austria Munich, Germany Fuzhou, China Munich, Germany Garcia, Mexico McDonough, USA Houston, USA Houston, USA Council Bluﬀs, USA Shenzhen, China Stuttgart, Germany Berlin, Germany Berlin, Germany Amsterdam, Netherlands Almere, Netherlands VI. Associated companies accounted for using the equity method BAIC Motor Corporation Ltd. Beijing Benz Automotive Co., Ltd. BlackLane GmbH FlixMobility GmbH FUSO LAND TRANSPORT & Co. Ltd. KAMAZ PAO Beijing, China Beijing, China Berlin, Germany Munich, Germany Kawasaki, Japan Naberezhnye Chelny, Russian Federation Kanagawa Mitsubishi Fuso Truck & Bus Sales Co., Ltd. LSH Auto International Limited MBtech Group GmbH & Co. KGaA Okayama Mitsubishi Fuso Truck & Bus Sales Co., Ltd. P.T. Krama Yudha Tiga Berlian Motors P.T. Mitsubishi Krama Yudha Motors and Manufacturing There Holding B.V. Via Transportation Inc. Yokohama, Japan Hong Kong, China Sindelﬁngen, Germany Okayamashi, Japan Jakarta, Indonesia Jakarta, Indonesia Rijswijk, Netherlands New York, USA 3 8 100.00 100.00 100.00 0.00 99.50 100.00 100.00 51.00 100.00 100.00 100.00 100.00 100.00 50.00 50.10 50.00 50.00 50.00 50.00 25.10 50.00 25.00 26.00 50.00 50.00 50.00 50.00 50.00 60.00 45.00 45.00 50.00 50.00 10.08 49.00 30.57 5.62 21.67 15.00 43.83 15.00 35.00 50.00 30.00 32.28 33.33 12.38 F | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 323 Name of the Company Domicile, Country Capital share in %1 Footnote VII. Joint operations, joint ventures, associated companies and substantial other investments accounted for at (amortized) cost2 Abgaszentrum der Automobilindustrie GbR BDF IP Holdings Ltd. Beijing Mercedes-Benz Sales Service Co., Ltd. ChargePoint Inc. COBUS Industries GmbH Esslinger Wohnungsbau GmbH European Center for Information and Communication Technologies - EICT GmbH EvoBus Hungária Kereskedelmi K(cid:5). Gottapark, Inc. Grundstücksgesellscha(cid:5) Schlossplatz 1 mbH & Co. KG H2 Mobility Deutschland GmbH & Co. KG inpro Innovationsgesellscha(cid:5) für fortgeschrittene Produktionssysteme in der Fahrzeugindustrie mbH Juﬀali Industrial Products Company Laureus World Sports Awards Limited MBtech Verwaltungs-GmbH MercedesService Card GmbH & Co. KG MFTB Taiwan Co., Ltd. National Automobile Industry Company Ltd. Omuta Unso Co., Ltd. Weissach, Germany Burnaby, Canada Beijing, China Campbell, USA Wiesbaden, Germany Esslingen am Neckar, Germany Berlin, Germany Budapest, Hungary San Francisco, USA Berlin, Germany Berlin, Germany Berlin, Germany Jeddah, Saudi Arabia London, United Kingdom Sindelﬁngen, Germany Kleinostheim, Germany Taipei, Taiwan Jeddah, Saudi Arabia Ohmuta, Japan PDB - Partnership for Dummy Technology and Biomechanics GbR Ingolstadt, Germany Rally Bus Corp. smart-BRABUS GmbH STARCAM s.r.o. tiramizoo GmbH Toll4Europe GmbH Toyo Kotsu Co., Ltd. Turo Inc. Verimi GmbH VfB Stuttgart 1893 AG Volocopter GmbH what3words Ltd. Zonar Systems, Inc. New York, USA Bottrop, Germany Most, Czech Republic Munich, Germany Berlin, Germany Sannoseki, Japan San Francisco, USA Berlin, Germany Stuttgart, Germany Bruchsal, Germany Hinxworth, United Kingdom Seattle, USA 8 6 8 25.00 33.00 51.00 5.39 40.82 26.57 33.33 33.33 18.09 18.37 2.90 20.00 0.00 50.00 35.00 51.00 33.40 26.00 33.51 20.00 12.33 50.00 51.00 20.84 30.00 28.20 5.38 11.11 11.75 10.17 13.38 19.42 1 Shareholding pursuant to Section 16 of the German Stock Corporation Act (AktG). 2 For the accounting of unconsolidated subsidiaries, joint operations, joint ventures and associated companies we refer to Note 1. 3 Control due to economic circumstances. 4 In liquidation. 5 Qualiﬁcation for exemption pursuant to Section 264 Subsection 3 and Section 264b of the German Commercial Code (HGB). 6 Joint control due to economic circumstances. 7 Control over the investment of the assets. No consolidation of the assets due to the contractual situation. 8 Daimler AG or one respectively several consolidated subsidiares are the partners with unlimited liability. Furthermore, Daimler AG or one respectively several consolidated subsidiares are the partners with unlimited liability in MOST Cooperation GbR, Karlsruhe (Germany). WE PURSUE A SUSTAINABLE AND SOUND DIVIDEND POLICY! At the Annual Shareholders’ Meeting on April 5, 2018, the Board of Management and the Supervisory Board will therefore propose the payment of an increased dividend of €3.65 per share (prior year: €3.25). We aim to achieve a sustainable dividend development also in the coming years. In setting the dividend, our target is generally to distribute approximately 40% of the net proﬁt attributable to Daimler shareholders. G | FURTHER INFORMATION | CONTENTS 325 G | Further Information Responsibility Statement Independent Auditor’s Report Ten Year Summary Glossary Index Daimler Worldwide 326 327 334 336 337 338 326 G | FURTHER INFORMATION | RESPONSIBILITY STATEMENT Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated ﬁnancial statements give a true and fair view of the ﬁnancial position, cash ﬂows and proﬁt or loss of the Group, and the Group management report, which has been combined with the management report for DAG, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. Stuttgart, February 9, 2018 Dieter Zetsche Martin Daum Renata Jungo Brüngger Ola Källenius Wilfried Porth Britta Seeger Hubertus Troska Bodo Uebber G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT 327 Independent Auditor’s Report To Daimler AG, Stuttgart Report on the Audit of the Consolidated Finan- cial Statements and of the Combined Manage- ment Report Opinions We have audited the consolidated financial statements of Daimler AG, Stuttgart, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of income, consolidated statement of comprehensive income/loss, con- solidated statement of changes in equity and consolidated statement of cash flows for the financial year from January 1 to December 31, 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the combined manage- ment report of Daimler AG for the financial year from January 1 to December 31, 2017. In our opinion, on the basis of the knowledge obtained in the audit, –  the accompanying consolidated financial statements com- ply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabili- ties, and financial position of the Group as at December 31, 2017, and of its financial performance for the financial year from January 1 to December 31, 2017, and – the accompanying combined management report as a whole provides an appropriate view of the Group’s position. In all material respects, this combined management report is con- sistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Pursuant to Section 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the combined management report. Basis for the Opinions We conducted our audit of the consolidated financial statements and of the combined management report in accordance with Section 317 HGB and the EU Audit Regulation No. 537/2014 (referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). We performed the audit of the consolidated financial state- ments in supplementary compliance with the International Standards on Auditing (ISAs). Our responsibilities under those requirements, principles and standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolida- ted Financial Statements and of the Combined Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of Euro- pean law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the evi- dence we have obtained is sufficient and appropriate to pro- vide a basis for our opinions on the consolidated financial state- ments and on the combined management report. Key Audit Matters in the Audit of the Consolidated Financial Statements Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consoli- dated financial statements for the financial year from January 1 to December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not pro- vide a separate opinion on these matters. 82_Bestätigungsvermerk_E.indd 327 14.02.18 14:48 328 G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT Impairment Risk on Operating Leases Please refer with regard to the accounting policies and methods applied to the notes to the consolidated financial statements Note 1 “Significant accounting policies” and Note 2 “Accounting estimates and management judgements”. Further information on the operating leases can be found in the notes to the consoli- dated financial statements Note 12 “Equipment on operating leases” and in the comments in the combined management report on “Industry and business risks and opportunities”. The Financial Statement Risk The balance sheet caption “Equipment on operating leases” (€ 47,714 million) comprises motor vehicles on operating lea- ses. The impairment risk with regard to these vehicles is pri- marily dependent on the residual value achievable at the end of the lease. These future residual values depend on the situ- ation in the used-vehicle markets prevailing when the vehicles are returned. The future-oriented valuation is based on a number of discretionary assumptions. The risk for the finan- cial statements is that any impairment losses will not be recognized or that the amounts recognized will be inadequate. Our Audit Approach We audited the recoverability of the balance sheet caption “Equipment on operating leases” based on Daimler’s internal portfolio allocation. The main focus of our risk-oriented audit approach was addressed to those vehicles with an enhanced impairment risk. We investigated and assessed the indications assumed by the group for a possible requirement for the reco- gnition on an impairment loss. We appraised Daimler’s assess- ment with regard to the residual values that can be achieved at the end of the term of the leases. We also included vehicles with diesel technology in this appraisal. In this connection, we in particular critically reviewed the main influencing factors, such as the expected number of returns from leasing, the cur- rent remarketing results in order to assess the accuracy of the estimates and future vehicle model changes. For significant markets we furthermore also audited the consistency of the assumptions made by Daimler with residual value forecasts by independent expect third parties. Our Observations The assumptions and assessments providing the basis for the valuation of the carrying amounts of “equipment on operating leases” are appropriate. Allowances on Receivables from Financial Services Please refer with regard to the accounting policies and meth- ods applied to the notes to the consolidated financial state- ments Note 2 “Accounting estimates and management judge- ments”. Further information on allowances on receivables from financial services can be found in the notes to the conso- lidated financial statements Note 14 “Receivables from finan- cial services and Note 32 “Management of financial risks” and in the comments in the combined management report on “Industry and business risks and opportunities”. The Financial Statement Risk The receivables from financial services (€ 85,787 million) resul- ting from the financing and leasing activities of the Group include receivables from sales financing with customers, recei- vables from sales financing with dealers and receivables from finance lease contracts. The allowances on these receivables amounted at the balance sheet date to € 870 million. The calculation of the allowances is based on various value- determining factors such as the risk classification of the cus- tomers, the definition of statistical default probabilities and assumptions regarding future cash flows, the determination of which includes to a high degree discretionary assessments and uncertainties. The risk for the financial statements is that the credit-worthi- ness of customers and future cash flows is misjudged or that the calculation of the risk provision parameter is incorrect so that allowances are not recognized or are insufficient. Our Audit Approach We obtained a comprehensive understanding of the develop- ment of the portfolios, the associated counterparty default risks and the processes for identifying, managing, monitoring and measuring credit risks by inspecting analyses and risk reports, and through interrogations and the review of guide- lines and working instructions. 82_Bestätigungsvermerk_E.indd 328 14.02.18 14:48 We audited the appropriateness and effectiveness of the inter- nal control system with regard to the risk classification pro- cess and the determination of the probability of defaults, the loss rates and the allowances. To this end, we also evaluated the relevant IT systems and internal procedures. In addition to the audit by our IT specialists of the propriety of the systems affected and related interfaces to ensure the completeness and correctness of the data, the audit also included the audit of automatic controls for data entry and data processing. The main focus of our audit was the evaluation of the methodi- cal approach in the determination of risk categories, default probabilities and loss rates that are derived from historical data. We obtained an understanding of this based on a risk-ori- ented selection of credit portfolios. We satisfied ourselves with regard to the appropriateness of significant risk parameters based on the results of a validation performed by Daimler Finan- cial Services and evaluated the adjustments of the parameters to the current market situation. In addition, we satisfied our- selves in conjunction with a conscious sample of audits of indi- vidual cases that the risk classification is correct and that the amount of the calculated specific allowance is appropriate. Our Observations The methodical approach, the procedures and processes to calculate the allowance and the assumptions and risk parame- ters flowing into the measurement are appropriate for the timely identification of credit risks and the establishment of adequate allowances. G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT 329 Measurement of the Provision for Product Warranties Please refer with regard to the accounting policies and methods applied to the notes to the consolidated financial statements Note 2 “Accounting estimates and management judgements”. Further information on the guarantees and product warranties can be found in the notes to the consolidated financial state- ments Note 23 “Provisions for other risks” and in the com- ments in the combined management report on “Company-spe- cific risks and opportunities – Warranty and goodwill cases”. The Financial Statement Risk The provision for product warranties amounts to € 6,654 million. Daimler faces various claims under product guarantees or grants various kinds of product warranties, which are entered into for the error-free functioning of a Daimler product sold or service rendered over a defined period of time. In order to confirm or reassess future guarantee, warranty and goodwill expenses, continuously updated information on the nature and volume and the remedying of faults that have occurred is recorded and analyzed at the level of the business unit, model series, damage key and sales year. Significant uncertainty for the calculation of the provision ari- ses with regard to the future loss event. The risk for the finan- cial statements is that the provision is not properly measured. Our Audit Approach Our audit procedures included among other things the evalua- tion of the process to calculate the provision for product warranties and the evaluation of the relevant assumptions and their derivation for the measurement of the provisions. These include primarily assumptions on expected susceptibility to and the course of damage, and in addition the value of the damage per vehicle based on the actual warranty, guarantee and goodwill losses. We assessed the accuracy of the forecasts of past warranty, guarantee and goodwill costs on the basis of historical analyses. Furthermore, we examined wether updated assessments of future repaid costs and procedures were taken into account. We obtained an understanding for the underlying quantities of vehicles through the actual unit sales. Our Observations The calculation methods and the assumptions made are ap- propriate. 82_Bestätigungsvermerk_E.indd 329 14.02.18 14:48 330 G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT Accounting Treatment of legal proceedings Please refer with regard to the accounting policies and methods applied to the notes to the consolidated financial statements Note 2 “Accounting estimates and management judgements”. Further information on the legal proceedings can be found in the notes to the consolidated financial statements Note 29 “Legal proceedings” and in the comments in the combined management report on “Risks from guarantees, legal and tax risks – legal risks”. The Financial Statement Risk Various legal proceedings, claims and governmental investiga- tions and inquiries (legal proceedings) are pending against Daimler on a wide range of topics, including for example vehicle safety, emissions, fuel economy, financial services, dealer, sup- plier and other contractual relationships, intellectual property rights, product warranties, environmental matters, antitrust matters (including actions for damages), criminal proceedings against employees and shareholder matters. Legal procee- dings relating to products deal with claims on account of alle- ged vehicle defects. Some of these claims are asserted by way of class action suits. If the outcome of such legal proceedings is detrimental to Daimler, the Group may be required to pay substantial compensatory and punitive damages or to under- take service actions, recall campaigns, monetary penalties or other costly actions and sanctions. Whether the recognition of a provision and, if so, in what amount it is necessary on account of legal proceedings is dependent to a high degree on estimates and assumptions by the legal representatives. In view of this and the monetary amounts involved with regard to the risks, the following legal pro- ceedings of Daimler are in our opinion of particular importance. a) Enquiries and investigations by the authorities on test results and the use of emission control systems Several state and federal authorities and institutions world- wide have made inquiries and / or performed investigations. The inquiries and investigations cover test results, the emis- sion control systems used in Mercedes-Benz diesel vehicles and Daimler’s interaction with the relevant state and federal authorities as well as related legal issues and implications, including, but not limited to, under applicable environmental, securities and criminal and antitrust laws. b) Class-action lawsuits NOX USA/Canada Since the beginning of 2016, several consumer class-action lawsuits have been filed against Mercedes-Benz USA, LLC in federal courts in the USA, which have been combined to form a single class-action lawsuit against Daimler AG and Mercedes-Benz USA, LLC, and against Daimler AG and further group companies in Canada. The main allegation is the use of devices that impermissibly impair the effectiveness of emis- sion control systems in reducing nitrogen-oxide (NOX) emissi- ons and which cause excessive emissions from vehicles with diesel engines, and the deliberate misleading of customers in connection with advertising for Mercedes-Benz diesel vehicles. c) Antitrust and subsequent proceedings Following the imposition of a fine by the European Commis- sion against Daimler and other truck manufacturers in July 2016, truck customers have raised damage claims against Daimler. Since July 25, 2017 several class-action lawsuits have been filed in the USA and in Canada against Daimler AG and other automobile manufacturers and several of their North Ameri- can subsidiaries. The plaintiffs claim to have suffered losses because the defendants have engaged since the nineteen nineties in anticompetitive behaviour with regard to motor vehicle technology, costs, suppliers, markets and other anti- competitive matters, including diesel exhaust cleansing tech- nology. In the meantime all pending US class actions have been centralized in one proceeding. Daimler AG already filed an application for immunity (“leniency application”) some time ago with the European Commission in this connection. d) Toll Collect The arbitration proceedings initiated in 2004 by the Federal Republic of Germany in connection with the establishment and operation of a toll system were filed among others against Daimler Financial Services AG and its Toll Collect GbR invest- ment. In the course of these arbitration proceedings, damages due to lost toll revenue and contractual penalties due to violat- ions of the contracts have been claimed. The recognition and measurement of the provisions set up for the legal proceedings are based on discretionary assessments by the legal representatives. The risk for the financial statements is that provisions for legal proceedings are not set up or are inadequate. Our Audit Approach Our audit procedures comprised on the one hand an evaluation of the process established by Daimler to ensure the recording, the estimation of the outcome of the proceedings and the reflec- tion in the balance sheet of the legal proceedings. On the other hand, we held discussions with the internal legal department and with further departments familiar with the matters under dispute and Daimler’s external advisors and attorneys, in order to obtain explanations on the developments and the reasons that had led to the respective estimations. Above that we have reviewed the underlying documents and minutes. We were pro- vided by Daimler with the estimation of the legal representati- ves in the aforementioned areas in writing. External attorneys’ letters, which support the assessment of the risks by the legal representatives, were obtained at the balance sheet date. Finally, we evaluated the appropriateness of the description in the notes to the consolidated financial statements of the aforementioned legal proceedings. 82_Bestätigungsvermerk_E.indd 330 14.02.18 14:48 Our Observations The assumptions are appropriate. Other Information Management is responsible for the other information. The other information comprises: – the non-financial statement and the corporate governance statement, and – the remaining parts of the annual report, with the exception of the audited consolidated financial statements and combined management report and our auditor’s report. Our opinions on the consolidated financial statements and on the combined management report do not cover the other infor- mation, and consequently we do not express an opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information – is materially inconsistent with the consolidated financial statements, with the combined management report or our knowledge obtained in the audit, or – otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. As instructed, we have performed a separate business man- agement review of the separate non-financial statement. Ple- ase refer with regard to the nature, scope and results of this business management review to our audit opinion dated Februrary 9, 2018. Responsibilities of Management and the Supervisory Board for the Consolidated Financial Statements and the Combined Management Report Management is responsible for the preparation of the consoli- dated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional require- ments of German commercial law pursuant to Section 315e (1) HGB and that the consolidated financial statements, in compli- ance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, management is responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT 331 In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no reali- stic alternative but to do so. Furthermore, management is responsible for the preparation of the combined management report that, as a whole, provides an appropriate view of the Group`s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have consid- ered necessary to enable the preparation of a combined man- agement report that is in accordance with the applicable Ger- man legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the combined management report. The supervisory board is responsible for overseeing the Group`s financial reporting process for the preparation of the consolida- ted financial statements and of the combined management report. Auditor‘s Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report Our objectives are to obtain reasonable assurance about whe- ther the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appropriate view of the Group´s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropria- tely presents the opportunities and risks of future develop- ment, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the combined management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Sec- tion 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschafts- prüfer (IDW) and supplementary compliance with the ISAs will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, indivi- dually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this com- bined management report. 82_Bestätigungsvermerk_E.indd 331 14.02.18 14:48 332 G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT We exercise professional judgment and maintain professional skepticism throughout the audit. We also: – Identify and assess the risks of material misstatements of the consolidated financial statements and the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, for- gery, intentional omissions, misrepresentations, or the over- ride of internal control. – Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the combined management report in order to de- sign audit procedures that are appropriate in the circum- stances, but not for the purpose of expressing an opinion on the effectiveness of these systems. – Evaluate the appropriateness of accounting policies used by management and the reasonableness of estimates made by management and related disclosures. – Conclude on the appropriateness of management´s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signif- icant doubt on the Group`s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial state- ments and in the combined management report or, if such disclosures are inadequate, to modify our respective opini- ons. Our conclusions are based on the audit evidence obtai- ned up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. – Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclo- sures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB. – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely respon- sible for our opinions. – Evaluate the consistency of the combined management report with the consolidated financial statements, its con- formity with (German) law, and the view of the Group’s position it provides. – Perform audit procedures on the prospective information presented by management in the combined management report. On the basis of sufficient appropriate audit evi- dence, we evaluate, in particular, the significant assump- tions used by management as a basis for the prospective information, and evaluate the proper derivation of the pros- pective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substan- tial unavoidable risk that future events will differ materially from the prospective information. We communicate with those charged with governance regard- ing, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant defi- ciencies in internal control that we identify during our audit. We also provide those charged with governance with a state- ment that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial state- ments of the current period and are therefore the key audit matters. We describe these matters in our auditor‘s report unless law or regulation precludes public disclosure about the matter. 82_Bestätigungsvermerk_E.indd 332 14.02.18 14:48 G | FURTHER INFORMATION | INDEPENDENT AUDITOR’S REPORT 333 Other Legal and Regulatory Requirements Further Information pursuant to Article 10 of the EU Audit Regulation We were elected as group auditor by the annual general mee- ting on March 29, 2017. We were engaged by the supervisory board on April 25, 2017. We have been the group auditor of the Daimler AG without interruption since the financial year 1998. We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the audit commit- tee pursuant to Article 11 of the EU Audit Regulation (long- form audit report). German Public Auditor Responsible for the Engagement The German Public Auditor responsible for the engagement is Dr. Axel Thümler. Stuttgart, February 9, 2018 KPMG AG Wirtschaftsprüfungsgesellschaft Becker Wirtschaftsprüfer Dr. Thümler Wirtschaftsprüfer 82_Bestätigungsvermerk_E.indd 333 14.02.18 14:48 334 G | FURTHER INFORMATION | TEN YEAR SUMMARY Ten Year Summary G.01 € amounts in millions From the statements of income Revenue Personnel expenses 1 Research and development expenditure 2 thereof capitalized EBIT 1 Operating margin (%) 1 Proﬁt (loss) before income taxes 1 Net operating proﬁt (loss) 1 as % of net assets (RONA) 1, 3 Net proﬁt (loss) 1 Net proﬁt (loss) per share (€) 1 Diluted net proﬁt (loss) per share (€) 1 Total dividend Dividend per share (€) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 98,469 78,924 97,761 106,540 114,297 117,982 129,872 149,467 153,261 164,330 15,066 13,928 16,454 17,424 18,002 18,753 19,607 20,949 21,141 22,186 4,442 1,387 4,181 1,285 2,730 -1,513 2.8 2,795 1,370 4.4 -1.9 -2,298 -2,102 -6.6 1,414 -2,644 1.41 1.40 556 0.60 -2.63 -2.63 0 0.00 4,849 1,373 7,274 7.4 6,628 5,120 17.5 4,674 4.28 4.28 1,971 1.85 5,634 1,460 8,755 8.2 8,449 6,240 19.9 6,029 5.32 5.31 2,346 2.20 5,644 1,465 5,489 1,284 5,680 1,148 6,564 1,804 7,572 2,315 8,711 2,773 8,820 10,815 10,752 13,186 12,902 14,682 7.7 8,116 7,302 19.6 6,830 6.02 6.02 2,349 2.20 9.2 8.3 8.8 8.4 8.9 10,139 10,173 12,744 12,574 14,301 9,173 22.6 8,720 6.40 6.40 2,407 2.25 7,678 18.8 7,290 6.51 6.51 2,621 2.45 9,007 20.1 8,711 7.87 7.87 3,477 3.25 9,007 11,127 19.1 22.9 8,784 10,864 7.97 7.97 3,477 3.25 9.84 9.84 3,905 3.65 From the statements of ﬁnancial position Property, plant and equipment 16,087 15,965 17,593 19,180 20,599 21,779 23,182 24,322 26,381 27,981 Leased equipment Other non-current assets 1 Inventories Liquid assets Other current assets Total assets 1 Shareholders’ equity 1 thereof share capital Equity ratio Group (%) 1 Equity ratio industrial business (%) 1 Non-current liabilities 1 Current liabilities 1 Net liquidity industrial business Net assets (average) 1, 3 18,672 18,532 19,925 22,811 26,058 28,160 33,050 38,942 46,942 47,714 42,077 40,044 41,309 45,023 48,947 48,138 56,258 62,055 67,613 73,175 16,805 12,845 14,544 17,081 17,720 17,349 20,864 23,760 25,384 25,686 6,912 9,800 10,903 9,576 10,996 11,053 9,667 9,936 10,981 12,072 31,672 31,635 31,556 34,461 38,742 42,039 46,614 58,151 65,687 68,977 132,225 128,821 135,830 148,132 163,062 168,518 189,635 217,166 242,988 255,605 32,730 31,827 37,953 41,337 39,330 43,363 44,584 54,624 59,133 65,314 2,768 3,045 3,058 3,060 3,063 3,069 3,070 3,070 3,070 3,070 24.3 42.7 24.7 42.6 26.5 45.8 26.3 46.4 22.7 39.8 24.3 43.4 22.1 40.8 23.6 44.2 22.9 44.7 24.0 46.4 47,313 49,456 44,738 51,940 65,016 66,047 78,077 85,461 99,398 103,186 52,182 47,538 53,139 54,855 58,716 59,108 66,974 77,081 84,457 87,105 3,106 7,285 11,938 11,981 11,508 13,834 16,953 18,580 19,737 16,597 31,466 31,778 29,338 31,426 37,521 40,648 40,779 44,796 47,054 48,514 G | FURTHER INFORMATION | TEN YEAR SUMMARY 335 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3,559 3,023 2,423 3,264 3,653 3,364 4,158 3,575 4,827 4,067 4,975 4,368 4,844 4,999 5,075 5,384 5,889 5,478 6,744 5,676 -786 10,961 8,544 -696 -4,812 -2,915 -3,915 -8,950 1,057 2,706 -313 -6,537 -7,551 5,432 5,842 11,506 989 1,452 -1,100 -8,864 3,285 -6,829 3,855 4,842 -1,274 -2,709 2,274 5,479 222 3,711 -9,722 -14,666 -1,652 -9,518 9,631 3,960 12,009 13,129 3,874 2,005 26.70 37.23 50.73 33.92 41.32 62.90 68.97 77.58 70.72 70.80 € amounts in millions From the statements of cash ﬂows Investments in property, plant and equipment Depreciation and amortization Cash provided by (used for) operating activities investing activities ﬁnancing activities Free cash ﬂow of the industrial business From the stock exchanges Share price at year-end (€) Average shares outstanding (in millions) 957.7 1,003.8 1,050.8 1,066.0 1,066.8 1,068.8 1,069.8 1,069.8 1,069.8 1,069.8 Average diluted shares outstanding (in millions) 959.9 1,003.8 1,051.5 1,067.1 1,067.1 1,069.1 1,069.8 1,069.8 1,069.8 1,069.8 Ratings Credit rating, long-term Standard & Poor’s Moody’s Fitch DBRS Scope A- A3 A- BBB+ BBB+ BBB+ A3 A3 BBB+ BBB+ A3 A- A- A3 A- A- A3 A- A- A3 A- A- A3 A- A A3 A- A (low) A (low) A (low) A (low) A (low) A (low) A (low) A (low) A (low) – – – – – – – – – A A2 A- A A Average annual number of employees 274,330 258,628 258,120 267,274 274,605 275,384 279,857 284,562 284,957 289,530 1 For the year 2012, the ﬁgures have been adjusted, primarily for eﬀects arising from application of the amended version of IAS 19. 2 For the year 2013, the ﬁgure has been adjusted due to reclassiﬁcations within functional costs. 3 In the context of ﬁne tuning the performance measurement system, the deﬁnition of net assets was adjusted with retroactive eﬀect as of 2015. 336 G | FURTHER INFORMATION | GLOSSARY Glossary BRIC This abbreviation stands for the four countries of Brazil, Russia, India and China. Equity method Accounting and valuation method for share holdings in associated companies and joint ventures. CASE Four strategic ﬁelds for the future of mobility: connectivity (Connected), autonomous driving (Autonomous), ﬂexible use and services (Shared & Services), and electric drive systems (Electric). Compliance By the term compliance, we understand adherence to all laws, rules, regulations and voluntary com mitments, as well as the related internal guidelines and policies in connection with all activities of the Daimler Group. Consolidated Group The consolidated Group is the total of all those companies that are included in the consolidated ﬁnancial statements. Corporate governance The term corporate governance applies to the proper manage- ment and supervision of a company. The structure of corporate governance at Daimler AG is determined by Germany’s Stock Corporation Act (AktG), Codetermination Act (MitbestG) and capital-market legislation. Cost of capital The cost of capital is the product of the average amount of capital employed and the cost-of-capital rate. The cost-of- capital rate is derived from the investors’ required rate of return. E page 94 CSR – corporate social responsibility A collective term for the social responsibility assumed by companies, including economic, environmental and social aspects. EBIT Earnings before interest and taxes are the measure of operating proﬁt before taxes. E pages 101 ﬀ EU30 The region EU30 includes the 28 member states of the European Union plus Norway and Switzerland. Fair value The amount for which an asset or liability could be exchanged in an arm’s length transaction between knowledgeable and willing parties who are independent of each other. Goodwill Goodwill represents the excess of the cost of an acquired business over the fair values assigned to the separately identiﬁable assets acquired and liabilities assumed. Hybrid drive Hybrid drive systems combine internal-combustion engines with electric motors, which can be operated separately or together depending on the type of vehicle and driving situation. IFRS – International Financial Reporting Standards The IFRS are a set of standards and interpretations for compa- nies’ external accounting and ﬁnancial reporting developed by an independent private-sector committee, the International Accounting Standards Board (IASB). Integrity Code The “Integrity Code” has been in eﬀect since November 2012. It deﬁnes the principles of behavior and guidelines for everyday conduct that are applicable at Daimler. Fairness, responsibility and compliance with legislation are key principles in this context. INTELLIGENT DRIVE With this new technology from Mercedes-Benz, thanks to improved environment sensors, intelligent assistance systems analyze complex situations and recognize potential dangers in road traﬃc even better. Lithium-ion batteries They are at the heart of future electric drive systems. Compared with conventional batteries, lithium-ion batteries are considerably smaller and feature signiﬁcantly higher power density, short charging times and long lives. G | FURTHER INFORMATION | INDEX 337 Index NEDC – New European Driving Cycle A measuring method used in Europe for the objective assessment of vehicles’ fuel consumption. Net assets Net assets represent the capital employed by the Group and the industrial divisions. The relevant capital basis for Daimler Financial Services is equity capital. E page 106 Rating An assessment of a company’s creditworthiness issued by a rating agency. RDE Since September 2017, emissions of particulate matter, nitro- gen oxides and other pollutants have had to be measured using mobile equipment and the Real Driving Emissions (RDE) test. E page 219 ROE – return on equity The proﬁtability of Daimler Financial Services is measured by return on equity. ROE is deﬁned as the quotient of EBIT and shareholders’ equity. ROS – return on sales The proﬁtability of the industrial divisions is measured by return on sales. ROS is deﬁned as the quotient of EBIT and revenue. Value added Value added indicates the extent to which operating proﬁt exceeds the cost of capital. When value added is positive, return on net assets is higher than the cost of capital. E pages 105 f Value at risk This measures the potential future loss (related to market value) for a given portfolio in a certain period and for which there is a certain probability that it will not be exceeded. Annual Shareholders’ Meeting Bonds Capital expenditure CASE Cash ﬂows CO2 reductions Connectivity Compliance Consolidated Group Corporate governance Digitization Dividend Earnings per share (EPS) EBIT Electric mobility Financial income Income taxes Independent auditor’s report Innovations Integrity Integrity Code Investor Relations Mobility services Net assets Net proﬁt Pension obligations Portfolio changes Production Proﬁtability Ratings Remuneration system Revenue ROE – return on equity ROS – return on sales Segment reporting Shareholders’ equity Shares Strategy Sustainability Unit sales Value added Workforce 80 81, 112 f 111 ﬀ, 174 24 ﬀ, 84 ﬀ 109 ﬀ, 135, 173, 241 218 ﬀ 24 ﬀ 132 ﬀ, 229 ﬀ 246 f 64 ﬀ, 198 ﬀ 24 ﬀ, 84 79, 105 78 ﬀ, 309 101 ﬀ 24 ﬀ, 123 ﬀ 104, 260 104, 261 ﬀ 329 ﬀ 24 ﬀ, 82 ﬀ 132 ﬀ, 229 ﬀ 132 81 35 ﬀ, 196 f 106 104, 238 107, 276 ﬀ 92 f 90 ﬀ 101 ﬀ, 238 f 114 136 ﬀ 100, 258 102 94, 134, 178, 184,189, 192 305 ﬀ 115 ﬀ, 242 78 ﬀ, 152 f 82 ﬀ 121 ﬀ, 214 ﬀ 97 ﬀ, 178, 184, 189, 192 93 f, 105 f 129 ﬀ, 227 ﬀ 338 G | FURTHER INFORMATION | DAIMLER WORLDWIDE Daimler Worldwide G.02 Europe Production locations Sales outlets Revenue (in millions of euros) Employees NAFTA Production locations Sales outlets Revenue (in millions of euros) Employees Latin America (excluding Mexico) Production locations Sales outlets Revenue (in millions of euros) Employees Africa Production locations Sales outlets Revenue (in millions of euros) Employees Asia Production locations Sales outlets Revenue (in millions of euros) Employees Australia/Oceania Production locations Sales outlets Revenue (in millions of euros) Employees Mercedes-Benz Cars Daimler Trucks Mercedes-Benz Vans Daimler Buses Sales Organization Automotive Businesses Daimler Financial Services 14 – 40,426 124,565 1 – 20,226 9,383 2 – 1,037 837 1 – 1,413 3,780 2 – 29,673 3,768 – – 1,901 333 7 – 11,226 35,808 14 – 14,822 21,507 2 – 1,699 7,866 – – 936 498 3 – 6,351 13,601 – – 673 203 3 – 9,798 22,231 1 – 1,522 713 1 – 521 2,023 – – 229 142 – – 839 62 – – 255 84 7 – 3,081 15,774 1 – 280 490 3 – 734 1,474 1 – 58 74 2 – 159 449 – – 49 31 – 3,940 – – – 1,516 – – – 688 – – – 380 – – – 2,409 – – – 253 – – – 54 10,592 8,549 – 4 10,438 1,922 – 2 290 335 – 1 381 165 – 9 1,774 1,819 – 2 288 222 Notes: Unconsolidated revenue of each division (segment revenue). Internet, Information, Financial Calendar Information on the Internet Special information on our shares and earnings development can be found in the “Investor Relations” section of our website. w daimler.com It includes the Group’s annual and interim reports and the company financial statements of Daimler AG. You can also find topical reports, presentations, an overview of various key figures, information on our share price and other services. w daimler.com/investors Publications for our shareholders: Annual Report (German, English) Interim Reports for the 1st, 2nd and 3rd quarters (German, English) Responsibility – Focus Sustainability 2017 (German, English) Daimler Corporate Brochure (German, English) w daimler.com/ir/reports daimler.com/downloads/en The aforementioned publications can be requested from: Daimler AG, Investor Relations, HPC 0324 70546 Stuttgart, Germany Phone +49 711 17 92262 Fax +49 711 17 92287 order.print@daimler.com Financial Calendar 2018 Annual Shareholders’ Meeting 2018 April 5, 2018 Interim Report Q1 2018 April 27, 2018 Interim Report Q2 2018 July 26, 2018 Interim Report Q3 2018 October 25, 2018 As changes to the above dates cannot be ruled out, it is advisable to check on our website a short time in advance. w daimler.com/ir/calendar Picture credit page 44/45: O&O Baukunst/Finest Images page 53: Jürgen Engel Architekten GmbH, Frankfurt pages 54/55: Concept and mobility vision: Daimler AG, Future Innovation. Realization by xoio GmbH on behalf of Daimler AG Daimler AG 70546 Stuttgart Phone +49 711 17 0 Fax +49 711 17 22244 www.daimler.com Investor Relations Phone +49 711 17 95277 +49 711 17 92261 +49 711 17 95256 Fax +49 711 17 94075 ir.dai@daimler.com The paper used for this Annual Report was produced from cellulose sourced from certified forestry companies that operate responsibly and comply with the regulations of the Forest Stewardship Council. Daimler AG Mercedesstraße 137 70327 Stuttgart Germany www.daimler.com

Continue reading text version or see original annual report in PDF format above