Christine Ritz - Head of Group Investor Relations Hans Dieter Pötsch - Chief Financial Officer, Head of Controlling & Accounting and Member of Board of Management Christian Klingler - Head of Sales & Marketing and Member of Board of Management Martin Winterkorn - Chairman of Board of Management and Chief Executive Officer

Michael Tyndall - Barclays Horst Schneider - HSBC Arndt Ellinghorst - Evercore Stephen Reitman - Societe Generale Stuart Pearson - Exane BNP Fraser Hill - BofA Merrill Lynch Jürgen Pieper - Metzler Capital Markets Jose Asumendi - JP Morgan Charles Winston - Redburn Partners Adam Hull - Berenberg Philip Watkins - Citi Richard Hilgert - MonringStar

Good day, ladies and gentlemen, and welcome to the Volkswagen AG Interim Report Live Audio Webcast Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Christine Ritz, Head of Group Investor Relations for Volkswagen AG. Please go ahead.

Ladies and gentlemen, welcome to Volkswagen's conference call on the results for the period January to March 2015, based on the interim report we published this morning. For today's conference call I am joined by Hans Dieter Pötsch, member of the Board of Management for Volkswagen AG, responsible for Finance and controlling; and the member of the board of management Volkswagen AG responsible for group sales and marketing, Christian Klingler. You can follow today’s webcast via our website, where you will also find the charts available for you to download. Following the presentations, we will take questions first from analysts and later from journalists. Let me now hand you over to Mr. Pötsch. Hans Dieter Pötsch: Thank you, and a warm welcome from my side to those of you joining this call. Our sales performance in the first quarter of 2015 has continued to be characterized on the one hand by an improvement in Western Europe and on the other hand we have seen a continued retraction in South America as well as in Russia. Sales revenue grew strongly rising 10% supported by positive exchange rate. Operating profit increased robustly by close to 17% and the operating margin also improved rising to 6.3%. And here just a quick reminder that of course our sales in China have only a limited impact on the revenue line through imports and past sales as the majority of sales, and the associated earnings are included through equity accounting within our financial result. A good result from our Chinese joint ventures in addition to the improved operating robust growth slightly above 18% and profit before tax and the higher margin too. Strong automotive net liquidity at the end of March was supported by good net cash flow and the issuance of hybrid notes providing a solid platform for future growth. In summary, we remain fully on track both with regard to our shorter term earnings guidance for 2015 and supported by our future tax program, our longer term view out to 2018, where our goal is for a sustainable earnings of at least an 8% profit before tax margin with the explicit assumption that each brand contributes through the achievement of its own target. We will discuss the final results in detail in a few moments after Mr. Klingler has taken you through the market context and our sales performance.

Ladies and gentlemen, let me also welcome you to our conference call. I am pleased to present our key sales figures to you. This chart shows the development of the world car market as well as the Volkswagen Group deliveries to customers of our passenger car brands from January to March 2015 compared with the same period of 2014. As you can see, growth in the global car market lost some momentum and was slowing down to 3.7% in the first quarter of 2015. However, the regions did not advance at the same pace. While markets in Western Europe, China and the United States expanded further, the political and economic instability in several emerging markets continued to limit worldwide growth. Especially the strong devaluation of the ruble, the low oil price, and the ongoing sanctions continued to depress Russian economy, as well as the car market strongly in the first three months of 2015. Furthermore, considerably purchasing restraints and increasing prices caused by volatile foreign exchange rates led to a market downturn in South American markets such as Brazil and Argentina. The market development is also reflected in our deliveries to customers. Based on the already high level of sales in recent years and within an ongoing challenging market environment, an increase of 2% was achieved. Now let us take a closer look at the car market development across the regions compared with the performance of the Volkswagen Group for passenger vehicles during the first quarter of 2015. On a global level sales of the Volkswagen Group had a stable start. However, the overall growth is marked by different regional challenges. The persistent weakness in the South American economies continued to negatively impact the market over the last three months. Following Argentina, Brazil is expected to fall into recession this year. Declining demand for passenger cars in South America also impacted Volkswagen Group deliveries. As one of the largest automotive manufacturers with a strong position in the market, the Volkswagen Group was affected by the continued tense market conditions. Nevertheless, we were able to keep up our market position. In comparison to last year, the total car market in Central and Eastern Europe also decreased significantly. In particular, Russia continues to feel the effects of an adverse political and economic situation. The outlook for the Russian market is highly uncertain, and depends heavily on oil prices and political developments. [Growth] in other markets such as the Czech Republic could not offset the market trend in this region. In this negative environment, the Volkswagen Group’s sales developed better than the market in Central and Eastern Europe, especially driven by a strong Volkswagen Group performance in the Czech Republic. The overall market in North America, in particular the United States, continued to benefit in the first three months from the low gasoline prices and the improving economic situation, especially strong growth has been recorded in pickup and SUV segments. The Volkswagen Group increased its deliveries driven by Audi and Porsche, which again achieved favorable year-on-year gains. The Volkswagen Group also developed slightly positive in the region. Market in Western Europe, especially Italy and Spain recovered gradually in the period between January and March 2015. The Volkswagen Group benefited from the positive development in this important region driven by strong demand in Germany and the United Kingdom. The Asia Pacific car market remains in the first three months on its growth path, although at a slower pace than the previous year. China continues to be an important global growth driver with constant increases. This growth was mainly driven by strong demand in the entry price segment by local Chinese brands. The Volkswagen Group also posted growth in the first quarter. Next I would like to present the performance of our brands in the first quarter of 2015. The Volkswagen Group worldwide deliveries to customers, including our passenger and commercial vehicle brands, recorded a moderate raise to almost 2.5 million vehicles. Deliveries of the Volkswagen brand were down by 1.3% to slightly below 1.5 million cars. This decline can be attributed mainly to the difficult market situation in South America and Russia, where the brand has a strong sales presence. In Western Europe, Volkswagen remained on its growth path. However, the brand could not participate in the growth of SUV and pickup segment in the United States, as well as the entry price segment in China that is currently driving the growth in these markets. We aim over the coming months to generate momentum by launching and rolling out new products worldwide. Since the beginning of the year, Audi delivered 438,000 vehicles worldwide, an increase of 6.1%. Strong growth was achieved with the now globally available A3 family, and the latest generation of the A6. The brand enjoyed strong demand in China, Germany and the United States. ŠKODA increased deliveries by 7.2% with good momentum in China, the Czech Republic and Spain. The worldwide rollout of new models, such as the Rapid, contributed especially to this positive development. Compared with the previous year SEAT deliveries climbed by 10% to 103,000 cars. This growth was mainly generated by high sales in its home market of Spain, as well as in Italy and the United Kingdom. With a [Indiscernible] of 32%, Porsche posted a strong growth in the first quarter driven in particular by high demand for the Macan. The positive development was supported by high sales in China, the United States and Germany. Bentley delivered 2200 vehicles worldwide, a decline of 13.5% compared to the previous year. The declining luxury segment in China was a significant factor behind this development. Now let me turn to the commercial vehicle brands of the Volkswagen Group. Volkswagen Commercial Vehicles delivered 108,000 units within the first three months to customers and exceeded the previous year’s figures by almost 5%. Despite the upcoming generation change of transport [Indiscernible] the brand showed a sales increase particularly in markets such as Turkey, Germany and the United Kingdom. However, the recent developments in South America and Russia left their marks on the brands’ deliveries. The global truck market above 6 tons remains negatively influenced, especially by the trend in South America and Russia. Both markets recorded a double-digit decline compared with the previous year periods. With 22,000 deliveries to customers worldwide MAN is below its prior year level. In Western Europe, MAN achieved a considerable sales increase although this was not sufficient to fully compensate the significant downturn in South America and Russia due to the strength of their position in these weak markets. Scania was also affected by the current adverse market situation, which lead to a decline in sales of 7.1%. [Here too] the increase of deliveries in Western Europe and the Middle East could not offset the losses in the declining markets of South America and Russia. The already mentioned negative market development in South America and Eastern Europe also weighed on order bookings of MAN and Scania. Consequently the order bookings of both brands in the first quarter of 2015 were below the previous year. Underlying revenue in power engineering at MAN came in at 0.8 billion, which is at the previous year’s level. Now I would like to introduce our latest product highlights, which will strengthen our position and support further growth. Designed especially for the Chinese market, the locally produced Volkswagen Lamando targets new style oriented customers within the biggest Sedan market worldwide. Available since January 2015 through dealers across China, Volkswagen’s new four door Coupe offers sporty dynamic design with strong and efficient powertrain, as well as innovative technologies. The new [Indiscernible] will continue the success story of Audi’s coupe models. The second generation of the prestigious SUV impresses with powerful and efficient engines that make it the CO2 champion of its class. Since last month, the new [Indiscernible] can be ordered across Europe and will be at leaderships from June on. The new Leon ST Cupra, which is available since March, complements SEAT’s high performance model lineup. The Leon ST Cupra is a sporty car for everyday and shows the SEAT brand values at their best. It combines powerful engines with emotional and dynamic design as well as the generous space of an estate. The newly developed Fabia Combi will continue its best seller success by setting once again new standards in terms of space with the largest boot capacity in its segment, latest connectivity features, as well as setting new benchmarks in terms of efficiency and emissions. The Fabia Combi will inspire its customers. This estate version of Fabia is available since January at our ŠKODA dealers.

Thank you, Mr. Klinger. Now let's turn back to Mr. Pötsch for a look at our financial performance in more detail. Hans Dieter Pötsch: Yes, thank you, and I will start with our group performance before moving on to discuss our brands. Over the first three months of 2015, revenue for the Volkswagen Group was up strongly at just short of EUR 53 billion, an increase of 10.3%, benefiting in particular from currency tailwinds, as well as an improvement in mix. Excluding the exchange rate benefit, revenue would have been up by 7% with improvements in volume, price and mix all contributing. Operating profit for the group increased by 16.6% to more than EUR 3.3 billion, considering that we are substantially hedged against our core currency, which limits the foreign exchange tailwind and vehicle sales only increased slightly. This increase is even more impressive. The operating margin climbed from 6% to 6.3%. The passenger car division reported a 7% margin at the top of the guidance range for the year, and in our [trucks] and power engineering division a margin of 2.7%. Within our financial result, our Chinese joint ventures, which make up the majority of the equity accounted investments, continued to perform very positively, increasing by 29% to a proportionate operating profit of EUR 1.6 billion, and here exchange rates have again played a role. The other financial result came in broadly flat year-on-year. The Group profit before tax of just under EUR 4 billion equaled a 7.5% return on sales taking us closer to our long-term goal of more than 8% return by 2018. Earnings per share gives a full overview of our performance, including capturing the additional investments we have asked shareholders to support. For the first three months of 2015, earnings per share improved by 18% to EUR 5.74 per ordinary share, and EUR 5.18 per preferred share as you can see in the chart. Now let's turn back to the group operating result performance for the first quarter. Over the course of the first three months, the [position volume] mix prices reported a plus of EUR 0.3 billion, driven especially by your positive country and model mix, as well as improved pricing. Driven by an depreciating Russian ruble and a further rise in the US dollar, we had a small positive impact from currencies despite our substantial hedging position. As volumes produced in our model of tool kits continued to climb, product costs were reduced by a further EUR 0.3 billion despite the seasonality of cost reductions typically favoring the second half. And here, you can also see some of the first fruits of our Future Tracks program making a contribution as we build up ahead of steam for more substantial savings as the year progresses. Alongside market related sectors, higher depreciation in particular weighed on the fixed costs as our investments in new products, drivetrains and factories in recent years including in capitalized research and development costs moved to the production phase. Altogether, fixed costs increased by EUR 0.4 billion and in disposition too Future Tracks will play an increasingly positive role. Earnings in our commercial vehicles, Power Engineering division were flat. Our financial service division lifted operating earnings slightly. Now summing up operating profit for the first three months of 2015 came in at EUR 3.3 billion, a record for the first quarter despite the challenging market conditions. Now let us turn to the brands in more detail. It is worth noting that all our passenger car brands reported improved earnings at EUR 514 million, registering an improvement of 17% before operating result supported by a rising sales of cars such as the Passat based on our MQB toolkit technology. The brand that is the most exposed to the deterioration in the economic framework conditions in Russia and South America, which has lowered buying power, lead to weaker overall markets and impacted exchange rates negatively. The improved operating result clearly demonstrates that our own internal improvement program, Future Tracks, is gaining traction with a decent contribution in the first quarter at a lower triple digit million euro range. This will grow as the year continues as we target a contribution from the initiative of well over EUR 1 billion for the year and will climb further towards the net EUR 5 billion we are aiming for with an improved margin of at least 6% by 2017. With an operating result of 242 million, ŠKODA posted a 7.6% margin, clearly demonstrating the benefits of higher proportionate sales based on MQB vehicles. SEAT returned to a profit of plus 33 million, although challenges remain to see this sustained through the year as the brand continues to invest in strengthening its model portfolio. Audi posted a high operating profit of EUR 1.4 billion with a 9.7% margin, slightly above recent quarters and towards the upper end of the guided range. Audi is gearing up production of the new Q7, and we are approaching the final stage of preparations for the new A4 family coming later this year. With an operating result of EUR 765 million the benefit of the outstanding sales success of the Macan can clearly be seen as Porsche continues to improve overall earnings, while remaining in line with their long-term goal of a minimum margin of 15%. Bentley again increased earnings. Scania’s earnings dipped slightly while MAN’s earnings also dropped. For both brands markedly lower sales in Brazil and Russia were only partially offset by higher volumes in Western Europe. Volkswagen commercial vehicles, our Citivans brand, earnings were up at EUR 165 million, giving the brand a good start to the year that will see the launch of the new Caddy and T6. Volkswagen Financial Services grew earnings to just over EUR 400 million. Let me now turn to cash flow in the Automotive Division. Operating cash flow for the division over the first three months was strongly ahead of the prior year at EUR 4.7 billion. Working capital in the first quarter of 2014 was held back by the booking of a substantial receivable relating to a dividend declared, not yet paid, by one of the Chinese joint-venture companies. For 2015, this dividend is expected to be declared in the second quarter, when the last year the majority of the cash will also be received. CapEx in both absolute terms and expressed as a ratio to automotive revenue was up over the first three months of 2015 at EUR 2.1 billion and 4.5% of automotive revenue respectively. Investments in our production footprint and in our product portfolio were the main drivers. At EUR 1.1 billion capitalized development costs were slightly below the prior year and represented 34.3% of the total R&D costs. The main focus is on next generation powertrain in addition to the roll-out of new models within our toolkit strategy. In summary, net cash flow for the quarter was a strong at a positive EUR 1.5 billion. Net liquidity in the automotive division stood at EUR 20.8 billion at the end of March boosted by the strong net cash flow generation in addition to the hybrid note of EUR 2.5 billion issued in the quarter. A capital injection of EUR 1.1 billion to boost the equity of Volkswagen Financial Services AG was made during the period to ensure sufficient equity coverage for further growth of our financing portfolio. To conclude today’s presentation let me now turn to our outlook for 2015, which you can read in full within our interim report. With a group operating return of 6.3% for the first quarter, this has clearly demonstrated that the Volkswagen Group is on the right track. We have the brands, the right models, as well as the strategies and resources to succeed even in tough market conditions. We, as ever, remain cautious despite these excellent figures with our outlook statement, but let me be clear we are never satisfied with just doing the minimum. Our stated goal for the Volkswagen Group in 2015 is to grow both in terms of volumes as well as in our sales revenue and operating profit. The result for the first quarter has given us a solid platform to go on and achieve this. Disciplined cost and investment management and the continuous optimization of our processes underscored by our Future Tracks initiative remain integral elements of the Volkswagen Group’s strategy. The folks rang group strategy 2018 and will be essential in the achievement of our goals.

Mr. Pötsch, thank you very much. We’ll now take question from analysts and we would ask that you restrict yourselves to just two questions to allow everyone to ask a question in the time available.

Thank you. [Operator Instructions] we’ll now take our first question from Michael Tyndall from Barclays, please go ahead.

Thank you very much for taking my questions. Two if I may, the first one just in relation to product cost savings 300 million in Q1 versus 400 million in Q1 last year and you mentioned that future tracks still a bit something like a low triple digit million. That feels like a light number to me particularly given the role – is there benefit of the percent is that delayed or we still seeing benefits from the old programs coming through I guess what I’m trying to understand is, how does that number accelerate throughout the year and how we’re expecting it to be higher than it was in 2014. And second question just in relation to China, big step up in terms of profit per vehicle in terms of the JV but presumably that’s FX related. I wonder if you could talk about the profitability without FX and perhaps if you could talk a little bit about the full platforms of the full lines that are changing over the MQB how we’re going in terms of that progress and when will that be done in China? Thank you.

Okay thank you Mike for your two questions. The first is with regard to the broader cost savings we achieved in the first quarter this year also in comparison to the first quarter last year and we would like to have some more color while probably this savings were not higher in the first quarter and how this figure, the broader cost savings will develop further this year is that will accelerate and if we can give you some more information. And the second question we first to avoid business in China the achieved profit and you’re interested in having some transparency how was the profitability without any currency effect which we’ve seen here in the first quarter. And then, you’re interested in the rollout of MQB cars and in the production in China if we can give you some additional information.

So, I would like to get started with the first question on the product cost savings and of course there are always numerous elements included in this. Now if single issues are being addressed and maybe I can give a little bit more color to this and we get started. As you mentioned the precise situation and they’re very clearly said most important piece order intake is just fantastic on the car. I also did say already that the share of cars with very good option ordering is very high and we see also the more powerful engines being highly represented in the portfolio. So from that end it’s all fine nevertheless we should also keep in mind that still we’re in sort of ramp up situation with less than 100% capacity utilization which means that yes, the Porsche is positive contributor but certainly will improve going forward. Secondly when we say Porsche again it means we’re focused on passenger because the percentage of cars being built on the MQB modular tool kit is about to increase which is again of course contributing to the overall profitability and then of course, on top of this as we mentioned also in our press release there is good effectiveness of our efficiency programs already coming in the first quarter. Nevertheless measured against the full year target it’s under proportional so we’ll see also there contributions climbing up in the upcoming months and the quarters. From our side on the contribution on the broadcast side in our view again taking everything into consideration is very much in-line with our expectation. Second point on the profitability in China, you certainly made a valid point first of all we need to keep in mind that since the currency movements specifically the weakening after year all we do have double effect there of course the continuation of the profitable business in China. So measured in [indiscernible] terms we did improve on the profitability side before than additional positive exchange rate effects come into play. So from that end of course the overall picture is partially positively influenced by the exchange rate movement. And then, on the MQB cost it would be introduced in China, this is just to say that combined with the built up of additional capacity in China where on a standardized basis we’ll pass over the 3 million barrier in 2015 as you’re well aware the practical utilization of our plans in China is much higher. But we’ll look at a number of roughly 600,000 cars in this year sitting on the MQB platform, so we’re fully in the direction of our plans installing the MQB platform also in China.

That’s brilliant thank you very much.

The next question is from Horst Schneider from HSBC please go ahead.

Yes, good afternoon. It’s Horst from HSBC I’ve got two questions please first on your provision increase that – cash flow statement for the automotive business, you report an increase of 1.5 billion on other provisions maybe can you shed some light on this item what is behind that is it again related to – provisions related to bonuses and if not to which other issues. Then second it relates to currency so then the question to which extent you think you have to change your currency guidance last time we had spoken you said that there was no significant currency impact in 2015 and relating to that I want to know in your statements of changes in equity in the interim report on page 29, you show a negative impact from comprehensive income related to cash flow hedges in the magnitude of EUR 6 billion, I want to understand how I’ve got to interpret this number. Is that maybe giving feeling for the potential accumulated currency impact which I think from a weak Euro the current exchange rate within the next five years. Thank you.

Okay. Thank you. So you have two questions to ask. The first one refers to the provisions which you can see in the cash flow statement why did they increase and the second question is related to currency to which extend do we change our currency guidance for this year so to give you an update and then you have a question which is related to our cash flow hedges page 29 as we’re moving forward, thank you.

First of all the built up of provisions is related to the improvement on the sales side as you are well aware we in somewhat a proportion to the sales development we built up provisions to cover all the general issues like various guarantees deal of provisions and the line, so this is just about normal know specific items in needed direction. Second question on the currency side, we did give a guidance that there will not be a substantial effect coming in from the exchange rate side and we primarily stick to that is by the development in the first quarter now saying this I am not ruling out that there might be a slight tailwind at the end of the year but what we have to keep in mind is that we have a decent exposure against emerging markets currencies and from there end of course there are also some risks to be taken into consideration going forward we also should not forget that the exchange rate development last year was quite different if we compare to first half into second half. So from that end the most possible effect will be as I said slight tailwind but not really significant impact onto our P&L performance. Then you mentioned the effect which is registered in our equity account and they have I think it’s probably necessary to say that this reflects the most actual evaluation for our complete hedge position going forward in the frame work of our planning round which is five years term and so far we’re clearly are talking about an underlying volume of three digit billion Euro amount. So from there end of course the impact can't be quite huge on the basis of the development we have seen in past months and it’s clear, it fits there until the underlying business is being executed and once it’s executed then the effect is being taking to the other line in our P&L statements.

And small follow [indiscernible] relating to the other provisions so you would say it is related to revenue increase head-to-head what I don't understand then why the other provision increase accounts for Ford, I mean its proportional 40% of the revenue increase. It seems to me that it’s not only related to the revenue increase and to most shares seems to me that there are also other issues behind that?

No this is it. There are no major specific items included. It’s just the proportionate we normally take to the provisions just to cover all the areas single issues. There are no – no specific items.

Alright. Thank you.

The next question is from Arndt Ellinghorst from Evercore, please go ahead.

Yes. Good afternoon everyone. I just have one question. Back in September 2013, you gave us a detailed split of your 2018 targets and you also detailed 6% margin for the DW brand. And that was based on roughly 6.5 million unit including China. Now today we are at give or take 2.5% or there was a full year margin last year in Q1 that at 2.0 so could you just elaborate a little bit more in detail what you have in mind that would drive the profitability over the next two to three years to this level of about 6% and if it would be very helpful for us if you could focus probably not so much on the market side we all understand that [indiscernible] is tough and Russia is tough and currencies do what they do but could you talk a little bit about your internal measures the cost momentum that you have seen over the last year and what has gone against you versus expectations and probably really the self help that you have over the coming years and also what the time line is to get the VW brand out of this very low profitability. Thank you.

Okay, thank you. And for your question related to our targets 2018 and how we can make sure that the margin of the Porsche will increase to 6% and you are interested in having some more details of what kind of measures do we need or do we take to achieve those targets. What are the next steps, what is the time line that we see a more pronounced improvement in the development of our folks to present car brands?

So I am trying to give the main building blocks moving to our 6% target and as you rightly said this is not any kind of brand new target. It’s actually it’s been established in connection with rolling out our strategy 2018 already and certain it took a bit of time until we were able to identify the various leaders going there and just to take your point on the volume side. On the volume I think it’s proven basis to say that we are running in clearly in advance of the calculations we are making at that point in time. So let's take it with a green light on the volume side and very clearly moving forward there is no basis created where we would for the upcoming years see a significant leave coming from the volume side also we always try to remain on the cautious side that's why the main aim number one is the introduction of the modular tool and there I would like to remind you that up until till to-date Volkswagen passenger car is just using about 20% of the MQB modular toolkit relative to the overall portfolios. So this ratio of course is going to fundamentally change going forward and by the increased application of the modular tool kits and specifically MQB we will of course be able to take advantage of the significant cost savings related to this. Second and important item of course is the execution of our efficiency programs and there it’s been always clear that it is necessary that we take a different approach with regard to cost items in the company which got significantly accelerated once we got more transparency on the necessity and the technical framework conditions which you have to install to meet regulatory targets and this clearly means that relative to our former plans we needed to create another important figure to try to compensate additional calls coming in by this attempt to meet regulatory targets and this essentially is building the basis for the significant deficiency programs which we executes throughout the group but specifically of course also at Volkswagen Passenger Cars. So having said this and very well knowing the steps which we expect going forward and we are very well on track for this year this is something I can say at this point so we’ll clearly say more than a billion of cost savings before 2015 we think we are very well on track into the direction of our 6% target for 2017. Let me very quickly and we will not talk too long on this but let me make a quick comment on the point you made in terms of the one in the other market situation. Yes, of course it’s probably not what you want to hear right away but nevertheless what we have to say looking at the performance of the brand 2014 and also the performance of 2015 first quarter the effect coming in by the situations in specifically two market areas Russia and South America is massive, it’s not far away from half a billion effect taking the two elements together and if we didn’t execute these significant programs if we didn't really execute our cycle plan which means increase the installation of MQB cars as good as possible, it would clearly have been completely unthinkable to turn up with the result we are able to turn for the first quarter. In other words if we look a little bit into the future to end up with our 6% target folks on passenger cars. It is not that we would plan on a significant positive contributions coming from these market areas but it’s also very clear part of the burden currently created does come in by the execution of significant restructuring programs. In Brazil for example in the past 18 months we have reduced headcount by more than 2000 people. In Russia its going in similar direction in those markets of course we had to change shift plans. We have had to stop the plants for quite a bit of time and that's all measure of course which we have to take into consideration. To cover long story short on this, we are currently we already started to implement a footprint specifically a manufacturing footprint both in Brazil and also in Russia to tackle these issues as we do not really know how these markets are going to develop further and in this respect of course it also plays an important role to bring the contribution of these markets back to at least a black figure.

And you exceed sort about heading a line for restructuring cost in your segment for porting like [indiscernible} and other major comics do that to show us the more underlying profitability of your business?

We did this once a few years ago. You also know I am not a big fan of this because it opens up an opportunity to put something to this line which actually is harder to be seen as restructuring or whatsoever. So quite straight forward talking we do it what we have to do and if it hits the bottom line, if you have a question on this you ask the question and we give the answer. What is mostly important that we do what we have to do?

Okay fair point. Thanks.

And the next question is from Stephen Reitman from Societe Generale. Please go ahead.

Yes good afternoon. I have two questions. First of all on the [indiscernible] I think it was made clear that the way you can negotiate the MQB contracts with your suppliers is that you gave them certain amount of time of ease in to build up their own capacity supply your MQB factories. Does that also has that – I think that pattern was highlighted as impacting on the Gulf and [indiscernible] and the like, same kind of 12 month lag and then sort of – and then to see a visible improvement as we saw 12 months after the launches of those vehicles going back to 2013 period. First question.

This is very well related to the very significant efforts and investments to be taken by the suppliers to allow them certain phase in process and again the logic there is relatively simple. We are trying to pull volume of course to make the maximum out of it in terms of the cost position but it leads consequently to the point that there is an awful to be done by a single supplier and just to be able to ramp this up in the stage of scheme we opened up this opportunity to deliver something on top of start of production 12 months late. That's what it is and if again the framework condition is similar. It’s the scheme which we apply in just quite a few cases.

Alright. And if I can just turn to China again obviously you have made some indications about what the currency played the role in that quite impressive improvement, the 30% improvement in the proportion operating result relative to more than 2% increase in unit sales from the Chinese JVs and could one assume that the split is in the way maybe that you mentioned that there was operational improvements achieved by the Chinese JVs as well could one assume that is still quite a significant part of that 30% increase or is very much behind share relating to FX?

So again the question with regard to the profitability of China and the currency which was supportive year and so the question is how FX will start actually of the operating improvement but I can say we have answered that question already so therefore I’m struggling.

Let's say again roughly, very roughly half of that is currency.

That’s very clear, thank you.

Thank you. The next question is from Stuart Pearson from Exane BNP, please go ahead.

Yes, good afternoon. So two questions there I mean coming to the premium brands perhaps now the -- delivered a pretty good margin given the product cycle effect so maybe just talk a little bit about the operating environment there the pricing on the premium side especially in different regions. The 200 million FX support that you identified in the bridge is it fair to assume that most of that was seen on the [L&D] line and then the second question just a very brief one because obviously we don't expect you to comment on the [indiscernible] issues but just on the M&A maybe if you can just repeat some of the comments you have made on prior calls that outside of the FAW stake increase possibly that's no still major M&A plan that's FAW at this stage? Thank you.

Okay thank you Steward for your two questions. The first question refers to Audi and the premium brand. We would like to have a description or how is pricing environment currently and the currency effect which we have seen in the – which that is more or less related to the premium brands and the second question is with regard to M&A if we can give here again comment on our M&A or plans or no plans. Thank you.

If you allow me to enter a little bit into the pricing debate and I think your point is a little bit more oriented to the premium brands how the environment is so maybe we need to clearly differentiate between the situations in the markets. It is pretty normal that in a situation where the markets are going down the price pressure is increasing. So I would say so in though the volumes in general in South America in the segment are pretty small base some more price pressure there to see. This could have as well to certain extent in Russia which seems to pretty logic on that respect. If you go to Europe we would estimate that it’s pretty stable environment so there are pretty stable pricing issues of course we do have some change of models particularly Audi like [indiscernible] which is hitting the market and as you have seen as well the reaction in the press course are very, very positive. And we will have other models to come in at the end of the year. But in general we would estimate that in the premium segment the pricing environment in Europe is pretty stable if you compare this to last year. Pretty the same situation we would estimate for the United State so there is definitely smaller difference whether it’s a passenger car or it’s an SUV because in SUV I would say in general the pricing pressure is lower but in general we would estimate as well that in terms of pricing pressure its more or less in kind of stability compared to last year. In China the situation in general is a little bit different. You have seen that in China first the political environment is not on the same level as it used to be in certain moment. So the new normality is taking place. We have some economical environment which is too strong on the full cost of 7% but little bit smaller as it was two years before and of course you have particular in the top premium some direct connections to loss coming up or have coming up in China concerned anti-corruption. So the price pressure has increased in China I would say so. It’s not the fundamental change. It’s just an increase. We talk here about the premiere segment and we shall see how it’s going further. We believe in any case the market in general will continue to have a growth momentum. So this is what I could maybe give you as an overview of an indication about the pricing and the premium segments.

So then there was a any question on the FX effect in the first quarter shown in the bridge to 200 million there I can say that more than half of the effect is related to Audi and another question related M&A activities you are well aware that we have the offer out to the main shareholders and we are in a process of negotiation with more than joint venture to potentially increase this stake other than this we are not having anything under table in terms of M&A.

Okay. Thank you. As it is already five past three I really would like to ask it to raise one question only. Thank you.

Thank you and the next question is from Fraser Hill from BofA Merrill Lynch, Research Division. Please go ahead.

Hi good afternoon. It’s Fraser Hill from Bank of America. I will keep to one Christine. Coming back to the cost save, the product cost savings I know you defined this many ways the future tracks obviously you have made it clear what you expect. Can you just bring that together into one conclusion for the year? Do you expect about the net of your product saving and fixed cost of step ups to be positive this year and can you perhaps give us some degree of magnitude around that do you think that we are positive to mid triple digit within level or will this be a balancing item that is more closer to the year as a whole given what you feel on the fixed cost side, many thanks.

Okay Fraser. Thank you very much. So you are interested in having more information on how our product cost savings will develop during the year also in comparison to fixed cost so how will we end up is there at the end do we have a balance or is it really that we have a higher product cost savings then the increase in fixed cost. Thank you.

So at this point I can only reiterate our former statement which is very clear we at least would like to match the fixed cost development by our product cost improvements.

Okay. Thank you. Next question please.

Thank you. The next question is from Jürgen Pieper from Metzler Capital Markets. Please go ahead. Jürgen Pieper: Yes I have one question on pretty simply on the volume I mean this 2% increase for the group is I think for the first time after couple of years is somewhat below the market growth in almost all regions so just to for better understanding is it first what you expected in the end, has it – does it have to do with pricing in comparison to your competition do you expect the trend more to continue or might it change with the new [indiscernible] and finally the still one question sorry, finally do you – will you change the pricing in the market like the U.S. as a consequence of the currency changes with some implications for the volume. Thanks.

Okay. Thank you for your question. It’s related to our volume development in the first quarter and you are interested to know how that will develop in the remaining year to be grow in a similar magnitude as the market so what development do we expect and do we see probably a push coming now then also from the [Passat] and then you interested in the pricing strategy in the U.S. if we will change that due to the currency effect.

So maybe I start with the point on the [Passat] so we are very, very happy with the performance of the Passat the order intake is great as well the [indiscernible] good we are fully online so there is absolutely everything as we have expected even better. It has a volume development if you remember we said of course already last year that the percentagewise growth in terms of the next years to come will be little bit lower as it was before this is very simplest well the question of the big numbers but this nothing which is let’s say surprising. If we go then into the regions we have from our perspective a very good performance in Western Europe where we can continue to go further so we have a market share investor in Europe which is substantial and we continue to defend our position there. It is as well clear that we are strongly exposed in two regions one is South America and the other one is in Russia and if these regions are going down in terms of general market then we are little bit more ahead than other manufacturers who have a less exposure in this kind of markets. So, in Russia we have clearly made the choice to keep on a good positioning on pricing and we believe this is the right strategy particularly when you have a volatile currency situation you might remember I think it was on the 15 December, the Ruble nearly hit 100 compared to the euro, so now it’s something between 55 and 60 so definitely we have played here the safe game and we shall continue to do so. In South America we have here as well in fact of exchange rate issues but not only but definitely some of them are there and as well here we are going for strategies which is more on the pricing side and not on the economic market share for all shake. We believe in long term that is the right strategy because then we have as well the possibility to continue to make our graphs on the better starting and better continuing point. If you go further then to United States in general in North America of all the branch we had some growth. Your question is more if I understand is right in terms of the Volkswagen brand. The Volkswagen brand itself as we have as both discussed the last time has an expectations to be roughly on the same level in 2015 and 2014 but this is something we should be in the market already. We do not see major changes needed in terms of our pricing strategy as again we go here for the pricing logic and not so much in terms of market share. It is true that exchange rate has an impact but we have a big part of our cars coming directly from the North American continent and as a consequence volume wise is impact is not extremely strong. Now if you go further to other countries like China we see here a general market which has gone up by more than 10% the big part of the graph which has come up is concerning Chinese brands in the different segments as well here as you can see we have played more the card in terms of pricing than in terms of market share. So that is I think that is a bit answer to your question concerning the volume development.

Okay. Thank you. So we take the next question.

The next question is from Jose Asumendi from JP Morgan, please go ahead.

Okay. Jose from JP Morgan. Just one item please on volume price mix that I assume the mix was largest in earnings driver in Q1 and we should expect an acceleration in the next quarters and then just on fixed cost looks to me there is slow down on those incremental year and year R&D and depreciation charges in the first quarter, is this the first sign of starting to see some of those incremental fixed cost lease being less of a headwind on the year-end-year basis. Thank you.

Okay. Thank you for your questions, the first question is related to the volume price mix development which we have seen in the EBIT bridge is mix versus the largest earning driver and if we can describe you the trend or our outlook going forward and then with regard to fixed cost if we see now a slowdown of R&D and depreciation that this will be less of a headwind going forward.

First of all volume price in mixed first of all I think it’s important to keep in mind that on the price side is of course all reflecting not only structural price change but also inflationary price changes. If we take this element then you are absolutely right mix development is the most important one at this point I can say that clearly those product mix and country mix were clearly positive and we expect this to continue on. On the fixed cost side I already mentioned of course we have to expect that the [indiscernible] also has a meaning there. Nevertheless in connection with my comments on the – if it’s necessary to meet regulatory targets we have to assume that R&D will remain on relatively high side and by introduction of the various toolkits in a number of countries it’s also clear that CapEx will remain on the relatively high side. Jürgen Pieper: Okay. Many thanks.

So next question please.

Thank you. The next question is from Charles Winston from Redburn Partners. Please go ahead.

Yes, hi good afternoon. I am Charles Winston. My question is just in terms of the performance of the VW brand I guess that I would call the exit rates if it came out of the quarter by which I mean if you look at the – quarter move the Ruble peaked at 80 to the Euro we came out of the quarter about 55 the BRL peaked at 3.5 to the Euro around about 3.25 though the currency fling which of course have an impact because of the localization are relatively lower localization of markets. My point I guess the question is with the currency rates we have got today would the margin of VW brands still have been 2% or is the exit rate that we have come out of that difficult turmoil period for the exchange rates there perhaps the basically would the margin have been materially different from 3% maybe near to 3, thank you.

Okay. Thank you Charles for your question which refers to the performance of the Volkswagen brand and is how I would like – how the margin would look of the Volkswagen brand if we [exclude] the negative impact of the currencies if we then that margin could have been closer to the 3% instead of 2% which was disclosed.

First of all to answer is very simple. Yes profit level would be higher under this assumption and there is another element of course we are increasing prices just to compensate for currency movements. You cannot increase the prices in a one shot exercise because that’s too heavily harming the market. So we have to assume going forward that some positive effects will also come in from the price side.

Okay. Thank you.

Okay, next question.

The next question is from Adam Hull from Berenberg. Please go ahead.

Hi, good afternoon, Adam Hull from Berenberg. I just wanted to go back to a free cash flow. If I look at your free cash flow last year we just have 6 billion in full year 2014, but you have done in the core business 1.5 billion. Obviously you haven't yet got the Chinese JV so maybe you could give us a dividend from that, maybe give us some idea what the Chinese add dividend might be for this year and then are we in position you can sort of confirm that you expect a higher core cash flow for the full year i.e., more than 3 billion you did excluding the Chinese JVs last year. Thanks.

Okay. Thank you for your question. You are interested in guidance for the dividend we will receive from China this year and is the – do we expect a higher cash flow for the full year?

So that's a new exercise for us because we not only include of course the payout from the Chinese but in rough terms its not to be ruled out we end up with the similar free cash flow generation as compared to last year.

And can I ask specifically on the Chinese JV dividend I mean do we have some indications of what that will be this year clearly also getting the benefit of the FX transaction on that?

The payout net of currency effect should be about similar level as last year.

So in the same R&D terms.

Yes.

Okay. Thank you.

Thank you. The next question is from Philip Watkins from Citi, please go ahead.

Good afternoon. Thank you. I mean just back to China I was wondering how long you think the domestic Chinese players are going to be able to retain their current product cycle strengths in small SUVs I guess many of us didn't see this coming and very specifically what you can do to address in terms of products. There was a need in your view to slightly change the products make up in China. Thank you.

Okay. Thank you Philips for your question which refers to China and our product portfolio there and our strategies also going forward in comparison to the local players.

I think to understand little better maybe it’s needed to have some minutes or some moments on the general situation. As I mentioned before the new normality is taking place in China and has an impact in terms of behavior for the customers. Still about 70% of the customers in the market are new customers that means only 30% of the customers have had a new car before. So this might be neutral it is not in the moment when you see a swell more and more cities going further in terms of city restrictions. So for example [indiscernible] has made the restriction end of last year was the 30 December. This city restrictions do reduce the market potentials pretty strongly just to give us an indication [indiscernible] used to be a market on passenger car level more or less something about 400,000 – 450,000 and after its something about 100,000 – 150,000. On the other side the gross which is there is continuing further on in the tier-4, tier 5, cities. Just to give you little bit of feeling of what is the tier-4, tier-5 is the city between one and half to three million, a city of five is something around one and half million. So we do not talk about small cities. We talk about smaller cities. So if the one city is all about 15 million like [indiscernible] more than 30. But this development is continuing that means that the demand is going out of the eastern coast more to the western direction which was and still is clearly the strategy of the government. And the behaviors of the customers are a little bit different. Now we have the Chinese competitors in the market which is they of course and these competitors have now brought on the market several models particularly in the SUVs as well on the MPV level. These are models which have a price range starting something about 50,000 RMBs and going up to something 120, sometimes higher. So these typical entry models into the market which we created and they had up to now pretty successful entry. So we are in the market with our existing line up. We of course continue to enlarge our lineup as we have done this year with for example in new [Lamendo] which is a four doors, very good design where we now ramp-up. And we will continue well of course to bring on the market the models to be able as well to enter step-by-step a little bit more into that segment. So this is clearly our intention. Will we have a possibility to enter directly to these Chinese brands within given exactly the same specification of a model I am not sure that this would fit us well to the positioning of the brand? We have brands that typically like Skoda like Audi and they have clearly as well a mission which I would say is so very well established in the market. So in general we have these effects. We have the believing that the models we have today and which we will have gives us some good answers to the market. That aside, we need to except the new normality is happening that there is a shift out of the bigger cities to the tier four, tier five ,cities and that some behaviors of the customers is different. So as well to answer in terms of our policies and to find the right way to make it best.

That's great. Thank you.

Okay. Thank you. We take the last question from an analyst.

Thank you. The next question is from Richard Hilgert from MonringStar. Please go ahead.

Good afternoon from the morning side of the Atlantic. I just wanted to ask one more question about China please. The operating income increase is substantially more than what the currency would indicate. You mentioned that it’s about 50% impact on the operating income from – or the equity income from China. It also looks like the increase is more than what you would be able to achieve on the volume leverage that you got in the quarter versus the prior year's quarter. So, I am also trying to figure how this is possible when there has also been comments earlier about how pricing has been the more unfavorable in China. Is this because there is a mix effect that's more favorable and that's why we are seeing the increase in equity income?

Okay. Good morning Richard. So you have a question which refers to our China performance. The increase in operating income which is partially affected by the currency effect but also you want to know how are the pricing environment if that has that been favorable as well so if we can give you a bit more explanation?

No, in comparison, there – to the first quarter in 2014, we needed if we wanted to do this exercise we need to have a clean 2014 first quarter. We had a few ramps-up there. So there was some cost burden created and that's why it is one of the key reasons that's why performance looks pretty good even clean of exchange rates.

That was the case then for the fourth quarter also because this looks like a continuation from the performance of the fourth quarter as well.

Yes, it doesn't matter, we’ve a lot of new model introduction and again it’s necessary if you pick out single quarter its necessary to do this analysis and this is absolutely true.

Okay. It makes sense. Thank you.

Thank you. We take one question from the journalist please.

Thank you. The next question is from [indiscernible] from Bloomberg. Please go ahead.

Yes, good afternoon. Just a quick follow-up question on Philip’s remark earlier. Could you give us an update on the budget car plans for China please. The project that was lead by [indiscernible] still alive and what's the nature of the talks with great wall there some reports has there been any content or contact or are you considering a proper preparation or tie up. Thank you.

Okay. Thank you first of all for your question which refers to the budget car plans which we have if we can give you an update on our project.

Well it’s a pretty simple one. We in light of the comments Mr. Klinger made before we are still investigating -- which does have to call them budget car. It is to potentially address lower price segment. It is primarily approaches facing on China. There is no final decision yet being taken and in principle terms I can say that we do not want to comment on rumors.

Thank you.

So this was the last question. Thank you very much. So for listening to our call and for your questions and goodbye from here in Volkswagen. Bye, bye.

That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.