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Stephan Gruhsem - Head of Group Communications, External Relations & Investor Relations

Martin Winterkorn - Chairman of Management Board and Chief Executive Officer

Hans Dieter Pötsch - Chief Financial Officer, Head of Controlling & Accounting and Member of Management Board

Christian Klingler - Member of The Board of Management and Member of The Group Board of Management for Sales & Marketing

Leif Östling - Member of Management Board

Horst Neumann - Head of Functional Responsibility, Human Resources Chief, Labour Director and Member of Board of Management

Jochem Heizmann - Member of Management Board and Executive Officer Group Trucks Board of Management Division

Francisco Javier Garcia Sanz - Member of Management Board

Volkswagen AG (OTCQX:VLKAY) 2012 Earnings Call March 14, 2013 5:00 AM ET

Unknown Executive

[German] Ladies and gentlemen, please be seated so that we can start on time with our press conference. Thank you very much.

Stephan Gruhsem

[German] Good morning, ladies and gentlemen. A cordial welcome here to our annual accounts press conference and investors conference of the Volkswagen AG. As you can see, we have -- we were in a position where we had to extend our panel. But first of all, I would like to welcome the new Member of the Board for Commercial Vehicles, Leif Östling. He took over this function from Prof. Dr. Heizmann, who as per the 1st of September 2012 now heads the board division of China.

A few comments on this morning. Prof. Winterkorn will give us an overview of the past fiscal year followed by a detailed analysis of our CFO, Hans Dieter Pötsch, after which Prof. Winterkorn will give us an outlook on the next few months to follow. After the presentations and speeches, we would like to invite you to a question-and-answer session, question and answers by the media, and after, a lunch break at 12. At 1 p.m., we will have another Q&A round for the analysts and investors' representatives. Christine Ritz will guide you through this part.

Let me give you 2 more remarks. The annual report of Volkswagen, which many of you have just received as a handout, is also available as an interactive iPad app. I would like to recommend this to you because it contains the complete financial part with all important facts and figures, but also a multimedia magazine, which will give you interesting highlights and stories from the Volkswagen Group world. Also, our facts and figures brochure, the Navigator, is for the first time available this year as an iPad app. On the base of a virtual world map view, we'll be able to explore all the different locations of the Volkswagen Group. You will also have information on our brands, important key figures and key ratios and, of course, also on our vehicles and cars, which are at the core of our activities. An exhibition area will also have -- if possible, you take a look at these 2 apps.

I would like to ask Dr. Prof. Winterkorn to take the floor.

Martin Winterkorn

Thank you, Mr. Gruhsem. Good morning, ladies and gentlemen, and welcome to the Volkswagen Group, a company that has numerous strengths, first and foremost, as you just saw on the video, our global presence. Today, we'd like to explain to you in more detail what makes our global group so special and how Volkswagen is going to continue to expand in the coming years. But first, I would like to start by looking back with some pride at what we've already achieved because 2012 was a good, a very successful year for the Volkswagen Group and because this success did not come by itself. Rather, it was the result of hard and concentrated work.

2012 was a challenging year in the automotive world. The debt crisis in Europe hit our industry hard. Nevertheless, Volkswagen was once again a stable and reliable anchor. We delivered 9.3 million vehicles worldwide, 1 million more than the year before. We increased sales revenue by 20.9% to some EUR 193 billion. And we also did more than keep our promise about our operating profit. At EUR 11.5 billion, it exceeded the previous year's record figure. We have to add to this our EUR 3.7 billion share of the operating profit from our business in China. We report this figure separately in our financial earnings since our Chinese joint ventures are accounted for at equity -- or using the equity method.

Overall, we can say that the Volkswagen Group met all of the targets it set itself and showed itself to be in peak form in all areas. But we didn't just turn in a compelling performance in our operating business. We also met our targets on a number of strategic projects. Since the 1st of August 2012, the Porsche brand has been a fully fledged member of the Volkswagen Group. This has already proven to be a tremendous success story. Instead of the originally projected EUR 700 million; we're now talking of potential synergies of around EUR 1 billion per year. With Ducati, we have now welcomed a motorcycle brand to our group family that is as legendary as it is valuable. This marks the start of our move into the 2-wheeled market. The leading mobility group also needs a strong Commercial Vehicles business. The alliance between MAN, Scania and Volkswagen Commercial Vehicles means that we have laid the entire groundwork for this. We now have identified a range of common projects in the fields of development, procurement, production, IT, logistics and finance. And I am confident that we will achieve our target synergies. Now passenger cars. The launch of the Modular Transverse system has ushered in a new era in passenger cars. The Volkswagen Golf, the Audi A3, the SEAT Leon and the ŠKODA Octavia are a foretaste of the versatility, innovative power and the potential of this system. In the same vein, we have set ourselves new and highly ambitious environmental targets. We are focusing all our efforts on cutting the CO2 emissions of our European fleet to 95 grams per kilometer by 2020. And finally, we have undertaken a fundamental management and structural realignment to ensure that more than ever before, our group has the right people in the right positions to achieve the goals of our Strategy 2018. In a nutshell, Volkswagen is and will continue to be the most dynamic automotive group.

In the past year, we have achieved important milestones on our way to the top, and we did not stumble even when the going got tough. The Volkswagen Group recorded significant growth in almost all areas of the world. It was only in Western Europe that we weren't immune to the general downward trend, although we are doing substantially better than the competition. By contrast, we posted significant double-digit growth in other key markets, for example, 25% growth in China, 34% growth in the United States and 41% growth in Russia.

Our group's strong broad positioning is also reflected in our brands. Almost all of our passenger car brands recorded clear growth in 2012. This enabled us to up our share of the global market to 12.8%, an impressive increase of 0.5 percentage points. The market for heavy trucks, on the other hand, clearly felt the effects of the global economic crisis. There were strong headwinds especially in Western Europe, but also in China, Brazil and in India.

The Volkswagen brand beacon has never shined so brightly. This is demonstrated by some 5.7 million vehicles we delivered worldwide, an increase of more than 600,000 compared to 2011. We saw a broad-based boom in demand. The brand recorded clear double-digit growth not only in the United States, but also in China and Russia. The symbol of Volkswagen's claim to leadership is the new Golf, which was very recently named the Car of the Year. No other car drives trends like the Golf does. Now that it is based on our Modular Transverse system, the automotive world is talking about our modular strategy. And the electric Golf is the next trendsetter that's already in the starting blocks. More than 170,000 orders demonstrate that the Golf remains by far the #1 in its class and far beyond.

Audi is staying in the fast lane in the race to the top of the premium segment. Last year, this brand delivered nearly 1.5 million vehicles, a new all-time high. Together with Europe and China, North America in particular is increasingly turning into its third strong pillar. Audi is also demonstrating its prowess when it comes to profitability with a double-digit operating margin. At the same time, Audi is underscoring its role as a technology pioneer with vehicles such as the new A3. The A3 was the first model based on the Modular Transverse system. And that, too, ladies and gentlemen, is Vorsprung durch Technik. In Audi, we'll soon also put a plug-in hybrid version, the Audi A3 e-tron on the road.

Our new colleagues at Ducati are off to an impressive start. Since the 1st of August 2012, this brand has delivered around 12,000 motorcycles. The full year figure of approximately 44,000 deliveries was a new record. And this means that Ducati is continuing its success story. Since 2006, it has doubled its market share to 5.2%. As well as emotional new models such as the Multistrada, Ducati is continuing its internationalization strategy, including in the United States, in Latin America and in Asia.

ŠKODA has further honed its brand profile from the Fabia to the Citigo to the Rapid. ŠKODA stands for high quality at an affordable price, and this is paying off. The brand can now look back on its 10th record year in a row with some 940,000 deliveries, and ŠKODA is driving forward the renewal of its model portfolio. In the current year alone, the brand will be launching 8 new models, including the Octavia. And as you can see here, this model is and will continue to be the linchpin of the brand and the engine in its growth.

The continuing crisis in Southern Europe is hitting SEAT particularly hard. The brand suffered a decline in vehicles delivered to 321,000 units. But despite all the difficulties, SEAT is demonstrating its relative strength and recorded significant growth in key individual markets such as Germany and the United Kingdom. The Leon embodies the new SEAT, an all-round successful car that is being consistently praised by the motoring press as a winner.

Bentley impressively defended its leadership position in the luxury segment. Deliveries increased by more than 20% to 8,500 vehicles. And what's particularly encouraging for us is that Bentley again recorded a healthy earnings contribution. Bentley, too, is pursuing a strategy of expansion in the group with strong contemporary products. This is clear from new models such as the Continental GT V8, as well as plans for the brand's first SUV.

Everything about Lamborghini is extreme, including its growth. Deliveries grew by 30% last year to more than 2,000 vehicles. Demand boomed everywhere in the world. And even in Western Europe, the brand recorded sparkling growth. So this means that Lamborghini can enter its anniversary year with confidence. Waiting times are just one indicator of how exclusive and sought-after our sports car brand is in its 50th year. For the top model, the Aventador, they're currently around 15 months.

Porsche has become an indispensable part of the Volkswagen family within just a short period of time. The brand is recording more dynamic growth than ever before as a member of our group. Full year deliveries topped 140,000, a new record. Then since full consolidation on the 1st of August, Porsche has delivered 60,000 vehicles. And its financial figures are also impressive. In these 5 months alone, Porsche has generated an operating profit of close to EUR 1 billion. Vehicles such as the new Boxster show how compelling Porsche is when it comes to living up to its brand values. And this also applies to the clever expansion of its model portfolio. Porsche will thrill new customers with innovations like the Macan. This compact SUV will reach dealerships at the beginning of 2014.

And now onto the Volkswagen Group's second strong pillar, our business with light and heavy commercial vehicles. Volkswagen Commercial Vehicles recorded a respectable result in spite of headwinds. Deliveries increased by 4% to 550,000 vehicles. In Russia and China, in particular, the brand posted significant double-digit growth rates. Volkswagen Commercial Vehicles has systematically renewed and expanded its model range in recent years. New models such as the Cross Caddy for the booming recreational segment are proof positive that our colleagues in Hanover have many more good ideas up their sleeves.

Scania is clearly feeling the effects of the general reticence with regard to capital goods investments. Deliveries declined by 16% to 67,000 units. Nevertheless, Scania remains a highly profitable company. And despite the slump in the industry, it generated an impressive 10% return on sales. Over the medium and long term, Scania is firmly targeting growth. One focus here is the BRIC countries. In India, Scania is currently building a new assembly plant for trucks and buses. And its sales and service organization in the growth markets, too, is gradually being expanded.

MAN is also battling hard against the slump in the commercial vehicles market. The brand delivered approximately 134,000 vehicles worldwide and generated an operating profit of more than EUR 800 million. Power Engineering, in particular, proved to be a stable, strong earnings driver.

Currently, MAN is working flat out to make its development, procurement, production and sales activities even more effective. In addition to that, the brand is relying on efficient solutions for its customers. The TG family, for example, is the right answer to the Euro 6 emission standard that will come into force at the end of this year.

The third pillar of our group, Financial Services, also recorded very encouraging results. You know us. Volkswagen is a product-driven company through and through. Everything we do revolves around automobiles. At the same time though, we are setting our sights more and more on the entire value chain. Financing, leasing and mobility services aren't just highly profitable. These business areas are also becoming increasingly important for attracting and retaining customers all around the world. With its financial services, Volkswagen has an excellent position here. Last year, Volkswagen Financial Services signed a total of 3.8 million new financing, leasing and serving contracts, another all-time high. And its operating profit grew by 17% to EUR 1.4 billion.

Ladies and gentlemen, to sum up, we can say that Volkswagen has proven to be extremely resilient, robust and, above all, forward-looking despite the difficult environment. It's important for me to point out at this juncture that we'd like to thank all of our 550,000 employees. Their skills, their ideas and their commitment and dedication are the driving force behind our success. We know this. And that's why we continued to abide by the principle at Volkswagen that good work should be well rewarded for everyone. For Volkswagen AG's employees, this means specifically that they will receive a substantial profit share of EUR 7,200 each to reward their strong performance last year.

Mr. Pötsch will now explain to you our key financial figures in detail.

Hans Dieter Pötsch

[German] Ladies and gentlemen, I, too, would like to extend a very warm welcome to you to today's Annual Media and Investor Conference in Wolfsburg. As Prof. Winterkorn already said, Volkswagen can look back on another extremely successful fiscal year. With 9.3 million sold vehicles worldwide, we exceeded the all-time high we set back in 2011 and topping -- and topped for the first time the 9 million mark. We have mastered the challenges posed by difficult market environment and met our customers' expectations with our outstanding brand portfolio and attractive product range.

This is also reflected in our financials. The Volkswagen Group continued its successful course and further strengthened its market position, thanks to its high profitability. Volkswagen increased its sales revenue and operating profit in the fiscal year 2012. In the year under review, sales revenues of the group exceeded the previous year's figures by 20.9% with EUR 192.7 billion. At EUR 11.5 billion, the operating profit was again at a high level and slightly exceeded the all-time high of the record year, 2011 fiscal year. The return on investment of the Automotive Division amounted to 16.6% and was well above our minimum required rate of return of 9%.

Another important key parameter in the Volkswagen Group is net liquidity of the Automotive Division. At EUR 10.6 billion, notwithstanding the integration in full of Porsche; the acquisition of the motorcyle manufacturer, Ducati; and the increased stake in MAN SE, it is at a level that ensures the group's financial stability and flexibility. On account of the successful placing of a mandatory convertible bond to the tune of EUR 2.5 billion in November 2012, we were able to strengthen our financial position. Against the backdrop of the continuing general economic uncertainty, we will continue to pursue our disciplined spending and capital expenditure discipline and steadily improve existing processes. This serves as a basis upon which Volkswagen can grow successfully in what remains a highly competitive environment. In view of the company's continued success, the Board of Management and the Supervisory Board will propose a dividend to the level of 3.5% (sic) [EUR 3.5] per ordinary share and 3.56% (sic) [EUR 3.56] per preferred share, which is -- euros, which is EUR 0.50 more than in the past year.

The fiscal year 2012 was a major success for more than just operational perspective. Across the 12 months, we are well aligned with our 12 brands in all key markets. Following the purchase of additional shares in MAN SE at a price of EUR 2.1 billion, Volkswagen now holds 75.03% of the voting rights and 73.72% of the shares in the company. In July 2012, Ducati was purchased. As per the 1st of August 2012, the integrated automotive group with Porsche was created by the full integration of the Dr. Ing. h.c. F. Porsche AG to the Volkswagen Group. The contribution was made in return for a share-based and cash consideration amounting to approximately EUR 4.5 billion. Following consolidation, the figures for Porsche were included in our results for 5 months. Our success in recent years has put us in a strong position. This challenge and this position has to be fully exploited and systematically extended. Our growing presence in all key markets, the outstanding brand portfolio, our attractive product range and our broad financial services offerings, combined with our sound finances and forward-looking management, contribute to the systematic implementation of our Strategy 2018.

Ladies and gentlemen, at this point, let me provide you with a detailed overview of the past fiscal year. A look at the income statement shows that we were able to increase our sales revenues by EUR 33.3 billion to EUR 192.7 billion compared to the previous year. In addition to volume increases, this rise was due particularly to the first full year consolidation of MAN and the full consolidation of Porsche as per the 1st of August 2012. The Financial Services Division of the group also made another important contribution to the group in volume terms. Since the cost of sales rose more than slowly by 19.9%, gross profit improved by EUR 7.2 billion to EUR 35.2 billion. As a result, the gross margin rose by 0.6 percentage points to 18.2%.

At EUR 18.9 billion, distribution expenses were up approximately 29% on the prior year level. Administrative expenses rose by EUR 1.8 billion to EUR 6.2 billion. In addition to the substantial expansion in the business, the increase in the distribution and administrative expenses was due to the initial consolidation of MAN and Porsche. Overall, we generated an operating result of EUR 11.5 billion, an improvement of 2.1% compared to 2011. The return on sales declined by 1.1 percentage points to 6%. This was due -- apart from the high competition level, this was primarily due to the depreciation and amortization on purchase price allocation totaling to EUR 2 billion, which are largely related to MAN and Porsche. The figures mentioned do not include the prorated operating profit for our Chinese joint ventures to the tune of EUR 3.7 billion, which was up EUR 1.1 billion compared to the previous year's figure. These companies are included at equity and are, therefore, reflected solely in the group's financial result.

The financial result rose by 6.3% -- EUR 6.3 billion year-on-year to approximately EUR 14 billion. This increase is primarily due to noncash effects of EUR 12.3 billion from the final valuation of the put/call rights relating to Porsche Holding Stuttgart GmbH as of the 31st of July 2012, as well as the remeasurement of the existing shares of Porsche held at the contribution date.

Additionally, the financial result contains increased income from the measurement of our investments valued at equity, which primarily comprise our Chinese joint ventures.

All in all, our profit before tax amounted to EUR 25.5 billion, constituting an improvement of 34.7% vis-à-vis the previous year. Income tax expense in the past fiscal year amounted to EUR 3.6 billion. This corresponds to a tax rate of 14.2%. It should be borne in mind that the -- that equity results are already after-tax results and that the effects of the valuation of the options and the remeasurement of the shares of Porsche Holding Stuttgart GmbH already held did not have an effect on the tax expense. Adjusted for these items, the tax rate is more than 30%.

The Volkswagen Group generated an after-tax profit of EUR 21.9 billion in the fiscal 2012, a new all-time high. Allow me to mention at this point that you will find an overview of the key figures for Q4 of 2012 on our Investor Relations website.

Ladies and gentlemen, I would now like to outline to you the -- a more detailed breakdown of the operating profit by brand and business field.

Operating profit for the Volkswagen Passenger Cars brand amounted to EUR 3.6 billion, down EUR 157 million year-on-year due to upfront expenditure for the Modular Transverse system and start-up cost for the new Golf. We achieved this result despite a difficult market environment thanks to, in particular, our attractive, modern product range as well as to continuous cost and product optimization measures.

The Audi brand improved its operating profit, and because of increased volume -- due to increased volume and product cost optimizations improved its operating profit to EUR 5.4 billion. Expressed in terms of sales revenue, this results in a return on sales of 11%.

The ŠKODA brand, with an operating profit of EUR 712 million, contributed to the group's success. This was slightly lower than the previous year's figures due to market factors.

The SEAT brand operating loss was cut by EUR 69 million compared to the previous year to EUR 156 million, another clear reduction. This is particularly noteworthy, particularly, against the background of the slump in the Southern European markets in the last fiscal year.

2012 was highly gratifying and encouraging for the Bentley brand. Sales figures were increased clearly compared to the previous year's figures. And Bentley defended its position as one of the world's leading manufacturers of luxury automobiles. The operating profit rose by EUR 92 million to EUR 100 million due to volume- and mix-related factors.

Let me now turn to our new brand, Porsche, which has been consolidated since the 1st of August 2012. The Volkswagen Group has expanded its offering in the high-margin premium segment thanks to the sports car manufacturer. The creation of the integrated automotive group allows important joint projects to be implemented more readily. And as a result, additional growth opportunities can be generated in attractive market segments. In the past year, the Porsche brand has had a very successful business. In the 5 years (sic) [5 months] of integration into the group, Porsche contributed to operating profit to the tune of EUR 946 million.

Operating profit for the Volkswagen Commercial Vehicles brand was down slightly in the previous year with EUR 421 million.

The Scania brand was confronted with a slump in demand on the European and South American truck markets in the past fiscal year. Due to the lower volume and the fiercer competition, the operating profit declined by EUR 442 million to EUR 930 million. Nonetheless, the operating return on sales was still at approximately 10%.

Another difficult year -- 2012 was also a difficult year for the MAN brand. MAN, too, had to cope with significant declines in trucks and buses, where relevant markets contracted. The Power Engineering segment contributed significantly to earnings so that the overall operating profit was at a level of EUR 808 million. Please bear in mind when comparing the figures with the previous year that MAN has only been consolidated as per November 9, 2011.

For Financial -- Volkswagen Financial Services, 2012 was particularly successful. Higher volumes, stable margin trends and lower risk provisions increased the operating profit to EUR 1.4 billion. This corresponds to an increase of 17% compared with the previous year.

Please note that the figures for the brands and business fields include intragroup transactions, especially intragroup profits. These have been eliminated in the category, Others. In addition, this item contains the results of the Porsche Holding Salzburg and the depreciation and amortization on identifiable assets as a part of purchase price allocation for Scania, Porsche Holding Salzburg, MAN and Porsche.

In view of the strong demand for vehicles and financial services, the operating result of the Volkswagen Group was at a level of EUR 11.5 billion, which was higher than the strong previous year. The analysis of the change in operating profit reveals that on account of volume, mix and price effects on Passenger Cars and Light Commercial Vehicles, despite the very fierce competition, again, a positive contribution of EUR 0.8 billion could be achieved. Exchange rate effects resulted in an improvement in the operating profit of EUR 1.2 billion year-on-year. Optimized purchasing and procurement activities and our systematic alignment of all processes on efficient methods and procedures improved product costs, leading to a positive effect of EUR 1.5 billion. The negative effect of fixed costs, including the depreciation and amortization to the tune of EUR 3.2 billion, was mainly due to the group's growth and to a development cost associated with the renewal and extension of our product portfolio. In view of the difficult conditions on the commercial vehicles market, MAN was unable to compensate for the high initial depreciation and amortization cost relating to the purchase price allocation. Scania was also hit by the decline in demand and the fiercer competition. All in all, the operating profit in Trucks and Buses, Power Engineering was down by approximately EUR 0.4 billion compared to the previous year's figure. The Financial Services Division again contributed to the improvement in group operating profit, accounting for approximately EUR 300 million.

Ladies and gentlemen, the return on investment is the core instrument used to manage the Automotive Division. And hence, it is the decisive parameter for financial assessment of all strategic and operational decisions. The Automotive Division generated a return on investment of 16.6% last year. This figure was down slightly compared to the previous year primarily as a result of increase in invested capital, but it was still significantly higher than our minimum required rate of return of 9%. We were therefore able to improve our current cost of capital rate of 7.8% and to generate a positive value contribution to the tune of EUR 5.8 billion.

Due to the group's growth and investments in our product range and new technologies, the amount of invested capital is increasing. All investments are examined meticulously for their expected returns. In addition, we aim to safeguard the quality of our earnings sustainably in the long run. In this context, we will take care to further increase profitability in all regions and to establish ourselves on new growth markets.

The return on equity before tax in Financial Services Division declined from 14% to 13.1%. This was the result of the rise in equity, which was due to both our earnings and capital increases.

Now this brings me to the consolidated balance sheet. At the end of 2012, the balance sheet total amounted to EUR 309.6 billion, which was 22% up compared to the previous year. Now this is mainly attributable to the integration of Porsche and to organic growth. The group's equity ratio improved by 1.4 percentage points to 26.4% despite the raise -- rise in total assets. Now this was due primarily to the growth in earnings and, secondly, also to the successful placement of the mandatory convertible bond in November 2012. Equity in the Automotive Division also developed positively. As a result, the equity ratio in the Automotive Division rose from 35.9% in the previous year to 37.8% this year. Equity in Financial Services rose by EUR 2.5 billion to EUR 13.4 billion. The strong earnings situation and the capital increase by Volkswagen AG had a positive effect here. The division's equity ratio amounted to 10.4%.

Let me now talk about individual terms of our cash flow statement. At the end of 2012, our net liquidity in the Automotive Division amounted to EUR 10.6 billion. This sound liquidity basis gives us the necessary financial stability and flexibility to continue on our growth path and to systematically pursue the ambitious goals set out in our Strategy 2018.

Gross cash flow rose slightly by 0.4% -- EUR 0.4 billion to EUR 15.8 billion as a result of earning effects despite significantly high income taxes paid. The Volkswagen Group saw its business expand substantially in the face of a challenging market environment. It's managed to -- still managed to record cash inflows of EUR 0.5 billion, thanks to strict working capital management. As a result, the total cash flow from operating activities amounted to EUR 16.2 billion.

The property, plant and equipment included in our investment activities rose by EUR 2.3 billion in 2012 to EUR 10.3 billion. The CapEx rose only slightly to 5.9%, i.e. 0.4 percentage point, year-on-year since sales revenue increased significantly. We invested primarily in our production facilities, in the expansion and ecological focus of our model range, and in the modularization of our vehicle concepts. The first products based on the Modular Transverse system, which will serve as a basis for many further models to come in the coming years, was successfully launched. The acquisition of equity investment led to cash outflows from investing activities attributable to operating activities of EUR 3.9 billion. This figure contains the contribution in full of Porsche's automotive business in the amount of the cash consideration of approximately EUR 4.5 billion that was paid, as well as the acquisition of Ducati for EUR 0.7 billion, in each case net of cash and cash equivalents acquired.

The net cash flow in the Automotive Division, which represents the difference between cash flows from operating activities and investing activities attributable to operating activities, declined by EUR 1.3 billion year-on-year to a level of minus EUR 0.2 billion.

Since the full consolidation of MAN, further increases in Volkswagen AG's stake have been reported in financing activities as capital transactions with noncontrolling interests. We increased our interest in MAN SE by EUR 2.1 billion in 2012.

With a decision and resolution of the Annual General Meeting on April 22, 2010, there is a contingent capital that can be used to issue bonds with warrants and convertible bonds. It was utilized in part in November 2012 to issue EUR 2.5 billion mandatory convertible bonds to subscribe for preferred shares. The mandatory convertible note has a coupon of 5.5%, and it matures on November 9, 2015. The initial minimum conversion price was set at EUR 154.50, and the maximum conversion price was set at the level of EUR 185.4. The positive effect on our net liquidity was EUR 2 billion, net of transaction cost and future investment payments. This means we placed the most successful convertible bond on the market in 2012, strengthening not only our equity bases but also our liquidity and capital base.

Ladies and gentlemen, allow me to sum up the 2012 fiscal year. We can look back on an extremely successful year in a particularly challenging environment. After tax, the Volkswagen Group generated earnings of EUR 21.7 billion for the shareholders of Volkswagen AG. This corresponds to the undiluted earning of EUR 46.42 per ordinary share and EUR 46.48 per preferred shares.

Many thanks for your attention.

Martin Winterkorn

[German] Well, ladies and gentlemen, in view of these results, one thing is clear. The Volkswagen Group can start 2013 from a position of strength. We have 3 profitable business areas or segments: Passenger Cars, Commercial Vehicles and Power Engineering, and Financial Services. We have 12 fascinating brands and 280 models to meet almost all conceivable customer wishes and needs. We have the innovative abilities of more than 40,000 development engineers. We have the necessary financial strength and soundness, and we have a convincing strategy for the future. In a nutshell, Volkswagen has everything it needs to continue its successful trajectory of recent years, even under different circumstances.

One strength that is paying off more and more is our global presence. We have been in Brazil for 60 years. We have been in Mexico and South Africa for 50 years. And in the 1980s, we were the first to venture into China. An international mindset and approach are part of Volkswagen's DNA. Today, we sell some 60% of our vehicles outside Europe. We operate 100 plants around the world, 1/3 of which are located outside Europe. And we now employ 140,000 people outside Europe. Our global positioning allows us to offset temporary setbacks in individual markets. But above all, we can take advantage of growth opportunities everywhere in the world. And in the current environment and in current markets, this is a significant advantage.

The overall market for our commercial vehicles is likely to remain at last year's low level in 2013. The global passenger car market is only expected to grow slightly. In Europe and Germany, the situation remains strained. The United States, by contrast, the upward trend is continuing. And China remains a reliable growth engine even though it has deliberately scaled back its growth rate. Without a doubt, this environment is definitely a tough challenge, especially for European carmakers. However, at Volkswagen, we are prepared for this situation. We have long known that the relative importance of markets is shifting away from the economic triad and towards Asia, Eastern Europe and South America.

We laid the groundwork for this new automotive world early on with our Strategy 2018 from development to production, to procurement and distribution. We have made both Volkswagen the most international automotive group. And now we are shifting up another gear. In the period up to 2015, the Volkswagen Group will be investing some of EUR 50.2 billion in new plants, products and technologies, more than ever before. In addition to this, there's a further EUR 9.8 billion that our joint ventures in China will be spending. One clear focus of our investment program is to continue our internationalization, and I am certain that this is a good investment.

The global automobile market could grow to more than 100 million vehicles in the period up to 2018. And what's more, the OECD is expecting traffic volumes to triple by 2050. These figures, ladies and gentlemen, represent enormous opportunities but also major challenges. The key question is how to ensure greater mobility using fewer resources with fewer emissions. At the Geneva Motor Show, the Volkswagen Group showed once again that we are providing answers to this question by developing new, intelligent mobility concepts from car-sharing to networked mobility and by developing and manufacturing vehicles that are as efficient as they are fascinating, such as the XL1, the Golf BlueMotion and the Audi A3 g-tron with natural gas drive. The front-runner in alternative drivetrains is the plug-in hybrid, not as a vision for the distant future, but for the here and now. Our first plug-in hybrids, the Porsche Panamera and Audi A3 e-tron, will go into volume production soon, and they will be followed in the months to come by the Golf and many more plug-in hybrids from our group brands. And these vehicles offer exactly what our customers expect: a range of up to 50 kilometers in pure electric mode with 0 emissions in the city; and full flexibility for long-distance trips, thanks to efficient internal combustion engines. With the e-up! and the e-Golf, we also have our first purely electric vehicles in the starting blocks. You can see that electric mobility, E-Mobility, is not dead. On the contrary, it is now just coming to life.

Ladies and gentlemen, you know us, Volkswagen, the global group, is also a down-to-earth company with close ties to its home region in the best sense of the words. Our roots are part of our strength. And that is why we are committed to Lower Saxony, to Germany and to Europe. But it is equally true that Volkswagen's future is increasingly being decided in China, Russia, India, the Americas and Southeast Asia. This is where we will generate most of our future growth. This is where we have to attract new customers, and this is where we have to take full advantage of the potential that lies in our brands. And this is exactly what we are positioning the group to do in 3 different ways: First, we are offering an even greater number of regionally tailored models. Second, we are continuing to expand our global production network. And third, we are making the Volkswagen team more international than ever before.

Let me turn to our products first, our first focal point. We have the right vehicle to meet just about every customer's wish. And above all, we have achieved the right balance between premium and volume models. The Volkswagen Group's unparalleled expertise and strength in the premium segment is, quite literally, paying off because no other segment is as profitable and very few other segments have such stable growth rates above all in China, Russia and India. With Audi, Porsche, Bentley, Lamborghini and Bugatti, we offer our customers the strongest brands, the best technology in engineering and the most emotional cars in the premium segment. On this basis, our premium brands now account for over 50% of group earnings. And on this basis, we will further expand our leading position in this highly profitable business. All in all, we will be launching around 60 new and successor models and upgrades this year alone. More and more, our vehicles are being tailored to the very different regional wishes and needs. Our portfolio already includes more than 30 models that are precisely tailored to specific markets, such as the Volkswagen Golf, which has been the #1 in Brazil for 25 years; the ŠKODA Rapid for India; and the US Passat, where sales have already reached 180,000 units.

In the years to come, we will be expanding this portfolio considerably. In China, we will see a truly large-scale model rollout next month. ŠKODA will launch the Chinese version of the Rapid. Volkswagen is working, amongst other things, on a dynamic coupe in the A segment, the right car for the growing number of young and, above all, high-income Chinese. And Audi's experience with the long wheelbase versions of its A6 and A4 models, which were especially developed for China, has been very constructive. The brand has just opened a dedicated research and development center in Beijing in order to be able to cater even better to Chinese customers' wishes. Volkswagen is developing a new large SUV based on the Modular Transverse system for the United States. After the success of the U.S. version of the Passat, the goal is to establish ourselves in another core segment. And in South America, recently, we unveiled the Taigun. This small SUV, which is based on the up!, is aimed at the booming minicar segment. And there is a good chance that the Taigun will actually hit the streets.

We also intend to the systematically harness our opportunities in the fast-growing market for entry-level mobility. Our New Small Family has already expanded our horizons considerably. The same goes for the A entry family. Among other things, this includes the SEAT Toledo, the ŠKODA Rapid and the Volkswagen Santana, which we are now offering in China for around EUR 8,000.

Now we are once again rising to the challenge of meeting the expectations and demands of markets and customers. In the near future, in China, we are aiming to launch a true budget car, in other words, a very attractively priced entry-level model for EUR 6,000 to EUR 7,000. Development work on this has already started. And I am convinced that we will prove with this project that quality, attractive pricing and profitability can all be brought together.

And now let me turn to our second focus, our global production network. Today, the Volkswagen Group operates 100 plants around the world. Thanks to this global positioning, we can benefit from local growth in the precise areas in which it occurs, reduce exchange rate risk and bypass trade barriers. And in addition, we can leverage substantial cost benefits with the extensive local sourcing of raw materials and components. In recent years, we have expanded capacity in those areas in which demand has been booming, with our new vehicle plants in Russia and India; and with what is now a total of 12 plants in China; and with our bold, new start in the United States, which is now beginning to bear fruit.

At the beginning of the year, we took the next step with our new engine plant in Silao in Mexico. Our 100th plant is a key component of our North America strategy. In the years to come, we will be building a minimum of 10 additional plants, of which 7 will be in China alone. This year, the vehicle plants in Orenchi [ph], Foshan and Ningbo will start production. Volkswagen's Orenchi [ph] plant again sees the company adopting a pioneering role, this time, in opening up Western China. And we will open a new component plants in Yangchun and Foshan in the course of the year. And our transmission plant in Tianjin will follow in 2014.

In a new development, the Supervisory Board has also just resolved to construct an additional vehicle plant in China. Up to 300,000 Volkswagen vehicles will roll off the lines there starting at the beginning of 2016. In the period up to 2018, we'll be increasing our production capacity in China to more than 4 million vehicles a year, in line with the boom in demand there, of course. But it is not just China that we are focusing on. This year, Scania will start assembling trucks and buses in India. In the near future, MAN will commission its new facility in St. Petersburg. Volkswagen is building an engine plant in Kaluga. Starting in 2015, this will manufacture up to 150,000 engines per year for the local production facilities there. And Audi is strengthening its presence in North America with a plant in San Jose Chiapa in Mexico. And starting in 2016, this plant will produce the Q5.

In parallel with this, we are also expanding our distribution network. Today, the Volkswagen Group already has 20,000 dealers around the world. Over the medium-term, another 1,500 dealers will be added in the growth regions. So as you can see, Volkswagen is strengthening its global presence at all levels. And this also applies to the third focus of our internationalization strategy, our employee.

In the past 5 years, we have added 140,000 employees outside Germany. The number of international management deployments has more than doubled since 2007. And technical development, too, is becoming more and more global. In North and South America and in Asia, we already employ a total of more than 5,000 engineers. And as a result, the Volkswagen Group has become a bit more Chinese, American, Russian and Brazilian. And ladies and gentlemen, this trend will continue in the years to come. And I am persuaded that the growing diversity of cultures, approaches and ideas alone will make our company more creative, and above all, more powerful.

To leverage this tremendous wealth of knowledge and experience, we intend to and must share our expertise on an even greater scale worldwide. The modular systems we have not only bring considerable economies of scale; we are also transferring our most important technologies and innovations to all brands and regions. Instead of a large number of individual solutions, there is a single technical system into which our concentrated expertise flows and which will benefit everyone in the group in the medium-term. With our global network of academies, we ensure that all employees have the same high-level of specialist knowledge and the same understanding of quality everywhere. We already operate 26 academies in 10 countries, in Germany, India and China, for example. We organize the development of young talent in much the same way. At a total of 24 locations in 16 countries, we already offer dualistic vocational training and education along German lines. Worldwide, we will be recruiting this year more than 5,000 apprentices and more than 10,000 university graduates. And what's very important is that these young people are very interested in joining us. According to a recent major survey conducted by Germany's Focus Weekly newsmagazine, Volkswagen is Germany's most attractive employer, with Audi and Porsche taking third and fourth places.

And finally, we have ushered in what could be called a cultural shift in all areas. We ensure that there is a systematic and global exchange of knowledge using tools such as the expertise turntable in production. This is how good ideas and experience benefit everyone in the group, regardless of whether they are from Mexico, China, Russia or Germany. So as you can see, Volkswagen the Global Group is becoming even more global in its products, its plants and its workforce. And at the same time, and this is very important for me, we are not joining the general chorus that is writing off Europe. On the contrary, it is here in Europe that we will continue to engineer the majority of our vehicles and innovations. And it is here that we are initially rolling out key technologies such as the modular transverse system. And it is here, too, that we are a frontrunner worldwide in areas such as industrial value-added, training and education and flexibility. Europe is and will remain the home of the Volkswagen Group, and Europe needs even more initiative, innovation and industry. And these are issues that Volkswagen is championing. In the next 3 years, we will be investing more than EUR 33 billion in Europe. And in Germany alone, since 2007, we have created some 30,000 new jobs, 30,000 new jobs. I believe that this is the best possible commitment to Germany and Europe as centers of industry.

Ladies and gentlemen, the automotive industry is moving through difficult, rough terrain. 2013 will be a year of truth for the entire industry, and that includes Volkswagen. Competitive pressure is high and is continuing to mount. Macroeconomic prospects remain uncertain. In particular, Europe is still on shaky ground. The debt crisis has not yet been overcome. Markets here are going to remain weak for the foreseeable future. Our present caution is, therefore, well considered and correct. And Volkswagen is approaching the coming months with the necessary realism and great vigilance. At the same time, however, I and we are convinced that our group is well prepared to stand up to this test because we are unrivaled in our broad base and global positioning, and because our brands and vehicles embody exactly the soundness and enduring value that are especially in demand in times like these. And this is also epitomized by the engineering beacon we showcased in Geneva, the XL1.

The entire expertise of our group is to be found in this 1-liter consumption car, in the drive technology, the electronics, the battery technology and in the lightweight design. And what's really crucial is that the knowledge and technologies that we've developed here are already finding their way into our volume production cars and did so quite a while ago. That holds particularly true for our major plug-in hybrid rollout. We at Volkswagen are continuing to move forward, both technically and economically. Despite the negative environment, we have made a good start to the new year. In January and February, we delivered around 1.4 million vehicles worldwide. And with 8.3% growth, we have once again outperformed the market. But without a doubt, Volkswagen, too, is feeling the headwinds, especially in Europe. And more than ever before, we really have to put our shoulders to the wheel and do our utmost, ladies and gentlemen. But despite all the economic uncertainties, we nevertheless remain guardedly confident. In 2013, we will sell more vehicles than in the previous year. We will further increase our sales revenue, and our target for operating profit is to again reach the high level of last year. Above all, however, we are working unwaveringly towards achieving our great vision. We want to lead the Volkswagen Group to the top of the automotive industry by 2018 profitably, sustainably, and above all, permanently. Thank you very much for your attention.

Stephan Gruhsem

Well, ladies and gentlemen, that much by way of speeches. I would now like to throw the floor open for question and answers for the media. Please give us a show of hand, give us your name and the name of your medium, and please wait for the ladies with a microphone to come to you so that we can hear you. Mr. [indiscernible] will be the first one to ask questions.

Question-and-Answer Session

Unknown Analyst

[German] My first question refers to the topic of budget cars and the brands in your group. Under what brand would you like to sell this market -- this car in the market? Would you consider even to create a special brand for this, a separate brand for this? Could you please comment on that? The second question is a bit more of a personal nature. Being pensioned off at the age of 67, Mr. Winterkorn, is not a problem for you? 2018 is also still some time to go, but wouldn't it be nice if you could still reap the harvest of the profits and the good results of the company? Maybe you would have to reach this aim a bit earlier than on the year 2018?

Martin Winterkorn

And so the question about the budget car would be launched as a new brand, has not as yet been taken. We're testing the process of considering this. And our colleagues from sales also has some ideas, so please wait until we will be able to give you a clear-cut statement on this. As regards to my personal situation, well, maybe I don't look like this, but I feel quite healthy and feel well and fit. And depending on my state of health, I will continue to work as long as the group needs me. 2018 is a long goal, that is true, but maybe we'll be able to attain or achieve our goals even earlier than that. Mr. Ritter [ph], please.

Unknown Analyst

I would like to come back to the current year. You said you want to maintain the result. Maybe you can help me doing some arithmetics here. Porsche, you said -- for the Porsche you had fully consolidated for the first time, this will, of course, boost sales and earnings. In all likelihood, the purchase price allocations and the burdens from this amortization and depreciations will decrease. Also as regards to transverse modular system, the burden will be reduced. But if you only maintain the earnings at the same level, where exactly would you then have negative effects? And Mr. Pötsch, maybe you could also comment on what role discounts will play in this respect? Also, second part of my question, as regards to the result of the Volkswagen brand in the past year, return on sales decreased to 3.5%. And here again, under the burden from the MQB, the transverse modular system, was also something that had to be though [ph] about. What was the role of discounts and rebates in this respect? A question to ask of Mr. Pötsch again, as regards to 2018, now the goal is to increase the return on sales pretax to 8%. Now if you take a look at the special effects, extraordinary effects and -- or just the balance sheet for the -- by the extraordinary effects, considering the pretax result of 2012, what returns did you really achieve? Last question, with a view on China, where will this new facility be built and why? I ask this question because experience has shown that political decisions also play a role in this respect. So was it your idea or did government, the Chinese government or your joint venture partner, exerted a certain influence on you, if I might say so.

Hans Dieter Pötsch

Answering your question on China first. It is our plan to build this facility in the Southwest, in South Southwest of China, so that we would be present in a region where today we are not sufficiently represented today. There was no influence on the part of government. It was our own decision, which was based on the consideration as to in what region China do we have, what market shares, with our own plant. In a certain region, of course, we want to pursue the objective of increasing our local content, our region of market share. What is the infrastructure? What is level of skills and training and expertise of the workers there? That is also something that plays a role when considering a new location for a plant.

Unknown Executive

The question "Where?" Well, in the South Southwest of China, still some prerequisites need to be met. Once they will have been met, we would like to go to Tianjin [ph] if all of the conditions can be fulfilled and met, as I said. Mr. Ritter, let me then continue with the many questions you asked concerning the topic of 2013, fiscal 2013, and let me link up to what Dr. Winterkorn has said in order to point out very clearly that in our outlook, we first of all applied a conservative approach and consideration. I don't want to list all the topics that lead us there. But if we go from West to East, the issue started in America with fiscal cliff and certain problems. Also, South America we don't know how long they will be in the market as it continues with Europe with the crisis, financial crisis, consolidations that would be necessary. The questions as to whether political decisions will be taken in good time, and history has shown that it was good to be where the situation as we have it Cyprus and then -- and Italy do not contribute to a certainty. And in China, there's a new government that remains to be seen what the development will be there. We think that we would be well-advised to pursue a realistic approach. And this brings me to yet another principal variable to answer your question in detail, which is the following. In situations like these, stability, robustness will always be top priority for us, even though this may give rise to one or the other drawback. In order to render this more concrete, I would like to talk about the following. For example, keeping an extremely extraordinarily high-gross liquidity, which is a burden on the earnings to the tune of a 3-digit million amount. But we think it is advisable to do that in this situation. This also refers to our inventory and the storage warehousing strategy. We'd rather keep the level of our warehouse below the level that we would consider ideal. And the third point, and my colleague, Mr. Klingler, can comment on that as well, this also refers to the topic of a solid pricing policy. Here, we were not entering any trade-offs. It is certainly a basic element, particularly as regards to Volkswagen brand passenger cars. It also has the disadvantage that the one or the other car may be lost because there were customers who attach a lot of importance to discounts and rebates. Note, we would like to pursue a very consistent and committed policy. And that is why, as regards our outlook is concerned, we used a very realistic stance. Now let me give you a few remarks so that what you have now said will be on a firm basis. And let me state that we will receive a support of our result in 2013 by the full year consolidation of Porsche. And we can expect that Porsche will develop in a very greater fragment again this year. And on account of a slightly reduced figure of depreciation and amortization on allocated assets. So this will support us. But let me also refer to the one or the other negative point. The above-mentioned positive effects will be compensated for by the fact -- by the following fact. If we take a look at our product range, we have commercial vehicle brands of which we have the expectation that 2013 will be yet another difficult year in all likelihood. We are aware of the fact that these are products which are very sensitive to economic changes. So here, we have a clear minus in the year-on-year comparison in this field, in this respect. Let me come back to the Passenger Cars segment and say that it's not just volume that counts, but also the question as to what cars we sell and particularly also in what countries? We have based our considerations on the assumption that the product and country mix could have a slightly negative outcome. Another negative point I would like to mention in terms of operating activities, these are fixed costs, which in all likelihood will grow slightly. And here, we have to mention that our R&D costs will remain at a high level and have to remain high in order to be able to receive -- or to achieve our ambitious goals because there will be really an all-time high when it comes to new launches. And we have to mention in this context that it's always nice when you have a lot of new vehicles and models. But start-up costs, of course, always have to be borne in mind. Coming back to external factors. Well, this always depends on different conditions. As a told you, we try to be realistic in our attitude. This also refers to our exchange rate policy. We did not base our considerations on the assumption that the weakness of the euro, as shown in the past year, will necessarily continue, but we can only tell at the end of the current year. But we have planned for a negative effect in this respect anyway. And let me say very clearly that there have -- or that there will be clearly positive effect. As Dr. Winterkorn said, the volume is expected to grow further. After all, we also want to increase our sales accordingly. Hence, here, we have a clear positive sign, a clear plus. And the number of vehicles that were used, the modular system will still be limited because these productions have to be ramped up. But there would be, first, effects also from this new MQB, the Transverse Modular system approach, which in the years to come will contribute greatly to positive developments. So if we take all of this together, all in all, I hope I was able to convey or to give an impression to the end that we would be well advised if we simply assumed that the operating result of 2012 will be repeated or could be repeated in the current year. Let me -- I should tell you that there will be quite some headwind in Q1. We will be below at the previous year's level. Conversion activities, Christmas, reducing our inventories at the end of the quarter, the preparation for a strong second quarter; this, of course, will have repercussions. But it needs to be seen in the context and in the light of the fact that we have planned to achieve this goal as outlined above for the total year. In order to come to the end of my answer, let me tell you, Mr. Ritter, you asked about the adjusted image and picture. Of course, there were a lot of extraordinary effects that push depreciation and allocated assets is also contained here. On an adjusted basis, we have a pretax return on sales in 2012 to the tune of about 7.6%. Let me remind you that in 2011, it was about 7.9%. So I think this is our view that you can certainly be confident that in the next years to come, despite the one or the other negative effect, we would able to achieve this goal of the 8% mark by 2018 in a way that this would be sustainable. And this, of course, means quite a lot of work. Mr. Klingler, would you like to comment on price?

Christian Klingler

I think what is important to be aware of is the following. We have to see our view of the market situation in 2013. Dr. Winterkorn already mentioned that we expect there will be a growth overall worldwide. This will be in the low single-digit region, of course. But there are, of course, differences concerning the regions that will have growth. On the one hand, we have China, where we expect that the situation will remain to be stable as regards to growth situation. On the other hand, we see in Europe hardly any positive effect -- few positive effects. So we think that basically, we will have a situation where the market will continue to shrink. This will, of course, have various development from country-to-country because in Southern Europe, the crisis is still there, still exists. And we will see what the effects will be. But as others have already mentioned today, we think we still have to be aware of the fact that the crisis will prevail. We think in North America, there will be growth. In South America, the situation would remain stable in a solid basis, maybe a slight growth. Now this, all in all, gives rise to situation, which is also, of course, boosted by our competitors. We have 12.8% market share, so 80.2% (sic) [87.2%] of the market will be dealt with by others. And this gives rise to situation where as regards to development of the markets and competitors will have an influence on us as well. Our clear approach is that as in the previous year, we would like to rely on our price positions. Of course, we have to live up to competition, of course. We cannot withdraw from that. And we think that the pressure will increase over the next few months, pressure from the market, and we do not think that we can say everything is fine and dandy now. It is logical because, particularly of those regions where we expect that the market growth will be lower, maybe even negative, there will always be price pressure, which we will also have to face. But last year, I think, has shown that we were always more conservative and exerted more caution than our competitors did, and we will continue along this line. And that is why we organize our warehouse accordingly. We have -- we are well aligned. We're extremely flexible. We're extremely responsive and fast, responsive also to market changes, so that if need be, we can respond accordingly.

Stephan Gruhsem

[German] The next question will by Mr. Poetzoff [ph] and Mr. Dorn [ph] [indiscernible]

Unknown Analyst

Mr. Poetzoff [ph], Stuttgarter Zeitung. I have 2 questions. One, Mr. Winterkorn, on your 2018 strategy, you want Volkswagen to be the biggest of the automotive group by then. Last year, Toyota really came roaring back; it's now at the lead. Hyundai is following close behind. And they're much more profitable than Volkswagen. So my first question is this: which of those 2 competitors do you think is more dangerous? And do you think they could stop you from reaching the lead by 2018? And what does Hyundai do better than Volkswagen because they have higher earnings? And the second question is about the Crafter successor, Daimler, is still hoping that they can produce that joint vehicle. Now Mr. Piëch, who has an important thing to say at Volkswagen -- important word to say at Volkswagen -- has said he will do it alone. My question is, will that happen and who will do it? In the Volkswagen Commercial Vehicles, Mr. Pachter-Rheinhofen [ph] said to me at the last commercial vehicle show in Hannover said that transporters, that's not our business. But if Volkswagen Commercial Vehicles were to do it, the volume would never be high enough to make it profitable. So what is your idea about that, and what is the situation with regard to a decision?

Martin Winterkorn

Mr. Breitsler [ph], first of all, you know that we take all competitors seriously, not just Toyota and Hyundai. There are many others, enough others around the world. Yes, Toyota has come back, and I think I've always said that the biggest mistake would be to underestimate a competitor, above all, Toyota. So I therefore would like to say that we will continue to take Toyota very seriously. We also take Hyundai, Kia very seriously. The growth of these Korean brands is considerable. Their vehicles have become much better. We see that, too. And if you were to ask me why the 2 of them have a better operating earnings level than we do, that has to do with their local production in Korea. And as you know, we have a trade agreement with Korea. But I don't want to talk about nontariff trade barriers today. And then Crafter. Leif, would you like to say something about that?

Leif Östling

Yes. We are currently studying different concepts for the successor to the Crafter. This is a long-term project, and we haven't made any decisions on that. We're in the project stage, so it's too early to make a statement on that here.

Stephan Gruhsem

[German] Okay. The next question will be by Mr. Dole [ph] and Ms. Lesker [ph].

Unknown Analyst

[indiscernible], Die Welt. I have 3 questions. Dr. Winterkorn, question number one, you said that the foundation for the group earnings is the premium brands -- or 50% of it, and I believe that that is not without your posting effects. So is that going to continue to go up or will Volkswagen become more premium, the Volkswagen Group? The next question. You said in the past there are some white spaces, there are some uncharted territory on the Volkswagen map of the world, including Africa, and that has to be filled in. So what concrete steps are you doing to -- are you doing to do that in Africa? The last question is, the German government coalition will probably agree on a new type of corporate law that will have an impact on the payment for executives. It's not about a cap, but it's talking -- they're talking about a binding law that would allow the AGM to be able to make the decisions on executive pay. Do you have an opinion on that if it happens, because it looks like it's going to happen?

Martin Winterkorn

Mr. Dole [ph], thank you for those three questions. Mr. Klingler can tell you about Africa. Premium or more premium, what I'd like to say there that we are trying to achieve a balance between premium and volume models, and we also work to react to the wishes of our customers and markets. And that's why for the first time, we have moved into areas where we weren't in the past with the new small family and then the A-Entry and then budget car. Nevertheless, with our premium strategy, while we're going to continue that, too, the best thing is -- the most important thing is to have a good balance between these 2 categories of vehicles. And then executive pay, I can just say this. Currently, we're going through an intensive discussion about the subject of management pay in Germany, in Switzerland and in fact now, in all of the European Union. Most recently, this became an issue in election campaigns, but allow me perhaps now to make a statement as to make a statement as to all the challenges we're facing. You heard about them from Mr. Pötsch and Mr. Klingler. We, the company -- we, our country and Europe all have these challenges to face, so I don't know whether this is an issue that will really help us make -- move forward. And you know that we at Volkswagen, for many months, actually have been dealing with this subject. You were able to read that everywhere. So our -- the question we're asking is how can we ensure that our future will continue into the future -- our success will continue into the future and everyone will be able to be paid appropriately, and how can we balance all of these aspects? So let me remind you that since 27 -- 2007, we've been able to increase our revenues by EUR 1 billion. Operating earnings were up by 90% last year compared to 2007. We sold more than 3 million more vehicles. 100,000 new jobs have been created, including 30,000 in Germany alone. And by the way, our share price, if I'm right, is up by 60%, 70%, maybe even 80%. So you can believe me that we know exactly that this success is only possible on the basis of a great performance by the entire team, all 550,000 employees. And therefore, all employees in the Volkswagen Group, as I said, will receive a profit-sharing payment for the past fiscal year of EUR 7,200. And the other brands will also have profit-sharing. We've had this current discussion in the past, and we've anticipated this discussion. Now we are persuaded that the solution that our Supervisory Board has opted for does exactly this: success, performance and remuneration must be balanced appropriately. And our responsibility, and I can say this clearly, is to create real value. Value for our customers, our employees, our shareholders and for society. And I am speaking here on behalf of everyone sitting up here on the stage when I say that this is what drives us and this is what all of our efforts are focused on. Now after that statement, I'd like to hand over to Mr. Klingler to tell us about the other subject, Africa.

Christian Klingler

Well, let me say something about Africa. It's not Africa, a single unit. There are 3 Africas. In the South Africa, we are very successful; we have been for many years. We're market leader in South Africa, and we feel very at home there. Then you've got North Africa, which, to a certain extent, has opened up as a result of political changes there. Here, we're already relatively successful. There's some work to do there. There's work to do, for instance, in order to calm down the environment, for instance. Libya. In Libya, the political situation is not completely calm. And then there's Sub-Saharan countries, there's a market there that is developing, but the level we're starting at is very low. The whole area there is an area with 30 countries, and it has a total market of about 300,000 new cars. So the overall potential is not that large. It will continue to develop. It will develop quite substantially. We believe that in the next few years, it will double or triple. In the past few months, we have established and passed a clearly defined strategy, and we will dedicate our efforts to this area. The difficulty is, and I think you see this, if you notice, there are 30 countries, 300,000 cars. Well, that means that our approach has to be quite complex, so we have to have a network, and we're working on it. And I hope in the next few months, we'll be able to have a sound foundation for those activities.

Stephan Gruhsem

Ms. Schneider [ph] -- no, sorry, not Ms. Schneider. Ms. Lesker [ph], and then Mr. Schneider.

Unknown Analyst

Ms. Schneider is actually up in Hamburg now. My question is for Dr. Winterkorn. I'd like to ask about executive pay. You said correctly that this is a subject that is now in the election campaign, it's an issue there. It's not just the SPD, the Social Democrats, also Chancellor Merkel said that AGM should be able to vote on executive pay, and I'd be interested in hearing what you have -- what you think about that idea. And if you don't like that idea, at least that's what I thought you said, well, what good or bad influences would that have or might that have for German companies?

Martin Winterkorn

Well, I made my statement. I will hand over to my colleague, Dr. Neumann, if you would agree with that.

Horst Neumann

Let me perhaps give you a two-part answer. First of all, in a general remark and then an attempt to make this a more objective debate. When you talk about payment for managers and boards of management members, you have to look at what is performance-based pay and what is profit-sharing, so to speak. Now if you look at Volkswagen, you can read our remuneration report. It's very transparent. It's in our annual report. And I think this makes us one of the global leaders in terms of transparency regarding the payment for our boards of management members. Whether or not that's always a good idea, well, I won't comment on that, but that's the way it is. And there, you can read that the performance base pay, let's say for Dr. Winterkorn, is about 28x that of a skilled worker at Volkswagen and the other colleagues here up on stage have a remuneration level of about 20x that of a skilled worker. Now that's not that bad. And I think if you talk to people in the general population, they'll say that that's a relationship ratio that is widely accepted. Second question is profit-sharing. And at -- in different German blue chip or DAX companies, it's treated differently, in different ways. At Volkswagen, I believe we have a very balanced approach. If you look at our total operating earnings, about 1/3 goes to the government, society, that is taxes; 10% goes to the workforce, profit-sharing is paid to them; management gets 6%; and the board of management all together gets 0.25%. And I think -- we think that, that relationship is not that bad. And it's definitely a question that can be discussed in the general public, how much profit-sharing is right, is fair? How much do board of management members get? How much do management members get and how much does the workforce get? And now let me answer in concrete terms the other part of your question, what do we think about the initiative taken by the German government or by Ms. Merkel. I can just say that we are -- we at Volkswagen AG, are quite relaxed about this because the Annual General Meeting in terms of its structure and in terms of its participation is reflected on our supervisory board to the tune of like 90%. We believe that the supervisory board would approve of the remuneration system it has approved on the Supervisory Board, so we believe that the Annual General Meeting would then approve it, too, obviously.

Stephan Gruhsem

Then Mr. Schneider and Mr. Koppe [ph].

Mark Schneider

, Mark Schneider, Handelsblatt. I have a number of questions to follow up on the previous ones. First of all, coming back to China, Dr. Heizmann. If you say that the capacity is for 1 million or want to increase to 4 million or even more by 2018, what is the present level, 2 million? And if you want to increase the number of plants to 10, would it be 110, or others are still being bid already, which needs to be added -- what need to be added? As regards to capital expenditure of investment, will it be the same level you said the MQB was to come, the modular system, will this still be the EUR 10.3 billion, would that contained or would it be a bit less than that? And as clearly said, this means when sales is increasing and if you would like to have the same operating result that the return, would it be below 6%? Could you please comment on that? Then I would like to learn about the Passat because the mid-range sectors, particularly, are affected by the problems in Europe. Will you manage to make it through the year with production days that you may have to drop? Or would you have to take measures here as well? Coming back to the remuneration debate, Dr. Neumann, how has this ratio developed since 2007, which you have just outlined, the comparison of -- what you just said, it was compared to employees and workers, has it remained at the same level? Has it changed more in direction of the skilled workers or more in the direction of board members? Could you please comment on that?

Jochem Heizmann

Well, Mr. Schneider, I would like to start with your questions on China. The capacities that you have referred to, while this is our plan that we would like to increase it to the number of 4 million units by 2018. This year, 2013, we have an approximate capacity of 2.3 million vehicles on the basis of 250 working days per year. As regards to the number of sites or plants, in order to give you the precise order of magnitude, just how see this and differentiate, sites basically means cities; plants means here, we distinguish between car-producing facilities, component plants and so on and so forth. If you take a look at this year, then below the line, we have 17 different locations in China with 28 plants. And of this 28 facilities, 11 are car-producing companies and 9 are engine factories, 4 are transmission and gearbox factories and 4 are component factories. And within the train of our future capacity expansion in the next years, we will also have additional vehicle-producing plants and also, other sites will be added to the network there in China.

Horst Neumann

Mr. Schneider, as we just said, basically, the development in our sales markets is positive -- has been positive. But in Europe, of course, we have more and more economic uncertainties. And as you expect, we will do this with foresight in order to be able to respond flexibly to the present market situation, and if need be, we would then also adjust our production levels. We do this on an ongoing basis. We do this with all models and also in the case of the Passat, obviously. For the time being, we cannot, of course, anticipate the whole year. Please bear with us. We will remain flexible. We have the conditions to do that, and this is the way we will handle this. Next question was on capital expenditure investments. I think I should best reply as follows. We intend to maintain the investment ratio, i.e. the ratio between capital expenditure into plants, equipment and machinery to sales. We would like to have it at this level of -- as we have it today, we would like to maintain that. And second question, yes, on the basis of arithmetics, this is the case. If we have an increasing sale and -- sales in 2013 and wanted to maintain the same operating result as the previous year, then we would have a slight increase in returns.

Unknown Executive

Mr. Schneider, coming to your follow-up question as to what this -- development situation was, if you take the basic salary and the performance-rated salary between employees, management and board members since 2009, whether development has been in parallel roughly because we attach importance to a fair development at all levels. As regards profit-sharing, the board members from the [indiscernible] years 2002 to 2007 had a proportionate development with the results. And then in the year 2012, there we had this [indiscernible] year, we are below return on account of the revision of the previous year by the supervisory board. As regards employees and skilled workers, the development has been above average compared to profits because in Germany, as you may know, we have a contractual stipulation of the 10% profit share, and we topped this up slightly. The EUR 7,200 that we offer this year will also characterize by a certain extra bonus because we've had an extraordinary good development. If you take the workman situation, then the profit-sharing level of the whole Volkswagen team is certainly above average because in many countries outside of Germany and Europe -- well, we are growing into these other countries, so to speak. You can imagine that in other countries, the employees also have the Internet and can observe what is happening here in Germany. And we would like to roll this out worldwide, of course, with all due care, so that all employees can participate in our profit. We've been doing this for years. So below the line, we have a profit-sharing level which is above average.

Stephan Gruhsem

Mr. Krepper [ph] is the next person to ask questions.

Unknown Analyst

Dieter Krepper [ph], Media Mobil. I have 2 questions to ask of you. In the MQB, the modular system, Volkswagen has invested a double-digit billion amount. The question is, when will this pay off, by what time, what is your expectation? Second question, in the fuel -- a lot of movement has been as regards to fuel cell development, new alliances have been formed. Among others, Mr. Yota [ph] Hyundai is also active here. They even built a factory in order to have a volume production of this technology. Now how will Volkswagen try to be also in line with this development? What will their approach be?

Unknown Executive

First question, the MQB, the modular transport system. Let me say the following in order to have the right assessment. When talking about double-digit billion amounts, this does not refer to the system alone. This also includes, as we always say, the different hats. When you take a look at a car, the hats of the vehicle are also included. And you must also bear in mind that you may know that the first vehicles had their start of production in 2012, starting with the A3, then the Golf, SEAT Leon and Škoda Octavia on the basis of the system. How averages our plan that in the years by up to 2017 roughly, we would like to have about 40 vehicles that will be based on this modular system. And so far, I'll say it is very difficult to say offhandedly as to by what time we would like to expect a return on investment payoff, so to speak, of the system. But the modular system does meet our return and return on capital expectations and requirements. And if we don't have the money paid back in 2.5 years, we wouldn't have done this in the first place.

Unknown Executive

Mr. Cleaver, this is a highly interesting question that you have raised here. Let me start by saying the following. What do we consider alternative drive systems? We start with purely battery-driven vehicles; then we have the range extender, which also is in the market; and the normal hybrid vehicles has been around for quite some time, where you can also drive with purely nonelectric mode. And if you now add the fuel cell, we also have to take account of that, and also plug-in hybrids. Now if you ask questions on the fuel cell system, yes, we, of course, are also working on this. We are active on this. We will also like to have vehicles with a fuel cell system. But if you may cast your mind back to the year 1998, for 14 years, competitors have boosted -- they have boasted so that you would have thought that about 22 that would only be fuel cell vehicles, but now it is postponed, time and again. I do not as yet see the necessary interest for fuel cell vehicles, the hydrogen structure. And I cannot see how hydrogen can be produced on a large scale at reasonable cost. And I do not, at present, see that we will have a situation where we can offer fuel cell vehicles at reasonable costs that the customers would also be willing to pay. We rely particularly on plug-in hybrids. Plug-in hybrids can work both in remote range of 50 kilometers, which is sufficient for most persons to go to work and travel home back. Then at the same time, we have an internal combustion engine, highly [indiscernible] injection engine, which is used for longer range trips. We think that this is the system of the years to come. What the situation will be like in the next decade, we do not know. Maybe we will have batteries with high energy density. But the main problem is that the energy density is too low in order to cover wider ranges. Another topic that we are also dealing with intensively, and that is methane because that is available in abundance, methane gas. And our MQB, our modular system, has been prepared for this. You have seen that the first gas vehicles have already been exhibited in Geneva. So there are different options, and I think for this decade, the plug-in hybrids and the gas-driven vehicles will prevail, apart from the internal combustion engines, [indiscernible] engines, diesel and the normal fuel engines.

Stephan Gruhsem

Let me add to this the following. The dream come true of the plug-in hybrid is available here in our exhibition area, so you can really have some hands on in order to have an idea of what the near future will look like. We will now like to continue with the lady in the third row. Could you please give us your idea [ph] of the next question.

Unknown Analyst

Sorry, I'll speak Spanish because I wanted to [indiscernible]. I have a question about your plans regarding to SEAT and bringing them back up. Because as you said, they're really hit by the crisis in the southern markets. And I wonder whether SEAT, like Skoda, is going to get a new SUV and whether it's going to be part of your growth plans for the group in China.

Unknown Executive

Since we have a Spanish person here on the board, I'll hand that question over to Dr. Garcia, who is also the Chairman of the Supervisory Board at SEAT. Go ahead.

Francisco Javier Garcia Sanz

Well, I'll answer in German. First of all, your first question, what's our strategy. Well, we are working on a strategy for SEAT, and it began the end of last year and is beginning this year. Because SEAT has [indiscernible] the Toledo, the Leon, and that means 3 new vehicles that have been launched. And it's well-positioned for the future. You see that if you look at the deliveries for the first few months, which are up by 14% compared to the previous year. Secondly, Dr. Winterkorn said last year that SEAT -- the SEAT brand is a fixed component of the Volkswagen Group and will remain so. Of course, they have been hit harder than others by the problems in Southern European markets, in particular, in Spain, but that's obvious. However, there are measures which will help move us forward in the future. Then with regards to the SUV, nothing has been discussed there yet. I know that in many magazines and newspapers, this is being talked about in Spain. We're working on a concept for SEAT, but it's not certain where that vehicle will be produced. Then the Chinese market, 2012. Well, 2012, SEAT went there with FBU, went to China. They have set up a certain number of dealers now. Whether or not SEAT will ever produce in China is something we're going to see when we get the initial results from their entry into the market that just began.

Stephan Gruhsem

Okay, we will go over here to the right-hand side, please.

Joann Muller

Joann Muller from Forbes Magazine. I wondered if you could talk a little bit about the development of the North American market. A few questions, do you anticipate further plant expansion in the United States, Tennessee, in particular, or someplace else? Also, why Mexico for the Audi expansion? And also the development of diesel vehicles. Volkswagen seem to have had some success, but doesn't still seem to be catching on in the United States.

Unknown Executive

Maybe I could begin with your question about Mexico. Audi opted for the plant in Mexico, for the site in Mexico, because we said we are becoming more international, and we, therefore, need a decision for a NAFTA location, so over the long term, we will become more independent from the euro-dollar exchange rate. In addition to that, we need a location where we can build a Q5 and export it to places around the world, which means that we would have to have ideal customs conditions. And then third, our question we asked is how can we make a good product in economic terms. And in Mexico, we have ideal location costs, which ultimately led us to opt for that location. Let me just add a little bit about diesel. Audi was the first premium brand in the United States to offer a clean diesel. Our success for the A3 are very good. Our success for the Q7 are -- is very good. Almost 1 customer in 2 of Q7s orders a diesel. And Audi has also decided that it will continue its diesel initiative in the United States. We're coming in with the Audi A8, the A6, the Q5. And over the medium to long term, we will definitely have the A4 product series there, too.

Unknown Executive

I'll answer your question about Chattanooga. We're very satisfied with the product launch of our Passat in United States. We've won numerous accolades and awards there. Our production is going up now. And in Chattanooga, we can build 170,000 vehicles maximum. And of course, we are in the process of looking at further products for that plant. We're considering them, but there's no decision that's been made yet. But you can rest assured that we went to the United States in order to stay there.

Christian Klingler

Maybe I can say little bit about diesel all together. With our diesel shares, as has been said, we are very satisfied. This applies to the other brands in the group, in particular, to Volkswagen. We shouldn't forget that diesels have major fuel economy advantages. You see that. And we're pleased that some American manufacturers are now looking more at this technology and have given some thought to diesel passenger cars. We believe that over the long term, diesel will play a different role in the United States than it does now because it does give you fuel economy advantages. It's about 15% to 20%. And we also believe that in terms of how they drive, well, they're just really great to drive. So we believe in clean diesel. We're going to stick to that, and we think that we have been very successful there.

Unknown Executive

Let me add just one thing about the diesel in Passat and the Chattanooga plant. When we had the inauguration of the plant in Chattanooga, the American minister of transportation -- the Secretary of Transportation said it would be much better to have many more Passat diesels and other cars like to that. And we said it was a 41 mpg car, and that was really a major piece of news. And as Mr. Klingler said, we're very satisfied with our diesel share in the United States.

Stephan Gruhsem

It's 12:00. As you know, normally, the press conference ends here, but since we talked a little bit longer today, I will allow 3 more questions, the 3 questions on my list, so we will extend things a little bit.

The next person is Mr.Krogen [ph], Henry Hutton [ph].

Unknown Analyst

Then I'll be quick, Mr. Gruhsem. Two questions. First of all, about HR. Mr. Neumann, the Chairman of the Board of management, said that international market waiting is shifting, and he's emphasized that Volkswagen is a down-to-earth company, and this of course applies to the core brand, Volkswagen, in particular. So my question is this. If you look at 2018, well, is it imaginable that maybe half of Volkswagen employees might be working outside of Europe? Is this an assumption that would be close to the truth? And then my follow-up question on that is, what percentage do you have today? And the second and last question is about purchasing, procurement. Mr. Garcia Sanz, you do raw materials managing, commodities managing, and of course, you are going to work to minimize risks this year, too. You are planning to avoid volatile or price-sensitive raw materials and commodities, maybe you'll rule them out all together? Which ones are those? Which ones can you alltogether? Which ones can you consider ruling out all together? And give us a price estimation for the conventional things steel, aluminum, oil, maybe special things such as carbon fibers and rare earths.

Francisco Javier Garcia Sanz

Well, the workforce structure today basically is very simple. Of the 550,000 employees that we currently have on board, 400,000 are in Europe. So we still are a European group. The share of employees outside of Germany in Europe has gone up. In Germany, we have 250,000. Outside of Germany in Europe, it's 150,000. So 400,000 in Europe. So as you can see, that means 150,000 outside of Europe. And this figure will, of course, grow more outside of Europe than in Europe in the years to come. So that in 2018, it'll maybe be 200,000 outside of Europe because we will then have more than 600,000 all together. But we will take a very, very long-time to reach half of our employees outside of Europe.

Unknown Executive

[German} Talking about raw materials, let me start with the last question, which is easy to answer. If I really know exactly what the commodity development would be, I wouldn't be here in all likelihood, if I had this crystal ball. But we can say that the raw materials, the commodity markets have calmed down. They will remain to be volatile, but at a high level, not comparable to this level that we had back in '07 and '08. As regards with commodity, we tried to eliminate, here we cooperate very closely with our suppliers and the development departments of the brands of the regions. This particularly about rare earths, which gave us quite some headache in the past. And if you go into rare earths, then you have magnets, of course. Magnets can be -- what is the name, Mr. Winterkorn? You have a certain magnetic forces where we do not exactly find the correct term. [indiscernible] Mr. Garcia cooperates here in order to try to find out where electric motors, which contain magnets, how they can be produced without rare earths? And if there's [indiscernible] our R&D department becomes very creative and that's good example of this.

Unknown Executive

Yes, we cooperate closely with our suppliers and they're also quite aware of this volatility and are course preparing themselves for this. The rest we tried to hedge on the basis of long-term contracts and new source of procurement, of course, i.e. long-term agreements and contracts with suppliers. I take it Dr. Garcia is very active in this field.

Ray Hutton

Ray Hutton, The Times, London. What's your situation with your shareholding in Suzuki, and do you see any future at all in this alliance?

Martin Winterkorn

[German] Well, we do understand that you have to ask for Suzuki. But at this point, we would rather like to say that we are in an arbitration proceeding in this respect where the parties, of course, are bound by confidentiality applications and agreements that we have to [indiscernible] -- so please bear if we cannot comment on this.

Unknown Executive

And then I have yet one more question from the left-hand side, left-hand center side. Could you please raise your hand again so that we can see you?

Unknown Analyst

Stefan Peroncini [ph] from Boersen-Zeitung. I have a question concerning the distribution rate, which only has a moderate movement this year. Can you please outline the further steps as regards the planned dividend payout rate?

Martin Winterkorn

Well, when asking about the dividend payout, the distribution rate, then I think we should, first of all, say that you shouldn't succumb to the temptation of trying to compute this on pure mathematics because you will then have very low rate, 7.5%. Especially if it's contained in this computation do not have an effect on liquidity and on our tax situation, so that you have to eliminate them. If you do this, then you would have an adjusted rate of 17.8%, which is higher than that of the previous year, but it was 15.7%. You may know that our midterm goal is the dividend payout rate of 30%. But it would be really premature to give you the individual steps year-on-year. This will certainly depend on the further development of the situation, clearly. Even though I must now close the official Q&A session, the gentlemen here in the panel will still be available for you. So when you have still things to clarify, you will have an opportunity of contacting these gentlemen. But as I told you, our schedule requires that we really have to stick to it. So all that remains for me to say is, thank you to all of you for having attended this conference. You may know that the different workers are here and this level offer -- the lower level offer the center. So I'd like to invite you to lunch, so bon appetit and a very pleasant and safe trip home. Thank you.

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