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Executives

Stephan Grühsem - Investor Relations

Martin Winterkorn - Chairman

Hans Dieter Poetsch - Chief Financial Officer

Jochem Heizmann - President and CEO, Volkswagen Group China

Analysts

Jan Schwartz - Reuters

Andre Tauber - Die Welt

Volkswagen AG (OTCQX:VLKAY) Q4 2013 Results Earnings Conference Call March 13, 2014 8:00 AM ET

Stephan Grühsem

Good morning. Ladies and gentlemen, colleagues. Welcome to the Annual Investor and Media Conference of Volkswagen AG. Moving ideas, you just saw it on the short teaser video clip. This has moved us, as you’ve noticed, moved us from the known environment of Wolfsburg’s Autostadt to the former airfield, airport in Tempelhof here in Berlin. I was able to explain to many of you the details of this event.

If you have joined us this morning let me fill you in on the details. Since last Sunday and this will continue over the next two weeks, Volkswagen has rented and is using these premises to present its motto electrified, over the next two weeks we will have a total of 28,000 people visiting the event, first and foremost, the representatives of international media to present electro-mobility at Volkswagen.

First, in the form of our latest products which have being launched during these weeks and to benefit of the opportunity of meeting important opinion formers here in the capital City of Germany, Berlin, which is why over the weekend we have the public open day where it is accessible to the general population and we have concerts of hip electric bands and this mixture is a logistic challenge indeed.

As you’ve noticed, we are occupying three hand guards in this former airport to host the events for so many interested people. The past few days we are auspicious not only because of the beautiful weather but also because of the many test drives right outside on the apron in front of the hand guards.

The annual investor and media conference has been consequently moved to Berlin and we’d like to welcome you most warmly to it. Let me briefly describe what is in store for you over the next hour. Professor Winterkorn will first cover the past financial year. Then our Member of the Board responsible for Finance, Hans Dieter Poetsch, will give you more color and detail on the figures on our key financials a then around noon we’ll have to finish our Q&A session, which comes after the presentations. And then on your agenda you see that we also have a Q&A round for investors and analysts. This is the tried and proven agenda which you are familiar with.

Let me also mention our new management report and under the ideas and figures you find the magazine part with faces and impressions from our brands. Have a look and I’m sure you’ll be interested in our annual report.

Then we have the Volkswagen Navigator, which we offer as a web app this year. What is special is that you can use the virtual world map and you can explore all locations and plants of the Volkswagen Group. We have the key financials, of course, information on Volkswagen and of course, the core of everything we do our cars. You’ve had ample opportunity to have a look at the app here on the grounds, on the premises we have a lot of iPads.

Over to Professor Winterkorn.

Martin Winterkorn

Thank you, Mr. Grühsem. Good morning, ladies and gentlemen. I better you welcome to Berlin. In the Volkswagen Group there is a lot of innovative power and these are becoming ubiquitous.

They have a presence appearing everywhere not just in the little film which you’ve just saw -- seen. In Geneva, we are presenting the full spectrum of green mobility at the Hannover CeBIT Fair. We’re giving an insight into the intelligent car of the future.

And here in Berlin we’re inviting people to get to know our new electric fleet. I hope you’ve benefited of this opportunity already. All these examples go to show that we are working with great commitment and at full speed on innovative cutting edge cars. However, the same goes for the entire company.

Our strong financials are compelling but our achievements in areas that cannot be expressed so easily in figures is impressive likewise. Let me just mention the groundbreaking production system, our brand management and key innovations such as the plug-in hybrid.

Setting standards is what we do and I’m committed to that and convinced that once again we’ve achieved this objective last year. With the world’s first 1-liter car our XL1 with an unparalleled range of electric vehicles from small cars to luxury saloons, from plug-in hybrids to purebred electric drives, with seven new vehicle plants in China, Russia and Mexico, and with the top ranking in the Dow Jones Sustainability Index underlining our expertise in the field of sustainability.

Setting standards has likewise become a hallmark in business operations. 2013 was an extremely challenging year for European automakers in particular. Our home market and exchange rates have done nothing to help us, quite on the contrary. And it is quite an achievement therefore to confirm that the Volkswagen Group has delivered, achieving and even surpassing our targets for 2013.

For the first time worldwide, we delivered more than 9.7 million vehicles to customers, an increase of almost 5% over the previous year. We’ve increased sales to €197 billion. And we’ve also maintained our operating profit at a high level, at €11.7 billion. We even surpassed the strong figures of the previous year.

At this juncture, I would like to clear up a misunderstanding that is common even among experts. The Group delivery figures of course include all the vehicles that we build and sell in China. And the previous year, those were more than 3 million units.

In the Group’s revenue and operating profit by contrast, these Chinese joint venture figures are not included. This is due to the accounting methods. The business of our Chinese joint ventures has been accounted using the at-equity method and it is reflected solely in the Group financial result and not in the operating profit. For our financial performance, this means our successful Chinese operations are largely on top of the figures I’ve already cited.

In 2013, the proportionate operating profit in China was approximately €4.3 billion. So you can see that we are really talking substantial on-top performance. And if you consider this, the profit per delivered vehicle would accordingly be significantly higher if you factored this in.

Ladies and gentlemen, to sum up, it is fair to say that the Volkswagen Group has proven to be in great shape despite the difficult conditions. One of the founding -- foundations for this is our broad global footprint.

We recorded further growth in almost all areas of the world last year, the exception to the rule being South America, where a weak market and the impending renewal of our model range across the range offered locally left their mark.

By contrast we recorded growth in other regions, such as North America, or even bucked the market trend, as we did in Europe. Growth was particularly dynamic in Asia Pacific, where we increased our deliveries by 14.7%.

The breakdown by brands of the Group looks equally gratifying. Porsche, SEAT and Bentley posted double-digit growth. And both Volkswagen passenger cars and Audi held their ground despite the headwinds, only SKODA, due largely to the change in its core Octavia model, was slightly down year on year but it has significantly recovered now.

In commercial vehicles, the volatile economic has left its mark. Nevertheless, MAN has recorded growth of 4.5% and Scania grew by an impressive 19.4%, which brings me to the milestones in individual business areas.

Let me start with passenger cars. Last year, the Volkswagen passenger cars brand delivered almost 6 million vehicles worldwide. It also underpinned its role as a technology pioneer, with new models such as the e-up!, the e-Golf and Golf GTE. SKODA continued the largest model cavalcade in the company’s history. With a total of eight new models, the brand has now returned on a strong growth path.

SEAT is reaping the rewards of a young, attractive model range. With the new Leon ST, it has entered the compact estate segment. The new models helped Ducati underpin its cult status. Bikes such as the Hypermotard SP and the 899 Panigale contributed to increasing deliveries in 2013.

Volkswagen, the Volkswagen Group has like no other automotive group struck a perfect balance between volume cars and premium models. Together Audi, Porsche, Bentley, Lamborghini and Bugatti already epitomized the best the automotive industry has to offer today.

Audi reached its goal of delivering 1.5 million vehicles two years ahead of schedule. With new models such as the A3 Saloon, the expansion of production capacity in Gyor and Foshan, the brand has also set the stage for further growth.

Porsche is growing in every respect, from profitability through innovative power, right up to its model portfolio. Emblematic of this is the new Macan, which is rolling off the production lines in Leipzig, a true Porsche and at the same time a clear commitment to Germany as an industrial location. Lamborghini and Bentley have proven once again that there’ll always be a place for something truly special in the automotive world, with exciting new models such as the Huracan and a new delivery record at Bentley.

The commercial vehicles business is increasingly evolving to become a second strong pillar of the Group. Volkswagen commercial vehicles is successfully driving forward its internationalization. In North and South America as well as in Asia, the brand recorded significant growth.

Scania remains despite the headwinds highly profitable. Moreover, the brand has positioned itself very well for the new Euro 6 standard in exhaust emissions. With an impressive 15 different Euro 6 engines, Scania is one of the technology leaders here.

MAN is also investing an innovation. The brand launched new Euro 6 engines in all of its model series for 2013. And the world’s largest solar power plant in Abu Dhabi relies on technology made by MAN.

The third strong pillar of the Volkswagen Group is financial services. They not only support our Group’s brands in winning new customers worldwide and achieving long-term customer loyalty, they are also an earnings contributor.

Last year, Volkswagen financial services signed a total of 4.3 million new leasing, financing and service contracts, up by more than 13%. The division’s operating profit grew by an impressive 14.6% to a new record of €1.6 billion.

Increasingly, financial services support the introduction of alternative technologies with exciting new services. Volkswagen Bank, for instance, in cooperation with German utilities offers eco-friendly electricity from renewable sources for the Group’s electric car models.

Ladies and gentlemen, you can see 2013 was a successful, a good year for Volkswagen. I would like to take this opportunity to express my sincere thanks to our more than 570,000 employees worldwide. Their skills, their ideas and their commitment are the driving force behind our success but good work should pay well in all respects. This is one of the Volkswagen’s core principles.

For Volkswagen AG’s employees in Germany, this means for instance, that they will again receive a substantial profit share of €6,200 each as a reward for their performance last year.

Ladies and gentlemen on that note, let us look to what the future holds. What can you expect from us in the years ahead? The Volkswagen Group will systematically pursue its path to the top of the automotive industry. Our starting position is both sound and promising. We have 12 fascinating brands and more than 310 models to cover all conceivable customer wishes and needs.

We have a global presence and a leading position in all major key regions. We can build on the technological expertise of more than 50,000 engineers in development and we have the necessary financial solidity and clout and a convincing strategy for the future. In a nutshell, the Volkswagen Group has everything to achieve its ambitious goals.

You will recall that we’ve set ourselves the target of delivering at least 10 million vehicles per year by 2018. However, that is only one of the many elements in our strategy. We also want to have the most satisfied customers, the best motivated employees and a strong return before tax at least 8%.

When it comes to our volume target, we expect to exceed the 10 million deliveries mark in all likelihood ahead of plan this year, four years ahead of plan. That would be an important milestone and success, creating additional motivation for us on our trajectory towards 2018. Naturally, volume growth is not something we can tick off.

We will and we want to further increase our deliveries to customers. But we are focusing even more strongly on the qualitative goals of our 2018 strategy. And this is why more than ever before our objective, the objective of the Volkswagen Group is to achieve qualitative growth and that is linked to our ambition of further accelerating on our way to becoming the world’s best automaker.

What does this mean in concrete terms? Well, Volkswagen, quality for us and for me personally is of paramount importance. Uncompromising dedication to our products with precision down to the last detail, our zero fault tolerance, all this is part and parcel of this Group’s DNA.

It is this concept of quality that we live and breathe and implement in our vehicles. And this is the same concept of quality that we’re now transferring to all areas of the company. To achieve this, we’ve launched a major corporate quality initiative in the Group. I’d like to put the spotlight on three focus areas today.

First, earnings quality, second, development quality and third, the quality of our workforce. First, the earnings quality. With our modular toolkits, we hold the key to sustainably strengthening our earnings quality, because when we roll out the toolkit strategy across the Group in the coming years, this will be a unique success in the automotive industry in both technological and financial terms. We are working at full speed but with the necessary perseverance to achieve this.

Since 2013, we’ve delivered more than a million vehicles on the MQB toolkit basis with positive synergy effects. This figure will be around 2 million this year. And by 2016, the number of MQB vehicles will reach the 4 million mark. By then, more than 20 plants in 12 countries worldwide will operate on the Modular Transverse Toolkit basis, from Germany to China, from Mexico to Brazil. And you can rest assured that as volumes grow and new models are added, we’ll also see increasingly positive earnings effects.

Above and beyond this, we are successfully leveraging the potential synergies in our group of companies in both the passenger cars and the commercial vehicles business. Take Porsche, cooperation in the field of development, procurement, production, finance and distribution is ramping up well. We will achieve considerably greater synergies than previously assumed. Instead of €700 million, we are now expecting in the mid-term more than a €1 billion in synergies per year. Also consider commercial vehicles.

Our plan to acquire all shares of Scania is the next logical step on the way towards an integrated commercial vehicles group comprising Scania, MAN and Volkswagen Commercial Vehicles. This will allow us to further enhance the capability, efficiency and flexibility of our commercial vehicles business, for instance, by developing a specific and dedicated module toolkit strategy.

Ladies and gentlemen, if our offer is successful, expect an average long-term synergy potential of at least €650 million in operating profit per year in addition to the already announced synergies of more than €200 million, which will be leveraging by the end of 2014.

One thing though remains unchanged, Scania will stay Scania. We are totally committed to Scania’s workforce and Scania’s job. We are committed to Scania’s plants and development centers. We remain committed to Scania’s headquarters, staying in Södertälje. And we are committed to Scania’s very special corporate culture, which makes this brand so strong. And we are convinced that Scania will continue along its successful path without restriction under the leadership of Martin Lundstedt.

I believe that the Volkswagen Group has proven time and again how strong brands can successfully be integrated, while at the same time letting them have the necessary freedom and independence. Porsche is a very good example of this. And that is why I’m convinced that everyone will benefit from the integrated Commercial Vehicles Group in particular the Scania brand, its employees and its customers. But let me get back to earnings quality.

It goes without saying that we are continuing to ensure an extremely disciplined cost and investment discipline. We are not great fans of hastily implemented savings programs. Volkswagen remains committed to a disciplined approach to investments and costs. This will be a permanent feature. We focus on even more synergies in our worldwide group of companies, even leaner internal processes. And our clear policy of implementing only those vehicle projects that will meet the relevant return requirements.

Naturally, we are part of the world we live in. And over the coming years, a lot of things in our industry will depend on how the economy and the markets evolve. But I’m convinced that the measures I’ve outlined will have a substantial positive impact on our earnings quality. At any rate, we’ve certainly done everything that we need to reach our target return of over 8% by 2018 at the latest.

On to the second focus area, development quality. The Volkswagen Group is already the motor of innovation for the entire automotive industry. The Volkswagen idea factory is running at full speed. In 2013 alone, we filed around 6,000 patent applications. No other manufacturer spends more money on research and development.

In the previous year, we spent more than €10 billion for the first time. And no other manufacturer is working so systematically on sustainability. We already offer the largest fleet of efficient vehicles in the world with 54 model variants below 100 grams of CO2 emissions per kilometer.

Going forward, we will accelerate this innovation engine even further with numerous technological developments, ideas that we’ll roll out even faster in even more brands and models. On our central innovation turntable, those are our toolkits. With them we can bring model variants, technologies and innovations to series productions, large scale production rapidly and flexibly and they help us to tailor our vehicles even more flexibly and more precisely to our customers’ wishes, all over the world.

For example, we will offer more and more models with the entire range of state-of-the-art drive technologies from highly efficient diesel and petrol engines, gas-powered engines, down to purebred electric vehicles and plug-in hybrids. We leave it to our customers’ discretion to choose the drive and the model they want to drive. To start with, we are offering this 100% package for the Golf this year and many other models will follow suit.

Thanks to the toolkits. We are also in a position to respond quickly and flexibly at any time to new market trends and shifts in demand in our development activities, just as in production. In our Group, for example, electric cars aren’t built in separate plants but they are made bumper to bumper on the same production line with diesel and petrol models.

Ladies and gentlemen, I’m convinced that the big winner of this innovation cavalcade will be our customers. Take the example of our plug-in hybrid. This technology allows us to meet three key customer wishes at the same time, emission-free e-mobility, the full range for long-distance driving and not least, lots of dynamic performance and driving fun.

Take digitization, we’re not only doing research into future technologies, such as automatic driving or comprehensive vehicle networking, we are putting them in our large-scale series productions. On the e-up!, drivers can already monitor and manage a range of functions using a smartphone app from battery charging to the vehicle’s parking location down to is air conditioning system.

Take regional models, we will systematically expand this tried-and-tested Volkswagen principle so that we can respond even more specifically to differing regional customer wishes and preferences.

For example, this year the up! was specifically tailored for the Brazilian market and it’s being launched there. And in the USA, we’re reinforcing our model portfolio with a new midsized SUV built using the modular transverse toolkit and we are working on a sporty coupe and a large saloon for the Chinese market, among other things. As you can see, we are devoting our entire innovative power to serve our customers. And this is what lies at the heart of our quality campaign and cavalcade in the field of development.

The Future Tracks initiative, which we launched a few days ago in Geneva, shows that we are looking even further into the future, even further ahead. I’m convinced that in the years to come our industry will face one of the greatest upheavals since the invention of the automobile.

People’s expectations to mobility are undergoing fundamental transformations. What they demand for their own cars is changing faster and faster all over the world and digitization, in particular, will usher in revolutionary changes for automobiles and for the industry as a whole.

Our aspiration, the Volkswagen Group’s aspiration is to be the motor behind this change. We want to shape the future of our industry ourselves and to boldly drive it forward. This is also what we mean when we talk about qualitative growth. And it is for this reason that we need to consider well what the automotive world of tomorrow will look like and then how it will change after that.

How we will develop, plan and build our vehicles in the future? How can we shorten existing model cycles and make them considerably more flexible in the interests of our customers? How independent of new models can we create additional value for our customers? How can we offer our customers even greater choice through new design or body styles and additional customization options? How do we leverage the enormous technological potential in our toolkits to even greater effect so that automobiles retain their attraction and fascinations even in conurbations?

These and many other urgent questions of the future are what we are facing up to. Our Future Tracks initiative brings together the best experts and opinion leaders in the Volkswagen Group to provide answers. The first project meetings will be held shortly in Wolfsburg. Essentially what we’re seeking here is greater flexibility, an even more pronounced spirit of innovation and above all, an even closer relationship with our customers. I’m convinced that this is the development quality that we need in the automotive industry.

And finally onto focus area three, the skills and quality of our workforce. The Volkswagen Group and its brands have been attracting the best brains in the industry, with Andreas Renschler, another outstanding individual, is joining us in Wolfsburg. He will continue the successful work of Leif Östling to lead our commercial vehicles business to pole position in the industry.

In all other areas as well, we are laying the human resources groundwork for further qualitative and quantitative growth. Last year alone we created 23,000 new jobs, 5,300 temporary workers, agency workers, have been offered permanent employment at our German locations. By 2018, the number of jobs will continue to grow, particularly in China but also here in Germany.

All told, we will be a company with an aggregate total of more than 600,000 highly qualified, skilled and committed employees. The expertise and knowledge of all these people is our most valuable asset and we stand to safeguard this asset, to build on it and above all, to hand it on to the next generation. For us enhancing the quality of our workforce means, in particular, increasing knowledge transfer.

To do this, we will further expand and internationalize our dual training and education programs. Even today, our Group is training more than 20,000 young men and women worldwide, including more than 7,000 outside Germany. Naturally, I’m aware that knowledge transfer sounds abstract and it is nothing that will grab the headlines.

Nevertheless, it is very close to my heart and far beyond our own company and this is what I’d like to explain our approach, the three-pronged approach with examples. First, the Volkswagen Group Academy, over the years we’ve developed an innovative Group-wide training and education system and this works like a massive learning factory from sales through production down to procurement, each function has its own faculty, with 190,000 participants a year, one of the largest automotive university in the world.

Second, the Top X program, in this program each of our top talents is assigned a mentor from management. This tandem in the course of an entire year is used to systematically pass on technical expertise and know-how, our past experience with this program has been so successful that we’re now placing it on a much broader footing.

Third, our exchange with university and research institutes. We not only drive forward knowledge transfer within the company but also outside the factory gates. For example, on topics like battery research and automated driving, even today the Volkswagen Group is cooperating worldwide with more than 280 universities and research institutes, with a rising tendency.

Sharing knowledge leads to new additional knowledge and this is my idea which is in keeping with the signs of the times and it is increasingly becoming one of Volkswagen’s hallmarks because it enables us to secure our technology leadership and business success for the future.

Ladies and gentlemen, even more earnings quality, even greater development quality and even better skilled workforce that is our roadmap for the next years. We’re diverting a lot of energy, expertise and money to achieve it. By 2018 the Volkswagen Group will have invested €84 billion in plants, products and technologies in the automotive division and to this more than €18 billion for our joint ventures in China.

This €100 billion program sends a clear signal. We’re fully committed to driving forward our Strategy 2018, for our employees and business partners, our shareholders, our investors and above all for our customers, this means the Volkswagen Group continues to offer excellent perspectives and prospects. We want to and we will achieve our goals by 2018 at the latest. The year 2014 will definitely on this path, on this trajectory be a particularly challenging stage.

The continuing high risks in the global economy expected slowdown in growth in the automotive global market. The emerging but still modest uptake in the European automotive market and the growing headwinds in some emerging companies, all of these factors will put the automotive industry to the litmus test. By contrast, China will remain an engine of growth for us and the whole industry.

In the light of the uncertainties, I’ve outlined, our forecast for 2014 is comparatively conservative. We are expecting deliveries to moderately increase. We expect the Group’s sales revenue to move within a range of 3% around the prior year’s figure and we expect an operating return in the Group between 5.5% and 6.5%.

I’d like to emphasize one thing at this juncture in particular. The Volkswagen Group has never been satisfied with just achieving the minimum level within the bandwidth. Our fourth coming new product initiative is evidence of this, this in next year we’ll be launching more than 100 new models, successors and facelifts.

These include such important models as the new Passat, the Audi A4 and the Q7, the Porsche Macan and the Cayenne plug-in hybrid, the SKODA Fabia and the Superb and the new SEAT Ibiza.

As you can see, the Volkswagen Group and its brands are keeping up the pace, accelerating further technologically and in terms of our operations and this is underlined by the current delivery figures.

We had a healthy start into a successful 2014. In January and February, the Volkswagen Group delivered around 1.5 million passenger cars and light commercial vehicles worldwide a with a plus of 4.7% we again recorded strong growth.

Ladies and gentlemen, we want to and we will further grow in the coming years, including and above all at a qualitative level and I’m convinced that this time next year we’ll be able to say that the Volkswagen Group has again become a lot stronger and above all better.

Thank you for your time. Mr. Poetsch will now give you more color on the key financials. Thank you.

Hans Dieter Poetsch

Thank you, Dr. Winterkorn. Ladies and gentlemen, let me also extend a very cordial welcome to you to today’s annual media and investor’s conference in Berlin. As Professor Winterkorn has already said, Volkswagen has had a very successful fiscal year 2013. We sold 9.7 million vehicles worldwide, exceeding the record we set in 2012 and meeting our customer’s expectation in a challenging market environment.

This positive development is also reflected in our financial figures. The Volkswagen Group continued its success story and further strengthened its market position owing to its high profitability.

In 2013, Volkswagen increased the sales revenues and operating profit. Sales revenue in the reporting period rose by 2.2% year-on-year to €197 billion, despite negative exchange rate effects at €11.7 billion the operating profit was again at a high level and exceeded the record figure for 2012.

The return on investment for the automotive division amounted to 14.5%, well above our minimum required rate of return of 9%. Another important key performance indicator of the Volkswagen Group is the net liquidity of the automotive division.

In view of our robust business model at a level of €16.9 billion, it was at a level which ensures the Group’s financial stability and flexibility. In the past fiscal year, we were able to strengthen our financial position by successfully placing a mandatory convertible bond and a hybrid note with a total volume of €3.2 billion.

Against the backdrop of ongoing challenging -- challenges in the economic environment, we will continue to pursue our disciplined approach to cost and investment management and strategy improve our existing processes. This provides a basis for Volkswagen from which we can continue to grow successfully within a highly competitive environment.

In view of the company’s continued success story, the Board of Management and the Supervisory Board will propose a dividend of €4 per ordinary share and €4.06 per preferred share, i.e. €0.50 per share more than last year to the Annual General Meeting. This will increase the distribution ratio to about 21%. This is a further step in the direction of our mid-term goal of 30%.

In operative terms, we had an extremely positive performance in 2013 and we continued to pursue the Group’s strategic growth. The integration of Porsche is proceeding rapidly and showing considerable success.

On our way toward the integrated commercial vehicles group comprising MAN, Scania and Volkswagen commercial vehicles, we also entered into this control and profit and loss agreement with MAN SE, which gave us a good progress last year. This agreement significantly strengthens and simplifies the cooperation between Volkswagen and MAN and will increase the competitiveness of both companies.

Let me give you a few more details concerning the goal of our integrated commercial vehicles group at this point. On February 21, 2014, the Volkswagen Aktiengesellschaft resolved to make a voluntary tender offer of 200 Swedish krona per share to Scania’s non-controlling interest shareholders for all Scania A and B shares. With its premium products, its strong market position and its technological expertise, Scania is a core element of the integrated commercial vehicles group.

Our offer has been designed to create a sustainable and clear ownership structure for Scania. And this is an important step towards being able to fully exploit the advantages offered by the integrated commercial vehicles group for all parties involved.

Our offer reflects this high strategic value. We are convinced that it is very attractive for Scania’s non-controlling interest shareholders and that it will create long-term value for Volkswagen.

Our success story in the recent years has put us in a strong market position. This objective now needs to be further pursued towards our Strategy 2018 and to continue along this line. In order to safeguard the quality of our earnings in the long run, we will raise our profile in all key markets, leverage our unique brand portfolio, expand our attractive product range and promote further our technical innovations and offer our customers a vast variety of financial services offerings.

Ladies and gentlemen, let me now give you a detailed overview of the past fiscal year. Let us take a look at the income statement. This reveals that we increased sales revenues by €4.3 billion year-on-year to €197 billion.

Now excluding the Chinese joint ventures, the slight decline in the unit sales volumes and in particular, negative exchange rate effects amounting to €4.5 billion had a negative effect on the revenues year-on-year. However, these effects were more than offset by Porsche which was included in the consolidated financial statements for the full year for the first time and also by the good business performance by financial services division.

Cost of sales rose by 2.5%. The increase was due to higher depreciation charges resulting from increased capital expenditures, higher research and development costs, a negative mix or negative mix effects and also contingency provisions. Gross profit was up by a slight €0.4 billion on the previous year at €35.6 billion. The gross margin was at the level of almost -- was almost unchanged at the level of 18.1%.

Distribution cost and administrative expenses both rose year on year to €19.7 billion and €6.9 billion respectively. This 5.9% increase was mainly attributable to the initial full-year inclusion and consolidation of the companies consolidated in the year 2012.

Overall we generated an operating profit of €11.7 billion, hence even surpassing the record value of the previous year. The operating return on sales was 5.9%. The figures that I’ve just mentioned do not include the proportionate operating profit of our Chinese joint ventures.

This amounted to €4.3 billion and it was up €0.6 billion compared to the previous year. Now these companies are consolidated at equity and are hence reflected solely in the financial -- in the Group’s financial result. The financial result decreased by €13.2 billion year-on-year to around €0.8 billion. In 2012, non-cash measurement effects in the context of the integration of Porsche had a positive effect of €12.3 billion.

In 2013, the opening of the mediation proceedings in the connection with the control and profit and loss transfer agreement with MAN SE impacted and encumbered the financial result to the tune of €0.5 billion.

The obligation vis-à-vis the non-controlling interest shareholders had to be remeasured and the expected present value of the minimum required rate of return for the expected duration of the proceedings had to be recognized in the other financial result. In addition, the remeasurement of financial derivatives gave rise to an increased expense.

By contrast, income from investment consolidated at equity in our Group had a positive effect as I said and particularly our Chinese joint ventures. As a result, our profit before tax amounted to €12.4 billion. The previous year figure was impacted by the positive measurement effects from the integration of Porsche as mentioned earlier. Income tax expense in the past fiscal year amounted to €3.3 billion which corresponds to a tax rate of 26.4%. All in all in 2013, we generated a profit after tax of €9.1 billion.

Allow me to mention at this point that you will find an overview of the key figures for the fourth quarter of 2013 on our investor relations website.

Ladies and gentlemen, I would now like to give you a more detailed breakdown of our results according to brand and business field. Due to lower unit sales as a result of increased competition and declining markets and to new technologies here, upfront expenditures, the operating profit for the Volkswagen passenger brand amounted to €2.9 billion, down €749 million year-on-year.

Now the positive development of sales and earnings by our Chinese joint ventures are not included in these figures. Operating profit for the Audi brand declined slightly to €5 billion due to, in particular upfront expenditures for new products and technologies and to costs associated with the systematic expansion of the international production network. Despite the challenging market environment, the Audi brand generated an operating return on sales of 10.1%. Hence, again it exceeded the self set target corridor of 8% to 10%.

As regards SKODA fiscal 2013, was dominated by the largest model initiative of the brand’s history. The changes in production and the concomitant lower availability of vehicles and a difficult market environment resulted in lower deliveries in the first six months of the year in particular. However, this was compensated for in the second half. It rose again. Negative volume mix and exchange rate effects gave rise to a decrease in operating results to €522 million.

The SEAT brand continued its product initiative and reduced its operating loss by a further €4 million year-on-year to €152 million. Increased volumes and optimized material costs were the main positive drivers but they were partially offset by restructuring costs.

The Bentley brand clearly continued its success story in 2013. Deliveries and sales revenues both attained double-digit growth rates. Due to the higher volumes and positive exchange rate and mix effects, the operating profit rose by €67 million to €168 million.

The Porsche brand’s business performance was extremely successful last year as well. In order to increase the attractiveness of its model range, Porsche invested in the modernization and extension of its plant and its product portfolios.

The operating profits amounted to €2.6 billion. Bear in mind, when comparing this year to the previous year that the Porsche brand was only included in operating profits as per August 1, 2012, the date on which it was consolidated fully.

The operating profit for the Volkswagen Commercial Vehicles brand was €448 million, up €27 million vis-à-vis the previous year. This result was achieved despite a declining European commercial vehicles market. The main drivers were increased demands in South and North America and also in Asia Pacific and also successful cost optimization measures.

The Scania brand increased volume significantly compared to the previous year. However, negative exchange rate effects and the pressure on margins from increased competition meant that the operating profit rose by a mere €44 million to €974 million. In view of the macroeconomic situation and the ongoing sovereign debt crisis, the year 2013 was another difficult year for the MAN brand.

The European commercial vehicles market experienced a sharp decline in the first half of 2013. But the second half of the year was dominated by pronounced advance buying effects due to the new Euro 6 emission standard. As regards power engineering, ongoing macroeconomic uncertainties and severe competition gave rise to declines in volumes. In addition, the recognition of project specific provisions impacted the result. The operating profit dropped to €319 million.

Volkswagen Financial Services continued its success story in 2013, owing to its innovative products and its international expansion. Higher risk provisions and deteriorations in exchange rates, as well as increased expenses incurred to comply with the regulatory requirements in the banking sector were more than compensated for by improvements in volumes and margins. The operating results of Volkswagen Financial Services rose by approximately 15% year-on-year to €1.6 billion.

Please bear in mind that the figures for the brands and business fields include intragroup transactions as well, especially intragroup profits. These are eliminated under the category other. In addition, this item contains the results of the Porsche Holding Salzburg and the depreciation and amortization of identified assets from the purchase price allocation for Scania, Porsche Holding Salzburg, MAN and Porsche.

The Volkswagen Group’s operating result was up slightly on the strong previous year figure at €11.7 billion. Please note that as of January 1, 2013, the Volkswagen Commercial Vehicles brand has been reported together with Scania and MAN under the Commercial Vehicles/Power Engineering division. We have adjusted the previous figures accordingly.

The analysis of the change in operating profits reveals that the volume mix and price effect in the passengers division at €0.2 billion was positive only because of the first time full year consolidation of Porsche. The negative exchange rate effects impacted operating profits by €0.5 billion.

The improvement in product costs, which had a positive effect of €1.5 billion, primarily resulted from optimized procurement services and our systematic alignment of all processes around efficient procedures and methods. The negative effect of fixed costs including depreciation to the tune of €1.1 billion is mainly due to higher depreciation charges, resulting from increased capital expenditures and higher expenditure in R&D, particularly for alternative drive concepts.

The launch of the Modular Transverse Toolkit with the Golf VII, Audi A3, SKODA Octavia and SEAT Leon is having an increasingly positive -- an increasingly positive effect on our income statement. However, its impact in the past fiscal was still limited as only slightly less than 10% of Group deliveries were based on the Modular Transverse Toolkit.

Operating profit of the Commercial Vehicles, Power Engineering division was down by approximately €0.2 billion compared to the previous year. The commercial vehicles sector was hit by the continued reluctance to invest due to the ongoing challenging environment coupled with fierce competition. In the Power Engineering segment, therefore project specific provisions and declines in the license and after-sales business had a negative effect. The Financial Services Division made another positive contribution to the improvement in the Group’s operating profit, accounting for approximately €300 million.

Ladies and gentlemen, return on investment is one of the key controls used to manage the Automotive Division and it’s a decisive parameter for the financial assessment of all strategic and operational decisions. The Automotive Division generated a return on investment of 14.5% last year.

As expected, this figure was down year-on-year primarily due to the increase in invested capital, although it was significantly above our minimum requirement rate of return of 9%. We were therefore able to surpass our current cost of capital of 8.3% and generate a positive value contribution to the tune of €4.5 billion.

Due to the Group’s growth investment in our product range and new technologies, the amount of invested capital is increasing. We pay extremely close attention to expected returns in our strategic growth and investment planning. In addition, it is our goal to safeguard the quality of our earnings in the long run and to drive forward our qualitative growth.

Against the backdrop of the major macroeconomic challenges facing us on our road to achieving the goals of our strategy 2018, we need to concentrate more than ever before on three main areas of activity. First, on a strict cost and investment discipline, secondly, on ensuring we’re focused on our return targets, and thirdly, on improving profitability in all regions.

The return on equity before tax in the Financial Services Division rose from 13.1% to 14.3%. This was due to the clear increase in operating profits as a result of growing volume of business and the first-time consolidation of the financial services business of Porsche.

This brings me to the consolidated balance sheet. At the end of 2013, the balance sheet total was €324.3 billion up, i.e., up 4.8% compared to the previous year. This was mainly due to the increase in property, plant and equipment resulting from our extensive investment program, from the volume-related increase in leasing of rental assets and in financial services receivables and from the increase of cash funds. Despite the increase in total assets, the Group’s equity ratio improved by 1.3 percentage points to 27.8%.

Equity in the Automotive Division also developed positively. As a result, the equity ratio in the Automotive Division rose from 37.9% in the previous year to the current figure of 39.8%. Apart from the positive earnings development, the success of the issuance of the mandatory convertible bond in June 2013 and the issuance of the hybrid bond in 2013 contributed to this.

The equity in the Financial Services rose by €0.7 billion to €14.1 billion. The improved earnings situation and the sale of the 50% interest in LeasePlan to Volkswagen AG had a positive effect here. The equity ratio was at a level of 10.5%. In order to strengthen equity in the Financial Services Division and to facilitate further growth, the Volkswagen AG is affecting a capital increase of €2.3 billion in the first quarter of 2014 at Volkswagen Financial Services AG.

I will now talk about the individual items of our cash flow statement. At the end of 2013, our net liquidity in the Automotive Division amounted to €16.9 billion. This liquidity position gives us or provides us with the necessary financial strength and solidity to be able to continue our profitable growth and to continue systematically implementing our Strategy 2018. Gross cash flow rose by €2.9 billion to €18.7 billion, thanks to our robust business model. Strict working capital management led to the release of €1.9 billion. As a result, total cash flows from operating activities amounted to €20.6 billion.

The property, plant and equipment included in our investing activities rose by [0.8% -- billion] (ph) in 2018 to €11 billion. The ratio of investments in property, plant and equipment to sales revenue rose by only slightly year-on-year by 0.5 percentage points to 6.3%. We are therefore at a competitive level within our target corridor of 6% to 7%.

We invested primarily in our production facilities and in new models that we launched in 2013 and are planning to launch in 2014. Other focuses were on the ecological orientation of our model range, the growing use of electric drives in our vehicle fleet and our modular toolkit approach. The necessary investment into the development of new products and technologies led to an increase of €1.4 billion in capitalized development costs, bringing the total to approximately €4 billion.

The acquisition of equity interests led to a cash outflow from investing activities attributable to operating activities of €1.7 billion. This mainly relates to the intragroup acquisition of 50% interest in LeasePlan, which helped strengthen the equity position and hence contributed to the growth of our Financial Services Division.

The net cash flow in the Automotive Division, which represents the difference between the cash flow from current business and investing activities attributable to operating activities rose by a substantial €4.6 billion year-on-year to €4.4 billion. This is a clear confirmation of our sound business model. Two successful capital market transactions also had a positive effect on the net liquidity. The mandatory convertible bond placed in June 2013 increased net liquidity by €1.1 billion net of transaction costs and future interest payments. Moreover, the hybrid bonds issued in August 2013 had a positive effect of €2 billion, net of transaction costs.

I would now like to draw your attention to a new publication. This morning we published the notice convening the Volkswagen Aktiengesellschaft’s Annual General Meeting in Hanover on May 13, 2014. In addition to the standard resolutions, the agenda also contains the proposal to authorize the Board of Management to issue bonds with warrants and/or convertible bonds and to create new contingent capital by issuing new non-voting preferred bearer shares.

This is standard procedure for large stock corporations in order to safeguard the flexibility in their financing activities and it’s designed to enable us to continue exploiting attractive financing opportunities in the future.

In principle, the shareholders have preemptive rights. However, the 5-year authorization provides that the submission right of the shareholders can be excluded with the approval of the supervisory board. This option of excluding the preemptive rights -- this option gives us the flexibility to take advantage of attractive capital market opportunities at short notice.

The existing authorization will expire on April 21, 2015. However, as the 2015 ordinary Annual General Meeting is not expected to have been held by that date, we propose to renew the authorization now and to back it with new contingent capital.

Ladies and gentlemen, looking back at 2013 I can say the following. The Volkswagen Group maintained its market positions and what was a persistently challenging environment and it continued its success story.

After tax, the Volkswagen Group generated earnings of €9.1 billion for the shareholders of Volkswagen Aktiengesellschaft in the last fiscal year. This corresponds to an undiluted result of €18.63 per ordinary share and €18.69 per preferred share.

Thank you very much for your kind attention.

Question-and-Answer Session

Stephan Grühsem

That was it for the moment from our side and we can begin the Q&A session. If you’d be so kind as to tell us your name and affiliation, [Mr. Preslav] (ph) and Mr. (Indiscernible) would be the first and then [Mr. Cook] (ph).

Unidentified Analyst

Preslav from the (indiscernible). I have two questions, Mr. Winterkorn. First you said, Mr. Renschler is an excellent man. What’s so special about his profile that you’re willing to wait for a year for him to join you and does he have the necessary tact to take along the very nervous Scania piece people and will that year of waiting for him not make Scania grind to a halt in the meantime?

The second question pertains to the VW brand. Isn’t there a weakness in sales and income because the new Golf has been launched and still the operating profit is down?

Hans Dieter Poetsch

First, your question of what makes Mr. Renschler so special, well, 10 years of experience in trucks and buses worldwide, the man has the most experience that you can get. It was a recommendation of Dr. Leif Östling to hire this man and you can rest assured that Leif Östling who is going to stay with us in a different responsibility together with Mr. Renschler will have the necessary diplomatic talent to integrate the brand Scania.

And you should also consider one more thing, as I said in my speech, there is hardly any group that has more diplomatic talent in integrating proud brands from Swabia in Germany right up to Italian brands this is why I’m confident that with Leif Östling, Mr. Renschler will be able to integrate Scania successfully.

Now, on your rate of return for Volkswagen passenger cars, let me refer you to 2013 in the terms of the economy. The economy did have a harsh headwind -- did generate a harsh headwind, was a difficult environment.

In Europe things are anything but easy and particularly in the second half of the year, not least because of the exchange rate side. I’d already mentioned what leverages there are or what affects it had on revenue and on earnings.

So it is hardly astounding that some manufacturers that focus mainly on the European market are on the brink of extinction. That in this environment and a phase of extremely high upfront investment and capital expenditure, I’d call your attention to the fact that Volkswagen is the front runner in the Group in many respects.

When you look around here, you are in a hub of electro-mobility to just mention one of the topics which are on our minds. So we did have tremendous upfront expenditure charges, under these conditions we’ve been able to generate this income with an increasing -- improving tendency, despite the weathering economic outlook.

This is due to the fact that we have an excellent product portfolio with some vehicles which were not even available last year that applies to the Golf for example and to stress one thing very clearly the effects from the ramp up of the MQB platform, the revenue which we’ve posted or the earnings which we’ve posted would not have been possible.

Now if you look at the other situation, you all know the topics, I’m just mentioning the emerging markets and possible the precautions of the situation in Ukraine and as a function of this those in Russia.

Those are tremendous volumes which are affected by exchange rate volatility. This volatility is extreme and not easy to hedge which generates a burden, charges for our balance sheet. We are still cautiously confident for the coming year for Volkswagen passenger cars.

As Dr. Winterkorn explained the MQB vehicles will structurally increase as a proportion of those cars we make a one thing is clear, a confident step towards our target margin of 6% will in all likelihood not happen in 2014.

Stephan Grühsem

I’ve collected a long list of questions, Mr. (Indiscernible), Mr. Cook.

Unidentified Analyst

Good morning. Frank (indiscernible). Mr. Winterkorn, you stressed again that with your Strategy 2018 you are making progress that you will achieve the targets. Among these were pushing Toyota off the throne, how do you want to achieve that when in the biggest automotive country in the world you are still a niche player with a core brand and one which is in reverse?

I would expect you to explain how you want to forge ahead to achieve your target to attack Toyota. But since you haven’t mentioned this, I have to expect that things aren’t looking up but you have something obviously?

Second, looking to China, things look different, you are top, you are doing extremely well. But aren’t you getting dizzy what with all this success in China because that can contract as well or trend weaker and what do you want to do when the outlook in Europe we’ll see how difficult the ride is?

Martin Winterkorn

Well, first, on the USA, I did say something with the BSUV. We offer an additional model in the USA. Our existing model portfolios, we have a number of models in the U.S. will get facelifts and updates so that the figures go up. I’m confident as we’ve changed some things in our headquarters there.

So I’m not afraid for the USA and I’m quite intentionally saying that we will focus more on the United States that over the last two or three years we -- which is why the Executive Board and I are confident that we will become more than a niche manufacturer. The e-Golf is a vehicle which was specially designed for the U.S. market in mind. And there are a couple of ideas, what Audi is planning in Mexico. That will affect the U.S. market as well.

Coming to China, we are confident, maybe my colleague Mr. Heizmann can comment on this. We remain confident that we will continue to grow in China. We have gone live with new factories. We don’t -- just don’t -- don’t do this for the fun of it but because we’re confident that the market will continue on its growth trajectory.

We’re the first manufacturer to go to the northwest that factory has successfully ramped up and started production. And it’s our strategy to not just look at the east but also the west and the north will be successful and we will prevail with that strategy.

I see even now that the cities and the fat and productive eastern coasts are clogging up. There are too many cars already and when you go to the west, you see how empty the streets are. Maybe Mr. Heizmann can fill us in on this.

Jochem Heizmann

Naturally, we are intensively securing our position and future in China also with a view to possible crisis times. This applies likewise to our product program. We are intensively further enlarging our offer and model portfolio.

We are intensively driving forward the expansion of our dealership network. This also applies to the relatively small cities in China. We’re still talking conurbations with millions of inhabitants where growth is going to happen in the future.

Stephan Grühsem

Well I really need to add a comment on the U.S. and to put things in perspective. First, you will always find us striving to improve things continually and further and further. Last year as you are well aware, we started with a strategy to improve our position in the United States fundamentally. The upshot of this is that over the past four years, we’ve doubled our sales.

Just to give you the right context and to put things in perspective, why has this worked? Because we built two cars which were perfectly tailored bespoke offers for the U.S. markets and these cars are exceedingly successful.

In 2014, we need a breather basically due to model cycles, that is given. But as Dr. Winterkorn explained we are full on track to achieve our target of selling a million cars by 2018 there. However, we need the next models in addition to the existing portfolio, particularly since the segments that drive the American auto market are segments where up until today we are not present at all in.

So you see us with a certain measure of calm but we are decided. Well, on China, I heard a bit of nervousness through your words there. Look, at the end of March in Berlin, the political program the Chinese Minister, President -- the President are going to visit us, our joint venture partners are coming. And you can see that cooperation between China and Germany is not only economically very productive but also politically and people are really trying to foster this.

[Mr. Cook and Mr. Creeper] (ph), please raise your hand because you’ll be the next and the young lady can bring the microphone round to you.

Unidentified Analyst

Cook, Automobile (indiscernible). I have two questions. The first goes to the head of human resources and labor. And Dr. Winterkorn I can quote you we have 12 fascinating brands and 310 models that almost meet all customer needs and demands. This little word of almost, does that focus on the brands, on the portfolio or on models or tell us in concrete terms where does the VW Group need to catch up urgently? And how do you forge ahead with the business of low budget vehicles?

Mr. Neumann, in the Future Tracks initiatives there’ll be a meeting. We have invited the brightest minds of your group and Mr. Winterkorn said that sharing knowledge leads to new additional knowledge. And he said that is really in the zeitgeist. Wouldn’t it make sense to invite specialists from other industries and other groups, for instance people who are well versed in brand forming, Proctor and Gamble for instance or IT icon representatives Apple, Google or people who have a proven track record in human resources, consider BASF and DuPont? Thank you.

Martin Winterkorn

Right. Dear Mr. Koch, this nearly or almost focused on the model portfolio. I believe we are well placed pretty much across the board in some segments. Mr. Klinger keeps telling me we have almost 70% of market share in Europe for instance -- covered for instance, covering convertibles and we have a booming business in SUVs. We will further work towards this and part of the Future Tracks context must be seen. Where are the vehicles in 2020, what do we expect going forward, new body styles, new drives et cetera?

When you look at the product portfolio and you look at Europe and the world you will find that the SUVs are growing further, the MPVs will trend sideways. And we tried to do research on these trends. And I believe we have to become stronger in this field -- in the field of research. You asked about the budget car.

That is an interesting question indeed from your point of view of course. But you know that for diesel cars, we had a discussion for the up!, the budget car, the last steps are the most difficult ones. We are currently just before the finishing line. We haven’t quite achieved it and we -- when you consider these low-cost vehicles, it’s the last steps that are most difficult. And we will only go across the finishing line once we’ve taken the final steps like with the up!

Horst Neumann

Mr. Koch, on Future Tracks, it goes without saying that we will not only use our own people but also solicit also the experience from outside. Mr. Winterkorn presented this when opening the CeBIT as well in a contribution where he focused on two major innovations over the next -- over the last decades, almost centuries, the car and the computer and that both, the car and the computer are increasingly merged.

And our IT industry, [Inter-Lockheed] (ph) was very interested indeed about Google, Facebook, IBM. It was a roll call of successful big IT companies and we tried to solicit interest for our project because the car of the future is going to be made to a large part on the communication and computer industry and the customer demand that grows as a function of what is offered there.

As Professor Winterkorn said, we cooperate with universities in the U.S., Stanford, MIT, et cetera. We are closely networking with them. And Mr. Koch, this will be an event where the general public will partake and we will have communication with them and you are most warmly invited to contribute towards this.

Stephan Grühsem

Next question by Mr. Creper and then Mr. Oelrich.

Unidentified Analyst

Well, Professor Winterkorn, you have already referred to this in part. I would like to come back to the budget car. This is a high volume segment internationally. In 2018, if you want to be number one by 2018, well, then you would have to at least to get closer towards the target line as you worded it. What is the timeframe here and is this the problem that your potential partner Suzuki didn’t really like to -- want to play up to it?

Martin Winterkorn

Answer -- let me repeat this, we are well underway. It is easier to design an attractive car, an attractive model than being successful in this field. I mean, this vehicle exists but the financial key figures have to be adjusted accordingly. This is nothing to do with Suzuki. You may know that we are in the process of negotiating with Suzuki. So, I don’t want to comment on this now. But maybe my colleague can refer to this. Of course, budget car is a fully fledged segment that’s why we’d like to be present there as well.

But if you take a look at the budget car segment, you would relatively soon find out that there are markets which are more present than others are. One of the markets, which is very well represented here in this segment is China where we have created a very good starting position. Other markets would be India and Latin America.

But even in Europe, we have a slight budget car share which is known. I think whether and how such a budget car would be launched in Europe has not just yet been fully decided. This market, so to speak, takes place elsewhere, be it in the passenger car and others. Of course -- we will of course then consider very well what the right steps will be, should we take a positive decision.

Stephan Grühsem

[Mr. Oelrich] (ph) please and then [Mr. Olson] (ph).

Unidentified Analyst

[Christopher Oelrich] (ph) (Indiscernible). Dr. Winterkorn, I have a question on the e-drive strategy. Yesterday, you gave us a very impressive presentation to what extent the MQB platform could be useful also for e-vehicles. In which German production sites will these e-drive vehicles and plug-in hybrids be prepared should the demand come? Second question, what are the next models which will be 100% equipped with e-drives?

Martin Winterkorn

Answer. First, let me say that we’ve got three production sites in Germany, Wolfsburg for the e-Golf and the plug-in hybrid, Ingolstadt for the A3 e-tron. Of course, we can also equip China for this production because they also have MPVs and the e-up! In Bratislava, we also have.

But as I told you, the plug-in hybrid is an alternative to purely electric drive vehicles. So we will not only further develop this MQB system for that. And then we also have the Panamera in Latvia. I almost forgot by the way. But we also have the modular launch of toolkit also for the Audi hybrid.

So after an attractive phase in a few years time, you will be able to get almost every car as a plug-in hybrid. The components for this will be produced in our component factories. As regards to the engine, transmission, the e-drive transmissions and car cell batteries were produced in Brunswick. So we are quite independent in this respect.

And before we said, that we will only enter into this market whenever we are certain that we will fully master this technology both technically speaking, candidly speaking but also market wise, so we think that our production site orientations already have fuel, diesel, LPG and e-vehicles can be covered, because only then can we respond flexibly to market developments and market requirements. So as I said, the first conversion will take place in the four facilities as mentioned above, Wolfsburg, Ingolstadt, Leipzig and Bratislava, these four facilities.

Stephan Grühsem

Mr. Olson and then Mr. Storm.

Unidentified Analyst

Mr. Poetsch, there is an offer for Scania pending. Is there also a contingent plan, should this sale will not be reached? Will there be another five years of Scania where you will keep them on a long lead or leash, or are there any other plans? If the sale would be overcome what will be your expectations? Could you give any thought to the financing mix because you left everything open, capital increase, hybrid bonds and other types of financing, you could also pay for it in cash definitely.

Then what I found fascinating was that you still believe in this, one million success by 2018. Many experts have doubts. What I would like to know is the following. Often it is claimed that the breakeven could be attained in the U.S. over these dates or years. Is that still so or has this target been postponed?

And in view of all the alternative drive euphoria, are there any indicators for the e-up! orders, incoming orders for the e-up! for example? What is the start phase for the e-up! for example? And what I found somewhat confusing is the following. You also referred to the bivalent gas drive with LPG and fuel. So you can readily get this down to 80 gram per kilometer by 30 percentage points. Why has this been neglected so far? It has not been focused upon more and rolled out to a greater extent?

Hans Dieter Poetsch

Answer. Concerning the incoming order, Mr. Grühsem will talk about this but I would like to talk about the natural gas drives. We offer LPG drives. We’ve been doing this for 15 years now. Let me give you a figure. From 2002 until 2003, we had 100,000 vehicles that we sold with natural gas drive. So we’ve been operating this for quite sometime as a bivalent drive in the Golf variant for example and also in other cars.

But here the demand hasn’t turned out to be as high as we would have expected it. It may still come. We know that with regards to drive and CO2, we can have much more readily improvements also in terms of finance. But customers are used to have liquid fuel and not gas and also methane gas.

CH4 is the chemical formula, it comes closest to hydrogen. So the whole gas based drive is definitely highly interesting and that’s why we’ve also installed it into our MQB approach, also to be installed in other models but it’s the customer who places orders, it’s not Mr. Winterkorn.

So on the whole, we are quite gratified that we have a high demand for test drives. Many customers find it very exciting and many of you will have also test tried and tested this car and found out that this is a great thing.

We also have an e-up! in our family by the way. So when you are in urban traffic, that’s all that you need and this is a great feeling that you have a good range a. So you’re well-equipped with this vehicle.

There are countries which have had a high number of incoming orders. Norway or the Netherlands for example, these are the normal candidates because they have special subsidy schemes in place.

But we have also noted that many vehicles, who have tested this vehicle, would then think it over time and again because we are at present slightly above our expectations but we want to be rather conservative here, bit cautious. We would rather like to stay realistic but we still take it that in the long run the technology will really prevail.

A key driver has been and still is range, the range, the number of kilometers or miles a vehicle can travel, the one that they will have perhaps concerns when they have the e-up!, 160 kilometers will this be a sufficient or not. And with the next leap in technology, which will certainly come, the one or the other boost may still come and then of course this car will develop further.

Then let me continue, coming back to the U.S. When earlier on I said that in terms of volumes, we’ve had a tremendous improvement over the past few years, this particularly refers to the financial result, in particular. Many of you may know several years ago, we were still clearly above -- we lost more than €1 billion per annum in the U.S. So last year, we clearly had attained the breakeven. Financial Services has not, as said, been included in this calculation.

In order to get this point across, what we have attained over the past few years is that we now have a well working and operational business model there which we have established. How have we done this? First of all, we produced vehicles which met the market requirements and we localized our offer by having sourcing possibilities in the U.S. and in Mexico and the colleagues around Dr. Garcia have done a fantastic job here in order to tap the potential for us also for the future.

So we can say, as Dr. Winterkorn said earlier on, that we are in the process of preparing an SUV model for an important segment in the American markets. Hence, in all likelihood, we can take it that the decision -- that a positive decision will be taken in this respect because the business model is known. We know what we have to do, what we need to do and that is why, we will make further progress and headway in the United States as well.

Talking about the Scania offer. First of all, coming to the question, 90%, in order to say this very clearly, we are of the opinion, first of all, that we have submitted a good and fair offer. We are convinced that this offer will represent the maximum value, which Scania shareholders realistically can achieve. So we are quite confident in view of this that the 90% threshold would be achieved but it is obvious, should we fail to do this, we will definitely not acquire a share.

To say this very clearly because coming to the second part of your question, when discussing Scania, I may perhaps also say that we have a very good investment year ahead of us. Even in view of the present structure, it is easy to understand and to relate to and Scania definitely has a positive perspective here.

Whether tactful or sensitive really is suitable here, we don’t like to use these emotional terms but I think that we have been able to establish a very positive basis of cooperation with our colleagues.

But to say this very clearly is in order to fully tap the potential of synergies in this respect, we would need to be free from legal ties and this is why we have submitted this offer. Talking about the funding briefly, it is our plan that, should we be successful, when we will be successful we would like to use a finance mix for the refinancing. You can see that our net liquidity, our cash basis is at a very considerable level.

We think that we will be able to take, say, €2 billion from this liquidity. But since we have an excellent position in the market, we would then like to also top this up with a hybrid financing means, i.e., a hybrid bond to the tune of up to €3 billion.

However, I would like to say in this respect that when it comes to implementing hybrid fundings or financings, it should be had more flexibly and should not only be seen in the light of the Scania transaction.

Thirdly, we also consider a capital increase of preferred shares but then the capital increase would only be done and considered if we can make sure that the result of the offer will be higher than 90%.

Stephan Grühsem

The next person to ask a question is [Mr. Fromm and Mr. Ritta] (ph) please. Next questions.

Unidentified Analyst

[Thomas Fromm] (ph) (indiscernible). Two brief questions. Yesterday, you talked about the e-mobility strategy. I take it, Dr. Winterkorn, yet that you don’t have any concrete sales targets for e-mobility but maybe you have sales expectations. What do you think is feasible and reasonable for the next few years? Do you think that the target of the federal government of having 1 million cars by 2020 can be reached and achieved and what would the result be? And your competitor, we can talk of a competitor, Tesla. They are building their own battery factory so extensive planning has been done here, do you find this worrying? What is your assessment? And in two hours time the decision on the Hoeness case may come which is said that that prosecutor is claiming a sentence of 5.5 years. So in that case his future at the German football club, FC Bayern will not have to be raised here but do you think that he can still withdraw from office or retire from office or will he stick to his post there?

Martin Winterkorn

Well, let’s start with the simple question first. As regards the first million cars by 2020, if you take the five categories together, purely electric drive, plug-in hybrid vehicles, range extender vehicles and fuel-cell vehicles, that’s four. Then, I think that 4 million is feasible. Why do I think so? Well, as often is the case with these technologies. First of all, the decision is based on what the customer wants to have.

So if the ranges can be extended, it would be accepted. That is why we rely on the plug-in hybrids. Well, the batteries maybe more powerful with new concepts maybe. So that’s one point, as I said, range is important.

So the most important point is, if you take a look at the components, then there are three cost drivers. First of all, battery technology, the other point is the e-motor and then electronics. The electronics are simply to control the whole system, as is often and usually the case in our industry whenever you go into volume reduction you have of course the economy of scale, so the overall cost will decrease.

So now take it that, if we take a look further ahead in the future, two to three years time and if we will be able to achieve our goals in terms of cost discipline, I refer here also to the quantity. My colleague as he said, give me sufficient volume then I can also come across with the costs. So I think the 2% to 3% of e-drive vehicles plug-in hybrids would be given. So that’s a different situation altogether. So I think we are active in four categories, on one we’ve got 2020 with 4 million vehicles. I think that this target can be attained.

As regards to Tesla with the battery factory, I didn’t quite understand this. We don’t have any problem with having a battery supplier because we install the batteries ourselves in-house but it’s about that the chemistry there’s sufficient suppliers with whom we also make plans as to how we can further cut costs, reduce costs, how the battery compactness and density can be improved and so on and so forth.

So that the idea to build our in-house or own factory -- battery factory wouldn’t occur to me, so we don’t have any fears and apprehensions thanks to our head of purchasing. So it’s also a question of market position of course.

Third point, take it that you can assume that if it asked, you said, this will be passed, which I take will come, then we will have to discuss this at the level of the supervisory Board but I won’t give any comments before that.

Stephan Grühsem

Next question by [Mr. Walter then Mr. Murphy] (ph) and then Mr. (indiscernible).

Unidentified Analyst

Yeah. Good morning. May I just come back on Scania? These 7 billion were commented very critically that amount. What’s the position of the supervisory Board, was that unanimously carried this takeover plan or were there votes against or abstentions? And Mr. Poetsch, you discussed with investors, you’re in Sweden, is the feedback from talks there overwhelmingly positive, the response and is your confidence based on your discussions in Sweden with the shareholders?

Second, Porsche, 18% return on investment, that is the shining star in your portfolio. Is that a level that that brand can maintain over the coming year or even longer or can they achieve even more? Then on Russia, do you feel the situation is so critical that you fear a contraction of sales and concurrent losses?

Mr. Heizmann, with regard to China you said that you try to hedge your operations there for times of crisis, you said you want to expand the offer, the portfolio you want to build new factories? I don’t really get that, if you expand your fixed cost base and invest even more, how do you want to hedge against a contraction there or crisis times?

And then Mr. Winterkorn or Mr. Hoeness, well, you will have to comment because you’ve got a whole chapter on compliance in your annual report and it says, “part of sustainable operations is taking compliance very seriously” and we are in compliance with rules and laws? Mr. Hoeness is acting neither in compliance with any rules and not to speak of the tax legislation?

He’s in clear contravention of that. How did you and Mr. Stadler protect him so long, how could you do that, does that not compromise your credibility when it comes to compliance and if you say, well, it’s the world of soccer, it’s not a listed company but a football club, when you have to be clearer and stricter and say then as a shareholder, we are going to pull out of the Bayern München football club because we don’t trust it. That’s my question. After this show that was put on and all this [chewing and freeing] (ph) are you considering selling off your share in Bayern München football club?

Martin Winterkorn

Let me answer first the question to me then Mr. Poetsch will comment Scania and Dr. Heizmann on China. Let us start with this very serious topic indeed, Russia. Naturally, we are following currently developments in Russia and Ukraine very closely. We are in direct contact with the competent authorities with the German government.

As everyone, we hope that things, the situation is going to stabilize and that we’ll get a peaceful resolution to this conflict soon, naturally this has reprecautions on our business, on our operations, these are limited as of today, however, if things deteriorate further it can be critical and on Mr. Hoeness, I will not make any other statements than what I’ve just done. We’ll wait for the court ruling and then we’ll issue a statement.

Hans Dieter Poetsch

First on Scania, to come back to that, well, [Mr. Walter] (ph), as you’re well aware, we don’t comment on votes cast on the supervisory Board or matters discussed there, I leave it to you to imagine whether a situation which is not unanimous would aid and albeit a decision of this sort of reprecautions.

I can only comment in this way. We have the full support of the supervisory Board for the Executive Board, the Board of Directors and from a whole series of trips to Sweden, my impression is and at this juncture let me digress and comment by saying that we have this situation that some of the funds that hold Scania shares also have the stage, the Swedish state on board.

In another case, trade unions are invested there, so that we are focusing mainly on the plans for Scania. Do we have the insurance that headquarter development activities and jobs remain in Sweden that is what people want guaranteed.

As you know, we have not got a problem for guaranteeing that as our basic fundamental concept in the Group, being a multi-brand Group lives and breathes by independence of brands and of course, they have to generate adequate performance but this concept has proven to be sustainable and successful throughout the Group and this is why we have no problem with making these commitments.

These talks where my colleague Mr. Östling and I were involved, so if there were any reservations, I’m confident that we were able to counter these. And it was not difficult because Volkswagen has an excellent image not only but also in Sweden and is deemed to be a particularly reliable partner.

On Porsche, let me comment as follows. Top performance 2013, beyond doubt you should not expect less for 2014. To give you the run rate, the financials, the clear benchmark is more than 15% operating ROI. And there is no reason to suspect that Porsche will not continue to deliver in 2014 as well.

Jochem Heizmann

Well, when I talked about securing the future in China, you’ve got to consider what the basis of our tremendous success in China today is. The basis, the foundation is our attractive model portfolio, product range, happy customers, satisfied customers, the strength of the brands, the brands that we have on the roads there, Audi, Volkswagen, SKODA, the locally-produced brands and the import fleet on the Chinese roads as well.

So here we are cooperating with very strong partners indeed FAW and SAIC in China. This shows our strength. And this is what I meant by expanding our model portfolio in the next years. We want to bolster that, to strengthen it. Compared to the previous year, by 2015 our model range will be improved by 15%, the locally produced products here and concomitantly we work to secure the future by improving the cost base of our products.

We have economies of scale, of course, leveraging our strong position in China, expanding that further and introducing successively the MQB tool kit, the transverse mounted engine tool kit in China, that will help us. And synergy advantages will be leveraged going forward.

We are intensively working to drive this forward. Naturally we have to invest in locations and in the dealership network where the growth happens, which is in the tier three to tier five, the smaller cities and conurbations. That also secures our future.

And let me not forget to mention that one of the most important foundations for our success is the skilled workforce, highly skilled workforce that we’ve had to train, which we are expanding with large-scale skill building and training programs, training academies in China. So from that angle we are securing the future as well.

Martin Winterkorn

What my colleague Mr. Heizmann hasn’t mentioned is that the flexibility we have is founded on the fact that at the moment we work in the factories more than 300 days. Here in Germany we have 230 to 240 days. So that creates a lot of flexibility here.

Jochem Heizmann

Well that secures the production capacity planning. On the one hand, we have conservative market growth expectations when planning the capacity. And as Dr. Winterkorn stressed today, we work 300 and even more days in these factories. This is the basis for our planning. So that even if contractions, which we do not expect of 10% to 20%. Let me stress that, we do not expect that. We would have a normal utilization of capacity level in these factories.

Stephan Grühsem

Well, my list is still long but we’re getting close to our break-off point at noon. So we will only take your questions when they’re particularly short and compact. [Mr. Murphy and Mr. Maihauer, Mr. Schwartz and Mr. Tauber] (ph).

Unidentified Analyst

Can I just come back on Scania MAN. You estimate the synergies at €850 million in the long term. Now with Porsche you’re talking about more than €1 billion. As an upshot of that, Scania might be a little too conservative as an estimate. Then Suzuki, it says in your report that you expect a solution by 2020 and you expect this share not to occur in 2014 -- sorry not to occur in the next report?

And you, Mr. Winterkorn, talked about zero-fault tolerance. There have been a couple of callback campaigns over the past few months. What are the consequences taken or will be taken?

Jochem Heizmann

On the synergies in the commercial vehicles areas, Scania MAN, what we’ve achieved with Porsche. Before we say it’s a very conservative or too low estimate or whatever, one important element which I’d briefly like to address is the fundamental difference in the commercial vehicles.

The synergies for commercial vehicles, not for complete vehicles but for the technical modules, these life cycles are much longer than in the passenger car area. What this is due to is that we have fairly low numbers, our one-off expenses are extremely high. And to amortize these one-off expenses as non-recurring costs, I need longer life cycles.

As a function of this, the approach we’re taking, exceeding these €200 million which we’ll achieve in 2014 already and to go beyond these, that only works by using the same or similar technical model -- modules.

They’ve got to be defined and tested first before purchasing and then go ahead and see how the market can provide these or own production can generate the skill effects and achieve favorable conditions there. We expect this to take several years. And this value of €650 million which, if you look at the time slice of a year, that’s going to be when it happens.

As a Board, we’ve taken a lot of time to be double sure that we will be able to achieve that, to be able to explain this to the shareholders. But these €650 million will happen around about in the middle of the years between 2020 and 2030, that decade. And this is why you’ve got to put the value of the synergies in the context of these very special conditions.

Martin Winterkorn

Well, on Suzuki I’ll only comment this. We had an arbitration, court case that both parties will have. And this is why I do not want to and I cannot comment on this. Just so much in the next annual report, you will still find our shares in Suzuki.

On quality, yes, over the past months we had several callback campaigns of older cars. This zero fault program, which we want to roll out through the factories, throughout the factories and development departments, that is only possible because of the common components and the modular systems and the tool kits. And with 10 million cars per year, those are volumes where things can happen.

And the motto that motivates and raises awareness with our employees, when you discover a fault, you’ve got to analyze it and stop it from happening. And this is why we’re trying to launch this zero fault program. If something happens, react instantly. And our employees are well trained to do that now. And this is why we feel that our vision zero fault program may happen eventually. But it’s very important that the faults which you see are stopped immediately.

Stephan Grühsem

[Mr. Maihauer, Mr. Schwartz] (ph) and Mr. Tauber and then we are through.

Unidentified Analyst

[Maihauer from Spiegel] (ph) (indiscernible). Mr. Hoeness, I know I’m the third person to ask about him but I have to insist. I don’t know why you are awaiting the outcome of this court case to take a stand here. Mr. Hoeness should really have -- no longer be enjoying your trust and can he be still envisaged as the head of the club?

Martin Winterkorn

Well, if you ask three or 25 times you will get no different answer from the one I’ve given.

Stephan Grühsem

Mr. Schwartz. Jan Schwartz from Reuters

Jan Schwartz - Reuters

Jan Schwartz from Reuters. I’d like to address another facet on Russia. With a view to the sanctions that the EU’s discussing against Russia, Russia is considering dispossessions, taking away property. What is your take on that, expropriations?

Martin Winterkorn

First, we welcome the very cautious and well considered stance that, not least, the German government is representing. It is very useful if as many sides as possible are trying to keep the situation from escalating. But we will have to see whether this is crowned by success at the end of the day. So it does not make sense to conjure up horror scenarios. We just have to wait and see how the political conflict develops going down the line.

Stephan Grühsem

And the final question from Mr. Tauber.

Andre Tauber - Die Welt

Andre Tauber, Die Welt newspaper. I ask you to -- when you focus on profitability and return on investment, by 2018 when you -- do you want to become the biggest carmaker despite this focus on profitability and this growth target of sales in the current difficult market condition which has deteriorated, is that realistic?

Martin Winterkorn

Well, Mr. Tauber, for the fifth time I’m repeating myself. It is not only our target to become the biggest automaker, we have four clear targets that the bonuses of the employees are geared to, the volume target, the customer satisfaction as it can be measured using different criteria, whether you’re talking J.D. Power or (indiscernible) studies.

We have a very clear-cut target, motivated and satisfied employees. Mr. Tauber, this is the biggest survey we do with the employees. 13 questions have to be answered. And then the 8% return on sales, this is what we rate our employees’ success against.

And if you’re asking me how important that is for the company, I’m answering very important indeed. It’s central. I get around at our factories, not only in Germany and China and Brazil, the U.S., everywhere, in Spain, SEAT, Skoda in the Czech Republic. And for me, what’s on my mind is what about the targets? And when I ask the workers on the production lines do you know our current targets for Volkswagen?

And I have to say I was surprised, everyone knows where we’re headed. And by preparing for this and the investment product strategy, all the ensuing topics are based on this strategy. And this is why this, in a Group that has 570,000 employees, aligning them for these targets is an essential success factor to have everyone moving down the same line.

Stephan Grühsem

All right. Ladies and gentlemen, this concludes the Investor and Media Conference. The workstations are in the back of this hangar. You probably have seen them already. Otherwise, you’re most warmly invited for lunch, to stay for lunch. Thank you for coming and have a safe trip home.

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