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Edited Transcript of VOW3.DE earnings conference call or presentation 14-Mar-17 9:00am GMT

Thomson Reuters StreetEvents

Full Year 2016 Volkswagen AG Earnings Call

Wolfsburg Mar 14, 2017 (Thomson StreetEvents) -- Edited Transcript of Volkswagen AG earnings conference call or presentation Tuesday, March 14, 2017 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Matthias Mueller

Volkswagen AG - Chairman and CEO

* Frank Witter

Volkswagen AG - Finance and Controlling

* Hiltrud Werner

Volkswagen AG - Integrity and Legal Affairs

* Herbert Diess

Volkswagen AG - Volkswagen Passenger Cars

* Francisco Javier Garcia Sanz

Volkswagen Group - Procurement

* Rupert Stadler

Volkswagen AG - CEO of Audi AG

* Jochem Heizmann

Volkswagen AG - Functional Responsibility, China

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Conference Call Participants

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* Hedwig Hegler

Suddeutsche Zeitung - Media

* Christiaan Hetzner

Automotive News Europe - Media

* Alessandro Alviani

La Stampa - Media

* Henry Kruk

Hamburg Automobile - Media

* Mr. Schwartz

- Media

* Mr. Hubka

NDR - Media

* Frank Mahlmeister

Platow Brief - Media

* Mr. Gwan

Autocircle China - Media

* Mr. Pretzlav

Stuttgarter Zeitung - Media

* Jim Holder

Autocar/What Car - Media

* Kata Bata

- Media

* Mr. Gutierrez

El Economista - Media

* Mr. Valman

- Media

* Mr. Olsen

Boersen-Zeitung - Media

* John McElroy

- Media

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Presentation

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Unidentified Company Representative [1]

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Your interpreter apologizes. We're not sure whether the press conference has started. We believe it has but we're not hearing what the gentleman on the stage is saying. The technicians are working on it. We apologize. Please bear with us.

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Unidentified Company Representative [2]

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(Interpreted) The people sitting on my left will talk about our successes. Let me introduce you to our Board of Management. For the first time Hiltrud Werner, the Director for Integrity and Legal Affairs. You have already met, of course, Matthias Mueller, the Company's CEO. Moving on, on the left, Andreas Renschler, our Director for Commercial Vehicles; Dr. Francisco Garcia Sanz, our Director for Procurement; Dr. Herbert Diess, responsible for Volkswagen Passenger Cars; Frank Witter, Controlling and Finances; Dr. Karlheinz Blessing, our HR and Organization Director; Professor Dr. Jochem Heizmann, Director for our Chinese operations; and Rupert Stadler, the CEO of Audi AG.

Now just a few housekeeping notes on this Annual Media and Investor Conference. Mr. Mueller will first of all, take a look back on the last financial year. Then, our Finance Director, Frank Witter, will talk about the financials. And after that, Mr. Mueller will talk about the progress we've made with our Strategy 2025 that we presented last year. And after that, as usual, our media guests will be invited for a Q&A session. After a lunch break at 12:00, we'll have a Q&A for our analysts and investors. At 1:00, Oliver Larkin, Head of Investor Relations, my colleague, is going to chair this Q&A session.

There are a number of publications, including the 2016 Annual Report, here you will find as usual facts and figures on our finances and also an interesting magazine that has stories and impressions from the world of the Volkswagen Group. You are familiar with our navigator for the first time available as an app this year so we always have the most recent facts and figures available on your smartphones on the Volkswagen Group.

With that, over to you, Mr. Mueller.

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Matthias Mueller, Volkswagen AG - Chairman and CEO [3]

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(Interpreted) Thank you very much, [Mr. Boder].

Self-driving cars, fully connected, zero-emission vehicles, the momentum of the digital transformation. The automotive world is facing an epochal shift. Our Company, which has steered its way through difficult times recently, is now positioning itself with its brands and products for the future. Our mission: we want to redefine mobility.

On that note, I would like to welcome you toe the Annual Media Conference of the Volkswagen Group here at Autostadt in Wolfsburg. Today, it's time to reflect on the events of the past fiscal year but we also want to look ahead to what we plan to achieve over the coming with our TOGETHER - Strategy 2025. All of us here on the podium are looking forward to discussing this with you.

When we last met here a little over a year ago, no one was really able to say with any certainty what 2016 would bring for Volkswagen. All we knew at the time was that it was going to be a very challenging year. And, without any question, it was just that. On the one hand, 2016 was shaped by resolving the diesel crisis which truly called for every ounce of our attention. But we also found ourselves, as did the entire industry, in an extremely challenging environment. Core markets such as Brazil and Russia were in crisis mode as they are to this day and competition in both Western Europe and China was, and certainly still is, fierce.

That is why we pursued a twin-track agenda in 2016, to keep our operation business on course while at the same time dedicating ourselves to overcoming the crisis and realigning for the future with our five-points program. That we succeeded in both of these endeavors. 2016 was a remarkably successful year for the Volkswagen Group, as evidenced by the detailed figures that we are today presenting to you in our Annual Report.

It's easy to make the headlines as the world's biggest carmaker in terms of vehicles delivered but in my opinion, size is never an end in itself, but what it is at most the outcome of a job well done.

I believe the fact that the Volkswagen Group was able to further increase deliveries by 4% to 2.3 million (sic - see slide 5 "10.3 million") vehicles, in what have called the crisis year of 2016, I think is a vote of confidence from our customers all over the world and we are thankful for that. And we will continue to work hard to live up to that trust.

Our sales revenue in the past fiscal year also rose by 2% to more than EUR217 billion. Operating result before special items was up 14% to EUR14.6 billion. Operating result after special items, which had slipped into the red in 2015, was back in strongly positive territory at EUR7.1 billion in 2016. And this occurred despite the fact that special items again impacted our earnings and this time they came to the tune of EUR7.5 billion.

There's no question that the consequences of the diesel crisis hurt us last year not only in financial terms. But we kept on course and put up one of our best operating performances in spite of it all. However, chasing records is not what drives us. To us, it is far more important to make our Company and its products not only better and better, but also viable for the future.

We worked hard to achieve just that. This chart brings you selected highlights of the past fiscal year. As a Group, we laid key foundations for our future success with our TOGETHER - Strategy 2025 and with the formation of MOIA, our new company for mobility solutions. And at the same time, we also did everything in our power to ensure a successful present as well. For instance, we've been launching about 60 new models for our customers, including quite a few that have the potential to become bestsellers.

All Group brands have contributed to the success of this past year. Frank Witter will discuss this in more detail in just a few moments. What I'd like to do is just to mention a couple more points that I find especially noteworthy.

The Volkswagen brand delivered around 6 million vehicles to its customers, despite all the pressures. And in addition, the foundation for our powerful realignment of our core brand was laid in the form TRANSFORM 2025+, the new brand strategy, and also the pact for the future, the Zukuenftige Pact.

Audi beat its prior-year record with 1.9 million deliveries, and also made progress on the road to internationalization with the inauguration of the their first plant on the North American continent.

Porsche remains the world's most profitable carmaker. And with Porsche Digital GmbH, the brand also established its own digitalization center of excellence. In the medium term, 500 employees will work there on questions like advancing connectivity, smart mobility, and autonomous driving.

SKODA also put up a strong operating performance, thanks to new models such as the Kodiaq. And what was particularly impressive, its operating return on sales is now on par with premium brands.

SEAT achieved the return to profitability with convincing vehicles such as the new Ateca. And the upward trends at SEAT still goes on. So, as we see, patience pays off.

Our colleagues at Volkswagen Truck & Bus formed a strategic alliance with Navistar, thus opening the door to the North American market. Also, the authorities approved our stake in the US commercial vehicle manufacturer at the start of this month. The purchasing alliance with Navistar is already in effect and collaboration in core components such as engines will also commence shortly.

Volkswagen Financial Services remains a key profit driver for the Group and a sales engine for our brands. The number of contracts rose to a new record of more than 16 million. Investments of half a billion euros by 2020 will towards fully digitalizing this business model.

Now, I've already referred to the challenging market environment in 2016. But nonetheless, we succeeded in consolidating a strong position in our major core markets. The Group's broad lineup paid off once again in our very profitable home market of Western Europe. Group delivers rose by 3% despite the headwind which hit the VW brand in particular.

We also expanded our leadership in the fiercely competitive Chinese market. Deliveries there rose by more 12% to around 4 million vehicles. At a total of more than 150 imported -- and above all locally produced -- models provided the basis for this success. And we will keep scaling up our product offering for the Chinese market by adding new SUVs, by adding entry-level vehicles, and also locally manufactured electric cars.

North America was without a doubt a particularly difficult terrain for Volkswagen to navigate in 2016 but we nonetheless succeeded in slightly increasing Group deliveries in the North American market. Audi and Porsche performed especially well. The United States remains a strategic core market for the Group and the VW brands alike. We stand behind our investment and location decisions and we intend to play a much greater role in the USA over the long term than we have thus far. The double-digit growth rates for this year or for the first two months of this year give us grounds for optimism.

Ladies and gentlemen, as you can see from our brief overview, the Volkswagen Group is in very robust shape. Our operating business was highly successful in 2016. In addition, with net liquidity of more than EUR27 billion in the automotive division at year-end 2016, the Group's financial position was very sound. We are therefore optimistic about the difficult tasks that lie ahead, not only for us, but also for the entire industry.

We also made substantial progress over and above the bare figures. As you'll recall, we launched a five-point plan shortly after the diesel crisis broke in October 2015, in order to tackle the most pressing issues as swiftly as possible and of course, in the best structured way. And we made considerable progress with all the points in the plan last year.

Customers are responding very well to the recall campaign for the affected diesel vehicles. We have now modified more than 1.5 million Group vehicles in Germany alone, worldwide these are now 4 million. At present, we are processing 200,000 cars per week and it is now our goal is to fix all customers' vehicles by the autumn of 2017.

And at the same time, we also implemented, as promised, a comprehensive investigation, both internally and externally. This has made considerable progress, as you know. The main findings, as seen from the perspective of the US authorities, have been on the table since their publication of the statement of facts by the Department of Justice in the US. And now we are currently drawing further conclusions from these findings that have been presented.

As regards ongoing investigations, we will continue to give the authorities our full and unconditional support. That also goes for the work of the monitor for the Volkswagen Group that is soon to be appointed by the US Department of Justice. I see great opportunities here, because we will work together with the monitor to take forward the ongoing optimization and the expansion of our risk management, compliance, and integrity programs.

Ladies and gentlemen, it was clear to me from day one that we also need to seize this decisive turning point to realign Volkswagen for the future, in our structures, in our mindset and with a new strategic orientation. This new, more decentralized Group structure will reinforce our brands and our regions. Volkswagen is becoming faster, more focused, and more customer-driven. This will allow us to leverage the strengths of our multi-brand Group and also its synergy potential much more effectively than in the past.

But we are also getting serious about reducing red tape. The scope of our Group-wide regulations will be reduced from nearly 800 pages to just over 150. We will also reduce the number of our top corporate committees by one-third. And in addition, the number of legendary Konzernabnahmefahrten, the vehicle test drives, will be halved and held on a much smaller scale.

The most important milestone of the past year was the development of a new strategic direction for the entire Group. Our TOGETHER - Strategy 2025 describes how we are realigning Volkswagen for the future, making the transformation from our position as a top carmaker to becoming a globally leading provider of mobility solutions. Just last summer, we presented the cornerstones of TOGETHER and in the second part of my speech today, I would like to describe what we have achieved thus far and what we are planning to undertake in the years to come.

Ladies and gentlemen, Volkswagen needs to transform. Not because everything in the past was bad, but because our industry will see more fundamental changes in the coming 10 years than we have experienced over the past 100 years. New technologies, new structures are only part of the answer. Above all, a new era calls for new ways of thinking. We need to be more agile, more courageous, more entrepreneurial, more pragmatic.

But you don't change a company such as Volkswagen by standing with a bullhorn at the factory gates and then announce the big transformation. All of us up here on the podium and the entire management must be living examples of precisely that change. And we must set the guideposts for the change we are all striving for. We have all worked very hard on this as well.

A key building block is the realignment of our leadership model and management development. To put it in simple terms, Volkswagen must become more international, more entrepreneurial, and more female, especially at management level. To this end, we have defined a new profile for the selection, for the promotion and the remuneration of our management. We are also stepping up exchange within the Group and thus accelerating a change in perspective. In the future, experience working in multiple Group companies, brands and regions will be a prerequisite for management promotion.

Moreover, our new code of cooperation sets out the rules for the game; genuine, straightforward, open-minded, act as equals, be united. These are the values that are intended to shape the cooperation between the Group, the brands, the regions, making us all more efficient, better, and more synergetic.

I am fully aware that soft topics like these will certainly not garner great acclaim at events such as this one here today, but I believe they still deserve a mention. Because I am convinced that a living, that an open corporate culture, strong common values and integrity in our actions, that all of these are essential for the future of Volkswagen, for our acceptance in society and for our sustained economic success.

Compliance and integrity are not qualities that can be delegated to either a department or a single individual. We are working on anchoring awareness of these topics even more deeply in the Group, from our vocational trainees to our development engineers, and all the way up to the Board of Management. And this is crucial, crucial not just in light of the recent events, but above all for the future of our Company.

Ladies and gentlemen, 2016 did not turn out to be the nightmare year that many predicted for Volkswagen. We achieved much, in our operating business and also in setting the course for the future. Therefore, my personal conclusion would be that even though much work still lies ahead of us, Volkswagen is back on track.

And this is above all thanks to our truly excellent teamwork. And for me, there's another great strength of our Company and that is also why all of us, here on this podium, and I personally, would like to thank all 620,000 of our employees worldwide.

And now I'll hand over to Frank Witter, who will now guide you through our key performance indicators. Thank you very much for listening. Frank, you have the floor.

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Frank Witter, Volkswagen AG - Finance and Controlling [4]

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(Interpreted) Thanks, Matthias. Ladies and gentlemen, may I also welcome you very warmly to the annual media and investor conference of the Volkswagen Group in our Autostadt here in Wolfsburg.

The key figures for our 2016 annual financial statements were already published at the end of February. Today I'd like to give you a more detailed view of our financials. Let's start by comparing them with our expectations.

In 2016, the automotive sector was again significantly influenced by fiscal policy measures, with continuing evidence of protectionist tendencies. All in all, global demand for passenger cars and commercial vehicles grew at a stronger pace than in 2015 and therefore, more significantly than we had expected. However, as forecast, there were also significant declines in a few of our relevant markets.

The business performance of the Volkswagen Group was further influenced by the challenges resulting from the diesel issue. In spite of this, we were able to exceed our forecast by delivering 10.3 million vehicles to customers in 2016, thus setting a new record. As a result, the sales revenue of the Volkswagen Group also improved over the course of the year. At EUR217.3 billion, it even exceeded the expected figure, one we had revised during the year, by around EUR4 billion.

Due in particular to optimized product costs and mix improvements, our operating profit before special items also exceeded the original forecast at EUR14.6 billion. Consequently, we were able to also improve our operating return on sales before special items to 6.7%. Also after special items, resulting in particular from the diesel issue, the operating profit and the operating return on sales were as forecast, clearly positive.

I'd now like to take a closer look at how our income statement compares to that of the previous year. The Volkswagen Group generated sales revenue of EUR217.3 billion in fiscal year 2016, thus surpassing the prior year figure by 1.9%. Once again, we generated the largest portion of our sales revenue, 79.9%, outside Germany. Improvements in the mix and positive developments in our financial services division were the main contributing factors.

By contrast, exchange effects and a slight decline in unit sales, excluding the Chinese joint ventures, had a negative impact. The Volkswagen Group's business performance in the Chinese market is mainly reflected in sales revenue and operating profit, relating only to deliveries of vehicles and vehicle parts, as well as license revenue.

At EUR14.6 billion, operating profit before special increased by EUR1.8 billion on last year. EUR1 billion of this can be attributed to mix improvements in the passenger cars business. This, however, was offset by negative exchange effects amounting to the same figure. We were able to achieve a EUR2.7 billion increase in earnings by optimizing product costs, whereas an increase in fixed costs led to a negative impact, amounting to EUR1.3 billion.

In the commercial vehicles business area, the operating profit rose by EUR0.4 billion. This was mainly due to an increase in unit sales and the expansion of the service business. The operating profit in the power engineering business area fell by EUR0.2 billion, due to volume and margin-related factors. The financial services division was able to improve its operating profit by EUR0.2 billion, owing mainly to the growth in its business volume.

Excluding special items, the operating profit of Volkswagen Group increased by 14%, compared with the year before.

In total, special items had a negative impact of EUR7.5 billion on the operating profit in fiscal year 2016, compared to EUR16.9 in the previous year. EUR6.9 billion of this figure is attributable to the passenger cars business area, EUR0.5 billion to the commercial vehicles business area and EUR0.2 billion to the power engineering business area.

Special items relating to the diesel issue amounted to EUR6.4 billion, mainly due to costs for legal risks. In the prior-year period, the charges related to the diesel issue amounted to EUR16.2 billion. Agreements reached in the United States and Canada have taken us a major step forward in overcoming the diesel issue.

In fiscal year 2016, it was necessary to make additional provisions of EUR0.3 billion to replace potentially faulty airbags manufactured by Takata.

Our operating profit was also negatively impacted by special items related to restructuring measures. With regard to our business in South America, these amounted to EUR0.2 billion in the passenger cars business and EUR0.1 billion in the trucks business. In the power engineering business area, special items totaled EUR0.2 billion. The measures are aimed at sustainably strengthening our competitiveness and safeguarding future viability.

In the commercial vehicles business, we set aside provisions of EUR0.4 billion for legal risks, relating to the commercial vehicles antitrust proceedings launched by the European Commission.

At EUR7.1 billion, the Volkswagen Group's operating profit was once again positive in fiscal year 2016, despite special items. The operating return on sales increased from minus 1.9% to 3.3%.

Because our Chinese joint ventures are accounted for using the equity method, they are reflected solely in the consolidated financial result. They recorded a proportionate operating profit of just under EUR5 billion.

At EUR0.2 billion, the financial result was EUR2.6 billion lower year-on-year. Income from the sale of the Suzuki shares had a clearly positive effect in 2015. The decline can also be attributed to lower at-equity income from our Chinese joint ventures, which were additionally impacted by negative exchange effects.

The Volkswagen Group's earnings before tax and after tax were once again positive in fiscal year 2016. Income tax expense amounted to EUR1.9 billion, resulting in a tax rate of 26.2% in the reporting period. For those interested in a presentation of the key figures for the fourth quarter of 2016, these are available as usual on our investor relations website.

Ladies and gentlemen, I would now like to explain the profits of the Volkswagen Group's individual brands before special items. In 2016, the operating profit of the Volkswagen passenger cars brand before special items fell to EUR1.9 billion. The operating return on sales before special items also declined slightly from 2% to 1.8%. The decrease is primarily attributable to volume, mix and exchange rate effects.

Business was also negatively impacted by the difficult economic environment in Brazil, together with higher marketing costs for the Volkswagen passenger cars brand, not only in the USA, as a result of the diesel issue. In contrast, cost savings from the efficiency program are already having an impact.

The Volkswagen passenger cars brand is completely repositioning itself with the TRANSFORM 2025+ strategy. And, as you already know, the future pact has now been signed. The Volkswagen passenger cars brand is now focusing on sharpening its market position and profitable growth.

The realignment of the Group's structure, with more decentralized responsibility, is also playing a role here. As a result, there will be a change in management responsibility in the Volkswagen passenger cars brand from 2017 onwards. For example, importer companies that also sell vehicles from other Group brands will be separated from the Volkswagen passenger cars brand and shown in future in the automotive division under the category other.

In 2016, Audi delivered an operating profit before special items of EUR4.8 billion, which was also slightly below that of the previous year. Higher sales revenue and ongoing optimization of processes and costs had a positive effect.

The SPEED UP action program launched in fiscal year 2016, also began to have an effect. However, exchange rate effects and intense competition had a significant adverse impact on earnings. High upfront expenditure for new products and technologies, together with the expansion of the international production network, led to increased depreciation and amortization charges and launch costs. Audi achieved an operating return on sales before special items of 8.2%.

The SKODA brand celebrated its 25th anniversary as part of the Volkswagen Group in 2016. During this time, the Czech brand has evolved from a regional provider into an internationally successful vehicle manufacturer. The financial figures are also extremely encouraging. In the last fiscal year, SKODA's operating profit rose by almost one-third to EUR1.2 billion, thanks to positive volume and mix related effects, along with optimization of product costs. The operating return on sales rose to 8.7%.

The first SUV in the brand's history, the Ateca, contributed to record-breaking figures for sales revenue and operating profits at the SEAT brand. At EUR8.9 billion, sales revenue exceeded the prior year figure by 3.8%. With an operating profit of EUR153 million and an operating return on sales of 1.7%, SEAT returned to the profit zone in the reporting period. Negative exchange rate effects were more than compensated for by cost reductions and mix improvements.

2016 saw strong demand for the Bentayga, Bentley's new luxury SUV. The brand sold around 11,300 vehicles worldwide, 6.4% more than in the previous year. Despite a change in market conditions and the launch costs for the Bentayga, the operating profit remained on a par with the previous year at EUR112 million. This can be attributed to positive exchange rate effects and cost reduction measures. The operating return on sales was 5.5%.

The Porsche brand set new records in terms of unit sales, sales revenue and profit in fiscal 2016. At EUR22.3 billion, sales revenue exceeded the prior year figure by 3.6%. The operating profit rose by 13.9% to EUR3.9 billion, with the increase primarily attributable to volume, mix and exchange rate effects. At the same time, costs grew at a comparatively low rate despite investments for electrification, digitalization and new business fields. The operating return on sales increased from 15.8% to 17.4%.

The commercial vehicles brand celebrated 60 years of its headquarters in Hanover in the reporting year. The brand opened a new plant established especially for the production of the new Crafter in Wrzesnia, Poland. In fiscal year 2016, the sales revenue for the Volkswagen commercial vehicles brand rose from its prior year figure of EUR10.3 billion to EUR11.1 billion. The operating profit before special items increased by 19% to EUR455 million. Contributing factors were volume and mix effects, along with the positive impact of product cost optimization. The operating return on sales rose to 4.1%.

Our Scania brand celebrated its 125th anniversary in 2016. With its new generation of trucks, the Swedish brand is setting new benchmarks for efficiency and customer focus. Scania's operating profit before special items rose to EUR1.1 billion. Negative exchange effects were more than offset by higher vehicle sales and an expansion of the service business. In the reporting period, the operating return on sales before special items amounted to 9.5%.

The operating profit before special items for the MAN commercial vehicles brand rose from minus EUR4 million in 2015 to EUR230 million in 2016. At 2.3%, the operating return on sales before special items was once again positive. This was in part attributable to volume effects and improved margins in Europe, whilst the difficult economic environment in South America had an adverse impact on business. The initiated future programs had a positive effect.

In power engineering, the operating profit before special items declined from EUR283 million to EUR194 million, due to volume- and margin-related factors. The operating return on sales before special items was 5.4%, compared to 7.5% in the previous year.

Volkswagen financial services reported record profits in fiscal 2016, due in equal measure to its broad product range and competitive offerings. At EUR2.1 billion, its operating profit exceeded the prior year figure by 9.6%.

Please note that these figures I have quoted for the brands include intra-group transactions, such as in particular intercompany profits. The elimination of these items is found in the other category, as usual. In addition, the profits of Porsche Holding Salzburg and the depreciation and amortization of identifiable assets from the purchase price allocation for Scania, Porsche Holding Salzburg, MAN and Porsche are combined in this line.

In 2016, all brands contributed to the success of the Volkswagen Group by delivering a positive operating result.

Ladies and gentlemen, in order to ensure the efficient use of resources in the automotive division and to measure the success of this, we have been using, with return on investment, a value based management system for a number of years. ROI shows the return on invested capital based on the operating result after tax. The invested capital rose in the reporting period due to increased CapEx and higher capitalized development costs. The ROI rose year-on-year to 8.2%, as a consequence of the improved operating profit. However, we did not meet our minimum required rate of return on invested capital of 9% due to the adverse effects of the special items on earnings.

In the financial services division, the return on equity before tax decreased from 12.2% to 10.8% in 2016. Due to regulatory minimum capital requirements, equity rose more sharply than earnings before tax in the reporting period.

I would now like to turn to specific details of the financial position of the automotive division. At EUR16.5 billion, the automotive division's gross cash flow was EUR9 billion higher in fiscal year 2016 than in the previous year. The increase is attributable primarily to lower special items and the resulting improved operating result. However, lower dividend payments by the Chinese joint ventures had an offsetting effect.

The change in working capital of EUR3.8 billion was significantly down on the figure of EUR16.3 billion for the previous year. The new special items recognized in each reporting period had a negative impact on gross cash flow and a positive effect on the change in working capital. Legal risks and vehicle recalls attributable to the diesel issue resulted in cash outflows in the reporting period. Cash flows from operating activities decreased in total by EUR3.5 billion to EUR20.3 billion, mainly as a result of lower Chinese dividends and, as already mentioned, the diesel-related outflows.

Investing activities attributable to operating activities rose to EUR15.9 billion, a year-on-year increase by EUR1 billion. At EUR12.8 billion, CapEx remained level with last year. The ratio of CapEx to sales revenue remained at 6.9%, within the expected range. Unfortunately, however, we were unable to achieve our goal of reducing the level of CapEx in absolute terms in the reporting period. Our investment policy has been rigorously realigned, we are now focusing even more closely on future trends rather than non-product-related areas. We are firmly convinced it would be negligent of us to fail to systematically invest in our future during this critical transition phase in the automotive industry.

In the course of the last fiscal year, we invested mainly in our production facilities and our vehicles. These included the Tiguan and Atlas series from the Volkswagen passenger cars brand, the A4, A6, A8 and Q5 from Audi, the Kodiaq from SKODA, the Ateca, Ibiza and Arona models from SEAT, and the Panamera and Cayenne models from Porsche. Other investment priorities were the ecological focus of our model range, drivetrain electrification and our modular toolkits.

Capitalized development costs increased by EUR0.7 billion to EUR5.8 billion. The reporting period saw a number of important projects reach their capitalization point in accordance with IFRS. Over and above this, we have streamlined our product development process, which leads to an earlier capitalization.

We remain committed to our target of reducing both the ratio of CapEx to sales revenue and the R&D ratio to 6% by 2021 at the latest.

Investing activities attributable to operating activities in the reporting period included the sale of the LeasePlan shares, amounting to EUR2.2 billion and in the previous year, the sale of the Suzuki shares.

The automotive division's net cash flow was EUR4.3 billion. This figure was down on the previous year, also due to cash outflows related to the diesel issue, but was within our expected range.

We started fiscal year 2016 with a net liquidity of EUR24.5 billion in the automotive division. As I just mentioned, net cash flow had a positive effect on net liquidity. A capital increase of EUR1.2 billion was carried out at Volkswagen Financial Services AG to finance the growth in business volumes and comply with regulatory capital requirements. In consequence of the diesel issue, the dividend payment to Volkswagen AG shareholders amounted to only EUR0.1 billion. The automotive division's net liquidity at the end of the reporting period was EUR27.2 billion, a robust sum, particularly in view of the upcoming cash outflows related to the diesel issue.

Ladies and gentlemen, in fiscal year 2016, the Volkswagen Group generated earnings attributable to shareholders of Volkswagen AG of EUR5.1 billion, compared to minus EUR1.6 billion in the previous year. This corresponds to basic earnings of EUR10.24 per ordinary share and EUR10.30 per preferred share, marking a return to the positive zone in these figures as well.

Consequently, the Board of Management and the Supervisory Board are pleased to be able to propose a dividend of EUR2 per ordinary share and EUR2.06 per preferred share, corresponding to a payout ratio of 19.7%. This figure takes account of our current financial situation and the significant payments related to the diesel issue in 2017. At the same time, we are reaffirming our strategic goal to achieve a payout ratio of 30%.

Our annual general meeting will be held at the Deutsche Messe AG exhibition grounds in Hanover on May 10th, 2017. The agenda and other related documents will be published on our investor relations website as soon as the annual general meeting has been convened.

Ladies and gentlemen, many thanks for your attention.

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Matthias Mueller, Volkswagen AG - Chairman and CEO [5]

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(Interpreted) Ladies and gentlemen, now that we've reviewed this past fiscal year, I'd like you to join me in looking ahead. So what is it that we at the Volkswagen Group plan to undertake in this current year and also going beyond?

We have now transitioned our five-point plan, which was initially conceived for the acute crisis management phase, to new, to Group-wide targets, in a first step for 2017 and then also for subsequent years as well. We have called these goals 1+4. Well, 1+ stands for continuing to resolve the diesel crisis. Now that is a task which still has top priority, because we have not yet modified all vehicles and because legal questions have not yet been fully resolved. And above all, because we still have a good way to go in completely regaining the trust of our customers and the public.

But still, the diesel topic is no longer demanding as much time and capacities as it did in the past year, even though numerous members of our team are still working on it. The rest of our organization is now able to fully concentrate on operating business and our key priorities for the future. To that end we have formulated four Group-wide goals.

So first, we must keep our operating business successful in a highly volatile environment.

Second, we must make further efficiency gains and leverage synergies throughout our Group, in part to release the funds needed to invest in the necessary structural transformation.

Third, we must systematically implement our Strategy 2025 and continue to drive forward the realignment of our Group.

And fourth, we must be authentic; authentic in living our new corporate culture, which I have already outlined for you, earlier today, thus making Volkswagen a role model for value based action and for integrity. Only if we succeed in this will we be able to achieve our other goals.

Now, regarding the first goal of a successful operating business, here we see good chances of being able to ride the wave of last year's positive performance in 2017. It's true that the global economic growth in 2017 is only expected to be slightly up on the prior-year level. And on top of that, we're also experiencing a general phase of great political and economic uncertainty all over the world.

Nevertheless, we expect our deliveries to customers to rise moderately in the current year, compared with 2016. Our sales revenue is predicted to increase by up to 4% over the prior year and in terms of the Group's operating result, we anticipate a return on sales of between 6% and 7%. You can rest assured that we will do everything in our power to make 2017 an even better year than 2016.

Our long-term aspiration is also ambitious, because we have formulated a clear-cut objective of playing a leading role in shaping the future of automobility. The foundation for this is our TOGETHER - Strategy 2025, which just under nine months ago that I presented our new Group strategy to you for the first time. The momentum we triggered with TOGETHER has come as a surprise to many, both inside and outside the Group.

And even though we do hit occasional snags and things can't move quickly enough for someone as impatient as I am anyway, there is a spirit of renewal that prevails among us. And I personally experience this high level of energy, of creativity that has spread throughout the Group on a daily basis, and I am grateful for that. And this makes me optimistic that together, we at Volkswagen will succeed in achieving anything we set our minds to.

In the meantime, our Group brands have also developed corresponding strategies for success and the outcome is a strategy house, a house consisting of a stable roof, strong walls and a solid foundation of values. To stick to this image, our plans for the interior of our house are quite far along, and some are already in full swing. This process of change that we have initiated is taking place not only in our heads, but also quite specifically in our factories and our development laboratories and our offices as well.

You may recall that we have defined four areas of action for our strategy that are also underpinned with specific Group initiatives. First, we said we are transforming our core automotive business. Developing, building, selling cars, of course, will always be a part of our DNA. But the face of that business will change fundamentally, as will the car itself.

Second, we are expanding our mobility solutions business to become a new, strong pillar for the Group. Third, we are strengthening our innovation power and putting it on an even broader footing. And fourth, we are securing the funding that we will need to make the extensive investments in the future required to implement this transformation.

And these four elements form a coherent whole. The transformation of our core business and the new mobility solutions business area will enable profitable growth of tomorrow. However, these two elements will only be successful if we establish a new culture of innovation and if we are sufficiently profitable to finance it as well.

So what have we already achieved in relation to these four elements, and what will our focus be in the future? There are too many initiatives either already underway or in the pipeline to discuss here. So therefore, let me just concentrate on those topics that I believe to be particularly important.

The first area of action is the transformation of our core business. We are moving full speed ahead in all of the topics we have chosen to tackle and already we are seeing the first tangible results. Implementation of our model series organization for all major passenger car brands was a major step forward, because this will shorten decision-making paths, it will allocate responsibilities more clearly and it will give us much more results driven focus.

Another core element of our strategy is partnerships, for instance, to develop new business opportunities, or to advance new technologies. In recent months, we have forged many such partnerships already and now, and some might say finally, we are entering the booming economy segment. And we have chosen the very best partners for this.

Together with Tata Motors, we are plan to develop budget cars for the Indian market. Our colleagues at SKODA are going to be the alliance lead for this Group. In China, we're working on an economy car with FAW, FAW is our long-standing joint venture partner in China. We're also in the advanced stage of negotiations with JAC to cooperate in putting inexpensive electric cars on the road also in the Chinese market.

What is of outstanding significance for our global ambitions in the commercial vehicle segment is our strategic alliance with Navistar, which I referred to a little earlier. In particular, we are working intensively with external partners to establish new competences. One example of that is our cooperation with NVIDIA, where we are jointly developing a cockpit which is based on artificial intelligence. In addition, our subsidiary, Italdesign, just presented a spectacular joint project together with Airbus in Geneva, the Pop Up, that could shift urban mobility from the road to the air.

But we are also making an impact under our own steam with respect to the key topics of the future. One example is the Volkswagen ID, which showcases our ideas for the fully connected, fully electric series vehicle of the future.

Or take another example, that's Sedric. Sedric is the Volkswagen Group's first self-driving car, which met with a very enthusiastic welcome at Geneva. Sedric is the embodiment of our objective to continue implementing the steps needed to bring self-driving cars to series production for our customers.

Another milestone fits in very well with this, namely the founding of our own company to develop a self-driving system, which is the technological basis for self-driving vehicles, for the entire Group. Autonomous Intelligent Driving GmbH is a company that has docked with Audi and is headquartered in Munich and more on that tomorrow from our colleagues at Audi.

But innovations such as these are not an end in themselves, because the vehicle concepts of tomorrow require us to think from the customer's perspective, not from our own engineers' logic. So the key word here is user experience, which means all aspects of customer interaction with our products. To this end, we are now establishing global competence centers, where designers and digitalization experts work hand-in-hand.

The Group Future Centers in Potsdam and in Silicon Valley got off to a good start and they have already realized their first design studies and also prototypes. Much of Sedric, for instance, was developed at the Europe Future Center. The Asia Future Center in Beijing will be ready to start in just a while.

Now another future core competence is battery technology for us. In the recent months we have developed and approved a concrete phased plan to achieve technological leadership in Europe by 2025.

What we need to do now during the current year is to keep working on all of these areas with all of our energy. We will forge ahead with transforming and focusing on our vehicle and drivetrain portfolios. The Volkswagen Group's SUV rollout is also once again gathering pace fast with a total of seven new models. The economy car partnerships that I just mentioned are expected to begin operating in 2017, with the first JAC model scheduled for 2018. The first vehicle developed jointly with Tata could be launched in India as early as 2019 as part of an entire model family in the A0 segment, designed for India and export markets.

This year, we will also start rolling out our battery phased plan. The center of excellence headed up by our lead VW brand is expected to begin operating in the second quarter of 2017. It will assume responsibility for the development, for the procurement, and quality assurance of all of the Group's battery cells and battery models. We will also be gradually developing process competence within the center of excellence and starting in 2018 with a laboratory line and probably from 2020 onward with our own pilot line. At the same time, negotiations to establish partnerships in the field of battery cells are at an advanced stage. We now expect to conclude these negotiations this year.

And last but not least, we intend to move forward with a very important topic for us in 2017, namely the realignment of our components activities. We have already started streamlining the product portfolio to give it a stronger focus on e-mobility. The first steps towards creating a separate business unit could be implemented by this summer. But because the entire endeavor is highly complex in every respect, we will complete the pooling of component activities in multiple stages, beginning in Europe.

The fields we are focusing on in 2017 as we transform our core business also define the main lines of action for the coming years. We will not be neglecting conventional drivetrain technology, which will continue to dominate the market for many years to come. Instead, we will continue to work hard on optimizing our drivetrains while at the same time significantly expanding the Group's e-mobility portfolio. Both of these are key to meeting the ambitious carbon emission standards that certainly present a great challenge to our entire industry.

As a Group, we plan to launch more than 10 electric vehicle models by the end of 2018 and more than 30 new battery electric vehicles -- BEVs -- by 2025. Now we expect volumes to increase significantly each year until then. The Volkswagen Group will thus gradually assume the position of world market leader -- leader in electromobility. To that end, we will as I have described systematically develop and expand our battery expertise. From lithium-ion batteries through to technology leadership in solid-state batteries, which we aim to achieve by 2025.

We will also continue to work on making the Volkswagen Group an innovation leader in other key areas for the future of automobility. Our own self-driving system should be ready for series production as early as 2021. And the Group's first self-driving vehicles without a steering wheel or pedals are expected to be on the roads from the start of the next decade.

Ladies and Gentlemen the transformation of the automotive industry is a mammoth task, we realize that. But we must and we will make a success of it. That also applies to the second area of action in our Strategy 2025, namely the creation of our own separate business unit for mobility solutions. Here too, we made very good progress in past months.

MOIA has been established as our new business unit for mobility solutions and begun operating. Now the main job of MOIA is to develop and market our own mobility services. The biggest short-term potential is ride hailing by app. Together with our partner Gett, we are developing and expanding the ride-hailing business. We have started our joint expansion strategy in Europe with the market launch in Moscow in autumn 2016.

The MOIA crew in Berlin, which currently comprises a team of 50 is growing rapidly. It is bursting with energy and fresh ideas. That is why I am so optimistic that MOIA can meet all the expectations that we have placed in our newest subsidiary. Because we want to solve traffic issues where they are the most urgent. And for that reason, we are looking to team up with major cities. For example, we concluded a strategic mobility alliance with the city of Hamburg with the goal of making Hamburg a model city for sustainable, for integrated urban mobility. And in this project, we're gathering valuable experience that will benefit both partners.

We have also agreed new mobility services collaborations in China. One of these involves DiDi which is the region's leading ride-hailing provider. Another one is GoFun, one of China's biggest car-sharing enterprises.

Intelligent, digital-based concepts are also in demand for transport and logistics. Here Volkswagen Truck & Bus is at the forefront of this movement, having developed RIO, the first cloud-based operating system for the entire commercial vehicle sector which was spearheaded by MAN.

Now I could go on and on with the list of examples. We have so many ideas. And of course not all of them will work at the first attempt, we realize that. And that is what entrepreneurship is all about. But what we can say already is that our decision to make targeted investments in new mobility solutions has brought great, discernable momentum throughout the Company.

This year, we will focus on successively developing and expanding a mobility-on-demand portfolio at MOIA. One focus here will be what is known as pooling. Now this involves using an app to combine individual rides to make more efficient use of the existing -- the available infrastructures in urban areas. We plan to do this by developing our own shuttle service that will combine the features of a regular city bus and shared taxi services.

Another focus for us in 2017 will be to accelerate the growth of Gett in Russia, the United Kingdom, the US and Israel and also to push expansion in Germany, France, Spain, and Italy.

Data-based concepts involving intelligent, urban mobility are also the focus of the Metropolis:Lab Barcelona from SEAT and Group IT. And that is a project that will be launched shortly.

Notwithstanding all of our eagerness to try out some new ideas, we have set clear priorities, and we will not get bogged down. We will not follow every trend but we'll focus on the most promising areas for the medium to long term. When we do that we also keep a close eye on making sure that expertise is transferred between different Group brands and on leveraging synergies. At Volkswagen Financial Services, for example, we are pooling our Groupwide initiatives for smart parking solutions.

But we've already lined up the program for the coming year as well. Our goal is to achieve market leadership in ride-hailing business in Europe. This will involve also expanding shuttle and pooling services to more than 20 cities by 2021. Over the long term, we also want to deploy autonomous mini buses and operate one of the world's biggest driverless vehicle fleets by 2025. The first pilot projects have already been initiated here.

In addition, we will be developing a comprehensive portfolio of smart mobility services at the Group brands as well as combining our mobility and transport services into a truly integrated product offering. This is how we plan to become one of the global top three providers of efficient, of convenient and of sustainable mobility solutions by 2025.

But let me put that very clearly. The new business unit is not just a nice to have. Instead our plans are based on sound projections. A market for mobility services is currently emerging, and there is good money to be made in this field over time. We believe that we as a Group will be able to generate billions in earnings in the mobility services business in the long-term.

This brings me to the third action area of our strategy. Volkswagen and its brands have always stood for strong innovation power. However, we will need to go the extra mile in the new world of mobility, both when it comes to traditional technologies and above all as regards the topics of the future.

Our innovation thrust takes the form of 37 Group centers of excellence and digital labs, in cities ranging from San Francisco and Barcelona to Berlin and Beijing, that are all working on all aspects of tomorrow's automobility. But those are not the only places. As we believe it is very import to make sure we do not create islands of innovation or of creativity. Instead what we are aiming for is to effect a digital mind change throughout the Volkswagen Group.

As with the Group itself, nearly all brands now have Chief Digital Officers who drive forward the transformation. But that alone is not enough. Our aim is to increase our innovation power, systematically and permanently. One way to achieve this is by making our entire organization more agile and flexible and bringing our employees up to speed with the changes.

We have implemented programs to do this but we still have a good deal of work ahead of us. That is why we will use the coming months not only to continue rolling out the numerous ongoing digitalization initiatives but we are also planning to define a common roadmap for our comprehensive digitalization offensive for the Group and for its brands by 2020 as one of our main priorities.

We intend to forge ahead with digitizing our core processes in our development activities, in our factories, in our office buildings and in our commercial operations, wherever we can add value for our customers and our company. And the long-term objective is clear: the digital transformation of the Group to enhance our agility, proximity to customers and innovation power. But we must succeed in this if we want to achieve our objectives in the operating business. And precisely that is our goal.

Ladies and Gentlemen, putting all of our ideas into action will take a great deal of money. The investments needed to transform our core business and build up new mobility services will be in the double-digit billion range by the year 2025.

So consequently, securing the necessary funding is the fourth action area in our strategy. And here too we have already made good progress. As we've just heard, Group liquidity is very robust. We've also created the prerequisites for implementing the necessary efficiency gains, including the Zukuenftige Pact -- the pact for the future at Volkswagen brand as I've said before and other brands have put similar measures in place. We are already seeing the first positive effects of the Group-wide excellence programs.

We have also launched an integrated strategy and planning process for the Volkswagen Group that will help us to prioritize better, to leverage synergies more systematically and it will help us to raise our planning quality.

As far as the ongoing efficiency gains are concerned, everyone in this Group is making a contribution. For example -- and I mentioned that we intend to raise efficiency in research and development by 30%. This is important because we want to make sure that we can make the necessary investments in future technologies and at the same time -- as planned -- we want to reduce the R&D ratio. All our brands will also continue working on CapEx and fixed costs. But our headquarters in Wolfsburg won't be left out either. Group functions will have to become more efficient and more productive too. I see long-term savings potential of EUR200 million per year in this area.

We are keeping to our financial targets for 2025. We aim to achieve an operating return on sales of 7% to 8% and a return on investment of more than 15%. And we plan to reduce the CapEx and R&D ratios by 6% each. Now those targets, ladies and gentlemen, are very ambitious in light of the fundamental transformation of our industry. But they are also realistic. Because they are targets that the entire Group feels committed to and we plan to deliver on what we promise.

Ladies and Gentlemen, after nearly nine months of TOGETHER -- Strategy 2025, I have a positive take on all areas. I for one am very pleased with the pace at which we are progressing. And also with the interim results. The transformation of our core business is right on schedule. Our new mobility services business unit is taking shape. Our traditionally high innovation power has been given yet another solid boost. And financially we have the realignment process well under control.

All of this is why 2016 was much more than just diesel for us. We have set the course for the biggest transformation in the history of Volkswagen while at the same time performing better in our operating business than many thought possible. For 2017, it's now full speed ahead where we'll pick up on our operating success of the past year and we will gain further momentum in implementing our Strategy 2025.

The coming years will be characterized by the transformation of our Group. We will develop fascinating new mobility solutions that will enrich our customers' lives and make them much easier. We will also launch new vehicles that will set the benchmarks for the future. We will establish new business models, we will develop new markets and we will move step by step toward a top position in the automotive world of tomorrow.

And if our plan succeeds -- and that is what everyone in the Group is working on with creativity, with passion and perseverance -- then Volkswagen will still be one of the world's largest carmakers in 2025. By then we will be No. 1 in e-mobility. We will set standards in new mobility services. And what is at least just as important as everything else, we will be a role model for protecting the environment, for safety and integrity.

That is our vision. And we will do everything in our power to achieve it -- together.

Many thanks for your attention and we are now looking forward to take your questions.

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Questions and Answers

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Unidentified Company Representative [1]

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(Interpreted) Thank you, Mr. Mueller. I can see some people asking for the floor. Allow me to make one brief comment. Please wait for the people who will take your questions and then we will call you in the order in which you have asked for the floor.

We're going to start with Mr. [Kruk] in the second row in the middle, please wait for our mic runners. Mr. Kruk can you please raise your hand so the young lady can identify you? Thank you.

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Henry Kruk, Hamburg Automobile - Media [2]

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(Interpreted) Hello, [Henry Kruk], Hamburg Automobile (inaudible). Miss Werner, since early February you have been responsible for both integrity and legal affairs. A young area of responsibility and I assume there is a lot of room for maneuver for you. What impetus do you want to give to this area of responsibility? What are your top of the range values and what values do you want to integrate?

Mr. Diess, question to you. You are responsible for the Group's main brand and for you Brazil is a very important market. However, business down there has been easier in the past to put it mildly. Now I've heard about the new car called Virtus based on the MQB platform. And it seems you want to roll this out for the first time in the largest country of South America. Would you care to expand on that? What is the Virtus and what are the hopes you associate with this project -- the body shapes and the engines you're planning to use. Thank you.

Mr. Mueller, you said that Volkswagen must become more female in the first part in your presentation but also more entrepreneurial and more international. Now North America is of the utmost importance for the Volkswagen Group, in particular the United States. Now in the Oval Office there is a gentleman whose idea of internationalism and entrepreneurial attitude is very special. How can you make sure that your interests -- and I'm thinking about the factory in Chattanooga -- but also deliveries from factories such as Puebla, NAFTA, wow can you ensure these deliveries and will you have an opportunity to talk to Donald Trump personally when he comes to Hamburg as part of the G20 Summit? Perhaps you will meet him -- along with the Chancellor of course. Thank you.

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Operator [3]

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Let's start with Miss Werner.

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Hiltrud Werner, Volkswagen AG - Integrity and Legal Affairs [4]

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(Interpreted) Well, thank you, Mr. Kruk for this question. You asked me about the impetus I would like to give to my new area of responsibility, integrity and law. Now first of all, let me assure you that the entire Board of Management stands behind of integrity and compliance. At the Volkswagen Group, integrity will always be at the top of the agenda -- it will be promoted and appreciated. Volkswagen is going to build on what it's achieved so far.

There is a code for cooperation and this defines all our partnerships and integrity and compliance are the very foundation for the success of our Company. Now we all know that success can only be sustainable if it is based on integrity in everything we do.

Under Miss Hohmann-Dennhardt we've already started a comprehensive integrity campaign. There's a whistle blowing system -- this is now in place and I'm going to continue to fine tune this system. We will also lend support to any employees if they're in a conflict of interests. Having said that, we must also ensure that everyone is treated fairly if there are certain suspicions. And we want to protect whistle blowers even better going forward.

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Operator [5]

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(Interpreted) Thank you, Miss Werner. Mr. Diess.

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Herbert Diess, Volkswagen AG - Volkswagen Passenger Cars [6]

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(Interpreted) Well, Mr. Kruk, indeed last year 2016 Brazil was very, very difficult for us. The market was declining, there was fierce competition. But also a few homemade problems -- our product line that very old, between seven and eight years. And therefore, you said very rightly that we're going to invest heavily in Brazil because after all Brazil is one of the markets in which we were the market leader for many years if not decades -- we want to get back to this position.

We're investing into a new vehicle architecture, this is based on the MQB A0 platform but a cost optimized version specifically for these markets. It will be launched this year. The first vehicle is indeed called Virtus. It will be a Polo Notchback and -- but it will also be a standard Polo. And after that SQV-type vehicles on the basis of the MPV will be available in Brazil.

In 2016, all in all, we completed a comprehensive restructuring program. We reduced headcount, increased productivity. We also made cost improvements and we got off to a good start in 2017. There has been double-digit growth in the first few weeks even with the old product lineup. And thanks to the fresh impetus and the fresh -- the new products -- we hope to regain this market for us and to get back in the black by 2019, 2020 at the latest. Mr. Mueller.

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Matthias Mueller, Volkswagen AG - Chairman and CEO [7]

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(Interpreted) Now Mr. Kruk, you asked about the United States. Let me start by taking the last part of your question -- whether I'm going to meet Mr. Trump in summer at the G20 Summit. Well, I don't know. The Chancellor is going to meet him on Friday and Mr. Krueger of BMW is going to accompany her. And I am sure that he will represent the interests of the German carmakers including Volkswagen.

But I'm very grateful for your questions because I'd like to look at this from a more comprehensive perspective -- international free trade to be precise. And allow me to rest on this idea for a while and let me explain what Volkswagen thinks about international free trade.

The global automotive industry is a key industry. This is true for the industrialized nationals but also for emerging countries. China is a case in point. It shows that economic growth is always closely linked to growth in the automotive markets and this also includes automotive production.

Now there is no country that can satisfy its automotive demand using its own domestic production. And if they have domestic production, they want to increase their exports at the same time. So market access and the reduction of trade barriers are of central and vital importance for global growth, whether we talk about North America, South America, Europe or Asia.

In the medium and long term, it makes sense to produce locally if export opportunities are not limited and this is true for the entire value chain. Efficient automotive engineering requires a global supply system. And all carmakers, as of today, have a global value chain. Around 75% of the value chain of a car is generated by suppliers and they're located in many different countries. And therefore, we have to make sure that our borders remain open. And it only makes sense to produce in the long term if the global value chains can be used efficiently. For the benefit of the employees of those carmakers in the various locations and for the benefit of our customers who expect state-of-the-art, high-quality products and reasonable prices. This is what they want and this is what we deliver.

And we want to increase growth and deployment around the world, and therefore we support free trade and open markets. Now, this is really necessary and this is underscored by the fact that the WTO identified more than 2,200 violations of free trade principles.

And there's one more thing. Volkswagen plans to harmonize technical rules around the world for a very good reason. We're looking at a global automotive market, and in the global market it doesn't make sense for each region to have its own technical rules and regulations. Different technical regulations for vehicle licensing and registration make the product more expensive, make the carmakers' business more difficult and are therefore a disadvantage for customers. Assuming that we have similar or comparable technical rules, we can have mutual recognition. And this is part of many free trade agreements.

In fact, the global harmonization of technical rules is supervised by the United Nations. There are experts from governments and also non-government organizations and also representatives of industry, the World Forum of Vehicle Harmonization Regulations, the WP.29, etc.

For the application of ECE, we have ECE rules, and the GDRs are also part of that. As representatives of the global automotive industry, accredited with the United Nations, Volkswagen and other carmakers are fully involved in this process.

Forgive me for giving you this broad background, Mr. Kruk. Thank you for this question. I think it was important for me to explain this in greater detail.

Volkswagen is the second largest German employer in the United States, with 60,000 employees. Last year we invested just under EUR1 billion in Chattanooga. And like I said before, for us, the United States will continue to be a strategic market, including the Volkswagen brand. And we're going to push ahead in the American -- in the US market.

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Unidentified Company Representative [8]

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(Interpreted) Thank you, Mr. Mueller. Next question by Mr. Hegler in the fourth row. And after that, Mr. Hetzner.

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Hedwig Hegler, Suddeutsche Zeitung - Media [9]

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(Interpreted) Mr. Hegler, Munich, Suddeutsche Daily. Four brief questions. A code of cooperation sounds great. Mr. Diess and Mr. Osterloh, have they also signed this document? I'm wondering.

The diesel issue, we just heard that Deutsche (inaudible) has filed a lawsuit in [Schleswig] against the German vehicle licensing agency, KBA, because of a Golf 6 that still emits 3.3 times the NOx even after a software update. And there are also problems with the EGR valves, a very special technical issue for experts, the experts among you. Now, it seems that this software update is not really working. It's not quite as good as you expected. What is Volkswagen going to do about this? Do you have any idea regarding the civil lawsuits related to the diesel crisis because they will hit you over the next few years? Is there a rough idea, a rough framework?

And on page 92 of the annual report there's an interesting wording. I don't really understand this. The then and current Board didn't know about this, at least the Board. Can you explain what you mean by the word at least? Who else was in the know?

And last question, Salzburg and Mr. Piech, do you know when Salzburg is going to hit you next and what will hit you? Or have you asked for silence from Salzburg?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [10]

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(Interpreted) Well, Mr. Hegler, let me try and answer your questions. You asked about the code of cooperation. Now, your question was slightly provocative, but we are very serious about this. And Mr. Diess and Mr. Osterloh are also taking this very seriously. You're not part in the conversations, but I am and therefore I can answer your question and I can answer it to the best of my knowledge.

We're addressing certain issues and of course there are discussions between management and the labor representatives. This is standard procedure, not just in Volkswagen. This is true for all companies. The important thing is that we arrive at solutions. Recently, we had a discussion, a debate. And the parties involved are not just Mr. Diess and Mr. Osterloh. And we have reached an agreement.

Next, you have asked about another lawsuit, which was brought because of faulty software updates. I can only repeat that our software updates are okay. They're doing well. We discussed it with the German vehicle licensing agency, KBA. I don't know the exact figure, but I think we did thousands of measurements, and according to these measurements our solutions do work. And if some organization of certain people think they know better and they can file a lawsuit, well, let them do it and then we're going to discuss this in court. But we're relaxed about this.

Third question, a framework for civil lawsuits. I don't know. I'm looking to my left, Frank Witter. We didn't make any provisions in this regard because we're not -- we don't know what the future holds out to us. We all -- the only thing we do know is that these things will keep us busy for many years to come.

And then you mentioned page 92 of the Annual Report. You gave us a quote. Well, I didn't quite understand the context or background of your question. All I can say is that if you read the statement of facts you won't find a single name of the people who are on this panel this morning. And therefore, I think this phrase, this wording is right and justified.

And then you mentioned Dr. Ferdinand Piech. Well, I think you can answer your own question, can't you? I'm not in touch with Dr. Piech and therefore I'm unable to answer your question.

Mr. Diess, would you like to add something on the EGR valve? Because Mr. Hegler also spoke about EGR valves.

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Francisco Javier Garcia Sanz, Volkswagen Group - Procurement [11]

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(Interpreted) Well, I can take it if you want. On the 189 engine and the flashing of the diesel, there's no relation to the EGR valve. Before that, we had problems with EGR valves. They're currently being repaired. They occur sporadically, but they are unrelated to the diesel issue or the software update for the diesel vehicles. And it's not part of the fix either.

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Unidentified Company Representative [12]

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(Interpreted) Thank you, Mr. Garcia. Next, Mr. Hetzner. Mr. Hetzner, please raise your hand so our mic runners can see you.

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Christiaan Hetzner, Automotive News Europe - Media [13]

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(Interpreted) Thank you. Christiaan Hetzner, Automotive News Europe. Four questions, if I may, to everyone on the panel. We haven't heard a lot about the spinoff of the components business. You mentioned that just briefly in your presentation. Is there internal resistance or what challenges are you facing in this regard and what are the next steps going to be?

Secondly, you said you are in advanced negotiations. Are you discussing joint purchasing activities with other carmakers? What exactly did you mean by that?

And then SKODA, your Czech subsidiary, they are responsible for your activities with Tata. Does this mean that this brand is going to be more important within the Volkswagen Group?

And the last question, strategically speaking, PSA, Opel, Mobileye, then your investment in Gett, things are happening out there in the market. Are you planning to make any other strategic investments going forward? The FCA sale that Mr. Marchionne mentioned was excluded by you, but perhaps you have other plans. Thank you.

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Matthias Mueller, Volkswagen AG - Chairman and CEO [14]

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(Interpreted) Well, thank you for these four questions, Mr. Hetzner. First of all, the components operations, you said you haven't heard a lot about this. Well, the situation is not calm for us, I can tell you that. We're still working on this issue. As I said before, we're talking about a complex network within the Volkswagen Group. We need to analyze and revise it. This is what we're doing. And perhaps you didn't hear about this because, first of all, you had to digest the excellent figures we discussed for 2016.

Next, batteries. Mr. Garcia, would you please comment on that?

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Francisco Javier Garcia Sanz, Volkswagen Group - Procurement [15]

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(Interpreted) Well, batteries, as I understood your question, you talked about partnerships, partnerships that were mentioned by Matthias Mueller. And you asked whether there could be cooperation between Volkswagen and some other OEM. The answer is no. Should we do a strategic partnership, it will be a partnership with battery or cell makers. And we'll see what's going to happen in this regard in the course of the year.

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Matthias Mueller, Volkswagen AG - Chairman and CEO [16]

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(Interpreted) Your third question related to SKODA and SKODA's position within the Volkswagen Group. I think I said several times before that there are 15 Group initiatives, and the first one of the strategy 2025 is decentralization within the Volkswagen Group and commensurate positioning of the brands. And as far as we are concerned, this also means that the individual brands are empowered within the brands.

We are going to speed up decision-making processes. Decisions will no longer be taken here in Wolfsburg. Wolfsburg will no longer be responsible for each and every major project. I've known Soda for a long time. I know what they are capable of.

And incidentally, I'd also like to mention Seat in this context because, going forward, they're going to play a more important role within the Volkswagen Group. And therefore, it made sense to give SKODA the lead for the A0 platform and for this project you mentioned.

So they're not only involved in this project, they're in fact responsible for the project. And we are happy about this and we are pleased to see that SKODA has accepted this challenge. It's not going to be an easy challenge, as you can imagine. But I'm sure they will do an excellent job, together with our partners in India, our partners at Tata.

And your fourth question, the strategic plans that you mentioned, and you mentioned PSA/Opel. Of course, I'm not going to comment on PSA, or Opel for that matter. We wouldn't be a good Company if we didn't have our own strategic plans for the future.

And by the way, I never said that there could be or that we exclude relationships with other partners. All I said was that there is no contact at this point in time between me and Mr. Marchionne.

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Unidentified Company Representative [17]

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(Interpreted) Thank you. Next, Mr. Schwartz.

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Mr. Schwartz, - Media [18]

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(Interpreted) Thank you very much. Let me follow on up what we've said before about Opel and Peugeot, if you allow me. Can you share with us an assessment? What do you think is the competitive situation going to be in Europe? How is it going to change? And looking forward with your strategies also, can you share with us whether this is also reflected in your targets, i.e. the new alliance, the new group that is just in nascence?

When it comes to battery production and technical lead, now it looks and sounds as if you don't want to take a final decision on cell production. Is that right? Do I understand you correctly? Are you just gaining experience as we speak? A pilot plant, as you've mentioned, I think would testify to that. And as you're talking to potential partners, well, perhaps that would lead to a situation that you forge an alliance and don't do a standalone project by Volkswagen. So maybe you can maybe help me out on that, on understanding that.

Now, Dr. Diess, a question for you. Has your argument with the Works Council been obstructing you in your work? And is there any way that you would have to revise your targets given that argument?

And then finally, do you think you have enough support at Volkswagen, both when it comes from management and generally? So how do you see your future role within Volkswagen? Thank you.

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Matthias Mueller, Volkswagen AG - Chairman and CEO [19]

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(Interpreted) Mr. Schwarz, I'll be happy to take the first two questions. The Opel/PSA alliance, this is not going to impact our business. I mentioned before, I'm not going to make a statement on that here. We have our own way forward and I tried to define it just earlier today. And we'll be single minded in following this way forward, no matter what's happening around us.

When it comes to batteries, we -- your idea is almost identical to the ones that we have, so I'm not going to echo that.

And the third question will be taken by Herbert Diess.

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Herbert Diess, Volkswagen AG - Volkswagen Passenger Cars [20]

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(Interpreted) What we achieved in 2016 I'm very happy with. The Volkswagen brand is now in good shape for 2017, both when it comes to resolving the diesel crisis and other issues. We have achieved good milestones, good growth.

We have also made progress on the cost-reduction side, so we're talking about EUR300 million of fixed-cost reductions in Germany, EUR800 million reductions worldwide. We had some good product launches in 2016, the Tiguan. We've produced 20% more units than originally planned here at Wolfsburg thanks to that close cooperation with our Works Council, so this has done us good.

In terms of results, you have seen a slight decrease, of course. And that is because our margins are under pressure. We are under pressure in a number of markets and some markets, but I'm optimistic because we have set a strategic course forward. We have adopted a strategy, and the vehicle program for the future has been significantly revised.

And with our pact for the future, we have concluded an agreement with the Works Council that makes it possible for us to attain the strategy targets, the 2020 targets, including increased profitability. And also, as Matthias Mueller has said, by 2025 we want to be a market leader in e-mobility.

So I'm very, very happy with what has been achieved in 2016, alongside organizational changes, the model series organization that has been established. Also, worldwide, we have realigned our markets, a number of personnel decisions that have been taken.

So basically, what we did and what we could achieve in 2016 has exceeded my expectations.

The agreement with the Works Council on the pact for the future is a groundbreaking decision or agreement, and I think both sides have committed to those targets as agreed. But of course, this is a very ambitious pact. We assume that we want to increase our level of productivity by 2020 by 25%, so 7.5% in the first year.

It's not only increasing our headcount in future-oriented areas, but it's about a dramatic increase of productivity and staff reductions as well. And we're now in the first weeks of implementation. And there are tensions, of course, and in some places there have been some bumps there on our road. But I see our colleagues in the Works Council in a way that they are also sharing -- continue to share their commitments for those targets. All of it will not be going easily, of course, but I'm quite confident we can pull it off.

2017 for this [plant] is going to be another ambitious year, but a very successful one as well, a number of new product launches. We're in good shape. We're well prepared. When it comes to our cost situation, we have made some improvements there. So jointly, with the labor council, our targets for 2017, but also going forward all the way to 2020 and beyond that, will be attained.

Personal support, yes, I do think I get good support from our colleagues, as they're represented here on the podium, and also support from our stakeholders. Exactly that support, that is on the increase and that is very important when you want to implement an ambitious strategy.

Mr. Witter?

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Frank Witter, Volkswagen AG - Finance and Controlling [21]

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(Interpreted) Mr. Schwartz, you asked about our sales plan given the PSA and Opel alliance. No, no changes have been made. These two competitors we have taken very seriously before that and we will continue to do that after their merger. But our planning is ongoing and we're always monitoring the market situations and the customer expectations. There's no reason whatsoever to modify our fundamental plans going forward.

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Unidentified Company Representative [22]

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(Interpreted) Thank you very much, Mr. Witter. Can I now ask you please to limit yourselves to two questions whenever you have the mic? And that'll make sure that we can take all of you. Next is Mr. Alviani from La Stampa, here at the front, third row from the front. Please.

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Alessandro Alviani, La Stampa - Media [23]

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(Interpreted) Two questions. I'd like to come back to the FCA, Fiat Chrysler Auto. Are you saying that the door for any cooperation with FCA is not closed, so that in the medium or long term Chrysler could be an attractive partner for Volkswagen, possibly, also given the fact that on the American market you want to play a more important role, a stronger role?

And when it comes to the Tata collaboration, are you planning a capital share or a crosswise involvement in the capital of this company and vice versa? What makes you confident that this collaboration will be different from other partnerships you have had in the past, with Suzuki, notably, for instance?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [24]

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(Interpreted) When it comes to FCA, I must say that we haven't dealt with it, and I'm saying this again. You can imagine, of course, ever since I assumed the helms of this Company in October 2015 we've had entirely different problems rather than dealing with FCA or other mergers whatsoever. So honestly, I cannot say anything about this.

When it comes to Tata, well, I can certainly say more. First of all, this is a technological partnership. It's a part of what we consider should happen. And what'll happen in the more remote future, we'll see, in the more distant future. Of course, these are two different corporate cultures that are talking to one and other.

And you just recalled Suzuki. The Suzuki project has not happened because of cultural divergence. This is a different team that we are now talking to also on our part and therefore I'm very confident that we'll be much more cooperative in engaging, as was the case in the past with earlier projects.

And also, we are now talking to a partner that is very cooperative, so far has been, in talking to us and that also has a high level of technical competence in the emerging markets in particular. So it's for that reason that we are confident that this is going to be a success, possibly.

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Unidentified Company Representative [25]

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(Interpreted) Thank you very much, Mr. Mueller. Mr. [Hubka] is next now from NDR.

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Mr. Hubka, NDR - Media [26]

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Thank you very much. Let me limit myself to two questions. Number one, there is political pressure by the European Commission to continue to compensate customers in Europe, not merely fixing diesel cars by software updates. Now, how do you counter that political pressure? What arguments are you using to dispel those? And what do you expect is going to happen to you? What type of costs will crop up for Volkswagen as a result of that?

And the second question goes to Mr. Stadler. If we're reading the statement of facts, that two brands within the Group that have launched fraudulent cars, Volkswagen and Audi. There have been consequences in one brand by the stepping down of Mr. Winterkorn. What will be different for Audi? Why are you still in office, or, Mr. Mueller, you as the Head of the Supervisory Board of Audi? Why have you not nudged Mr. Stadler to resign?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [27]

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(Interpreted) When it comes to the European Commission, let me say this. We are engaged in a constructive dialogue with Ms. Jourova, the Commissioner. Our assessment of the overall situation has not changed. We are in conformity with the law. And how this situation is going to end, I cannot tell you at this point.

What we can say is that all of our customers are important to us across the world. But by putting things in order again and fixing things, the differences in the legal situation and also the technical conditions cannot be ignored. We believe that outside the United States that have very strict nitric oxide limits and there's a violation of the law, but this does not happen elsewhere in the world. There's no violation of the legislation.

In other parts of the world, approved technical fixes are available and, upon performance of those fixes, exactly the right emission standards can be met in those countries according to which they originally have been (inaudible) and certified. By implementing those measures there are no changes recorded in terms of emissions, in fuel consumptions or other core parameters.

And we can also see that the residual values for Volkswagen cars continue to remain stable and, in some market segments or markets, are best in class. And this only confirms also what independent car researcher are saying, like, for instance, Eurotax and CAP. Now, in the larger European countries that is a fact. And therefore, customers affected have not seen any financial damage to their vehicle in that respect.

Coming back to your earlier question on the resolution of the diesel issue at Audi. Of course, we were closely involved in this process and working through this crisis also within the Volkswagen Group. Jones Day has been leading this investigation very neutrally.

So therefore, let me say that the final result has made its way into the statement of facts. Just earlier this year, in the United States, we also have come to an agreement, but a final resolution of that whole process will take time, of course. Regularly on the Board we have reported on this process and it's the Supervisory Board that takes the final decisions. Given the latest press reports about documents filed to the court to be neutrally revised again, and that has happened, has actually shown you that the Supervisory Board has positioned itself very clearly. And I don't think I need to comment on that any further.

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Unidentified Company Representative [28]

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(Interpreted) Next is Mr. Mahlmeister from Platow.

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Frank Mahlmeister, Platow Brief - Media [29]

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(Interpreted) Frank Mahlmeister, Platow Brief. Mr. Mueller, you just said you want to be a leader in e-mobility. Now, at the moment that would be the time to achieve that leadership because the segment is still reasonably small. But when do you think will that happen? When will you come up with the sales volumes to be really a technological leader? When does it make economic sense?

And what will be precisely the pressures on people, not by the internal combustion engine, but electric motors? Because in the past, people have been demanding that the governments need to provide incentives, but vehicle registration for e-cars have not gone up. In a way, I'm missing the kickoff point. What would be turning the tide for it to be profitable?

And a second question. Given on this podium, or your Board members, your Board colleagues, since you have been the head of it all, Porsche is no longer represented here on the podium. Are you planning to move your colleagues up as well to the Board level?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [30]

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(Interpreted) E-mobility first, Mr. Mahlmeister. Volumes are the thing, a typical chicken-and-egg problem, because I always thought and think that the biggest problem is related to the current situation in charging infrastructure and charging times and, well, the end of the day, the costs of those vehicles, of e-vehicles. Therefore, I still assume that larger volumes will become a reality when those three problems have been resolved.

Now, bearing in mind what we are doing and what our competitors are doing, I think this will change at the end of this decade. You know that in 2018, Audi will come out with a C-BEV. Then in 2019, the Mission E from Porsche will launch, which is a genuine sports car. 2020 will see the first electrified vehicles on the new MEB platform at Volkswagen. In other words, we have quite something up our sleeves and this is the right time to get it right.

You also asked a question about why are we doing that. What's the motivation for it? Well, it's straightforward. This motivation is conditioned by carbon emissions legislation, which in 2020 and 2021 will be down to 95 grams per kilometer. And there are more ideas that the commission has for 2025 and 2030 to put on the squeeze even more.

So therefore, it's a fact of life that we have to address electro-mobility. And it's of course our task now to make sure that this is going to happen.

Now, against this backdrop, let me also mention that the diesel engine is playing an important, a fundamental role to meet the carbon emissions target. Now, also, due to our fault, the diesel engine has suffered in terms of reputation. We have to put it right again, that record. The EU6 diesel engines are cleaner than anything.

And also, with our German competitors, we are currently thinking about why or if it could make sense to take EU5 diesel engines and convert them in such a way that they could still get the blue emissions sticker that we don't have yet in this country.

In other words, it's a triple-track approach. Diesel engines need to be refined even further, petrol engines as well. We want to become more carbon neutral as we go forward. And the third track of course is e-mobility.

And Porsche, well, it'll be for the Supervisory Board at the given time to decide whether Porsche and the brand, Group, should get voting rights to delegate a member to the Board of Management.

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Unidentified Company Representative [31]

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(Interpreted) Next question, Mr. [Guan], [Autocircle], China.

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Mr. Gwan, Autocircle China - Media [32]

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I have a question to Mr. Mueller. Now, in China, Volkswagen is certainly going to increase its market share by more than 40%. Now, in Geneva, you said that Volkswagen is going to be a Chinese company. What exactly did you mean by that? Could you perhaps elaborate on that?

And I have another question concerning President Trump in the United States. He's a very powerful man. And Volkswagen plays such an important role in China.

And I also have a question regarding Audi. Audi's sales figures in China have gone down considerably. Why is that, in your opinion?

And another question, you have this cooperation with FAW, but there seems to be some friction in the cooperation with FAW. What about the cooperation with your new partner?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [33]

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(Interpreted) Well, you asked questions about the Chinese market, and you asked me, but I hope you will understand if the first two questions will be answered by my colleague, Mr. Heizmann. And the third question concerning Audi will be answered by Rupert Stadler.

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Jochem Heizmann, Volkswagen AG - Functional Responsibility, China [34]

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(Interpreted) Well, the first question is what do we mean when we say that Volkswagen is going to be a Chinese company? Well, we have to be and become a lot more Chinese, is my answer. And what I mean by that is we have to be closer to the Chinese customers. We have to understand exactly what's happening on the Chinese market. And on that basis, we can then set our priorities in China in terms of the market requirements.

In terms of the type of car that we're going to launch in China, things like connectivity, e-mobility, etc. Here, China is going to be the leading market in the world because the Chinese market is developing at a faster pace than other regions. And that's what we mean when we say that Volkswagen will be and has to be a more Chinese company.

As regards your second question, there are conflicts between the United States and China and of course we're monitoring those conflicts. But I think it's too early to draw conclusions at this point.

And let me take your last -- the next question as well. Rupert Stadler is going to address the question concerning Audi, but you also asked about a partnership with JEC. At its last meeting, the Supervisory Board said that there could be closer cooperation with JEC. We conducted a feasibility study at the same time, and in parallel, we're working on specific projects. We've already developed the first joint car, which will be launched next year. And we're now trying to get approval for cooperation and for the production operations from the Chinese government.

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Rupert Stadler, Volkswagen AG - CEO of Audi AG [35]

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(Interpreted) You also ask about Audi. As part of our strategy 2025, we took an in-depth look at China too, obviously, because it's our single most important market, for everyone. We expect that the premium market in China is going to grow significantly. We will see positive growth and, in due course, maybe we're talking about more than 3 million units per year.

And so for us the question is how can we reposition Audi in this market? Last year, in the autumn, we signed a 10-year growth plan with our partner, FAW, which specifies certain projects, including battery electric vehicles and also plug-in hybrids, which will be sourced locally. And by the end of 2016 or at the end of 2016, we signed a memorandum of understanding with SEAT. Volkswagen and SKODA already work with this company.

And as part of our strategy, we take growth into consideration, but we also look at the quality of growth and the transformation that's happening in China. It mustn't be underestimated. There are things like digitization and the electrification, and these things will keep us busy for the time being.

And therefore, we have a two-track approach, and as part of our talks and publications there might have been some misunderstandings concerning the precise role of dealers in this two-track strategy. We're having talks with the partners and parties involved. This has, currently, certain consequences because dealers are going to optimize their own businesses in the short term. But in the long term, I'm sure that we will have perfect agreements.

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Unidentified Company Representative [36]

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(Interpreted) Thank you, Mr. Stadler. Next, Mr. [Pretzlav] of the Stuttgart Daily Newspaper.

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Mr. Pretzlav, Stuttgarter Zeitung - Media [37]

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Thank you. Two questions. Mr. Mueller, you said you want to put a decentralized structure in place. Not everything must be decided in Wolfsburg. Decisions must be taken locally by the brands to raise synergies. Now, you've been talking about synergy potentials for 20 years, but it doesn't seem to be working. Don't you think that there is a conflict in interests? You let the horses run, on the one hand, but I think this might become more expensive. There was this discussion on rearview mirrors and the vast number of rearview mirrors. How do these things go together? You want to give more leeway to the brands, but at the same time you want to manage costs very strictly.

Second, I'd like to ask about something that you said recently. You and other OEMs discuss retrofits to the EU5 standards. At one point, it was said it's impossible, too expensive, too difficult, not enough space in the engine compartment, etc., etc. And you mentioned this blue tag earlier on, but there is no such thing for the time being. So will you start this process once this blue tag exists, this blue label, or are you already thinking about these things? Could you please expand on that?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [38]

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(Interpreted) Well, yes, I'm happy to do that, Mr. Pretzlav. But first of all, let's talk about synergies and decentralization. Now, of course, you are right. At first glance, this seems to be a contradiction in terms. It really depends on who is involved and who is responsible for what. And this brings me back to a soft topic, the codex of cooperation. Perhaps you recall the five attributes, and they are the right attributes you need to raise synergies.

You know, in the past we talked about platform strategies and then there was competition between the brands. And that's exactly what we wanted and promoted at the time. And you know that I had the privilege to work in senior positions at Porsche for five years. And while I was at the helm, there was not the best type of cooperation with Audi. So apparently, I was the right person in this job at the time, but now I have a different job.

And I'm in the same boat with Mr. Blum and Mr. Stadler. And we do put our heads together. And this is just one example. We think about how to raise synergies and what the resultant financial impact could be. I'm not going to go into detail here, but the A8]and the Panamera in the past had different platforms. And the question is whether we could and should change that in the next generation. And I'm happy to say that my two colleagues and their teams are very much in favor of these ideas. So I think you can gather from my remarks that I'm really very enthusiastic about this --.

The platform strategy used to be very successful in our Group. It is now a thing of the past so because of our together strategy. And we have to consolidate the situation in order to achieve the figures that Frank Witter mentioned in his outlook. He also mentioned that blue label and EU5 retrofits, yes, there is those things such as a blue label.

Now you come from the same city as I do, and they have a very strict approach to car drivers. For those of you who don't know that, as of January 1, 2018, the City of Stuttgart has decided that no diesels below EU6 will be admitted into the city. It remains to be seen how citizens are going to react. Because if you want to go to [Berne] say on a Sunday afternoon you'll have a problem because there's no local train, there is no bus to this place. But we'll see.

Anyway, let me say this. Volkswagen is taking climate protection very seriously not just in Stuttgart but around the world. We try very hard to reduce the consumption and therefore the C02 emissions of new cars. And to do that we are investing a lot into research and development. This is a task for everyone for all our brands. And we are ready to take on this task.

Whether this will lead to a blue label in the end is of secondary importance. As I said, the important thing for us is that this is a central element of our statutory 2025, and I'm talking about sustainability and environmental protection.

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Unidentified Company Representative [39]

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(Interpreted). Next, Jim Holder of Autocar and What Car.

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Jim Holder, Autocar/What Car - Media [40]

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Two questions, first of all could you please clarify whether the economy brand will have a separate brand name and whether that name will apply in all regions India and other emerging markets?

And secondly, you've talked a lot about change and transformation of the Company today with a specific focus on greater gender and international equality. That is not a new philosophy for the world. But I see before me today nine men of a certain age on the Board. And I also see that young women can apparently only deliver microphones at today's event. How far behind are you? And how will you accelerate that transformation?

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Unidentified Company Representative [41]

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(Interpreted). The question about the economy car, Jochem can you answer that?

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Jochem Heizmann, Volkswagen AG - Functional Responsibility, China [42]

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(Interpreted). Well, we work with FAW-Volkswagen. There is very close cooperation in fact. There is an economy market out there with a focus on the SUV segment. We want to be competitive in this segment too. A final decision has not yet been taken as regards the name of this brand. But as things stand at the moment, it's not going to be the Volkswagen brand.

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Unidentified Company Representative [43]

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(Interpreted). Then your question regarding internationalization, diversity and the number of women, you are right. This is not a new thing around the world, but perhaps it is a new thing for Volkswagen. Six of the nine people up here on this panel joined the Company less than one and half years ago and I can only say this much, we are happy and willing to address this issue. Hiltrud Werner is one woman on board and her predecessor was also a woman. And I hope that Hiltrud is not going to be the last woman on this panel.

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Unidentified Company Representative [44]

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(Interpreted). Next question [Miss Kata Bata] from Japan.

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Kata Bata, - Media [45]

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Is it all right in Japanese or English I'm not sure. Volkswagen did not have([technical difficulty) about sharing economy until last year, but this year you told about sharing economy a lot. How do you build new business not only automobile manufacturer but also servicer? I guess it will be tough business because there is a lot of competition in auto business. What is the MOIA role?

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Unidentified Company Representative [46]

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(Interpreted). We founded MOIA in December, that is three months ago, so I think you will understand that I'm unable at this point in time to speak about the precise business model and services we are going to provide. I said that initially MOIA is going to concentrate on ride hailing and ride pooling. We are currently working on these topics. We are going to conduct preliminary tests in Germany over the next two years. And like I said before we have this partnership with the City of Hamburg.

Ride pooling means that MOIA can pool certain customer requirements. The drivers will share taxis and pick up the customers at a certain point and take them to their destinations. The second step will be for us to use cars that drive autonomously. In ride hailing customers use an app to call a car but they do not have to share it with other customers.

We do this through our investment in Gett and MOIA is already active here. The whole thing is settlement by an app. And MOIA is in Russia, Israel, the UK and United States. We plan to grow here. And both companies are looking into the possibility of opening other markets in Europe and America.

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Unidentified Company Representative [47]

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(Interpreted). Mr. [Gutierrez] from Economista Spain is next, please.

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Mr. Gutierrez, El Economista - Media [48]

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I have a question in Spanish. (Interpreted). In the past years in South America, you have lost out on quite some significant business there because of the economic crisis of course. In Brazil, you want to continue to invest; this is what you've just said. Can I ask about 2017 and your sales in South America? Do you think it's going to grow again?

And also in the US, you have mentioned that Chancellor Merkel will organize a summit -- organize coming up later on this year. Are you going to change your strategies? Are you going to adapt to the new realities in the US and Donald Trump? What are your plans? Where do you go from here when it comes to your engagement in the North American market?

And also, your 2020 [bio] strategy in terms of what you're going to do in Spain, because the first electric car from SEAT will probably be built in Germany. Now what will happen after 2020? Are we going to see a vehicle, an e-vehicle finally built in Spain maybe on the platform of the Ibiza? Can we expect a Volkswagen model from SEAT Barcelona like the Audi A1 or the Q3 that are built there in those past years?

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Unidentified Company Representative [49]

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(Interpreted). I'd like to ask my colleague Herbert Diess to take that question on America first please.

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Herbert Diess, Volkswagen AG - Volkswagen Passenger Cars [50]

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(Interpreted). In Latin America and Brazil, this year for the -- we are expecting a slight increase of sales we think. The economy now has hit rock bottom and we are getting some information there that it's going well. We are in good shape with the new sales organization. We are now lean and more competitive. So we would expect a slight increase of the Brazilian market as things stand now.

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Unidentified Company Representative [51]

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(Interpreted). Now when it comes to the United States many things that people mention now are within the realm of speculation. Really, what we need is binding statements of the American Administration, the new US Administration. We have to wait.

As I said before we employ 60,000 people in the United States. Now we have thought about what's going to happen going forward, and now we have to wait and see what is going to happen in that country whether the general conditions that have formed the basis of our calculations and our ideas, whether these will change or not. And if so, of course, we will have to respond to those changes.

But I am not at all in favor of trying to meet decisions up front that have not been taken in the first please, or questioning assumed decisions pretending that things have turned around radically. Mind you, there is a free trade agreement in place NAFTA. NAFTA was the basis of all our activities. And this not going to change as long as this free trade agreement is in force.

And when it comes to Spain, your next question, of course, we are going to build vehicles in Spain either in VW factories or in Martorell at the SEAT plant. We are going to build electric vehicles. And when you ask me when this is going to happen, of course, I cannot give you a binding answer at this point.

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Unidentified Company Representative [52]

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(Interpreted). Let's move over to Mr. [Valman] from the United States.

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Mr. Valman, - Media [53]

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Yes, I've got two battery questions. First of all, on the solid-state batteries you say you aim to have them by 2025. Is this based on the QuantumScape investment that you did a couple of years ago, or is it based on something else?

And secondly, on the lithium battery negotiations that Mr. Garcia spoke about earlier these negotiations are obviously taking place between you and LG and Samsung. What do you bring to the party in these negotiations? They own all the intellectual property on the cell level. And are you going to just be bringing money and real estate to the equation? Are you going to be -- still be landlord for these companies?

And if so should we value you as more like a real estate company in this regard, because otherwise -- well, what does the cooperation consist of other than you simply being a customer. You're buying today semiconductors from Qualcomm and Nvidia and so forth, you're not going to be making semiconductors yourselves so why should you do the same for the battery cell business? Those are the two questions.

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Francisco Javier Garcia Sanz, Volkswagen Group - Procurement [54]

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(Interpreted). Let me try and take a shot here. The 2025 solid state battery, of course, we work with QuantumScape. But there are more companies that are currently involved in solid state batteries. Samsung and LG are working in this area. And the [augers] are saying that before 2025 or 2030 the solid-state battery will not be produced as a serial solution. So until that happens we have to continue to roll out the lithium ion technology, which still has potential when it comes to the energy density mind you.

Question number two, well I cannot tell you exactly because otherwise my competitors will know also if I'm spilling the beans here. But we as customers share a lot of expertise for this type of partnership. A, our volumes, B, the knowledge of our vehicles. Now our suppliers are very much interested in that.

Now why are we not partnering with semiconductors but batteries? Well, battery technology at some point will be at the heart, the heart piece of the vehicle. The drivetrain technology will be the biggest value driver in a vehicle and therefore we believe we shouldn't be involved just in know-how but in fundamental understanding of an electric drive chain, what it costs, how it's developing, etc., which we already have this knowledge with the internal combustion engine today.

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Unidentified Company Representative [55]

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(Interpreted). Thank you very much, Mr. Garcia. Ladies and gentlemen, I have to ask you for your indulgence because we have already exceeded the allotted Q&A time by 30 minutes. But we'll take Mr. [Olsen] and Mr. [Melzer] now. After that, my colleagues will be available. And we'll talk to you individually and try and answer your questions. But let us continue with Mr. Olsen from Boersen-Zeitung.

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Mr. Olsen, Boersen-Zeitung - Media [56]

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(Interpreted). Mr. Mueller full steam ahead 2017 you said. Does that mean it's going to be the first normal year without any special items, the EUR7.5 billion that we had last year?

And Mr. Witter the second question, the first large billions for America will be -- will have been invested by the end of this year. What does that mean in terms of your net liquidity? How will it change? And in some others, a credit line of EUR20 billion that is upcoming is that credit line going to be extended or do you not do that? Will you return to the bond market is also another question? Thank you.

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Frank Witter, Volkswagen AG - Finance and Controlling [57]

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(Interpreted). Thank you very much, Mr. Olsen. That's quite a number of questions. I felt a bit lonely up on the podium by not being asked questions. When it comes to special items for all risks that we are currently aware of we have made provisions with all commercial prudence. But all of these assumptions that are very special for each individual topic also entail a number of assessment risks. So therefore, I cannot guarantee you in a binding type of way that we are not facing any special charges going forward. We do assume at this point that we have adequate provisions in place.

When it comes to the capital outflows of the diesel issue EUR3 million we had in 2016 and we are going to have a double-digit amount of billions in 2017. In other words, the largest burden of liquidity will happen this year in 2017.

The EUR20 billion line, credit line is -- has been extended until June 2017. We are very grateful to the banks involved. They have been very flexible and pragmatic to do that. We have no outstanding draw at the moment. And we are currently are not planning to extend that line by a second time.

And that takes me onto your question about the bond market. Despite the diesel crisis, we still have asset-backed securities and commercial papers that we had the opportunity to emit. But we couldn't do senior unsecured bonds. And we hope that in this market just after the publishing of our figures for 2016 we'll be back in this market.

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Unidentified Company Representative [58]

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(Interpreted). Thank you very much. Now Mr. Melzer question has already been answered, so therefore finally let us take [John McElroy] from the United Kingdom. I think in the third row. There we are.

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John McElroy, - Media [59]

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Thank you. You spoke of the need to regain the trust of customers and the public. This week one of your main rivals issued real-world fuel economy data for around 1,000 vehicles, figures that are much more achievable and realistic than the official NEDC laboratory test and quite probably its successor, which is unlikely to improve much.

Are you giving any consideration to the idea of following PSAs lead in this or even taking more of a lead in a more transparent attitude to the fuel economy figures that people can achieve in everyday use?

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Matthias Mueller, Volkswagen AG - Chairman and CEO [60]

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(Interpreted). What PSA did we are currently also thinking about. But that's an initiative that we entered in jointly with our German colleagues and competitors in the VDA, the Association of German carmakers, VDA for short.

I do assume that in the foreseeable future we come to a solution there. By the way, with the introduction of the new [type] approval, the WLTP changes to the type approval and mitigation will be made in new developed light duty test procedure compared to the existing NEDC. It's much more dynamic. It's much more practically relevant WLTP and therefore gives you more realistic fuel consumption and carbon emissions data.

The WLTP legislation also said that the fuel consumption figures will have to be published individually for each vehicle including also optional trim selection for a given car model. So the WLTP law has been adopted in 2016. And on September 1, 2017, it will become binding for new vehicle homologations on the September 1, 2018. It also will be mandatory for all passenger cars, light commercial vehicles and then one year after that.

We support these initiatives, as I've just said. But at the same time, we are going to synchronize our activities with all other German carmakers and the European car industry. So that is also relevant for our work in the NEDC, the European Car Makers Association.

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Unidentified Company Representative [61]

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(Interpreted). Thank you very much, Mr. Mueller. This takes us to the end of our annual media conference. I would like to thank all of you for your kind attention and for your patience and for those many questions that you've asked. So those questions for which we had no time, my colleagues will be happy to get back to you. My colleagues from Group communications will be approaching you and then we take it from there. In this room at 1:00 pm, we are going to continue with our Q&A for analysts and investors. Many thanks. And for those of you who are travelling home, have a safe trip. Thank you.

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Editor [62]

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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.