Ar VW FS Ag 2017

VOLKSWAGEN FINANCIAL SERVICES AG
ANNUAL REPORT
2017
Key Figures
In € million (as of December 31) 2017 20161
Total assets 68,953 130,248

Loans to and receivables from customers attributable to
Retail financing 16,269 41,726
Dealer financing 3,584 14,638
Leasing business 18,809 34,344
Lease assets 11,571 14,696
Equity 7,624 16,951
Operating profit2 609 609
Profit before tax2 643 615
In % (as of December 31) 2017 2016
Cost/income ratio3 73 89
Equity ratio4 11.1 13.0
Return on equity5 8.4 8.1
Number (as of December 31) 2017 2016
Employees 8,555 11,819

Germany 5,198 6,145
International 3,357 5,674
1 Previous year restated as explained in the disclosures on the leasing business in the United Kingdom and Irish markets and in the disclosures on the separately recognized derivatives
in the United Kingdom market in the section entitled “Restated Prior-Year Figures” in the notes.
2 Previous year restated as explained in the disclosures relating to the discontinued operations in the section entitled “Restated Prior-Year Figures” in the notes.
3 General and administrative expenses, adjusted for expenses passed on to other entities in the Volkswagen Group / net income from lending, leasing and insurance transactions (after
provision for credit risks) and net fee and commission income.
4 Equity / total assets.
5 Profit before tax / average equity. Due to the reorganization of the legal entities, return on equity for 2017 and 2016 is determined using only the equity as of December 31, 2017.
RATING (AS OF DECEMBER 31) STANDARD & POOR’S MOODY’S INVESTORS SERVICE
Commercial Paper Senior Unsecured Outlook Commercial Paper Senior Unsecured Outlook
Volkswagen Financial Services AG A-2 BBB+ Stable P-2 A3 Negative
All figures shown in the report are rounded, so minor discrepancies may arise from addition of these amounts. The figures from the previous fiscal year are shown in parentheses directly
after the figures for the current reporting period.
COMBINED MANA GEMENT REPOR T CONSOLIDAT ED FI NANCIAL STA TEM ENTS ADDITIO NAL INFO RMATION
03 Fundamental Information about 39 Income Statement 138 Independent Auditor’s Report
the Group 40 Statement of Comprehensive Income 144 Report of the Supervisory Board
06 Report on Economic Position 41 Balance Sheet
16 Volkswagen Financial Services AG 43 Statement of Changes in Equity
(Condensed, in accordance with the 44 Cash Flow Statement
HGB) 45 Notes
19 Report on Opportunities and Risks 137 Responsibility Statement
28 Human Resources Report
32 Report on Expected Developments
COMBINED MANA GEMENT REPOR T
03 Fundamental Information about
the Group
06 Report on Economic Position
16 Volkswagen Financial Services AG
(Condensed, in accordance with the
HGB)
19 Report on Opportunities and Risks
28 Human Resources Report
32 Report on Expected Developments
Combined Management Report Fundamental Information about the Group 3
Fundamental Information
about the Group
Steady international growth confirms the business model of Volkswagen Financial
Services AG.
BUSINESS MODEL was transferred by way of spin-off to Volkswagen AG and

Over the years, the companies in the Volkswagen Financial became a direct subsidiary thereof. The aim of the restructur-
Services AG Group have evolved increasingly dynamically ing was to segregate the European lending and deposits busi-
into providers of comprehensive mobility services. The key ness from the other financial services activities and to pool
objectives of Volkswagen Financial Services AG include: this business under Volkswagen Bank GmbH, structured as a
direct subsidiary of Volkswagen AG. The intention of the
> to promote Group product sales for the benefit of the restructuring is to increase transparency and clarity for su-
Volkswagen Group brands and the partners appointed to pervisory authorities, optimize the use of equity and reduce
distribute these products; complexity. A new company, Volkswagen Financial Services
> to strengthen customer loyalty to Volkswagen Financial Digital Solutions GmbH, develops and provides system-based
Services AG and the Volkswagen Group brands along the services for its parent companies Volkswagen Bank GmbH
automotive value chain (among other things, by targeted and Volkswagen Financial Services AG. The other activities
use of digital products and mobility solutions); remain in Volkswagen Financial Services AG, which is still a
> to create synergies for the Group by pooling Group and direct subsidiary of Volkswagen AG.
brand requirements in relation to finance and mobility The next few years will see further changes in the interna-
services; tional subsidiaries within the European Economic Area as
> to generate and sustain a high level of return on equity for part of the progress toward the target structure.
the Group.
INTERNAL MANAGEMENT
ORGANIZATION OF THE VOLKSWAGEN FINANCIAL SERVICES AG The Company’s key performance indicators are determined
GROUP on the basis of IFRSs and are presented as part of the internal
The companies of the Volkswagen Financial Services reporting system. The most important non-financial perfor-
AG Group provide financial services to private, corporate mance indicators are penetration, current contracts and new
customers and fleet customers. The close integration of mar- contracts. The financial key performance indicators are the
keting, sales and customer service focused on customers’ volume of business, operating profit, return on equity and
needs goes a long way towards keeping the processes lean the cost/income ratio. As a result of the above-mentioned
and implementing the sales strategy efficient. reorganization of the legal entities, the volume of deposits is
In 2016, Volkswagen Financial Services AG initiated a re- no longer defined as a key performance indicator at
organization of its legal entities. A key milestone in the pro- Volkswagen Financial Services AG.
ject was reached on September 1, 2017 when Volkswagen
Financial Services AG’s subsidiary Volkswagen Bank GmbH
Volkswagen Financial Services AG | Annual Report 2017

4 Fundamental Information about the Group Combined Management Report
KEY PERFORMANCE INDICATORS
Definition
Nonfinancial performance indicators

Ratio of new contracts for new Group vehicles under retail financing and leasing business to deliveries of Group
Penetration vehicles, based on Volkswagen Financial Services AG’s consolidated entities.
Current contracts Contracts recognized as of the reporting date
New contracts Contracts recognized for the first time in the reporting period
Financial performance indicators

Loans to and receivables from customers arising from retail financing, dealer financing, leasing business and
Volume of business lease assets.
Net income from lending, leasing and insurance transactions after provision for credit risks, plus net fee and
commission income, less general and administrative expenses, plus other operating income and less other
operating expenses. As in the segment reporting, some amounts under net interest income, net other
Operating profit operating income/expenses and general and administrative expenses are eliminated.
Return on equity1 Return on equity before tax, which is calculated by dividing profit before tax by average equity.
General and administrative expenses, adjusted for expenses passed on to other entities in the
Volkswagen Group / net income from lending, leasing and insurance transactions (after provision for credit
Cost/income ratio risks) and net fee and commission income.
1 Due to the reorganization of the legal entities, return on equity for 2017 and 2016 is determined using only the equity as of December 31, 2017.
CHANGES IN EQUITY INVESTMENTS defined in the demerger and acquisition agreement, transfer-
The transfers referred to below formed part of the implemen- ring this business to Volkswagen Financial Services Digital
tation of the reorganization of the legal entities described in Solutions GmbH, Braunschweig, Germany.
more detail in the section entitled “Organization of the On the same day, Volkswagen Financial Services AG
Volkswagen Financial Services AG Group”. transferred 51% of the shares in Volkswagen Financial
Volkswagen Pon Financial Services B.V., Amersfoort, Services Digital Solutions GmbH to Volkswagen Bank GmbH.
Netherlands, spun-off all the shares in DFM N.V., Amersfoort,
Netherlands to Volkswagen Pon Financial Services 2 B.V. Volkswagen Financial Services AG transferred the following
Amersfoort, Netherlands, effective June 1, 2017. companies, including their subsidiaries, to Volkswagen
Volkswagen Pon Financial Services 2 B.V. was established on Bank GmbH on September 1, 2017 by way of a side-step spin-
June 1, 2017 as part of the spin-off, with 60% of the company off under German law (Seitwärtsabspaltung):
held by Volkswagen Financial Services AG and 40% by
Pon Holdings B.V., Almere, Netherlands. On July 1, 2017, > Volkswagen Financial Services (UK) Ltd., Milton Keynes,
Volkswagen Financial Services AG transferred 60% of the United Kingdom,
shares in Volkswagen Pon Financial Services 2 B.V. to > ŠkoFIN s.r.o., Prague, Czech Republic, and
Volkswagen Bank GmbH. Volkswagen Pon Financial Services > Volkswagen Finans Sverige AB, Södertälje, Sweden.
2 B.V. was merged into DFM N.V., effective August 1, 2017. Of
the total shares in DFM N.V., 60% are held by In addition, the following further material changes in equity
Volkswagen Bank GmbH, Braunschweig, Germany, and 40% investments have occured:
by Pon Holdings B.V. Effective January 1, 2017, Volkswagen Financial Services AG
On July 1, 2017, Volkswagen Financial Services AG trans- acquired approximately 51% of the shares in LogPay Transport
ferred 58% of the shares in Volkswagen Finančné služby Services GmbH, Eschborn, Germany, a subsidiary of the DVB
Slovensko, s.r.o., Bratislava, Slovakia, to Volkswagen Bank Group. The deal was completed on June 21, 2017 follow-
Bank GmbH. ing approval by the relevant antitrust authorities. This majori-
Effective September 1, 2017, Volkswagen Financial ty shareholding will enable Volkswagen Financial Services AG
Services AG transferred by way of spin-off all the shares in to integrate the Europe-wide processing of truck and passenger
Volkswagen Bank GmbH to Volkswagen AG. car tolls into its service offering for commercial customers and
Also effective September 1, 2017, Volkswagen Financial to further develop its fuel card portfolio. The aim is to become
Services AG spun off its digital solutions activities, which are one of the largest fuel suppliers in Europe by 2020.

Combined Management Report Fundamental Information about the Group 5
On April 12, 2017, Volkswagen Financial Services AG estab- During the reporting period, Volkswagen Financial Services
lished Mobility Trader GmbH, Berlin, Germany, by acquiring AG implemented the following material capital increases to
a shelf company. Mobility Trader GmbH is a business start- strengthen the respective capital bases:
up focusing on the development and operating of an online
platform known as HeyCar. The platform is intended to serve > OOO Volkswagen Group Finanz, Moscow, Russia,
as an intermediary for transactions in high-value used vehi- by around €28 million;
cles for all automotive brands and furthermore to leverage > Volkswagen New Mobility Services Investment Co., Ltd.,
potential income from add-on business, such as financial Beijing, China, by around €19 million;
services products. > Volkswagen Finance Luxemburg II S.A., Strassen, Luxem-
Effective April 27, 2017, Volkswagen Financial Services AG bourg, by around €18 million;
increased its majority holding in the mobility service provid- > Mobility Trader GmbH, Berlin, Germany, by around
er sunhill technologies GmbH, Bubenreuth, Germany, to €16 million;
approximately 95%. > MAN Location & Services S.A.S., Evry, France,
With effect from July 1, 2017, Volkswagen Financial by around €8 million;
Services AG reduced its equity investment in Shuttel B.V., > Volkswagen Møller Bilfinans A/S, Oslo, Norway, by around
Leusden, Netherlands, from 60% to 49% as part of a reorgani- €8 million;
zation of the ownership structure. Shuttel B.V. offers card- > Volkswagen Financial Services South Africa (Pty) Ltd.,
based mobility management and invoicing services for a Sandton, South Africa, by around €6 million.
wide variety of mobility offerings in the Netherlands.
Fleetzil Locações e Serviços Ltda., Curitiba, Brazil, started These measures serve to expand our business and support
its operating activities on July 3, 2017. Fleetzil Locações e the growth strategy we are pursuing together with the brands
Serviços Ltda. offers the local “Locação” product to further of the Volkswagen Group.
expand the activities in the fleet business in Brazil. There were no other significant changes with respect to
Effective August 30, 2017, Volkswagen Finance Luxem- equity investments. Detailed disclosures can be found in the
burg II S.A., Strassen, Luxembourg, a wholly owned subsidi- list of all shareholdings in accordance with section 313(2) of
ary of Volkswagen Financial Services AG, acquired all the the HGB and in accordance with IFRS 12.10 and IFRS 12.21,
shares in ContoWorks GmbH, Munich, Germany. The pur- which can be accessed at www.vwfsag.com/listofholdings2017.
pose of the acquisition is to support the expansion of inno-
vative payment solutions for digital business models in the SEPARATE NONFINANCIAL REPORT FOR THE GROUP
Volkswagen Group. The Volkswagen Financial Services AG has made use of the
On November 9, 2017, Volkswagen-Versicherungsdienst option under section 289b(2) HGB and section 315b(2) HGB
GmbH, Braunschweig, Germany, signed an agreement to sell exempting it from submission of a nonfinancial statement
85% of the shares in Volkswagen-Versicherungsdienst GmbH, and nonfinancial group statement and refers to the com-
Vienna, Austria, to Porsche Bank AG, Salzburg, Austria. The bined separate nonfinancial report of Volkswagen AG for
transaction is scheduled to be closed on March 1, 2018. fiscal year 2017, which will be available on the website
www.volkswagenag.com/presence/
nachhaltigkeit/documents/sustainability-report/2017/
Nichtfinanzieller_Bericht_2017_d.pdf in German and at
www.volkswagenag.com/presence/nachhaltigkeit/
documents/sustainability-report/2017/
Nonfinancial_Report_2017_e.pdf in English by no later than
April 30, 2018.

6 Report on Economic Position Combined Management Report
Report on Economic Position

In fiscal year 2017, the global economy saw stronger growth than in the previous year.
In contrast, the expansion in worldwide demand for vehicles was not as great as in 2016.
Profit before tax at Volkswagen Financial Services AG was up slightly compared to the
previous year.
OVERALL ASSESSMENT OF THE COURSE OF BUSINESS AND THE Risks remained at a constant level during the reporting year.
GROUP’S POSITION In fiscal year 2017, further growth was achieved in the vol-
As a result of the reorganization of the legal entities on Sep- ume of loans and receivables on the back of the established
tember 1, 2017, the profit or loss components for the derec- sales promotion program with the brands and continuous
ognized companies for the period January 1 to August 31, expansion of the fleet business. This development was aided
2017, together with the corresponding prior-year figures, had by continuing stabilization in the economic environment
to be reclassified to profit/loss from discontinued operations and the sustained recovery in European markets. In total, the
in the IFRS income statement. The presentation of the in- credit risk in the overall portfolio of Volkswagen Financial
come statement has thus been adjusted accordingly. In terms Services AG remained stable.
of the balance sheet, the reorganization is directly visible as In Europe, the share of the market accounted for by diesel
of the reporting date. A restatement of prior-year figures was vehicles is diminishing. Trends in residual value risk are
not required under IFRS in this case. Effects can be seen main- being closely monitored on a continuous basis. There is gen-
ly in balance sheet items related to the core business and eral uncertainty in the automotive sector about trends in the
funding, and these effects are described briefly under net residual values of diesel vehicles. There are various reasons
assets and financial position. for this, including the debate about the use of diesel vehicles
The Board of Management of Volkswagen Financial being potentially prohibited in major European cities in the
Services AG still considers the course of business in 2017 to future and changes in customer needs, which could affect
have been positive. Profit before tax was up slightly on the residual value risk in the relevant portfolio at Volkswagen
previous year. New business worldwide recorded positive Financial Services AG.
growth over the reporting period. Funding costs were on a Currently however, we are not seeing any significant fall
par with the previous year amid higher business volume in in the residual values of diesel vehicles.
the remaining companies. The provision for credit risks was Despite some volatility, liquidity risk at the level of the
lower in the reporting period than in the previous year; the Group was stable overall. Funding risk always remained
margins remained stable. within the specified limits.
The share of financed and leased vehicles among world- Events after the balance sheet date are reported in the
wide Group deliveries to customers (penetration) stood at notes to the consolidated financial statements of Volkswagen
19.6 (19.1)% at the end of 2017. Financial Services AG in note 71 (page 136).

Combined Management Report Report on Economic Position 7
CHANGES IN KEY PERFORMANCE INDICATORS FOR FISCAL YEAR 2017 COMPARED WITH PRIOR-YEAR FORECASTS1
Actual 2016 Forecast for 2017 Actual 2017

Penetration (percent) 19.1 > 19.1 Slight increase 19.6
Current contracts (thousands) 8,000 > 8,000 Slight increase 8,524
New contracts (thousands) 3,426 > 3,426 Slight increase 3,487

Volume of business (€ million) 46,834 > 46,834 Slight increase 50,233
Operating profit (€ million) 609 = 511 At 2015 level 609
Return on equity (percent) 8.1 < 8.1 Slightly lower 8.4
Slightly below/at prior-
Cost/income ratio (percent) 89 < 89 year level 73
1 Due to the reorganization of the legal entities, the 2016 figures have been restated to ensure that the figures are comparable. For further disclosures, please refer to the sections entitled
“Results of Operations” and “Net Assets and Financial Position”. The prior-year forecast was based on the following figures: penetration 30.0%, current contracts 13.244 thousand, new
contracts 5.603 thousand, volume of business €105.303 million, operating profit€ 1.630 million (previous year: €1.641 million, because receivables from customers in the United Kingdom
and Irish markets are now reported as receivables from leasing transactions), return on equity 10.4% and cost/income ratio 64%.
DEVELOPMENTS IN THE GLOBAL ECONOMY Germany

Global gross domestic product (GDP) rose by 3.2 (2.5)% in The German economy continued to profit from optimistic
2017. Economic momentum accelerated in both advanced consumer sentiment and a good labor market, which led to a
economies and emerging markets year-on-year. Consumer sharper year-on-year increase in GDP to 2.5 (1.9)% in 2017.
prices increased at a slower pace worldwide than in the pre-
vious year, with persistently low interest rates and rising North America
energy and commodity prices. Economic growth in the USA was faster than in the previous
year, at 2.2 (1.5)%. The economy was supported mainly by
Europe/Other Markets private consumption and the expansionary monetary policy.
GDP growth in Western Europe edged up slightly during the Private gross investments also developed positively. The
year to 2.3 (1.8)%, with the majority of the countries in this average unemployment rate was 4.4 (4.9)%. The US dollar was
region seeing higher growth rates. The start of the Brexit somewhat weaker than in the previous year. At 3.0 (1.4)%,
negotiations between the United Kingdom and the European GDP growth in Canada accelerated significantly. The growth
Union generated uncertainty, as did the question of what rate of Mexico’s economic output fell somewhat to 2.2 (2.7)%.
form this relationship would take in the future. The unem-
ployment rate in the eurozone continued to decrease, falling South America
to an average of 9.6 (10.6)%, though rates remained consider- In the reporting period, Brazil left behind the economic
ably higher in Greece and Spain. downswing, with economic output increasing by 1.0 (–3.5)%.
The Central and Eastern Europe region recorded a rela- The situation in South America’s largest economy neverthe-
tively strong increase in GDP in the reporting period with an less remained tense, due to political uncertainty, among
increase of 3.8 (1.8)%. In Central Europe the general uptrend other things. Argentina’s GDP rose by 2.8 (–2.2)% in spite of
gained traction, and in Eastern Europe the economy also structural deficits and persistently high inflation.
grew at a considerably stronger pace than in the previous
year. Higher energy prices led to a stabilization of the eco- Asia-Pacific
nomic situation in the countries from this region that export The Chinese economy expanded at the previous year’s high
raw materials. A growth rate of 1.6 (–0.4)% marked the end of level with a growth rate of 6.9 (6.7)%. The Indian economy
the recessionary period in Russia. continued its positive trend but, with a gain of 6.5 (7.1)%,
South Africa’s GDP rose by just 0.9 (0.3)%, only slightly grew somewhat less strongly than in the previous year.
higher than the low figure for the previous year. Ongoing Meanwhile, initiated reform measures had a dampening
structural deficits, social unrest and political challenges effect here. Japan registered solid GDP growth of 1.8 (0.9)%.
weighed on the economy.

TRENDS IN THE MARKET FOR FINANCIAL SERVICES is still considerable potential to acquire new customers for
Demand for automotive financial services was high once automotive-related financial services, particularly in the
again in 2017, due above all to the expansion of the overall interior of the country. Demand for automotive financial
market for passenger cars and low key interest rates in the services in Japan and Republic of Korea was stable on the
main currency areas. Particularly insurance and service whole. In Australia, the central bank’s continued policy of low
products such as maintenance and servicing agreements interest rates stimulated demand for automotive-related
were especially popular, as customers in more advanced financial services and service contracts.
automotive financial services markets are putting greater In the commercial vehicles segment, the European mar-
focus on optimizing overall running costs. In the fleet seg- ket for financial services again performed positively; demand
ment, some customers consulted automotive financial ser- also rose in China. The tense economic situation in Brazil
vice providers in order to optimize their entire mobility once again put pressure on the truck and bus business and
management beyond mere fleet operation. There was also the related financial services market, though this negative
increased demand from both private and business customers trend weakened somewhat in the second half of the year.
for mobility services centered on vehicle usage rather than
ownership. TRENDS IN THE PASSENGER CAR MARKETS
In Europe, sales of financial services climbed further in In fiscal year 2017, the global market volume of passenger
the reporting period, strengthened by higher vehicle sales cars rose by 2.9% to 83.5 million vehicles, achieving a record
and demand for after-sales products such as servicing, figure for the seventh time in a row. While demand rose in
maintenance and spare parts agreements as well as automo- the Asia-Pacific, South America, Western Europe and Central
tive-related insurance. Demand developed positively in most and Eastern Europe regions, the market volume in North
countries; in the United Kingdom, France, Spain and Italy in America, the Middle East and Africa fell short of the prior-
particular, automotive financial services products continued year figures.
to enjoy rising popularity. The UK’s decision to leave the EU
has not yet had a negative impact on local demand for finan- Sector-specific Environment
cial services. The sector-specific environment was influenced significantly
In Germany, the share of loan-financed or leased vehicles by fiscal policy measures, which contributed substantially to
remained stable at a high level in 2017. Alongside traditional the mixed trends in sales volumes in the markets last year.
products, mobility services and after-sales products were The instruments used were tax cuts or increases, incentive
particularly popular. programs and sales incentives, as well as import duties.
In South Africa, structural deficits and political uncertain- In addition, non-tariff trade barriers to protect the respec-
ty curbed economic growth, which also impacted on the tive domestic automotive industry made the movement of
automotive industry. Demand for automotive financial ser- vehicles, parts and components more difficult.
vices products remained stable.
Sales of automotive financial services in North America Europe/Other Markets
remained at a high level in the fiscal year now ended. In the In Western Europe, new passenger car registrations rose by
USA, the overall market for financial services products once 2.5% to 14.3 million vehicles, the highest level in the past ten
again performed positively. In particular, demand for leasing years. The positive performance was underpinned in particu-
through captive financial service providers was consistently lar by the strong macroeconomic environment, consumer
high. In Mexico, demand for automotive financial services confidence and low interest rates. In Italy (+8.1%) and Spain
products continued at a high level. (+7.7%), the level of demand benefited from demand for
The macroeconomic and political situation in Brazil re- replacement vehicles and particularly from significant
mained tense in 2017 and had a negative impact on the con- growth in sales to commercial customers. The rate of growth
sumer credit business for new vehicles as well as on sales of in the French passenger car market was lower, at 4.8%. In the
the country-specific financial services product Consorcio, a United Kingdom, the volume of demand fell 5.7% short of the
lottery-style savings plan. The negative trend tapered off record level seen in the previous year – due among other
slightly in the second half of the year, however. Argentina’s things to the change in vehicle taxation as of April 1, 2017.
automotive industry was helped in 2017 by price reductions The number of diesel vehicles (passenger cars) in Western
and attractive financing models from manufacturers. The Europe slipped to 44.4 (49.5)% in the reporting year.
above-average demand for vehicles was the basis for a good The passenger car market volume in the Central and East-
year for automotive financial services. ern European region in fiscal year 2017 was up considerably
The performance of markets in the Asia-Pacific region on the prior-year figure, with an increase of 12.6% to
during the reporting period was mixed. In China, the propor- 3.0 million vehicles. New passenger car registrations in the
tion of loan-financed vehicle purchases rose. Despite increas- EU member states of Central Europe increased by 12.5% to
ing restrictions on registrations in metropolitan areas, there 1.3 million units. Passenger car sales in Eastern Europe also

achieved a double-digit growth rate (+12.6%), starting from a light commercial vehicles in Mexico were down on the record
very low level. The main growth driver in the region was the volumes achieved in the prior-year period (–4.6% to
Russian market, which, with an increase of 12.3% to 1.5 million units).
1.5 million vehicles, saw demand increase again for the first
time after four years of decline. South America
At a rate of change of 2.4%, the number of new passenger In South America, demand for passenger cars and light
cars registered in South Africa in the reporting period commercial vehicles rose from the previously low level by a
(370 thousand vehicles) was slightly higher than the compar- significant 12.6% to 4.2 million units in the reporting period.
atively low level seen the previous year. Despite the weak After four years of declining new vehicle registrations,
overall economic environment, incentive programs and growth of 9.4% to 2.2 million vehicles was recorded again for
lower interest rates were the principal causes of this increase. the first time in the Brazilian automotive market. However,
the market volume was still around a quarter lower than the
Germany average for the last ten years. Brazil’s vehicle exports saw a
In fiscal year 2017, demand for passenger cars in Germany marked increase in 2017, climbing 46.5% to 762 thousand
exceeded the prior-year figure by 2.7% at 3.4 million units. units to exceed the all-time high recorded in 2005. Exports
The fact that this was the highest level since 2009 was at- benefited in particular from the dynamic development of the
tributable not only to the buoyant macroeconomic envi- market in Argentina, where demand increased by 26.2% year-
ronment but also to manufacturer discounts in the form of a on-year to 855 thousand passenger cars and light commercial
trade-in bonus for older diesel models as well as to an envi- vehicles. The second-highest number of new registrations in
ronmental bonus for electric-powered vehicles (all-electric the region’s history was primarily driven by price reductions
and plug-in hybrid drives). New registrations for both retail and attractive financing models offered by the manufactur-
customers (+4.4%) and business customers (+1.7%) increased ers.
as a result.
However, domestic production and exports fell short of Asia-Pacific
the comparable prior-year figures in 2017. Passenger car The market volume in the Asia-Pacific region rose by 4.7% in
production declined by 1.7% to 5.6 million vehicles. Passen- the past fiscal year to 37.0 million units. In terms of unit
ger car exports fell by 0.9% to 4.4 million vehicles; this was numbers, this was the highest absolute increase in new vehi-
mainly due to the fact that the volume of exports to North cle registrations worldwide. Once again, the main growth
America was significantly lower because of shifts in produc- driver was the Chinese passenger car market, although the
tion accompanied by a weakening of the North American growth rate was low compared with previous years, with an
market. increase of 4.5% to 23.9 million vehicles. This was mainly
because customers brought forward purchases at the end of
North America 2016 in anticipation of a rise in the tax rate on vehicles of up
At 20.8 million vehicles (–1.4%) in fiscal year 2017, sales of to 1.6 l at the beginning of 2017.
passenger cars and light commercial vehicles (up to The number of passenger cars sold in India grew 9.3%
6.35 tonnes) in the North America region were just under the year-on-year to 3.1 million units, topping the 3 million mark
record level seen in the previous year. In the US market, de- for the first time ever. This was due not only to high consum-
mand diminished compared with the high level in 2016 by er confidence, a wealth of new models and attractive financ-
1.8% to 17.2 million units. A favorable labor market, high ing products, but especially to the goods and services tax
consumer confidence and generous manufacturer incentive introduced on July 1, 2017, which resulted in part in im-
programs were unable to stop the downward tendency. The proved purchasing conditions for the consumer.
trend in demand towards SUV and pickup models (+5.7%) The Japanese passenger car market showed a substantial
continued, accompanied by a simultaneous decline in sales improvement over the low prior-year level with sales of
of traditional passenger cars (–10.9%). 4.4 million vehicles in the reporting period (+6.1%). The main
The Canadian automotive market again recorded growth reasons for the positive trend were the market success of new
(+4.6% to 2.0 million vehicles), exceeding the record figure of models and the continued government support for fuel-
the previous year. By contrast, sales of passenger cars and efficient, low-emission vehicles.

TRENDS IN THE MARKETS FOR COMMERCIAL VEHICLES Global demand for mid-sized and heavy trucks with a gross
Overall demand for light commercial vehicles in fiscal year weight of more than six tonnes in the markets that are rele-
2017 was slightly lower than in the previous year. A total of vant for the Volkswagen Group was higher in fiscal year
9.1 (9.3) million vehicles were registered worldwide. 2017 than in the previous year, with 547 thousand new vehi-
In Western Europe, the number of new vehicle registra- cle registrations (+7.4%).
tions rose by 4.7% during the year to 1.9 million units, driven In Western Europe, the number of new truck registrations
by the region’s continued positive economic performance. remained level with the previous year at a total of
The markets in Italy, France and Spain recorded moderate to 289 thousand vehicles. While the market in Spain remained
high growth rates, while the United Kingdom registered a at the previous year’s level, in Italy it expanded. Demand in
decline. In Germany, the comparative figure for 2016 was the United Kingdom and the Netherlands declined. New
exceeded by 3.6%. registrations in Germany, Western Europe’s largest market,
Central and Eastern European markets recorded percepti- were on a level with the previous year.
ble growth on the whole with 326 (306) thousand vehicle Central and Eastern Europe saw demand rise by 17.7% to
registrations. In Russia alone, 123 (116) thousand light com- 153 thousand units on the back of the positive economic
mercial vehicles were registered. There, market performance performance. This growth was attributable to the Russian
benefited from the ruble’s recovery and the drop in inflation. market; here, registrations moved up 47.7% from a low prior-
Most of the markets in this region succeeded in maintaining year level to 72 thousand vehicles. Reasons for this were the
or exceeding their prior-year results. incipient recovery of the economy, declining inflation rates
In North and South America, the light vehicle market is and demand for replacement vehicles.
reported as part of the passenger car market, which includes South America saw a significant increase in market vol-
both passenger cars and light commercial vehicles. ume compared with the previous year. Here, the number of
Registration volumes of light commercial vehicles in the new vehicle registrations rose by 11.8% to 105 thousand
Asia-Pacific region decreased to 6.0 million units in the re- units. In Brazil, the region’s largest market, demand for
porting period (– 3.1%). In China, the region’s dominant mar- trucks was up 2.9% on the low prior-year figure. This reflected
ket, demand for light commercial vehicles of 3.4 million a recovery of the market once the difficult economic climate
units was down a substantial 8.2% on the prior-year figure. improved. There was a very sharp increase in new vehicle
This decline is mainly due to the shift in demand for micro registrations in Argentina (+78.7%), buoyed by the political
vans towards more cost-effective MPVs and SUVs. As a con- reforms and stimulus from the agricultural sector.
sequence of the sustained economic growth in India, consid- Demand for buses in the markets that are relevant for the
erably more vehicles were registered than in 2016; here, Volkswagen Group was noticeably higher than in the previ-
560 (510) thousand new units were registered. The market ous year. The markets in Central and Eastern Europe as well
volume fell in Japan as a result of the persistently weak eco- as South America contributed in particular to this growth.
nomic trend (–5.0%).
GLOBAL DELIVERIES TO CUSTOMERS OF THE VOLKSWAGEN GROUP1
DELIVERIES OF VEHICLES
2017 2016 Change in percent
Deliveries of passenger cars worldwide2 10,038,650 9,635,486 +4.2

Volkswagen Passenger Cars 6,230,229 5,980,309 +4.2
Audi 1,878,105 1,867,738 +0.6
ŠKODA 1,200,535 1,126,477 +6.6
SEAT 468,431 408,703 +14.6
Bentley 11,089 11,023 +0.6
Lamborghini 3,815 3,457 +10.4
Porsche 246,375 237,778 +3.6
Bugatti 71 1 X
Deliveries of commercial vehicles worldwide 702,805 661,555 +6.2
Volkswagen Commercial Vehicles 497,894 477,974 +4.2
Scania 90,777 81,346 +11.6
MAN 114,134 102,235 +11.6
1 The delivery figures for 2016 have been restated following statistical updates.
2 Including the Chinese joint ventures.

FINANCIAL PERFORMANCE Volkswagen Group. Accordingly, costs of €495 (484) million

As a result of the restructuring of the Volkswagen Financial were passed on to other entities in the Volkswagen Group and
Services AG Group described earlier, the revenue and ex- reported under other net operating income/expenses. At
pense components for the derecognized companies were 73 (89)%, the cost/income ratio was better than in the previ-
reclassified to profit/loss from discontinued operations in ous year. An amount of €136 (102) million was recognized
the income statement for the period under review and for the through profit or loss in net other operating income/expenses
comparative period in accordance with the IFRS require- and added to the provisions for legal risks.
ments. The overall presentation has therefore been adjusted The share of profits and losses of equity-accounted joint
accordingly and all prior-year comparative figures relating to ventures rose slightly year-on-year to €76 (74) million.
financial performance have been restated. Including the net gain of €11 (net loss of 48) million on
In fiscal year 2017, the global economy saw stronger the measurement of derivative financial instruments and
growth than in the previous year. Following the reorganiza- hedged items and the other components of profit and loss as
tion, Volkswagen Financial Services AG reported stable well as the profit/loss from discontinued operations net of
growth overall. tax, the profit after tax generated by the Volkswagen
The operating profit of €609 (609) million was at the pri- Financial Services AG Group amounted to €904 million
or-year level. It benefited from the positive impact of higher (down by 20.8%).
volumes generated in the remaining entities and stable mar- Under the current control and profit-and-loss transfer
gins in the lending and leasing business. A negative factor agreement for Volkswagen Financial Services AG, a loss of
offsetting this benefit was that, unlike in the previous year, €478 million reported by Volkswagen Financial Services AG
the figure in the reporting period did not include any support in its single-entity financial statements prepared in accord-
payments from the Volkswagen Group to compensate for ance with HGB was absorbed by the sole shareholder
higher funding costs. Volkswagen AG.
Profit before tax amounted to €643 (615) million, a slight The German companies continued to account for the
improvement on the prior-year level. highest business volumes with 55.9% of all contracts, form-
Return on equity amounted to 8.4 (8.1)%. ing a strong and solid foundation.
Net income from lending, leasing and insurance transac- Once again in 2017, Volkswagen Leasing GmbH was able
tions before provision for credit risks amounted to to increase the number of leases compared with the previous
€1,979 million, well above the prior-year figure year, despite tough conditions. On this basis, the company
(€1,741 million). This reflected the positive performance in continued to make a significant contribution to the Group’s
all regions. The impairment losses on lease assets of €211 operating profit.
(131) million included here were attributable to normal mar- In the vehicle insurance segment, Volkswagen
ket fluctuations and expectations. Autoversicherung AG continued to stabilize its business and
The provision for credit risks of €491 (560) million was expand its activities in 2017. Volkswagen Auto-
below the prior-year level. Credit risks to which the versicherung AG has now stabilized its existing portfolio at
Volkswagen Financial Services AG Group is exposed as a more than half a million policies (vehicle insurance and
result of various critical situations (economic crises, block on guaranteed asset protection insurance).
sales) in Italy, Russia, Brazil, Mexico, India and the Republic Volkswagen Versicherung AG also continued to expand
of Korea were accounted for in the reporting period by rec- its direct insurance activities and successfully drove forward
ognizing valuation allowances. These valuation allowances the internationalization of its business in fiscal year 2017.
were reduced by €218 million year-on-year to €658 million. The company now operates in 13 international markets,
The change due to restructuring (€–373 million) was offset by complementing the core business in Germany.
additions amounting to €155 million. Volkswagen-Versicherungsdienst GmbH, which operates
Net fee and commission income amounted to as the sales partner in the German market for both Volkswagen
€127 (121) million, a slight improvement on the prior-year Autoversicherung AG and Volkswagen Versicherung AG, has
level. contributed to the successful performance of these companies.
General and administrative expenses were slightly above Overall, the activities of Volkswagen-Versicherungsdienst
the prior-year level at €1,682 (1,640) million. This figure also GmbH help to support the earnings of Volkswagen Financial
includes costs associated with services for other entities in the Services AG on a steady basis.

NET ASSETS AND FINANCIAL POSITION The lending volume in dealer financing – which comprises
Lending Business loans to and receivables from Group dealers in connection
The changes in the amounts recognized in the balance sheet with financing for inventory vehicles, as well as working
are attributable to the reorganization presented above. Since capital and investment loans – amounted to €3.6 billion,
the prior-year figures still contain the derecognized compa- down €11.1 billion on the previous year (of which €–
nies, the reorganization is a significant reason for each of the 11.4 billion attributable to the reorganization, of which
changes. In order to identify the actual business perfor- €+0.3 billion attributable to the remaining companies).
mance, the effect of the reorganization is disclosed separately At €18.8 billion, receivables from leasing transactions
in each case. were lower than in the previous year (declining by
At €61.4 billion in total, loans to and receivables from €15.5 billion, of which €–17.0 billion attributable to the reor-
customers and lease assets – which make up the core busi- ganization, of which €+1.5 billion attributable to the remain-
ness of the Volkswagen Financial Services AG Group – ac- ing companies).
counted for approximately 89% of the Group’s total assets. Lease assets stood at €11.6 billion, a decrease of
The volume of retail financing lending declined by €3.1 billion (of which €–4.4 billion attributable to the reor-
€25.5 billion or 61.0% in the past year to €16.3 billion. The ganization and €+1.3 billion attributable to the remaining
reorganization-driven decrease of €25.7 billion is offset by an companies).
improvement of €0.3 billion in the other markets. The num- A total of 694 thousand new leases were entered into in
ber of new contracts came to 981 thousand and thus exceed- the reporting period. The number of lease vehicles as of De-
ed the adjusted prior-year level. The number of current con- cember 31, 2017 was 1,559 thousand. As in previous years,
tracts stood at 2,169 thousand at the end of the year. the largest contribution to business growth again came from
Volkswagen Leasing GmbH, which had a contract portfolio
for 1,386 thousand lease vehicles (+8.1%).
KEY FIGURES BY SEGMENT AS OF DECEMBER 31, 2017
Thousands VW FS AG Germany Europe Latin America1 Asia-Pacific Other companies2
Current contracts 8,524 4,762 800 1,171 1,786 6

Retail financing 2,169 - 58 664 1,447 -
Leasing business 1,559 1,314 130 85 23 6
Service/insurance 4,796 3,448 611 421 316 -
New contracts 3,487 1,838 314 502 831 1
Retail financing 981 - 24 237 720 -
Leasing business 694 585 57 44 7 1
Service/insurance 1,811 1,254 232 221 104 -
€ million
Loans to and receivables from customers
attributable to
Retail financing 16,269 - 137 3,577 12,555 -
Dealer financing 3,584 10 13 977 2,053 531
Leasing business 18,809 17,187 846 488 276 12
Lease assets 11,571 9,907 999 150 390 125
Investment3 4,804 4,092 560 31 34 86
Operating profit 609 147 65 32 303 68
Percent
Penetration4 19.6 44.9 4.0 44.4 16.1 -
1 The Latin America segment consists of the companies of Volkswagen Financial Services AG in Brazil and Mexico.
2 The Other companies segment comprises Volkswagen Financial Services AG, the holding and financing companies in the Netherlands, France and Belgium, EURO Leasing companies in
Germany, Denmark and Poland, Volkswagen Insurance Brokers GmbH and Volkswagen Versicherung AG.
3 Corresponds to additions to lease assets classified as noncurrent assets.
4 Ratio of new contracts for new Group vehicles under retail financing and leasing business to deliveries of Group vehicles, based on Volkswagen Financial Services AG’s consolidated
entities.

DEVEL OPMENT O F NEW C O NTRAC T S AND C URRENT C O NT RAC T S AS O F DECEMBER 31

in thousands
Current contracts as of December 31

Of which new contracts in the reporting period
2,169 981 Retail financing

2017 1,559 694 < Leasing
4,796 1,811 Service/insurance
2,009 901 Retail financing

20161 1,433 653 < Leasing
4,558 1,872 Service/insurance
1 Prior-year figures restated, because receivables from customers in the United Kingdom and Irish markets are now reported as receivables from leasing transactions, and due to the
reorganization of the legal entities.
Total assets of the Volkswagen Financial Services AG Group Equity

fell by 47.1% year-on-year to €69.0 billion, mainly because of The subscribed capital of Volkswagen Financial Services AG
the reorganization. The expansion of business in the remain- remained unchanged at €441 million in fiscal year 2017.
ing companies in the reporting period is reflected in the Equity in accordance with IFRSs was €7.6 (17.0) billion. The
higher business volume, which grew by €3.4 billion. main reason for the decline in equity (by €11.6 billion) is the
The number of service and insurance contracts at the above-mentioned reorganization. The Group’s earnings after
year-end was 4,796 thousand. The new business volume of tax had a positive effect. This resulted in an equity ratio of
1,811 thousand was down year-on-year. 11.1% (equity divided by total assets) based on total assets of
€69.0 billion.
Deposit Business and Borrowings As a result of the restructuring under company law de-
In terms of capital structure, the significant liability items scribed earlier, the regulatory minimum capital require-
included liabilities to banks in the amount of €11.0 billion ments no longer apply to the Volkswagen Financial
(–35.5%), liabilities to customers amounting to €9.7 billion Services AG Group. Volkswagen Financial Services AG never-
(–80.4%) and notes, commercial paper issued of theless continues to enjoy an appropriate level of capital
€32.5 billion (–14.3%). The decrease in these items is also backing.
attributable to the reorganization. Information on the fund-
ing and hedging strategy is provided in a separate section of Changes in Off-Balance-Sheet Liabilities
the management report. Off-balance-sheet liabilities decreased by a total of
€2,253 million year-on-year to €1,022 million as of Decem-
Subordinated capital ber 31, 2017, mainly because of the reorganization.
The subordinated capital increased by 36.8% year-on-year to
€4.4 billion.

Liquidity Analysis coming twelve months are projected and compared against
The companies of Volkswagen Financial Services AG are fund- the potential funding available in each maturity band.
ed primarily through capital market and ABS (asset-backed A further strict requirement imposed under banking reg-
securities) programs. Confirmed and unconfirmed credit ulation is that any liquidity requirements identified in insti-
facilities with other banks and with Volkswagen AG are also tution-specific stress scenarios must be covered by providing
available to protect against unexpected fluctuations in cash an adequate liquid cash buffer over seven-day and thirty-day
flows. It is generally expected that credit facilities will be used. time horizons.
The purpose of the confirmed credit facilities with No immediate need to take action was identified for
Volkswagen AG is solely to provide liquidity backup; the use Volkswagen Leasing GmbH from a regulatory or economic
of these facilities would not therefore normally be anticipated. perspective.
To ensure there is appropriate liquidity management,
Treasury prepares liquidity maturity balances, carries out FUNDING
cash flow forecasts and takes action as required. In these Strategic Principles
calculations, the legally determined cash flows are assumed In terms of funding, Volkswagen Financial Services AG general-
for funding instruments, whereas estimated cash flows are ly pursues a strategy of diversification with the aim of achiev-
used for other factors that affect liquidity. ing the best possible balance of cost and risk. This means ac-
The internal control system (ICS) at Volkswagen Financial cessing the widest possible variety of funding sources in the
Services AG is used to measure liquidity risk individually for various regions and countries with the objective of safeguard-
significant companies. This liquidity risk is managed using a ing funding on a long-term basis at optimum terms.
maturity structure for Treasury liabilities. This approach
includes a limit system covering the subsequent twelve Implementation
months. The limits are reviewed each month in a process that During the first half of the year, Volkswagen Financial
acts as an early warning indicator. Reports are submitted Services AG recommenced funding activities under its debt
centrally on a quarterly basis. A Group limit for issuance program and successfully issued bonds denominat-
Volkswagen Financial Services AG is also determined and ed in pound sterling, Swedish krona and Norwegian krone.
managed appropriately; 44% of this limit was utilized as of Unsecured bonds were also successfully issued for funding
December 31, 2017. purposes in local capital markets outside Europe, such as
Various subsidiaries of Volkswagen Financial Services AG China, India, Brazil, Australia and Mexico. In addition,
must satisfy a range of regulatory liquidity requirements at Volkswagen Leasing GmbH returned to the euro capital mar-
local level. For example, Volkswagen Leasing GmbH has to ket in July, issuing unsecured bonds. Very successful place-
satisfy the Mindestanforderungen an das Risikomanagement ments of asset-backed securities (ABSs) were also carried out.
(MaRisk – German Minimum Requirements for Risk Man- Volkswagen Leasing GmbH was active in the German
agement). Compliance with these requirements is deter- market with its ABS program.
mined and continuously reviewed as part of the liquidity risk Volkswagen’s financial service providers were also active
management system. Additionally, the cash flows for the in international markets with various ABS transactions.
The following tables show the transaction details:
BORROWER’S NOTE LOANS
Issuer Month Country Volume and currency Maturity
EUR 382 million

Volkswagen Financial Services AG, Braunschweig March Germany USD 518 million 3, 5 and 7 years

CAPITAL MARKET
Issuer Month Country Volume and currency Maturity
Volkswagen Financial Services N.V., Amsterdam April United Kingdom GBP 850 million 4 and 8 years
Volkswagen Financial Services N.V., Amsterdam April Sweden SEK 1.5 billion 2 years
Volkswagen Financial Services N.V., Amsterdam April Norway NOK 1.5 billion 3 years
Volkswagen Finance (China) Co., Ltd., Beijing May China RMB 4 billion 3 years
Banco Volkswagen S.A., São Paulo May Brazil BRL 500 million 2 years
Volkswagen Financial Services Australia Pty. Ltd., Chullora June Australia AUD 500 million 3 years
Volkswagen Finance Pvt. Ltd., Mumbai June India INR 1.5 billion 2 and 3 years
Volkswagen Leasing S.A. de C.V., Puebla June Mexico MXN 2 billion 3 years
Volkswagen Leasing GmbH, Braunschweig July Germany EUR 3.5 billion 2, 4 and 7.5 years
Volkswagen Finance Pvt. Ltd., Mumbai July India INR 3 billion 3 years
Volkswagen Financial Services N.V., Amsterdam July United Kingdom GBP 300 million 5.2 years
Volkswagen Financial Services Australia Pty. Ltd., Chullora September Australia AUD 325 million 5 years
Volkswagen Finance Pvt. Ltd., Mumbai September India INR 2.5 billion 3 years
Volkswagen Leasing GmbH, Braunschweig October Germany EUR 2.25 billion 3 and 6.5 years
Volkswagen Leasing S.A. de C.V., Puebla October Mexico MXN 2.5 billion 3 years
Volkswagen Doğuş Finansman A.S., Istanbul November Turkey TRL 130 million 0.5 years
Volkswagen Finance Pvt. Ltd., Mumbai December India INR 3.0 billion 2.8 and 3 years
ABSs
Issuer Transaction name Month Country Volume and currency
Volkswagen Financial Services Japan Ltd., Tokyo Driver Japan six February Japan JPY 64 billion
Volkswagen Financial Services Australia Pty. Ltd., Chullora Driver Australia four May Australia AUD 500 million
Volkswagen Finance (China) Co., Ltd., Beijing Driver China six May China RMB 4.5 billion
Volkswagen Finance (China) Co., Ltd., Beijing Driver China seven September China RMB 4 billion
Volkswagen Leasing GmbH, Braunschweig VCL 25 October Germany EUR 1.6 billion
Volkswagen Finance (China) Co., Ltd., Beijing Driver China eight December China RMB 3.5 billion
Besides these well-established sources of funding, 2016 against the background of imminent amendments to
Volkswagen Financial Services AG was able to place a number the Kreditwesengesetz (KWG – German Banking Act), was
of borrower’s note loans with a range of investors, notably in affirmed at BBB+ in February. At the same time, S&P intro-
Asia. The issuance of commercial paper and the use of bank duced a further rating classification in the form of the senior
credit lines completed the funding mix. subordinated rating and rated the bonds issued by
The Company continued to implement its strategy of ob- Volkswagen Financial Services AG at BBB initially. The short-
taining maturity-matched funding as far as possible by bor- term rating remained unaffected at A-2.
rowing on terms with matching maturities and by using In November, the outlook for Volkswagen Financial
derivatives. A currency-matched funding approach was taken Services AG was upgraded to stable. S&P simultaneously
by borrowing liquidity in local currency, and currency risks reclassified the BBB senior subordinated rating to a BBB+
were eliminated by using derivatives. senior unsecured rating because Volkswagen Financial
Services AG was no longer subject to European banking regu-
Ratings lation as a consequence of the restructuring carried out on
Volkswagen Financial Services AG is a wholly owned subsidi- September 1, 2017.
ary of Volkswagen AG and, as such, its credit ratings with In response to the reorganization of the legal entities on
both Moody’s Investors Service (Moody’s) and Stand- September 1, 2017, Moody’s downgraded the senior unse-
ard & Poor’s Global Ratings (S&P) are closely associated with cured rating for Volkswagen Financial Services AG from A2 to
those of the Group’s parent company. A3 bringing it into line with the rating for Volkswagen AG; it
The senior unsecured rating issued by rating agency S&P, also downgraded the short-term rating by one notch to P-2.
which had been placed on CreditWatch since December 15, The outlook remained negative over the whole of the year.

16 Volkswagen Financial Services AG Combined Management Report
Volkswagen Financial
Services AG
(Condensed, in accordance with the HGB)
BUSINESS PERFORMANCE 2017 Receivables from affiliated companies declined by

Volkswagen Financial Services AG reported a result from €1,231 million (26.3%). These changes arose largely from the
ordinary activities of €–562 million for fiscal year 2017. This is repayment of time deposits and loans. Loans to and receiva-
attributable primarily to the reorganization of the legal enti- bles from other investees or investors increased by
ties resulting from the demerger of Volkswagen Bank GmbH. €613 million (31.3%), and were mainly attributable to time
Sales revenue amounted to €574 (700) million, with cost deposits and loans.
of sales coming to €567 (693) million. These items include The decrease in provisions of €76 million (15.4%) arose
the income from cost allocations to Group companies and primarily because of lower provisions for IT costs in an
the expenses related to personnel and administrative costs. amount of €37 million, for personnel expenses of
Other operating income totaled €192 (364) million, with €31 million and for general risks of €14 million.
other operating expenses amounting to €12 (243) million. Bonds declined to €750 million. Liabilities to banks in
Other operating income included income from the disposal connection with borrower’s note loans rose by €827 million
of equity investments in the amount of €143 million. Other to €1,198 million. Liabilities to affiliated companies went up
operating expenses included rating costs of €7 million. by €1,047 million (19.6%), principally because of a higher
Net investment income declined by €783 million to a net level of time deposits and loans. As a consequence of de-
expense of €487 (net income of 296) million primarily be- mergers, €8,849 million was withdrawn from capital reserves.
cause the net income of Volkswagen Bank GmbH was no At the same time, an amount of €1,000 million was appropri-
longer included. The decline was also attributable to the net ated to the capital reserves by Volkswagen AG.
loss of €578 million reported by Volkswagen Leasing GmbH. The equity ratio was 26.2% (57.5%). Total assets at the end
The loss after tax of €478 million will be absorbed by of the reporting period amounted to €12,012 million.
Volkswagen AG pursuant to the existing control and profit-
and-loss transfer agreement. NUMBER OF EMPLOYEES
In the context of the spin-off, the assets and liabilities of Volkswagen Financial Services AG had a total of 5,023 (5,983)
the newly defined line of business Digital Solutions were employees as of December 31, 2017. Employee turnover of less
transferred to Volkswagen Financial Services Digital Solu- than 1.0% was significantly below the industry average.
tions GmbH effective January 1, 2017. Long-term financial The employees of Volkswagen Financial Services AG also
assets declined by 51.7% to €5,984 million. The change re- work for the subsidiaries because of the structure of the
sulted from the following items: capital increases and contri- German legal entities in the Volkswagen Financial Services
butions to capital reserves at affiliated companies and inves- AG Group. At the close of 2017, 750 (959) employees were
tees of €2,369 million, loan increases of €133 million, leased to Volkswagen Leasing GmbH. In addition, 150 (141)
business acquisitions of €4 million, demergers of employees were leased to Volkswagen Insurance Bro-
€8,849 million, disposals of affiliated companies and equity kers GmbH, 68 (26) to Volkswagen Versicherung AG, 7 (10) to
investments of €68 million, and impairment losses of Volkswagen Autoversicherung AG and 151 (144) to MAN
€6 million. Financial Services GmbH. For the first time, 2,643 employees

Combined Management Report Volkswagen Financial Services AG 17
were leased to the new company Volkswagen Financial management concept of the Volkswagen Financial Services
Services Digital Solutions GmbH. In contrast to the previous Group. It is thus subject to the same key performance indica-
year, the employees of Volkswagen Bank GmbH are no longer tors and the same opportunities and risks as the
leased to the bank from Volkswagen Financial Services AG Volkswagen Financial Services Group. The legal requirements
but have contracts of employment with Volkswagen Bank governing the management of Volkswagen Financial Services
GmbH. Volkswagen Financial Services AG employed 131 AG as a legal entity are observed using key performance indi-
vocational trainees as of December 31, 2017. cators specified under commercial law, such as net assets, net
income and liquidity. We explain this internal management
M A N A G E M E N T , A N D O P P O R T U N I T IE S A N D R I S K S R E LA T I N G T O T H E concept and these opportunities and risks in the section on
B U S I N E S S P E R F O R M A N C E O F V O LK S W A G E N F I N A N C I A L S E R V I C E S A G the fundamental information about the Volkswagen Financial
Volkswagen Financial Services AG operates almost exclusively Services Group (pages 3 and 4) as well as in the report on op-
as a holding company and is integrated into the internal portunities and risks (pages 19 to 27) of this annual report.

18 Volkswagen Financial Services AG Combined Management Report
INCOME STATEMENT OF VOLKSWAGEN FINANCIAL SERVICES AG, BRAUNSCHWEIG, FOR FISCAL YEAR 2017
€ million 2017 2016
Revenue 574 700

Cost of sales – 567 – 693
Gross profit 7 7
General and administrative expenses – 262 – 249
Other operating income 192 364
Other operating expenses – 12 – 243
Net investment income/expense – 487 296
Financial result 0 –2
Income tax expense 84 – 43
Profit/loss after tax – 478 130
Profits transferred under a profit-and-loss transfer agreement - – 130
Losses absorbed under a profit-and-loss transfer agreement 478 -
Net income for the year - -
Profit brought forward 2 2
Assets reduced as a result of asset transfer – 8,849 -
Amount withdrawn from capital reserves 8,849 -
Net retained profits 2 2
BALANCE SHEET OF VOLKSWAGEN FINANCIAL SERVICES AG, BRAUNSCHWEIG, AS OF DECEMBER 31, 2017
€ million Dec. 31, 2017 Dec. 31, 2016
Assets
A. Fixed assets
I. Intangible fixed assets - 12
II. Property and equipment - 44
III. Long-term financial assets 5,984 12,400
5,984 12,456
B. Current assets
I. Receivables and other assets 6,022 6,641
II. Cash-in-hand and bank balances 2 1
6,024 6,642
C. Prepaid expenses 4 27
Total assets 12,012 19,125
Equity and liabilities

A. Equity
I. Subscribed capital 441 441
II. Capital reserves 2,600 10,449
III. Retained earnings 100 100
IV. Net retained profits 2 2
3,143 10,992
B. Provisions 416 492
C. Liabilities 8,453 7,641
Total equity and liabilities 12,012 19,125

Combined Management Report Report on Opportunities and Risks 19
Report on Opportunities
and Risks
The active management of opportunities and risks is a fundamental element of the success-
ful business model used by Volkswagen Financial Services AG.
RISKS AND OPPORTUNITIES developing innovative products that are tailored to custom-
In this section, we report on the risks and opportunities that ers’ changing mobility requirements offers additional oppor-
arise in connection with our business activities. The risks and tunities. Growth areas such as mobility products and service
opportunities are grouped into various categories. Unless offerings (long-term rental, car sharing) are being systemati-
specifically stated, there were no material year-on-year cally developed and expanded. Further opportunities may be
changes to the individual risks or opportunities. created by launching established products in new markets.
We use analyses of the competitive and operating envi- The digitalization of our business represents a significant
ronment, together with market observations, to identify not opportunity for Volkswagen Financial Services AG. The aim is
only risks but also opportunities, which then have a positive to ensure that all key products are also available online
impact on the design of our products, the success of the around the world by 2020, thereby enabling the Company to
products in the marketplace and on our cost structure. Risks enhance efficiency. By expanding digital sales channels, we
and opportunities that we expect to materialize have already are promoting direct sales and facilitating the extension of
been taken into account in our medium-term planning and the platform for used vehicle finance. We are therefore ad-
forecast. The following sections therefore describe funda- dressing the changing needs of our customers and strength-
mental opportunities that could lead to a positive variance ening our competitive position.
from our forecast and the risk report presents a detailed
description of the risks. Opportunities from Credit Risk
Opportunities may arise in connection with credit risk if the
Macroeconomic Risks and Opportunities losses actually incurred on lending transactions turn out to
The management of Volkswagen Financial Services AG ex- be lower than the prior calculations of expected loss and the
pects with – in the majority of markets – further economic associated provisions recognized on this basis. A situation in
growth a moderate increase in deliveries to customers of the which the incurred losses are lower than the expected losses
Volkswagen Group. Volkswagen Financial Services AG sup- can occur particularly in individual countries in which eco-
ports this positive trend by providing financial services nomic uncertainty is dictating a conservative risk approach
products designed to promote sales. but in which the economic circumstances then stabilize,
The probability of a global recession is considered to be resulting in an improvement in the credit quality of the
low overall. However, diminished rates of global economic borrowers concerned.
growth or a period of below-average growth rates cannot be
ruled out. The macroeconomic environment could also give Opportunities from Residual Value Risk
rise to opportunities for Volkswagen Financial Services AG if When vehicles are remarketed, Volkswagen Financial Services
actual trends turn out to be better than the forecast. AG may be presented with the opportunity to achieve a price
that is higher than the calculated residual value if increasing
Strategic Opportunities demand pushes up market values more than expected.
As well as continuing its international focus by tapping new
markets, Volkswagen Financial Services AG believes that

20 Report on Opportunities and Risks Combined Management Report
KEY FEATURES OF THE INTERNAL CONTROL SYSTEM AND THE > Subgroup Internal Audit department is a key component
INTERNAL RISK MANAGEMENT SYSTEM IN RELATION TO THE of the monitoring and control system. It carries out regular
FINANCIAL REPORTING PROCESS audits of accounting-related processes in Germany and
The internal control system (ICS) for the consolidated and abroad as part of its risk-oriented auditing activities and
annual financial statements, as far as it is relevant to the reports on these audits directly to the Board of Manage-
accounting system, is the sum of all principles, procedures ment of Volkswagen Financial Services AG.
and activities aimed at ensuring the effectiveness, efficiency
and propriety of the financial reporting and compliance with In sum, the existing internal monitoring and control system
the relevant legal requirements. The internal risk manage- of Volkswagen Financial Services AG Group is intended to
ment system (IRMS) related to the accounting system is con- ensure that the financial position of the individual entities
cerned with the risk of misstatement in the bookkeeping and of the Volkswagen Financial Services AG Group as of the
systems at the Company and Group levels as well as in exter- reporting date December 31, 2017 has been based on infor-
nal financial reporting. The sections below describe the key mation that is reliable and has been properly recognized. No
elements of the ICS/IRMS as they relate to the financial re- material changes were made to the internal monitoring and
porting processes of Volkswagen Financial Services AG. control system of Volkswagen Financial Services AG after the
reporting date.
> The Board of Management of Volkswagen Financial
Services AG is the governing body with responsibility for ORGANIZATIONAL STRUCTURE OF THE RISK MANAGEMENT SYSTEM
the executive management of the business. In this role, the At Volkswagen Financial Services AG, risk is defined as the
Board has set up Accounting, Treasury Controlling, ICS danger of loss or damage that could occur if an expected
Steering, Compliance and Controlling units, each with future development turns out to be less favorable than
clearly separated functions and clearly assigned areas of planned. Volkswagen Financial Services AG, including its
responsibility and authority, to ensure that accounting and subsidiaries and equity investments, is exposed to a large
financial reporting processes are carried out properly. The number of risks typical for the financial services sector as
services provided by Volkswagen Bank GmbH are moni- part of its primary operating activities. Risks are captured in a
tored. responsible manner to take concrete possible market oppor-
> Group-wide rules and accounting requirements have been tunities.
put in place to ensure there is a standardized, proper and As a result of the deconsolidation of Volkswagen
continuous financial reporting process for all domestic and Bank GmbH in the year under review, Volkswagen Financial
foreign entities included in the consolidated financial Services AG no longer falls within the scope of banking su-
statements in accordance with the International Financial pervision. An internal control system based on a Three-Lines-
Reporting Standards. The basis of consolidation is laid of-Defense model has been set up to manage risk in the
down and there is a mandatory requirement to use a Volkswagen Financial Services AG Group following the
standardized, comprehensive set of forms for mapping and changes implemented on September 1, 2017. This structure
processing intragroup transactions. functions as a monitoring and control system for risk. The
> Analyses and any adjustments to single-entity financial system comprises a framework of risk principles, organiza-
statements prepared by the consolidated entities are com- tional structures and processes for assessing and monitoring
plemented by the reports submitted at Group level by the risks. The individual elements are tightly focused on the
independent auditors, taking into account specific control activities of the individual divisions. This structure makes it
activities aimed at ensuring that the consolidated financial possible to identify at an early stage any trends that could
reporting provides a true and fair view. The clear definition represent a risk to the business as a going concern so that
of areas of responsibility accompanied by various monitor- appropriate corrective action can then be initiated.
ing and review mechanisms ensures that all transactions Appropriate procedures are in place to ensure the adequa-
are accurately recognized in the accounts, processed and cy of the risk management. Firstly, the risk owner continu-
evaluated, and then properly reported. ously monitors individual types of risk, which are pooled by
> These monitoring and review mechanisms are designed the ICS Steering unit and reported to the Board of Manage-
with both integrated and independent process compo- ment. Secondly, the individual elements in the system are
nents. For example, automated IT process controls account regularly verified on a risk-oriented basis by Internal Audit
for a significant proportion of the integrated process activ- and as part of the audit of the annual financial statements by
ities alongside manual process controls, such as double- the independent chartered auditors.
checking by a second person. These controls are enhanced Within Volkswagen Financial Services AG, responsibility
by specific functions at Group level carried out by the par- for risk management and credit analysis is assigned to the
ent company Volkswagen AG, for example functions with- Chairman of the Board. In this role, the Chairman of the
in the responsibility of the Group tax department. Board submits regular reports to the Supervisory Board and

Board of Management on the overall risk position of ational requirements as part of the planning round in ac-
Volkswagen Financial Services AG. cordance with management requirements.
An important feature of the risk management system at
Volkswagen Financial Services AG is the clear, unequivocal PRODUCT TRANSPARENCY AND NEW MARKET PROCESS
separation of tasks and areas of responsibility, both organiza- Before launching new products or commencing activities in
tionally and in terms of personnel, between the holding new markets, Volkswagen Financial Services AG carries out
company (ICS Steering unit) and the markets (local risk man- processes – with the involvement of departments such as
agement) to ensure that the system is fully functioning at all controlling and IT – to ensure that the Company is aware of
times and regardless of any particular personnel involved. the effects and requirements relating to the new product or
One of the functions of the ICS Steering unit is to provide market concerned and that an informed decision can then be
framework constraints for the organization of the risk man- made on this basis at an appropriate level of organizational
agement system. This function includes drawing up and authority.
coordinating risk policy guidelines (to be carried out by the
risk owner), developing and maintaining methodologies and RISK CONCENTRATIONS
processes relevant to risk management as well as issuing Volkswagen Financial Services AG is a captive financial ser-
international framework standards for the procedures to be vices provider in the automotive sector. The business model,
used around the world. which focuses on promoting vehicle sales for the different
ICS Steering is a neutral, independent unit and reports di- brands in the Volkswagen Group, causes concentrations of
rectly to the Chairman of the Board of Management of risk, which can take various forms.
Volkswagen Financial Services AG. Local risk management Concentrations of risk can arise from an uneven distribu-
ensures that the requirements applicable to the international tion of activity in which
subsidiaries are implemented and complied with. Local risk
management is responsible for the detailed design of local > just a few borrowers/contracts account for a large propor-
structures for the models and procedures used for risk meas- tion of the loans (counterparty concentrations)
urement and management and carries out local implementa- > a small number of sectors account for a large proportion of
tion from process and technical perspectives. the loans (sector concentrations)
To summarize, continuous monitoring of risks, transpar- > many of the loans are to businesses within a defined geo-
ent and direct communication with the Board of Manage- graphical area (regional concentrations)
ment and the integration of all information obtained into the > loans/receivables are secured by just one type of collateral
operational risk management system form a foundation for or by a limited range of collateral types (collateral concen-
the best possible exploitation of market potential based on trations)
conscious, effective management of the overall risk faced by > residual values subject to risk are limited to a small num-
Volkswagen Financial Services AG. ber of vehicle segments or models (residual value concen-
trations), or
BUSINESS STRATEGY AND RISK MANAGEMENT > Volkswagen Financial Services AG’s income is generated
Fundamental decisions relating to strategy and the instru- from just a few sources (income concentrations).
ments of risk management are the responsibility of the Board
of Management. As part of this overall responsibility, the One of the objectives of Volkswagen Financial Services AG’s
Board of Management has introduced a strategy process and risk policy is to reduce such concentrations by means of
drawn up a business and risk strategy. The ROUTE2025 busi- broad diversification.
ness strategy sets out the fundamental views of the Board of Counterparty concentrations from customer financing
Management of Volkswagen Financial Services AG on key are only of minor significance because of the large propor-
matters relating to business policy. It includes the objectives tion of business accounted for by retail lending. In terms of
for each major business activity and the strategic areas for regional distribution, the Company aims for broadly based
action to achieve the relevant objectives. diversification of business across regions.
The main risk management goals and measures for each In contrast, sector concentrations in the dealer business
category of risk are concerned by business policy focus and are part of the nature of the business for a captive provider
risk appetite. The attainment of goals is reviewed annually and these concentrations are therefore individually analyzed.
and any variances are analyzed to establish the causes. Likewise, a captive provider cannot avoid collateral con-
The Groupwide risk strategy, which is issued and commu- centrations because the vehicle is the predominant collateral
nicated by the Board of Management, includes all material asset by virtue of the business model. A broad vehicle diversi-
quantifiable and non-quantifiable risks. Further details and fication also means that there is no residual value concentra-
specifics for the individual risk categories are set out in oper- tion. Income concentration arises from the very nature of the
business model. The Company’s particular role in which it

helps to promote sales in the Volkswagen Group gives rise to analysis. The default is caused by the borrower’s or lessee’s
certain dependencies that directly affect income growth. insolvency or unwillingness to pay. This includes a situation
in which the counterparty does not make interest payments
MATERIAL RISK CATEGORIES AND RISK REPORTING or repayments of principal on time or does not pay the full
A risk survey has identified the following risk categories that amounts.
are material to Volkswagen Financial Services AG: counter- Credit risk, which also includes counterparty default risk in
party default risk, direct residual value risk, liquidity risk, connection with leases, accounts for the greatest proportion
operational risk, interest rate risk and reputational risk. of risk exposures in the counterparty default risk category by
Under risk reporting, the material risk categories are re- some distance.
ported quarterly to the Board of Management in the form of The aim of systematic credit risk monitoring by the in-
an ICS report. For this report, the international subsidiaries, ternational subsidiaries is to identify potential borrower or
which make up the First-Line-of-Defense, provide input to lessee insolvencies at an early stage, initiate any corrective
the respective risk owners of the Second-Line-of-Defense. action in respect of a potential default in good time and an-
Following a plausibility check and validation, this data is ticipate possible losses by recognizing appropriate write-
condensed at country level and forwarded to the ICS Steering downs or provisions. Significant borrowers or borrower units
unit. The ICS report presents the changes in risks for the are also monitored by ICS Steering.
Group and its regions on a year-on-year and quarter-on- If a loan default materializes, this represents the loss of a
quarter basis. They include quantitative information (finan- business asset, which has a negative impact on financial
cial data) and, if required, also a qualitative evaluation in position and financial performance, depending on the
consultation with the risk owners. Ad hoc reports at the amount of the loss. If, for example, an economic downturn
Group level are generated as needed to supplement the sys- leads to a higher number of insolvencies or greater unwill-
tem of regular reporting. ingness of borrowers or lessees to make payments, the
recognition of a higher write-down expense is required. This
OVERVIEW OF RISK CATEGORIES in turn has an adverse effect on operating profit.
Lending or credit decisions at Volkswagen Financial
Services AG are made primarily on the basis of the borrower
Financial risks Nonfinancial risks credit check. In the companies, these credit checks use rating
or scoring systems, which provide the relevant departments
Counterparty default risk Reputational risk with an objective basis for reaching a decision on a loan or a
Interest rate risk Compliance and conduct risk lease.
Residual value risk Strategic risk A set of procedural instructions outlines the require-
Liquidity risk ments for developing and maintaining the local rating sys-
Earnings risk tems. Similarly, “golden rules” specify the parameters for
Operational risk developing, using and validating the scoring systems in the
Underwriting risk retail business.
FINANCIAL RISKS Rating systems for corporate customers

Counterparty Default Risk Volkswagen Financial Services AG uses rating systems to
Counterparty default risk refers to a potential negative vari- assess the credit worthiness of corporate customers. This
ance between actual and forecast counterparty risk out- evaluation takes into account both quantitative factors
comes. The forecast outcome is exceeded if the loss incurred (mainly data from annual financial statements) and qualita-
as a consequence of defaults or changes in credit rating is tive factors (such as the prospects for future business growth,
higher than the expected loss. At Volkswagen Financial quality of management, market and industry environment,
Services AG, counterparty default risk encompasses the fol- and the customer’s payment record). When the credit as-
lowing risk categories: credit risk, counterparty risk, country sessment has been completed, the customer is assigned to a
risk and shareholder risk. rating class, which is linked to a probability of default. A
centrally maintained, workflow-based rating application is
Credit risk used for the most part to support this analysis of credit wor-
Credit risk is defined as the danger of incurring losses as a thiness. The rating determined for the customer serves as an
result of defaults in customer business, specifically the de- important basis for decisions on whether to grant or renew a
fault of the borrower or lessee. Loans to and receivables from loan and for decisions on provisions.
entities in the Volkswagen Group are also included in the

Scoring systems in the retail business risk management system, within which the divisions/markets
For the purposes of determining the credit quality of retail can operate in terms of their business policy activities, plan-
customers, scoring systems are incorporated into the pro- ning, decisions, etc. in compliance with their assigned author-
cesses for credit approval and for evaluating the existing ity. Appropriate processes are used to monitor all lending in
portfolio. These scoring systems provide an objective basis relation to financial circumstances, collateral and compliance
for credit decisions. The systems use information about the with limits, contractual obligations and internal and external
borrower available internally and externally and estimate the conditions. To this end, exposures are transferred to a suitable
probability of default for the requested loan, generally with form of supervision or support depending on risk content
the help of statistical methods based on historical data cover- (normal, intensified or problem loan management). Credit
ing a number of years. An alternative approach adopted for risk is also managed using reporting limits determined by
smaller or low-risk portfolios also uses generic, robust score- Volkswagen Financial Services AG and specified separately for
cards and expert systems to assess the risk involved in credit each individual company in accordance with the support
applications. To classify the risk in the credit portfolio, both strategy for the international subsidiaries. Regular reporting,
behavioral scorecards and straightforward estimation proce- business financial reviews and the yearly planning process are
dures at risk pool level are used, depending on portfolio size used to monitor credit risk at portfolio level.
and the risk inherent in the portfolio.
The models and systems in use are regularly monitored, CHANGES IN CREDIT RISK
validated, adjusted (where required) and refined at local level.
These review procedures are applied to models and systems
for assessing credit worthiness and estimating the probabil- Credit risk Dec. 31, 20161 Dec. 31, 2017
ity of default (such as rating and scoring systems) and to
models used for estimating loss given default and estimating Amount utilized (€ million) 57,697 62,264
credit conversion factors. Default rate in % 2.57 2.23
Impairment ratio in % 2.29 2.09
Collateral
The general rule is that credit transactions are secured by 1 Figures based on risk management report, taking the reorganization of the legal entities into
account.
collateral to an extent that is commensurate with the risk. In
addition, overarching rules specify the requirements that The rating and scoring processes on which the impairment
must be satisfied by collateral, the evaluation procedures and ratio is based include default probabilities of future events.
the evaluation bases. Local collateral guidelines with specific The actual losses incurred are covered by the provisions
values take these rules into account. The values in the collat- recognized.
eral policies are based on historical data and experience
accumulated by experts over many years. As the operating Counterparty Risk
activities of Volkswagen Financial Services AG are focused on Volkswagen Financial Services AG defines counterparty risk
retail financing, dealer financing and the leasing of vehicles, as the risk of financial loss that could arise from monetary
the vehicles themselves are hugely important as collateral investments, investments in securities or notes, or from
assets. For this reason, trends in the market values of vehicles other outstanding loans or receivables. This risk arises if a
are closely monitored, analyzed and adapted. counterparty fails to make payments of interest or repay-
ments of principal as contractually required. The nature and
Provisions extent of own-account investing activities are subject to
The calculation of provisions is based on the incurred loss internal limits.
model in accordance with IAS 39 and is also derived from the Counterparty risk arises in connection with interbank
rating and scoring processes. With regard to impaired loans overnight and term deposits, derivatives and existing current
and receivables, a distinction is also made between signifi- account balances, and is a subcategory of counterparty de-
cant and insignificant loans and receivables. Specific provi- fault risk.
sions are recognized for significant impaired loans and re- To establish effective monitoring and control, volume
ceivables, whereas specific provisions evaluated on a group limits are specified in advance for each counterparty (and
basis are recognized for insignificant impaired loans and issuer). The Treasury Backoffice unit is responsible for moni-
receivables. Portfolio (global) provisions are recognized to toring compliance with these limits on a day-to-day basis.
cover impaired loans or receivables for which no specific The volume limit is set at an appropriate, needs-driven level
provisions have been recognized. and is based on the credit assessment. The Credit Analysis
ICS Steering sets fundamental parameters in the form of department is responsible for the initial classification and
golden rules for the management of credit risk. These con- then regular reviews. This risk is reported quarterly as part of
straints form the mandatory outer framework of the central the ICS report.

Country Risk sibility for the operational use of the risk management tools
Country risk refers to risks in international transactions that lies with the business units themselves.
are not attributable to the counterparty itself but that arise
because of the counterparty’s domicile in a country outside Interest Rate Risk
Germany. For example, political or economic trends caused Interest rate risk refers to potential losses that could arise as a
by a crisis or difficulties affecting the entire financial system result of changes in market interest rates. It occurs because of
in the country concerned may mean that cross-border ser- interest rate mismatches between asset and liability items in a
vices involving the movement of capital cannot be carried portfolio or on the balance sheet. Volkswagen Financial
out because of transfer problems attributable to action im- Services AG is exposed to interest rate risk in its banking book.
plemented by the foreign government in question. Country Changes in interest rates that cause interest rate risk to mate-
risk would need to be taken into account, in particular, in rialize can have a negative impact on financial performance.
connection with funding and equity investment activities Interest rate risk is managed on the basis of limits using inter-
involving foreign companies and in connection with the est rate derivatives as part of the risk strategy defined by the
lending and leasing business operated by the local compa- Board of Management of Volkswagen Financial Services AG.
nies. Given the focus of business activities in the Group, there Monitoring is performed by Treasury on the basis of a service
is little chance that country risk (such as foreign exchange agreement with Volkswagen Bank GmbH. A report on interest
risk or legal risk) will arise. rate risk at Volkswagen Financial Services AG is submitted to
Volkswagen Financial Services AG does not generally the Board of Management each quarter. As of December 31,
have any significant cross-border loans to borrowers outside 2017, 72% of the limit was utilized.
the basis of consolidation. The conventional country risk
analysis is not applicable to intercompany lending because, if Residual Value Risk
the difficulties described above were to occur, the funding of Residual value risk arises from the fact that the actual market
the Group entities through lending could be extended if value for a lease asset at the time of remarketing could be
necessary, thereby ensuring that the entities could continue lower than the residual value calculated at the inception of
to operate in the strategic market concerned. the lease. On the other hand, there is an opportunity in that
the remarketing could generate proceeds greater than the
Shareholder Risk calculated residual value.
Shareholder risk refers to the risk that equity investments A distinction is made between direct and indirect residual
made by Volkswagen Financial Services AG could potentially value risk in relation to the bearer of this risk. Direct residual
lead to losses in connection with capital provided (as a result value risk refers to residual value risk borne directly by
of lack of dividends, write-downs to going-concern value, Volkswagen Financial Services AG or one of its companies
losses on disposal or decrease in hidden reserves), profit-and- (contractually determined). An indirect residual value risk
loss transfer agreements (loss absorption) or liability risks arises if the residual value risk has been transferred to a third
(for example, in the case of letters of comfort). party (such as a dealer) on the basis of a residual value guar-
In principle, Volkswagen Financial Services AG only antee. In such cases, the initial risk is a counterparty default
makes such equity investments to help it achieve its corpo- risk in respect of the residual value guarantor. If the residual
rate objectives. The investments must therefore support its value guarantor defaults, the residual value risk reverts to
own operating activities and are intended to be held on a Volkswagen Financial Services AG.
long-term basis. If a residual value risk materializes, the Company may
If shareholder risk were to materialize in the form of a have to recognize an exceptional write-down or a loss on
loss of fair value or even the complete loss of an equity in- disposal of the asset concerned, resulting in a negative im-
vestment, this would have a direct impact on relevant finan- pact on financial performance. Direct residual value risk is
cial data. The net assets and financial performance of quantified using expected loss, which equates to the differ-
Volkswagen Financial Services AG would be adversely affect- ence between the latest forecast remarketing proceeds as of
ed by write-downs recognized in profit or loss. the measurement date and the contractual residual value
Equity investments are integrated into the annual strate- specified at the inception of the lease for each vehicle. Other
gy and planning process of Volkswagen Financial Services parameters such as remarketing costs are also taken into
AG. It exercises influence over the business and risk policies account in the calculation. The expected loss for the portfolio
of the equity investments through its representation on the is determined by aggregating the individual expected losses
relevant ownership or supervisory bodies. However, respon- for all vehicles.

CHANGES IN DIRECT RESIDUAL RISK liquidity, the Operational Liquidity Committee (OLC) holds
meetings every four weeks at which it monitors the current
liquidity situation and the range of liquidity coverage. It
Direct residual value risk Dec. 31, 20161 Dec. 31, 2017 decides on funding measures and prepares any necessary
decisions for the decision-makers. ICS Steering communi-
Number of contracts 620,857 724,673 cates the main risk management information and relevant
Guaranteed residual values (€ million) 8,025 9,385 early warning indicators relating to liquidity risk. As of De-
Risk exposure in % 6.39 7.20 cember 31, 2017, 44% of the limit was utilized.
Impairment ratio in % 4.80 4.34
Earnings Risk
1 Figures based on risk management report, taking the reorganization of the legal entities into Earnings risk refers to the risk that actual figures will vary
account.
from the budgeted income statement earnings in the man-
As part of the management of residual value risk, agement strategy for the Volkswagen Financial Services
Volkswagen Financial Services AG has firstly specified rules AG Group. It is derived from any variance in the actual in-
for managing residual value. The processes for this include come (negative variance) and actual expenses (positive vari-
the calculation of the risk exposures of forward-looking ance) in comparison with the budgeted figures.
residual value forecasts. Secondly, it has established uniform The risk is largely determined by the business strategy
requirements for the Group, which reflect the accounting and internal business planning as well as by changes in gen-
standards governing the recognition of provisions for risks eral operating parameters (such as the level of sales in the
on a pro rata basis. On the basis of this mandatory outer Volkswagen Group, business volume, technical processes,
framework, the division/markets monitor and control their competitive environment).
business policy activities, planning, decisions, etc. in compli- Earnings risk is quantified on the basis of the anticipated
ance with their assigned authority. Regular reporting, busi- variance of the operating profit compared with budget. To
ness financial reviews and the yearly planning process are this end, the trends in actual figures compared with forecasts
used to monitor residual value risk at portfolio level. are monitored at market level during the course of the year.
This comparison is included in the standard reporting proce-
Liquidity Risk dure carried out by Controlling.
Liquidity risk is the risk of a negative variance between actual
and expected cash inflows and outflows. Liquidity risk is Operational Risk
defined as the risk of not being able to meet payment obliga- Operational risk (OpR) is defined as the risk of loss resulting
tions in full or when due, or – in the event of a liquidity crisis from inadequate or failed internal processes (process risk),
– the risk of only being able to raise funding at higher market people (HR risk) or systems (technological risk), or resulting
rates or only being able to sell assets at a discount to market from external events (third-party risk). This definition in-
prices. If liquidity risk were to materialize, higher costs and cludes legal risk.
lower selling prices for assets could lead to a negative impact The objective of operational risk management is to pre-
on financial performance. The consequence of liquidity risk sent operational risks transparently and initiate precaution-
in the worst-case scenario is insolvency caused by illiquidity. ary and corrective measures with a view to preventing or,
Liquidity risk management ensures that this situation does when this is not possible, mitigating the risks or losses. If an
not arise. The expected cash flows at Volkswagen Financial operational risk materializes, this represents an operational
Services AG are brought together and evaluated in operations loss with the resulting loss of a business asset, which has a
serviced by Treasury unit of Volkswagen Bank GmbH. negative impact on financial position and financial perfor-
The primary objective of liquidity management is to mance, depending on the amount of the loss. Processes and
safeguard the ability of the Company to meet its payment responsibilities are set out in the operational risk manual.
obligations at all times. This can be guaranteed through the The risk self-assessment being rolled out will be used to
use of drawdowns under credit facilities available with third- determine a monetary assessment of future potential risks. A
party banks and with Volkswagen AG. To measure liquidity standardized risk questionnaire is provided for this purpose.
risk, Volkswagen Financial Services AG has set up a system of The local experts use these questionnaires to determine and
limits throughout the Group. This system restricts funding- record the details for various risk scenarios. The details in-
related cash outflows over a time horizon of twelve months. clude the possible amount of the risk and the probability of
A broad diversification of funding maturities is therefore occurrence.
necessary to ensure compliance with the limits. To manage

The central loss database is used to ensure that information If claims are excessive relative to the premium calculation,
about monetary operational losses is collected internally on the risk situation of the portfolio must be reviewed.
an ongoing basis and the relevant data is stored. A standard- The materiality of non-life, life and health underwriting
ized loss form is made available to the local experts to aid risks is assessed through a qualitative evaluation of the risks
this process. The experts use this form to determine and based on the magnitude of the potential loss and the associ-
record the relevant data, including the amount and cause of ated probability that the risks will materialize. The risks are
the loss. quantified using the standard formula specified in Solvency
Operational risk is managed by the companies/divisions II. The risks are managed by the independent risk control
(operational risk units) on the basis of the guidelines in force function at Volkswagen Versicherung AG. The results are
and the requirements laid down by the special operational then reported to the relevant units.
risk units responsible for specific risk categories. To this end,
local management decides whether future risks or losses are NONFINANCIAL RISKS
to be ruled out (risk prevention), mitigated (risk mitigation), Reputational risk
consciously accepted (risk acceptance) or transferred to third Reputational risk refers to the risk that an event or several
parties (risk transfer). successive events could cause reputational damage (in the
The ICS Steering unit checks the plausibility of the infor- eyes of the general public), which in turn could limit current
mation provided by the companies/divisions in the risk self- and future business opportunities or activities (potential
assessments, reviews the reported loss events and then initi- earnings), thereby leading to an indirect adverse financial
ates any necessary corrective action, reviews the operational impact (customer base, sales, funding costs) and/or direct
risk system to ensure it is fully functioning and instigates financial losses such as penalties, litigation costs, etc. The
appropriate modifications as required. This includes, in par- responsibilities of the Corporate Communications unit in-
ticular, the integration of all relevant operational risk units clude avoiding negative reports in the press or similar an-
and a review of the methods and procedures used for risk nouncements that could inflict damage on the reputation of
measurement. the Company. If this is unsuccessful, the unit is then respon-
Operational risk is reported quarterly to the Board of sible for assessing the situation and initiating appropriate
Management. Ad hoc reports are issued in addition to the communications aimed at specific target groups to limit the
regular reports provided that the relevant specified criteria reputational damage as far as possible. The strategic objective
are satisfied. is therefore to prevent or reduce any negative variance be-
The actual losses incurred as a result of operational risks tween actual reputation and the level of reputation the Com-
amounted to €50.8 million as of December 31, 2017. pany expects. A loss of reputation or damage to the Compa-
ny’s image could have a direct impact on financial
Underwriting Risk performance.
Underwriting risk is an inherent risk of insurance companies,
which at Volkswagen Financial Services AG exists primarily Compliance and Conduct Risk
as a result of the subsidiary Volkswagen Versicherung AG. It At Volkswagen Financial Services AG, compliance risk refers
arises if the cash flows that are material to the insurance to risks that could arise from non-compliance with statutory
company differ from their expected value. One source of this rules and regulations or internal requirements.
risk is the uncertainty as to whether the total amount of As opposed to conduct risk, which is defined as the risk
actual payments for claims matches the total amount of arising from inadequate conduct by the Company toward the
expected payments for claims. Underwriting risk at customer, unreasonable treatment of the customer or provi-
Volkswagen Financial Services AG is broken down into the sion of advice using products that are not suitable for the
risks associated with three different classes of insurance: customer.
non-life underwriting risk, life underwriting risk and health To counter these risks, Compliance is committed to en-
underwriting risk. suring compliance with laws, other legal requirements, in-
The mission of Volkswagen Versicherung AG is to sup- ternal rules and self-proclaimed values, and fostering an
port sales of the Volkswagen Group’s products. The aim is to appropriate compliance culture.
achieve this mainly by offering guarantee insurance as a The role of the Chief Compliance Officer within Compli-
primary insurer and inward reinsurance. ance is to work towards implementing effective procedures
The purpose of managing underwriting risk is not to to ensure compliance with legal rules and requirements, and
avert such risk in its entirety but to manage the risk system- toward establishing appropriate controls. This is carried out
atically in furtherance of the objectives. In principle, risks are mainly by stipulating binding requirements at Group level.
not accepted unless they can be calculated and borne by the In turn, these then provide a framework for specifying de-
company. tailed requirements for which local compliance officers are

responsible. Local companies are independently responsible Strategic Risk

for implementing the centrally defined requirements. Re- Strategic risk is the risk of a direct or indirect loss arising
sponsibility for complying with any further rules and regula- from strategic decisions that are flawed or based on false
tions lies with the company concerned. assumptions. Strategic risk also includes all risks that result
Overall, the emergence of a compliance culture is being from the integration/reorganization of technical systems,
nurtured by constantly promoting the Volkswagen Group’s personnel or corporate culture (integration/reorganization
Code of Conduct and by raising employee awareness of risk. risk). These risks may be caused by fundamental decisions
The main instruments used to foster this culture are a tone- about the structure of the business made by the manage-
from-the-top approach, classroom training, and e-learning ment in relation to the positioning of the Company in the
programs. The compliance culture is also being consolidated market. The objective of Volkswagen Financial Services AG is
by communication measures, including the distribution of to manage its acceptance of strategic risk enabling it to sys-
guidelines and other information media as well as employee tematically leverage earnings potential in its core business. In
participation in compliance programs. the worst-case scenario, a materialization of strategic risk
The Chief Compliance Officer supports and advises the could jeopardize the continued existence of the Company as
Board of Management in matters relating to the avoidance of a going concern.
compliance risks and reports to the board at regular intervals.
SUMMARY
Risks remained at a constant level during the reporting year.

28 Human Resources Report Combined Management Report
Human Resources Report

Promoting a Culture of Open Feedback and Discussion
EMPLOYEES commensurate with the work performed, we aim to encour-

The Volkswagen Financial Services AG Group had a total age top performance and ensure we provide outstanding
workforce of 8,555 (11,819) employees on December 31, 2017. customer service with top employees, but also, as a top em-
Of these, 5,198 (6,145), or 61%, were employed in Germany ployer, take our excellent globally recognized reputation to
and 3,357 (5,674), or 39%, at our international sites. The sig- yet another level.
nificantly lower employee numbers compared with 2016 Responsibility for implementing the employee strategy at
resulted from the restructuring of the legal entities within an international level lies locally with the international sub-
the Volkswagen Financial Services AG Group, as described sidiaries, supported by the international HR unit at the head
earlier. Based on economic considerations, 371 (357) em- office. The Human Resources Strategy Card remains the most
ployees of Volkswagen Servicios S.A. de C.V., Puebla, Mexico, important management tool for implementing the HR strate-
which is an unconsolidated company, are included in the gy. The objectives and definitions set out in the tool provide
overall workforce figures. our local companies with a uniform basis to be applied
around the globe. The local entities hold regular meetings
EMPLOYEES BY REGION
with the head office – at least twice a year – to report on their
as of December 31, 2017
progress and share detailed information in this regard. De-
pending on the situation, support measures are agreed and/or
highly positive examples are systematically made available to
other branches using the HR toolbox so that synergies can
also be leveraged between the different local companies.
Germany
In the year under review, the strategic focus both in Ger-
Asia-Pacific
Latin America many and at the international sites remained on promoting a
10 %
Europe culture of open feedback and discussion and on fostering
13 %
customer- and service-oriented collaboration, internally and
in partnership with customers.
A wide variety of discussion and feedback opportunities
16 % 61 %
was provided for employees in many of the international
subsidiaries and also in Germany. These opportunities in-
cluded, for example, live chat with members of the Board of
Management (Germany), team workshops with feedback
sessions (China), employee events with a dialog format (in
Japan, Australia and Norway for example) and voluntary
HUMAN RESOURCES STRATEGY interdisciplinary teams to analyze the results from the “Great
The ROUTE2025 program has created new areas of focus in Place to Work” employer competition and determine any
terms of HR strategy. Six strategic areas of activity are listed corrective action (Poland).
under the heading “Top Employer/Top Employees”. These We assess the extent to which we have achieved our ob-
areas of activity are helping Volkswagen Financial Services jective of being a top employer by regularly taking part in
AG to position itself as “The Key to Mobility”. With the sup- external employer competitions. Our aim is to continue to
port of the best employees, our objective is to continue to enhance the working conditions and implement correspond-
drive forward development around the other strategic cor- ing action with a view to becoming one of the top 20 em-
nerstones of customers, volume, profitability and operation- ployers in the “Great Place to Work” employer ranking by
al excellence. Based on specific activities to develop and 2025, not just in Europe but worldwide. Participation in
retain personnel, coupled with profit-sharing arrangements “Great Place to Work” in Europe was suspended in the year

Combined Management Report Human Resources Report 29
under review because of the Europe-wide reorganization; we HUMAN RESOURCES PLANNING AND DEVELOPMENT
plan to rejoin the competition in 2019. However, we have In 2017, 44 new vocational trainees/dual vocational training
received numerous other awards as an employer. In Germa- students started their professional careers at
ny for example, yet again we received accolades from FOCUS Volkswagen Financial Services AG in Braunschweig focusing
magazine and the employer evaluation platform kununu as a on specialist professional IT qualifications in application
top company and in the “Best Employers in Germany” development, professional banking qualifications and pro-
awards. Our Dutch company received a “Best Employer” fessional insurance and finance qualifications. The dual ap-
distinction from the Effectory & Intermediair employer proach combines vocational training with study for a univer-
benchmarking organization in the Netherlands. Our Mexican sity degree. The Bachelor of Arts in Business Administration
company secured a place among the top 100 in the “Great is offered in collaboration with WelfenAkademie e.V; the
Place to Work” competition in the category of companies Bachelor of Science in Business Informatics is offered in
with 500 to 5,000 employees, and was also awarded the spe- collaboration with Leibniz University of Applied Sciences. In
cial prize for “Companies with Social Responsibility”. 2017, vocational trainees were recruited predominantly to
The satisfaction of our customers with the work of our train for specialist professional IT qualifications in applica-
employees is given top priority at Volkswagen Financial tion development, and dual vocational training students
Services AG. The results of external and internal customer mainly to become business informatics specialists, with a
satisfaction surveys are used as indicators of target achieve- view to designing vocational training on a forward-looking
ment. A system of internal customer feedback, which reflects basis and incorporating the topic of digitalization. At EURO-
satisfaction with internal collaboration, has now been intro- Leasing GmbH, Sittensen, 2017 saw two vocational trainees
duced in 11 countries (Argentina, Australia, Austria, Brazil, begin their training for professional qualifications in fleet
China, Germany, India, Italy, Mexico, Portugal and Turkey). and international business and one young person start train-
Volkswagen Financial Services AG already offers competi- ing for entry-level qualifications as a systems analyst.
tive, performance-related remuneration. Performance ap- As of December 31, 2017, a total of 137 vocational train-
praisals are conducted as part of the annual staff dialogs in ees and dual vocational training students were employed in
almost all international subsidiaries. Germany across all levels and professions. In Germany, a
During the reporting year, Volkswagen Financial Services total of 42 vocational trainees were offered permanent posi-
AG, as the parent of the financial holding group, was subject tions in the reporting period.
to direct supervision by the European Central Bank (ECB) and Our companies in Brazil and Austria also still offer young
implemented the Institutsvergütungsverordnung (IVV – people the opportunity to receive vocational training.
German Ordinance on the Supervisory Requirements for In 2017, four vocational trainees were honored by the
Institutions’ Remuneration Systems) in the version of De- Braunschweig Chamber of Industry and Commerce as the
cember 16, 2013 on a Group-wide basis. Thereby, in addition best graduates in their vocational training program. One dual
to the general requirements of the IVV, the special regulatory vocational training student also graduated as top of his year
requirements relating to remuneration systems applied. on the Bachelor of Science course; on the Bachelor of Arts
Furthermore, special governance functions, i.e. the Remuner- course, a further student received the accolade as top of her
ation Committee and the Remuneration Officer, ensured that year on graduation.
the adequacy of the remuneration systems was continuously In order to continue to attract qualified, committed em-
monitored. ployees for our Company, Volkswagen Financial Services AG
has a rigorous concept for recruiting and retaining young
IMPLEMENTATION OF THE CORPORATE STRATEGY university graduates. A well-established framework is pro-
ROUTE2025 is complemented by “The FS Way” and the asso- vided by existing partnerships with Harz University of Ap-
ciated leadership and management principles. The FS Way plied Sciences, Ostfalia University of Applied Sciences, Braun-
describes our corporate and leadership culture, i.e. the way in schweig University of Technology, the Institute of Insurance
which the objectives of the five strategic areas for action – Science at Leipzig University, the University of Applied Sci-
customers, employees, operational excellence, profitability ences and Arts in Hanover, Martin Luther University in Halle-
and volume – can be met to enable us to live up to our strate- Wittenberg and Alpen-Adria Universität Klagenfurt.
gic vision, “The Key to Mobility”, as an automotive financial Volkswagen Financial Services AG has been providing sup-
services provider. The FS Way is anchored in the five FS val- port to students at an individual level for six years now with
ues, living commitment to our customers, responsibility, “Deutschlandstipendium” scholarships. These activities aim
trust, courage and enthusiasm, combined with an attitude of to enable students to participate in an internship or work-
continuously looking for improvement and proactively study program that encourages them to join the Company
making the changes this requires. The FS values are repeated- directly or start the trainee program at Volkswagen Financial
ly explored and discussed at events for managers, especially Services AG. The twelve-month trainee program for digital
from the perspective of digital transformation. talents, which takes place both in Germany and abroad, is

30 Human Resources Report Combined Management Report
another element in the Company’s strategy to ensure its gaining importance as the process of digitalization advances.
future viability. The development program for young gradu- Digital transformation in the business is therefore being
ates is complemented by a three-year doctoral program. Each supported in a structured manner.
year since 2014, Volkswagen Financial Services AG has also The FS Academy has also been focusing on expanding the
recruited graduates from the renowned Wharton Business development program geared toward building skills in classic
School at the University of Pennsylvania in the USA with a and agile project management methods, with a view to estab-
view to deploying them in international positions at senior lishing these as a strong point within the Company. The
management level. To complement these activities, many program also gives employees the opportunity to achieve
international subsidiaries maintain partnerships with local product owner and scrum master certification, enabling
universities to provide a channel for recruiting experts in them to assume overall leadership responsibility in agile
certain fields. projects.
Another critical element determining the successful im- Since 2014, FS Academy International has been available
plementation of ROUTE2025 is to identify talent in the exist- so that a uniform approach to skills development and quali-
ing workforce and to nurture this talent with professional fications can also be provided at an international level. Skills
development in the Company. In Germany, over 250 talented development profiles applicable internationally are in place
individuals have already taken part in the programs for in fleet, risk, IT and project management activities. In 2017,
young talent, experts and management talent groups. The some of these profiles were already being used for the second
objectives are to provide individual personal and profession- year in a row in skills development appraisals. It is planned to
al development and to enhance the participant’s profile in add further countries and areas of activity in 2018.
the Company. The strategic approaches of FS values and the resulting
The international subsidiaries of Volkswagen Financial leadership principles have also been incorporated at
Services AG also offer a wide variety of programs for expert Volkswagen Financial Services AG in Germany as part of the
and management talent. holistic training program for new and experienced managers;
Under the banner “success needs competence”, the program is aimed at developing effective leadership and
Volkswagen Financial Services AG established the FS Acade- management skills.
my for the financial services job family in 2013. The FS Acad- In addition to the mandatory and modular “Erfolgreich
emy aims to provide systematic, professional training for durchstarten” (hit the ground running) program for new and
employees based on structured profiles of skills and qualifi- newly appointed managers, there are advanced modules for
cations, which are discussed annually in a skills development enhancing the management know-how of experienced man-
appraisal. The skills development needs of the various de- agers as well as the option of an individual review to assess
partments are determined annually at the strategic skills the current level of a manager’s skills. The program is com-
development conferences. This is then used as the basis for a plemented by the “Boxenstopp Führung” (management pit
forward-looking expansion of skills development activities. stop), which gives all managers the opportunity to get infor-
The close relationship with the job family academies in mation on current issues. Here they can obtain support for
the Volkswagen Group broadens the selection of available specific management situations; internal and external facili-
skills development opportunities and leverages synergies tators help them analyze their own leadership and in this
across the different job families. way enhance their skills.
The FS Academy skills development portfolio relating to Volkswagen Financial Services AG thus ensures con-
electric mobility and digitalization is being constantly ex- sistent quality standards of management know-how as well
panded in response to the ever-increasing significance of as a shared understanding of the leadership culture and
environmentally friendly and digital mobility concepts in the principles as set out by the FS Way for more than 350 em-
Volkswagen Group. The FS Academy is thereby making a ployees with line management responsibilities.
significant contribution to the digital transformation within The international subsidiaries also attach great im-
the Group. Using a variety of approaches, managers and portance to continuously enhancing management skills. The
employees are being trained in digital and agile concepts, international “leadership license” standard, comprising train-
technologies and methodologies, and are being prepared ing modules and a concluding assessment center, was intro-
going forward for the shifting requirements presented by duced in all international subsidiaries in 2017. All future
day-to-day work in the digital age. Efforts are focused on managers are now challenged and provided with professional
delivering practical knowledge with a high degree of partici- development in the same way, whether as a group or on an
pant involvement and by means of digital learning formats, individual basis.
which can be used at any time in any location. Furthermore, professional development has become in-
The use of skills development profiles means that action ternationally established as an integral part of management.
can be incorporated at an early stage to address the need for A few of the international subsidiaries carry out the man-
the new skills and corresponding training activities that are agement assessment center (MAC) themselves or offer it in

Combined Management Report Human Resources Report 31
collaboration with the Group brands in the country con- DIVERSITY

cerned. In an alternative option, managers can participate in Volkswagen Financial Services AG operates at an internation-
cross-regional MACs offered once or twice a year. al level and aims to maintain a working environment charac-
terized by openness, a sense of community, respect and
INCREASE IN THE PROPORTION OF WOMEN appreciation. Volkswagen Financial Services AG sent a clear
As of December 31, 2017, women accounted for 49,3% of the signal with its corporate initiative around the Diversity Char-
workforce of Volkswagen Financial Services AG in Germany, ter, which was signed in 2007. Results from the “Great Place
but this is not yet reflected in the percentage of women in to Work” employer benchmark study confirm that the Com-
management positions. We have set ourselves the target of pany puts into practice the notion of diversity, which has
permanently increasing the proportion of women in man- been an integral component of the corporate culture at
agement positions to 30%. We are working to meet the targets Volkswagen Financial Services AG since 2002.
we set ourselves for the first time in 2010 – and revised in 2016
under the Gesetz zur gleichberechtigten Teilhabe von Frauen HEALTH AND FAMILY
und Männern an Führungspositionen (FührposGleichberG – To promote the health of our employees, we continually
German Act on the Equal Representation of Women and Men enhance our holistic healthcare concept with its different
in Management Positions) – for the proportion of women in areas of action in line with demand. We raise awareness of
management, on the Board of Management and on the Super- healthcare and healthy living among vocational trainees and
visory Board by giving special consideration to female candi- in the individual departments, tailored to specific needs and
dates in recruitment and succession planning, in combination target groups.
with measures to improve work-life balance as well as the One of our most important tools in the area of occupational
development of HR tools. health and safety is the FS checkup, which is available on re-
The targets for the first and second management levels for quest to all employees free of charge and during working hours.
2017 still related to Volkswagen Financial Services AG in the This program is based on state-of-the-art medical diagnostic
structure prior to the transfer of Volkswagen Bank GmbH, i.e. procedures: first, the checkup determines the employee’s cur-
including the current Volkswagen Bank employees. Accord- rent state of health and, second, it focuses on promoting and
ingly, the actual values for the proportion of women overall maintaining good health by giving personal advice.
and at the first and second management levels as of Decem- We provide regular information and training to our man-
ber 31, 2017 were also determined on the same basis. agement staff on health-related topics to enable them to
recognize health problems among their employees at an
PROPORTION OF WOMEN – TARGET AND ACTUAL VALUES FOR early stage so that action for the benefit of the employees can
GERMANY be taken as soon as possible. In this way, we encourage
health-oriented management behavior.
Since 2015, we have offered a social coach function, an
Target 2021 Target 2017 Actual 2017 impartial first port of call for our employees and managers at
sites in Germany. The aim is to provide confidential, compe-
Second management level 22.8 22.1 22.9 tent and relevant support to help employees deal with chal-
First management level 12.0 11.0 10.0 lenges at work or personal problems.
Board of Management 16.7 - 20.0 The promotion of healthcare and healthy living is also of
Supervisory Board 25.0 - 27.3 key importance at Volkswagen Financial Services AG’s inter-
national subsidiaries. Our local companies offer a wide variety
Therefore, the target for the first management level in Ger- of health programs, organize sports events and/or integrate
many was not attained. The background to this is the target- healthcare and healthy living into day-to-day office activities.
ed development of women to assume Managing Director Volkswagen Financial Services AG promotes a family-
positions in our companies outside Germany. friendly environment and offers numerous (and continuous-
A cross-brand mentoring program is run each year ly expanding) initiatives and programs aimed at achieving
throughout the Group with the aim of increasing the propor- the right work-life balance.
tion of women in management. Eight mentees from “Frech Daxe”, the inhouse childcare facility of Volkswagen
Volkswagen Financial Services AG successfully completed the Financial Services AG, which is operated by Impuls Soziales
program for 2016/2017. The aim of the twelve-month pro- Management GmbH & Co. KG, is located very close to the
gram is for suitably qualified female employees to receive Company’s offices. It has capacity for 180 children and offers
advice, support and coaching from managers in the Group. flexible hours of care (even during holiday periods), making it
unrivaled in Germany.

32 Report on Expected Developments Combined Management Report
Report on Expected
Developments
The global economy is expected to grow somewhat less strongly in 2018 than in the previ-
ous year. We assume that trends in global demand for vehicles will be mixed and that de-
mand will increase at a slightly slower rate than in the reporting period.
The main opportunities and risks arising from the operating Ukraine does not worsen. Following the increase in the past
activities having been set out in the report on opportunities fiscal year, Russia’s economic output is likely to grow further.
and risks, the section below now outlines the expected future Political uncertainty and social tensions resulting primar-
developments. These developments give rise to opportuni- ily from high unemployment levels will probably weigh on
ties and potential benefits that are included in our planning the South African economy in 2018 and are expected to keep
process on an ongoing basis so that we can exploit them as growth down.
soon as possible.
Our assumptions are based on current estimates by third- Germany
party institutions. These include economic research institutes, In Germany, gross domestic product (GDP) is likely to in-
banks, multinational organizations and consulting firms. crease less strongly in 2018 than in the reporting period.
However, the situation in the labor market is expected to
DEVELOPMENTS OF THE GLOBAL ECONOMY remain stable and bolster consumer spending.
In our forecasts, we assume that global economic growth will
weaken slightly in 2018. We believe risks will arise from pro- North America
tectionist tendencies, turbulence in the financial markets and We expect the economic situation in the USA to further im-
structural deficits in individual countries. In addition, growth prove in 2018. The US Federal Reserve is likely to implement
prospects will continue to be hurt by geopolitical tensions additional interest rate hikes throughout the course of the
and conflicts. We therefore expect somewhat weaker mo- year. At the same time, fiscal policy measures are intended to
mentum than in 2017 in both the advanced economies and provide support. Growth in Canada is likely to weaken, while
the emerging markets. We expect the strongest rates of ex- remaining nearly unchanged in Mexico.
pansion in Asia’s emerging economies.
Furthermore, we anticipate that the global economy will South America
also continue to grow in the period from 2019 to 2022. The economy in Brazil is very likely to stabilize further in
2018 and record somewhat higher growth than in the report-
Europe/Other Markets ing period. Despite sustained high inflation, Argentina
In Western Europe, economic growth is expected to slow should achieve a similar increase in GDP to that recorded in
down in 2018 compared with the reporting period. Resolving the reporting period.
structural problems poses a major challenge, as do the uncer-
tain results and impacts of the Brexit negotiations between Asia-Pacific
the EU and the United Kingdom. In 2018, the Chinese economy is expected to continue grow-
For Central Europe, we estimate that growth rates in 2018 ing at a relatively high level, but year-on-year this growth will
will be lower than those of the past fiscal year. In Eastern lose momentum. For India, we anticipate an expansion rate
Europe, the economic situation should stabilize further, at around the 2017 level. The economic situation in Japan is
providing that the smoldering conflict between Russia and likely to deteriorate compared with the reporting period.

Combined Management Report Report on Expected Developments 33
TRENDS IN THE MARKETS FOR FINANCIAL SERVICES Kingdom, we expect the market volume to fall moderately
We believe that automotive financial services will be very short of the previous year’s high level.
important for vehicle sales worldwide in 2018. We expect Passenger car demand in 2018 is expected to significantly
demand to continue rising in emerging markets where mar- exceed the prior-year figures in markets in Central and East-
ket penetration has so far been low, such as China. Regions ern Europe. In Russia, the volume of demand will probably
with already developed automotive financial services mar- rise somewhat more strongly after the considerable recovery
kets will see a continuation of the trend towards enabling over the past fiscal year. We also expect to see further growth
mobility at the lowest possible total costs. Integrated end-to- in demand in the other markets in this region.
end solutions, comprising mobility-related service modules We are projecting that the volume of demand in the
such as insurance and innovative packages of services, will South African passenger car market in 2018 will be up slight-
become increasingly important to this. Additionally, we ly year-on-year.
expect demand to increase for new forms of mobility, such as
carsharing, and for integrated mobility services including Germany
parking, refueling and charging. We anticipate that this trend Following the positive trend of recent years, we forecast that
will also continue in the period from 2019 to 2022. the market volume of the German passenger car market will
In the mid-sized and heavy commercial vehicles category, remain on a level with the previous year in 2018.
we expect rising demand for financial services products in
emerging markets. There in particular, financing solutions North America
support vehicle sales and are thus an essential component of The volume of demand in the markets for passenger cars and
the sales process. In the mature markets, we foresee in- light commercial vehicles (up to 6.35 tonnes) in North Amer-
creased demand for telematics services and services aimed at ica as a whole and in the USA is likely to be slightly lower in
reducing total operating costs in 2018. This trend is also 2018 than in the prior year. Demand will probably remain
expected to continue in the period 2019 to 2022. highest for models in the SUV and pickup segments. In Cana-
da, the number of new registrations is projected to be slightly
TRENDS IN THE PASSENGER CAR MARKETS below the previous year’s high level as well. In Mexico, we
We expect trends in the passenger car markets in the indi- anticipate that demand will be unchanged year-on-year.
vidual regions to be mixed in 2018. Overall, growth in global
demand for new vehicles will probably be slower than in the South America
reporting period. Owing to their dependence on demand for raw materials, the
The Volkswagen Group is well prepared for the future South American markets for passenger cars and light com-
challenges in the mobility business and the mixed develop- mercial vehicles are heavily influenced by developments in
ments in regional automotive markets. Our unique brand the global economy. In addition, protectionist tendencies are
portfolio, our presence in all major world markets, broad and adversely affecting the performance of the region’s vehicle
selectively expanded product range, and pioneering technol- markets, especially in Brazil and Argentina, which have im-
ogies and services place us in a good competitive position posed restrictions on vehicle imports. Nevertheless, we ex-
worldwide. Our goal is to offer all customers mobility and pect demand in the South American markets as a whole to
innovations suited to their needs and thus ensuring long- distinctly increase in 2018 compared with the previous year.
term success. In Brazil, South America’s largest market, volume is likely to
We expect that the growth in demand for passenger cars rise markedly again in 2018 after the strong increase in the
worldwide will continue in the years 2019 to 2022. past fiscal year. We anticipate that demand in the Argentini-
an market in 2018 will be perceptibly higher year-on-year.
Europe/Other Markets
For 2018, we anticipate that unit sales volumes in Western Asia-Pacific
Europe will fall slightly short of those seen in the reporting We believe that the passenger car markets in the Asia-Pacific
period. The level recorded before the financial and debt crisis region will continue their growth in 2018, albeit at a slower
is unlikely to be achieved again in the medium term. The pace. In China, the increase in individual mobility require-
uncertain outcome of the exit negotiations between the EU ments will push up demand, though the rate of growth is
and United Kingdom is likely to further exacerbate the con- likely to be slightly slower than in the previous year. Strong
tinuing uncertainty among consumers precipitated by the demand is still forecast for attractively priced entry-level
financial and debt crisis, putting a damper on demand. In models in the SUV segment in particular. In India, we expect
Italy and Spain, the recovery will probably continue in 2018 demand for passenger cars to moderately exceed the previ-
but at a considerably slower pace; in the French market, we ous year’s level. We anticipate that demand in the Japanese
expect growth to be only slightly positive. In the United passenger car market will fall slightly in 2018.

TRENDS IN THE MARKETS FOR COMMERCIAL VEHICLES INTEREST RATE TRENDS

We expect trends in the markets for light commercial vehi- In 2017 and also into the beginning of the current fiscal year,
cles in the individual regions to be mixed again in 2018. central banks continued to support the global economy and
Overall, we expect a slight fall in demand in 2018, and a re- the financial system with an expansionary monetary policy,
turn to the growth trajectory for the years 2019 to 2022. although the central banks in the US and the UK have already
Due to the uncertainty caused by the United Kingdom’s introduced initial interest rate hikes. The level of interest rates
European Union membership referendum in June 2016, we still remains close to the historic low. In terms of the econom-
estimate that demand for light commercial vehicles in West- ic outlook, the clouds are lifting however, so much so that the
ern Europe in 2018 will be slightly below the previous year’s central banks in the US and UK are likely to announce further
level. The United Kingdom and Italy are expected to record a gradual increases in interest rates. This will be reflected in a
decline. We anticipate that registrations in Germany will be modest rise in interest denominated in GBP and USD.
around the previous year’s level. However, the ECB will certainly maintain its policy of low
In the Central and Eastern European markets, registra- interest rates throughout the whole of 2018. An initial rise in
tions of light commercial vehicles in 2018 will probably be interest rates is not anticipated before 2019. Interest rates
perceptibly higher than in the previous year. In Russia, too, will therefore probably remain stable in the eurozone for the
we expect the market volume to rise compared with 2017. time being.
In North and South America, the light vehicle market is
reported as part of the passenger car market, which includes MOBILITY CONCEPTS
both passenger cars and light commercial vehicles. Social and political factors are increasingly having an impact
The market volume in the Asia-Pacific region in 2018 will on many people’s individual mobility behavior. New chal-
probably record a slight year-on-year decline. We are also lenges in connection with the design of an intelligent mobili-
expecting demand in the Chinese market to fall short of the ty mix comprising public transport combined with motor-
prior-year level. For India, we are forecasting a considerably ized and non-motorized personal transport are appearing,
higher volume in 2018 than in the reporting period. In the primarily in large metropolitan areas. Mobility is being rede-
Japanese market, the downward trend is likely to continue at fined in many respects.
a slower pace. In collaboration with the automotive brands in the
Volkswagen Group, Volkswagen Financial Services AG is
In the markets for mid-sized and heavy trucks that are rele- working extensively on the development of new mobility
vant for the Volkswagen Group, new registrations in 2018 are services, as has been the case in the conventional automotive
set to be slightly up on the level seen in 2017. We anticipate a business for many years.
slightly positive trend for the period from 2019 to 2022. New mobility solutions will enhance the traditional idea
We assume that demand in Western Europe will taper off of owning a vehicle. Based on leasing, long-term and short-
slightly year-on-year in 2018. In Germany, we expect the term rentals, car and truck hire as well as car sharing,
market to remain on a level with the previous year. Volkswagen Financial Services AG – through its subsidiaries –
Central and Eastern European markets should record a can now cover an even greater proportion of the mobility
moderate increase in demand. In Russia, we anticipate a needs of its customers.
further recovery in demand in 2018, though the growth rate The Company has taken a huge step towards becoming a
seen in 2017 will not be repeated. mobility service provider with the expansion of vehicle-related
We believe that demand in the Brazilian market in 2018 mobility services. Volkswagen Financial Services AG already
will grow perceptibly from the low level of the previous year. offers its customers an attractive portfolio of services covering
This is due to the continuing economic recovery. the customer desire for convenience and flexibility. Efforts are
In the bus markets that are relevant for the Volkswagen focusing on the global expansion of innovative payment solu-
Group, we expect to see a slight increase in demand in 2018. tions for digital business models in the Volkswagen Group, the
We anticipate that demand in Western Europe over the same further expansion of cashless and mobile settlement of park-
period will be on a level with that seen in 2017. For Central ing charges in North America and Europe and the further de-
and Eastern Europe, we are forecasting higher demand than velopment of the electric vehicle charging and fuel card offers
in the previous year. In Brazil, new registrations will probably in Europe. In this context, Volkswagen Financial Services AG
be slightly higher than the prior-year level. intends to continue to serve as a one-stop shop for its custom-
For the period 2019 to 2022, we expect slight growth ers. In addition, the Europe-wide processing of toll business
overall in the demand for buses in the markets that are rele- will be integrated into the services for business customers and
vant for the Volkswagen Group. other activities will focus on driving forward the further ex-
pansion of the fleet business.

Simple, convenient, transparent, safe, reliable, flexible – these Forecast for Credit and Residual Value Risk
are the key requirements that our business must satisfy in A stable risk position is anticipated for 2018. This steady
the future. Volkswagen Financial Services AG continues to position should be supported by a further stabilization in the
closely monitor developments in the mobility market and is economic environment and the continued recovery in Euro-
already working on new models to support alternative con- pean markets. In the Asia/Pacific region, we anticipate that
cepts of marketing and establish new mobility concepts that the risk position will remain unchanged overall, while in
will safeguard and expand on its existing business model. Latin America we are assuming that the risk situation will be
In this way, we will continue to make good on the essence continue to be challenging. Certain markets (such as Brazil
of our brand promise in the future and remain “The Key to and Russia) are already being monitored; this will be contin-
Mobility” over the long term. ued in 2018 so that, if required, suitable measures can be
implemented to reach our defined goals for the current year.
NEW MARKETS/INTERNATIONALIZATION/NEW SEGMENTS We expect the volume of contracts to continue to grow in
The financing, leasing, insurance and mobility services busi- fiscal year 2018. The main drivers behind this are the imple-
nesses are essential to attracting customers and to developing mented growth program, continued economic recovery in
loyal, long-term customer relationships globally. Volkswagen the markets and further expansion in the fleet business. The
Financial Services AG, as financial services provider and strate- current debate about the use of diesel vehicles being poten-
gic partner for the Volkswagen Group brands, specifically tially prohibited in major cities in the future could affect the
reviews the implementation of these business areas in new residual value portfolio in 2018.
markets through developing targeted entry concepts in order
to lay the foundations for profitable growth in the business Forecast for Liquidity Risk
volume in these markets. The risk development is currently categorized as stable. The
established sources of funding are currently available in all
SUMMARY OF EXPECTED DEVELOPMENTS markets. To ensure that this situation is maintained in the
Volkswagen Financial Services AG expects its growth in the long term, funding diversification is being extended in indi-
next fiscal year to be linked to the growth in unit sales of vidual markets and existing sources of funding are being
Volkswagen Group vehicles. The Company aims to boost its updated to make them sustainable.
business volume and expand its international orientation by
expanding the product range in existing markets and devel- OUTLOOK FOR 2018
oping new markets. Volkswagen Financial Services AG’s Board of Management
Sales activities related to the Volkswagen Group brands expects global economic growth to be somewhat slower in
will be further intensified, particularly through joint strategic 2018 than in the previous year. The financial markets con-
projects. Furthermore, Volkswagen Financial Services AG tinue be the source of some risk, primarily because of the
intends to continue enhancing the leveraging of potential challenging level of indebtedness in many countries. In addi-
along the automotive value chain. tion, growth prospects will be hurt by geopolitical tensions
Our aim is to satisfy the wishes and needs of our custom- and conflicts. The emerging economies of Asia will probably
ers in the most efficient manner in cooperation with the record the highest rates of growth. We expect growth in the
Group brands. Our end customers are looking, in particular, major industrialized nations to moderate slightly.
for mobility with predictable fixed costs. In addition, we When the above factors and the market trends are consid-
intend to further expand the digitalization of our business. ered, the following overall picture emerges: our earnings
The product packages and mobility solutions successfully expectations assume a slight increase in funding costs, great-
launched in the last few years will be refined in line with er levels of cooperation with the individual Group brands,
customer needs. increased investment in digitalization for the future and
In parallel with the company’s market-based activities, continued uncertainty about macroeconomic conditions in
the position of Volkswagen Financial Services AG vis-à-vis its the real economy and the impact of this uncertainty on fac-
global competitors will be further strengthened through tors such as risk costs, as well as the potential effects of geo-
strategic investment in structural projects as well as through political upheaval. Assuming that margins remain stable in
process optimization and productivity gains. the coming year, the operating profit in fiscal year 2018 is
expected to be at the level achieved in fiscal year 2017.

We are projecting that both new and current contracts will growth and stable capital adequacy are expected to lead to a
remain stable. In addition, we assume that we will be able to steady return on equity in 2018 compared with the previous
keep our penetration rate at 2017 levels in a vehicle market year. We expect the cost/income ratio in 2018 to be at the
generally expected to expand more slowly. We expect the level of the previous year.
business volume to increase slightly. The forecast earnings
FORECAST CHANGES IN KEY PERFORMANCE INDICATORS FOR FISCAL YEAR 2018 COMPARED WITH PRIOR-YEAR FIGURES
Actual 2017 Forecast for 2018

Penetration (percent) 19.6 = 19.6 At prior-year level
Current contracts (thousands) 8,524 = 8,524 At prior-year level
New contracts (thousands) 3,487 = 3,487 At prior-year level

Volume of business (€ million) 50,233 > 50,233 Slight increase
Operating profit (€ million) 609 = 609 At prior-year level
Return on equity (percent) 8.4 = 8.4 At prior-year level
Cost/income ratio (percent) 73 = 73 At prior-year level

Braunschweig, February 12, 2018

The Board of Management
Lars Henner Santelmann Dr. Mario Daberkow
Dr. Christian Dahlheim Frank Fiedler
Christiane Hesse
This report contains forward-looking statements on the future business development of economic stagnation in the key sales markets of the Volkswagen Group will have a
Volkswagen Financial Services AG. These statements are based on assumptions relating corresponding impact on the development of our business. The same applies in the event
to the development of the economic and legal environment in individual countries and of material changes in exchange rates against the euro. In addition, expected business
economic regions in terms of the global economy and of the financial and automotive development may vary if the assessments of the key performance indicators and of risks
markets, which we have made on the basis of the information available to us and which and opportunities presented in the 2017 Annual Report develop differently to our current
we currently consider to be realistic. The estimates given entail a degree of risk, and the expectations, or additional risks and opportunities or other factors emerge that affect the
actual developments may differ from those forecast. Any unexpected fall in demand or development of our business.

CONSOLIDATED FINANCIAL STATEMENTS 45 Notes
39 Income Statement 45 General Information

40 Statement of Comprehensive Income 45 Basis of Presentation
41 Balance Sheet 45 Significant Events
43 Statement of Changes in Equity 46 Restated Prior-Year Figures
44 Cash Flow Statement 49 Effects of New and Revised IFRSs
49 New and Revised IFRSs Not Applied
53 Accounting Policies
73 Income Statement Disclosures
80 Balance Sheet Disclosures
108 Financial Instrument Disclosures
123 Segment Reporting
128 Other Disclosures
137 Responsibility Statement
138 Independent Auditor’s Report

144 Report of the Supervisory Board
Consolidated Financial Statements Income Statement 39
Income Statement
of the Volkswagen Financial Services AG Group
Jan. 1 – Dec. 31.

Jan. 1 – Dec. 31, 2016
€ million Note 2017 restated1 Change in percent
Interest income from lending transactions 1,987 1,904 4.4

Income from leasing transactions and service contracts 9,961 9,478 5.1
Expenses from leasing transactions and service contracts – 6,940 – 6,677 3.9
Depreciation of and impairment losses on lease assets and investment property – 2,095 – 1,986 5.5
Net income from leasing transactions before provision for credit risks 926 815 13.6
Interest expense – 1,052 – 1,057 – 0.5
Income from insurance transactions 287 197 45.7
Expenses from insurance transactions – 169 – 119 42.0
Net income from insurance business 118 78 51.3
Net income from lending, leasing and insurance transactions before provision for
credit risks 22 1,979 1,741 13.7
Provision for credit risks from lending and leasing business 9, 23, 33 – 491 – 560 – 12.3
Net income from lending, leasing and insurance transactions after provision for credit
risks 1,488 1,181 26.0
Fee and commission income 287 278 3.2
Fee and commission expenses – 161 – 157 2.5
Net fee and commission income 24 127 121 5.0
Net gain/loss on the measurement of derivative financial instruments and hedged
items 10, 25 11 – 48 X
Share of profits and losses of equity-accounted joint ventures 76 74 2.7
Net loss on marketable securities and miscellaneous financial assets 26 – 42 –2 X
General and administrative expenses 27 – 1,682 – 1,640 2.6
Other operating income 972 1,192 – 18.5
Other operating expenses – 308 – 264 16.7
Net other operating income 28 664 928 – 28.4
Profit before tax 643 615 4.6
Income tax expense 6, 29 – 122 – 242 – 49.6
Profit from continuing operations, net of tax 520 373 39.4
Profit from discontinued operations, net of tax 384 768 – 50.0
Profit after tax 904 1,141 – 20.8
Profit after tax attributable to Volkswagen AG 904 1,141 – 20.8
1 Previous year restated as explained in the disclosures on the leasing business in the United Kingdom and Irish markets, in the disclosures on the separately recognized derivatives in the
United Kingdom market as well as on the discontinued operations in the section entitled “Restated Prior-Year Figures”.

40 Statement of Comprehensive Income Consolidated Financial Statements
Statement of Comprehensive
Income
Jan. 1 – Dec. 31, Jan. 1 – Dec. 31,

€ million Note 2017 2016
Profit after tax 904 1,141

Pension plan remeasurements recognized in other comprehensive income 46
Pension plan remeasurements recognized in other comprehensive income, before tax 38 – 112
Deferred taxes relating to pension plan remeasurements recognized in other comprehensive income 6, 29 – 11 31
Pension plan remeasurements recognized in other comprehensive income, net of tax 28 – 81
Share of other comprehensive income of equity-accounted investments
that will not be reclassified to profit or loss, net of tax –1 1
Items that will not be reclassified to profit or loss 27 – 80
Exchange differences on translating foreign operations 4
Losses on currency translation recognized in other comprehensive income – 365 – 54
Reclassified to profit or loss 246 –
Exchange differences on translating foreign operations, before tax – 119 – 54
Deferred taxes relating to exchange differences on translating foreign operations – –
Exchange differences on translating foreign operations, net of tax – 119 – 54
Cash flow hedges 10
Fair value changes recognized in other comprehensive income –4 18
Reclassified to profit or loss 0 7
Cash flow hedges, before tax –4 25
Deferred taxes relating to cash flow hedges 6, 29 1 –7
Cash flow hedges, net of tax –3 18
Available-for-sale financial assets
Fair value changes recognized in other comprehensive income – 13 37
Reclassified to profit or loss – 34 – 13
Available-for-sale financial assets, before tax – 47 23
Deferred taxes relating to available-for-sale financial assets 6, 29 13 –9
Available-for-sale financial assets, net of tax – 34 14
Share of other comprehensive income of equity-accounted investments that may be reclassified
subsequently to profit or loss, net of tax – 24 6
Items that may be reclassified subsequently to profit or loss – 181 – 16
Other comprehensive income, before tax – 157 – 111
Deferred taxes relating to other comprehensive income 3 15
Other comprehensive income, net of tax – 154 – 96
Total comprehensive income 751 1,045
Total comprehensive income attributable to Volkswagen AG 751 1,045
€ million Jan. 1 – Dec. 31, 2017 Jan. 1 – Dec. 31, 2016
Classification of Total Comprehensive Income Attributable to Volkswagen AG

Continuing operations 248 495
Discontinued operations 503 551

Consolidated Financial Statements Balance Sheet 41
Balance Sheet
Dec. 31, 2016 Jan. 1, 2016

€ million Note Dec. 31, 2017 restated1 Change in percent restated2
Assets
Cash reserve 7, 31 40 1,478 – 97.3 1,416
Loans to and receivables from banks 8 1,444 2,236 – 35.4 2,940
Loans to and receivables from customers attributable
to
Retail financing 16,269 41,726 – 61.0 38,786
Dealer financing 3,584 14,638 – 75.5 13,967
Leasing business 18,809 34,344 – 45.2 31,715
Other loans and receivables 11,143 9,957 11.9 8,435
Total loans to and receivables from customers 8, 32 49,804 100,664 – 50.5 92,902
Derivative financial instruments 10, 34 555 1,297 – 57.2 1,178
Marketable securities 11 257 2,993 – 91.4 2,936
Equity-accounted joint ventures 35 631 633 – 0.3 538
Miscellaneous financial assets 12, 35 373 288 29.5 206
Intangible assets 13, 36 59 150 – 60.7 149
Property and equipment 14, 37 265 314 – 15.6 317
Lease assets 16, 38 11,571 14,696 – 21.3 12,982
Investment property 16, 38 10 14 – 28.6 15
Deferred tax assets 6, 39 1,035 1,834 – 43.6 1,703
Current tax assets 6 137 156 – 12.2 320
Other assets 40 2,772 3,495 – 20.7 3,780
Total 68,953 130,248 – 47.1 121,383

42 Balance Sheet Consolidated Financial Statements
Dec. 31, 2016 Jan. 1, 2016

€ million Note Dec. 31, 2017 restated1 Change in percent restated2

Liabilities to banks 17, 42 10,982 17,034 – 35.5 15,721
Liabilities to customers 17, 42 9,673 49,454 – 80.4 43,764
Notes, commercial paper issued 43, 44 32,453 37,849 – 14.3 39,913
Derivative financial instruments 10, 45 211 513 – 58.9 381
Provisions for pensions and other post-employment
benefits 18, 46 360 478 – 24.7 357
Underwriting provisions and other provisions 19, 20, 47 888 1,212 – 26.7 1,092
Deferred tax liabilities 6, 48 447 1,151 – 61.2 1,072
Current tax liabilities 6 348 494 – 29.6 329
Other liabilities 49 1,613 1,929 – 16.4 1,599
Subordinated capital 44, 50 4,354 3,183 36.8 2,344
Equity 52 7,624 16,951 – 55.0 14,811
Subscribed capital 441 441 X 441
Capital reserves 2,600 10,449 – 75.1 9,224
Retained earnings 5,264 6,564 – 19.8 5,634
Other reserves – 683 – 503 35.8 – 488
Equity attributable to noncontrolling interests 2 – X –
Total 68,953 130,248 – 47.1 121,383
1 Previous year restated as explained in the disclosures on the leasing business in the United Kingdom and Irish markets and in the disclosures on the separately recognized derivatives in
the United Kingdom market in the section entitled “Restated Prior-Year Figures”.
2 January 1, 2016 corresponds to December 31, 2015 after adjustments, as explained in the disclosures on the leasing business in the United Kingdom and Irish markets and in the
disclosures on the separately recognized derivatives in the United Kingdom market in the section entitled “Restated Prior-Year Figures”.

Consolidated Financial Statements Statement of Changes in Equity 43
Statement of Changes in Equity

OTHER RESERVES
Available- Equity-
Subscribed Capital Retained Currency Cash flow for sale accounted Noncontrolling
€ million capital reserves earnings translation hedges financial assets investments interests Total equity
Balance as of Jan. 1, 2016 441 9,224 5,634 – 460 –7 21 – 42 – 14,811

Profit after tax – – 1,141 – – – – – 1,141
Other comprehensive
income, net of tax – – – 81 – 54 18 14 7 – – 96
Total comprehensive
income – – 1,060 – 54 18 14 7 – 1,045
Capital increases – 1,225 – – – – – – 1,225
Profit transfer to
Volkswagen AG – – – 130 – – – – – – 130
Other changes – – – – – – – – –
Balance as of Dec. 31,
2016 441 10,449 6,564 – 514 10 36 – 35 – 16,951
Balance as of Jan. 1, 2017 441 10,449 6,564 – 514 10 36 – 35 – 16,951

Profit after tax – – 904 – – – – 0 904
Other comprehensive
income, net of tax – – 28 – 119 –3 – 34 – 25 0 – 154
Total comprehensive
income – – 932 – 119 –3 – 34 – 25 0 751
Capital increases – 1,000 – – – – – – 1,000
Loss assumed by
Volkswagen AG – – 478 – – – – – 478
Non-cash assets
distributed due to the
derecognition of
companies classified as
discontinued operations – – 8,849 – 2,710 – – – – – – 11,559
Other changes – – 0 1 – – – 2 3
Balance as of Dec. 31,
2017 441 2,600 5,264 – 633 7 2 – 59 2 7,624
See note (52) for further disclosures on equity.

44 Cash Flow Statement Consolidated Financial Statements
Cash Flow Statement

Jan. 1 – Dec. 31, Jan. 1 – Dec. 31,

€ million 2017 2016
Profit after tax 904 1,141

Depreciation, amortization, impairment losses and reversals of impairment losses 3,176 3,152
Change in provisions 100 222
Change in other noncash items 1,577 1,607
Gain/loss on disposal of financial assets and items of property and equipment – 511 1
Net interest expense and dividend expense1 – 1,640 – 3,339
Other adjustments –4 –3
Change in loans to and receivables from banks 1,332 740
Change in loans to and receivables from customers – 7,771 – 9,817
Change in lease assets – 4,527 – 4,700
Change in other assets related to operating activities – 254 257
Change in liabilities to banks 2,261 879
Change in liabilities to customers – 2,310 6,116
Change in notes, commercial paper issued 6,216 – 1,255
Change in other liabilities related to operating activities 321 379
Interest received 2,687 4,692
Dividends received1 5 11
Interest paid – 1,052 – 1,363
Income taxes paid – 246 – 196
Cash flows from operating activities 264 – 1,478
Proceeds from disposal of investment property – 0
Acquisition of investment property – 0
Proceeds from disposal of subsidiaries and joint ventures2 – 4,323 0
Acquisition of subsidiaries and joint ventures – 109 – 92
Proceeds from disposal of other assets 4 6
Acquisition of other assets – 81 – 75
Change in investments in securities 166 – 75
Cash flows from investing activities – 4,343 – 236
Proceeds from changes in capital 1,000 1,225
Distribution/profit transfer to Volkswagen AG – 130 – 420
Change in cash funds attributable to subordinated capital 1,774 969
Cash flows from financing activities 2,644 1,774
Cash and cash equivalents at end of prior period 1,478 1,416

Cash flows from operating activities 264 – 1,478
Cash flows from investing activities – 4,343 – 236
Cash flows from financing activities 2,644 1,774
Effect of exchange rate changes –3 1
Cash and cash equivalents at end of period 40 1,478
1 Prior-year figures adjusted for profit and loss transfers.

2 The impact from the derecognition of the cash and cash equivalents and the net assets of the companies classified as discontinued operations can be determined from the balance
sheet for the discontinued operations on the date of derecognition (September 1, 2017) shown in note (2).
See note (64) for disclosures on the cash flow statement.

Consolidated Financial Statements Notes to the Consolidated Financial Statements 45
Notes to the Consolidated

Financial Statements
for the Year Ended December 31, 2017
General Information
Volkswagen Financial Services Aktiengesellschaft (VW FS AG) has the legal structure of a stock corporation. It
has its registered office at Gifhorner Strasse, Braunschweig, Germany, and is registered in the Braunschweig
commercial register (HRB 3790).
The object of the Company is to develop, sell and process its own and third-party financial services both in
Germany and abroad, the purpose of such financial services being to support the business of Volkswagen AG
and of Volkswagen AG’s affiliated companies.
Volkswagen AG, Wolfsburg, is the sole shareholder of the parent company, VW FS AG. Volkswagen AG and
VW FS AG have entered into a control and profit-and-loss transfer agreement.
The annual financial statements of the companies in the VW FS AG Group are included in the consolidated
financial statements of Volkswagen AG, Wolfsburg, which are published in the electronic German Federal Ga-
zette and Company Register.
Basis of Presentation
VW FS AG has prepared its consolidated financial statements for the year ended December 31, 2017 in accord-
ance with International Financial Reporting Standards (IFRSs), as adopted by the European Union (EU), and the
interpretations issued by the International Financial Reporting Standards Interpretations Committee IFRS IC)
as well as in accordance with the additional disclosures required by German commercial law under sec-
tion 315e(1) of the Handelsgesetzbuch (HGB – German Commercial Code). All IFRSs issued by the International
Accounting Standards Board (IASB) up to December 31, 2017 for which mandatory application was required in
fiscal year 2017 in the EU have been taken into account in these consolidated financial statements.
In addition to the income statement, the statement of comprehensive income and the balance sheet, the
IFRS consolidated financial statements also include the statement of changes in equity, the cash flow statement
and the notes. The separate report on the risks associated with future development (risk report in accordance
with section 315(1) of the HGB) can be found in the management report on pages 19 – 27. This includes the
qualitative disclosures on the nature and scope of risk from financial instruments required under IFRS 7.
All the estimates and assumptions necessary as part of recognition and measurement in accordance with
IFRS comply with the relevant standard, are continuously updated and are based on past experience and other
factors, including expectations regarding future events that appear to be reasonable in the given circumstances.
Where significant estimates have been necessary, the assumptions made by the Company are explained in
detail in the disclosures on management’s estimates and assumptions.
The Board of Management completed the preparation of these consolidated financial statements on Febru-
ary 12, 2018. This date marked the end of the period in which adjusting events after the reporting period were
recognized.

46 Notes to the Consolidated Financial Statements Consolidated Financial Statements
Significant Events
In 2016, Volkswagen Financial Services AG initiated a reorganization of its structures under company law. A key
milestone in the project was reached on September 1, 2017 when Volkswagen Financial Services AG’s subsidiary
Volkswagen Bank GmbH was transferred to become a direct subsidiary of Volkswagen AG. The aim of the re-
structuring was to segregate the European lending and deposits business from the other financial services
activities and to pool this business under Volkswagen Bank GmbH, structured as a direct subsidiary of
Volkswagen AG. The intention of the restructuring is to increase transparency and clarity for supervisory au-
thorities, optimize the use of equity and reduce complexity. A new company, Volkswagen Financial Services
Digital Solutions GmbH, will develop and provide system-based services for its parent companies
Volkswagen Bank GmbH and Volkswagen Financial Services AG. The other activities will remain in
Volkswagen Financial Services AG, which will still be a direct subsidiary of Volkswagen AG.
The next few years will see further changes in the international subsidiaries within the European Economic
Area as part of the progress toward the target structure.
Restated Prior-Year Figures
LEASING BUSINESS IN THE UNITED KINGDOM AND IRISH MARKETS

To standardize the presentation in the consolidated financial statements, some of the receivables reported as
retail financing in the United Kingdom and Irish markets are now reported as receivables from leasing transac-
tions and prior-year figures have therefore been restated accordingly.
In this regard, in the UK market, the portfolio-based valuation allowances relating to the risk of early termi-
nation previously included in the net carrying amount of loans/receivables from retail financing have been
separately recognized as derivative financial instruments on the liabilities side.
The prior-year income statement has been restated as follows as a result of the changes arising from the leasing
business in the United Kingdom and Irish markets.
Jan. 1 – Dec. 31, Jan. 1 – Dec. 31,

2016 2016
before restated Restated leasing after restated
€ million figures business leasing business
Interest income from lending transactions 3,848 – 685 3,162

income from leasing transactions 14,507 685 15,192
Net income from leasing transactions before provision for credit risks 1,260 685 1,946
credit risks 3,824 – 3,824
Provision for credit risks from lending and leasing business – 672 – 11 – 682
risks 3,152 – 11 3,142
items – 85 11 – 75
Profit before tax 1,650 – 1,650
Income tax expense – 509 – – 509
Profit from continuing operations, net of tax 1,141 – 1,141
Profit from discontinued operations, net of tax – – –
Profit after tax 1,141 – 1,141
Profit after tax attributable to Volkswagen AG 1,141 – 1,141

The balance sheet as of January 1, 2016 has been restated as follows as a result of the changes arising from the
leasing business in the United Kingdom and Irish markets.
Jan. 1, 2016
before restated Restated Leasing Jan. 1, 2016
€ million figures Business restated
Assets
retail financing 50,665 – 11,880 38,786
leasing business 19,704 12,011 31,715
Total loans to and receivables from customers 92,771 132 92,902
Total 121,251 132 121,383
Jan. 1, 2016
before restated Restated Leasing Jan. 1, 2016
€ million figures Business restated
Liabilities
Derivative financial instruments 249 132 381
Total 121,251 132 121,383
The balance sheet as of December 31, 2016 has been restated as follows as a result of the changes arising from
the leasing business in the United Kingdom and Irish markets.
Dec. 31, 2016 Restated Leasing Dec. 31, 2016

€ million before restate figures Business restated
Assets
retail financing 53,973 – 12,247 41,726
leasing business 21,997 12,347 34,344
Total loans to and receivables from customers 100,564 100 100,664
Total 130,148 100 130,248
Dec. 31, 2016 Restated Leasing Dec. 31, 2016

€ million before restate figures Business restated

Derivative financial instruments 413 100 513
Total 130,148 100 130,248

D I S C O N T I N U E D O P E R AT I O N S : E U R O P E A N L E N D I N G A N D D E P O S I T S B U S I N E S S
As a result of the reorganization of the legal entities on September 1, 2017, the profit or loss for the derecog-
nized companies in connection with the discontinued European lending and deposits business for the period
January 1 to August 31, 2017, together with the corresponding prior-year figures, had to be reclassified to prof-
it/loss from discontinued operations in the IFRS income statement. The reclassification has resulted in differ-
ences between the income statement disclosures, which relate only to the discontinued operations, and the
balance sheet disclosures, which include both discontinued and continuing operations. Please refer to the de-
tails in note (2) for further disclosures relating to the derecognized companies.
The figures in the prior-year income statement have been restated as follows with regard to the discontinued
operations.
Jan. 1 – Dec. 31,

2016 Jan. 1 – Dec. 31.
after restated Discontinued 2016
€ million leasing business operations restated
Interest income from lending transactions 3,162 – 1,258 1,904

Income from leasing transactions 15,192 – 5,714 9,478
Expenses from leasing transactions – 13,246 4,584 – 8,663
Net income from leasing transactions before provision for credit risks 1,946 – 1,130 815
Interest expense – 1,363 306 – 1,057
Income from insurance transactions 197 – 197
Expenses from insurance transactions – 118 –1 – 119
Net income from insurance business 79 –1 78
credit risks 3,824 – 2,083 1,741
Provision for credit risks from lending and leasing business – 682 123 – 560
risks 3,142 – 1,960 1,181
Fee and commission income 594 – 316 278
Fee and commission expenses – 581 424 – 157
Net fee and commission income 13 108 121
items – 75 26 – 48
Share of profits and losses of equity-accounted joint ventures 77 –3 74
Net gain/loss on marketable securities and miscellaneous financial assets 20 – 22 –2
General and administrative expenses – 2,040 400 – 1,640
Other operating income 1,026 166 1,192
Other operating expenses – 514 250 – 264
Net other operating income/expenses 512 416 928
Profit/loss before tax 1,650 – 1,035 615
Income tax expense – 509 266 – 242
Profit/loss from continuing operations, net of tax 1,141 – 768 373
Profit/loss from discontinued operations, net of tax – 768 768
Profit after tax 1,141 – 1,141
Profit after tax attributable to Volkswagen AG 1,141 – 1,141

Effects of New and Revised IFRSs
VW FS AG has applied all financial reporting standards adopted by the EU and subject to mandatory application
from fiscal year 2017.
Under IAS 7 (Statement of Cash Flows), additional disclosures have been required since January 1, 2017 in
relation to cash and non-cash changes in financial liabilities arising from the financing activities reported in
the cash flow statement.
Amendments to IAS 12 (Income Taxes) applicable since January 1, 2017 have clarified the recognition of de-
ferred tax assets for unrealized losses related to assets measured at fair value.
As part of the annual improvements project for IFRSs (2014– 2016 cycle), the International Accounting
Standards Board (IASB) published amendments to IFRS 12 (Disclosure of Interests in Other Entities) to be ap-
plied from January 1, 2017 onward. These amendments clarified that the disclosures under IFRS 12 would gen-
erally also be required for subsidiaries, joint arrangements, associates and unconsolidated structured entities
even if they were classified as held for sale, as held for distribution, or as discontinued operations.
The provisions described above and the other amended provisions do not materially affect the
VW FS AG Group’s financial position and financial performance.
New and Revised IFRSs Not Applied
VW FS AG has not applied in its 2017 consolidated financial statements the following financial reporting stand-
ards that have already been issued by the IASB but were not yet subject to mandatory application in fiscal year
2017.

Published Application Adopted

Standard/interpretation by the IASB requirement1 by EU Expected impact
Classification and Measurement of June 20, January 1,

IFRS 2 Share-based Payment Transactions 2016 2018 No None
Applying IFRS 9 Financial
Instruments with IFRS 4 Insurance September January 1,
IFRS 4 Contracts 12, 2016 2018 Yes None
July 24, January 1, Detailed description following the table
IFRS 9 Financial Instruments 2014 2018 Yes overview
Amendments to IFRS 9 –
Prepayment Features with October 12, January 1,
IFRS 9 Negative Compensation 2017 2019 No None
Consolidated Financial Statements
and Investments in Associates and
Joint Ventures:
Sale or Contribution of Assets
IFRS 10 and between an Investor and its September
IAS 28 Associate or Joint Venture 11, 2014 Postponed2 – None
Revenue from Contracts with May 28, January 1,
IFRS 15 Customers 2014 20183 Yes No material impact
Clarifications to IFRS 15 – Revenue April 12, January 1,
IFRS 15 from Contracts with Customers 2016 2018 Yes No material impact
January 13, January 1, Detailed description following the table
IFRS 16 Leases 2016 2019 Yes overview
Changes to presentation and measurement
methods that, as a whole, do not have a
May 18, January 1, material impact; extended disclosures in the
IFRS 17 Insurance Contracts 2017 2021 No notes
Investments in Associates:
Long-term Interests in Associates October 12, January 1,
IAS 28 and Joint Ventures 2017 2019 No None
December January 1,
IAS 40 Transfers of Investment Property 8, 2016 2018 No No material impact
Improvements to International
Financial Reporting Standards December January 1,
20164 8, 2016 20185 Yes No material impact
Improvements to International
Financial Reporting Standards December January 1,
20176 12, 2017 2019 No No material impact
Translation of foreign currency advances into
Foreign Currency Transactions and December January 1, the functional currency using the spot rate on
IFRIC 22 Advance Consideration 8, 2016 2018 No the date of payment
Uncertainty over Income Tax June 7, January 1,
IFRIC 23 Treatments 2017 2019 No No material impact
1 Requirement for initial application from the VW FS AG perspective

2 On December 15, 2015, the IASB decided to postpone the date of initial application indefinitely.
3 Postponed until January 1, 2018 (IASB decision on September 11, 2015)
4 Minor changes to a number of IFRSs (IFRS 1 and IAS 28)
5 This concerns the initial application of the amendments to IFRS 1 and IAS 28
6 Minor changes to a number of IFRSs (IFRS 3, IFRS 11, IAS 12 and IAS 23)

I F R S 9 F I N A N C I A L I N ST R U M E N T S
IFRS 9 Financial Instruments revises the financial reporting provisions governing the classification and meas-
urement of financial assets, impairment of financial assets and hedge accounting.
Financial assets are classified and measured on the basis of the business model operated by an entity and
the structure of its cash flows. On initial recognition, a financial asset is classified as “at amortized cost”, “at fair
value through other comprehensive income” or “at fair value through profit or loss”. As a result of the changes
to the procedure for classifying and measuring financial assets, there is likely to be a negative conversion effect
amounting to approximately €1 million, net of deferred taxes. This initial application effect must be recognized
directly in retained earnings. The procedure for classifying and measuring financial liabilities under IFRS 9 is
largely unchanged compared with the current accounting requirements under IAS 39.
The model for determining impairment and recognizing the provision for credit risks is changing from an
incurred loss model to an expected loss model. The expected loss model breaks down the provision for credit
risks into three stages. Financial assets that are newly acquired or issued and that are not deemed to be under-
performing or non-performing on the date of initial recognition are allocated to stage 1. Stage 1 includes ex-
pected defaults that could arise from potential default events within the subsequent twelve months. In the case
of financial assets in which the credit risk has increased significantly since acquisition or issue but in which the
financial asset is not underperforming (stage 2) and non-performing financial assets (stage 3), the provision for
credit risks is recognized on the basis of the remaining maturity of the financial asset (lifetime expected loss).
In addition, interest income on financial assets classified as stage 3 is recognized on the basis of the net carry-
ing amount, i.e. amortized cost less recognized impairment losses, in contrast to the rules applicable to stages 1
and 2. The change in the measurement methodology to an expected loss model described above will lead to an
increase in the provision for credit risks on first-time application. This is expected to result in a negative con-
version effect ranging between €100 million and €130 million, which will be recognized directly in equity un-
der retained earnings. This increase in the provisions for credit risks results firstly from the requirement to
recognize a provision for credit risks for performing financial assets that have not been affected by a significant
increase in credit risk since initial recognition. Secondly, the increase arises from the requirement to recognize
a provision for credit risks on the basis of the total expected time to maturity for financial assets that have been
affected by a significant increase in credit risk since initial recognition.
As regards hedge accounting, IFRS 9 introduces wider designation options and the need to implement more
complex recognition and measurement logic. IFRS 9 also removes the quantitative limits for the effectiveness
test. The IFRS 9 hedge accounting requirements will be applied by the VW FS AG Group prospectively from the
changeover date, such that no initial application effect will arise from the new rules.
Overall, IFRS 9 will also give rise to significantly more extensive disclosures in the notes.

IFRS 16 LEASES
IFRS 16 amends the requirements for the accounting treatment of leases. The core objective of IFRS 16 is to
ensure that all leases are recognized in the balance sheet.
Accordingly, the previous requirement for lessees to classify a lease as either a finance lease or operating
lease has been eliminated. Instead, for all leases, lessees will have to recognize both a right-of-use asset and a
lease liability in their balance sheet in the future. There are only exemptions for short-term leases or those of
low value. During the term of the lease, the right-of-use asset must be depreciated and the lease liability meas-
ured using the effective interest method, taking into account the lease payments. The new accounting treat-
ment for lessees will therefore tend to increase assets and financial liabilities. It is also expected to reduce gen-
eral and administrative expenses and increase interest expenses in the income statement. Moreover, there will
be significantly more extensive disclosures in the notes.
The required accounting treatment for leases by lessors will be largely the same as under the current provi-
sions in IAS 17. In the future, lessors will still have to classify a lease as either a finance lease or an operating
lease based on the allocation of opportunities and risks from the asset.

Accounting Policies
1. Basic Principles
All entities included in the basis of consolidation have prepared their annual financial statements to the report-
ing date of December 31, 2017.
Financial reporting in the VW FS AG Group complies with IFRS 10 and is on the basis of standard Group-
wide accounting policies.
Unless otherwise stated, amounts are shown in millions of euros (€ million). All amounts shown are round-
ed, so minor discrepancies may arise from addition of these amounts.
Assets and liabilities are presented broadly in order of liquidity in accordance with IAS 1.60.
2. Basis of Consolidation
In addition to VW FS AG, the consolidated financial statements cover all significant German and non-German
subsidiaries, including all structured entities, controlled directly or indirectly by VW FS AG. This is the case if
VW FS AG has power over potential subsidiaries directly or indirectly from voting rights or similar rights, is
exposed, or has rights to, positive or negative variable returns from its involvement with the potential subsidi-
aries, and has the ability to use its power to influence those returns. The purpose of the structured entities is to
facilitate asset-backed-securities transactions to fund the financial services business. In the case of the struc-
tured entities consolidated in the VW FS AG Group, VW FS AG holds no equity investment but nevertheless
determines the main relevant activities remaining after the structure is created and thereby influences its own
variable returns.
Subsidiaries are included in the consolidation from the date on which control comes into existence; they
cease to be consolidated when control no longer exists. Subsidiaries in which activities are dormant or of low
volume and that, individually and jointly, are of minor significance in the presentation of a true and fair view of
the financial position, financial performance and cash flows of the VW FS AG Group are not consolidated. They
are recognized in the consolidated financial statements under financial assets at cost, taking into account any
necessary impairment losses or reversals of impairment losses.
The equity method is used to account for material entities in which VW FS AG has the opportunity, directly
or indirectly, to exercise significant influence over financial and operating policy decisions (associates) or in
which VW FS AG directly or indirectly shares control (joint ventures). Joint ventures also include entities in
which the VW FS AG Group controls a majority of the voting rights but whose partnership agreements or arti-
cles of association specify that key decisions may only be made unanimously. Associates and joint ventures of
minor significance are not accounted for using the equity method but are reported under financial assets at
cost, taking into account any necessary impairment losses or reversals of impairment losses.

The composition of the VW FS AG Group is shown in the following table:
2017 2016
VW FS AG and consolidated subsidiaries

Germany 8 24
International 42 49
Subsidiaries recognized at cost
Germany 7 7
International 35 36
Associates, equity-accounted joint ventures
Germany 3 2
International 19 22
Associates, joint ventures and equity investments recognized at cost
Germany 4 2
International 11 9
Total 129 151
The list of all shareholdings in accordance with section 313(2) of the HGB and in accordance with IFRS 12.10
and IFRS 12.21 can be accessed at www.vwfsag.com/listofholdings2017.
The following consolidated German subsidiaries with the legal form of a corporation have satisfied the cri-
teria in section 264(3) of the HGB and have elected not to publish annual financial statements:
> Volim Volkswagen Immobilien Vermietgesellschaft für VW-/Audi-Händlerbetriebe mbH, Braunschweig

> Volkswagen Versicherungsdienst GmbH, Braunschweig
> Volkswagen Insurance Brokers GmbH, Braunschweig
> MAN Financial Services GmbH, Munich
> EURO-Leasing GmbH, Sittensen
D I S C O N T I N U E D O P E R AT I O N S : E U R O P E A N L E N D I N G A N D D E P O S I T S B U S I N E S S
As part of the restructuring under company law, the 31 companies making up the discontinued operations, i.e.
the European lending and deposits business, were transferred from VW FS AG to Volkswagen AG. The effective
date of VW FS AG’s loss of control over these companies was September 1, 2017 when the transfer was entered
in the commercial register. The asset transfer was effected without any payment of a purchase price by
Volkswagen AG. Instead, the transfer of the companies was reported as a distribution of non-cash assets to
owners within the meaning of IFRIC 17 from the equity of VW FS AG. The transfer was carried out on the basis
of the net carrying amounts recognized in the VW FS AG Group, since the entities transferred continue to be
controlled by the ultimate parent company, Volkswagen AG.
The following companies, as components of the discontinued operations, left the VW FS AG Group on the
derecognition date of September 1, 2017.
Fully consolidated subsidiaries:

• Volkswagen Bank GmbH, Braunschweig
• Volkswagen Bank Polska S.A., Warsaw
• Volkswagen Financial Services (UK) Ltd., Milton Keynes
• Volkswagen Finans Sverige AB, Södertälje
• ŠkoFIN s.r.o., Prague

Consolidated structured entities:

• Driver Ten GmbH, in liquidation, Frankfurt am Main
• Driver Eleven GmbH, in liquidation, Frankfurt am Main
• Driver Twelve GmbH, Frankfurt am Main
• Driver thirteen UG (haftungsbeschränkt), Frankfurt am Main
• Private Driver 2011-3 GmbH, in liquidation, Frankfurt am Main
• Private Driver 2012-3 GmbH, in liquidation, Frankfurt am Main
• Private Driver 2013-1 UG (haftungsbeschränkt), in liquidation, Frankfurt am Main
• Private Driver 2014-4 UG (haftungsbeschränkt), Frankfurt am Main
• Private Driver 2015-1 UG (haftungsbeschränkt), Frankfurt am Main
• Driver France FCT, Pantin
• Driver Master S.A., Luxemburg
• Driver UK Master S.A., Luxemburg
• Driver UK Multi-Compartment S.A., Luxemburg
• Autofinance S.A., Luxemburg
Joint ventures and structured entities accounted for using the equity method:
• DFM N.V., Amersfoort
• DFM Master S.A., Luxembourg
• Volkswagen Finančné služby Slovensko s.r.o., Bratislava
Unconsolidated subsidiaries and joint ventures:

• Volkswagen Finančné služby Maklérska s.r.o., Bratislava
• Volkswagen Service Sverige AB, Södertälje
• Volkswagen Serwis Ubezpieczeniowy Sp. z o.o., Warsaw
• MAN Financial Services plc., Swindon
• Volkswagen Financial Services Ireland Ltd., Dublin
The following table shows the breakdown of the profit or loss in connection with the derecognition of the dis-
continued operations.
€ million Jan. 1 – Aug. 31, 2017
Reclassification amounts for exchange differences on translating foreign operations – 242

Reclassification amounts for cash flow hedges 0
Reclassification amounts for available-for-sale financial assets 36
Costs to sell –8
Net loss on disposal, before tax – 214
Income tax included in net loss on disposal –6
Net loss on disposal, net of tax – 220

In the income statement for the VW FS AG Group, the profit or loss generated by the discontinued operations
up to the date of the asset transfer is recognized separately from the income and expenses relating to the con-
tinuing operations and reported in a separate line as profit/loss from discontinued operations. Consolidation
effects between companies allocated to the continuing operations and companies allocated to the discontinued
operations are reported in the income statement of the discontinued operations. The income statement for the
previous year has been restated accordingly.
The income statement for the discontinued operations is presented in the following table.
Jan. 1 – Aug. 31, Jan. 1 – Dec. 31,

€ million 2017 2016
Interest income from lending transactions 946 1,258

Income from leasing transactions 4,073 5,714
Expenses from leasing transactions – 3,336 – 4,584
Net income from leasing transactions before provision for credit risks 737 1,130
Interest expense – 167 – 306
Income from insurance transactions – –
Expenses from insurance transactions 0 1
Net income from insurance business 0 1
Net income from lending, leasing and insurance transactions before provision for credit risks 1,516 2,083
Provision for credit risks from lending and leasing business 83 – 123
Net income from lending, leasing and insurance transactions after provision for credit risks 1,599 1,960
Fee and commission income 173 316
Fee and commission expenses – 248 – 424
Net fee and commission income – 75 – 108
Net loss on the measurement of derivative financial instruments and hedged items – 27 – 26
Share of profits and losses of equity-accounted joint ventures 6 3
Net gain on marketable securities and miscellaneous financial assets 10 22
General and administrative expenses – 313 – 400
Other operating income – 44 – 166
Net other operating expenses – 421 – 416
Profit from discontinued operations, before tax 779 1,035
Income tax expense – 175 – 266
Profit from discontinued operations, net of tax 604 768
Net loss on disposal of the discontinued operations before tax – 214 –
Income tax included in net loss on disposal –6 –
Net loss on disposal of the discontinued operations – 220 –
Profit from discontinued operations 384 768
Profit from discontinued operations attributable to Volkswagen AG 384 768

The following table shows the changes in the consolidated balance sheet arising from the derecognized assets
and liabilities of the discontinued operations as of the derecognition date (September 1, 2017):
€ million 01.09.2017
Assets
Cash reserve – 4,406
Loans to and receivables from banks 619
retail financing – 26,950
dealer financing – 11,715
leasing business – 17,593
other loans and receivables 120
Total loans to and receivables from customers – 56,137
Derivative financial instruments – 346
Marketable securities – 2,544
Equity-accounted joint ventures – 152
Miscellaneous financial assets 0
Intangible assets – 44
Property and equipment – 24
Lease assets – 4,884
Investment property –1
Deferred tax assets – 805
Current tax assets – 38
Other assets – 890
Total – 69,651
Liabilities
Liabilities to banks – 6,466
Liabilities to customers – 37,083
Notes, commercial paper issued – 10,736
Derivative financial instruments – 198
Provisions for pensions and other post-employment benefits – 53
Underwriting provisions and other provisions – 457
Deferred tax liabilities – 725
Current tax liabilities – 102
Other liabilities – 604
Subordinated capital – 1,667
Equity – 11,559
Total – 69,651

The cash flow figures presented in the consolidated cash flow statement for the Volkswagen Financial Ser-
vices AG Group include the cash flows for the discontinued operations. The cash flows for the discontinued
operations are shown separately in the following condensed cash flow statement:
€ million Jan. 1 – Aug. 31, 2017 Jan. 1 – Dec. 31, 2016
Cash flows from operating activities – 1,023 113

Cash flows from investing activities 164 – 18
Cash flows from financing activities 100 441
SUBSIDIARIES
In addition to the restructuring described under the heading “Discontinued operations: European lending and
deposits business”, the following changes occurred at subsidiaries in the reporting period.
In July 2017, MAN Versicherungsvermittlung GmbH, Munich, was merged into Volkswagen Insurance Bro-
kers GmbH, Braunschweig.
The company, which was acquired in April 2017 and subsequently renamed Mobility Trader GmbH, is a
wholly owned subsidiary and has its registered office in Berlin. It develops and operates the HeyCar online
platform, which is used to sell various brands of used cars. The subsidiary is not fully consolidated for reasons
of materiality.
The insurance undertaking Volkswagen Reinsurance Company DAC, Dublin, was established in Ireland in
March 2017. Volkswagen Finance Luxemburg II S.A. was established in May 2017, likewise as a wholly owned
subsidiary. In August, this company acquired 100 % of the shares in ContoWorks GmbH, which provides digital
payment services. All three companies are included in the consolidation at cost for reasons of materiality.
The changes described above did not have a material impact on the financial position and financial perfor-
mance of the VW FS AG Group.
JOI NT VENTURES
From a Group perspective, the following three entities among the equity-accounted joint ventures require
separate presentation because they were deemed material at the reporting date on the basis of the size of the
entity concerned. These three joint ventures are strategically important to the VW FS AG Group. They operate
the financial services business in the respective countries and thus help to promote vehicle sales in the
Volkswagen Group.
Volkswagen Pon Financial Services B.V.

The Volkswagen Pon Financial Services B.V. Group, whose registered office is situated in Amersfoort in the
Netherlands, is a financial services provider offering leasing products for Volkswagen Group vehicles to busi-
ness and private customers in the Netherlands. Volkswagen Financial Services AG and its partner in this joint
venture, Pon Holdings B.V., have entered into an agreement for a long-term strategic partnership.
Volkswagen D’Ieteren Finance S.A.

Volkswagen D’Ieteren Finance S.A. and its subsidiary D’Ieteren Lease S.A., whose registered offices are situated
in Brussels, Belgium, are financial services providers offering financing and leasing products for
Volkswagen Group vehicles to business and private customers in Belgium. The Group and joint venture partner
D’Ieteren S.A. have a long-term strategic partnership agreement.
Volkswagen Møller Bilfinans A.S.

Volkswagen Møller Bilfinans A.S., whose registered office is situated in Oslo, Norway, is a financial services pro-
vider offering financing and leasing products for Volkswagen Group vehicles to business and private customers,
predominantly in Norway. The Group and joint venture partner, Møllergruppen A.S., have entered into a long-
term strategic partnership agreement.
Summarized financial information for the material joint ventures on a 100 % basis:

VOLKSWAGEN PON
FINANCIAL SERVICES B.V. VOLKSWAGEN D'IETEREN VOLKSWAGEN MØLLER
(NETHERLANDS) FINANCE S.A. (BELGIUM) BILFINANS A.S. (NORWAY)
€ million 2017 20161 2017 2016 2017 2016
Shareholding (percent) 60 % 60 % 50 % 50 % 51 % 51 %
Loans to and receivables from banks 3 2 0 0 1 1

Loans to and receivables from customers 198 1,747 1,348 1,150 1,809 1,581
Lease assets 1,204 1,108 498 438 – –
Other assets 173 236 44 49 23 17
Total 1,578 3,093 1,890 1,638 1,833 1,599
of which: noncurrent assets 1,185 1,469 1,172 982 1,585 1,319
of which: current assets 393 1,624 718 656 248 279
of which: cash 3 2 0 0 1 1
Liabilities to banks 0 737 1,651 1,412 1,488 1,299

Liabilities to customers 735 1,156 88 89 51 34
Notes, commercial paper issued 454 556 – – – –
Other liabilities 239 351 15 11 52 47
Equity 150 292 135 126 241 218
Total 1,578 3,093 1,890 1,638 1,833 1,599
of which: noncurrent liabilities 941 1,292 634 649 906 519
of which: current liabilities 487 1,509 1,120 863 685 861
of which: noncurrent financial
liabilities 941 1,287 625 643 831 457
of which: current financial liabilities 450 1,362 1,026 769 657 842
Revenue 677 635 369 344 86 80

of which: interest income 48 23 26 24 84 70
Expenses 670 624 352 327 55 43
of which: interest expense 13 3 8 8 22 19
of which: depreciation and
amortization 270 251 91 88 0 1
Profit from continuing operations,
before tax 8 12 17 17 30 37
Income tax expense or income 2 3 6 5 5 9
Profit from continuing operations, net of
tax 6 9 11 11 26 28
Profit from discontinued operations, net
of tax 16 32 – – – –
Other comprehensive income, net of tax 0 2 –2 – – –
Total comprehensive income 23 43 9 11 26 28
Dividends received 7 – – – – –
1 Previous year restated as explained in the disclosures relating to the discontinued operations in the section entitled “Restated Prior-Year Figures”.

Reconciliation from the financial information to the carrying amount of the equity-accounted investments:
VOLKSWAGEN V OLK SW A G E N V OLK SW A G E N

PON FINANCIAL D ' I E TE R EN M ØLLE R
SERVICES B.V. F I N A NC E S. A. B I LF I N A N S A . S.
€ million (NETHERLANDS) ( B E LG I U M) ( N OR WA Y )
2016
Equity of the joint venture as of Jan. 1, 2016 249 115 180
Profit/loss 41 11 28
Other comprehensive income 2 – –
Change in share capital – – –
Exchange differences on translating foreign operations – – 11
Dividends – – –
Equity of the joint venture as of Dec. 31, 2016 292 126 218
Share of equity 175 63 111
Goodwill 61 – –
Carrying amount of the share of equity as of Dec. 31, 2016 236 63 111
2017
Equity of the joint venture as of Jan. 1, 2017 292 126 218
Profit/loss 22 11 26
Other comprehensive income 0 –2 –
Change in share capital – – 16
Change due to demerger of companies – 153 – –
Exchange differences on translating foreign operations – – – 19
Dividends 12 – –
Equity of the joint venture as of Dec. 31, 2017 150 135 241
Share of equity 90 68 123
Goodwill 41 – –
Carrying amount of the share of equity as of Dec. 31, 2017 131 68 123
Summarized financial information for the individually immaterial joint ventures on the basis of the
Volkswagen Group’s proportionate interest:
€ million 2017 20161
Carrying amount of the share of equity as of Dec. 31 310 222

Profit from continuing operations, net of tax 44 31
Profit from discontinued operations, net of tax 6 3
Other comprehensive income, net of tax 0 1
Total comprehensive income 50 35
As part of the reorganization of the legal entities, Volkswagen Financial Services AG sold 51 % of the shares in its
subsidiary Volkswagen Financial Services Digital Solutions GmbH to Volkswagen Bank GmbH. As a result of this
transaction, Volkswagen Financial Services AG lost control of the company as of September 1, 2017, and for this

reason the remaining 49 % of the shares are accounted for using the equity method as from this date. The sale
of the shares led to income of €64 million. The fair value measurement of the remaining shares resulted in
income of €62 million. Both items are reported under other operating income. Volkswagen Financial Services
Digital Solutions GmbH provides IT, customer and processing services as well as document management. The
2017 financial information for Volkswagen Financial Services Digital Solutions GmbH is included in the data for
the individually immaterial joint ventures.
51 % of the shares in LogPay Transport Services GmbH and its two subsidiaries in Italy and Spain were ac-
quired in June 2017. The companies have activities in the toll and refueling segment, thus complementing
VW FS AG Group’s existing mobility business offering. The companies are accounted for as joint ventures at
cost for reasons of materiality.
There were no unrecognized losses relating to interests in joint ventures.

Cash attributable to joint ventures amounting to €229 million (previous year: €173 million) was pledged as
collateral in connection with ABS transactions and was therefore not available to the VW FS AG Group.
Financial guarantees to joint ventures amounted to €82 million in the reporting period. There were no fi-
nancial guarantees to joint ventures in the previous year.
3. Consolidation Methods
The assets and liabilities of the German and international entities included in the consolidated financial state-
ments are reported in accordance with the uniform accounting policies applicable throughout the
VW FS AG Group. In the case of the equity-accounted investments, we determine the pro rata equity on the
basis of the same accounting policies. The relevant figures are taken from the most recently audited annual
financial statements of the entity concerned.
Acquisitions are accounted for by offsetting the carrying amounts of the equity investments with the pro-
portionate amount of the remeasured equity of the subsidiaries on the date of acquisition or initial inclusion in
the consolidated financial statements and in subsequent periods.
When subsidiaries are consolidated for the first time, the assets and liabilities, together with contingent
consideration, are recognized at fair value on the date of acquisition or on the date of inclusion (for newly es-
tablished subsidiaries). Subsequent changes in the fair value of contingent consideration do not generally re-
sult in an adjustment of the acquisition-date measurement. Acquisition-related costs that are not equity trans-
action costs are not added to the purchase price, but instead recognized as expenses. Goodwill arises when the
purchase price of the investment exceeds the fair value of the identified assets less liabilities. Goodwill is tested
for impairment at least once a year and additionally if relevant events or changes in circumstances occur (im-
pairment-only approach) to determine whether its carrying amount is recoverable. If the carrying amount of
goodwill is higher than the recoverable amount, an impairment loss is recognized. If this is not the case, there is
no change in the carrying amount of goodwill compared with the previous year. If the purchase price of the
investment is less than the net value of the identified assets and liabilities, the difference is recognized in profit
or loss in the year of acquisition. Goodwill is accounted for at the subsidiaries in the functional currency of
those subsidiaries.
The net assets recognized at fair value as part of an acquisition transaction are depreciated or amortized
over their relevant useful lives. If the useful life is indefinite, any requirement for the recognition of an impair-
ment loss is determined at individual asset level using a procedure similar to that used for goodwill. Where
hidden reserves and charges in the recognized assets and liabilities are uncovered during the course of pur-
chase price allocation, these items are amortized over their remaining maturities.
The acquisition method described above is not applied when subsidiaries are newly established; no good-
will or negative goodwill can arise when newly established subsidiaries are included in the consolidation.
In the consolidation, the recognition and measurement arising from the independence of the individual com-
panies is adjusted such that they are then presented as if they belonged to a single economic unit.
Loans/receivables, liabilities, income and expenses relating to business relationships between consolidated
entities are eliminated in the consolidation. Intragroup transactions are conducted on an arm’s-length basis.

Any resulting intercompany profits or losses are eliminated. Consolidation transactions recognized in profit or
loss are subject to the recognition of deferred taxes.
Investments in subsidiaries that are not consolidated because they are of minor significance are reported,
together with other equity investments, under miscellaneous financial assets.
4. Currency Translation
Transactions in foreign currencies are translated in the single-entity financial statements of VW FS AG and its
consolidated subsidiaries at the rates prevailing at the transaction date. Foreign currency monetary items are
reported in the balance sheet using the middle rate at the closing date and the resulting gains or losses are
recognized in profit or loss. The foreign companies which form part of the VW FS AG Group are independent
subunits whose financial statements are translated using the functional currency principle. Under this princi-
ple, assets and liabilities, but not equity, are translated at the closing rate. With the exception of income and
expense items recognized in other comprehensive income, equity is translated at historical rates. Until the
disposal of the subsidiary concerned, the resulting exchange differences on translating foreign operations are
recognized in other comprehensive income and are presented as a separate item in equity.
The transaction data in the statement of changes in noncurrent assets is translated into euros using
weighted average rates. A separate “Foreign exchange differences” line is reported to reconcile the carryfor-
wards translated at the middle spot rate on the prior-year reporting date and the transaction data translated at
average rates with the final balances translated at the middle spot rate on the reporting date.
We translate the income statement items into euros using weighted average rates.
The following table shows the rates applied in currency translation:
BALANCE SHEET, INCOME STATEMENT,

MIDDLE SPOT RATE ON DEC. 31 AVERAGE RATE
€1 = 2017 2016 2017 2016
Australia AUD 1.53285 1.46150 1.47300 1.48880

Brazil BRL 3.97065 3.43720 3.60471 3.86217
Denmark DKK 7.44510 7.43500 7.43871 7.44537
United Kingdom GBP 0.88730 0.85850 0.87626 0.81897
India INR 76.56700 71.65500 73.50146 74.37058
Japan JPY 134.87000 123.50000 126.66763 120.31663
Mexico MXN 23.61420 21.84800 21.33175 20.66535
Poland PLN 4.17490 4.41530 4.25727 4.36416
Republic of Korea KRW 1,278.22000 1,269.11000 1,275.94974 1,284.79543
Russia RUB 69.33520 64.67550 65.88875 74.23443
Sweden SEK 9.83140 9.56720 9.63700 9.46712
Czech Republic CZK 25.57900 27.02400 26.32920 27.03433
People’s Republic of China CNY 7.80085 7.33320 7.62688 7.35067

5. Recognition of Revenue and Expenses
Revenue and expenses are recognized in accordance with the accrual basis of accounting and are reported in
profit or loss in the period in which the substance of the related transaction occurs.
Interest income is recognized in the income statement using the effective interest method. Income from fi-
nancing and leasing transactions, together with expenses for the funding of this business, is included in net
income from lending, leasing and insurance transactions. Leasing revenue from operating leases is recognized
on a straight-line basis over the lease term and includes both the interest portion and the repayment of the
principal.
Contingent payments under finance leases and operating leases are recognized when the conditions for the
contingent payments are satisfied.
Net fee and commission income includes income and expenses from insurance broking as well as fees and
commissions from the financing and financial services businesses. Fee and commission income from insur-
ance broking is normally recognized in accordance with contractual arrangements when the entitlement arises,
i.e. when the policyholder pays the related premium.
Dividends are reported on the date on which the legal entitlement is established, i.e. generally the date on
which a dividend distribution resolution is approved.
General and administrative expenses comprise personnel expenses, non-staff operating expenses, depreci-
ation of and impairment losses on property and equipment, amortization of and impairment losses on intan-
gible assets, and other taxes.
The main components of net other operating income/expenses are income from cost allocations to other
entities in the Volkswagen Group and income from the reversal of provisions.
6. Income Taxes
Current income tax assets and liabilities are measured using the tax rates expected to apply in respect of the
refund from or payment to the tax authorities concerned. Current income taxes are generally reported on an
unnetted basis. Provisions are recognized for potential tax risks.
Deferred tax assets and liabilities are recognized in respect of temporary differences between the carrying
amounts of assets and liabilities in the consolidated balance sheet and those in the tax base and in respect of
tax loss carryforwards. This gives rise to expected income tax income or expense effects in the future (tempo-
rary differences). Deferred taxes are measured using the domicile-specific income tax rates expected to apply in
the period in which the tax benefit is recovered or liability paid.
Deferred tax assets are recognized if it is probable that in the future sufficient taxable profits will be gener-
ated in the same tax unit against which the deferred tax assets can be utilized. If it is no longer likely that it will
be possible to recover deferred tax assets within a reasonable period, valuation allowances are applied.
Deferred tax assets and liabilities with the same maturities and relating to the same tax authorities are net-
ted.
The tax expense attributable to the profit before tax is reported in the Group’s income statement under the
“Income tax expense” item and a breakdown into current and deferred taxes for the fiscal year is disclosed in
the notes. Other non-income-related taxes are reported as a component of general and administrative expens-
es.
7. Cash Reserve
The cash reserve is carried at the nominal amount.
8. Loans and receivables
Loans to and receivables from banks, and loans to and receivables from customers, originated by the
VW FS AG Group are generally recognized at amortized cost using the effective interest method. Gains or losses

arising from the changes in amortized cost are recognized in profit or loss, including the effects from changes
in exchange rates. For reasons of materiality, current loans and receivables (due within one year) are not dis-
counted and no unwinding of discount is therefore recognized. Some of the loans to and receivables from cus-
tomers are included in portfolio hedges. Loans to and receivables from customers assigned to portfolio hedges
are measured at hedged fair value.
Loans and receivables are derecognized when they are repaid or settled. There are no indications of derec-
ognition for loans/receivables from ABS transactions carried out by the Group.
9. Provision for Credit Risks
The VW FS AG Group takes full account of the default risk arising in connection with loans and receivables by
recognizing specific and portfolio-based valuation allowances in accordance with IAS 39. These allowances are
posted to valuation allowance accounts.
In the case of credit risk present in significant individual loans to or receivables from customers or banks
(e.g. dealer financing loans/receivables and fleet customer business loans/receivables), specific valuation allow-
ances are recognized in accordance with Group-wide standards in the amount of losses already incurred.
Potential impairment is assumed in a number of situations, such as delayed payment over a certain period,
the initiation of enforcement measures, the threat of insolvency or overindebtedness, application for or the
initiation of insolvency proceedings, or the failure of restructuring measures.
Insignificant loans/receivables and significant individual loans/receivables with no indication of impair-
ment are grouped together into homogeneous portfolios using comparable credit risk features and broken
down by risk category. As long as no definite information is available as to which loans or receivables are in
default, average historical default probabilities for the portfolio concerned are used to calculate the amount of
the valuation allowances. Regular backtesting is carried out to ensure that the valuation allowances are appro-
priate.
Loans and receivables are reported in the balance sheet at the net carrying amount. Disclosures relating to
the provision for credit risks are presented separately in note (33).
Uncollectible loans or receivables that are already subject to a workout process and for which all collateral
has been recovered and all further options for recovering the loan or receivable have been exhausted are writ-
ten off directly. Any specific valuation allowances previously recognized are utilized. Income subsequently
collected in connection with loans or receivables already written off is recognized in profit or loss.
10. Derivative Financial Instruments
Derivative financial instruments comprise derivatives in effective hedges and derivatives not designated as
hedging instruments. All derivatives are measured at fair value and are presented separately in notes (34) and
(45).
The fair value is determined with the help of measurement software in IT systems using the discounted
cash flow method and taking into account credit value adjustments and debt value adjustments.
Derivatives are used as hedging instruments in fair value hedges or cash flow hedges. Hedge accounting in
accordance with IAS 39 is only applied in the case of highly effective hedges.
When fair value hedges are applied, changes in the fair value of the derivative designated as the instrument
used to hedge the fair value of a recognized asset or liability (hedged item) are recognized in profit or loss under
net gain/loss on the measurement of derivative financial instruments and hedged items. Changes in the fair
value of the hedged item in connection with which the risk is being minimized are also reported in profit or
loss under the same item. The effects in profit or loss from the changes in the fair value of the hedging instru-
ment and the hedged item balance each other out depending on the extent of hedge effectiveness.
IAS 39 permits the use of fair value hedging not only for individual hedged items, but also for a group of
similar hedged items. In the reporting period, the VW FS AG Group used portfolio-based fair value hedges to
hedge interest-rate risks. In portfolio-based hedging, the accounting treatment of changes in fair value is the
same as in fair value hedging at micro level.

In the case of derivatives that are designated as hedges of future cash flows and that satisfy the relevant criteria,
the effective portion of changes in the fair value of the derivative is recognized in the cash flow hedge reserve
via other comprehensive income. Any effect on profit or loss arises solely from the ineffective portion of the
change in fair value. The measurement of the hedged item remains unchanged.
Changes in the fair value of derivatives that do not satisfy the hedge accounting criteria in IAS 39 are recog-
nized in profit or loss under net gain/loss on the measurement of derivative financial instruments and hedged
items.
The VW FS AG Group documents all relationships between hedging instruments and hedged items. Hedge
effectiveness is kept under constant review. In the VW FS AG Group, hedging transactions are used solely as part
of asset/liability management activities.
With the exception of derivatives not designated as hedging instruments, no financial instruments are clas-
sified as financial assets or financial liabilities at fair value through profit or loss.
11. Marketable Securities
The “Marketable securities” balance sheet item largely comprises investments of resources in the form of fixed-
income securities from public- and private-sector issuers as well as equities within the framework specified by
the investment policy issued by VW Versicherung AG. In the previous year, this balance sheet item also includ-
ed fixed-income bonds from public-sector issuers held for the purposes of managing liquidity risk and pur-
chased bonds issued by a special purpose entity of another entity in the Volkswagen Group (see note 68). Mar-
ketable securities are categorized as available-for-sale financial assets. Changes from remeasurement are
recognized in other comprehensive income. Permanent impairment losses are recognized in profit or loss.
Available-for-sale financial assets are subject to the recognition of impairment losses if there is objective ev-
idence of permanent impairment. In the case of equity instruments, indicators of impairment include a signifi-
cant (more than 20 %) or long-term (more than 10 % of the average market price over one year) fall in fair value
below cost. If such an asset is found to be impaired, the cumulative loss is posted to other reserves and recog-
nized in profit or loss. Reversals of impairment losses on equity instruments are reported in other comprehen-
sive income.
In the case of debt instruments, impairment losses are recognized in the event of a forecast decline in future
cash flows from the financial asset. On the other hand, a rise in the risk-free interest rate or an increase in credit
risk premiums does not, by itself, generally represent objective evidence of impairment. Reversals of impair-
ment losses on debt instruments are recognized in profit or loss.
In the previous year, fixed-income bonds and bonds acquired from other entities in the Volkswagen Group
amounting to a total of €2,053 million had been pledged as collateral for the VW FS AG Group’s own liabilities.
Most of these securities had been deposited in the previous year at Deutsche Bundesbank and had been fur-
nished as collateral in connection with open market operations.
12. Miscellaneous Financial Assets
Investments in subsidiaries that are not consolidated and other equity investments are reported as miscellane-
ous financial assets. The equity investments are measured at cost because there is no active market for these
entities and fair values could not be reliably determined without disproportionate time, effort and expense.
Investments in unconsolidated subsidiaries are recognized at cost taking into account any necessary impair-
ment losses. Impairment losses are recognized in profit or loss if there are country-specific indications of sig-
nificant or permanent impairment (e.g. imminent payment difficulties or economic crises). Subsidiaries not
consolidated for reasons of materiality do not fall within the scope of IAS 39 and are therefore not included in
the disclosures required by IFRS 7.

13. Intangible Assets
Purchased intangible assets with finite useful lives (largely software) are recognized at cost and amortized on a
straight-line basis over a useful life of three to five years. Subject to the conditions specified in IAS 38, internally
developed software and all the direct and indirect costs that are directly attributable to the development pro-
cess are capitalized. When assessing whether the development costs associated with internally generated soft-
ware are to be capitalized or not, we take into account not only the probability of a future inflow of economic
benefits but also the extent to which the costs can be reliably determined. Research costs are not capitalized.
Amortization is on a straight-line basis over the useful life of three to five years and is reported under general
and administrative expenses.
At every reporting date, intangible assets with finite useful lives are tested to establish whether there are
any indications of impairment. An appropriate impairment loss is recognized if a comparison shows that the
recoverable amount for the asset is lower than its carrying amount.
Intangible assets with indefinite useful lives are not amortized. An annual review is carried out to establish
whether an asset has an indefinite useful life. In accordance with IAS 36, these assets are tested for impairment
by comparing the carrying amount and recoverable amount at least once a year and additionally if relevant
events or changes in circumstances should occur. If required, an impairment loss is recognized to reduce the
carrying amount to a lower recoverable amount (see note 15).
Goodwill is tested for impairment once a year and also if relevant events or changes in circumstances occur.
If the carrying amount of goodwill is higher than the recoverable amount, an impairment loss is recognized.
There can be no subsequent reversal of such impairment losses.
The recoverable amount of goodwill is derived from the value in use for the relevant cash-generating unit,
which is determined using the discounted cash flow method. The basis is the latest planning data prepared by
management for a planning period of five years, with growth in subsequent years estimated using a flat rate
percentage. This planning is based on expectations regarding future global economic trends, trends in the
overall markets for passenger cars and commercial vehicles and on assumptions derived from these trends
about financial services, taking into account market penetration, risk costs and margins. Planning assumptions
are adjusted in line with the latest available information. The interest rate used is based on the long-term mar-
ket interest rate relevant to each cash-generating unit (regions or markets). The calculations use a standard
Group cost of equity of 7.5 % (previous year: 7.5 %). If necessary, the cost of equity rate is also adjusted using
discount factors specific to the country and business concerned. The calculation of cash flows is based on the
forecast growth rates for the relevant markets. Cash flows after the end of the planning period are generally
estimated using a growth rate of 1 % p.a. (previous year: 1 % p.a.).
14. Property and Equipment
Property and equipment (land and buildings plus operating and office equipment) is carried at cost less depre-
ciation and, if necessary, any impairment losses. Depreciation is applied on a straight-line basis over the esti-
mated useful life. Useful lives are reviewed at every reporting date and adjusted where appropriate.

Depreciation is based mainly on the following useful lives:
Property and equipment Useful lives
Buildings and property facilities 10 to 50 years

Operating and office equipment 3 to 10 years
An impairment loss is recognized in accordance with IAS 36 if the recoverable amount of the asset concerned
has fallen below its carrying amount (see note 15).
The depreciation expense and impairment losses are reported within general and administrative expenses.
Income from the reversal of impairment losses is recognized in net other operating income/expenses.
15. Impairment of Non-Financial Assets
Assets with an indefinite useful life are not depreciated or amortized; they are tested for impairment once a
year and additionally if relevant events or changes in circumstances occur. Assets subject to depreciation and
amortization are tested for impairment if relevant events or changes in circumstances indicate that the recov-
erable amount for the asset concerned is lower than its carrying amount.
An impairment loss is recognized in the amount by which the carrying amount exceeds the recoverable
amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is the
amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable,
willing parties. The value in use is defined as the net present value of future cash flows expected to be derived
from the asset.
If the reasons for the recognition of an impairment loss in prior years now no longer apply, an appropriate
reversal of the impairment loss is recognized. This does not apply to impairment losses recognized in respect of
goodwill.
16. Leasing Business
GROUP AS LESSOR
The VW FS AG Group operates both finance lease business and operating lease business. The leases are mainly
vehicle leases, but to a lesser extent also involve land, buildings and dealer equipment.
A finance lease is a lease that transfers substantially all the risks and rewards to the lessee. In the consolidat-
ed balance sheet, receivables from finance leases are therefore reported within loans to and receivables from
customers and the net investment in the lease generally equates to the cost of the lease asset. Interest income
from these transactions is reported under leasing income in the income statement. The interest paid by the
customer is allocated so as to produce a constant periodic rate of interest on the remaining balance of the lease
receivable.
In the case of operating leases, substantially all the risks and rewards related to the lease asset remain with
the lessor. In this case, the assets involved are reported in a separate “Lease assets” item in the consolidated
balance sheet, measured at cost and reduced by straight-line depreciation over the lease term to the calculated
residual carrying amount. Any impairment identified as a result of an impairment test in accordance with
IAS 36 in which the recoverable amount, defined as fair value less costs to sell, is found to have fallen below the
carrying amount is taken into account by recognizing an impairment loss and adjusting the future deprecia-
tion rate. If the reasons for the recognition of an impairment loss in prior years no longer apply, a reversal of
the impairment loss is recognized. Impairment losses and reversals of impairment losses are included in the
net income from leasing transactions before provision for credit risks. The leasing revenue is recognized on a
straight-line basis over the lease term.

Land and buildings held to earn rentals are reported under the “Investment property” item in the balance sheet
and measured at amortized cost. The land and buildings involved are generally leased out to dealer businesses.
The fair values disclosed in the notes are determined by the relevant entity by discounting the estimated future
cash flows using the relevant long-term market discount rate. Depreciation is applied on a straight-line basis
over useful lives of ten to 33 years. Any impairment identified as a result of an impairment test in accordance
with IAS 36 is taken into account by recognizing an impairment loss.
GROUP AS LESSEE
Lease payments made under operating leases are recognized under general and administrative expenses.
In the case of finance leases, the leased assets are recognized at the lower of cost or present value of mini-
mum lease payments and depreciated on a straight-line basis over the shorter of the asset’s useful life or lease
term. The payment obligations in respect of the future lease installments are discounted and recognized as a
liability.
BUYBACK TRANSACTIONS
Leases in which the VW FS AG Group has a firm agreement with the lessor regarding the return of the leased
asset are recognized under other loans and receivables within loans to and receivables from customers at the
amount of the resale value agreed at the inception of the lease and are also recognized under other assets in the
amount equating to the right of use. In the case of noncurrent leases (maturity of more than one year), the
agreed resale value is discounted at the inception of the lease. The unwinding of the discount during the term
of the lease is recognized in interest income. The value of the right of use recognized under other assets is de-
preciated on a straight-line basis over the term of the lease. This depreciation is reported under expenses from
the leasing business. Lease payments received under subleases are reported as income from leasing business.
17. Liabilities
Liabilities to banks and customers, notes and commercial paper issued, and subordinated capital liabilities are
recognized at amortized cost using the effective interest method. Gains or losses arising from the changes in
amortized cost are recognized in profit or loss, including the effects from changes in exchange rates. For rea-
sons of materiality, current liabilities (due within one year) are not discounted and no unwinding of discount is
therefore recognized.
18. Provisions for Pensions and Other Post-Employment Benefits
Provisions are recognized for commitments in the form of retirement, invalidity and surviving dependants’
benefits payable under pension plans. The benefits provided by the Group vary according to the legal, tax and
economic circumstances of the country concerned, and usually depend on the length of service and remunera-
tion of the employees.
The VW FS AG Group provides occupational pensions in the form of both defined contribution and defined
benefit plans. In the case of defined contribution plans, the Company makes contributions to state or private
pension schemes based on statutory or contractual requirements, or on a voluntary basis. Once the contribu-
tions have been paid, the VW FS AG Group has no further obligations. In 2017, the total contributions made by
the VW FS AG Group came to €43 million (previous year: €45 million). Contributions to the compulsory state
pension system in Germany amounted to €36 million (previous year: €37 million).
Pension schemes in the VW FS AG Group are predominantly defined benefit plans in which there is a distinc-
tion between pensions funded by provisions (without plan assets) and externally funded plans (with plan as-
sets). The pension provisions for defined benefit commitments are measured by independent actuaries using
the internationally accepted projected unit credit method in accordance with IAS 19, under which the future
obligations are measured on the basis of the proportionate benefit entitlements earned as of the reporting
date. The measurement of pension provisions takes into account actuarial assumptions as to discount rates,
salary and pension trends, and employee turnover rates, which are determined for each Group company de-

pending on the economic environment. Actuarial gains or losses arise from differences between actual trends
and prior-year assumptions as well as from changes in assumptions. These gains and losses are recognized in
the period in which they arise in other comprehensive income (taking into account deferred taxes) and have no
impact on profit or loss. Detailed disclosures on provisions for pensions and other post-employment benefits
are set out in note (46).
19. Insurance Business Provisions
Inward reinsurance and direct insurance operations are accounted for in the period in which the reinsurance or
insurance arises without any time delay.
Insurance contracts are accounted for in accordance with IFRS 4 and, to the extent permitted by local ac-
counting regulations, also in accordance with sections 341ff. of the HGB and the Verordnung über die Rech-
nungslegung von Versicherungsunternehmen (RechVersV – German Accounting Regulation for Insurance
Companies).
Unearned premiums for direct insurance business are generally determined on the basis of each individual
contract using the 1/act method.
Provisions for claims outstanding in direct insurance operations are normally determined and measured
on the basis of each claim in accordance with the estimated requirement. The chain ladder method or modified
chain ladder method is generally used to determine the provision for incurred but not reported (IBNR) losses.
The partial loss provision for claims settlement expenses is calculated in accordance with the requirements set
out in the coordinated regulations issued by the German federal states on February 2, 1973.
The provision for profit-related and not profit-related premium refunds includes solely obligations in connec-
tion with no claims premium refunds and is estimated on the basis of contract-specific claims experience.
The other underwriting provisions include the cancellation provision for direct insurance business, which
is based on historical cancellation rates.
No equalization provision is recognized because this is prohibited under IFRS 4.
The reinsurers’ share of provisions is calculated in accordance with the contractual agreements with the ret-
rocessionaires and reported under other assets.
Provisions for claims outstanding in inward reinsurance business are generally recognized on the basis of
the information provided by the cedants.
Actuarial methods and systems that guarantee ongoing monitoring and control of all key insurance risks
are used to ensure that the level of underwriting provisions is adequate. One of the main features of the insur-
ance business is underwriting risk, which comprises in particular premium/loss risk, reserve risk, cancellation
risk and catastrophe risk. We counter these risks by constantly monitoring the bases of computations, making
appropriate additions to provisions and applying a restrictive underwriting policy.

20. Other provisions
Under IAS 37, provisions are recognized if a present legal or constructive obligation to third parties has arisen
as a result of a past event, it is probable that settlement in the future will result in an outflow of resources and
the amount of the obligation can be estimated reliably. If an outflow of resources is neither probable nor im-
probable, the amount concerned is deemed to be a contingent liability. In accordance with IAS 37, this contin-
gent liability is not recognized but disclosed in note (65).
Provisions for litigation and legal risks are recognized and measured using assumptions about the probabil-
ity of an unfavorable outcome and the amount of possible utilization.
The reversal of other provisions is recognized as other operating income whereas the expense from the
recognition of new provisions is allocated to the relevant expense items.
Provisions that are not related to an outflow of resources likely to take place in the subsequent year are rec-
ognized at their settlement amount discounted to the reporting date using market discount rates. An average
discount rate of 0.08 % (previous year: 0.04 %) has been used for the eurozone. The settlement amount also
includes expected cost increases.
Any rights of recourse are not offset against provisions.
21. Estimates and Assumptions by Management
The preparation of the consolidated financial statements requires management to make certain estimates and
assumptions that affect the recognition and measurement of assets, liabilities, income and expenses, and the
disclosures relating to contingent assets and liabilities for the reporting period.
Assumptions and estimates are based on the latest available information. The circumstances prevailing at
the time the consolidated financial statements are prepared and future trends in the global and sector envi-
ronment considered to be realistic are taken into account in the projected future performance of the business.
The estimates and assumptions used by management have been made, in particular, on the basis of assump-
tions relating to macroeconomic trends as well as trends in automotive markets, financial markets and the
legal framework. These and other assumptions are explained in detail in the report on expected developments,
which is part of the management report.
As future business performance is subject to unknown factors that, in part, lie outside the control of the
Group, our assumptions and estimates continue to be subject to considerable uncertainty. If changes in param-
eters are different from the assumptions and beyond any influence that can be exercised by management, the
amounts actually arising could differ from the estimated values originally forecast. If actual performance is at
variance with the forecasts, the assumptions and, where necessary, the carrying amounts of the assets and
liabilities concerned are adjusted accordingly.
The assumptions and estimates largely relate to the items set out below.
RECOV ERA B LE A M OU NT O F LEA S E A S SET S

The recoverable amount of the lease assets in the Group mainly depends on the residual value of the lease vehi-
cles when the leases expire because this value represents a considerable proportion of the expected cash in-
flows. Continuously updated internal and external information on trends in residual values – based on particu-
lar local circumstances and empirical values from the marketing of used vehicles – is factored into the forecasts
of residual values for lease vehicles. These forecasts require the Group to make assumptions, primarily in rela-
tion to future supply and demand for vehicles and in relation to trends in vehicle prices. These assumptions are
based on either professional estimates or information published by third-party experts. The professional esti-
mates are based on external data (where available), taking into account any additional information available
internally, such as values from past experience and current sales data. Forecasts and assumptions are regularly
verified by a process of backtesting.

F I N A N C I A L I N ST R U M E N T S
The procedure for determining the recoverability of financial assets requires estimates about the extent and
probability of occurrence of future events. As far as possible, these estimates take into account the latest market
data as well as rating classes and scoring information based on past experience. Further details on specific and
portfolio-based valuation allowances can be found in the disclosures on the provision for credit risks (note 9).
Management estimates are necessary to determine the fair value of financial instruments. This relates to
both fair value as a measurement standard in the balance sheet and fair value in the context of disclosures in
the notes. Fair value measurements are categorized into a three-level hierarchy depending on the type of inputs
to the valuation techniques used and each level requires different management estimates. Fair values in Level 1
are based on prices quoted in active markets. Management assessments in this case relate to determining the
primary or most advantageous market. Level 2 fair values are measured on the basis of observable market data
using market-based valuation techniques. Management decisions for this level relate to selecting generally
accepted, standard industry models and specifying the market in which the relevant input factors are observa-
ble. Level 3 fair values are determined with recognized valuation techniques relying on some inputs that cannot
be observed in an active market. Management judgment is required in this case when selecting the valuation
techniques and determining the inputs to be used. These inputs are developed using the best available infor-
mation. If the Company uses its own data, it applies appropriate adjustments to best reflect market conditions.
C O ST S U N D E R S E R V I C E C O N T R A C T S
Estimated costs arising from contracts for servicing and wear-and-tear repairs, which are included in other
liabilities, are measured using past experience of the actual use of such service contracts. The measurement
parameters for costs arising under service contracts are regularly reviewed.
PROVI SI ON S
The recognition and measurement of provisions is also based on assumptions about the probability that future
events will occur and the amounts involved, together with an estimation of the discount rate. Again, past expe-
rience or reports from external experts are used as far as possible.
The measurement of pension provisions is based on actuarial assumptions as to discount rates, salary and
pension trends, and employee turnover rates, which are determined for each Group company depending on the
economic environment.
In the case of other provisions, expected values are used as the basis for measurement, which means that
changes are made on a regular basis, involving either additions to the provisions or the reversal of unused
provisions. Changes in the estimates of the amounts for other provisions are always recognized in profit or loss.
The recognition and measurement of provisions for litigation and legal risks included within other provisions
requires predictions with regard to decisions to be made by the courts and the outcome of legal proceedings.
Each case is individually assessed on its merits based on developments in the proceedings, the Company’s past
experience in comparable situations and evaluations made by experts and lawyers.
R E C O V E R A B L E A M O U N T O F N O N - F I N A N C I A L A S S E T S , J O I N T V E N T U R E S A N D E Q U I T Y I N V E ST M E N T S
The impairment tests applied to non-financial assets (particularly goodwill and brand names), equity-
accounted joint ventures and equity investments measured at cost require assumptions related to the future
cash flows in the planning period and, where applicable, beyond. The assumptions about the future cash flows
factor in expectations regarding future global economic trends, trends in the overall markets for passenger cars
and commercial vehicles and expectations derived from these trends about financial services, taking into ac-
count market penetration, risk costs, margins and regulatory requirements. For further information on the
assumptions relating to the detailed planning period, please refer to the report on expected developments,
which forms part of the management report. The discount rates used in the discounted cash flow method ap-
plied when testing goodwill for impairment are based on specified cost of equity rates, taking into account
historical experience and appropriate assumptions regarding macroeconomic trends. In particular the fore-
casts for short- and medium-term cash flows, and the discount rates used, are subject to uncertainty outside
the control of the Group.

D E F E R R E D TA X A S S E T S A N D U N C E R TA I N I N C O M E TA X I T E M S
When determining deferred tax assets, there is a need to make assumptions about future taxable income and
the timings for any recovery of the deferred tax assets. The measurement of deferred tax assets for tax loss
carryforwards is generally based on future taxable income within a planning horizon of five fiscal years. In the
recognition of uncertain income tax items, the expected tax payment is used as the basis for the best estimate.

Income Statement Disclosures
22. Net Income from Lending, Leasing and Insurance Transactions before Provision
for Credit Risks
The breakdown of net income from lending, leasing and insurance transactions before provision for credit risks
is as follows:
2016
€ million 2017 restated1
Interest income from lending and money market transactions 1,987 1,904
Income from leasing transactions and service contracts 9,961 9,478
Expenses from leasing transactions and service contracts – 6,940 – 6,677
Depreciation of and impairment losses on lease assets and investment property – 2,095 – 1,986
Interest expense – 1,052 – 1,057
Total 1,861 1,663
1 Previous year restated as explained in the disclosures on the leasing business in the United Kingdom and Irish markets as well as on the discontinued operations in
the section entitled “Restated Prior-Year Figures”.
Interest income from lending and money market transactions and the income from leasing transactions and
service contracts include interest income on impaired loans and receivables amounting to a total of €24 million
(restated previous year: €19 million).
Income from leasing transactions and service contracts includes rental income on investment property
amounting to € million (restated previous year: € million). In both the reporting year and the restated previous
year, income from leasing transactions and service contracts only included negligible income from contingent
payments under finance leases and did not include any income at all from contingent payments under operat-
ing leases.
In connection with assets leased in as part of buyback transactions, payments of €397 million (restated pre-
vious year: €368 million) were recognized as an expense in the reporting period.
The impairment losses recognized as a result of the impairment test on lease assets amounted to
€211 million (restated previous year: €131 million) and are included in the depreciation of and impairment
losses on lease assets. Impairment losses are based on continuously updated internal and external information,
which is then fed into the forecasts of residual values for vehicles.
The impairment losses recognized as a result of the impairment test on investment property amounted to
€2 million and are included in the depreciation of and impairment losses on investment property.
Income from reversals of impairment losses on lease assets applied in prior years amounted to €20 million
(restated previous year: € million) and is included in income from leasing business.
The interest income included here that relates to financial instruments not allocated to the category of fi-
nancial assets or financial liabilities measured at fair value through profit or loss amounted to €1,986 million
(restated previous year: €1,922 million).

The following table shows the net income from insurance business:
2016
Insurance premiums earned 287 197

Insurance claims expenses – 108 – 115
Reinsurance commissions and with-profits expenses – 59 –3
Other underwriting expenses –2 –1
Total 118 78
The interest expenses include funding expenses for lending and leasing business, and an amount of
€1,053 million (restated previous year: €1,044 million) relates to financial instruments not measured at fair
value through profit or loss. The net expense arising from interest income and expenses in the reporting period
on derivatives not designated as hedging instruments amounts to €14 million (restated previous year:
€51 million).
23. Provision for Credit Risks from Lending and Leasing Business
The provision for credit risks relates to the balance sheet items “Loans to and receivables from customers” and
“Provisions for lending business”. The breakdown of the amount recognized in the consolidated income state-
ment is as follows:
2016
Additions to provision for credit risks – 684 – 656

Reversals of provision for credit risks 211 163
Direct write-offs – 64 – 95
Income from loans and receivables previously written off 47 28
Total – 491 – 560
1 Previous year restated as explained in the disclosures on the separately recognized derivatives in the United Kingdom market and on the discontinued operations
in the section entitled “Restated Prior-Year Figures”.
Additional credit risks to which the Volkswagen Financial Services AG Group is exposed as a result of the crises
(economic crises, block on sales) in Italy, Russia, Brazil, India, Mexico, Italy and the Republic of Korea were ac-
counted for in the reporting period by recognizing valuation allowances of €155 million (restated previous
year: €224 million).

24. Net Fee and Commission Income
Net fee and commission income largely comprises income and expenses from insurance broking, together
with fees and commissions from the financing business and financial services business. The breakdown is as
follows:
2016

of which commissions from insurance broking 200 204
Fee and commission expenses – 161 – 157
of which sales commission in the financing business – 129 – 122
Total 127 121
In the previous year, sales commission expenses in the financing business included commissions paid as part
of the confidence-building campaign with the brands and dealers.
25. Net Gain/Loss on the Measurement of Derivative Financial Instruments

and Hedged Items
This item includes the net gains or losses on hedges, on derivatives not designated as hedging instruments and
on the measurement of foreign currency loans/receivables and liabilities.
The net gain or loss on hedges comprises gains and losses arising from the fair value measurement of hedg-
ing instruments and hedged items. Gains and losses arising from changes in the fair value of derivatives that do
not satisfy the IAS 39 requirements for hedge accounting are recognized under gains and losses on other deriv-
atives not designated as hedging instruments.
The detailed breakdown of the gains and losses is as follows:
2016
Gains/losses on hedging instruments in fair value hedges and cash flow hedges – 153 270
Gains/losses on hedged items in fair value hedges 163 – 246
Ineffective portion of hedging instruments in cash flow hedges 0 0
Gains on the measurement of foreign currency loans/receivables and liabilities 9 6
Losses on derivatives not designated as hedging instruments –8 – 78
Total 11 – 48
1 Previous year restated as explained in the disclosures on the separately recognized derivatives in the United Kingdom market and on the discontinued operations
in the section entitled “Restated Prior-Year Figures”.
There were no other gains or losses from changes in the fair value of financial instruments.

26. Net Gain/Loss on Marketable Securities and Miscellaneous Financial Assets
The net gain/loss on marketable securities and miscellaneous financial assets includes income and expenses
arising from marketable securities, dividend income, income and expenses arising from profit or loss transfers,
and net gains or losses arising from the recognition of impairment losses on shares in unconsolidated subsidi-
aries.
27. General and Administrative Expenses
The breakdown of general and administrative expenses is shown in the following table:
2016
Personnel expenses – 779 – 782

Non-staff operating expenses – 803 – 746
Advertising, public relations and sales promotion expenses – 26 – 24
Depreciation of and impairment losses on property and equipment, amortization of and impairment
losses on intangible assets – 62 – 60
Other taxes – 12 – 27
Total – 1,682 – 1,640
The non-staff operating expenses include expenses of €33 million (restated previous year: €32 million) for
leased-in assets under operating leases related in particular to land and buildings as well as office and operating
equipment.
In accordance with the requirements specified in section 314(1) no. 9 of the HGB, the general and adminis-
trative expenses include the total fees charged in the reporting year by the independent auditors of the consol-
idated financial statements as shown in the following table.
2016
Financial statements audit services 2 3

Other attestation services 0 1
Tax consulting services – 0
Other services 2 1
Total 5 4
The fee for financial audit services paid to the auditors in 2017 was mostly attributable to the audit of the con-
solidated financial statements of VW FS AG and of annual financial statements of German Group companies as
well as to reviews of interim financial statements of German Group companies. Other attestation services com-
prised primarily comfort letters and other attestation services in connection with ABS transactions, equity
investments and the reorganization of the legal entities. The other services performed by the independent

auditors in the reporting period mainly consisted of issues relating to banking supervisory law, process optimi-
zation and information technology.
28. Net Other Operating Income/Expenses
The breakdown of the net other operating income/expenses is as follows:
2016
Income from cost allocations to other entities in the Volkswagen Group 495 484
Income from the reversal of provisions and deferred income 231 153
Income from claims for damages 23 16
Income from the disposal of vehicles under financing agreements 3 3
Miscellaneous operating income 220 536
Litigation and legal risk expenses – 136 – 102
Expenses from the disposal of vehicles under financing agreements –4 –4
Total 664 928
Other operating income in the previous year included support payments from the Volkswagen Group.
29. Income Tax Expense
Income tax expense includes the taxes charged in respect of the Volkswagen AG tax group, taxes for which
VW FS AG and its consolidated subsidiaries are the taxpayers, and deferred taxes. The components of the in-
come tax expense are as follows:
2016
Current tax income Germany 81 57

Current tax expense, foreign – 288 – 344
Current income tax expense – 206 – 287
of which income (+)/expense (–) related to prior periods (49) (– 32)
Deferred tax income (+)/expense (–), Germany – 96 – 220
Deferred tax income (+)/expense (–), foreign 180 265
Deferred tax income (+)/expense (–) 84 44
Income tax expense – 122 – 242

The reported tax expense in 2017 of €122 million (restated previous year: €242 million) is €70 million lower
(restated previous year: €58 million higher) than the expected tax expense of €192 million (restated previous
year: €184 million) calculated by applying the tax rate of 29.9 % (previous year: 29.9 %) to the consolidated prof-
it before tax.
The following reconciliation shows the relationship between the income tax expense and the profit before tax
for the reporting period:
2016
Profit before tax 643 615

multiplied by the domestic income tax rate of 29.9 % (previous year: 29.9 %)
= Imputed income tax expense in the
reporting period at the domestic income tax rate – 192 – 184
+ Effects from tax credits 0 1
+ Effects from domestic/foreign tax rates 9 12
+ Effects from changes in tax rates –1 6
+ Effects from permanent differences – 13 – 38
+ Effects from tax-exempt income 48 108
+ Effects from loss carryforwards 2 0
+ Effects from non-deductible operating expenses – 14 – 114
+ Taxes attributable to prior periods 50 – 34
+ Other variances – 11 1
= Current income tax expense – 122 – 242
The statutory corporation tax rate in Germany for the 2017 assessment period was 15 %. Including trade tax
and the solidarity surcharge, this resulted in an aggregate tax rate of 29.87 %.
In the German tax group, a tax rate of 29.9 % (previous year: 29.9 %) was used to measure deferred taxes.
The effects from different income tax rates outside Germany arise because of the different income tax rates
in the individual countries in which the Group companies are domiciled compared with the rates in Germany.
These rates outside Germany vary between 19.0 % and 45.0 % (restated previous year: 19 % and 45.0 %).
As of December 31, 2017, there were unused tax loss carryforwards of €99 million (previous year:
€133 million) for which deferred tax assets of €10 million (previous year: €17 million) had been recognized. Of
these unused tax loss carryforwards, an amount of €80 million (previous year: €80 million) is deemed usable
indefinitely. Tax loss carryforwards amounting to €12 million (previous year: €9 million) must be used within
the next five years, and €6 million (previous year: €12 million) must be used within five to ten years. In the
previous year only, there were tax loss carryforwards amounting to €31 million that could be used for a period
of more than ten years, subject to limitations.
No deferred tax assets have been recognized in respect of certain tax loss carryforwards deemed to be unus-
able and amounting to €62 million (previous year: €71 million). Of these tax loss carryforwards that the Group
is unable to use, €6 million (previous year: €12 million) could have been used subject to limitations within a
period of up to ten years and €56 million (previous year: €58 million) without any time restriction.
The tax credits granted by various countries led to the recognition of a tax benefit in an amount of
€0.2 million (previous year: €0.2 million).
The benefit arising from previously unrecognized temporary differences of prior periods that are used to
reduce current tax expense in the current fiscal year amounts to €2 million. In addition, the benefit arising
from previously unrecognized tax losses used to reduce current tax expense amounts to €0.3 million. The
deferred tax expense decreased in the previous year by €0.3 million as a result of previously unrecognized tax
losses in an earlier period. In the reporting period, deferred tax income from the reversal of an impairment loss

on a deferred tax asset amounted to €1 million (previous year: €1 million). Changes in tax rates have given rise
to deferred tax expenses throughout the Group of €0.6 million (previous year: deferred tax income of
€0.3 million).
There were no notable deductible temporary differences for 2016 for which no deferred tax asset was recog-
nized in the balance sheet.
The Group has recognized deferred tax assets of €157 million (previous year: €108 million) against which
there are no deferred tax liabilities in an equivalent amount. The companies involved are expecting to generate
profits in the future following losses in the reporting and in the prior period.
In accordance with IAS 12.39, deferred tax liabilities of €28 million (previous year: €45 million) have not
been recognized for temporary differences and undistributed profits of subsidiaries because
Volkswagen Financial Services AG has the relevant control.
Of the deferred taxes recognized in the balance sheet, an amount of €66 million (previous year: €74 million)
relates to transactions reported in other comprehensive income. Within this figure, an amount of €70 million
(previous year: €92 million) relates to actuarial gains or losses (IAS 19), €– 3 million (previous year: €– 4 million)
to derivative financial instruments and €– 0.7 million (previous year: €– 14 million) to the fair value measure-
ment of marketable securities.
30. Further Income Statement Disclosures
Fee and commission income and expenses related to fiduciary activities and to financial assets or financial
liabilities not measured at fair value and not measured using the effective interest method:
€ million 2017 2016
Income from fees and commissions 57 66

Expenses from fees and commissions 0 0
Total 57 66

Balance Sheet Disclosures
31. Cash Reserve
The cash reserve includes credit balances of €40 million (previous year: €114 million) held with foreign central
banks.
As of the previous year’s reporting date, the cash reserve included credit balances of €1,363 million with
Deutsche Bundesbank held by Volkswagen Bank GmbH.
32. Loans to and Receivables from Customers
The loans to and receivables from customers item includes deductions arising from the recognized provision
for credit risks from lending and leasing business. The provision for credit risks from lending and leasing busi-
ness is presented in note (33).
Loans to and receivables from customers arising from retail financing generally comprise loans to private
and commercial customers for the financing of vehicles. The vehicle itself is normally pledged to us as collateral
for the financing of vehicles. Dealer financing encompasses floor plan financing as well as loans to the dealer
organization for operating equipment and investment. Again, assets are pledged as collateral, but guarantees
and charges on real estate are also used as security. Receivables from leasing transactions include receivables
from finance leases and receivables due in connection with lease assets. The other loans and receivables largely
consist of loan and receivables from entities in the Volkswagen Group, receivables from leasing transactions
with a buyback agreement, together with credit lines and overdraft facilities drawn down by customers. In the
previous year, other loans and receivables included subordinated assets of €217 million.
Some of the fixed-income exposures under loans and receivables from retail financing and finance lease re-
ceivables have been hedged against fluctuations in the risk-free base interest rate using a portfolio hedge. Re-
ceivables from operating leases are excluded from this hedging strategy because they do not satisfy the defini-
tion of a financial instrument within the meaning of IAS 39 in conjunction with IAS 32.
The reconciliation to the balance sheet values is as follows:
Dec. 31, 2016

€ million Dec. 31, 2017 restated1
Loans to and receivables from customers 49,804 100,664

Fair value adjustment from portfolio hedging –9 –8
Loans to and receivables from customers, net of fair value adjustment from portfolio hedging 49,813 100,672
1 Previous year restated as explained in the disclosures on the separately recognized derivatives in the United Kingdom market in the section entitled “Restated
Prior-Year Figures”.
Receivables from leasing transactions include due receivables amounting to €257 million (previous year:
€312 million).
As of the reporting date, receivables from operating leases amounted to €89 million (previous year:
€111 million).

The breakdown of receivables from finance leases as of December 31, 2016 and December 31, 2017 was as fol-
lows:
€ million 20171 2018 – 20211 From 20221 Total1
Future payments from finance lease receivables 12,143 24,608 52 36,803

Unearned finance income from finance leases (discounting) – 808 – 1,762 –3 – 2,572
Present value of minimum lease payments outstanding at the
reporting date 11,336 22,846 50 34,231
1 Previous year restated as explained in the disclosures on the leasing business in the United Kingdom and Irish markets in the section entitled “Restated Prior-Year
Figures”.
€ million 2018 2019 – 2022 from 2023 Total
Future payments from finance lease receivables 7,587 11,963 31 19,580

Unearned finance income from finance leases (discounting) – 334 – 526 –2 – 862
Present value of minimum lease payments outstanding at the
reporting date 7,252 11,437 29 18,719
In the VW FS AG Group, the present value of the minimum lease payments outstanding as of the reporting date
equates to the net receivables from finance leases disclosed above.
A provision for credit risks in connection with outstanding minimum lease payments has been recognized
in the amount of €31 million (previous year: €44 million).

33. Provision for Credit Risks from Lending and Leasing Business
The provision for credit risks from lending and leasing business is recognized in accordance with standard rules
applicable throughout the Group and covers all identifiable credit risks.
Portfolio-based Portfolio-based
Specific valuation valuation Specific valuation valuation 2016
€ million allowances allowances 2017 allowances allowances1 restated1
Balance as of Jan. 1 1,280 1,687 2,966 1,108 1,452 2,560

Exchange rate and other
changes – 65 – 28 – 93 74 2 76
Changes in basis of
consolidation – 597 – 596 – 1,193 – – –
Additions 531 383 914 492 532 1,024
Utilization 248 – 248 184 – 184
Reversals 202 318 519 179 301 480
Interest income on impaired
loans and receivables 24 – 24 30 – 30
Reclassification –1 1 0 –2 2 0
Balance as of Dec. 31 674 1,128 1,802 1,280 1,687 2,966
The provision for credit risks has been recognized in respect of loans to and receivables from customers. At the
end of the reporting period, valuation allowances of €658 million (previous year: €876 million) had been rec-
ognized in relation to loans to and receivables from Italy, Russia, Brazil, India, Mexico and the Republic of Korea,
which are affected by various crises (economic crises, block on sales). The year-on-year decline was attributable
to a number of factors, notably the transfer of the companies in the discontinued operations.
This item comprises the positive fair values from hedges and from derivatives not designated as a hedging
instrument. The breakdown is as follows:
€ million Dec. 31, 2017 Dec. 31, 2016
Transactions to hedge against

currency risk on assets using fair value hedges 54 235
currency risk on liabilities using fair value hedges 49 398
interest-rate risk using fair value hedges 361 492
of which hedges against interest-rate risk using portfolio fair value hedges 1 1
interest-rate risk using cash flow hedges 11 15
currency and pricing risk on future cash flows using cash flow hedges 18 15
Hedging transactions 493 1,156
Assets arising from derivatives not designated as hedges 62 142
Total 555 1,297

35. Equity-Accounted Joint Ventures and Miscellaneous Financial Assets
Equity-accounted Miscellaneous
€ million investments financial assets Total
Gross carrying amount

as of Jan. 1, 2016 564 207 772
Foreign exchange differences – 0 0
Changes in basis of consolidation – – –
Additions 10 82 92
Reclassifications – – –
Disposals – 0 0
Changes recognized in profit or loss 77 – 77
Dividends – – –
Other changes recognized in other comprehensive income 7 – 7
Balance as of Dec. 31, 2016 659 289 948
Impairment losses
Balance as of Jan. 1, 2016 26 1 28
Foreign exchange differences – – –
Additions – – –
Disposals – 0 0
Reversal of impairment losses – – –
Balance as of Dec. 31, 2016 26 1 28
Net carrying amount
as of Dec. 31, 2016 633 288 920
Net carrying amount
as of Jan. 1, 2016 538 206 744

Equity-accounted Miscellaneous
€ million investments financial assets Total
Gross carrying amount

as of Jan. 1, 2017 659 289 948
Foreign exchange differences – –1 –1
Changes in basis of consolidation – 80 –6 – 86
Additions 15 93 109
Disposals – 0 0
Changes recognized in profit or loss 82 – 82
Dividends –7 – –7
Other changes recognized in other comprehensive income – 20 – – 20
Balance as of Dec. 31, 2017 648 376 1,024
Impairment losses
Balance as of Jan. 1, 2017 26 1 28
Foreign exchange differences – – –
Changes in basis of consolidation –9 – –9
Additions – 2 2
Disposals – – –
Balance as of Dec. 31, 2017 17 3 20
Net carrying amount
as of Dec. 31, 2017 631 373 1,004
Net carrying amount
as of Jan. 1, 2017 633 288 920

36. Intangible Assets
Internally Other
generated Brand names, intangible
€ million software customer base Goodwill assets Total
Cost
Balance as of Jan. 1, 2016 117 53 40 213 422
Foreign exchange differences 2 2 0 3 7
Changes in basis of consolidation – – – – –
Additions 3 – – 28 32
Reclassifications – – – 0 0
Disposals 4 – – 1 5
Balance as of Dec. 31, 2016 118 54 40 243 456
Amortization and impairment losses
Balance as of Jan. 1, 2016 101 10 – 162 273
Foreign exchange differences 0 0 – 2 2
Changes in basis of consolidation – – – – –
Additions to cumulative amortization 3 2 – 29 33
Additions to cumulative impairment losses – – – 0 0
Reclassifications – – – – –
Disposals 2 – – 1 3
Reversal of impairment losses – – – – –
Balance as of Dec. 31, 2016 102 12 – 192 306
Net carrying amount
as of Dec. 31, 2016 17 43 40 51 150
Net carrying amount
as of Jan. 1, 2016 16 43 40 51 149

Internally Other
generated Brand names, intangible
€ million software customer base Goodwill assets Total
Cost
Balance as of Jan. 1, 2017 118 54 40 243 456
Foreign exchange differences –1 –1 1 –3 –5
Changes in basis of consolidation – 83 – 21 – 18 – 155 – 277
Additions 1 – – 24 25
Disposals 0 12 11 5 28
Balance as of Dec. 31, 2017 35 20 12 104 171
Balance as of Jan. 1, 2017 102 12 – 192 306
Foreign exchange differences –1 0 – –3 –3
Changes in basis of consolidation – 74 – 10 – – 127 – 211
Additions to cumulative amortization 3 1 – 20 24
Additions to cumulative impairment losses – 12 11 – 22
Disposals – 12 11 4 26
Reversal of impairment losses – – – – –
Balance as of Dec. 31, 2017 30 3 – 79 113
Net carrying amount
as of Dec. 31, 2017 4 18 12 24 59
Net carrying amount
as of Jan. 1, 2017 17 43 40 51 150
The goodwill of €12 million (previous year: €40 million) and brand names of €16 million (previous year:
€35 million) in Poland and Germany on the balance sheet as of the reporting date have an indefinite useful life.
The indefinite useful life arises because goodwill and brand names are linked to the relevant cash-generating
unit and will therefore remain in existence for as long as this unit also remains in existence. The customer base
in Poland is being amortized over a period of ten years.
Of the total recognized goodwill, €12 million (previous year: €29 million) was attributable to Poland and
€11 million to Brazil in the previous year. Of the total recognized brand names, €6 million (previous year:
€6 million) was attributable to Poland and €10 million (previous year: €10 million) to Germany. In the report-
ing year, an impairment loss was recognized for the full amount of the goodwill relating to the Brazilian market
because the tight economic situation in the Brazilian market resulted in a value in use below the corresponding
carrying amount. The discount rates used in the impairment tests were as follows: 11.1 % (previous year: 11.8 %)
for Poland and 11.8 % (previous year: 12.7 %) for Brazil.
The impairment tests for the reported goodwill and brand names are based on the value in use. The value in
use determined for the reported goodwill and brand names in the impairment test for Poland exceeded the
corresponding carrying amount, so no impairment loss requirement was identified for the reported goodwill
or brand names. The VW FS AG Group also carried out sensitivity analyses as part of the impairment tests. In
Poland, no conceivable change in a material assumption would lead to the recognition of an impairment loss
for goodwill and brand names.

37. Property and Equipment
Operating and
€ million Land and buildings office equipment Total
Cost
Balance as of Jan. 1, 2016 303 283 586
Foreign exchange differences 0 0 0
Additions 12 31 43
Reclassifications –1 1 0
Disposals 0 64 65
Balance as of Dec. 31, 2016 313 251 564
Balance as of Jan. 1, 2016 96 173 269
Foreign exchange differences 0 0 0
Additions to cumulative depreciation 10 31 41
Additions to cumulative impairment losses – – –
Reclassifications – 0 0
Disposals 0 60 61
Balance as of Dec. 31, 2016 105 144 250
Net carrying amount
as of Dec. 31, 2016 208 106 314
Net carrying amount
as of Jan. 1, 2016 207 110 317

Operating and
€ million Land and buildings office equipment Total
Cost
Balance as of Jan. 1, 2017 313 251 564
Foreign exchange differences –2 –4 –6
Changes in basis of consolidation – 23 – 166 – 189
Additions 34 23 56
Disposals 1 11 12
Balance as of Dec. 31, 2017 319 95 413
Balance as of Jan. 1, 2017 105 144 250
Foreign exchange differences –1 –2 –2
Changes in basis of consolidation – 18 – 107 – 125
Additions to cumulative depreciation 9 26 35
Additions to cumulative impairment losses – – –
Disposals 0 8 9
Balance as of Dec. 31, 2017 95 54 149
Net carrying amount
as of Dec. 31, 2017 224 41 265
Net carrying amount
as of Jan. 1, 2017 208 106 314
In connection with land and buildings, land charges of €13 million (previous year: €13 million) serve as collat-
eral for financial liabilities.
Assets under construction with a carrying amount of €35 million (previous year: € million) are included in
land and buildings.

38. Lease Assets and Investment Property
Movable Investment
€ million lease assets property Total
Cost
Balance as of Jan. 1, 2016 16,961 22 16,983
Foreign exchange differences – 442 0 – 442
Additions 12,486 0 12,486
Disposals 10,036 2 10,039
Balance as of Dec. 31, 2016 18,968 21 18,988
Depreciation and impairment losses
Balance as of Jan. 1, 2016 3,978 7 3,986
Additions to cumulative depreciation 2,522 1 2,523
Additions to cumulative impairment losses 188 – 188
Reclassifications 0 – 0
Disposals 2,251 2 2,253
Reversal of impairment losses 67 – 67
Balance as of Dec. 31, 2016 4,272 7 4,279
Net carrying amount
as of Dec. 31, 2016 14,696 14 14,710
Net carrying amount
as of Jan. 1, 2016 12,982 15 12,997
In the prior year, we expected the following payments over the next few years from noncancelable leases:
€ million 2017 2018 – 2021 Total
Lease payments 223 245 468

The following table shows the present values in the prior year of future lease payments arising from buildings
leased under finance leases:
Lease payments 2 6 3 11
Interest component 0 1 0 2
Carrying amount of liabilities 1 5 3 9
Movable Investment
€ million lease assets property Total
Cost
Balance as of Jan. 1, 2017 18,968 21 18,988
Changes in basis of consolidation – 6,045 –3 – 6,048
Additions 11,368 – 11,368
Disposals 9,038 – 9,038
Balance as of Dec. 31, 2017 15,059 18 15,076
Depreciation and impairment losses
Balance as of Jan. 1, 2017 4,272 7 4,279
Changes in basis of consolidation – 1,162 –2 – 1,164
Additions to cumulative depreciation 2,381 1 2,382
Additions to cumulative impairment losses 253 2 255
Disposals 2,196 – 2,196
Reversal of impairment losses 20 – 20
Balance as of Dec. 31, 2017 3,487 7 3,495
Net carrying amount
as of Dec. 31, 2017 11,571 10 11,582
Net carrying amount
as of Jan. 1, 2017 14,696 14 14,710
The fair value of investment property amounts to €15 million (previous year: €16 million). The fair value is
determined using an income approach based on internal calculations (Level 3 of the fair value hierarchy). Oper-
ating expenses of € million (previous year: € million) were incurred in the reporting period for the mainte-
nance of investment property.

In the reporting period, we expected the following payments over the next few years from noncancelable leas-
es:
€ million 2018 2019 – 2022 Total
Lease payments 104 232 337
The following table shows the present values in the reporting period of future lease payments arising from
buildings leased under finance leases:
Lease payments 2 5 2 9
Interest component 0 1 0 1
Carrying amount of liabilities 1 4 2 8
39. Deferred Tax Assets
The deferred tax assets comprise exclusively deferred income tax assets, the breakdown of which is as follows:
€ million Dec. 31, 2017 Dec. 31, 2016
Deferred tax assets 6,995 9,183

of which noncurrent 4,458 4,252
Recognized benefit from unused tax loss carryforwards, net of valuation allowances 10 17
of which noncurrent 10 17
Offset (with deferred tax liabilities) – 5,969 – 7,366
Total 1,035 1,834

Deferred tax assets are recognized in connection with the following balance sheet items:
€ million Dec. 31, 2017 Dec. 31, 2016
Loans, receivables and other assets 671 668

Marketable securities and cash 3 2,545
Intangible assets/property and equipment 18 19
Liabilities and provisions 687 696
Valuation allowances for deferred tax assets on temporary differences – –
Total 6,995 9,183
40. Other Assets
The details of other assets are as follows:
€ million Dec. 31, 2017 Dec. 31, 2016
Vehicles returned for disposal 586 767

Restricted cash 850 1,018
Prepaid expenses 227 327
Other tax assets 117 161
Reinsurers’ share of underwriting provisions 66 71
Miscellaneous 926 1,149
Total 2,772 3,495
Minimum lease payments of €576 million (previous year: €798 million) are expected from noncancelable sub-
leases in connection with buyback transactions.
The breakdown of the reinsurers’ share of underwriting provisions is as follows:
€ million Dec. 31, 2017 Dec. 31, 2016
Reinsurers’ share of provision for claims outstanding 49 52

Reinsurers’ share of provision for unearned premiums 16 19
Reinsurers’ share of other underwriting provisions 2 1
Total 66 71

41. Noncurrent Assets
of which Dec. 31, 2016 of which

€ million Dec. 31, 2017 noncurrent restated1 noncurrent1
Cash reserve 40 – 1,478 –

Loans to and receivables from banks 1,444 166 2,236 46
Loans to and receivables from customers 49,804 27,890 100,664 55,695
Derivative financial instruments 555 443 1,297 822
Marketable securities 257 – 2,993 –
Equity-accounted joint ventures 631 631 633 633
Miscellaneous financial assets 373 373 288 288
Intangible assets 59 59 150 150
Property and equipment 265 265 314 314
Lease assets 11,571 9,555 14,696 12,502
Investment property 10 10 14 14
Current tax assets 137 5 156 16
Other assets 2,772 726 3,495 873
Total 67,918 40,123 128,414 71,352
42. Liabilities to Banks and Customers
To cover the capital requirements for the leasing and financing activities, the entities in the VW FS AG Group
make use of, among other things, the funds provided by the entities in the Volkswagen Group.
In the previous year, the liabilities to banks included significant liabilities to Deutsche Bundesbank arising
from targeted longer-term refinancing operations.
The liabilities to customers include customer deposits of €69 million (previous year: €36,149 million). In
the previous year, these deposits predominantly comprised overnight money and time deposits, as well as
various savings bonds and savings plans, held with Volkswagen Bank GmbH.
Receivables from finance leases of €685 million were pledged as collateral for liabilities to banks in the re-
porting period.

43. Notes, Commercial Paper Issued
This item comprises bonds and commercial paper.
€ million Dec. 31, 2017 Dec. 31, 2016
Bonds issued 30,055 33,482

Commercial paper issued 2,398 4,367
Total 32,453 37,849
Customer and dealer financing loans and receivables amounting to €287 million (previous year: €251 million)
have been furnished as collateral for issued bonds not related to ABS transactions.
44. ABS Transactions
The VW FS AG Group uses ABS transactions for funding purposes. The related liabilities are recognized in the
following balance sheet items:
€ million Dec. 31, 2017 Dec. 31, 2016
Bonds issued 12,345 18,773

Subordinated liabilities 1,348 1,830
Total 13,694 20,603
Of the total amount of liabilities arising in connection with ABS transactions, an amount of €10,885 million (pre-
vious year: €18,536 million) is accounted for by ABS transactions with financial assets. The corresponding carrying
amount of loans/receivables from retail financing and leasing business is €11,502 million (previous year:
€19,115 million). As of December 31, 2017, the fair value of the liabilities amounted to €10,817 million (previous
year: €18,890 million). The fair value of the assigned loans/receivables, which continued to be recognized,
amounted to €11,665 million (previous year: €19,888 million) as of December 31, 2017.
In these arrangements, the expected payments are assigned to special purpose entities and the ownership
of the collateral in the financed vehicles is transferred. The assigned loans/receivables cannot be assigned again
to anyone else or used in any other way as collateral. The rights of the bond holders are limited to the assigned
loans/receivables and the payment receipts arising from these loans/receivables are used to repay the corre-
sponding liability.
These asset-backed securities transactions did not lead to a derecognition of the loans or receivables from
the financial services business because the credit risk and timing risk were retained in the Group. The differ-
ence between the amount of the assigned loans/receivables and the associated liabilities results from the differ-
ent terms and conditions and from the proportion of the ABSs held by the VW FS AG Group itself.

Collateral totaling €15,079 million (previous year: €22,061 million) has been furnished in connection with ABS
transactions.
The VW FS AG Group is under a contractual obligation to transfer funds in certain circumstances to the
structured entities included in its consolidated financial statements. As the transfer of the loans/receivables to
the special purpose entity is carried out as an undisclosed assignment, it is possible that the originator’s
loan/receivable could already have been legally reduced, for example if the debtor has an effective right of set-
off against amounts it is owed by the VW FS AG Group. Collateral must be furnished for the resulting compen-
sation claim in respect of the special purpose entity if, for example, the rating of the relevant Group company
falls to a contractually specified reference value.
The bulk of the public and private ABS transactions in the Volkswagen Financial Services AG Group can be
repaid early (with a clean-up call) when less than 10 % of the original transaction volume remains outstanding.
This item comprises the negative fair values from hedges and from derivatives not designated as a hedging
instrument. The breakdown is as follows:
Dec. 31, 2016

Transactions to hedge against

currency risk on assets using fair value hedges 9 27
currency risk on liabilities using fair value hedges 82 109
interest-rate risk using fair value hedges 36 143
of which hedges against interest-rate risk using portfolio fair value hedges 9 85
interest-rate risk using cash flow hedges 2 2
currency and pricing risk on future cash flows using cash flow hedges 6 12
Hedging transactions 134 293
Liabilities arising from derivatives not designated as hedges 77 220
Total 211 513

46. Provisions for Pensions and Other Post-Employment Benefits
The following amounts have been recognized in the balance sheet for benefit commitments:
€ million Dec. 31, 2017 Dec. 31, 2016
Present value of funded obligations 245 323

Fair value of plan assets 168 227
Funded status (net) 77 96
Present value of unfunded obligations 281 379
Amount not recognized as an asset because of the ceiling in IAS 19 1 1
Net liability recognized in the balance sheet 359 477
of which provisions for pensions 360 478
of which other assets 1 1
Key pension arrangements in the VW FS AG Group:

For the period after the active working life of employees, the VW FS AG Group offers its employees benefits
under attractive, state-of-the-art occupational pension arrangements. Most of the arrangements in the
VW FS AG Group are pension plans for employees in Germany classified as defined benefit plans under IAS 19.
The majority of these obligations are funded by provisions recognized in the balance sheet. These plans are
now closed for new members. To reduce the risks associated with defined benefit plans, in particular longevity,
salary increases and inflation, the VW FS AG Group has introduced new defined benefit plans in recent years in
which the benefits are funded by appropriate external plan assets. The risks referred to above have been signifi-
cantly reduced in these pension plans. The proportion of the total defined benefit obligation attributable to
pension obligations funded by plan assets will continue to rise in the future. The main pension commitments
are described below.
German pension plans funded solely by recognized provisions

The pension plans funded solely by recognized provisions comprise both defined contribution plans with
guarantees and final salary plans. For defined contribution plans, an annual pension expense dependent on
income and status is converted into a lifelong pension entitlement using annuity factors (guaranteed modular
pension entitlements). The annuity factors include a guaranteed rate of interest. The modular pension entitle-
ments earned annually are added together at retirement. For final salary plans, the underlying salary is multi-
plied at retirement by a percentage that depends on the years of service up to the retirement date. The present
value of the guaranteed obligation rises as interest rates fall and is therefore exposed to interest rate risk. The
pension system provides for lifelong pension payments. The companies therefore bear the longevity risk. This
is accounted for by calculating the annuity factors and the present value of the guaranteed obligation using the
latest generational mortality tables – the “Heubeck 2005 G” mortality tables – which already reflect future in-
creases in life expectancy. To reduce the inflation risk from adjusting the regular pension payments by the rate
of inflation, a pension adjustment that is not indexed to inflation was introduced for pension plans where this
is permitted by law.
German pension plans funded by external plan assets

The pension plans funded by external plan assets are defined contribution plans with guarantees. In this case,
an annual pension expense dependent on income and status is either converted into a lifelong pension enti-
tlement using annuity factors (guaranteed modular pension entitlement) or paid out in a single lump sum or
in installments. In some cases, employees also have the opportunity to provide for their own retirement
through deferred compensation. The annuity factors include a guaranteed rate of interest. The modular pen-
sion entitlements earned annually are added together at retirement. The pension expense is contributed on an
ongoing basis to a separate pool of assets that is administered independently of the Company in trust and
invested in the capital markets. If the plan assets exceed the present value of the obligations calculated using

the guaranteed rate of interest, surpluses are allocated (modular pension bonuses). As the assets administered
in trust meet the IAS 19 criteria for classification as plan assets, they are offset against the obligations.
The amount of the plan assets is exposed to general market risk. The investment strategy and its implemen-
tation are therefore continuously monitored by the trusts’ governing bodies, on which the companies are also
represented. For example, investment policies are stipulated in investment guidelines with the aim of limiting
market risk and its impact on plan assets. In addition, asset-liability management analyses are conducted at
regular intervals so as to ensure that investments are in line with the obligations that need to be covered. The
pension assets are currently invested primarily in fixed-income or equity funds. The main risks are therefore
interest rate and equity price risk. To mitigate market risk, the pension system also provides for funds to be set
aside in an equalization reserve before any surplus is allocated.
The present value of the obligation is reported as the maximum of the present value of the guaranteed obli-
gation and of the plan assets. If the value of the plan assets falls below the present value of the guaranteed obli-
gation, a provision must be recognized for the difference. The present value of the guaranteed obligation rises
as interest rates fall and is therefore exposed to interest rate risk.
In the case of lifelong pension payments, the VW FS AG Group bears the longevity risk. This is accounted for
by calculating the annuity factors and the present value of the guaranteed obligation using the latest genera-
tional mortality tables – the “Heubeck 2005 G” mortality tables – which already reflect future increases in life
expectancy. In addition, the independent actuaries carry out annual risk monitoring as part of the review of the
assets administered by the trusts.
To reduce the inflation risk from adjusting the regular pension payments by the rate of inflation, a pension
adjustment that is not indexed to inflation was introduced for pension plans where this is permitted by law.
The calculation of the present value of the defined benefit obligations was based on the following actuarial
assumptions:
GERMANY INTERNATIONAL
Percent Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016
Discount rate 1.90 1.80 7.41 4.91

Pay trend 3.60 3.60 5.78 5.44
Pension trend 1.50 1.50 4.05 3.61
Staff turnover rate 0.98 0.98 3.07 2.68
These assumptions are averages that were weighted using the present value of the defined benefit obligation.
With regard to life expectancy, the latest mortality tables in every country are taken into account. For ex-
ample, in Germany calculations are based on the “2005 G” mortality tables developed by Profes-
sor Dr. Klaus Heubeck. The discount rates are generally determined to reflect the yields on prime-rated corpo-
rate bonds with matching maturities and currencies. The iBoxx AA 10+ Corporates index was taken as the basis
for the obligations of German Group companies. Similar indices were used for foreign pension obligations.
The pay trends cover expected wage and salary trends, which also include increases attributable to career devel-
opment. The pension trends either reflect the contractually guaranteed pension adjustments or are based on
the rules on pension adjustments in force in each country. The employee turnover rates are based on past expe-
rience and future expectations.
The following table shows changes in the net defined benefit liability recognized in the balance sheet:

€ million 2017 2016
Net liability recognized in the balance sheet as of January 1 477 355

Current service cost 31 26
Net interest expense 8 9
Actuarial gains (–)/losses (+) arising from changes in demographic assumptions 0 2
Actuarial gains (–)/losses (+) arising from changes in financial assumptions – 13 120
Actuarial gains (–)/losses (+) arising from experience adjustments – 26 –2
Income/expenses from plan assets not included in interest income –1 6
Change in amount not recognized as an asset because of the ceiling in IAS 19 0 0
Employer contributions to plan assets 17 17
Employee contributions to plan assets – –
Pension payments from company assets 5 6
Past service cost (including plan curtailments) – 0
Gains (–) or losses (+) arising from plan settlements – –
Changes in basis of consolidation – 50 –
Other changes – 46 –4
Foreign exchange differences from foreign plans 0 0
Net liability recognized in the balance sheet as of December 31 359 477
The change in the amount not recognized as an asset because of the ceiling in IAS 19 includes an interest com-
ponent, some of which is recognized in profit or loss under general and administrative expenses and some of
which is recognized in other comprehensive income.

The change in the present value of the defined benefit obligation is attributable to the following factors:
€ million 2017 2016
Present value of obligations as of January 1 702 551

Interest cost (unwinding of discount on obligations) 14 17
Actuarial gains (–)/losses (+) arising from changes in demographic assumptions 0 2
Actuarial gains (–)/losses (+) arising from changes in financial assumptions – 13 120
Actuarial gains (–)/losses (+) arising from experience adjustments – 26 –2
Employee contributions to plan assets 1 2
Pension payments from company assets 5 6
Pension payments from plan assets 2 3
Other changes – 74 –2
Foreign exchange differences from foreign plans –4 –1
Present value of obligations as of December 31 526 702
Changes in the relevant actuarial assumptions would have had the following effects on the defined benefit
obligation:
DEC. 31, 2017 DEC. 31, 2016
Present value of defined benefit

obligation if € million Change in percent € million Change in percent
is 0.5 percentage
Discount rate points higher 472 – 10.29 629 – 10.42
is 0.5 percentage
points lower 589 12.05 788 12.21
is 0.5 percentage
Pension trend points higher 547 4.02 734 4.47
is 0.5 percentage
points lower 507 – 3.63 674 – 4.08
is 0.5 percentage
Pay trend points higher 533 1.37 710 1.10
is 0.5 percentage
points lower 519 – 1.26 698 – 0.58
increases by one
Longevity year 539 2.52 721 2.64
The sensitivity analysis shown above considers the change in one assumption at a time, leaving the other as-
sumptions unchanged versus the original calculation. In other words, any correlation effects between the indi-
vidual assumptions are ignored.
To examine the sensitivity of the present value of the defined benefit obligation to a change in assumed
longevity, the estimates of mortality were reduced as part of a comparative calculation by a measure that was
roughly equivalent to an increase in life expectancy of one year.
The average duration of the defined benefit obligation weighted by the present value of the defined benefit
obligation (Macaulay duration) is 23 years (previous year: 23 years).

The following table shows a breakdown of the present value of the defined benefit obligation by category of
plan member:
€ million 2017 2016
Active members with pension entitlements 431 512

Members with vested entitlements who have left the Company 22 61
Retirees 72 129
Total 526 702
The maturity profile of payments attributable to the defined benefit obligation is presented in the following
table, which classifies the present value of the obligation by the maturity of the underlying payments:
€ million 2017 2016
Payments due within the next fiscal year 5 7

Payments due between two and five years 25 39
Payments due in more than five years 496 655
Total 526 702
Changes in plan assets are shown in the following table:
€ million 2017 2016
Fair value of plan assets as of January 1 227 196

Interest income on plan assets determined using the discount rate 6 8
Income/expenses from plan assets not included in interest income –1 6
Employer contributions to plan assets 17 17
Employee contributions to plan assets 1 2
Pension payments from plan assets 2 3
Gains (+) or losses (–) arising from plan settlements – –
Other changes – 28 2
Foreign exchange differences from foreign plans –4 –1
Fair value of plan assets as of December 31 168 227
The investment of the plan assets to cover future pension obligations resulted in income in the amount of
€ million (previous year: €14 million).
Employer contributions to plan assets are expected to amount to €15 million (previous year: €22 million) in
the next fiscal year.
Plan assets are invested in the following asset classes:

DEC. 31, 2017 DEC. 31, 2016
Quoted No quoted Quoted No quoted

prices prices prices prices
in active in active in active in active
€ million markets markets Total markets markets Total
Cash and cash equivalents 11 – 11 5 – 5

Equity instruments – – – 7 – 7
Debt instruments 25 – 25 52 – 52
Direct investments in real
estate – – – – – –
Derivatives 1 –1 –1 3 – 3
Equity funds 24 – 24 26 – 26
Bond funds 105 – 105 127 – 127
Real estate funds 1 – 1 1 – 1
Other funds – – – 4 – 4
Asset-backed securities – – – – – –
Structured debt securities – – – – – –
Other 0 2 2 0 1 1
Of the total plan assets, 70 % (previous year: 57 %) are invested in German assets, % (previous year: 21 %) in
other European assets and 28 % (previous year: 22 %) in assets in other regions. Investments of plan assets in
debt instruments issued by the Volkswagen Group are of minor significance.
The following amounts have been recognized in the income statement:
€ million 2017 2016

Net interest on the net defined benefit liability 8 9
Net income (–) and expenses (+) recognized in profit or loss 39 35

47. Underwriting Provisions and Other Provisions
€ million Dec. 31, 2017 Dec. 31, 2016
Underwriting provisions 399 365

Other provisions 489 847
Total 888 1,212
The following table shows the changes in underwriting provisions:
UNDERWRITING PROVISIONS
Provision for Provision for Other

claims unearned underwriting
€ million outstanding premiums provisions Total
Balance as of Jan. 1, 2016 85 250 2 337

Changes to basis of consolidation – – – –
Utilization 38 29 2 69
Additions 41 55 3 98
Balance as of Dec. 31, 2016 87 275 3 365
UNDERWRITING PROVISIONS
Provision for Provision for Other

claims unearned underwriting
€ million outstanding premiums provisions Total
Balance as of Jan. 1, 2017 87 275 3 365

Changes to basis of consolidation – – – –
Balance as of Dec. 31, 2017 88 305 6 399

Maturity profile of underwriting provisions:
DEC. 31, 2017 DEC. 31, 2016
Remaining Remaining
maturity of more maturity of more
€ million than one year Total than one year Total
Provision for claims outstanding 38 88 44 87

Provision for unearned premiums 173 305 144 275
Other underwriting provisions – 6 – 3
Total 211 399 188 365
Underwriting provisions for direct insurance business:
2017 2016
Remaining Remaining
maturity of more maturity of more
€ million than one year Total than one year Total
Balance as of Jan. 1 69 144 78 166

Additions 15 42 1 4
Balance as of Dec. 31 76 148 69 144
The underwriting provisions for direct insurance business were recognized in respect of warranty insurance
and repair costs insurance.
Changes in the underwriting provisions for reinsurance business, by class of insurance:
2016
Credit protection
€ million Vehicle insurance insurance Other Total


2017
Credit protection
€ million Vehicle insurance insurance Other Total

Additions 3 93 2 98
In the reporting period, other provisions were broken down into provisions for employee expenses, provisions
for litigation and legal risks, and miscellaneous provisions.
The following table shows the changes in other provisions, including maturities:
Employee Litigation and Miscellaneous

€ million expenses legal risks provisions Total
Balance as of Jan. 1, 2016 108 480 167 755

Foreign exchange differences –1 19 0 18
Changes in basis of consolidation – – – –
Additions/new provisions 69 178 90 337
Unwinding of discount/effect of change in discount rate – 6 – 6
Reversals 11 111 43 165
Balance as of Dec. 31, 2016 119 545 183 847
of which current 61 227 159 446
of which noncurrent 58 318 24 401
Balance as of Jan. 1, 2017 119 545 183 847
Foreign exchange differences –1 – 16 –2 – 20
Changes in basis of consolidation – 34 – 341 – 93 – 468
Additions/new provisions 63 244 103 410
Unwinding of discount/effect of change in discount rate – 7 – 7
Reversals 7 136 34 177
Balance as of Dec. 31, 2017 88 282 119 489
of which current 36 53 94 183
of which noncurrent 53 229 25 306
Provisions for employee expenses are recognized primarily for annually recurring bonuses such as holiday or
Christmas bonuses, long service awards and other employee expenses. The provisions for litigation and legal
risks reflect the risks identified as of the reporting date in relation to utilization and legal expenses arising from
the latest decisions by the courts and from ongoing civil proceedings involving dealers and other customers.
Based on analysis of the individual matters covered by the provisions, we believe that the disclosure of further
detailed information on individual proceedings, legal disputes or legal risks could seriously prejudice the
course or initiation of proceedings.
The timing of the cash outflows in connection with other provisions is expected to be as follows: 37 % in the
next year, 55 % in the years 2019 to 2022 and % thereafter.

48. Deferred Tax Liabilities
The breakdown of the deferred tax liabilities is as follows:
€ million Dec. 31, 2017 Dec. 31, 2016
Deferred tax liabilities 6,417 8,517

of which noncurrent 3,765 4,536
Offset (with deferred tax assets) – 5,969 – 7,366
Total 447 1,151
The deferred tax liabilities include taxes arising on temporary differences between amounts in the
IFRS financial statements and those determined in the calculation of taxable profits in the Group entities.
Deferred tax liabilities have been recognized in connection with the following balance sheet items:
€ million Dec. 31, 2017 Dec. 31, 2016
Loans, receivables and other assets 5,367 5,550

Marketable securities and cash 19 89
Intangible assets/property and equipment 5 17
Lease assets 519 528
Liabilities and provisions 506 2,333
Total 6,417 8,517
49. Other Liabilities
The details of other liabilities are as follows:
Dec. 31, 2016

Deferred income 1,112 1,211

Other tax liabilities 176 200
Social security and payroll liabilities 133 174
Miscellaneous 192 344
Total 1,613 1,929
1 The prior year has been adjusted for deferred income from contracts for servicing and wear-and-tear repairs.

50. Subordinated capital
The subordinated capital of €4,354 million was issued or raised by Volkswagen Leasing GmbH, Ban-
co Volkswagen S.A., Volkswagen Financial Services Australia Limited and VW FS AG in the reporting period.
In the previous year, subordinated capital of €3,183 million was issued or raised by
Volkswagen Bank GmbH, Volkswagen Leasing GmbH, Volkswagen Financial Services (UK) Ltd., Ban-
co Volkswagen S.A., Volkswagen Financial Services Australia Limited, Volkswagen Finans Sverige AB and
VW FS AG.
51. Noncurrent Liabilities
of which Dec. 31, 2016 of which

€ million Dec. 31, 2017 noncurrent restated1 noncurrent1
Liabilities to banks 10,982 4,119 17,034 7,367

Liabilities to customers 9,673 4,428 49,454 7,579
Notes, commercial paper issued 32,453 24,067 37,849 22,634
Derivative financial instruments 211 115 513 216
Current tax liabilities 348 122 494 215
Other liabilities 1,613 604 1,929 766
Subordinated capital 4,354 4,073 3,183 2,689
Total 59,633 37,527 110,456 41,468
52. Equity
The subscribed capital of VW FS AG is divided into 441,280,000 fully paid up no-par-value bearer shares, each
with a notional value of €1, which are all held by Volkswagen AG, Wolfsburg. There are no preferential rights or
restrictions in connection with the subscribed capital.
The capital contributions made by the sole shareholder, Volkswagen AG, are reported under the capital re-
serves of VW FS AG.
The retained earnings comprise the profits from previous fiscal years that have not been distributed. The re-
tained earnings include a legal reserve of €44 million (previous year: €44 million).
On the basis of the control and profit-and-loss transfer agreement with the sole shareholder,
Volkswagen AG, the loss of €– 478 million (previous year: profit transfer of €130 million) in accordance with the
HGB incurred by VW FS AG was absorbed.
53. Capital Management
In this context, “capital” is generally defined as the equity in accordance with IFRS. The aims of capital man-
agement in the VW FS AG Group are to support the Company’s credit rating by ensuring that the Group has
adequate capital backing and obtain capital for the planned growth over the next few years. Corporate action
implemented by the parent company of VW FS AG has an impact on IFRS equity of VW FS AG.
Following the restructuring of the legal entities, in which the companies making up the discontinued oper-
ations, i.e. the European lending and deposits business, were transferred from VW FS AG to Volkswagen AG,
regulatory requirements no longer needed to be taken into account in capital management at VW FS AG.

As of December 31, 2017, the equity ratio was 11.1 %.
In the previous year, VW FS AG had made a distinction between regulatory capital and IFRS capital (see note 52
for details of the components).
Regulatory capital consisted of capital components referred to as Common Equity Tier (CET) 1 capital, Addi-
tional Tier 1 capital and Tier 2 capital net of certain deductions and adjustments and had to meet specific re-
quirements defined by law.
The following amounts and key figures were determined for the financial holding group in the previous year:
Dec. 31, 2016
Total risk exposure amount1 (€ million) 119,709

of which risk-weighted exposure amounts for credit risk 104,414
of which own funds requirements for market risk *12.5 6,982
of which own funds requirements for operational risk *12.5 7,894
of which own funds requirements for credit valuation adjustments *12.5 419
Eligible own funds (€ million) 15,121
Own funds (€ million) 15,121
of which Common Equity Tier 1 capital 13,989
of which Additional Tier 1 capital 0
of which Tier 2 capital 1,132
Common Equity Tier 1 capital ratio (percent)2 11.7
Tier 1 capital ratio (percent)2 11.7
Total capital ratio (percent)2 12.6
1 According to Article 92(3) of the CRR

2 According to Article 92(1) of the CRR

Financial Instrument Disclosures
54. Carrying Amounts of Financial Instruments by IAS 39 Measurement Category
The IAS 39 measurement categories are defined in the VW FS AG Group, as follows:

Loans and receivables are non-derivative financial instruments that are not traded in an active market and
that are subject to fixed-payment agreements. The cash reserve also forms part of this category.
Financial assets and financial liabilities measured at fair value through profit or loss include derivative financial
instruments. The VW FS AG Group has no plans to specially allocate other financial instruments to this category.
Available-for-sale financial assets are either assets specifically allocated to this category as such or financial
assets that cannot be allocated to any other category. In the VW FS AG Group, marketable securities and miscel-
laneous financial assets are allocated to this category.
All non-derivative financial instruments are accounted for on the basis of the settlement date. Derivative fi-
nancial instruments are accounted for on the basis of the trade date.
The carrying amounts of financial instruments (excluding hedge derivatives) by measurement category are as
follows:
FINANCIAL ASSETS AND

FINANCIAL LIABILITIES
FINANCIAL LIABILITIES MEASURED AT FAIR
LOANS AND AVAILABLE-FOR-SALE MEASURED AT VALUE THROUGH
RECEIVABLES FINANCIAL ASSETS AMORTIZED COST PROFIT OR LOSS
Dec. 31, Dec. 31,

€ million Dec. 31, 2017 20161 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 20161
Assets
Cash reserve 40 1,478 – – – – – –
Loans to and receivables
from banks 1,444 2,236 – – – – – –
from customers 30,979 66,305 – – – – – –
Derivative financial
instruments – – – – – – 62 142
Marketable securities – – 257 2,993 – – – –
Miscellaneous financial
assets – – 0 0 – – – –
Other assets 1,034 1,242 – – – – – –
Total 33,497 71,261 257 2,993 – – 62 142

Liabilities to banks – – – – 10,982 17,034 – –
Liabilities to customers – – – – 9,665 49,445 – –
Notes, commercial paper
issued – – – – 32,453 37,849 – –
instruments – – – – – – 77 220
Other liabilities – – – – 672 690 – –
Subordinated capital – – – – 4,354 3,183 – –
Total – – – – 58,124 108,200 77 220
1 Previous year restated as explained in the disclosures on the leasing business in the United Kingdom and Irish markets and in the disclosures on the separately
recognized derivatives in the United Kingdom market in the section entitled “Restated Prior-Year Figures”.

Receivables from leasing business of €18,809 million (restated previous year: €34,344 million) do not have to be
allocated to any of these categories.
The net income/expense for each of the categories is as follows:
2016
Loans and receivables 2,612 2,764

Available-for-sale financial assets 10 29
Financial liabilities measured at amortized cost – 1,278 – 1,445
Financial assets and financial liabilities measured at fair value through profit or loss – 71 – 75
The net income/expense is determined as follows:
Measurement category Measurement method
Interest income using the effective interest method in accordance with IAS 39 and
expenses/income from the recognition of valuation allowances in accordance with IAS 39, including
Loans and receivables effects from currency translation
Fair value in accordance with IAS 39 in conjunction with IFRS 13, including interest and effects from
Available-for-sale financial assets currency translation and impairment
Financial liabilities measured at Interest expense using the effective interest method in accordance with IAS 39, including effects
amortized cost from currency translation
Financial assets and financial
liabilities measured at fair value Fair value in accordance with IAS 39 in conjunction with IFRS 13, including interest and effects from
through profit or loss currency translation and impairment

55. Classes of Financial Instruments
Financial instruments are divided into the following classes in the VW FS AG Group:
> Measured at fair value
> Financial assets measured at amortized cost
> Derivative financial instruments designated as hedges
> Financial liabilities measured at amortized cost
> Credit commitments and financial guarantees
> Not within the scope of IFRS 7
Loans/receivables and liabilities designated as hedges with derivative financial instruments are included in the
“Financial assets measured at amortized cost” and “Financial liabilities measured at amortized cost” classes.
Within miscellaneous financial assets, subsidiaries and joint ventures that are not consolidated for reasons
of materiality are not deemed financial instruments in accordance with IAS 39 and therefore do not fall within
the scope of IFRS 7. Equity investments forming part of miscellaneous financial assets are reported as financial
instruments in accordance with IAS 39 in the class “Measured at fair value”.

The following table shows a reconciliation of the relevant balance sheet items to the classes of financial instru-
ments:
DERIVATIVE
FINANCIAL
INSTRUMENTS
BALANCE SHEET MEASURED AT FAIR MEASURED AT DESIGNATED AS NOT WITHIN THE
ITEM VALUE AMORTIZED COST¹ HEDGES SCOPE OF IFRS 7
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
€ million 2017 20162 2017 20162 2017 20162 2017 2016 2017 2016
Assets
Cash reserve 40 1,478 – – 40 1,478 – – – –
from banks 1,444 2,236 – – 1,444 2,236 – – – –
from customers 49,804 100,664 – – 49,804 100,664 – – – –
instruments 555 1,297 62 142 – – 493 1,156 – –
Marketable securities 257 2,993 257 2,993 – – – – – –
Equity-accounted joint
ventures 631 633 – – – – – – 631 633
Miscellaneous financial
assets 373 288 0 0 – – – – 373 287
Other assets 2,772 3,495 – – 1,034 1,242 – – 1,737 2,253
Total 55,876 113,084 319 3,135 52,323 105,620 493 1,156 2,741 3,173

Liabilities to banks 10,982 17,034 – – 10,982 17,034 – – – –
Liabilities to customers 9,673 49,454 – – 9,673 49,454 – – – –
Notes, commercial paper
issued 32,453 37,849 – – 32,453 37,849 – – – –
instruments 211 513 77 220 – – 134 293 – –
Other liabilities 1,613 1,929 – – 672 690 – – 941 1,239
Subordinated capital 4,354 3,183 – – 4,354 3,183 – – – –
Total 59,285 109,961 77 220 58,133 108,210 134 293 941 1,239
1 Some of the loans to and receivables from customers and liabilities to customers have been designated as hedged items in fair value hedges and are therefore
subject to fair value adjustments. The loans to and receivables from customers and liabilities to customers in the class “Measured at amortized cost” are therefore
measured neither entirely at fair value nor entirely at amortized cost.
The “Credit commitments and financial guarantees” class contains obligations under irrevocable credit com-
mitments and financial guarantees amounting to €1,267 million (previous year: €2,721 million).

56. Measurement Hierarchy for Financial Instruments Measured at Fair Value and
at Amortized Cost
For the purposes of fair value measurement and the associated disclosures, fair values are classified using a
three-level measurement hierarchy. Classification to the individual levels is dictated by the extent to which the
main inputs used in determining the fair value are observable in the market or not.
Level 1 is used to report the fair value of financial instruments such as marketable securities or notes and
commercial paper issued for which a quoted price is directly observable in an active market.
Level 2 fair values are measured on the basis of inputs observable in the markets, such as exchange rates or
yield curves, using market-based valuation techniques. Fair values measured in this way include those for de-
rivatives and liabilities to customers.
Level 3 fair values are measured using valuation techniques incorporating at least one input that is not di-
rectly observable in an active market. Most of the loans to and receivables from customers are allocated to Lev-
el 3 because their fair value is measured using inputs that are not observable in active markets (see note 57).
Derivative financial instruments in connection with risks of early termination are also allocated to Level 3.
Inputs for determining the fair value of derivatives in connection with the risk of early termination are fore-
casts and estimates of used vehicle residual values for the models concerned as well as yield curves.
The following table shows the allocation of financial instruments to this three-level fair value hierarchy by class:
LEVEL 1 LEVEL 2 LEVEL 3
€ million Dec. 31, 2017 Dec. 31, 20162 Dec. 31, 2017 Dec. 31, 20162 Dec. 31, 2017 Dec. 31, 20161
Assets
Measured at fair value
Derivative financial instruments – – 62 142 – –
Marketable securities 257 2,708 – 285 – –
Miscellaneous financial assets – – – – 0 0
Measured at amortized cost
Cash reserve 40 1,478 – – – –
Loans to and receivables from banks 716 1,921 728 315 – –
Loans to and receivables from customers – – 496 915 49,397 101,328
Other assets – – 1,034 1,242 – –
Derivative financial instruments designated as
hedges – – 493 1,156 – –
Total 1,014 6,108 2,812 4,054 49,397 101,328

Derivative financial instruments – – 77 120 – 100
Liabilities to banks – – 11,013 16,949 – –
Liabilities to customers – – 9,703 49,525 – –
Notes, commercial paper issued 20,004 20,963 12,449 16,910 – –
Other liabilities – – 675 693 – –
Subordinated capital – – 3,685 2,930 – –
hedges – – 134 293 – –
Total 20,004 20,963 37,737 87,420 – 100
2 Previous year restated due to reclassification of loans to and receivables from banks from Level 1 to Level 2.

The following table shows the changes in the derivative financial instruments in connection with the risk of
early termination measured at fair value based on Level 3 inputs.
€ million 2017 20161
Balance as of Jan. 1 100 132

Foreign exchange differences –8 – 19
Measured at fair value through profit or loss 19 – 13
Balance as of Dec. 31 – 100
The measurements through profit or loss, amounting to a net loss of €19 million (previous year: net gain of
€13 million), are reported in net gain/loss on the measurement of derivative financial instruments.
In the previous year, the net gain was attributable entirely to derivative financial instruments held as of the
reporting date. As a result of the derecognition of the derivative financial instruments in connection with the
risk of early termination in the discontinued operation (European lending and deposits business), the meas-
urements through profit or loss in the reporting period related to the cumulative net gain/loss on the meas-
urement of derivative financial instruments as of the measurement date of August 31, 2017.
Risks of early termination may arise from country-specific consumer protection legislation that confers a
right to return used vehicles under leases that have already been entered into. The impact on earnings arising
from market-related fluctuations in residual values and interest rates is borne by the VW FS AG Group.
The market prices of used vehicles are the main risk variable in the fair value of derivatives in connection
with the risk of early termination. Sensitivity analyses are used to quantify the effects of changes in used vehi-
cle prices on profit after tax.
If used vehicle prices for the vehicles taken into account in the derivatives in connection with the risk of ear-
ly termination had been 10 % higher as of December 31, 2016, profit after tax would have been higher by
€24 million. If used vehicle prices for the vehicles taken into account in the derivatives in connection with the
risk of early termination had been 10 % lower as of December 31, 2016, profit after tax would have been lower
by €21 million.

57. Fair Value of Financial Instruments in the Classes “Assets and Liabilities Measured
at Amortized Cost”, “Measured at Fair Value”, “Derivative Financial Instruments Des-
ignated As Hedges”
The table below shows the fair values of the financial instruments. The fair value is the amount at which finan-
cial instruments could be sold on fair terms as of the reporting date. Where market prices (e.g. for marketable
securities) were available, we have used these prices without modification for measuring fair value. If no market
prices were available, the fair values for loans/receivables and liabilities were calculated by discounting using a
maturity-matched discount rate appropriate to the risk. The discount rate was determined by adjusting risk-
free yield curves, where appropriate, by relevant risk factors and to take into account capital and administrative
costs. For reasons of materiality, the fair values of loans/receivables and liabilities due within one year were
deemed to be the same as the carrying amount.
Likewise, no fair value was determined for miscellaneous financial assets because there is no active market
for the unlisted equity investments in the miscellaneous financial assets and fair values could not be reliably
determined without disproportionate time, effort and expense. Due to the short maturity and the variable
interest rate linked to the market interest rate, the fair value of irrevocable credit commitments is not material.
The fair value of financial guarantees is not material either.
FAIR VALUE CARRYING AMOUNT DIFFERENCE
Assets
Derivative financial instruments 62 142 62 142 – –
Marketable securities 257 2,993 257 2,993 – –
Miscellaneous financial assets 0 0 0 0 – –
Cash reserve 40 1,478 40 1,478 – –
Loans to and receivables from banks 1,444 2,236 1,444 2,236 0 0
Loans to and receivables from customers 49,893 102,243 49,804 100,664 88 1,579
Other assets 1,034 1,242 1,034 1,242 – –
hedges 493 1,156 493 1,156 – –
Derivative financial instruments 77 220 77 220 – –
Liabilities to banks 11,013 16,949 10,982 17,034 32 – 85
Liabilities to customers 9,703 49,525 9,673 49,454 30 71
Notes, commercial paper issued 32,453 37,873 32,453 37,849 0 24
Other liabilities 675 693 672 690 4 4
Subordinated capital 3,685 2,930 4,354 3,183 – 669 – 253
hedges 134 293 134 293 – –

The fair values of financial instruments were determined on the basis of the following risk-free yield curves:
Percent EUR USD GBP JPY BRL MXN SEK CZK AUD CNY PLN INR RUB KRW DKK
Interest rate for

six months – 0.321 1.750 0.545 0.028 6.661 8.339 – 0.382 0.482 1.793 4.928 1.728 6.523 7.995 1.711 – 0.406
Interest rate for
one year – 0.283 1.901 0.623 0.030 6.887 8.553 – 0.330 0.454 1.858 4.780 1.790 6.594 7.800 1.838 – 0.256
Interest rate for
five years 0.317 2.240 1.033 0.101 9.965 7.675 0.498 1.620 2.518 4.740 2.480 6.605 7.570 2.128 0.453
Interest rate for
ten years 0.884 2.392 1.274 0.261 – 7.710 1.200 1.845 2.830 4.630 2.910 6.630 7.520 2.200 1.048
58. Offsetting of Financial Assets and Liabilities
The table below contains information about the effects of offsetting in the consolidated balance sheet and the
financial effects of offsetting in the case of instruments that are subject to a legally enforceable master netting
agreement or a similar arrangement.
Financial assets and financial liabilities are generally reported with their gross values. Offsetting is only
then applied if, at the present time, the offsetting of the amounts is legally enforceable by the VW FS AG Group
and there is an intention to settle on a net basis in practice.
The “Financial instruments” column shows the amounts that are subject to a master netting agreement but
have not been netted because the relevant criteria have not been satisfied. Most of the amounts involved are
positive and negative fair values of derivatives entered into with the same counterparty.
The “Collateral received/pledged” column shows the cash collateral amounts and collateral in the form of
financial instruments received or pledged in connection with the total sum of assets and liabilities. It includes
such collateral relating to assets and liabilities that have not been offset against each other. The collateral
amounts primarily consist of pledged cash collateral in connection with ABS transactions and collateral re-
ceived in the form of cash deposits. In the previous year, securities were also pledged as collateral.

AMOUNTS NOT OFFSET IN THE

BALANCE SHEET
Gross amount of Net amount of financial

Gross amount of recognized financial assets/liabilities
recognized financial assets/liabilities offset reported in the Collateral
assets/liabilities in the balance sheet balance sheet Financial instruments received/pledged Net amount
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
€ million 2017 20161 2017 2016 2017 20161 2017 2016 2017 2016 2017 20161
Assets
Cash reserve 40 1,478 – – 40 1,478 – – – – 40 1,478
Loans to and
receivables from
banks 1,444 2,236 – – 1,444 2,236 – – – – 1,444 2,236
Loans to and
receivables from
customers 49,804 100,746 – – 82 49,804 100,664 – – – 67 – 65 49,737 100,599
Derivative
financial
instruments 555 1,297 – – 555 1,297 – 92 – 123 – – 175 463 999
Marketable
securities 257 2,993 – – 257 2,993 – – – – 257 2,993
Miscellaneous
financial assets 0 0 – – 0 0 – – – – 0 0
Other assets 1,034 1,255 – – 14 1,034 1,242 – – – – 1,035 1,242
Total 53,135 110,005 – – 96 53,135 109,910 – 92 – 123 – 67 – 240 52,976 109,547
Equity and
liabilities
Liabilities to banks 10,982 17,034 – – 10,982 17,034 – – – – 2,051 10,982 14,983
Liabilities to
customers 9,673 49,536 – – 82 9,673 49,454 – – – – 9,672 49,454
Notes, commercial
paper issued 32,453 37,849 – – 32,453 37,849 – – – 521 – 904 31,931 36,945
Derivative
financial
instruments 211 513 – – 211 513 – 92 – 123 – – 24 119 366
Other liabilities 672 704 – – 14 672 690 – – – – 672 690
Subordinated
capital 4,354 3,183 – – 4,354 3,183 – – – – 4,354 3,183
Total 58,344 108,819 – – 96 58,344 108,723 – 92 – 123 – 521 – 2,978 57,730 105,621

59. Counterparty Default Risk
For qualitative information, please refer to the risk report (Credit Risk section, pages 22 to 23), which forms part
of the management report.
The credit and default risk arising from financial assets is essentially the risk that a counterparty will de-
fault. The maximum amount of the risk is therefore the amount of the claims against the counterparty con-
cerned arising from recognized carrying amounts and irrevocable credit commitments. The maximum credit
and default risk is reduced by collateral and other credit enhancements amounting to €21,076 million (previ-
ous year: €56,593 million). The collateral held is in respect of loans to and receivables from banks and custom-
ers in the class “Assets measured at amortized cost”. The types of collateral held include vehicles, other assets
pledged as collateral, financial guarantees, marketable securities, cash collateral and charges on real estate. In
the previous year, cash deposits were also used as collateral in connection with derivatives.
The following table shows the credit quality of financial assets:
GROSS CARRYING NEITHER PAST DUE NOR PAST DUE BUT NOT
AMOUNT IMPAIRED IMPAIRED IMPAIRED
€ million Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016
Measured at fair
value 319 3,135 319 3,135 – – – –
Measured at
amortized cost
Cash reserve 40 1,478 40 1,478 – – – –
Loans to and
receivables from
banks 1,444 2,236 1,444 2,236 – – – –
Loans to and
receivables from
customers 51,606 103,630 49,162 99,020 1,425 2,089 1,020 2,521
Other assets 1,034 1,242 1,034 1,242 – – 0 –
instruments
designated as
hedges 493 1,156 493 1,156 – – – –
Total 54,937 112,877 52,492 108,267 1,425 2,089 1,020 2,521
The maximum default risk from irrevocable credit commitments and financial guarantees is €1,267 million
(previous year: €2,721 million).

These assets are measured in accordance with IAS 39, as already described in notes (8) and (9).
The breakdown of neither past due nor impaired financial assets by risk class is as follows:
NEITHER PAST DUE NOR

IMPAIRED RISK CLASS 1 RISK CLASS 2
Measured at fair value 319 3,135 319 3,135 – –

Cash reserve 40 1,478 40 1,478 – –
from banks 1,444 2,236 1,444 2,236 – –
from customers 49,162 99,020 40,520 84,924 8,642 14,096
Other assets 1,034 1,242 1,008 1,145 26 96
instruments designated as
hedges 493 1,156 493 1,156 – –
Total 52,492 108,267 43,824 94,075 8,668 14,192
In the financial services business, the group evaluates the credit quality of the borrower before entering into
any lending contract or lease. In the retail business, this evaluation is carried out by using scoring systems,
whereas rating systems are used for fleet customers and dealer financing transactions. Lending evaluated as
“good” is included in risk class 1. Loans to and receivables from customers whose credit quality has not been
classified as “good” but who have not yet defaulted are included under risk class 2.

Age analysis of financial assets past due but not impaired, by class:
IN THE FOLLOWING AGED PAST DUE CATEGORIES
Past due but not impaired Up to 1 month 1 to 3 months More than 3 months
€ million Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016
Measured at fair value – – – – – – – –

Cash reserve – – – – – – – –
from banks – – – – – – – –
from customers 1,425 2,089 1,058 1,451 365 637 2 1
Other assets – – – – – – – –
instruments designated as
hedges – – – – – – – –
Total 1,425 2,089 1,058 1,451 365 637 2 1
The VW FS AG Group intends to recover the following collateral accepted in the reporting period for financial
assets:
€ million Dec. 31, 2017 Dec. 31, 2016
Vehicles 43 87
Real estate – –
Other movable assets – –
Total 43 87
The vehicles are remarketed to Volkswagen Group dealers through direct sales and auctions.

60. Liquidity Risk
Please refer to the management report for information on the funding and hedging strategy.
The maturity profile of assets held to manage liquidity risk is as follows:
REPAYABLE ON 3 MONTHS TO 1 MORE THAN 5

ASSETS DEMAND UP TO 3 MONTHS YEAR 1 TO 5 YEARS YEARS
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
€ million 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Cash reserve 40 1,478 40 1,478 – – – – – – – –

Loans to and
receivables
from banks 1,444 2,236 810 1,652 440 509 28 29 135 46 31 –
Marketable
securities – 2,444 – – – 2,444 – – – – – –
Total 1,484 6,158 850 3,130 440 2,953 28 29 135 46 31 –
The following table shows the maturity profile of undiscounted cash outflows from financial liabilities:
REMAINING CONTRACTUAL MATURITIES
Cash outflows Up to 3 months 3 months to 1 year 1 to 5 years More than 5 years
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
€ million 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Liabilities to banks 11,561 17,543 2,557 5,067 4,599 4,868 4,303 7,498 103 110
Liabilities to
customers 9,787 50,000 3,169 35,307 2,117 6,735 3,705 7,121 797 836
Notes, commercial
paper issued 33,560 38,704 2,462 3,766 6,220 11,802 21,065 19,988 3,813 3,148
Derivative
financial
instruments 4,495 13,393 1,318 4,817 1,759 4,917 1,415 3,544 2 116
Other liabilities 672 690 147 190 329 254 194 243 1 2
Subordinated
capital 4,779 3,754 200 55 126 491 1,242 1,507 3,212 1,701
Irrevocable credit
commitments 545 2,648 545 1,201 – 1,447 – 0 – –
Total 65,400 126,732 10,398 50,404 15,151 30,514 31,923 39,901 7,927 5,914
Financial guarantees with a maximum possible drawdown of €721 million (previous year: €73 million) are
assumed to be payable on demand at all times.

61. Market Risk
For qualitative information, please refer to the risk report within the management report.
For quantitative risk measurement, interest rate and foreign currency risk are measured using a value-at-
risk (VaR) model on the basis of a historical simulation. The value-at-risk calculation indicates the size of the
maximum potential loss on the portfolio as a whole within a time horizon of 40 days, measured at a confidence
level of 99 %. To provide the basis for this calculation, all cash flows from non-derivative and derivative financial
instruments are aggregated into an interest rate gap analysis. The historical market data used in determining
the value-at-risk covers a period of 1,000 trading days.
This approach has produced the following values:
€ million Dec. 31, 2017 Dec. 31, 2016
Interest-rate risk 188 110

Currency translation risk 60 141
Total market risk 181 155
62. Hedging Policy Disclosures
H E D G I N G P O L I C Y A N D F I N A N C I A L D E R I VAT I V E S
Given its international financial activities, the VW FS AG Group is exposed to fluctuations in interest rates and
foreign exchange rates on international money and capital markets. The general rules governing the Group-
wide currency and interest rate hedging policy are specified in internal Group guidelines. The partners used by
the Group when entering into appropriate financial transactions are national and international banks with
strong credit ratings whose credit quality is continuously monitored by leading rating agencies. The Group
enters into suitable hedging transactions to limit currency and interest rate risks. Regular derivative financial
instruments are used for this purpose.
MARKET RISK
Market risk arises when changes in prices on financial markets (interest rates and exchange rates) have a posi-
tive or negative effect on the value of traded products. The fair values listed in the tables in the notes were de-
termined using the market information available on the reporting date and represent the present values of the
financial derivatives. They were determined on the basis of standardized techniques or quoted prices.
Interest Rate Risk

Changes in the level of interest rates in the money and capital markets represent an interest rate risk in the case
of any funding that is not maturity-matched. Interest rate risk is managed on the basis of recommendations
made by the Asset-Liability Management Committee (ALM Committee). Interest rate risk is quantified using
interest rate gap analyses to which various scenarios involving changes in interest rates are applied. The calcula-
tions take into account uniform risk ceilings applicable throughout the Group.
The hedging contracts entered into by the Group mainly comprise interest rate swaps and cross-currency
swaps. Micro-hedges and portfolio hedges are used for interest rate hedging. Fixed-income assets and liabilities
included in this hedging strategy are recognized at fair value rather than at amortized cost, the method used in
their original subsequent measurement. The resulting effects in the income statement are generally offset by
the opposite effects from the corresponding gains and losses on the interest rate hedging instruments (swaps).

Currency Risk
The VW FS AG Group avoids currency risk by entering into currency hedging contracts, which may be currency
forwards or cross-currency swaps. Generally speaking, all cash flows in foreign currency are hedged.
LIQUIDITY RISK, FUNDING RISK

The VW FS AG Group takes precautions to minimize the risk from any potential liquidity squeeze by holding
confirmed credit lines and by using debt issuance programs with multicurrency capability.
Local cash funds in certain countries (e.g. China, Brazil, India) are only available to the Group for cross-border
transactions subject to exchange controls. There are otherwise no significant restrictions.
D E F A U LT R I S K
The default risk arising from financial assets is essentially the risk that a counterparty will default. The maxi-
mum amount of the risk is therefore the balance due from the counterparty concerned.
Given that only counterparties with strong credit ratings are used for transactions and limits are set for
each counterparty as part of the risk management system, the actual default risk is deemed to be low. Further-
more, the default risk in the Group’s transactions is also minimized in accordance with regulatory require-
ments by the use of collateral to be furnished by the counterparty.
Risk concentrations arise in the VW FS AG Group in a variety of forms. A detailed description can be found
in the report on opportunities and risks within the combined management report.
The breakdown of the notional volume of the derivative financial instruments is as follows:
REMAINING CONTRACTUAL MATURITIES
Up to 1 year 1 to 5 years More than 5 years
Cash flow hedges

Interest rate swaps 1,031 1,297 1,385 1,778 – –
Cross-currency interest rate
swaps 387 376 101 500 – –
Currency forward contracts – 7 – – – –
Currency swaps – – – – – –
Other
Interest rate swaps 11,023 16,679 28,506 29,884 4,274 17,270
Cross-currency interest rate
swaps 1,057 1,949 744 1,959 – –
Currency forward contracts 1,490 3,527 2 – – –
Currency swaps 56 4,051 483 1,003 – –
Total 15,044 27,886 31,221 35,124 4,274 17,270
The timings of the future payments for the hedged items in the cash flow hedges match the maturities of the
hedging instruments.
As of the reporting date, none of the recognized cash flow hedges involved a hedged item in which the
transaction was no longer expected to occur in the future.

Segment Reporting
63. Breakdown by Geographical Market
The reportable segments in accordance with IFRS 8 and on the basis of the internal reporting structure of the
VW FS AG Group are the geographical markets Germany, Europe, Latin America and Asia-Pacific.
Foreign branches of German subsidiaries are allocated to the Europe segment. The Europe segment com-
prises the subsidiaries and branches in the United Kingdom, Italy, France, the Czech Republic, Austria, the Neth-
erlands, Spain, Sweden, Ireland, Greece, Portugal, Poland and Russia. The Latin America segment consists of the
subsidiaries in Mexico and Brazil. The Asia-Pacific segment consists of the subsidiaries in Australia, Japan, Chi-
na, India and the Republic of Korea.
The Other Companies segment comprises the holding company VW FS AG, the holding and financing com-
panies in the Netherlands, France and Belgium, EURO Leasing companies in Germany, Denmark and Poland,
VW Insurance Brokers GmbH and Volkswagen Versicherung AG. In the internal reporting structure, this presen-
tation ensures that there is a separation between market activities on one side and typical holding company or
financing functions, industry business, primary insurance business and reinsurance business on the other side.
The information made available to management for management purposes is based on the same account-
ing policies as those used for external financial reporting.
The profit or loss for each individual segment is measured on the basis of the operating profit or loss and
profit or loss before tax.
Operating profit or loss includes net income from lending, leasing and insurance transactions after provi-
sion for credit risks, net fee and commission income, general and administrative expenses, and other operating
income and expenses. The interest expenses, general and administrative expenses and net other operating
income/expenses that are not components of operating profit or loss largely comprise interest income and
expenses from tax audits, interest costs from unwinding the discount on other provisions, interest expenses
for pension provisions and the expected return on plan assets for externally funded pension obligations. Inter-
est income not classified as revenue is interest income that is not attributable to the financial services business.
This interest income is not a component of operating profit or loss.

BREAKDOWN BY GEOGRAPH ICAL MARKET 2016:
JAN. 1 – DEC. 31, 2016
Latin Segments Other

€ million Germany Europe1 America Asia-Pacific total1 companies Consolidation Group1
Revenue from lending transactions with third

parties 896 616 874 873 3,258 32 – 3,290
Intersegment revenue from lending transactions 100 0 – 0 100 96 – 197 –
Total segment revenue from lending transactions 996 616 874 873 3,358 128 – 197 3,290
Revenue from leasing and service transactions 8,001 6,227 167 442 14,836 229 – 19 15,047
Insurance premiums earned – – – – – 197 – 197
Fee and commission income 290 167 119 8 584 42 – 32 594
Revenue 9,287 7,010 1,159 1,323 18,778 596 – 248 19,127
Cost of sales attributable to lending, leasing and
service transactions – 5,725 – 4,350 – 78 – 150 – 10,304 – 409 9 – 10,705
minus reversals of impairment losses on lease
assets and investment property 3 62 – 1 67 – – 67
Depreciation of and impairment losses on lease
assets and investment property – 1,553 – 861 – 14 – 256 – 2,684 – 27 – – 2,710
of which impairment losses in accordance with
IAS 36 – 110 – 73 –3 –2 – 188 – – – 188
Expenses from insurance business – – – – – – 143 26 – 118
Interest expense (component of operating profit
or loss) – 310 – 355 – 464 – 343 – 1,472 – 79 197 – 1,354
Provision for credit risks from lending and leasing
business – 29 – 249 – 311 – 91 – 681 –1 – – 682
Fee and commission expenses – 226 – 226 – 63 – 70 – 585 –2 7 – 581
Net gain/loss on the measurement of derivative
financial instruments and hedged items
(component of operating profit or loss) – 11 – – – – 11 – – – 11
General and administrative expenses (component
of operating profit or loss) – 873 – 490 – 178 – 209 – 1,750 – 986 705 – 2,031
Net other operating income/expenses (component
of operating profit or loss) 121 23 –1 22 164 1,159 – 695 628
Segment profit or loss (operating profit or loss) 684 564 48 227 1,523 108 – 1,630
Interest income not classified as revenue 7 0 1 – 7 0 0 7
Interest expense (not a component of operating
profit or loss) –1 – 0 0 –1 –8 – –9
financial instruments and hedged items (not a
component of operating profit or loss) – 18 – 19 0 –1 – 38 – 25 0 – 63
Share of profits and losses of equity-accounted
joint ventures – – – – – – 77 77
Net gain/loss on marketable securities and
miscellaneous financial assets –7 11 – – 4 117 – 101 20
General and administrative expenses
(not a component of operating profit or loss) –1 0 0 0 –2 –8 – –9
Net other operating income/expenses
(not a component of operating profit or loss) –4 –1 1 0 –3 – – –3
Profit before tax 659 554 51 226 1,490 184 – 24 1,650
Income tax expense – 254 – 130 – 12 – 73 – 469 – 38 –2 – 509
Profit after tax 405 424 39 153 1,021 146 – 26 1,141
Segment assets 49,545 35,275 6,299 13,838 104,957 703 – 105,659

of which noncurrent 32,034 21,166 2,990 9,117 65,308 137 – 65,445
Segment liabilities 67,479 33,246 5,191 12,613 118,529 13,187 – 27,881 103,835

B R E A K D O W N B Y G E O G R A P H I C A L M A R K E T 2 0 1 7:
JAN. 1 – DEC. 31, 2017
Latin Segments Other

€ million Germany Europe America Asia-Pacific total companies Consolidation Group
Revenue from lending transactions with third

parties 698 506 857 983 3,043 19 – 3,062
Intersegment revenue from lending transactions 63 1 – – 64 102 – 146 20
Total segment revenue from lending transactions 760 507 857 983 3,108 121 – 146 3,082
Revenue from leasing and service transactions 8,453 4,723 227 359 13,762 270 – 19 14,013
Insurance premiums earned – – – – – 287 – 287
Fee and commission income 186 123 128 8 445 44 – 28 461
Revenue 9,399 5,353 1,212 1,350 17,315 722 – 193 17,844
Cost of sales attributable to lending, leasing and
service transactions – 6,100 – 3,352 – 122 – 146 – 9,720 – 227 8 – 9,939
minus reversals of impairment losses on lease
assets and investment property 4 12 0 4 20 – – 20
Depreciation of and impairment losses on lease
assets and investment property – 1,676 – 727 – 17 – 187 – 2,608 – 29 – – 2,637
of which impairment losses in accordance with
IAS 36 – 169 – 69 –7 –2 – 247 –6 – – 253
Expenses from insurance business – – – – – – 190 21 – 169
Interest expense (component of operating profit
or loss) – 227 – 246 – 400 – 418 – 1,290 – 70 146 – 1,214
Provision for credit risks from lending and leasing
business –3 10 – 346 – 65 – 404 –3 – – 407
Fee and commission expenses – 145 – 128 – 62 – 78 – 413 –3 7 – 409
financial instruments and hedged items
(component of operating profit or loss) –8 – – – –8 – – –8
General and administrative expenses (component
of operating profit or loss) – 808 – 386 – 201 – 178 – 1,573 – 972 551 – 1,994
Net other operating income/expenses (component
of operating profit or loss) 8 15 – 33 20 11 832 – 547 296
Segment profit or loss (operating profit or loss) 444 551 32 303 1,329 60 –6 1,383
Interest income not classified as revenue 3 0 1 – 4 5 – 9
Interest expense (not a component of operating
profit or loss) –1 – 0 – –1 –4 – –5
financial instruments and hedged items (not a
component of operating profit or loss) 10 – 21 0 0 – 11 1 1 –8
Share of profits and losses of equity-accounted
joint ventures – – – – – 44 38 82
Net gain/loss on marketable securities and
miscellaneous financial assets 8 10 2 – 20 – 424 372 – 32
General and administrative expenses
(not a component of operating profit or loss) –1 0 0 0 –1 –7 – –8
Net other operating income/expenses
(not a component of operating profit or loss) –1 0 –5 0 –6 0 – –6
Profit before tax 461 539 30 303 1,334 – 325 405 1,413
Income tax expense – 124 – 108 8 – 88 – 311 68 – 51 – 295
Profit after tax 337 431 38 216 1,022 – 258 354 1,118
Segment assets 27,104 1,994 5,193 15,274 49,565 667 – 50,233

of which noncurrent 18,532 1,549 2,324 9,828 32,233 125 – 32,358
Segment liabilities 28,139 2,522 4,235 14,010 48,906 12,228 – 6,100 55,033

All business transactions between the segments are conducted on an arm’s-length basis.
The consolidation in revenue from lending transactions and interest expenses resulted from the provision
of intragroup funding between geographical markets.
Information on the main products (lending and leasing business) can be taken directly from the income
statement (see note 22).
The additions to noncurrent lease assets amounted to €4,092 million (previous year: €3,442 million) in
Germany, €2,277 million (previous year: €2,963 million) in the Europe segment, €31 million (previous year:
€145 million) in the Latin America segment and €34 million (previous year: €203 million) in the Asia-Pacific
segment. Investment recognized under other assets was of minor significance.
Below, the presentation of segment profit or loss and of consolidated profit before tax is classified into continu-
ing operations and discontinued operations.
Jan. 1 – Dec. 31, Jan. 1 – Dec. 31,

€ million 2017 2016
Classification of segment profit or loss (operating profit or loss) of the Group 1,383 1,630
Discontinued operations 774 1,022
Classification of consolidated profit before tax 1,413 1,650

Discontinued operations 779 1,035
Costs to sell –8 –
The discontinued operations are included in the Germany and Europe segments.

Individual line items in the financial statements are aggregated for the purposes of internal reporting. The
following table shows the reconciliation of these line items in the financial statements to the segment report-
ing disclosures.
€ million Dec. 31, 2017 Dec. 31, 20161
Interest income from lending transactions 2,933 3,162

minus interest income not classified as revenue 9 7
Net income from leasing transactions before provision for credit risks 1,662 1,946
minus expenses from leasing transactions and service contracts – 9,735 – 10,536
minus depreciation of and impairment losses on lease assets and investment property – 2,637 – 2,710
minus reversals of impairment losses on lease assets and investment property 20 67
minus leasing income not classified as revenue – 79
Net income from insurance business 118 79
minus expenses from insurance business – 169 – 118
Revenue included in net other operating income/expenses 158 135
Consolidated revenue 17,844 19,127
Net income from leasing transactions before provision for credit risks 1,662 1,946
minus income from leasing transactions and service contracts 14,034 15,192
minus depreciation of and impairment losses on lease assets and investment property – 2,637 – 2,710
Cost of sales included in net other operating income/expenses – 204 – 169
Consolidated cost of sales attributable to lending, leasing and service transactions – 9,939 – 10,705

Retail financing 16,269 41,726
Dealer financing 3,584 14,638
Leasing business 18,809 34,344
Other loans and receivables 11,143 9,957
of which not included in segment assets – 11,143 – 9,701
Consolidated assets in accordance with segment reporting 50,232 105,659
Liabilities to banks 10,982 17,034

of which not included in segment liabilities – 27 – 74
Liabilities to customers 9,672 49,454
of which not included in segment liabilities – 2,235 – 3,468
Notes, commercial paper issued 32,453 37,849
of which not included in segment liabilities – 165 – 142
Subordinated capital 4,354 3,183
Consolidated liabilities in accordance with segment reporting 55,033 103,835

Other Disclosures
64. Cash Flow Statement
VW FS AG Group’s cash flow statement documents changes in cash and cash equivalents attributable to cash
flows from operating, investing and financing activities. Cash flows from investing activities comprise purchase
payments and disposal proceeds relating to investment property, subsidiaries, joint ventures and other assets.
Cash flows from financing activities reflect all cash flows arising from transactions involving equity, subordi-
nated capital and other financing activities. All other cash flows are classified as cash flows from operating
activities in accordance with standard international practice for financial services companies.
The narrow definition of cash and cash equivalents comprises only the cash reserve, which consists of cash-
in-hand and central bank balances.
The changes in the balance sheet items used to determine the changes in the cash flow statement cannot be
derived directly from the balance sheet because effects from the changes in the basis of consolidation have no
impact on cash and are eliminated.
The following table shows the breakdown of the changes in subordinated capital (as part of financing activities)
into cash and non-cash transactions.
NON-CASH TRANSACTIONS
Changes
Balance as of Exchange rate in basis of Measurement As of
€ million Jan. 1, 2017 Cash changes changes consolidation changes Dec. 31, 2017
Subordinated capital 3,183 1,774 – 150 – 453 – 4,354
65. Off-Balance-Sheet Liabilities
CON TI NGE NT L IA B I LI TI E S
The contingent liabilities of €363 million (previous year: €364 million) largely relate to legal disputes concern-
ing tax matters in which the criteria for the recognition of a provision in accordance with IAS 37 are not satis-
fied. Based on analysis of the individual matters covered by the contingent liabilities, we believe that the disclo-
sure of further detailed information on individual proceedings, legal disputes or legal risks could seriously
prejudice the course or initiation of proceedings.
The trust assets and liabilities of the savings and trust entity belonging to the Latin American subsidiaries
are not included in the consolidated balance sheet and amounted to €768 million (previous year: €944 million).

OT H E R F I N A N C I A L O B L I G AT I O N S
DUE DUE DUE TOTAL
€ million 2017 2018 – 2021 From 2022 Dec. 31, 2016
Purchase commitments in respect of

property and equipment 56 – – 56
intangible assets 1 – – 1
investment property – – – –
Obligations from
irrevocable credit and leasing commitments to customers 2,648 0 – 2,648
long-term leasing and rental contracts 27 48 48 123
Miscellaneous financial obligations 80 3 – 83
DUE DUE DUE TOTAL
€ million 2018 2019 – 2022 From 2023 Dec. 31, 2017
Purchase commitments in respect of

property and equipment 20 – – 20
intangible assets 0 – – 0
investment property – – – –
Obligations from
irrevocable credit and leasing commitments to customers 545 – – 545
long-term leasing and rental contracts 22 34 5 62
Miscellaneous financial obligations 31 1 – 32
In the case of irrevocable credit commitments, we expect the customers to draw down the facilities concerned.
66. Average Number of Employees during the Reporting Period
2017 2016
Salaried employees 10,073 11,554

Vocational trainees 136 149
Total 10,209 11,703

67. Related Party Disclosures
Related parties within the meaning of IAS 24 are deemed to be individuals or entities who can be influenced by
VW FS AG, who can exercise an influence over VW FS AG, or who are under the influence of another related
party of VW FS AG.
Volkswagen AG, Wolfsburg, is the sole shareholder in VW FS AG. In addition, Porsche Automobil Holding SE,
Stuttgart, controlled 52.2 % of the voting rights in Volkswagen AG as of the reporting date and therefore held a
majority. The Extraordinary General Meeting of Volkswagen AG held on December 3, 2009 approved the crea-
tion of rights of appointment for the State of Lower Saxony. As a result of these rights, Porsche SE can no longer
appoint a majority of the members of Volkswagen AG’s Supervisory Board for as long as the State of Low-
er Saxony holds at least 15 % of Volkswagen AG’s ordinary shares. However, Porsche SE has the power to partici-
pate in the operating policy decisions of the Volkswagen Group and is therefore deemed to be a related party
within the meaning of IAS 24. According to a notification submitted on January 5, 2016, the State of Low-
er Saxony and Hannoversche Beteiligungsgesellschaft mbH, Hanover, held 20.00 % of the voting rights in
Volkswagen AG as of December 31, 2016 and therefore indirectly had significant influence over the
VW FS AG Group. In addition, as referred to above, the Extraordinary General Meeting of Volkswagen AG held
on December 3, 2009 approved a resolution under which the State of Lower Saxony could appoint two members
of the Supervisory Board (right of appointment).
Volkswagen AG as the sole shareholder and VW FS AG have entered into a control and profit-and-loss transfer
agreement.
Volkswagen AG and other related parties in Volkswagen AG’s group of consolidated entities provide the en-
tities in the VW FS AG Group with funding on an arm’s-length basis. As part of funding transactions,
Volkswagen AG and other related parties in Volkswagen AG’s group of consolidated entities sold vehicles to
entities in the VW FS AG Group on an arm’s-length basis. These transactions are presented in the “Goods and
services received” line item. Volkswagen AG and its subsidiaries have also furnished collateral in our favor as
part of the operating business.
The “Goods and services provided” line item primarily contains income from leasing transactions.
The business transactions with unconsolidated subsidiaries and joint ventures of VW FS AG mainly relate to the
provision of funding and of services. These transactions are always conducted on an arm’s-length basis, e.g.
when using the cost plus method for the provision of services.
The two tables below show the transactions with related parties. In these tables, the exchange rates used in
connection with the figures are the closing rate for asset and liability items, and the average rates for the year
for income statement items.

FISCAL YEAR 2016
Other related
parties in the Non-
Supervisory Board of consolidated consolidated
€ million Board Management Volkswagen AG Porsche SE entities subsidiaries Joint ventures
Loans and receivables 0 0 329 0 4,138 64 5,984

Valuation allowances on loans and
receivables – – – – – – –
of which additions in current
year – – – – – – –
Obligations 3 10 6,226 – 11,532 208 2
Interest income 0 0 4 – 120 6 129
Interest expense 0 0 – 12 0 – 225 –3 0
Goods and services provided 0 – 1,056 0 3,530 79 51
Goods and services received – – 7,984 – 7,193 34 12
The goods and services shown in the “Volkswagen AG” column included support payments from the
Volkswagen Group in the previous year.
FISCAL YEAR 2017
Other related
parties in the Non-
Supervisory Board of consolidated consolidated
€ million Board Management Volkswagen AG Porsche SE entities subsidiaries Joint ventures
Loans and receivables – – 1,564 0 7,006 101 3,592

Valuation allowances on loans and
receivables – – – – – – –
of which additions in current
year – – – – – – –
Obligations – – 4,029 – 9,890 241 112
Interest income – – 8 – 153 7 106
Interest expense 0 0 – 10 – – 203 –2 –
Goods and services provided 0 – 587 0 3,150 90 152
Goods and services received 0 0 8,222 – 4,753 47 153
The “Other related parties in the group of consolidated entities” column includes, in addition to sister entities,
joint ventures and associates that are related parties in Volkswagen AG’s group of consolidated entities. The
relationships with the Supervisory Board and the Board of Management comprise relationships with the rele-
vant groups of people at VW FS AG and the Group parent company Volkswagen AG. As in the prior year, relation-
ships with pension plans and the State of Lower Saxony were of lesser significance.
Members of the Board of Management and Supervisory Board of VW FS AG are members of management
and supervisory boards of other entities in the Volkswagen Group with which we sometimes conduct transac-
tions in the normal course of business. All transactions with these related parties are on an arm’s-length basis.
During the course of the reporting period, standard short-term bank loans amounting to an average total of
€338 million (previous year: €563 million) were granted to related parties as part of dealer financing.

B O A R D O F M A N A G E M E N T R E M U N E R AT I O N
€ million 2017 2016
Short-term benefits 6 5
Long-term benefits 1 3
Termination benefits – –
Post-employment benefits 2 9
In accordance with a resolution passed by the Annual General Meeting, the members of the Supervisory Board
are entitled to annual remuneration. This remuneration is independent of the performance of the Company
and the Supervisory Board role undertaken by the person concerned. Various members of the Supervisory
Board are also members of the supervisory boards of other Volkswagen AG subsidiaries. The remuneration
received for these functions is deducted from the entitlement to remuneration from VW FS AG. As a result, a
total amount of less than €0.04 million was paid out to the members of the Supervisory Board in the reporting
period.
The employee representatives on the Supervisory Board of VW FS AG also receive their regular salaries un-
der the terms of their employment contracts. This salary is based on the provisions in the Betriebsverfas-
sungsgesetz (BetrVG – German Works Constitution Act) and is an appropriate remuneration for the relevant
function or activity in the Company. The same also applies to the representative of the senior executives on the
Supervisory Board.
The total payments made to former members of the Board of Management and their surviving dependants
amounted to €0.5 million (previous year: €0.5 million); the provisions recognized for this group of people to
cover current pensions and pension entitlements amounted to €14 million (previous year: €15 million).
68. Disclosures Relating to Unconsolidated Structured Entities
A structured entity is normally designed so that voting rights or similar rights are not the deciding factor in
determining control over the entity.
Typical features of a structured entity are as follows:

> limited scope of activities;
> narrowly defined business purpose;
> inadequate equity to finance the business activities;
> financing through a number of instruments that contractually bind investors and that give rise to a concen-
tration of credit risk and other risks.
VW FS AG maintained business relationships with structured entities, both in the reporting year until the de-
recognition of the companies in the discontinued operations (European lending and deposits business) and in
the previous year. These are ABS special purpose entities within Volkswagen AG’s group of consolidated enti-
ties. The entities carry out a process of securitization by taking assets from lending agreements and leases for
vehicles and transforming them into securities (asset-backed securities) on a maturity-matched basis. In the
VW FS AG Group, these fully or partially purchased securities issues were classified as available-for-sale finan-
cial assets. Under the principles specified in IFRS 10, the ABS special purpose entities are not controlled by
VW FS AG and are therefore not included in the consolidated financial statements. The acquisition of the secu-
rities issued by ABS special purpose entities in the Volkswagen AG group of consolidated entities means that
the financial services business of the associated entities is funded within the Volkswagen AG group of consoli-
dated entities. Some of the securities purchased in the VW FS AG Group were deposited at Deutsche Bundes-
bank and were furnished as collateral in connection with open market operations.
The purchase of the securities gave rise to counterparty default risk on the part of the issuer and interest rate
risk. The maximum risk exposure of VW FS AG arising from its interests in unconsolidated structured entities

was limited to the fair value of the acquired bonds reported in the balance sheet and the carrying amount of
any subordinated loans granted to the entities concerned.
The following table contains disclosures on VW FS AG’s assets reported in the balance sheet that are related
to unconsolidated structured entities and the maximum risk exposure of the VW FS AG Group (disregarding
collateral). The nominal volume of the securitized assets is also disclosed.
ABS SPECIAL PURPOSE

ENTITIES
€ million 2016
Reported in the balance sheet as of December 31

Marketable securities 285
Loans to and receivables from customers1 116
Maximum loss risk 401
Nominal volume of securitized assets 1,187
1 Subordinated loans granted
VW FS AG did not provide unconsolidated structured entities with any noncontractual support during the
reporting period.

69. Executive Bodies of Volkswagen Financial Services AG
The members of the Board of Management are as follows:
LARS HENNER SANTELMANN

Chairman of the Board of Management
Corporate Management
Insurance (until August 31, 2017)
China/India/ASEAN, Latin America regions (until August 31, 2017)
China region (from September 1, 2017)
Mobility unit (from September 1, 2017)
D R . M A R I O D A B E R KO W
Information Technology and Processes
D R . C H R I ST I A N D A H L H E I M
Sales and Marketing
Germany, Europe, International regions
Latin America, South Africa regions (from September 1, 2017)
Truck & Bus Division (until August 31, 2017)
FRANK FIEDLER
Finance and Purchasing
C H R I ST I A N E H E S S E
Human Resources and Organization
D R . M I C H A E L R E I N H A R T ( U N T I L A U G U ST 3 1 , 2 0 1 7 )
Risk Management and Credit Analysis (until August 31, 2017)

The members of the Supervisory Board SIMONE MAHLER

are as follows: Deputy Chairman of the Joint Works Council of
Volkswagen Financial Services AG,
Volkswagen Bank GmbH and
FRANK WITTER Euromobil Autovermietung GmbH
Chairman
Member of the Board of Management of DR. - I N G . P E TE R M E RTE N S (F ROM JA N UA RY 1, 2 01 8)
Volkswagen AG Member of the Board of Management of AUDI AG
Finance and Controlling Technical Development
D R . K A R L H E I N Z B L E S S I N G ( F R O M A U G U ST 1 8 , 2 0 1 7 ) GABOR POLONYI
Deputy Chairman (from September 20, 2017) Head of Fleet Customer Management for
Member of the Board of Management of Volkswagen Leasing GmbH
Volkswagen AG
Human Resources and Organization PETRA REIN HEIMER
General Secretary of the Joint Works Council of
D R . J Ö R G B O C H E ( U N T I L A U G U ST 1 7 , 2 0 1 7 ) Volkswagen Financial Services AG,
Deputy Chairman Volkswagen Bank GmbH and
Executive Vice President of Volkswagen AG Euromobil Autovermietung GmbH
Head of Group Treasury
E VA STA S S E K
ST E P H A N W O L F Principal Representative of IG Metall Braunschweig
Deputy Chairman
Deputy Chairman of the General and A X E L ST R O T B E K ( U N T I L A U G U ST 3 1 , 2 0 1 7 )
Group Works Councils of Volkswagen AG Member of the Board of Management of AUDI AG
Finance, IT and Integrity
DR. ARNO ANTLITZ
Member of the Board of Management
Volkswagen Brand
Controlling and Accounting COMM ITT EE S OF TH E SU PERV I S ORY BOARD
As of December 31, 2017
J O A C H I M D R E E S ( F R O M A U G U ST 1 8 , 2 0 1 7 ) All committees were dissolved on September 1, 2017.
Chief Executive Officer of MAN SE and
MAN Truck & Bus AG M E M B E R S O F T H E R E M U N E R AT I O N C O M M I T T E E
Frank Witter (Chairman)
WA L D E M A R D R O S D Z I O K ( U N T I L A U G U ST 1 7 , 2 0 1 7 ) Waldemar Drosdziok (Deputy Chairman)
Chairman of the Joint Works Council of (until August 17, 2017)
Volkswagen Financial Services AG, Axel Strotbek (until August 31, 2017)
Volkswagen Bank GmbH and Euromobil
Autovermietung GmbH M E M B E R S O F T H E N O M I N AT I O N C O M M I T T E E
Frank Witter (Chairman)
P R O F . D R . S U S A N N E H O M Ö L L E ( U N T I L A U G U ST 1 4 , 2 0 1 7 ) Waldemar Drosdziok (Deputy Chairman)
Chair of Banking and Finance (until August 17, 2017)
University of Rostock Dr. Arno Antlitz
Fred Kappler
FRED KAPPLER
Head of Group Sales MEMBERS OF THE JOINT RISK AND
Volkswagen AG AU DIT COMM ITT EE
Dr. Jörg Boche (Chairman) (until August 17, 2017)
A N D R E A S K R A U ß ( F R O M A U G U ST 1 8 , 2 0 1 7 ) Waldemar Drosdziok (Deputy Chairman)
Member of the Joint Works Council of (until August 17, 2017)
Volkswagen Financial Services AG, Dr. Arno Antlitz
Volkswagen Bank GmbH and Euromobil Prof. Dr. Susanne Homölle (until August 14, 2017)
Autovermietung GmbH Gabor Polonyi

70. Letter of Comfort for Our Affiliated Companies
With the exception of political risks, Volkswagen Financial Services AG hereby declares that, as the shareholder
of its affiliated companies, over which it has managerial control and/or in which it holds a direct or indirect
majority share of the share capital, it will exert its influence to ensure that the latter meet their liabilities to
lenders in the agreed manner. Moreover, Volkswagen Financial Services AG confirms that, for the term of the
loans, it will make no changes to the share structures of these companies which would adversely affect the
letter of comfort without informing the lenders.
This comfort also applies to holders of unguaranteed bonds issued by the following affiliated companies: Banco
Volkswagen S.A., São Paulo, Brazil; Volkswagen Finance (China) Co., Ltd., Beijing, China; Volkswagen Finance Pvt.
Ltd., Mumbai, India; Volkswagen Doğuş Finansman A.Ş., Kağıthane-Istanbul, Turkey; Volkswagen Doğuş
Faktoring A.Ş.1, Kağıthane-Istanbul, Turkey.
1 Added through a resolution by the Board of Management on February 8, 2018.
71. Events After the Balance Sheet Date
On January 4, 2018, Volkswagen Financial Services AG added €21 million to the capital reserves of
Volkswagen Møller Bilfinans A/S, Oslo, Norway.
On January 19, 2018, Volkswagen Financial Services AG made a contribution of €20 million to the capital re-
serves of Mobility Trader GmbH, Berlin, Germany.
In a transaction dated January 29, 2018, Volkswagen Financial Services AG added €14 million to the capital
reserves of Volkswagen Finance Lux II S.A., Strassen, Luxembourg.
On January 22, 2018 a borrower’s note loan of €600 million was raised from external creditors.
There were no other significant developments after the end of fiscal year 2017.

Consolidated Financial Statements Responsibility Statement 137
Responsibility Statement
To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated
financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the
Group, and the management report of the Group includes a fair review of the development and performance of
the business and the position of the Group, together with a description of the material opportunities and risks
associated with the expected development of the Group.
Braunschweig, February 12, 2018
Volkswagen Financial Services AG

The Board of Management
Lars Henner Santelmann Dr. Mario Daberkow
Dr. Christian Dahlheim Frank Fiedler
Christiane Hesse

138 Independent Auditor’s Report Consolidated Financial Statements
Independent Auditor’s
Report
To VOLKSWAGEN FINANCIAL SERVICES AKTIENGESELLSCHAFT, Braunschweig
R E P O R T O N T H E A U D I T O F T H E C O N S O L I D AT E D F I N A N C I A L STAT E M E N T S A N D O F T H E G R O U P M A N A G E M E N T R E P O R T
Audit Opinions
We have audited the consolidated financial statements of VOLKSWAGEN FINANCIAL SERVICES AKTIENGESELL-
SCHAFT, Braunschweig, and its subsidiaries (the Group), which comprise the consolidated statement of finan-
cial position as at December 31, 2017, and the consolidated statement of comprehensive income, consolidated
statement of profit or loss, consolidated statement of changes in equity and consolidated statement of cash
flows for the financial year from January 1 to December 31, 2017, and notes to the consolidated financial state-
ments, including a summary of significant accounting policies. In addition, we have audited the group man-
agement report of VOLKSWAGEN FINANCIAL SERVICES AKTIENGESELLSCHAFT, Braunschweig, which is com-
bined with the Company’s management report, for the financial year from January 1 to December 31, 2017. We
have not audited the content of the statement on corporate governance pursuant to § [Article] 289f Abs. [para-
graph] 4 HGB [Handelsgesetzbuch: German Commercial Code] (disclosures on the proportion of women) in
accordance with the German legal requirements.
In our opinion, on the basis of the knowledge obtained in the audit,
> the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as
adopted by the EU, and the additional requirements of German commercial law pursuant to § 315e Abs. 1
HGB and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and finan-
cial position of the Group as at December 31, 2017, and of its financial performance for the financial year
from January 1 to December 31, 2017, and
> the accompanying group management report as a whole provides an appropriate view of the Group’s posi-
tion. In all material respects, this group management report is consistent with the consolidated financial
statements, complies with German legal requirements and appropriately presents the opportunities and
risks of future development. Our audit opinion on the group management report does not cover the content
of the above mentioned statement on corporate governance referred to above.
Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating
to the legal compliance of the consolidated financial statements and of the group management report.
Basis for the Audit Opinions

We conducted our audit of the consolidated financial statements and of the group management report in ac-
cordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as “EU Audit
Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits
promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our respon-
sibilities under those requirements and principles are further described in the “Auditor's Responsibilities for
the Audit of the Annual Financial Statements and of the Management Report” section of our auditor’s report.
We are independent of the group entities in accordance with the requirements of European law and German
commercial and professional law, and we have fulfilled our other German professional responsibilities in ac-

Consolidated Financial Statements Independent Auditor’s Report 139
cordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regu-
lation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit
Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinions on the consolidated financial statements and on the group management report.
Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the consolidated financial statements for the financial year from January 1 to December 31, 2017. These
matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.
In our view, the matters of most significance in our audit were as follows:
❶ Recoverability of lease assets
❷ Deconsolidation of the VW Bank Group and treatment as dividend in kind
Our presentation of these key audit matters has been structured in each case as follows:
① Matter and issue
② Audit approach and findings
③ Reference to further information
Hereinafter we present the key audit matters:

❶ Recoverability of lease assets
① Vehicles from current leases are reported under the balance sheet item "Lease assets" in the amount of
EUR 11,571 million (16.8% of consolidated total assets) in the consolidated financial statements of
VOLKSWAGEN FINANCIAL SERVICES AKTIENGESELLSCHAFT as of December 31, 2017. The measure-
ment of the lease assets is based on amortized cost and the recoverable amount. The Volkswagen Fi-
nancial Services Group performs a quarterly impairment test of the lease assets. The carrying amount
of the relevant asset is compared with the corresponding recoverable amount in the context of the
impairment test. The results of internal and external marketing and the executive directors' estimate
of the development of market prices for vehicles are taken into account for this purpose. Write-downs
amounting to EUR 253 million were recognized in respect of lease assets in the fiscal year on the basis
of this valuation.
The measurement of the lease assets is, firstly, of great significance for the assets, liabilities, and finan-
cial performance of the Group in terms of amount and, secondly, involves considerable scope for
judgment on the part of the executive directors, since the use of models and assumptions creates ma-
terial uncertainties due to the estimates required for the measurement exercise. In addition, the cur-
rent public discussion about the development of the residual values of vehicles with diesel engines
(bans on diesel vehicles in inner cities, shift in demand towards vehicles with petrol engines) contrib-
utes further to the uncertainty involved in measuring the vehicles recognized. Against this back-
ground, this matter was of particular significance in the context of our audit.
② Our audit included in particular assessing the valuations carried out by the Company with respect to
whether these were up to date, as well as the methodology applied and the transparency of the valua-
tion. At the same time, we obtained an understanding of the source data underlying the valuation, the
value inputs and the assumptions made, evaluated those factors critically and assessed whether they
are within a reasonable range. In addition to this, our assessment of the assumptions made by the ex-
ecutive directors with respect to marketing was based, among other things, on a comparison with
general and sector-specific market expectations as well as documentation and explanations from the
executive directors relating to the expected marketing results. Furthermore, we verified the classifica-
tion of the vehicles as property and equipment and evaluated the accounting policies applicable as a
result.

Overall, the measurement inputs and assumptions used by the executive directors are in line with our
expectations and are also within the ranges considered by us to be reasonable.
③ The Company’s disclosures relating to the lease assets are contained in notes 16, 38 and 40 to the
consolidated financial statements.
❷ Deconsolidation of the VW Bank Group and treatment as dividend in kind

① In fiscal year 2017, VOLKSWAGEN FINANCIAL SERVICES AKTIENGESELLSCHAFT implemented the
strategic reorientation of the Volkswagen Financial Services subgroup resolved at the close of 2016
from both an organizational and legal point of view and completed its split and segregation into two
independent subgroups. On November 18, 2016, the supervisory board of Volkswagen AG approved
the spin-off of the 100% interest in Volkswagen Bank GmbH. Other shareholdings, primarily the 100%
interests in Volkswagen Financial Services (UK) Ltd., Milton Keynes (United Kingdom), Volkswagen Fi-
nans Sverige AB, Södertälje (Sweden) and ŠkoFIN s.r.o., Prague (Czech Republic), were transferred to
Volkswagen Bank GmbH in connection with the spin-off. Following the Company's deconsolidation of
the companies belonging to the Volkswagen Bank Group (referred to in the following as “Volkswagen
Bank Group”) as of September 1, 2017, the Volkswagen Bank Group was reported as a discontinued
operation in the consolidated financial statements as of December 31, 2017.
The spin-off of the investment in Volkswagen Bank GmbH to Volkswagen AG, treated as a distribution
in accordance with IFRSs, was effected as of September 1, 2017 in the form of a dividend in kind at the
book value of the net assets transferred. This resulted in a corresponding reduction in consolidated
equity of EUR 11,559 million.
As a result of the spin-off of the Volkswagen Bank Group as of September 1, 2017, VOLKSWAGEN FI-
NANCIAL SERVICES AKTIENGESELSCHAFT relinquished control of the Volkswagen Bank Group. The
Volkswagen Bank Group was deconsolidated accordingly. At Group level, in addition to the reduction
in net assets reflected directly in equity, the deconsolidation generated an overall loss after tax of EUR
220 million, mainly due to the realization through profit or loss of currency translation losses previ-
ously recognized directly in consolidated equity as accumulated other comprehensive income. In our
view, in light of the complexity of the contractual arrangements and the numerous material effects on
the consolidated financial statements, this matter was of particular significance for our audit.
② For the purposes of assessing the proper accounting treatment of the spin-off of the VW Bank Group,
among other things we examined the legal bases of the spin-off process in accordance with company
law, stock corporation law and companies reorganization law, and evaluated the related contractual
arrangements and the spin-off documentation, in particular the spin-off report and the spin-off
agreement.
We also assessed whether the classification as a discontinued operation in accordance with IFRS 5 as
of December 31, 2017 was appropriate, and whether the presentation in the consolidated statement of
financial position, the consolidated statement of comprehensive income, the consolidated statement
of profit or loss, the consolidated statement of changes in equity, and the consolidated statement of
cash flows, as well as in the notes to the consolidated financial statements, was consistent with IFRS
accounting standards and generally accepted professional interpretations. We evaluated the underly-
ing assumptions for the treatment of the spin-off as a dividend in kind and its measurement at book
values. With respect to the measurement of the disposal group at book value as of September 1, 2017,
we verified that the amounts were correctly derived from the accounting records of VOLKSWAGEN FI-
NANCIAL SERVICES AKTIENGESELLSCHAFT.
We examined the spin-off agreements and the entry in the commercial register which led to the loss
of control and therefore to deconsolidation, in order to ensure that the date of deconsolidation was
correctly determined. In addition, we assessed whether the deconsolidation process was correct from
a technical standpoint and whether the gain or loss on deconsolidation was correctly determined and
recorded.

By means of these and other audit procedures, we were able to satisfy ourselves that the accounting
treatment of the restructuring was sufficiently documented and comprehensible on the basis of the
available information.
③ The Company's disclosures relating to the presentation as a discontinued operation and the deconsol-
idation are contained in the "Accounting Policies" section under "Discontinued operation European
lending and deposits business" in the notes to the consolidated financial statements.
Other Information
The executive directors are responsible for the other information. The other information comprises the state-
ment on corporate governance pursuant to § 289f Abs. 4 HGB (disclosures on the proportion of women) which
we obtained prior to the date of our auditor's report.
The annual report is expected to be made available to us after the date of the auditor's report.
Our audit opinions on the consolidated financial statements and on the group management report do not
cover the other information, and consequently we do not express an audit opinion or any other form of assur-
ance conclusion thereon.
In connection with our audit, our responsibility is to read the other information and, in so doing, to consider
whether the other information
> is materially inconsistent with the consolidated financial statements, with the group management report or
our knowledge obtained in the audit, or
> otherwise appears to be materially misstated.
Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the
Group Management Report
The executive directors are responsible for the preparation of the consolidated financial statements that com-
ply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German com-
mercial law pursuant to § 315e Abs. 1 HGB and that the consolidated financial statements, in compliance with
these requirements, give a true and fair view of the assets, liabilities, financial position, and financial perfor-
mance of the Group. In addition the executive directors are responsible for such internal control as they have
determined necessary to enable the preparation of consolidated financial statements that are free from materi-
al misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the executive directors are responsible for assessing the
Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable,
matters related to going concern. In addition, they are responsible for financial reporting based on the going
concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there
is no realistic alternative but to do so.
Furthermore, the executive directors are responsible for the preparation of the group management report that,
as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with
the consolidated financial statements, complies with German legal requirements, and appropriately presents
the opportunities and risks of future development. In addition, the executive directors are responsible for such
arrangements and measures (systems) as they have considered necessary to enable the preparation of a group
management report that is in accordance with the applicable German legal requirements, and to be able to
provide sufficient appropriate evidence for the assertions in the group management report.

The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation
of the consolidated financial statements and of the group management report.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and whether the group management
report as a whole provides an appropriate view of the Group’s position and, in all material respects, is con-
sistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the
German legal requirements and appropriately presents the opportunities and risks of future development, as
well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements
and on the group management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for
Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a materi-
al misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements and this group management report.
We exercise professional judgment and maintain professional skepticism throughout the audit. We also:
> Identify and assess the risks of material misstatement of the consolidated financial statements and of the
group management report, whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opin-
ions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the over-
ride of internal control.
> Obtain an understanding of internal control relevant to the audit of the consolidated financial statements
and of arrangements and measures (systems) relevant to the audit of the group management report in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an audit opinion on the effectiveness of these systems.
> Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness
of estimates made by the executive directors and related disclosures.
> Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclo-
sures in the consolidated financial statements and in the group management report or, if such disclosures
are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence ob-
tained up to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to be able to continue as a going concern.
> Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements present the underlying transactions and
events in a manner that the consolidated financial statements give a true and fair view of the assets, liabili-
ties, financial position and financial performance of the Group in compliance with IFRSs as adopted by the
EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB.

> Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express audit opinions on the consolidated financial statements and on the
group management report. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinions.
> Evaluate the consistency of the group management report with the consolidated financial statements, its
conformity with German law, and the view of the Group’s position it provides.
> Perform audit procedures on the prospective information presented by the executive directors in the group
management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the sig-
nificant assumptions used by the executive directors as a basis for the prospective information, and evaluate
the proper derivation of the prospective information from these assumptions. We do not express a separate
audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial
unavoidable risk that future events will differ materially from the prospective information.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement that we have complied with the relevant inde-
pendence requirements, and communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, the related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter.
OT H E R L E G A L A N D R E G U L AT O R Y R E Q U I R E M E N T S
Further Information pursuant to Article 10 of the EU Audit Regulation

We were elected as group auditor by the annual general meeting on April 3, 2017. We were engaged by the su-
pervisory board on September 29, 2017. We have been the group auditor of VOLKSWAGEN FINANCIAL SERVICES
AKTIENGESELLSCHAFT, Braunschweig, without interruption since financial year 1991.
We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to
the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).
G E R M A N P U B L I C A U D I TO R R E S P O N S I B L E F O R T H E E N G A G E M E N T
The German Public Auditor responsible for the engagement is Frank Hübner.
Hanover, February 14, 2018
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft
Frank Hübner Burkhard Eckes

Wirtschaftsprüfer Wirtschaftsprüfer
(German Public Auditor) (German Public Auditor)

144 Report of the Supervisory Board Consolidated Financial Statements
Report of the Supervisory

Board
of Volkswagen Financial Services AG
In fiscal year 2017, the Supervisory Board gave regular and thorough consideration to the position and devel-
opment of Volkswagen Financial Services AG and the Volkswagen Financial Services AG Group.
During the reporting period, the Board of Management informed the Supervisory Board promptly and
comprehensively at all times, in writing or verbally, regarding material aspects of the Company’s planning and
position, including the risk situation and the risk management system, and also regarding business develop-
ment and any deviations from planning and targets. Based on these reports of the Board of Management, the
Supervisory Board constantly monitored the management of the Company’s and the Group’s business and was
thus able to carry out without limitation the functions assigned to it by law and under the articles of associa-
tion. All decisions of fundamental importance for the Company and other transactions requiring the approval
of the Supervisory Board under the rules of procedure were reviewed and discussed with the Board of Manage-
ment before the relevant resolution was adopted.
The Supervisory Board generally comprises twelve members. Changes in the reporting period are disclosed
in the information on governing bodies.
The Supervisory Board held three regular meetings in the reporting period; there were no extraordinary
meetings. The average attendance rate was 91 %. One member of the Supervisory Board attended less than half
of the meetings; all other members of the Supervisory Board were present at more than half of the meetings.
Decisions were made on four urgent matters by means of a written resolution circulated to each of the mem-
bers for approval; the Chairman of the Supervisory Board also made four urgent decisions using the written
procedure.
COMM ITT EE ACT I VITI ES

The Supervisory Board has set up various committees to enable it to fulfill its responsibilities, namely the Joint
Risk and Audit Committee, the Nomination Committee, the Remuneration Committee and the Credit Commit-
tee. The committees were dissolved on September 1, 2017 as part of the separation of the lending business
supervised by the European Central Bank from the other areas of business undertaken by
Volkswagen Financial Services AG.
The Joint Risk and Audit Committee focused on the business and risk strategy, the refinancing and liquidity
position, and on internal and external audit activities, together with the related findings. The committee also
addressed the changes in the business strategy at Volkswagen Financial Services AG. In addition, the Joint Risk
and Audit Committee discussed the allocation of profit or loss by region, product group and source of earnings.
The committee received detailed reports from the Board of Management on the terms and conditions in the
customer business and from the Head of Internal Audit. The committee consisted of five members. It held one
meeting in the reporting period.
The Nomination Committee dealt with the annual evaluation of the Board of Management and of the Su-
pervisory Board in accordance with section 25d of the Kreditwesengesetz (KWG – German Banking Act), based
on the structure, size, composition and performance of the respective board, as well as on the knowledge, skills
and experience of the individual board members and of the respective board as a whole. The committee also
devoted a great deal of time to the appointments to the senior management bodies, supervisory boards and
advisory boards after the implementation of the reorganization of the legal entities. In particular, it discussed
reducing the size of the Board of Management of Volkswagen Financial Services AG by one person to a total of
five board members and made a corresponding recommendation to the Supervisory Board. The committee
consisted of four members. It held one meeting in the reporting period.

Consolidated Financial Statements Report of the Supervisory Board 145
The Remuneration Committee’s main focus was to review the remuneration of the Board of Management of
Volkswagen Financial Services AG, taking into account the requirements of the Institutsvergütungsverordnung
(InstitutsVergV – German Remuneration Regulation for Institutions), which include a malus review, a sustainabil-
ity component and ascertaining whether ancillary conditions have been met. Other matters addressed by the
committee included the length of the contracts for the new members of the managements of
Volkswagen Bank GmbH and Volkswagen Leasing GmbH. The committee consisted of three members. It held two
meetings in the reporting period. It approved the issue of powers of attorney (“Prokura”) by written resolution.
The Credit Committee was responsible for approving issues the Supervisory Board must deal with under
statutory provisions and the rules of procedure regarding loan commitments, the assumption of sureties,
guarantees and similar liabilities, company borrowings, the purchasing of receivables (factoring) and for gen-
eral agreements related to the assumption of receivables. The Credit Committee comprised three members of
the Supervisory Board and made its decisions by means of written resolutions.
The members of the committees also consulted each other on numerous occasions and were in constant
contact with the Board of Management outside committee meetings. The activities of the committees were
reported at the plenary meetings of the Supervisory Board.
Following the dissolution of the committees, the full Supervisory Board has taken over responsibility for
the tasks previously carried out by the committees.
M AT T E R S D I S C U S S E D B Y T H E S U P E R V I S O R Y B O A R D
At its meeting on March 6, 2017, the Supervisory Board examined in detail and then approved both the consol-
idated financial statements of the Volkswagen Financial Services AG Group and the annual financial statements
of Volkswagen Financial Services AG for 2016 prepared by the Board of Management. The Supervisory Board
also discussed the status and further development of the strategies covering mobility and digitalization. In
addition, it received reports on the progress of the reorganization of the legal entities. Other items included a
report on the forthcoming changes to the Institutsvergütungsverordnung (InstitutsVergV – German Remuner-
ation Regulation for Institutions), referred to as IVV 3.0. Finally, the Supervisory Board approved a majority
equity investment in an e-payments company and agreed a proposal for establishing a used vehicles platform.
The aim of these projects is to press ahead with the process of opening up further areas of business for
Volkswagen Financial Services AG.
In this meeting and also in the meetings held on June 16, 2017 and September 20, 2017, the Board of Man-
agement provided the Supervisory Board with comprehensive reports on the economic and financial position
of the Company and the Group.
At the meeting of the Supervisory Board on June 16, 2017, the Board of Management presented detailed re-
ports on the current status of various projects and products related to the topic of mobility. In this regard, the
meeting also discussed the role of the portfolio of services offered by the Volkswagen Financial Services sub-
group in the context of the overall group. In addition, the Board of Management provided the Supervisory
Board with an IT status report. The report focused on compliance and security as well as on the status of pro-
jects such as the implementation of the provisions under the EU’s General Data Protection Regulation. Under
further agenda items, the Supervisory Board give its consent to the establishment of a bank in the United King-
dom, the restructuring of the equity investment in Volkswagen Versicherungsdienst GmbH (Austria) and to an
increase in the equity of Volkswagen Bank GmbH.
The meeting of the Supervisory Board held on September 20, 2017 mainly addressed the structural changes
carried out on September 1, 2017 as part of reorganization of the legal entities and the status of the subsequent
stages in the project. The Board of Management also reported on key aspects of the strategy at
Volkswagen Financial Services AG, including customer focus measures. In a further report, the Board of Man-
agement gave the Supervisory Board an overview of the status of the development of IT project performance.
Finally, the Supervisory Board approved a number of items, including the establishment of an interim holding
company (for the purposes of holding various equity investments) and the restructuring of the PayByPhone
companies.
A U D I T O F T H E A N N U A L A N D C O N S O L I D AT E D F I N A N C I A L STAT E M E N T S
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Hanover, was appointed to audit both the
consolidated financial statements of the Volkswagen Financial Services AG Group in accordance with IFRS and

146 Report of the Supervisory Board Consolidated Financial Statements
the annual financial statements of Volkswagen Financial Services AG in accordance with HGB for the year ended
December 31, 2017, including the bookkeeping system and management reports.
The consolidated financial statements of the Volkswagen Financial Services AG Group in accordance with
IFRS and the annual financial statements of Volkswagen Financial Services AG in accordance with HGB for the
year ended December 31, 2017, together with the management reports, were submitted to the Supervisory
Board. The auditor, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Hanover, audited these
financial statements, including the bookkeeping system and the management reports, and issued an unquali-
fied auditor’s opinion in each case.
The Supervisory Board agrees with the findings of these audits. The Supervisory Board had no reservations
after its review of the consolidated financial statements and the annual financial statements, including the
management reports. The independent auditors were present when this agenda item was addressed at the
Supervisory Board meeting and they reported on the main findings of their audit.
At its meeting on March 7, 2018, the Supervisory Board approved both the consolidated financial state-
ments and annual financial statements of Volkswagen Financial Services AG prepared by the Board of Man-
agement. The consolidated financial statements and annual financial statements have thus been adopted.
Under the current control and profit-and-loss transfer agreement for Volkswagen Financial Services AG, the
loss reported by Volkswagen Financial Services AG in its single-entity financial statements prepared in accord-
ance with HGB was absorbed by the sole shareholder Volkswagen AG.
The Supervisory Board would like to take this opportunity to express its gratitude and appreciation for the
work of the members of the Board of Management, the Works Council, the managerial staff and all employees
of Volkswagen Financial Services AG and its affiliated companies. The high level of commitment from all of you
has helped to sustain the ongoing growth of Volkswagen Financial Services AG.
Braunschweig, March 7, 2018
Frank Witter
Chairman of the Supervisory Board

PU BLISHED BY
Volkswagen Financial Services AG
Gifhorner Strasse 57
38112 Braunschweig, Germany
Telephone +49 (0) 531 212-0
info@vwfs.com
www.vwfs.com
I N V E STO R R E L AT I O N S
Telephone +49 (0) 531 212-30 71
ir@vwfs.com
Produced in-house with firesys
This annual report is also available in German at www.vwfsag.de/gb17.

Gifhorner Strasse 57 · 38112 Braunschweig · Germany · Phone +49 (0) 531 212-0
info@vwfs.com · www.vwfs.com · www.facebook.com/vwfsde
Investor Relations: Phone +49 (0) 531 212-30 71 · ir@vwfs.com

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VOLKSWAGEN FINANCIAL SERVICES AG

In € million (as of December 31) 2017 20161

Total assets 68,953 130,248

In % (as of December 31) 2017 2016

Number (as of December 31) 2017 2016

Employees 8,555 11,819

Volkswagen Financial Services AG A-2 BBB+ Stable P-2 A3 Negative

BUSINESS MODEL was transferred by way of spin-off to Volkswagen AG and

Volkswagen Financial Services AG | Annual Report 2017

KEY PERFORMANCE INDICATORS

Nonfinancial performance indicators

Financial performance indicators

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

Report on Economic Position

Volkswagen Financial Services AG | Annual Report 2017

Actual 2016 Forecast for 2017 Actual 2017

Nonfinancial performance indicators

Financial performance indicators

DEVELOPMENTS IN THE GLOBAL ECONOMY Germany

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

GLOBAL DELIVERIES TO CUSTOMERS OF THE VOLKSWAGEN GROUP1

Deliveries of passenger cars worldwide2 10,038,650 9,635,486 +4.2

Volkswagen Financial Services AG | Annual Report 2017

FINANCIAL PERFORMANCE Volkswagen Group. Accordingly, costs of €495 (484) million

Volkswagen Financial Services AG | Annual Report 2017

KEY FIGURES BY SEGMENT AS OF DECEMBER 31, 2017

Thousands VW FS AG Germany Europe Latin America1 Asia-Pacific Other companies2

Current contracts 8,524 4,762 800 1,171 1,786 6

Volkswagen Financial Services AG | Annual Report 2017

DEVEL OPMENT O F NEW C O NTRAC T S AND C URRENT C O NT RAC T S AS O F DECEMBER 31

Current contracts as of December 31

2,169 981 Retail financing

2,009 901 Retail financing

Total assets of the Volkswagen Financial Services AG Group Equity

Volkswagen Financial Services AG | Annual Report 2017

The following tables show the transaction details:

BORROWER’S NOTE LOANS

Issuer Month Country Volume and currency Maturity

EUR 382 million

Volkswagen Financial Services AG | Annual Report 2017

Issuer Month Country Volume and currency Maturity

Issuer Transaction name Month Country Volume and currency

Volkswagen Financial Services AG | Annual Report 2017

BUSINESS PERFORMANCE 2017 Receivables from affiliated companies declined by

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

€ million 2017 2016

Revenue 574 700

€ million Dec. 31, 2017 Dec. 31, 2016

Equity and liabilities

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

Volkswagen Financial Services AG | Annual Report 2017

FINANCIAL RISKS Rating systems for corporate customers

Volkswagen Financial Services AG | Annual Report 2017