Annual Report 2017

Chairman's Letter

Stuttgart, February 2018

Dear Shareholders

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 forward 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.

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 initiated, 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 includes 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 transportation companies. And we plan to further strengthen this leading position.

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 transformation 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.

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 elements 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 unchanged: Daimler belongs at the top. 132 years after the invention of the automobile, 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,

Unterschrift Zetsche

Dieter Zetsche

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