Rating Report Volkswagen AG Ratings Robert Streda +1 416 597 7397 rstreda@dbrs.com Kam Hon +1 416 597 7543 khon@dbrs.com Issuer Debt Rating Rating Action Trend Volkswagen AG Issuer Rating BBB (high) Downgraded Negative Volkswagen Canada Inc. Senior Unsecured Debt BBB (high) Downgraded Negative Volkswagen Canada Inc. Commercial Paper R-2 (high) Downgraded Negative VW Credit Canada Inc. Senior Unsecured Debt BBB (high) Downgraded Negative VW Credit Canada Inc. Commercial Paper R-2 (high) Downgraded Negative Rating Update On April 25, 2016, DBRS Limited (DBRS) downgraded the short- and long-term debt ratings of Volkswagen AG (VW or the Company) to R-2 (high) from (R-1 (low) and to BBB (high) from A (low), respectively. The downgrades reflect continuing and consequential headwinds associated with VW s (diesel) vehicle emissions controversy. With this rating action, VW is removed from Under Review with Negative Implications, where it was initially placed on September 23, 2015. While developments have been numerous and will persist going forward, recent events have culminated in the Company s increasing incurred provisions to EUR 16.2 billion from the prior level of EUR 6.7 billion. The trend on the ratings is Negative, as, notwithstanding the substantially increased provisions assumed by the Company, DBRS estimates that total costs associated with the emissions issue are still likely to prove considerably higher, with the ultimate impact on VW s financial and business risk profiles remaining somewhat uncertain. The Company recently announced its 2015 results, with the above-cited provisions causing VW to report a consolidated loss before and after tax of EUR 1.3 billion and EUR 1.4 billion, respectively, representing its first annual net loss since 1993. The earnings release promptly succeeded the announcement that the Company had reached an agreement in principle with U.S. authorities concerning compensation to owners of some 480 thousand affected diesel vehicles in that market (the compensation apparently to consist of a blend of vehicle buybacks, repairs and other economic compensation). While the preliminary agreement reflects some much needed progress around the emissions issue, DBRS notes that VW faces a multitude of similar negotiations with additional authorities across various jurisdictions worldwide. Taking into account additional compensation and vehicle repair/buyback costs, as well as forthcoming legal costs (which, as of this date, are still not fully known, albeit are likely to prove substantial), the total costs of the emissions issue, in DBRS s opinion, is likely to significantly exceed the EUR 16.2 billion in provisions incurred thus far. While DBRS acknowledges that VW s liquidity position for the time being remains substantial, with net liquidity as defined by the Company (i.e., cash and short-term marketable securities less third-party borrowings) as of year-end 2015 amounting to EUR 24.5 billion, Continued on P.2 Financial Information Issuer Description For the year ended December 31 (EUR millions) 2015 2014 2013 2012 2011 Revenue 1 183,936 177,538 175,003 172,822 142,092 Net income before non-recurring items 8,896 10,847 9,405 10,029 11,284 Interest coverage EBITDA 1 15.0 16.1 13.8 14.4 15.8 DEBT / EBITDA 0.5 0.5 0.8 0.8 0.4 % gross debt in capital structure 1 11.7% 12.2% 16.2% 16.5% 11.8% Note: Certain figures in this and in subsequent tables are subject to adjustments made by DBRS. 1 Excludes financial services division. Volkswagen Canada Inc. and VW Credit Canada, Inc. are wholly owned subsidiaries of Volkswagen AG (VW). VW is the largest auto manufacturer in Europe and ranks second globally (according to 2014 data). The Company has a portfolio of 12 brands that, among others, includes: Volkswagen, Porsche, Audi, Skoda, Seat, Bentley, Lamborghini and Bugatti. VW s commercial vehicle segment features the Scania and MAN brands. VW also has a substantial financial services business.
Rating Report Volkswagen AG DBRS.COM 2 Rating Update (CONTINUED) its liquidity buffer nonetheless stands to be meaningfully depleted, (albeit liquidity will also be bolstered by future incremental free cash flow generation given the likely protracted nature of the emissions-related costs). Moreover, DBRS notes that the impact of the emissions issue on VW s sales performance continues to develop. From September 2015 through March of this year, while the Company has suffered market share losses in North America and in Europe, such declines have thus far proven quite manageable, with the namesake VW brand being the most adversely affected by the emissions issue (as expected), while the Company s other brands have thus far proven resilient. This notwithstanding, further negative publicity associated with the emissions issue could potentially lead to additional (relative) sales declines, which ultimately could adversely affect DBRS s assessment of VW s business risk profile. The Negative trend on the ratings reiterates DBRS s concerns that the adverse effects of VW s emissions issue, in terms of likely future associated costs and weaker operating performance of the Company, may well escalate further. DBRS notes further that the Company s transparency regarding the emissions issue remains sub-optimal, as VW has also indicated that it will now delay the disclosure of its own investigation (carried out by legal firm Jones Day) into the diesel emissions issue, initially slated to be released by the end of this month, with the Company now currently targeting to disclose such findings by the end of this year. Rating Considerations Strengths 1. Large scale provides economies VW is the second-largest automobile manufacturer in the world and the leader in Europe. VW has the size and critical mass to attain the economies of scale necessary to be cost-competitive. 2. Above-average balance sheet The Company has an above-average balance sheet and strong liquidity position. The automotive operations (excluding financial services) had a net cash position of EUR 18.4 billion (as calculated by DBRS) as at December 31, 2015. 3. Market leader in Western Europe: Globally diversified VW has managed to defend and increase its global market share, despite intense competition in its core markets. The Company s share of its core Western European market was 24.4% in 2015 and VW remains the leader in Germany. Additionally, the Company maintained its penetration in the Asia-Pacific region at 12.5% compared with 13.3% in 2014. 4. Financial services earnings smooth profitability VW s financial services business has provided a stable and measurable source of earnings with annual operating profit totalling EUR 2.2 billion in 2015. Financial services earnings help to reduce the volatility of earnings associated with the Company s industrial operations. Challenges 1. Diesel emissions controversy VW faces substantial challenges as the Company attempts to recover from its vehicle emissions controversy, which initially spanned 482,000 thousand vehicles in the United States, only to quickly increase to approximately 11 million worldwide. DBRS notes that the provisions of EUR 16.2 billion incurred thus far by the Company may still be subject to additional revisions and increases, pending further development of the emissions issue. 2. Earnings volatility from cyclical automotive industry conditions VW s operating performance is largely dependent on automotive business conditions, which fluctuate generally in line with economic cycles. 3. Competitive and mature Western European market The Company generates a significant proportion of its earnings in Western Europe (particularly Germany), a mature, fragmented and highly competitive market where opportunities for significant growth are generally limited. 4. Significant production in Germany VW has a higher cost structure in Germany, which accounts for approximately 25.0% of VW Group production (although DBRS acknowledges that labour costs in Germany are quite competitive within Western Europe). The Company is seeking to improve its productivity through greater application of modular architectures, which will make it easier to build a wider variety of cars in future factories. 5. Modest U.S. presence VW has a modest presence in the United States (roughly 3.5% market share in 2015), which is among the largest automotive markets in the world. The Company had previously targeted to progressively increase its sales volumes in the United States to a total of 800,000 units by 2018. DBRS notes that this volume objective will likely be increasingly difficult to attain (notwithstanding planned product launches), given the Company s diesel emissions controversy that originated in the United States.
Rating Report Volkswagen AG DBRS.COM 3 Earnings and Outlook For the year ended December 31 (EUR millions, where applicable) 2015 2014 2013 2012 2011 Sales 1 183,936 177,538 175,003 172,822 142,092 Operating profit 1 10,595 10,780 9,807 9,913 9,973 Operating profit Financial Services 2,236 1,917 1,863 1,585 1,298 Equity earnings (i.e. China) 4,387 3,988 3,588 3,169 2,174 Net income before non-recurring items 8,896 10,847 9,405 10,029 11,284 Reported net income (1,582) 10,847 9,066 21,712 15,409 Return on equity 10.2% 12.4% 11.5% 14.9% 21.8% Return on capital 6.0% 7.6% 6.9% 8.7% 12.7% 1 Excludes financial services division and non-recurring items. Summary While VW s financial performance in 2015 was substantially affected by incurred provisions in connection with the Company s diesel vehicle emissions controversy. Absent this matter, results of the Automotive business remained largely on track. Revenues increased slightly in 2015 to approximately EUR 184.0 billion. The increase reflects firmer product mix and foreign exchange (FX) tailwinds as the contributing factors were partly offset by slightly lower volumes. Absent special items which, in large part consisted of provisions incurred in connection with VW s vehicle emissions controversy, operating profit of the Automotive division in 2015 amounted to EUR 10.6 billion, which was only nominally lower than in 2014, as slightly lower volumes and higher research and development (R&D) costs were significantly offset by firmer product mix and favourable FX developments. Incorporating incurred provisions of EUR 16.2 billion as well as other special items totalling EUR 0.7 billion, the Automotive division s operating profit was substantially negative in the amount of EUR 6.3 billion. Notwithstanding considerably slowed growth in the regional automotive market, VW continued to achieve solid results in China (accounted for using the equity method). Unit sales last year remained essentially firm at 3.5 million units (compared with the 2014 level of 3.7 million units). Proportionate operating profit was constant year over year (YOY) at EUR 5.2 billion, with dividends paid to VW increasing considerably to EUR 4.5 billion compared with EUR 3.0 billion in 2014. China remains a core market and an important source of future growth for the Company. Outlook While VW s future financial performance remains contingent upon future developments of the vehicle emissions controversy, it has nonetheless projected that consolidated revenues in 2016 may decline by as much as 5% YOY, with the consolidated operating margin likely in the range of 5% to 6%. Regarding the financial services division, VW projects that revenues and operating profit in 2016 are likely to be essentially constant relative to 2015. While VW incurred substantial provisions in connection with the diesel vehicle emissions controversy that totalled EUR 16.2 billion in 2015, DBRS estimates that total associated costs may still significantly exceed such amount. Original equipment manufacturers have historically been quite resilient to substantial automotive recalls. While the eventual impact of VW s emissions controversy on its future sales and financial performance remains undetermined, DBRS notes that the Company s market share losses in North America and in Europe have been quite manageable thus far as the namesake VW brand is the most adversely affected and the Company s other brands have been quite resilient to date. As one of the world s largest automotive manufacturers, VW should be well positioned to benefit from the ongoing growth of the global automotive industry over the long term given its scale, diversified brand portfolio (including strong representation in the premium automotive segment) and established presence in many emerging markets.
Rating Report Volkswagen AG DBRS.COM 4 Segmented Data As at December 31 Unit Vehicle Sales 2015 2014 2013 2012 2011 - VW passenger cars 4,424 4,583 4,704 4,850 4,450 - Audi 1,529 1,444 1,349 1,299 1,543 - Skoda 800 796 719 727 690 - SEAT 544 501 459 429 362 - Bentley 11 11 11 9 7 - Porsche 219 187 155 62 - - Commercial vehicles 456 442 436 437 441 - Scania & Man (as of Nov. 2011) 180 200 220 201 105 - VW China 3,456 3,506 3,038 2,609 2,201 - Other Automotive -1,608-1,454-1,364-1,279-1,438 TOTAL 10,010 10,217 9,728 9,345 8,361 Revenue (EUR millions) - VW passenger cars 106,240 99,764 99,397 103,942 94,690 - Audi 58,420 53,787 49,880 48,771 44,096 - Skoda 12,486 11,758 10,324 10,438 10,266 - SEAT 8,572 7,699 6,874 6,485 5,393 - Bentley 1,936 1,746 1,679 1,453 1,119 - Porsche 21,533 17,205 14,326 5,879 - - Commercial vehicles 10,341 9,577 9,370 9,450 8,985 - Scania & Man (as of Nov. 2011) 24,181 24,667 26,221 25,313 12,716 - Other Automotive -56,318-45,885-40,047-36,929-33,768 TOTAL 187,391 180,318 178,024 174,802 143,497 Operating Profit * (EUR millions) - VW passenger cars 2,102 2,476 2,894 3,643 3,796 - Audi 5,134 5,150 5,030 5,365 5,348 - Skoda 915 817 522 712 743 - SEAT -10-127 -152-156 -225 - Bentley 110 170 168 100 8 - Porsche 3,404 2,718 2,579 943 - Commercial vehicles 382 504 448 421 449 - Scania & Man (as of Nov. 2011) 1,304 1,339 1,293 1,743 1,565 - Other Automotive -2,437-2,052-2,725-2,682-1,617 TOTAL 10,904 10,995 10,057 10,090 10,067 Note: Revenues and operating profit exclude VW China data; as this is accounted for using the equity method.
Rating Report Volkswagen AG DBRS.COM 5 Segmented Data (CONTINUED) 2015 volumes of the core VW brand continued to deteriorate YOY, mainly because of falling demand in Brazil, Russia and China. Sales volume of VW China slipped in 2015 despite the moderated yet ongoing growth in that market. Regarding global sales of the VW brand, volumes of certain major models (namely the Golf, Jetta/Sagitar, Passat, Tiguan and Lavida) declined with the exception of the Polo, which remained on a par with the previous-year level. Revenues of the VW brand increased in 2015 mainly because of positive FX effects. VW brand s operating profit decreased YOY with negative factors, including headwinds in Brazil and Russia as well as additional promotion expenses associated with the emissions issue. Sales volume and revenue of Audi grew YOY, although operating profit remained flat as a result of high upfront technology and product development costs. Porsche enjoyed another year of strong growth in sales and revenues, which increased to a record level of EUR 22 billion in 2015 (up 25.2% from the previous year). Moreover, the brand s operating margin remained very solid at 15.8%. Skoda s performance was solid in 2015 as operating profit improved further with the segment s generation of a solid margin of 7.3%. The operating result of SEAT, albeit still negative (mainly because of high development costs), improved significantly in 2015, in line with the higher sales and favorable FX effects. Bentley s 2015 operating profit dropped notably YOY, in line with weak sales and high upfront development costs. UNIT SALES / REVENUES BY MARKET As at December 31 Unit Vehicle Sales 2015 2014 2013 2012 2011 Europe/Remaining Markets 4,524 4,430 4,209 4,179 4,066 North America 941 879 901 896 678 South America 540 794 987 1,075 943 Asia Pacific 4,005 4,114 3,632 3,194 2,674 TOTAL 10,010 10,217 9,728 9,345 8,361 Revenue (EUR millions) Europe/Remaining Markets 132,535 122,858 117,062 115,384 103,890 North America 35,384 27,619 27,434 25,046 17,553 South America 10,148 13,868 17,495 18,311 14,910 Asia Pacific 35,225 38,113 35,016 33,936 22,983 TOTAL 213,292 202,458 197,007 192,676 159,337 Note: Revenues by market include financial services division revenues. Revenues and operating profit exclude VW China data; as this is accounted for using the equity method. With respect to geographic performance, Company sales showed improvements in North America and European/Remaining Markets while a decline was observed in South America as well as in Asia Pacific. The global market share of the Company contracted to 12.3% 2015 from 12.9% in 2014. After many years of consistent sales growth in Asia Pacific, VW experienced a drop in sales in the region last year. Volumes in China were weaker YOY, in line with the economic headwinds, exacerbated by the increasingly competitive landscape of the country s automotive market. Sales growth in Western Europe continued as the market continued to recover in 2015. The drastic decline in market conditions in Russia and Ukraine (a product of political and economic headwinds) was more than offset by the strong growth in other markets in the region (Spain, Czech Republic, Poland and Turkey). As a whole, Europe continues to readily represent VW s largest source of revenue. The Company had favourable results in North America, mostly because of the positive overall performance of the market. In the United States, sales of the mainstream VW brand continued to drop, although improvements in the crossover utility vehicle segment were shown. Porsche and Audi achieved solid growth YOY, strengthening VW s position in the U.S. premium car market. Like most of its automotive peers, VW sales in the South American market were significantly affected by the economic recession and restrictive trade policies, dropping a further 32% from the previous-year level.
Rating Report Volkswagen AG DBRS.COM 6 Financial Profile For the year ended December 31 2015 2014 2013 2012 2011 EBITDA 24,111 23,101 20,593 19,895 17,816 Earnings after taxes 1 9,117 9,340 7,840 19,386 14,740 Depreciation 13,516 12,320 10,786 9,982 7,843 Other items (derivatives, other gains/losses) 1,285 (1,494) 62 (13,590) (7,201) Cash flow from operations 23,918 20,166 18,688 15,778 15,382 Less: capital expenditure 17,759 16,096 15,061 12,886 9,595 Less: dividends 2,516 1,962 1,849 1,673 1,266 Free cash flow pre-working capital 3,643 2,108 1,778 1,219 4,521 Changes in working capital (1,066) 2,100 226 531 (1,840) Free cash flow 2,577 4,208 2,004 1,750 2,681 Net debt (cash) position (16,517) (13,408) (10,317) (5,840) (12,036) % net debt in capital structure -23.7% -17.9% -13.5% -8.2% -26.5% % debt in capital structure 11.7% 12.2% 16.2% 16.5% 11.8% Gross interest coverage EBITDA 15.0 16.1 13.8 14.4 15.8 Cash flow/total debt 2.1 1.6 1.1 1.0 2.0 Note: 2015 figures adjusted to exclude effects of the (diesel) vehicle emissions controversy. 1 As per VW segmented financial reports. Summary Absent effects of VW s vehicle emissions controversy, cash flow from operations in 2015 was moderately higher YOY, in line with essentially constant earnings bolstered by firmer depreciation levels and other non-cash items. (Note: the substantial non-cash items in 2012 concern the non-cash gain associated with the revaluation of the Company s already-held shares in Porsche upon the latter s full acquisition.) Capital expenditures (capex; including capitalized R&D costs) were moderately higher YOY in support of new production facilities as well as recent/planned product launches that include the VW Tiguan, Passat and Touran models; the Audi A4, Q7, Q5 and A8 series; the Porsche Panamera; and the Bentley Bentayga. Additional investments also reflected VW s increasing ecological focus across its product range and the ongoing development of modular toolkits and electric powertrains. Dividend payments increased in 2015 as the Company declared higher dividends in response to ongoing solid earnings generated in the prior year. Working capital represented a use of cash in the amount of EUR 1.1 billion. As a function of the above, adjusted net free cash flow for 2015 was at a level of EUR 2.6 billion. Outlook For 2016 and over the near to medium term, cash flow from operations is subject to considerable uncertainty pending the earnings impact of the Company s diesel emissions controversy. Similarly, future capex and dividend levels will be subject to VW s cash requirements in connection with the vehicle emissions controversy. The Company has recently indicated that future investment spending will be reduced by approximately EUR 1.0 billion per annum going forward; DBRS notes that additional reductions could be implemented pending developments of the controversy. VW is expected to provide further guidance in this area when the Company announces its Strategy 2025 long-term plan later this year.
Rating Report Volkswagen AG DBRS.COM 7 Debt and Liquidity While likely facing significant outlays over the near to medium term in connection with the Company s diesel emissions controversy, VW s current liquidity position is substantial. As of December 31, 2015, the Company s Automotive operations had a gross liquidity position of EUR 27.7 billion, which included EUR 15.7 billion in cash and EUR 12.3 billion in marketable securities. Liquidity of the Automotive division was meaningfully bolstered by the hybrid note issuances of EUR 2.5 billion in March 2015 as well as by VW s divestiture of the 19.9% ownership stake in Suzuki Motor Corporation, which generated proceeds of EUR 3.1 billion. The Company has a EUR 5.0 billion syndicated credit facility that matures in April 2020; as of June 30, 2015, this facility remained unused. Additionally, in December 2015, VW was granted an additional syndicated credit line of EUR 20.0 billion with a maturity of one year. The Company s consolidated debt maturity schedule (industrial maturity schedule not available) as at December 31, 2015, is outlined in the table below in percentage terms. < 1 year 1-5 years >5 years 47.3% 44.3% 8.4% The debt breakdown of the above is as follows: Bonds 62,438 Comm. paper & notes 23,840 Loans 20,801 Direct Banking Deposits 25,333 Other 1,568 Industrial debt is a relatively small component of total consolidated debt (i.e., less than 10%).
Rating Report Volkswagen AG DBRS.COM 8 Financial Services Division Financial Services For the year ended December 31 (EUR millions) 2014 2013 2012 2011 2010 Revenue 29,357 24,920 22,004 19,854 17,244 Operating profit 2,236 1,917 1,863 1,585 1,298 Debt: equity 6.7 7.1 7.8 7.9 8.2 Receivable portfolio 111,518 104,450 91,586 87,402 77,489 Penetration 31.3% 1 30.6% 1 28.9% 1 27.5% 1 36.3% Note: Penetration levels only refer to Volkswagen Financial Services AG. 1 Lower figure reflects inclusion of China, which in prior periods was excluded. Results of the Financial Services business in 2015 increased considerably YOY as the segment was a significant contributor to consolidated earnings, thereby partly offsetting the recent substantial volatility of the industrial operations in connection with the diesel vehicle emissions controversy. Operating profit was meaningfully improved by higher volumes and positive FX effects, which more than offset narrowing interest-rate spreads and increased selling, general and administrative expenses (primarily attributable to augmenting regulatory burdens). As of December 31, 2015, the total number of contracts increased to 13.2 million, which represented a new record level. Leverage as of December 31, 2015, remained lower than recent historical levels and somewhat conservative relative to industry averages. As of YE2015, the global penetration rate of Volkswagen Financial Services AG totalled 31.3%, with penetration varying widely across regions. As of 2012, the reported penetration rates include data from China, where penetration levels remain low; this accounts for the sudden decline between reported 2012 levels and 2011 levels. This segment is continuously looking to increase its penetration rate through further product offerings, such as extended warranty programs and short- and long-term vehicle rentals as well as car sharing (i.e., very short-term vehicle rentals). Integrated products are also being launched (i.e., combination of finance, insurance and service contracts). This segment is also continuing its geographic expansion and is currently present in 51 countries. The segment s earnings for 2016 are currently anticipated to be at roughly equivalent levels to prior year results. This notwithstanding, VW s diesel emissions controversy could potentially result in a marked increase in credit and residual value losses in particular which, if sufficiently substantial, could result in the need for the Automotive operations to inject additional capital to the Financial Services segment. With access to the capital markets recently compromised because of VW s diesel vehicle emissions controversy, direct bank deposits and asset-backed securitization transactions have been afforded more prominence. Intercompany loans may also be tapped. Moreover, VW s Financial Services companies have access to the EUR 5.0 billion syndicated credit facility.
Rating Report Volkswagen AG DBRS.COM 9 Balance Sheet Volkswagen AG 1 (Financial Services business on equity basis) (EUR millions) As at December 31 As at December 31 Assets 2015 2014 2013 Liabilities & Equity 2015 2014 2013 Cash & deposits 27,949 25,696 27,125 Accounts payable 18,709 17,838 16,582 Accounts receivable 14,701 15,213 15,614 Short-term debt (3,974) (847) (3,981) Inventories 31,369 28,269 25,580 Other current liabs. 51,162 41,168 36,883 Total Current Assets 74,019 69,178 68,320 Total Current Liabs. 65,897 58,159 49,485 Net fixed assets 47,768 44,080 40,632 Long-term debt 11,432 12,288 16,808 Intangibles 60,918 59,697 59,007 Pension provision 27,119 29,361 21,481 Fin. Services equity 20,905 17,374 14,053 Other liabilities 36,892 26,434 27,896 Other assets 24,126 24,454 22,799 Minority interest 210 198 2,304 Shareholders' equity 86,185 88,346 86,838 Total Assets 227,737 214,784 204,812 Total Liabilities 227,734 214,785 204,812 Balance Sheet Ratios For the year ended December 31 2015 2014 2013 2012 2011 Current ratio 1.12 1.19 1.38 1.40 1.34 Inventory turnover (days) 72 67 65 66 65 Receivable turnover (days) 30 32 31 31 32 Accounts payable/inventory 0.60 0.63 0.65 0.61 0.60 Total debt-to-capital 11.7% 12.2% 16.2% 16.5% 11.8% Net debt-to-capital -23.7% -17.9% -13.5% -8.2% -26.5% EBITDA coverage 15.02 16.10 13.78 14.42 15.78 EBIT coverage 6.60 7.51 6.56 7.18 8.83 Cash flow/total debt 2.50 1.64 1.11 1.03 2.01 Cash flow/capital expenditure 1.35 1.25 1.24 1.22 1.60 Income Statement (EUR millions) Sales automotive 183,936 177,538 175,003 172,822 142,092 Cost of sales 137,037 133,991 133,695 132,177 110,010 Depreciation 13,516 12,320 10,786 9,982 7,843 Other expenses 22,788 20,446 20,715 20,750 14,266 Operating profit automotive 1 10,595 10,781 9,807 9,913 9,973 Net interest income (expense) (627) (686) (708) (536) (244) Other income (expense) (993) (1,205) (1,577) (1,114) (929) Financial Services division income 2,236 1,917 1,863 1,585 1,298 Income before taxes 11,211 10,806 9,385 9,848 10,098 Income taxes 6,481 3,725 3,490 2,819 597 Income before non-controlling interest 4,730 7,081 5,895 7,029 9,501 Net income before non-recurring items 8,896 10,847 9,405 10,029 11,284 Net income (1,582) 10,847 9,066 21,712 15,409 1 Excludes non-recurring items.
Rating Report Volkswagen AG DBRS.COM 10 For the year ended December 31 Cash Flow - automotive division 2014 2013 2012 2011 2010 Earnings after tax 9,117 9,340 7,840 19,386 14,740 Depreciation 13,516 12,320 10,786 9,982 7,843 Other items 1,285 (1,494) 62 (13,590) (7,201) Cash flow from operations 23,918 20,166 18,688 15,778 15,382 Less: capital expenditures 17,759 16,096 15,061 12,886 9,595 Less: dividend 2,516 1,962 1,849 1,673 1,266 Free cash flow before working capital 3,643 2,108 1,778 1,219 4,521 Changes in working capital (1,066) 2,100 226 531 (1,840) Free cash flow 2,577 4,208 2,004 1,750 2,681 Profitability Ratios EBITDA margin 1, 2 13.1% 13.0% 11.8% 11.5% 12.5% Operating margin 1, 2 5.8% 6.1% 5.6% 5.7% 7.0% Net margin 1 4.8% 6.1% 5.4% 5.8% 7.9% Return on equity 1 10.2% 12.4% 11.5% 14.9% 21.8% Return on capital 1 6.0% 7.6% 6.9% 8.7% 12.7% 1 Excludes non-recurring items. 2 Financial services net income excluded. Note: Certain figures subject to DBRS ajustments.
Rating Report Volkswagen AG DBRS.COM 11 Application of Multiple Methodologies The applicable methodologies used were Rating Companies in the Automotive Manufacturing Industry (October 2015) and Global Methodology for Rating Finance Companies (October 2015). DBRS used Rating Companies in the Automotive Manufacturing Industry as the primary rating methodology since VW is engaged in automotive production. The application of Global Methodology for Rating Finance Companies was to determine the rating for its subsidiaries, Volkswagen Canada Inc. and VW Credit Canada Inc., the latter of which is a captive finance subsidiary of the Company that supports the sale of VW vehicles. Rating History Issuer Debt Current 2015 2014 2013 2012 2011 Volkswagen AG Issuer Rating BBB (high) A (low) A A A A Volkswagen Canada Inc. Senior Unsecured Debt BBB (high) A (low) A A A A Volkswagen Canada Inc Commercial Paper R-2 (high) R-1 (low) R-1 (low) R-1 (low) R-1 (low) R-1 (low) VW Credit Canada Inc. Senior Unsecured Debt BBB (high) A (low) A A A A VW Credit Canada Inc. Commercial Paper R-2 (high) R-1 (low) R-1 (low) R-1 (low) R-1 (low) R-1 (low) Previous Action DBRS Downgrades Volkswagen to A (low) from A, Ratings Remain Under Review with Negative Implications, November 16, 2015. Commercial Paper Limited CAD 1.0 billion. Previous Report Volkswagen AG, Rating Report, October 27, 2015 Notes: All figures are in euros unless otherwise noted. For the definition of Issuer Rating, please refer to Rating Definitions under Rating Policy on www.dbrs.com. Generally, Issuer Ratings apply to all senior unsecured obligations of an applicable issuer, except when an issuer has a significant or unique level of secured debt. 2016, DBRS Limited, DBRS, Inc. and DBRS Ratings Limited (collectively, DBRS). All rights reserved. The information upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, reports and any other information provided by DBRS are provided as is and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.