Results of Operations, Financial Position and Net Assets

The Volkswagen Group’s segment reporting comprises the four reportable segments Passenger Cars, Commercial Vehicles, Power Engineering and Financial Services, in compliance with IFRS 8 and in line with the Group’s internal management and reporting.

At Volkswagen, the segment result is measured on the basis of the operating result.

The reconciliation column contains activities and other operations that do not by definition constitute segments. These include the unallocated Group financing activities. The reconciliation also contains consolidation adjustments between the segments (including the holding company functions). Purchase price allocation for Porsche Holding Salzburg and Porsche, Scania and MAN reflects their accounting treatment in the segments.

The Automotive Division comprises the Passenger Cars, Commercial Vehicles and Power Engineering segments, as well as the figures from the reconciliation. The Passenger Cars segment and the reconciliation are combined to form the Passenger Cars Business Area; for Commercial Vehicles and Power Engineering, the segment is the same as the business area. The Financial Services Division corresponds to the Financial Services segment.

APPLICATION OF NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS

The application of IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” became mandatory as of January 1, 2018.

IFRS 9 changes the accounting requirements for classifying and measuring financial assets, for impairment of financial assets, and for hedge accounting. Some of the fair value measurement gains and losses on certain derivatives, which were previously reported under the financial result, are now reported directly in sales revenue and other operating income. This will have a more significant impact on operating profit.

IFRS 15 specifies new accounting rules for revenue recognition. In this context, the way income from the reversal of provisions and accrued liabilities is reported has also been adjusted; these items are now allocated to the functions in which they were originally recognized.

In addition, expenses for certain sales programs had to be reclassified.

The situation described has led, among other things, to adjustments to prior-year figures in the income statement. Cost of sales, distribution and administrative expenses, and the net other operating result required adjustments in connection with the change in the way reversals of provisions are reported; the reclassification of expenses for certain sales programs led to a decrease in sales revenue and distribution expenses. The operating profit was unchanged. The application of IFRS 9 led to minor adjustments to the financial result and consequently also to profit before tax, income tax expense and profit after tax.

SPECIAL ITEMS

Special items consist of certain items in the financial statements whose separate disclosure the Board of Management believes can enable a better assessment of our economic performance.

In the reporting period, negative special items in connection with the diesel issue amounting to €−3.2 (−3.2) billion affected operating profit in the Passenger Cars Business Area. These were mainly attributable to the fines resulting from the final administrative fine orders issued by the Braunschweig public prosecutor’s office (€1.0 billion) and the Munich II public prosecutor’s office (€0.8 billion), to higher legal risks and legal defense costs and an increase in expenses for technical measures.

COMPENSATION PAID TO THE NONCONTROLLING INTEREST SHAREHOLDERS OF MAN SE

In the award proceedings regarding the appropriateness of the cash settlement and the right to compensation for the noncontrolling interest shareholders of MAN SE, the Higher Regional Court in Munich made a final decision at the end of June 2018, ruling that the right to annual compensation per share must be increased. The cash settlement per share, raised in a first instance ruling by the First Regional Court in Munich, was confirmed.

In August 2018, the control and profit and loss transfer agreement with MAN SE was terminated by extraordinary notice as of January 1, 2019.

Cash outflows for compensation payments and the acquisition of shares tendered amounted to €2.1 billion in the period to December 31, 2018. The “Put options and compensation rights granted to noncontrolling interest shareholders” item reported in the balance sheet was reduced accordingly.