Oliver Larkin - Volkswagen AG, Group Head of IR Frank Witter - Member of the Board of Management of Volkswagen Aktiengesellschaft Fred Kappler - Head of Group Sales of Volkswagen Aktiengesellschaft

Arndt Ellinghorst - Evercore ISI Group Jose Asumendi - JPMorgan Chase & Co. Horst Schneider - HSBC Georges Dieng - Natixis Securities SA Michael Tyndall - Citigroup Kristina Church - Barclays Plc Stephen Reitman - Societe Generale Tim Rokossa - Deutsche Bank Patrick Hummel - UBS Jurgen Pieper - Metzler Bank Philippe Houchois - Jefferies LLC Christian Breitsprecher - Macquarie Research Fraser Hill - Bank of America Merrill Lynch Christophe Rauwald - Bloomberg Christiaan Hetzner - Automotive News Europe Michael Punzet - DZ Bank AG Lello Della Ragione - Intermonte Christian Ludwig - Bankhaus Lampe KG

Good day, ladies and gentlemen, and welcome to the Volkswagen AG Live Audio Webcast and Conference Call. On the Interim Report January to March 2017. For your information today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Oliver Larkin, Head of Group Investor Relations for Volkswagen AG. Please go ahead, sir.

Thank you, operator, ladies and gentlemen, welcome to Volkswagen conference call on the results for the period January to March 2017 based on the interim report we published this morning and building on the well-received ad hoc release from the April 18. For today conference call, I'm joined by our usual suspects. I'm here with Mr. Frank Witter member of the Board of management Volkswagen AG, responsible for Finance and Controlling; and Mr. Fred Kappler Head of Group Sales Volkswagen AG. You can follow today's webcast, but you will also find the charts available for you to download. Following the presentations, we will as ever take the questions first from analysts and later from journalists. Let me now hand you over to Frank.

Yes. Thank you, Oliver and a warm welcome to all participants of this call. As you already know from the ad hoc, just two weeks ago, the Volkswagen group had a successful start for the year with the operating result significantly higher than the market expected in Q1, mainly due to improvements in the Volkswagen brand. Our sales in the first quarter of 2017 have been characterized on the one hand by a strong overall performance in Western Europe, Central and Eastern Europe and the modest recovery from the low levels and important markets such as South and North America, as well as Russia. And of course, the late Easter meant, that the number of selling days during the quarter they were higher than the previous year. Our sales revenue, at around €56 billion, which excludes the Chinese joint ventures, as we include the results at-equity within the financial result, increased by over 10% compared to the same period last year, particularly due to volume and mix effects. We recorded an operating profit of €4.4 billion, which was €1.2 billion above the prior-year, excluding special items certainly. Driven by volume mix, currencies and product cost optimization. Yet equity result, mainly driven by the Chinese joint ventures, came in at around €940 million slightly below last year. Profit before tax, increased to €4.6 billion. As you all know, within our 2016 result we recognize special items mainly related to the diesel issue. In comparison, there were no material special items in Q# of this year. The significant amount of the dollar related provision had and the further substantial amount of the provision have been utilized already, as we paid already around 3 billion in 2016 and around €5 billion in the first quarter of this year. The significant outflow for diesel related charges alone drought the underlying automotive net cash into the negative zone at around €2.6 billion minus. However, I would like to emphasis that we are working hard on cash flow generation and please consider that the net cash flow before the diesel issue related outflows was more than €2 billion positive. Automotive net liquidity ended the quarter robustly at almost €24 billion. Although we had a good start to the year we are conscious of significant remaining risks such as fertility in South America and Russia, and open issues such as Brexit impact. On the back of this, we are sticking with or prudent full-year guidance and we will as always continue to assess our expectations as a year progresses. We will discuss a financial result in detail in a few moments after Fred has taken you through the market contacts and our sales performance.

Ladies and Gentlemen, allow me to also add a warm welcome to the conference call from my side. I would like to start by giving you an overview of the development of the World vehicle market as well as the Volkswagen group deliveries to customers of all Passenger Car brands from turning to March 2017 compared for the same period last year. Overall, the global car market grew by 3.3% in the first three months of this year. This growth was driven primarily, by the positive developments in Western European and the Asian markets, while sales in North America remain nearly at the same level as the previous year. Taking a look at our deliveries to customers. Temporary extraordinary effects in China challenges to Volkswagen Passenger Car brand and Audi in the first quarter and resulted in the group sales level slightly below last year's results. Outside China, the group recorded growth by 2.8% in its worldwide market. Our group brands such as SKODA, Porsche and Volkswagen commercial-vehicle reached new record levels in the first quarter of this year. Let me now comment on the performance of the Volkswagen Group for passenger vehicles and direct comparison to the car market developments around the world during the first quarter. The growth of the North American market, especially in United States lost momentum is almost empowered the first quarter last year, despite this total market development and the diesel issue, our deliveries to customers were higher than the previous year. In addition to Audi and Porsche sales of the Volkswagen brand, developed positively in this region compared with the prior year period. Demand for passenger vehicles in Western Europe grew in the first quarter of 2017, the Volkswagen Group in particular, Volkswagen brand could not fully participate in the positive market development, as certain Western European markets were affected by the model change over in the family. In our home market of Germany, the extension of leasing terms for employees all set us significant sales impact on deliveries. In central and Eastern Europe, the car market is recovering and grew during the first three months, after being affected by the significant decline of the Russian market in the last years. The Volkswagen Group also reported higher deliveries to customers in this region, especially in Poland and the Czech Republic and as well in Russia. The Volkswagen Group showed a positive performance in the South American market, in particular in Argentina, our deliveries to customers increased year-on-year by 39%. Nevertheless, the current market situation in Brazil remained tense and uncertain. Though the Asia-Pacific was above last year in the first quarter, auto sales in China were hampered in January by the increase in purchase tax on cars with engines of 1.6 liters or less. Furthermore, temporary extraordinary effects of Audi had an impact on our sales results, such that the Volkswagen Group could not reach the record result of the previous year. Despite, this development during the first three months, we expect to see in China positive growth momentum in the remainder of 2017. Now I would like to look at the brands in more detail. The Volkswagen Group delivered worldwide 2.5 million passenger cars and commercial vehicles in the period from January to March, almost on power the prior year period. Deliveries of the Volkswagen passenger cars brand were down by 1.3% to slightly below 1.5 million cars. The purchase tax increase in China, since the beginning of this year was the significant fact behind this development. Furthermore the model change in the growth family, I just mentioned and the extension of leasing terms for employees in Germany left, its mark on deliveries results in Western Europe. By contra Central and Eastern Europe as well as the Americas, reported increases compared with the previous year. Looking forward we see a positive trend for the brand. Audi sold around 423,000 units in the first quarter of 2017, 7% less than one-year ago. While in China temporary extraordinary effects impacted the sales result, Western Europe and North America both registered the most successful start of the year in Audi's history. In particular, the brand new compact SUV model Q2 was in high demand. SKODA achieved a new record first quarter, by delivering around 283,000 vehicles to customers. 2.5% more than the same period last year. Strong growth was achieved with Fabia, Rapid and Superb. The brand enjoyed strong demand in Europe, especially in the Czech Republic and Poland and in Germany. For the Passat 14.4% to 117,000 cars Fiat posted a strong growth of the first quarter driven in particular of a high demand for the new Ateca. The positive development was support by higher sales in Spain, the United Kingdom and Germany. Fortune has made as well as a strong start in 2017 with around 60,000 vehicles delivered to customers a good quad in the first quarter. The brand has exceeded the number of vehicles delivered in the same period of the previous year by 6.5% setting a new record. The drivers of growth were China, and the company's home market of Germany as well as the Panamera and Macan models lives, which both saw double-digit growth. Also Volkswagen Commercial Vehicles achieved record deliveries in the first quarter of 2017. The brand delivered almost 122,000 vehicles to customers worldwide and showed a growth of 8% compared to the previous year. Market demand for trucks about six tons was on the previous year's level in the markets that are relevant for the Volkswagen Group. The trends in the individual regions varied. The positive economic development in Central Eastern Europe let to rising demand there was the situation Brazil remained difficult. In Western Europe, the truck market remains stable. Both MAN and Scania registered an increase in almost all regions. MAN has sold around 25,000 trucks and busses in the first three months of 2017, up 7.5% from the prior year level. With around 21,000 delivers to customers, Scania recorded a rise of 12% which marks a new first quarter record. The order books at MAN and Scania for the first quarter of and. Can your for the first quarter of this year were significantly higher than in the same period last year. Let us now take a look at a few modern highlights of the first quarter in 2017, which will support our series performance in the coming months. Volkswagen is enhancing its model lineup was up on gran turismo, the new Arteon. The newly developed fast track make model is set to attract customers with its combined nation of emotional design, sporty charisma, great flexibility and generous space. Following a successful world premiere at the Geneva Motor Show the brand new Arteon on will launch next month on the market. When a new locally produce Volkswagen sale amount in China as well as the Volkswagen at last in North America, we are keeping our promise to bring more SUV models to the market. In addition to a wide range of safety and comfort features the seven seater SUVs of a powerful engines and innovative technology such as the latest driving assistance system. While the Chinese Teramont was only launched a March, American Atlas will follow in this quarter. At the beginning of this year, the new edition of the best seller Audi Q5 was launched. The second generation of the SUV combines the spottiness of an Audi saloon with the multifaceted character and a highly flexible interior. Well in its connectivity efficiency or driver assistance systems the new Audi Q5 once again set standards in its segment. The new developed Crafter family by Volkswagen commercial vehicles offers a completely new design as well as class leading performance and features economical functional and suitable for everyday use, all new crafter appears in every respect. The winner of the international event of the year 2017 award went on sale in March of this year. Supported by these new models, we look optimistically into the future. For the full-year 2017, we expect Volkswagen Group deliveries to customers to increase moderately compared to last year, despite the ongoing challenging market environment.

Thank you, Fred. Now let's turn back to Frank for a look at our financial performance in more detail.

Thank you. And I would start with our group performance before moving on to discuss our brands in more detail. As mentioned already over the first three months of 2017 sales revenue for the Volkswagen Group was €56 billion, an increase of over 10% resulting in particular from volume and mix improvements especially in SUVs. Operating profit for the group increased by nearly 40% to €4.4 billion compared to the prior year figure before special items. This was driven in particular by an improved Volkswagen brand result and so continued successful truck business. Within the profit up a substantial foreign exchange tailwind of about $500 million was included. The operating margin improved 6.1% to 7.8%. Our equity result came in tough lower at around €1 billion. This relevant base effect from 2016 as proceeds from the sale of lease plan were booked in Q1 of 2016 Chinese joint ventures which make up for the majority of the at-equity accounted investments reported a proportionate operating profit of €1.1 billion. As you know the at-equity amount booked for the Chinese joint venture is less than the proportionate operating profit due to the financial result and tax. Please note also that the change of consolidation of the year at the level of their holdings to at-equity accounting has also been included. The other financial results came in less negative than the prior year comparable period at around minus €0.7 billion mainly due to less expenses for the survey use of financial instruments. Group profit before tax of €4.6 billion equaled an 8.2% return on sales. Moving on to look at the group operating result performance for the first quarter in more detail. Over the course of the first three months the position volume mix prices in the Passenger Car segment reported a plus of €0.9 billion stronger volume better vehicle and country mix positive pricing including lower incentives and improved results in our spare parts business where the drivers. Positive exchange rate effects of around €0.5 billion mainly driven by the currency development in Russia, Brazil, the United States, South Africa as well as in Australia contributed to the higher operating result. The first quarter showed further good momentum on product cost savings was a performance of our own ®300 million. Mainly as a result of purchasing and material cost efficiencies within the Volkswagen brand. Fixed cost and start up cost rose to rose to a higher rate in the quarter. Mainly as a result of higher volumes and ramp up costs for new products such as the Audi Q5 and SKODA Kodiaq as well as new production sites EV Mexico and Poland. As a year progresses fixed costs expected to continue to grow. However, we continue to work in the direction of compensating fixed cost increases with product cross savings. Earnings and our commercial vehicle division increased on the back of good sales performance in Europe. Our power engineering division came in flat compared to last year. Earnings in the financial services division came in at a solid level on the prior year. Turning to the brands in more detai. Volkswagen Passenger Car set off to good start with an operating profit of €869 million compared to a €73 million in the comparable period in 2016. The improvement is mainly driven by the success of new products, mix affects, product cost improvements and exchange trade impacts. The strong European market and the success of Stiguan and the facelifted Golf, they are particularly important. During the pre-call last week, Oliver mentioned the adjustments in the reporting of the Volkswagen brand. Frank Witter, Chief Financial Officer of the Volkswagen brand. We discuss this further it’s a Volkswagen brand press conference this up coming Friday. Our lease operating profit came in at $1.2 billion euros slightly bit the comparable period. The expansion of international, model and technology portfolios led to higher depreciation charges, while in contracts the high demand especially for the Q2 and Q5 positively impacted the result. As Fred noted Audi’s result in China was burdened due to temporary extraordinary effects. Audi and our partner FAW are currently engaged in very constructive talks, including the dealers, in order to resolve open questions and laid the path for continued success in China. The operating profit at SKODA, spends just above €0.4 billion a strong 28% improvement year-on-year. The excellent result was mainly driven by volume, positive mix and amongst others from the new Kodiaq and currency effects. Sales results improved slightly to €56 million. Higher volume and positive mix driven in particular by the Ateca, compensated for negative exchange rate effect. Bentley reported a loss of €30 million which nevertheless, was an improvement to the prior year period. Porsche automotive delivered a strong operating profit of over €900 million, driven in particular by mix and positive currency effects. Please note that the Financial Services activities of Porsche were separated out from the start of the year and are now included into Volkswagen Financial Services. We are talking of an impact of roughly €35 million. The operating result of Volkswagen commercial vehicles at €0.2 billion showed a substantial improvement of over 40%. This was mainly due to volume and mix effects, despite the burden of startup costs for the new Crafter. Increased volumes, positive exchange rate effects and stronger service business contributed to the improved operating profit of €0.3 billion at Scania. MAN commercial vehicle earnings grew to €93 million, mainly driven by higher volumes. We should not forget that we continue to recognize here, the current losses from MAN Latin America. MAN Power Engineering earnings came in lower at €26 million as revenue reduced by 6%. Volkswagen Financial Services, which as mentioned, now includes the Porsche Financial Service activities at a strong quarter with earnings at €551 million, while the full financial services division reported earnings of €600 million. Turning now to cash flow in the Automotive Division. Operating cash flow for the division over the first three months was significantly below the prior year at €0.8 billion. This is mainly the result of the already mentioned substantial diesel related outflow of around €5 billion. CapEx reduced in absolute terms by around 13% over the first three months versus the prior year to €1.8 billion which together with the high automotive resin revenue resulted in the CapEx ratio improving to 3.8% versus 4.9% in Q1 of 2016. At €1.5 billion capitalized development costs increased and represented around 42.9% of total R&D costs. The increase was mainly product driven by vehicles, such as the T-Roc, Arteon and Touareg in the Volkswagen brand as well as Audi A6 and the Porsche Carrera. The main focus is on the development of more environmentally friendly vehicles, the shift toward electrified powertrains, especially electric architecture in addition to the rollout of new models. The cash outflow for the purchase of our 16.6% stake in Navistar of around €0.3 billion was booked in Q1. When comparing to Q1 of 2016, the base effect from the sale of our interest in lease plan of €2.2 billion should also be noted. In summary, net cash flow for the quarter came in negative at minus €2.6 billion. The net liquidity in the automotive division stood at robust €23.6 billion at the end of March. However, as the year progresses diesel related cash outflows will continue at a high level. So turning to my last Slide was our outlook for calendar year 2017. Even with a good start to 2017, we continue to expect that on the whole deliveries to customers of the Volkswagen Group in 2017 will be moderately above the level of the previous year, a mid persistently challenging market conditions. In addition to the diesel issue, the highly competitive environment as well as exchange rate volatility and fluctuations and raw material prices, all pose relevant challenges. We anticipate continuing positive effects from a efficiencies in all brands, especially the future picked in the Volkswagen brand and from the continued rollout of models based on modular toolkits. Depending on the prevailing economic conditions, we expect a full-year sales revenue for the Volkswagen Group to be up as much as 4% on the prior year figure. In terms of groups operating results, we continue to expect an operating return on sales for the group between 6% and 7% in 2017.

Thank you, Frank. We will now take questions from investors and analysts, keeping time of course towards the end for questions from journalists. Operator, over to you.

Thank you. [Operator Instructions] We will now take our first question from Arndt Ellinghorst of Evercore. Please go ahead.

Yes, good afternoon everyone. Two questions please. Firstly, can you talk a little bit about the current order momentum maybe also by region and building on from that question whether we should expect a similar seasonality in your group EBIT as we've seen it over the last I think 17 years, I think I've gone back in my model and you always had the higher EBIT in the second quarter then in the first quarter, whether we should expect this for this year as well? And then secondly you reported a significant €4.2 billion increase of your inventory, as I understand it partially due to the buybacks in the U.S. could you say how much of that was related to the U.S. buybacks and whether you see any risk that this could lead to any future impairment charges that could go above what you've currently provision for? Thank you.

Okay, Arndt thank you for your account as three questions. Looking at order momentum, seasonality of Q2, I think versus Q1 particular, and the inventory. So Fred, I think if I pass that to you for the order momentum.

We have relatively precise figures with the repeat order development is concerned. We had a positive momentum in Europe across all the brands of our order entries or order intake is significantly higher than the previous year, and also on order bank, which we have on hand at present is significantly higher than the previous year.

Okay. Thank you, Fred. We'll come now to Frank for the question on profitability and perhaps back to you Fred for the U.S. inventory question.

Yes, hi, Arndt. I think your question is certainly also supported by a very strong forecast you made just I think yesterday. We are very pleased and happy with a good start into the year. But we also maintained our outlook, which some of you and I think you in particular and consider to be conservative. That might be true at the end of the year and we will revisit as I said earlier, but we shouldn't forget that there are significant continuing challenges out there. Foreign exchange might not always be our friend for the entire year. We have Brexit, which still a huge potential issue given the importance of the market, raw material prices still in particular. So we have a lot of potential risks. Russia and Brazil are just starting to pick up from historically low levels. So that is the reason why the full-year outlook stays as it is. For the second quarter, I could have mentioned that we might end up similar to the first quarter, but they are still significant challenges and risks as we described. In terms of inventory yes there is a substantial amount in our books, particularly related for the buybacks in the United States North of €1 billion. If I look at the new car inventory we clearly have a particular situation in China, the Audi situation and obviously the market had some impact in the first quarter from the adjustment in the sales tax. So if I at that for my personal taste we are bit higher at the very moment, but we continue obviously to assume growth for the remainder of the year as we laid out and Fred described it. So going forward we are quite comfortable that we are going to normalize in that respect over the course of the year.

And Frank do you think is there a significant risk in the U.S. buybacks inventories, that we should be aware of?

I think to the extent possible if you prepared for that. So we have - we don't assume an additional impairment risk.

All right. Thank you.

Thank you, Arndt. We will move on to the next question please.

Our next question comes from Jose Asumendi of JPMorgan. Please go ahead.

Thank you very much. Jose, JPMorgan just two questions please. Frank can you give us just a bit of a sense within the bucket of volume price mix. One of the biggest drivers in the quarter. If you can split out that figure and also what do you spanked to continue over the coming quarters which categories of those three years expecting to continued positively. And second a bit more strategists when I look at your in a Component business I'm just wondering if you are still working on you know disclosing the profitability of the Component business. And if you're considering also a spin-off of this division at some point? Thank you.

Hi, Jose. We obviously have the group initiative targeted toward to optimizing the way we steer and manage the Component business. But it's definitely not part of our plans to spin that off anytime soon. It's about steering and optimizing the utilization of our capacity and also the transition into more electric vehicles and components. With respect to the EBIT bridge I think volume price mix is a major contributor versus €0.9 billion. It's pretty much an even split sales volume is accounting for 0.2 billion and we are talking about around about 42,000 vehicles outside of China. We also appreciate a strong spare parts business, vehicle and country mix is also versus 0.2 billion and particularly important to us have been the focus on knowing the incentive level even more which is another 0.3 billion. So these are the major sectors I think we also raise the question regarding the outlook. I think mix we will continue to be quite important and if I look at the full-year numbers certainly continued focus on product cost improvements is also something of tremendous importance.

Okay. Thank you and operator the next question please.

Thank you. Our next question comes from Horst Schneider of HSBC.

Yes, good afternoon. Thanks for taking my questions. First of all, I want to ask what is that we are just now at a diesel-gate provision stands. And what was to related cash outflow during the quarter. And then maybe also I mean because it's about reporting here maybe you can also tell us what Volkswagen brand EBIT and revenues under the new accounting structure in Q1 2016 which would allow us better to assess the success of this quarter. And then the other question that I have is related to more longer term to CO2 emissions. I mean we see at the moment the diesel shares declined by between 3% to 5%, I just want to know if this magnitude of decline is already included in your planning and given that this decline is now that’s high, do you consider the 2021 CO2 targets that you have got to achieve, as very challenging by now? Thank you.

Okay, Horst. Let me take that second question on the Volkswagen brand as the pressure of the pre-call last week. If you remember from the call last week, I mentioned that looking back at 2016 the adjustment would have been around about 30% lower revenue and around about 15% lower operating profit. And if you apply those metrics to Q1 of 2016, you come to pretty much the right figures around €17.5 billion and something between 50 and 70 on the operating profit. So I think that gives you a good basis to do the calculation and I know that Dr. Andreas Lassota will give you a little bit more information as to how we get to those numbers. The other major points on diesel and CO2, I’ll pass you first over to Frank.

Yes. As mentioned Horst, in the first quarter we talk about €5 billion, but we gave you guys at the different occasions and early indication that we are talking a solid double-digit number, so there is more to come particularly in the second quarter. So this will 2017 in that respect will be the year of the majority of all diesel related payouts. And obviously, there will be a remaining piece in 2018 and a very little amount in 2018. This is the current forecast on those payouts. Diesel provisions and write-downs I think for 2015 and 2016 in total, if I’m not mistaking we took €22.6 billion and we continue to assume that we properly have taken care for all related possible risks, but there's certainly always a remaining level of uncertainty which nobody can take away.

But that level got low on all right?

Yes. We are using up certainly with the respective payouts, but €22.6 billion is basically adding the 50 and 60 measures together and now we are looking obviously having the payouts working against it.

So it’s just deducted by filling and…

Yes, but we shouldn't forget Horst that we also hit in 2016 the €3 billion, so we're talking a total payout so far is €8 billion.

All right, okay. Understood.

Okay. Coming to the diesel trend, we also witnessed a steady, but slow decline into the month for diesel engines, and of course in return the higher demand for gasoline engines in Europe just vary a little bit from month to month, but it's far away from a landslide. Based on car registrations there has been a low single-digit decline about 4% in the diesel ratio in the total car market in EU5 since the beginning of 2015, so during the last two years and we have faced with a similar trend for our group brands. Nevertheless, we expect to shift of diesel engines to get the engines to be continued, but it will be a very evolutionary trend. There was a question whether we can achieve the CO2 limits in 2020? In 2030 we were the first to commit the 95 target and of course we maintain this and to reach this target alternative trains particularly mobility must be pushed further. Of course the diesel remains strong role in our engine portfolio mix, of course. The Volkswagen Group drive through New Century points the way to neutral and sustainable mobility and it is our goal to improve the engine efficiencies, whether it's diesel or other engine technologies with other new model generation regardless of whether it’s a combustion engine hybrid, plug in hybrid, pure electric or fuel sale vehicle. So you're pretty sure that we can comply with all the regulations and the targets.

Okay. Thank you, Jose. Thank you, Fred. And take the next question please.

Our next question comes from Georges Dieng of Natixis. Please go ahead.

Yes. Hello, good evening. It’s Georges Dieng, Natixis. Three questions if I may, first of all, going back to the new reporting structure for the BMW brand. And Horst asked the question on Q1. My question was actually on Q1 2017, what is the actual impact of the reclassification in terms of those vehicles sales revenues and operating profit in Q1 2017? And second question during the call, Frank did mention the headwinds from raw material. So could you maybe elaborate on what was the Q1 number? What do you expect for the full-year? And last point on financial services in Q1, there was a €1 billion capital contribution, my understanding was following the change in structure operated last year, the capital requirement going forward was supposed to be lower, so my simple question is, is it all for 2017 or should we expect more capital injections in the coming quarters? Thank you.

Okay. Thank you, Georges. Just to come back to the point on the Volkswagen brand, as I touched on in the pre-calls, this is a quite complicated process to consolidate all the numbers including not just the national sales companies, but also the logistic operations that we have the spare parts logistics as well. And what we made clear last week, while I've tried to make it last week is that we will change now with the Q1 to this new reporting structure. So what I can give you is a rebase number for 2016, but we're not going to give you an ongoing rebased figures in 2017 and I hope you can understand that. But just to repeat, if you want to adjust the 2016 numbers, the revenue is around about 30% lower under the new structure and the operating profit around 15% and I think that gives you a new price number to calculate the performance for the first quarter of 2017. But I’ll pass you now to Frank for the other two questions.

Yes, hi Georges. Obviously I mean amongst others steel is the biggest concern we expect therefore slightly higher raw material prices in 2017. Nevertheless, we still assume and continue to assume that overall the product cost improvements for the full calendar year are going to sum up to at least €1 billion. This is what we work on. We certainly have been seeing prices first year creeping up beginning in – I think in the middle of 2016. But there are also other materials like iron, ore and coke, which we need to pay attention too. But there are also some other folks who are a bit more optimistic that it's not line to be drawn from the increased level that the volatility might also work to our favor. But there is uncertainty, which we dealing with and what we are preparing for. With respect to the capital increase, you know that we are separating the Volkswagen Bank from the rest of the Volkswagen Financial Services, a gene ordered to optimize our business proposition including the necessary capital. We are still assessing the need for potentially more capital in the cost of 2017, but this is not finally decided. That we’ll also will depend on the progress of that project, which I was describing as well as the growth in the business portfolio. For all general purposes, the main benefit will be in the long run that for all things being equal with the new structure we would lead less capital, and then under the given structure. That is the general approach and focus. But for this year, it is not yet clear and for the time being, we have €1 billion in the books and any decision to come.

Okay. Thank you.

Thank you, Georges. Let's take the next question please.

Certainly. Our next question comes from Michael Tyndall of Citi. Please go ahead.

Yes, hi, just a couple of questions for me. It's Mike Tyndall from Citi. Just on the first one if I look at the EBIT walk you've got 600 million for fixed costs and depreciation. In the pre-announcement you talked about a better performance on fixed costs. So I'm trying to square those two statements what's driving up the fixed costs and what's that going to look like going forward. And then the second one, if I look through the balance sheet you've got assets held for sale of about 2.5 billion is that the ongoing efforts making to say if these are non-strategic assets for example dealerships of other brands. We're looking to sell them is that - within that 2.5 billion or is that something completely different and maybe a bit more color around what that program is doing at the moment? Thanks.

Yes, what you're addressing is the PGA business these are non-group dealerships belonging to Porsche holding results port and we assessed our portfolio and made a strategic decision that we want to focus in the retail arena more than anything else on the group rents. So that is basically the explanation. Fixed costs from previous calls that a quarter-by-quarter discussion and analysis is sometimes bit difficult what we have to keep in mind that we obviously have Audi and with a factory in Mexico, but also higher production in Hungaria. We have SKODA with the launch of Kodiaq increased a personnel for that purpose and we also have some increases in versus around 100 million for SEAT. So this is the one part of the occasion, but we also and my colleagues on Friday would certainly elaborate a bit more on that brand Volkswagen for the last two years really had a tremendous improvement on the fixed cost progression and they will provide more detail. So I don't want to take anything away from it. But for brand Volkswagen it's definitely a very strong performance and we have those specific situations and developments in other brands, which are adding up to 0.6 billion. So for the full-year our targeted objective prevails but in the quarterly discussion six can obviously take a particular spin in one quarter. So I wouldn't just extrapolate the current situation.

Okay. Thanks Mike. Let's take the next question please.

Our next question comes from Kristina Church of Barclays Plc. Please go ahead.

Yes, thanks for taking my questions. My first question comes back to the diesel question. And I just wondered If you could elaborate any more and whether you've seen any impact on surprising in Europe as a result of the declines in diesel I know you said that not disastrous declines, but clearly they have accelerated a little bit from prior years. And then my second question comes back to the FS business. I’m just wondering where you see the biggest great opportunities from that business. Do you see the big opportunities in China for instance and saw the penetration rate there and how excited are you about great opportunities in the financial services division? Thank you.

First question regarding diesel. As I said - as I explained the order intake what we see is a trend slight rent to the gasoline engines. But we cannot see a price erosion and u-car business of the diesel car. So even reduced our incentives this year for complete range and the other for diesel cars what the residual values are concerned. We cannot observe up to now a negative trend of the residual values up to now. We see no impact on that and this is also what the neutral institution at the DAT or Walker is reporting up to now but we are very cautious for latest trends here but up to now fortunately we cannot see a big impact here.

Yes, Kristina, talking about the financial services business. Maybe just two three sentences on the overall business proposition. For us financial services is an integrated part of overall strategy in business. It is meant to support our brands. Strengthening the loyalty of the customer and also obviously adding positively to the bottom line. If we take that what I just said for granted certainly continued growth opportunities for us do exist in China. I think if I'm not mistaken, I think overall just 40% of the Chinese customers do finance their cars. That is, I think pretty good snapshot number for the market. If you take the United States as the other extreme, we talk 90% of the Americans finance or lease their cars, so this number with a 40% has come up significantly over the last five, six, seven years, so the market is normalizing and this is certainly other than the growth of our brands are expecting in China a huge opportunity. Currently our penetration rate is in the range of 14% out of the total I was describing. Other growth markets, for example closely tied to Brent Volkswagen Passenger Cars. With the array of new SUVs, we definitely see growth potential for Brent Volkswagen Passenger Cars in the United States that should also support Financial Services. And we talked briefly about Brazil, a market which has almost collapsed. We expect the market to recover over time maybe starting as early as the second half, but slowly but surely from very low levels and giving our strong presence also in Brazil that is also an area where we expect growth for Financial Services just to mention the main ones.

Okay. Thanks Kristina. Let's take the next call please operator.

Thank you. Our next question comes from Stephen Reitman of Societe Generale.

Thank you. I got a couple of questions as well. First of all on Germany, Volkswagen performance, Volkswagen Passenger Cars performance in Germany, was down about 7% in a market that’s obviously around 7%. You mentioned that it was an impact from the lengthening of the company contract you have been doing, when does this thing would be coming off and when do you expect your growth for Volkswagen Passenger Cars to be more closely aligned without the market rate and causing the market considering all you new model? And secondly, looking from the other divisions, you’ve had a very strong impact increases in sales and revenues at FAD, but not much of a break through in terms of profitability compared particularly when you look at ŠKODA. When do you expect to stay as they start moving around positively and also on Bentley as well given the launch of Bentayga, when do you expect that to start that are included in improved earnings from the Bentley division? Thank you.

Let's start with the question regarding the German market. Yes it's true. With the Volkswagen Passenger Car brands, we are on the first quarter significantly below the total market trend and we reduced the holding period for our employ cars after the factory holiday in 2017, so until the mid-year we have this effect. This costs us a little bit less than 2% of market share if you – it's quite a big effect here. So from the factory holidays onwards we do not have this deviation anymore to the previous year, so then we expect tendency on the market trends and that we recover our market share from that point of time onwards.

Stephen, before I touch based on the question related to Bentley, but let me also stress that nobody likes to lose market share, but from the beginning of the diesel crisis, we said that we certainly probably and relevant markets have to step up on the incentives, but we are not going to buy market share at any price and we're not going to do stupid things which are damaging the residuals and the perception of the brand. Same applies to Germany and we certainly try to do the balancing act as good as possible, but we continue to deadline and we stick to it, but with the rent up product base and also obviously a much better representation in the growing segments like SUVs, as Fred elaborated. I think we will close the gap and get hopefully soon back to the position, but it’s a plan and we execute it rigorously. On the other two brands, Fiat, I think we all know the story for the longest time we had to report losses to you folks. I think we've made significant progress based on product improvements on brand perception, but for the time being if we look at the most attractive segments that is still light on the most attractive segments and the representation is below some of its peers and therefore the brand continues certainly to invest and incur in expenses for development of new models. But this is not a profit warning. We continue to expect profits, but we also certainly look ahead and feel to compliance and those issues certainly apply to all brands. But Fiat is on a good way and we are quite happy with the development even though we still have ways to go. When we talk about Bentley, there are couple of premium markets, which are quite difficult and challenging and on the other hand very important for our colleagues at Bentley. Middle East is one of them and also the new tone from the top in China is certainly leaving its mark and therefore it is important to keeps that in mind certainly the launch of the Bentayga has been a success and supporting, but we are also at the brink of introducing the entire continental family, I think as early as the fourth quarter of this year and that obviously has some ramp up in startup costs. So overall the market in relevant regions is quite difficult in the high-end of the luxury market.

Thank you.

Okay. Thanks, Stephen. We'll take the next call please, operator.

Our next question comes from Tim Rokossa of Deutsche Bank. Please go ahead.

Yes, good afternoon. Thank you very much for taking my questions. I'd like to start with the other income line in your automotive penal. I usually wouldn't ask about that line, but it explains almost €500 million of the €900 million operating profit swing. If I remember correctly was already supported last year by some positive special items as you said in your quarterly report. Is this all FX related this year, and is this going to continue in the full-year? Secondly, when we think about your CapEx spending, you obviously substantially below the ratio that you just gave us in your 2020 and 2025 targets, can we already see this as trust signs that you have identified more cost cutting potential and can actually get away with investing less money into the asset base or do you still expect to come to the €13 billion that I think you guided for this year? And then lastly just on China, which we haven't touched on so far the pro rata operating profit, actually has a pretty okay considering that you had some trouble there with the Audi dealers and also seems to have created some inventory for example and sold some less vehicles. Can you just update us on the situation where we stand with Audi and give us a feeling for how you expect the profitable of the Chinese joint venture to develop in the remainder of the year? Thank you.

Okay. Yes, let's start maybe with China. For the full-year, we are aiming at an operating profit level comparable to 2016. So I think the first quarter is a good indication that we are quite okay towards to that full-year target. Nevertheless, we should keep in mind that the confident – competitive pressure in China is by no means easing. For those who had the opportunity to go to the Shanghai auto show just a couple weeks ago, I think everybody got a very strong impression, how quickly and continuously the local OEMs are catching up, and continued focus on entry level small SUVs and electric cars. So as much as we appreciate healthy margins, but the competitive pressure will continue and therefore at a comparable level of operating profit in such a competitive market environment is still quite an ambitious target. But we are off of this lead to a pretty good start. Yes, CapEx, we all know that we can only declare victory in the first quarter of the year. That's when most of those items come through. We have a difficult year 2017 and 2018 in particular assets pertains to normalizing our spending, that we from the Capital Markets day that we set ourselves the target of 6.6% for CapEx and 6.7% for R&D. Yes we have a good start, but the pressure is on all brands and all companies and we are making progress, but it will be a struggle to - it still be a struggle even though was a good start to achieve our full-year number in guidance in that respect. So 2017 and 2018 for CapEx in R&A will be challenging ones, but we set the targets and it's our job to deliver. But the first quarter is just a quarter no more nor less.

And then your first question just to come back on that you were asking about the other operating result, I think. Is that right?

The other operating income. Yes that's correct.

Okay. That’s fine. Just to clarify. Thank you.

Thanks Oliver. I assume that but I wasn't entirely sure I think it's a positive currency effects, which are driving the numbers for 2017 and we obviously had negative special items in Q1. That is explaining the swing of almost 600 million.

I'm sorry, just to clarify you said you had a negative I think it says in your quarterly report you had positive but I may have misread that?

I think we had to negative one on legal risks related which were booked in the other operating results if I'm not mistaking the total. The total amount was positive for special items due to the currency effect for the first quarter.

Okay. Thank you. Let’s the next question please.

Certainly. Our next question now comes from Patrick Hummel of UBS. Please go ahead.

Yes, thank you. Good afternoon. Two questions left on my side. The first one following up on China and the situation with the FAW dealers. Have you actually taken any provisioning either on a consolidated business level at Audi or within the joint venture to settle with the dealerships there. And if so can you give an indication what amount we're talking about here? And secondly, Mr. Mueller was quoted in the media a few days ago that Volkswagen would triple the electric power drain related investment to €9 billion over the next five years. I was wondering if you can be a bit more granular what's in those €9 billion that that include all MEB related platform investments, does that include battery cell production does it include the E-Motor et cetera et etcetera just to get a better understanding whether that €9 billion figure is conference of everything that's related to the electric vehicle or just some areas? Thank you.

Okay. Just Witter you asking about the dealers and in China and whether there's been any provisioning there and then the second question was really looking at the announcements from Mr. Mueller about electric vehicle related investments.

Exactly. Just thanks Frank.

Obviously the discussions with the FAW and our dealers at the final stage. They are certainly of confidential nature, but to the extent cost would be incurred. We certainly will provide for it and whatever comes through we obviously would then recognize in the financial results and would have an impact on the equity result of our Northern Chinese operations. We are quite positive that we are getting to a solution, but obviously it is too early to give any more details as we are still negotiating in good faith with each other and talks continue to be very constructive.

But they have been any provision already for the first quarter.

We already meet first - we have some provisions, but they certainly need to be trued up on the final outcome of those in a good negotiations but we certainly we had to a certain extent assumptions already being provided for.

Okay. Thank you.

But we are not disclosing those details at our level here.

Okay.

With suspect to the investments in future technologies I think a major part very relevant part is certainly related to the MEB. With suspect to better results that has been quite a bit of speculation we always said that we are going to relatively small investment into a pilot, in order to get a much better understanding about the processes and the technologies we're all going to be to build up our internal know how. But as fully blown battery cell production is not decided. And is still open, so I just wanted to clarify because in the past there has already been some serious speculations regarding those investment in those decisions.

If I can just quickly follow-up, €9 billion will include both the R&D for the MEB platform as well as the actual production capacity for the electric car? Is that the right way to look at it?

It’s MEB and predominantly the related products coming off the MEB platform those make up for the majority of that number.

Thank you.

Okay. Let's move on because we're starting to look at the clock and the timing, so I'd ask the remaining callers please to keep yourself to one question.

Thank you. Our next question comes from Jurgen Pieper of Metzler Bank. Please go ahead.

Yes. Hi, gentlemen. Question is on the commercial vehicle, on trucks it seems like that all truck activities performed better than expected with earnings improvement of 30%, 40%, do you share that view and can we resolve the doubts you have in Latin America and can we expect more of the same in the next three quarters?

I mean we certainly appreciate quite some progress particularly on the back of strong demand in Europe, Western Europe for the rest of the year we probably expect at previous year's levels. We definitely see continued serious demand in Central and Eastern Europe, shouldn't obviously forget that a market like Russia has been beaten up pretty badly. But we definitely see a continued rising demand for the remainder of this calendar year obviously from rather low levels. Yes, Brazil is important and big market for us. I think we see much more interest from the customers now finally starting to talk again, but from talk to order is still some way to go, but we see improvements in the business sentiment, but I continue to stress that we are coming from extremely low levels. But you know the volatility in the commercial vehicle business, but we are not – we continue to believe that 2017 has some good momentum to go.

As you mentioned, the order intake seems to be pretty strong, is that correct?

I didn't hear our colleagues to complain too much about customers these days, but on the other hand Middle East for example is a difficult region in terms of volume and profitability quite important. So it's not all perfect, but given the overall situation orders are quite strong and particularly our friends from Scania are having obviously with a new generation of trucks is the perfect answer.

Okay. Thanks Jurgen. Let’s take the next question please.

Thank you. Our next question comes from Philippe Houchois of Jefferies. Please go ahead.

Good afternoon. Just one question for me. Do you have any guidance to give us about the amount of dividend you are expecting to get from the Chinese joint ventures and how much of that might be received in the second quarter? Thank you.

I'm not exactly sure about the timing of the decision making process, but in terms of overall dividends similar to what the forecast for the operating profit we expect that number to be in the range of 2016 full-year.

And if I can squeeze one little one. The 5 billion spend in the first quarter on diesel related issues is it all recalls are was any kind of similar fines or any other litigation that might be there.

It is all the above including fines but also we continue to buyback and repair costs. So it's the whole nine yards of items.

Okay. Thank you very much.

Thank you Philippe. Let’s take the next question please.

Certainly. Our next question comes from Christian Breitsprecher of Macquarie. Please go ahead.

Yes, good afternoon. Two quick ones, one follow-up on this other operating income and expense, do you mean that do you had legal cost of burdening the first quarter last year or also the first quarter this year? And second question just on the financial results, which also improved significantly in the first quarter, if you just could say what's behind that if currency and other operating line? Thanks.

We had in the first quarter of 2016 negative special item, and the overall positive development in 2017, the other part is all related to positive currency effects that is basically explaining the swing off round about €600 million.

Okay.

These are the two main drives.

And the swing in the financial results?

Overall round about €500 million, again we have significant improvement on the mark-to- market of our various hedging related derivatives that in total makes up for almost €400 million and we had lower finance costs and round about €250 million and that obviously a little lower result at equity round about €180 million. So that is basically – these are the three main augments explaining the positive financial result year-over-year.

Thanks Christian. Let’s move on and take the next question please.

Thank you. Ladies and gentlemen, our next question comes from Fraser Hill of Bank of America.

Good afternoon. I just want to return to China please, just looking at the both – the proportion operating profit that you reported and then also trying it back into the consolidated BW group profit. It looks like you had production in China for your two joint ventures up about 10% year-on-year in the first quarter. Your retail was down about 10%. So is it fair to assume that operating profit we saw in the first quarter was perhaps substantially benefited and substantial benefits rather to propose an operating profit. And therefore when that become a headwind as we go into the next two to three quarters, if you need to adjust that production level to better reflect the retail tied into that also you mentioned spare parts and other elements of quite supportive of the group and consolidated profit level. How much of a benefit have you seen in the first quarter from China? I know you got royalties from the JVs. I know you have this part from components, I'm not expecting you to give me the exact number, but just a flavor of what the benefits might have been? And then just distressed a further one as well on inventory, inventory in even away from FAW, if you just look at the SAIC joint venture does that fuel running at historic high levels of inventory, but both joint ventures combined and turning to the SAIC joint ventures. So does that worry you deduct the pricing, I mean you get out to clear that inventory, do you expect your discounting could be quite direct over the coming quarters because obviously on the data that we look at both your own inventory and a dealer held inventory. We can't see that you held an inventory position as being this high over the past six to seven years in China? Thank you.

Obviously, I'm not disagreeing at all that we are currently particularly for ourselves a bit high. We are not higher than industry average, which you can be counting in the range of 2.3 months. We are assuming that we are starting from the second quarter, but also particular with the second half of the year with the new product lineup that are availability of Teramont for example. But also Kodiaq that those levels of inventory are going to normalized, but we certainly are prepared to make any necessary adjustment in production as deemed to be necessary, but we still for the full-year expect a single-digit growth number for ourselves in China, but we will monitor the situation. And then as closely as it gets and the better representation particularly in the SUV segments, the Teramont I mentioned the Tiguan, long wheelbase Kodiaq availability is key in this market. We know from our discussions with dealers if you have desired brand new fresh product people pay above list price and we have seen those examples in our portfolio, but the product is king and you might remember our last year portfolio where we also had in the first half of 2016 some very important model launches which helped us to a very strong second half year performance in 2016 and we expect a similar development for the remainder of this calendar year. You are right that the operating profit came down this is certainly there's a decline in deliveries of front about 7% which we partially have been able to offset by a positive mix effect which was quite important and helped us but we also certainly had to deal with the Audi situation, which is leaving its market Audi for the first three months is down in the range of I think 20% year-over-year, but if I look at April without being able to give you concrete numbers yet things seem to improve from that difficult level. So overall we continue to believe that our full-year guidance is achievable, but there's a lot of work left.

We've got to keep an eye on the clock here we've got of other people on the call. I'm going to ask the operator now switch we're going to good work to journalists on the call and I'd like to take the first question from the next caller please.

Certainly. We will now take our next question that comes from Christophe Rauwald from Bloomberg. Please go ahead.

Yes, good afternoon, everyone. Mr. Witter could you please give us an update on the asset review process that you are in charges on the management board it has been very quiet since the announcement of the process almost a year-ago. But there seem to be talks going on about something to copy I do understand that you might want to comment on specific deals, but maybe you can give us an indication if it might be more divestment of non-core assets apart from Ducati that we should expect in coming weeks or months or would that be an unlikely scenario from the current part of view?

As part of our strategy together 2025 we defined 16 group initiatives one of them being number 13. Where we basically said that regularly review or asset portfolio. And we didn't obviously doing that but in order to be respectful to all parties concerned but also to certainly not jeopardize own position we are not commenting on any of those rumors and speculations. There has been others and we continue to follow our past once we make decisions we execute them in and form accordingly and not the other way around. So but we will continue our line that we are not commenting on speculation in the marketplace.

All right. Thank you.

Okay. Thank you. Next caller please.

Our next question ladies and gentlemen comes from Christiaan Hetzner of Automotive News Europe.

Good day, everyone. Two question from my side really quickly. First of all there is a theory going around that diesel demand will recover to clean Germany once the solution is found to retrofit Euro 5 diesels to comply with potential bans in cities like Stuttgart and Munich. I was wondering if you believe that theory. And secondly specifically about these various driving bands whether you believe the auto industry in general and Volkswagen specifically are at fault for having it not done enough to crack down on Nox emission on road? Thank you.

The first question was regarding the Euro 5 retrofit and opportunities. As I said diesel engines remains a key component in the parts and strategy. We are just analyzing whether it's possible to retrofit EU5 standard cost in order to meet the requirements of EU6. This is under technical analysis whether this is feasible. We do this together of course. We do this of course in case we have a let's say technical and financial feasible solution then for our customers, but we are at present in the technical analysis we cannot answer this today whether we will have a solution for that in the coming months.

Okay. Thank you, Fred. I think we have another journalist on the line, so the next caller please.

Thank you. Our next question comes from Michael Punzet of Deutsche Bank.

I have only one question left with regard to your capitalization rate of R&D I think the Q1 was once again above the 40% level maybe you can give us the guidance for the coming quarters or maybe coming years if there's a structural change in the way how you capitalize on R&D and how we think going forward? Thanks.

Yes, you're right. The 42.9% is on the eye sight. I think in one of the previous calls, I think we in a very detailed manner explained that this is a very rigid process and there's no wiggle room for us to make up for those numbers. It simply has to do with the product development process and at what stage those products are high capitalization rate at this stage means that we have products which are sufficiently concrete and that there's a future benefit reasonably to be expected. These are products like Bentayga, Arteaga, Panamera Sport Turismo, Crafter and Audi A8, A7, A6, just to mention a few which is definitely a clear expression of a good and strong product lineup for strong sales revenue and hopefully as well profits. The only change we had is actually in that respect working against us, the only methodology – change the methodology had in the streamlining of our product development process that we have to capitalize already at concept decision, which tends to be earlier than the design decision and that is also driving up the numbers a little bit, but generally speaking and this is a clear cut point again. This is a rigid process, which is being audited and we have no flexibility regarding the question of whether we capitalize or not. And for the full-year, I think the full-year number is probably bit lower than the 43%, which we had in the first quarter.

Okay, Michael, thank you for your question. We’ll take the next question please.

Thank you. Our next question comes from Lello Della Ragione of Intermonte. Please go ahead.

Hi, so one question from my side. Just going back to your EBIT reach looking at Forex effect, you mentioned some tailwind and headwind in the different brands. I’m just wondering if you can be more precise especially on Volkswagen brand. How much was impact there and the same for the main brands meaning Audi Porsche? Thank you.

I think a relevant part belongs to our colleagues from brands Volkswagen Passenger Cars. And I think we have the internal agreement and commitment that will leave some details and some specific information to them and proceed similar to what we do with Audi and Porsche and Volkswagen colleagues for example. So please bear with us for the more detailed review on Friday.

Okay. And then I think we have one last question please, so operator, the last question.

Certainly. Our final question comes from Christian Ludwig of Bankhaus Lampe. Please go ahead.

Good afternoon. Very quickly, do you have an update on the Chinese decision making on the credits for the electro-mobility? Is there anything new since the post performance at the beginning of the year?

Nothing official, but obviously discussions and exchange is ongoing, but nothing official and final at this point of time. At least to the best of my knowledge, I'm looking over to Fred. But he's shaking his head. So we aligned in that answer – on that answer.

Okay, thank you. End of Q&A

Okay. So thank you, Frank. Thank you, Frank for your time today. And thank you callers for your participation in this call. We look forward to seeing some of you here on Friday at the Volkswagen brand press conference. Others I'm sure you will join by webcast and we look forward to hearing from you or to seen you there. And apart from that, thank you for participating in the call and goodbye from Volkswagen.

This concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.