Annual Report 2017

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 B.59.

B.59 Company-specific risks and opportunities

Risk category Probability of occurrence Impact Opportunity category Impact
         
Production and technology risks Low High Production and technology opportunities
Information technology risks Low Medium Information technology opportunities
Personnel risks Low Low Personnel opportunities
Risks related to equity interests and joint ventures Low Medium Opportunities related to equity interests and joint ventures Low

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 customers, 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 mobility. Innovations and technology opportunities for the progressive 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 continually 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, expansion, 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 product’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 consider dependencies between contractual and cooperation partners, 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 quality 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 increasing 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 problems 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 initiated 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 production 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 benefits and enterprise value. However, it also includes risks from the increasing IT dependency of products and business and production processes. In addition, specific risks exist due to the use and availability of new technologies in connection with digitization, 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 information. 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.

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 example, 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 technical 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 ensuring 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 ventures 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 associated 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 targets 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 increasing, 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.

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