Financial Position

PRINCIPLES AND GOALS OF FINANCIAL MANAGEMENT

Financial management at the Volkswagen Group covers liquidity management, currency, interest rate and commodity risk management, as well as credit and country risk management. It is performed centrally for all Group companies by Group Treasury, based on internal directives and risk parameters. The Scania and MAN subgroups are not coordinated centrally for reasons of timing and legal restrictions related to stock exchange law. The integration process for Porsche AG and Porsche Holding Salzburg has not yet been fully completed.

With regard to liquidity, the goals of financial management are to ensure that the Volkswagen Group remains solvent at all times and to achieve an adequate return from the investment of surplus funds. Currency, interest rate and commodity risk management is designed to hedge the prices on which investment, production and sales plans are based using derivative financial instruments. Credit and country risk management aims to use diversification to avoid exposing the Volkswagen Group to the risk of loss or default. To achieve this, internal limits are defined for the volume of business per counterparty when entering into financial transactions. Various rating criteria are taken into account when setting these limits, including the ratings awarded by independent agencies and the capital resources of potential counterparties. The relevant risk limits and the authorized financial instruments, hedging methods and hedging horizons are approved by the Executive Committee for Liquidity and Foreign Currency.

For more information on the principles and goals of financial management, please refer to chapter Financial risks and to the notes to the 2012 consolidated financial statements.

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CASH FLOW STATEMENT BY DIVISION
		Volkswagen Group				Automotive1				Financial Services
€ million		2012		2011		2012		2011		2012		2011
1 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions. 2 These relate mainly to the fair value measurement of financial instruments, application of the equity method and reclassification of gains/losses on disposal of noncurrent assets to investing activities. 3 Before consolidation of intragroup transactions: €17,029 million (€17,868 million). 4 These relate mainly to the acquisition of the holding company operating business of Porsche Automobil Holding SE for €4,495 million and the acquisition of the shares in Ducati Motor Holding S.p.A. for €747 million, shares in KPI Polska Sp.z.o.o., Poznan/Poland, and related financial services companies for a total of €254 million, and the shares in MAN TRUCKS India Private Limited, Akurdi/India (formerly: MAN FORCE TRUCKS Private Limited), for €150 million, in each case net of cash and cash equivalents acquired. 5 Net cash flow: cash flows from operating activities, net of cash flows from investing activities attributable to operating activities. 6 Cash and cash equivalents comprise cash at banks, checks, cash-in-hand and call deposits.
Cash and cash equivalents at beginning of period		16,495		18,228		12,668		17,002		3,827		1,226
Profit before tax		25,492		18,926		23,900		17,524		1,591		1,402
Income taxes paid		–5,056		–3,269		–4,514		–2,784		–542		–484
Depreciation and amortization expense		13,135		10,346		9,982		7,843		3,152		2,503
Change in pension provisions		95		13		87		8		7		6
Other noncash income/expense and reclassifications2		–13,575		–7,164		–13,678		–7,208		103		44
Gross cash flow		20,090		18,853		15,778		15,382		4,312		3,471
Change in working capital		–12,881		–10,353		454		1,728		–13,335		–12,080
Change in inventories		460		–4,234		1,044		–3,594		–584		–640
Change in receivables		–56		–2,241		114		–944		–171		–1,297
Change in liabilities		–236		3,077		–627		2,698		391		379
Change in other provisions		370		3,946		57		3,712		313		234
Change in leasing and rental assets (excluding depreciation)		–5,606		–4,090		–232		–394		–5,374		–3,695
Change in financial services receivables		–7,814		–6,811		96		249		–7,910		–7,061
Cash flows from operating activities		7,209		8,500		16,2323		17,1093		–9,023		–8,609
Cash flows from investing activities attributable to operating activities		–16,840		–16,002		–16,455		–15,998		–385		–4
of which: acquisition of property, plant and equipment capitalized		–10,493		–8,087		–10,271		–7,929		–222		–158
development costs		–2,615		–1,666		–2,615		–1,666		–		–
acquisition and disposal of equity investments4		–4,105		–6,388		–3,927		–6,626		–179		238
Net cash flow5		–9,631		–7,502		–223		1,112		–9,408		–8,613
Change in investments in securities and loans		–2,643		–2,629		–111		–1,285		–2,532		–1,344
Cash flows from investing acitivities		–19,482		–18,631		–16,565		–17,283		–2,917		–1,348
Cash flows from financing activities		13,712		8,316		2,551		–4,267		11,161		12,583
of which: capital transactions with noncontrolling interests		–2,101		335		–2,101		335		–		–
mandatory convertible note		2,048		–		2,048		–		–		–
Changes in cash and cash equivalents due to		–141		82		–98		106		–43		–24
exchange rate changes		1,298		–1,733		2,120		–4,334		–822		2,601
Net change in cash and cash equivalents
Cash and cash equivalents at Dec. 316		17,794		16,495		14,788		12,668		3,005		3,827
Securities, loans and time deposits		14,352		12,163		8,110		8,966		6,242		3,197
Gross liquidity		32,146		28,658		22,898		21,634		9,248		7,024
Total third-party borrowings		–117,663		–93,533		–12,324		–4,683		–105,338		–88,849
Net liquidity		–85,517		–64,875		10,573		16,951		–96,090		–81,826