Annual Report 2017

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 competitiveness, 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 Supervisory 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 committees 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 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 Management 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 example 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. Subsequently, it dealt with the annual company financial statements, 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 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-Stiftung 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 Supervisory Board who are not subject to any of the described transfer 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 pertaining 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 independent 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 Supervisory 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 Sindel­fingen 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 discussed and it was explained with the use of examples where Daimler currently stands in these areas. Information was provided 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 con­structive and open dialog about how Daimler will adapt to new challenges and which further developments are imminent. The topic of the changing competitive 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 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.

At an extraordinary meeting held in mid-October 2017, the Supervisory 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 implementation 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. 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. Furthermore, 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 in the Overall requirements for the composition of the Board of Management and Supervisory Board 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.

Corporate Governance and declaration of compliance

During the year 2017, the Supervisory Board was continually occupied with standards of good corporate governance.

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 discussions of certain items of the agendas in the year 2017: Dr. Bernd Bohr, Dr. Jürgen Hambrecht and Dr. Bernd Pischetsrieder left the room during the Supervisory Board meetings for discussion 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 shareholders’ 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 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 Supervisory 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 in the Declaration on Corporate Governance and in the Remuneration Report 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 in the Report of the Audit Committee.

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 Supervisory 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 January 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 Supervisory 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.

In the meeting in December 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 Sari Baldauf, Dr. Jürgen Hambrecht and Marie Wieck at the Annual Shareholders’ 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, Wirtschaftsprüfungsgesellschaft, Berlin, and were given an unqualified audit opinion. The same applies to the consolidated financial statements for 2017 prepared 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 preliminary 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 management 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 Committee 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 combined 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 Management 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 combined management report, as well as drafts of the reports of the Supervisory Board and of the Audit Committee.

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 corporate 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

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