Results of Operations, Financial Position and Net Assets

The Volkswagen Group’s segment reporting in compliance with IFRS 8 comprises the four reportable segments Passenger Cars, Commercial Vehicles, Power Engineering and Financial Services, in line with the Group’s internal reporting and management.

At Volkswagen, segment profit or loss is measured on the basis of operating profit or loss.

The reconciliation contains activities and other operations that do not by definition constitute segments. These include the unallocated Group financing activities. Consolidation adjustments between the segments (including the holding company functions) are also contained in the reconciliation. Purchase price allocation for Porsche Holding Salzburg and Porsche, as well as for Scania and MAN, is in line with their accounting treatment in the segments.

The Automotive Division comprises the Passenger Cars, Commercial Vehicles and Power Engineering segments, as well as the figures from the reconciliation. The Passenger Cars segment and the reconciliation are combined to form the Passenger Cars Business Area. We report on the Commercial Vehicles and Power Engineering segments under the Commercial Vehicles/Power Engineering Business Area. The Financial Services Division corresponds to the Financial Services segment.

Activities in the Passenger Cars segment cover the development of vehicles and engines, the production and sale of passenger cars, and the genuine parts business. This segment combines the Volkswagen Group’s individual passenger car brands on a consolidated basis. It also includes the Ducati brand’s motorcycle business.

The Commercial Vehicles segment primarily comprises the development, production and sale of light commercial vehicles, trucks and buses from the Volkswagen Commercial Vehicles, Scania and MAN brands, the corresponding genuine parts business and related services.

The Power Engineering segment combines the large-bore diesel engines, turbomachinery, special gear units, propulsion components and testing systems businesses.

The activities of the Financial Services segment comprise dealer and customer financing, leasing, banking and insurance activities, fleet management and mobility offerings.

CHANGES TO THE REPORTING STRUCTURE AND AMENDMENTS TO IAS 19

Since January 1, 2013, we have combined the light commercial vehicles, trucks and buses, and power engineering businesses into a new Commercial Vehicles/Power Engineering Business Area.

IAS 19R changes the way employee benefits are accounted for. For the Volkswagen Group, this led to adjustments to bonus payments relating to partial retirement agreements in particular.

The corresponding prior-year figures in the income statement, the cash flow statement and the balance sheet have been adjusted.

CONTROL AND PROFIT AND LOSS TRANSFER AGREEMENT WITH MAN SE

Following its approval by the Annual General Meeting of MAN SE on June 6, 2013 and its entry in the commercial register on July 16, 2013, the control and profit and loss transfer agreement in accordance with section 291 of the Aktiengesetz (AktG – German Stock Corporation Act) between MAN SE, as the controlled company, and Truck & Bus GmbH, a wholly owned subsidiary of Volkswagen AG, as the controlling company, entered into force. The obligation to transfer profits is effective as of the fiscal year beginning on January 1, 2014; the obligation to absorb losses is effective for the first time as of fiscal year 2013. As a consequence of the approval by the Annual General Meeting of MAN SE of the control and profit and loss transfer agreement, a liability in the total amount of €3.1 billion (€80.89 per share) was recognized in the balance sheet for the obligation to acquire the shares held by the remaining free float shareholders of MAN; equity was reduced accordingly.

In July 2013, Truck & Bus GmbH was served with an application in accordance with section 1 no. 1 of the Spruchverfahrensgesetz (SpruchG – German Award Proceedings Act) for judicial review of the appropriateness of the cash settlement in accordance with section 305 of the Aktiengesetz (AktG – German Stock Corporation Act) and the cash compensation in accordance with section 304 of the AktG for the noncontrolling interest shareholders of MAN SE attributable to the control and profit and loss transfer agreement between MAN SE and Truck & Bus GmbH, which was entered in MAN SE’s commercial register on July 16, 2013. The expected present value of the minimum statutory interest rate was also recognized as a liability in the amount of €0.5 billion as a result of the opening of the award proceedings in connection with the control and profit and loss transfer agreement.

Results of operations of the Group

The Volkswagen Group generated sales revenue of €197.0 billion in 2013, 2.2% higher than in 2012. Although the slight decline in volumes – excluding the Chinese joint ventures – and in particular negative exchange rate effects depressed sales revenue year-on-year, these effects were more than offset by the initial full-year consolidation of Porsche and the good business performance by the Financial Services Division. The largest proportion of sales revenue, at 80.9% (80.4%), was recorded outside of Germany.

Gross profit was slightly up on the previous year, at €35.6 billion (€35.2 billion). Depreciation charges resulting from increased capital expenditures, higher research and development costs, negative mix effects as well as contingency reserves had a negative impact. The gross margin was virtually unchanged at 18.1% (18.2%).

The Volkswagen Group generated an operating profit of €11.7 billion in the fiscal year 2013, surpassing the record prior-year figure (€11.5 billion). Distribution and administrative expenses increased as a result of the initial full-year consolidation of Porsche. At €2.6 billion, other operating income exceeded the prior-year figure, mainly as a result of lower expenses related to exchange rate factors. The operating return on sales was 5.9% (6.0%).

At €12.4 billion, the Volkswagen Group’s profit before tax in 2013 was down on the prior-year period, when measurement effects in connection with the integration of Porsche (€12.3 billion) had a clearly positive impact on the financial result. The return on sales before tax declined from 13.2% to 6.3%. Profit after tax consequently declined by €12.7 billion to €9.1 billion. The tax rate rose to 26.4% (14.1%); the effects from the updated measurement of options relating to Porsche and the remeasurement of the existing shares held did not affect tax expense in the previous year.

SEGMENT REPORTING – SHARE OF SALES REVENUE BY MARKET 2013
in percent

Results of operations in the Automotive Division

The Automotive Division’s sales revenue rose slightly year-on-year to €175.0 billion (€172.8 billion). Declining volumes and negative exchange rate effects were more than offset mainly by the initial full-year consolidation of Porsche. As our Chinese joint ventures are accounted for using the equity method, the Group’s positive business growth in the Chinese passenger car market is mainly reflected in the Group’s sales revenue only by deliveries of vehicles and vehicle parts.

Gross profit in the Automotive Division was down slightly on the previous year at €30.5 billion (€30.7 billion). Negative effects from lower sales volumes, mix, deteriorations in exchange rates and higher depreciation charges as a result of increased capital expenditures, as well as higher research and development costs, particularly for new drive concepts, were not offset by positive effects from the consolidation of Porsche and improved product costs. Contingency reserves running into the hundreds of millions of euros in each case were also recognized in profit or loss in the areas of passenger cars and power engineering. Write-downs relating to purchase price allocations also had a negative impact, but to a lesser extent than in the previous year, as expected.

Distribution and administrative expenses increased by 3.7% and 10.2% year-on-year respectively. The ratio of both distribution and administrative expenses to sales revenue also increased. This increase was mainly attributable to the initial full-year inclusion of the companies consolidated in the previous year. Currency-related factors saw other operating income improve to €3.6 billion (€2.3 billion).

The Automotive Division generated an operating profit of €9.8 billion (€9.9 billion) in 2013. At 5.6%, the operating return on sales was on a level with the previous year (5.7%). The extremely positive business growth of our Chinese joint ventures is mainly reflected in the Group’s operating profit only by deliveries of vehicles and vehicle parts. The profit recorded by the joint venture companies is accounted for in the financial result using the equity method.

The financial result declined to €0.7 billion (€14.0 billion) in the reporting period. In the previous year, the financial result had been positively affected especially by the updating of the underlying assumptions used in the valuation models for measuring the put/call rights relating to Porsche Holding Stuttgart GmbH and the remeasurement at the contribution date of the shares in Porsche AG already held indirectly (€12.3 billion).

Following the opening of the award proceedings in connection with the control and profit and loss transfer agreement with MAN SE in July 2013, the expected present value of the minimum statutory interest rate was recognized in the other financial result (€0.5 billion). Derivative financial instruments had a negative effect. Income from the equity-accounted Chinese joint ventures included in the consolidated financial statements was up on the high prior-year figure.

The Passenger Cars Business Area generated sales revenue of €140.1 billion in 2013, which was up slightly on the previous year (€138.6 billion). At €25.9 billion, gross profit was on a level with the high prior-year figure (€25.9 billion). The decline in volumes (excluding the Chinese joint ventures), deteriorations in exchange rates and mix, higher depreciation charges as a result of increased capital expenditures, higher research and development costs, and the recognition of contingency reserves were negative factors. The initial full-year consolidation of Porsche in 2013, optimized product costs and lower write-downs relating to purchase price allocations had a positive effect. Operating profit in the Passenger Cars Business Area amounted to €9.0 billion, as in the previous year. The operating return on sales was 6.4% (6.5%).

The Commercial Vehicles/Power Engineering Business Area generated sales revenue of €34.9 billion in fiscal 2013 (€34.3 billion), of which €3.9 billion (€4.2 billion) was attributable to the Power Engineering segment. At €4.7 billion, gross profit was down slightly on the previous year (€4.8 billion). Operating profit declined to €0.8 billion (€0.9 billion), while the operating return on sales decreased from 2.8% to 2.3%. In addition to the write-downs relating to purchase price allocation for MAN and Scania, this was negatively impacted by increased competitive pressure on prices and margins. At €–250 million (€162 million), operating profit in the Power Engineering segment was well below the prior-year figure, and was negatively impacted by project-specific contingency reserves and declines in the license and after sales businesses.

Results of operations in the Financial Services Division

Sales revenue in the Financial Services Division amounted to €22.0 billion in fiscal year 2013, 10.8% higher than in the previous year due to growth in business volumes and the initial full-year consolidation of Porsche’s financial services business.

Gross profit improved by 13.1% to €5.1 billion. Distribution and administrative expenses increased year-on-year in the reporting period, while the ratio of both distribution and administrative expenses to sales revenue rose slightly. Alongside higher volumes and the consolidation of Porsche, this was attributable to additional expenses to comply with stricter banking supervision requirements. Other operating income amounted to €–1.0 billion (€–0.9 billion). The Financial Services Division once again made a significant contribution to the Group’s earnings with an operating profit of €1.9 billion, up 17.6% on the previous year. The operating return on sales increased to 8.5% (8.0%), and return on equity before tax rose year-on-year to 14.3% (13.1%).