Volkswagen research report

INTRODUCTION

Volkswagen continues to forge ahead with its digital transformation at its full speed. On September 28,2018, The supervisory Board, approved an conclusion of an agreement between Microsoft & Volkswagen. With Microsoft being its digital partner, the company is taking a decisive steps in its digital transformation into a mobility provider with a fully connected vehicle fleet & the digital ecosystem “Volkswagen We”

The aim is that, the Volkswagen Automotive Cloud will link the fully connected vehicle , the cloud based platform and digital value added services. The partnership will leverage Microsoft`s expertise and leanings from its own transformation to help define what will make Volkswagen`s Automotive cloud unique & accepted globally.

Volkswagen aims 2020 to be the turning point for their brand. Where today there has been some 1.5 million vehicles with no online access ,the can easily connect with the internet due to “Volkswagen Connect’ retrofit solution. It aims to engage directly with customers over vehicle`s entire life cycle. Customer can thus receive tailor made offers without having to make appointment at the workshop.

With the SEDRIC concept vehicle, Volkswagen aims to demonstrate what future of autonomous and all electronic drive looks like .According to the experts , India will soon be the third largest car market.

The long ranged goal :”the car should be ready in one week after it has been ordered” still holds good in terms of technology planning.

Setting high demands of safety through HRC( human-robot collaboration), the company aims to set the city as the `internet city` and align with it. Through this every employee will be able to train their own robot to do new tasks on the assembly line-thanks to the intelligent sensor jacket from Wandelbots.

SHAREHOLDER`S STRUCTURE AT DECEMBER 31, 2017

Volkswagen AG`s subscribed capital amounted to €1,283,315,873.28 at the end of the reporting period. The shareholder`s structure of Volkswagen AG as of December 31,2017 is given below:

The distribution of voting rights for the 295,089,818 ordinary shares was as follows at the reporting date : Porsche Automobile Holding SE, Stuttgart, held 52.2% of the voting rights. The second largest shareholder was the state of Lower Saxony , which held 20.0% of the voting rights . Qatar holding LLC was the third largest shareholder with 17.0% . The remaining 10.8% of ordinary shares were attributable to other shareholders.

Notification of changes n the voting rights is accordance with the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act)

SALES STRUCTURE/ GROSS REVENUES

The global sales have increased from 5.7 million in 2006 to 10.7 million in 2017.

In 2017, the Volkswagen Group`s sales revenue increased by 6.2% year-on-year to €230.7 billion. In particular , higher volumes & healthy business performances in the financial service division had a positive effect, while exchange rates have a negative impact. At 80.8(79.9)% the major share of sales revenue was recorded outside Germany.

GROSS PROFIT STRUCTURE

Gross profit improved by € 1.5 billion to € 42.5 billion. Adjusted for special items recorded under this item in both periods, gross profit increased to € 44.8(42.5) billion. The operating profit before special items of

€17.0(14.6) billion; the operating return on sales before special items rose to 7.4(6.7)%. The increase was mainly the result of positive volume-mix and margin-related factors, as well as improvement in the product costs, while higher fixed costs as a result of expansion and higher depreciation and amortization charges due to large volume of capital expenditure had an offsetting effect. Negative special items weighed on operating profit, reducing this item by a total of €-3.2(-7.5) billion. At €13.8 billion, the Volkswagen group`s operating profit was €6.7 billion on the previous year. The operating return on sales rose to 6.0(3.3)%.

The financial result declined to €0.1(0.2) billion. Lower interest expenses and lower expenses from the measurement of derivative financial instruments at the reporting date had a positive effect, while foreign currency measure had a negative impact. The share of the result of the equity-accounted investments was at the prior year level. This includes the gain on remeasurement of investment in the acquisition of shares of the following investors .In the prior year period , the income from the sale of the Lease Plan shares has a positive effect.

The Volkswagen Group`s profit before tax rose to €13.9 billion in the reporting period , up €6.6 billion on the prior year figure . The return on sales before tax improved from 3.4% to 6.0%. Profit after tax amounted to €11.6(5.4) billion .Although income taxes increased, the tax rate of 16.3(26.2)% was considerably lower in the reporting period. This decline was due to the tax reform in USA passed at the end of the year, which led to a non-recurring positive non-cash measurement effect on deferred taxes of €1.0 billion.

SHARE PRICE & EARNING PER SHARE

Basic Earning per share is calculated by dividing earnings attributable to Volkswagen AG Shareholders by the weighted average number of ordinary and preferred shares outstanding during the reporting period

.Since the basic and diluted number of shares are identical, basic earnings per share also correspond to the diluted earning per share.

Article 27(20 No. 1 of Articles of Association of Volkswagen AG sets out that, even in the event of deficit

, a preferred dividend of €0.11 per preferred share shall be given in the subsequent fiscal years based on cumulative fiscal arrangements, if no dividend is paid for the year under review ; consequently, this must be factored into calculation of earning per share for the current fiscal year.

The dividend proposed is based on Volkswagen`s AG`s net income for the year under German Commercial Code is not relevant for calculation of earning per share in accordance with IAS 33. The distribution of further dividend in accordance with article 27(2)Nos. 2 and 3 of the Articles of Association of Volkswagen`s AG, whereby in the case of a full distribution, the dividend paid for each preferred shre is

€0.06 higher than that paid for ordinary share ,is included in the calculation of earning per share if there is a profit after tax attributable to shareholders of Volkswagen AG.

CONCLUSION

The preparation of the Financial Statements require management to make certain estimates and assumptions that affect the reported amounts of assets & liabilities , income & expenses, as well as related disclosures of contingent assets & liabilities of the reporting period.

The estimates & assumptions are based n underling assumptions that reflect the current state of the available knowledge. Specifically, the expected future development of business was based on circumstances known at the date of preparation of the financials and a realistic assessment of the future development of the global or sector specific environment.

Developments in this environment that differ from assumption and that cannot be influenced by the management could result in amounts that differ from the original estimates . If actual developments differ from the expected developments , the underlying assumptions and if, necessary the carrying amount of the financials are adjusted.

Global gross domestic product(GDP) rose by 3.2%(previous year: 2.5%) in 2017. In our forecasts , we assume that global economic growth will weaken slightly by 2018. As a result, from today`s perspective the next fiscal year may not have the material adjustments.

Estimates & assumptions of the management were based in particular assumption relating to the development of general economic environment, the automotive markets and legal environment.

Further, lastly as a matter of principle, business relationships between companies within the segments of Volkswagen Group are transacted at arm`s length price.