Annual Report 2016

Company-specific risks and opportunities

The following section is responsive to the company-specific risks and opportunities of the Daimler Group. A quantification of these risks and opportunities is shown in table  B.60.

B.60 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 Medium Personnel opportunities
Risks related to equity interests and joint ventures Low Low 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 promote accident-free driving or further improve the product’s fuel consumption and emissions e.g. diesel-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 growing technical complexity, continually rising requirements in terms of emissions, fuel consumption and safety, as well as meeting and steadily raising the Daimler Group’s quality standards, product launching 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 safeguard and enhance the long-term future-orientation of production facilities, modernization, expansion, construction and restructuring measures are carried out. The execution of modernization activities and the launch of new products are generally connected with high investments. Guidelines 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 level. In order to achieve a very high level of quality, which is one of the main decision attributes of customers for the products of the Daimler Group, it is necessary to make investments in new products and technologies that sometimes exceed the actually planned scope. Such a cost overrun would then reduce the anticipated earnings from the launch of a new model series or product generation. Those automotive segments are affected which are currently launching a new product or are planning a related production buildup. In this context, it is also necessary to consider dependencies between contractual partners and 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 a production plant 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, alternative production structures are build up for the production plants that might be at risk.

Insufficient availability of vehicle components at the right time, interruptions in the supply chain as well as possible interruptions in the supply by energy providers can lead to bottlenecks. In order to avoid such bottleneck situations, priority is given to a balanced capacity planning. In addition, supply chains and the availability and quality of products are continuously monitored within the context of managing the entire value chain. All segments undertake supplier management for the prevention of risks. With regard to energy supply, necessary precautionary measures are taken and alternative supply lines are builded up.

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 can not be provided in the required form in connection with product problems and product care. Such claims are examined and, if applicable, necessary measures are taken on 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 risk of needing correction measures on end products and to supply customers with the best possible products. Furthermore, processes are implemented at the Daimler Group to regularly obtain customers’ opinions on the support provided to improve service and customer satisfaction continuously. Quality problems with suppliers’ components fitted to vehicles can result in production and technology risks for the Daimler Group. This includes risks in connection with industry-wide problems with Takata airbags.

The possible impact of production and technology risks is assessed as “high”, as in the previous year. However, due to the industry-wide problems with Takata airbags, the risks have increased significantly.

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 includes risks from the increasing dependency of products and business processes from IT. In addition, specific risks exist due to the use and avail­ability of new technologies in connection with digitization, which for example can affect the products, their use, or the operational business.

It is essential for a global company like Daimler that information is currently maintained and exchanged, comprehensively and correctly. Appropriately secure IT systems and a reliable IT infrastructure must be used to protect information. 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 are therefore identified and evaluated over the entire life cycle of applications and IT systems.

In order to fulfill the growing requirements on the confidentiality, integrity and availability of data, so that related risks are avoided and possible damage is limited, Daimler has defined various preventive and corrective measures. These measures are continually adapted to changing circumstances. For example, the Group minimizes potential interruptions of operating processes in data centers by measures like mirrored data sets, decentralized data storage, outsourced data backups and IT systems designed for high availability. To ensure operating capability, emergency plans are developed, employees are trained and further technical and organizational precautions are taken. Specific threats are analyzed and countermeasures are coordinated at a central cyber security center. The protection of our products and services from danger caused by hacking and cybercrime is developed in line with the threat situation.

Despite all precautionary measures disturbances in information processing and therefore negative impacts on the business processes cannot be completely ruled out. The possible impact and probability of occurrence of IT risks remain unchanged compared to the previous year.

Personnel risks and opportunities

Daimler’s success 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 contribute considerably every day to improvements and innovations.

To support this process, the Daimler Group has established an ideas management system through which employees can submit ideas and suggestions for improvements. The target-oriented processing of the incoming information in the employee suggestion system and the integration of ideas in an assessment process carried out by experts and persons in charge of the respective processes is supported by an established IT system. This is intended to ensure the systematic and sustained encouragement of employees’ ideas and suggestions for improvement.

Furthermore, workgroups create processes and instruments to produce new business ideas and to establish inter-departmental cooperation. In this context, an online community exists in the area of business innovation to which suggestions for discussions can be submitted, which all employees can assess and develop further.

Competition for highly qualified staff and management is still very intense in the industry and the regions in which Daimler operates. The future success of the Daimler Group also depends on the magnitude to which we 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 the transparency created by a uniform worldwide performance and potential management system. 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. We address this issue by taking appropriate measures in the area of generation management. If this risk occures, depending on the size of the personnel shortage, an impact is to be expected on the Group’s activities and thus also on the earnings of the Daimler Group. Risks in the context of collective bargaining negotiations currently exist only to a limited extent.

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 region. Personnel risks overall have decreased compared with the previous year with regard to both their possible impact and probability of occurrence.

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 us exploit synergies and improve cost structures and thus enable us to successfully respond to the competitive situation in the automotive industry. Through investments in start-ups, Daimler promotes innovative approaches in many areas of the Group.

Daimler generally bears a proportionate share of the risks and opportunities from associated companies, joint ventures and joint operations. Possible risks from negative financial developments or from delays in setting up development and production structures, which can negatively impact the achievement of targets in the affected segments, are considered in separate categories.

In addition, risks and opportunities could 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 can also cause higher income or cash inflows in excess of the targets set. Such risks are also generally connected with start-ups whose further development is not yet forseeable. Risks from associated companies, joint ventures and joint operations 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, the probability of occurrence and the possible impact of risks in this category has decreased compared to the previous year from “medium” to “low.”

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