Net Assets, Financial Position <br>and Results of Operation

 

The value added statement indicates the added value generated in fiscal year 2007 by a company as its contribution to the gross domestic product of its home country, and how it is appropriated. In the reporting period, the added value generated by the Volkswagen Group increased by 6.3% year-on-year. Added value per employee was €83.8 thousand (+ 6.6%).

 

 

 

* Excluding special items in the previous year: €14,943 million.

 

 

 

 

 

 

The Volkswagen Group's financial target system focuses systematically on continuously and sustainably increasing the value of the Company. In order to maximize the use of resources in the Automotive Division and to measure the success of this, we have been using value contribution*, a control variable linked to the cost of capital, for a number of years. The concept of value contribution not only allows overall performance to be measured in the Automotive Division, but also in the individual business units, projects and products. In addition, business units and product-specific investment projects can be managed operationally and strategically using the value contribution.

 

 

 

The value contribution is calculated using operating profit after tax and the opportunity cost of invested capital. Operating profit reflects the economic performance of the Automotive Division. To derive a figure for profit after tax, we calculated an overall average tax rate of 35% based on the various international income tax rates of the relevant companies. The opportunity cost of capital is calculated by multiplying the invested capital by the cost of capital. Invested capital is defined as total operating assets (property, plant and equipment, intangible assets, inventories and receivables) less non-interest-bearing liabilities (trade payables and payments on account received).

 

* The value contribution corresponds to the Economic Value Added (EVA®).

EVA® is a registered trademark of Stern Stewart & Co.

 

 

 

The cost of capital is calculated as the weighted average of the required rates of return on equity and debt. The cost of equity is determined using the Capital Asset Pricing Model (CAPM), which uses the yield on long-term risk-free Bunds, increased by the risk premium attaching to investments in the equity market. The cost of debt is calculated on the basis of the average yield for long-term debt.

 

 

 

The operating profit after tax of the Automotive Division was €3,567 million in the reporting period (€829 million). The year-on-year improvement is attributable above all to the sales growth, the further optimization of our cost structures and the non-recurrence of the restructuring expenses that had substantially impacted the prior-year result.

 

The cost of capital was reduced by €202 million year-on-year to €2,850 million, due exclusively to the further reduction in invested capital. This again underlines our disciplined approach to investments in property, plant and equipment and our successful working capital management. The current average cost of capital remained unchanged on the whole at 7.6%.

 

Consequently, we recorded a positive value contribution of €717 million (€–2,223 million) for the first time since 2001. The return on investment (ROI) was 9.5% in 2007 (previous year: 2.1% after special items, 5.9% before special items). We have therefore achieved our objective of at least covering our cost of capital in the reporting period and exceeded our minimum required rate of return on invested assets of 9%.

 

More information on the financial control variables is available on the Internet at www.volkswagenag.com/ir

 

 

 

 

 

 

1	Including proportionate inclusion of vehicle-producing Chinese joint venture companies and allocation of consolidation adjustments between the Automotive and Financial Services divisions.
2	Restated.