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 due to time constraints and stock exchange law restrictions.

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 the notes to the 2011 consolidated financial statements.

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CASH FLOW STATEMENT BY DIVISION
		Volkswagen Group				Automotive1				Financial Services
€ million		2011		2010		2011		2010		2011		2010
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: €17,868 million (€14,481 million). 4 These relate mainly to the acquisition of the operating business of Porsche Holding, Salzburg, Austria, for €3,314 million, the shares of MAN SE, Munich, for €3,498 million and the investment in SGL Carbon SE, Wiesbaden, for €224 million, less cash and cash equivalents acquired attributable to Porsche Holding Salzburg and MAN SE. 5 Cash and cash equivalents comprise cash at banks, checks, cash-in-hand and call deposits.
Cash and cash equivalents at beginning of period		18,228		18,235		17,002		16,362		1,226		1,873
Profit before tax		18,926		8,994		17,524		7,878		1,402		1,116
Income taxes paid		–3,269		–1,554		–2,784		–1,364		–484		–190
Depreciation and amortization expense		10,346		10,097		7,843		7,751		2,503		2,346
Change in pension provisions		13		77		8		72		6		5
Other noncash income/expense and reclassifications2		–7,164		–2,073		–7,208		–1,981		44		–91
Gross cash flow		18,853		15,540		15,382		12,355		3,471		3,185
Change in working capital		–10,353		–4,086		1,728		1,575		–12,080		–5,661
Change in inventories		–4,234		–2,507		–3,594		–2,035		–640		–471
Change in receivables		–2,241		–1,980		–944		–1,910		–1,297		–70
Change in liabilities		3,077		4,064		2,698		3,350		379		714
Change in other provisions		3,946		2,577		3,712		2,377		234		199
Change in leasing and rental assets (excluding depreciation)		–4,090		–3,138		–394		–98		–3,695		–3,040
Change in financial services receivables		–6,811		–3,102		249		–108		–7,061		–2,993
Cash flows from operating activities		8,500		11,455		17,1093		13,9303		–8,609		–2,476
Cash flows from investing activities attributable to operating activities		–16,002		–9,278		–15,998		–9,095		–4		–183
of which: acquisition of property, plant and equipment		–8,087		–5,758		–7,929		–5,656		–158		–102
capitalized development costs		–1,666		–1,667		–1,666		–1,667		–		–
acquisition and disposal of equity investments4		–6,388		–2,150		–6,626		–2,061		238		–89
Net cash flow		–7,502		2,176		1,112		4,835		–8,613		–2,659
Change in investments in securities and loans		–2,629		–1,770		–1,285		–1,432		–1,344		–338
Cash flows from investing activities		–18,631		–11,048		–17,283		–10,527		–1,348		–521
Cash flows from financing activities		8,316		–852		–4,267		–3,161		12,583		2,309
of which: capital increase by new preferred shares		–		4,099		–		4,099		–		–
Changes in cash and cash equivalents due to exchange rate changes		82		438		106		397		–24		41
Net change in cash and cash equivalents		–1,733		–8		–4,334		640		2,601		–647
Cash and cash equivalents at Dec. 315		16,495		18,228		12,668		17,002		3,827		1,226
Securities, loans and time deposits		12,163		9,437		8,966		7,482		3,197		1,954
Gross liquidity		28,658		27,664		21,634		24,484		7,024		3,180
Total third-party borrowings		–93,533		–77,012		–4,683		–5,845		–88,849		–71,166
Net liquidity		–64,875		–49,347		16,951		18,639		–81,826		–67,986