Report of the Supervisory Board

Ladies and Gentlemen,

Fiscal year 2016/17 was an extremely successful one for ZEISS. With technological innovations and bold investments, ZEISS has impressively expanded leading market positions and simultaneously strengthened its competitiveness.

In the past fiscal year the Supervisory Board oversaw and advised the Executive Board in accordance with the duties entrusted to supervisory boards by law, the articles of association and rules of internal procedure. The Executive Board provided us with written and verbal information about the business situation and development, the current earnings situation, the risk situation, risk management, short-term and long-term planning, investments and organizational measures. I was in close contact with the Executive Board and received regular information about the development of the business situation and important business transactions. The Supervisory Board was involved in all important decisions and passed the resolutions required by law, the articles of association and rules of internal procedure. Our decisions were based on the reports and decisions proposed by the Executive Board, which we subjected to in-depth scrutiny. The Executive Board and the Supervisory Board once again collaborated very constructively this fiscal year, therefore securing the ongoing growth trajectory of ZEISS.

Subjects of the Supervisory Board meetings
The Supervisory Board convened on six occasions during fiscal year 2016/17. We scrutinized the company's long-term strategic development which is encompassed by the ZEISS Agenda 2020. The Supervisory Board shares the assessment of the Executive Board that megatrends such as digitalization, the aging society and mobility are having a major impact on all ZEISS businesses and attaches the highest importance to them as growth levers for our overall business.

During the consultations, approval was also granted to the site strategy through 2023 that defines the strategic investments at the international sites within the framework of the ZEISS Agenda 2020. Acquisitions and investments were further important subjects addressed by the Supervisory Board. In an extraordinary meeting held at the beginning of the fiscal year consent was given to the signing of the agreement with the Dutch company ASML. ASML's 24.9 percent stake in SMT at a purchase price of one billion euros had already been approved in principle during the prior year. The Supervisory Board firmly believes that this transaction is essential for the ongoing development of the next generation of EUV lithography and that it will also secure future growth for ZEISS in the Semiconductor Manufacturing Technology segment. A majority stake in the Russian distribution partner Optec was also approved.

In November 2016 the application for the consensual termination of Dr. Hermann Gerlinger's ongoing appointment as a Member of the Executive Board for personal reasons was approved, effective 31 December 2016. The Supervisory Board is extremely grateful to Mr. Gerlinger for his long and untiring commitment to the company. Consultations concerning the future management structure, successor planning and the reallocation of business responsibilities within the Executive Board were ongoing. The renewal of the appointment of the President and Chief Executive Officer until 30 June 2020 ensures continuity. The renewal of the appointment to the Executive Board of Dr. Ludwin Monz until 30 September 2022 and that of Dr. Matthias Metz until 30 June 2023 reflect the recognition of their achievements by the Supervisory Board and underscore the continuity of our successful collaboration with the Executive Board. This continuity will be further pursued with the resolution passed on target parameters for the Supervisory Board and Executive Board in conjunction with the law in Germany governing the equal participation of women and men in leading positions by 30 June 2022.

Work of the Supervisory Board committees
The Audit Committee met three times as scheduled. It evaluated the efficacy of risk management and discussed subjects such as compliance, internal auditing, the internal control system, accounting and the key issues of the annual audit and the annual financial statements. The Chairman's Committee convened five times. The subjects addressed by the meetings included consultations concerning the resolution for Dr. Hermann Gerlinger's exit and the associated contractual provisions. In the Supervisory Board meetings the Chairmen of the Audit and Chairman's Committees reported regularly about the work of the committees. The Mediation Committee did not convene during the reporting year.

Changes to the Supervisory Board
No changes were made to the composition of the Supervisory Board in fiscal year 2016/17. With my reelection as a Member of the Supervisory Board until 31 December 2021, my own office was confrimed by the Annual General Meeting, followed by my election as its Chairman by the Supervisory Board.

Audit of the annual and consolidated financial statements
The auditing firm Ernst & Young GmbH, Stuttgart, audited the consolidated financial statements of Carl Zeiss AG, including the Management Report, for fiscal year 2016/17 prepared pursuant to Sec. 315a (3) of the German Commercial Code (HGB) in accordance with International Financial Reporting Standards (IFRS) and issued an unqualified auditor's report in each case. Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, also audited the dependent company report prepared by the Executive Board.

All members of the Supervisory Board received the independent auditor's documents and audit reports in good time. We closely examined the documents and discussed them in detail at the meeting of the Audit Committee on 11 December 2017 and at the Supervisory Board meeting held on 12 December 2017. The independent auditor attended both meetings, presented the major results of the audit, provided supplementary information and answered questions. The Chairman of the Audit Committee reported in the plenary assembly about the result of the examination of the consolidated financial statements by the Audit Committee. After examining the documents, the Supervisory Board endorsed the results obtained by the auditor and approved the financial statements prepared by the Executive Board. The Carl Zeiss AG financial statements were thereby adopted, effective 30 September 2017. Pursuant to Sec. 312 German Stock Corporation Act (AktG), the Executive Board has prepared the abovementioned dependent company report for the period from 1 October 2016 to 30 September 2017.

The independent auditors issued the following opinion on the findings of their audit: "Based on our audit, which was carried out in accordance with professional standards, we confirm that

  1. the actual disclosures contained in the report are correct and
  2. the payments made by the Company in the legal transactions listed in the report were not unreasonably high.”

The Supervisory Board agreed with the results of the audit presented by the independent auditors. Following the final result of the review by the Supervisory Board, there were no objections to the Executive Board’s concluding statement in the dependent company report. The Executive Board's proposal to pay a dividend of 48.85 million euros from net income to the sole stockholder, the Carl Zeiss Foundation, was approved.

On behalf of the Supervisory Board I would like to thank the members of the Executive Board and all employees of ZEISS for their outstanding efforts that made the successful 2016/17 fiscal year possible.

Oberkochen, December 2017

On behalf of the Supervisory Board

Prof. Dr. Dieter Kurz
Chairman of the Supervisory Board

Prof. Dr. Dieter Kurz
Prof. Dr. Dieter Kurz