Annual Report 2017

ŠKODA AUTO a. s.
ANNUAL REPORT
2017
ANNUAL
REPORT 2017
ŠKODA
AUTO a.s.
Contents
Foreword 04
Report of the Supervisory Board 06
ANNUAL REPORT
Management Report
ŠKODA AUTO Company Profile 10
Corporate Governance 12
ŠKODA AUTO Bodies 12
Declaration of Compliance with the Code of Corporate Governance 14
Business Operations 16
Strategy 17
Product Portfolio 20
Financial Situation 24
Other Information 26
Technical Development 27
Procurement 32
Production and Logistics 34
Sales and Marketing 40
Human Resources Management 48
Sustainability 52
Report on Risks and Opportunities 58
Outlook 62
Short-term and Long-term Outlook 62
Financial Section
Auditor’s Report 68
Separate Financial Statements for the Year Ended 31 December 2017 70
Notes to the Separate Financial Statements 2017 74
Report on Relations 128
Glossary of Terms and Abbreviations 138
Persons Responsible for the Annual Report and Events after the Balance Sheet Date 140
Key Figures and Financial Results at a Glance 141
04
Foreword
FOREWORD
04
ANNUAL REPORT 2017
Ladies and Gentlemen,
Digitalisation, e-mobility, autonomous driving and artificial intelligence are fun-
damentally reshaping not only how we move around, but also how we do busi-
ness. The automotive industry is investing billions to make motor transport even
safer, more comfortable and environmentally friendly.
We at ŠKODA AUTO, guided by our Strategy 2025, are following a path that
will mould this riveting future for our customers. This is encapsulated by the
goal we have set ourselves: ŠKODA AUTO, is keen to be a “Simply Clever” com-
pany delivering the finest mobility solutions. And this is precisely what we have
once again spent the past year working hard on in all areas of our business.
The ŠKODA VISION E study, a fully electric concept study offering
semi-autonomous driving, offers a glimpse of tomorrow’s world. In 2017, it gar-
nered widespread international media coverage when we showcased it at the
motor shows in Shanghai and Frankfurt. In 2020, the ŠKODA VISION E will
be marketed as the first purely electric ŠKODA, paving the way for a portfolio
of ten electric models by 2025. Our customers can look forward to stunning, yet
affordable, e-mobility.
The great acclaim enjoyed by our current products shone through yet again in
2017. We reported the best ever sales and financial performance in our 122-year
history. I would like to thank all employees for their fine commitment and our
customers for the faith they place in us. We view this success as a great incentive
to persevere with our growth strategy as we move forward. This will be reflect-
ed, in one way, by the launch of 19 new or facelifted models by the end of 2020.
A vital role is played by our SUV offensive, which we continued successfully
in 2017 by introducing the ŠKODA KAROQ, a compact SUV newly developed
from top to bottom. But that’s not all. We are making headway with our ŠKODA
VISION X, an urban crossover we recently unveiled at the Geneva Motor Show
as we prepare to launch it next year but one. In the coming years, we will focus
even more on the growth markets of China, Russia and India.
For ŠKODA, 2017 was also a year of monumental strategic decisions, three of
which I would like to highlight in particular. We will be making our future elec-
tric ŠKODA models in the beating heart of the brand in the Czech Republic. This
is a major step towards securing the future of our business and of the Czech Re-
public as a hub of car production. The development of the MQB A0 IN platform
will provide the VOLKSWAGEN Group with global architecture for small and
compact cars – we will initially be targeting India. We have taken our ŠKODA
AUTO DigiLab branch to a new level by establishing a joint-venture in Israel.
Last year, ŠKODA reached significant milestones in the pursuit of its strategy.
And we will spare no effort in the future. On the contrary, we will continue to
pick up to pace and, through our new products and mobility services, and by
capturing new markets, we will prepare all the more earnestly for the challenges
before us. ŠKODA will keep to the roadmap it has charted in the implementation
of Strategy 2025.
With kind regards,
Bernhard Maier
Chairman of the Board, ŠKODA AUTO a.s.
FOREWORD
ANNUAL REPORT 2017
In the past fiscal year, the Supervisory Board was regularly and extensively in-
formed by the Board of Management of the operations of ŠKODA AUTO a.s., its
financial performance, and its business policies.
Business processes which, due to legal regulations or the Articles of Associa-
tion, require the Supervisory Board’s approval or briefing, or which were of ex-
traordinary importance, were discussed in detail at meetings of the Supervisory
Board. Based on written and oral reports from the Board of Management, the
Supervisory Board was able to continuously oversee the activities of the ŠKODA
AUTO a.s. management, thus duly executing its powers entrusted to it under
the law.
Under its resolution of 21 March 2017, VOLKSWAGEN FINANCE LUXEM-
BURG S.A., as the sole shareholder of ŠKODA AUTO a.s., approved a proposal
for commissioning PricewaterhouseCoopers Audit, s.r.o. to carry out an audit of
the financial statements for the 2017 accounting period.
An unqualified audit opinion was issued on separate financial statements of
the ŠKODA AUTO a.s. pursuant to IFRS as adopted by the EU as of 31 December
2017. Other information included in the annual report for 2017 but not the finan-
cial statements or the independent auditor’s report is, according to the auditor,
consistent in all material respects with the financial statements of the ŠKODA
AUTO a.s.
Report of the
Supervisory
Board
REPORT OF THE SUPERVISORY BOARD
06
ANNUAL REPORT 2017
The chairman of the Supervisory Board was duly informed by the auditor
about the scope, the execution and the results of the audit.
On 20 December 2017, the Supervisory Board assessed the proposal of the
Board of Management for the decision of the sole shareholder, in the exercise of
the powers of the General Meeting, to pay out a dividend from retained earnings
relating to the previous accounting periods of CZK 38.52 billion. The Superviso-
ry Board expressed an affirmative opinion on this proposal.
At its meeting on 28 February 2018, the Supervisory Board discussed the fi-
nancial results and favourably assessed a proposal of the Board of Management
for distribution of the ŠKODA AUTO a.s. profits based on the annual financial
statements as at 31 December 2017 pursuant to IFRS as adopted by the EU.
The Supervisory Board also reviewed the report on relations between affiliated
persons for 2017 and assessed it favourably without reservations. The Supervisory
Board authorised the Board of Management to submit the annual financial state-
ments for 2017 and the proposal for the distribution of profits to the sole share-
holder, VOLKSWAGEN FINANCE LUXEMBURG S.A., for approval.
Frank Witter
Chairman of the Supervisory Board
ANNUAL REPORT 2017
REPORT OF THE SUPERVISORY BOARD
Management
Report
ŠKODA AUTO Company Profile 10
Corporate Governance 12
ŠKODA AUTO Bodies 12
Declaration of Compliance with the Code of Corporate Governance 14
Business Operations 16
Strategy 17
Product Portfolio 20
Financial Situation 24
Other Information 26
Technical Development 27
Procurement 32
Production and Logistics 34
Sales and Marketing 40
Human Resources Management 48
Sustainability 52
Report on Risks and Opportunities 58
Outlook 62
Short-term and Long-term Outlook 62
06
ŠKODA AUTO
Company Profile
10
ŠKODA AUTO COMPANY PROFILE
ŠKODA AUTO a.s. (“the Company” or “ŠKODA AUTO”), headquartered in
Mladá Boleslav, is an industrial heavyweight in the Czech Republic and one of
the world’s oldest car makers. Its origins go back to 1895, when Václav Laurin
and Václav Klement set up a firm paving the way for more than a century of
Czech car production. ŠKODA AUTO currently employs more than 31,600 peo-
ple in the Czech Republic.
The ŠKODA brand has been part of the VOLKSWAGEN Group for more than
25 years. During this time, ŠKODA AUTO deliveries have increased substantially
and its product portfolio has expanded significantly.
The Company’s principal business activities are the development, production
and sale of ŠKODA cars, components, genuine parts and accessories, and the
provision of servicing.
The sole shareholder of ŠKODA AUTO a.s. is VOLKSWAGEN FINANCE
LUXEMBURG S.A., established in Strassen, Luxembourg. VOLKSWAGEN
FINANCE LUXEMBURG S.A. is a subsidiary of VOLKSWAGEN AG.
ŠKODA AUTO runs production plants in the Czech Republic. ŠKODA-brand-
ed cars are also manufactured in China, Russia, India, Slovakia, Ukraine and
Algeria. This international presence will be the springboard for ŠKODA AUTO’s
planned growth over the next few years, the conditions for which are already
in place: impressive automobiles, a strong brand, a motivated and capable team
and the ability to turn innovations into “Simply Clever” customer benefits.
The Company’s principal business activities are the development,
production and sale of ŠKODA cars, components, genuine parts
and accessories, and the provision of servicing.
ANNUAL REPORT 2017
ŠKODA AUTO COMPANY PROFILE
12
ANNUAL REPORT 2017
CORPORATE GOVERNANCE
ŠKODA AUTO BODIES
SUPERVISORY BOARD
Frank Witter (*1959)
Chairman of the Supervisory Board since 12 November 2015 (member of the
Supervisory Board since 9 November 2015)
Member of the VOLKSWAGEN AG Board of Management responsible for
Finance and Controlling
Prof. Dr. Jochem Heizmann (*1952)
Member of the Supervisory Board since 1 January 2017
Member of the VOLKSWAGEN AG Board of Management
responsible for China
Miloš Kovář (*1964)
Member of the Supervisory Board since 1 May 2015
KOVO ŠKODA AUTO a.s. Trade Union Production Coordinator
Matthias Müller (*1953)
Member of the Supervisory Board since 1 November 2015
Chairman of the VOLKSWAGEN AG Board of Management
Bernd Osterloh (*1956)
Member of the Supervisory Board since 1 January 2015
Chairman of the General and Group Works Councils of VOLKSWAGEN AG
Florina Louise Piëch (*1987)
Member of the Supervisory Board since 1 January 2015
Designer
Daniell Peter Porsche (*1973)
Member of the Supervisory Board since 1 January 2015
Teacher and Music Therapist
Jaroslav Povšík (*1955)
Member of the Supervisory Board since 16 April 1993
Chairman of the KOVO ŠKODA AUTO a.s. Trade Union Works Council
Corporate
Governance
ANNUAL REPORT 2017
CORPORATE GOVERNANCE
BOARD OF MANAGEMENT
Bernhard Maier (*1959)
Chairman of the Board of Management since 1 November 2015,
responsible for Central Management
Previous positions:
– Member of the Executive Board, Sales and Marketing,
Dr. Ing. h.c. F. Porsche AG (2010-2015)
– CEO, Porsche Deutschland GmbH (2001-2010)
Alain Favey (*1967)
Member of the Board of Management since 1 September 2017,
responsible for Sales and Marketing
Previous position:
– Director, PORSCHE HOLDING SALZBURG (2012–2017)
Dipl.-Ing. Michael Oeljeklaus (*1963)
Member of the Board of Management since 1 August 2010,
responsible for Production and Logistics
Previous position:
– Member of the Board of Management responsible for
Production and Technical Development, Shanghai-
Volkswagen Automotive Co., Limited (2005-2010)
Dipl.-Kfm. Klaus-Dieter Schürmann (*1963)
Member of the Board Management since 1 August 2016,
responsible for Finance and IT
Previous position:
– Member of the Board of Management of VOLKSWAGEN
NUTZFAHRZEUGE responsible for Finance and IT
(2008-2016)
Dipl.-Wirt.-Ing. Dieter Seemann (*1957)
Member of the Board of Management since 1 October 2014,
responsible for Purchasing
Previous position:
– Member of the Board of Management responsible for
Purchasing, SEAT, S.A. (2010-2014)
Dipl.-Ing. Christian Strube (*1963)
Member of the Board of Management since 1 December 2015,
responsible for Technical Development
Previous position:
– Head of Engineering for Exterior, Interior and Safety,
VOLKSWAGEN PASSENGER CARS (2012-2015)
Ing. Bohdan Wojnar (*1960)
Member of the Board of Management since 1 January 2011,
responsible for Human Resources Management
Previous position:
– Member of the Board of Management responsible for Human
Resources, VOLKSWAGEN SLOVAKIA, a.s. (2009-2010)
CHANGES TO THE SUPERVISORY BOARD AND BOARD
OF MANAGEMENT
Resigned from the Supervisory Board:
Ing. Martin Jahn – member of the Supervisory Board
from 1 April 2009 to 31 December 2016
Appointed to the Supervisory Board:
Prof. Dr. Jochem Heizmann – member of the Supervisory
Board since 1 January 2017
Resigned from the Board of Management:
Werner Eichhorn – member of the Board of Management
from 1 September 2012 to 31 August 2017
Appointed to the Board of Management:
Alain Favey – member of the Board of Management
since 1 September 2017
Since 2007
ŠKODA AUTO
has embraced
the relevant
recommendations
and rules of the
Code of Corporate
Governance of
OECD-based
Companies.
14
ANNUAL REPORT 2017
CORPORATE GOVERNANCE
DECLARATION OF COMPLIANCE
WITH THE CODE OF CORPORATE
GOVERNANCE
ŠKODA AUTO, aware of its unique position within the Czech business environ-
ment and the ever growing respect it commands within the VOLKSWAGEN
Group and among rivals in the automotive sector, attaches the utmost impor-
tance to being perceived by its employees, business partners, all of its customers
and the general public as a successful, transparent and open company. The Com-
pany is keenly aware of the long-standing tradition and reputation that it has
cultivated over the years and treasures it as a key asset for the further successful
development of its business activities.
Against this backdrop, since 2007 ŠKODA AUTO has embraced the relevant
recommendations and rules of the Code of Corporate Governance of OECD-
based Companies (“the Code”), as updated under the guidance of the Czech
Securities Commission in 2004. The Company aims to continuously improve
internal processes and rules in accordance with the Code to further encourage
transparency and compliance with regulations and ethical behaviour in business
in the Czech Republic.
LEVEL OF COMPLIANCE WITH RECOMMENDATIONS OF
THE CODE OF CORPORATE GOVERNANCE
In line with best practice at the VOLKSWAGEN Group, the majority of the Com-
pany’s internal governance processes have long been configured in accordance
with the Code. Bearing in mind the Company’s shareholding structure (com-
prising a single shareholder – VOLKSWAGEN FINANCE LUXEMBURG S.A.),
VOLKSWAGEN AG’s organisational structure (see the VOLKSWAGEN AG web-
site at www.volkswagenag.com) and the fact that the Company is not the subject
of trading on the public market, certain recommendations under the Code are
irrelevant or, in the interests of efficiency and synergy, have been duly trans-
ferred to the Group level for handling.
Company policies also draw on the Code of Conduct at ŠKODA AUTO Group
(“the Code of Conduct”), adopted and distributed to employees at the end of
2017. The Code of Conduct briefs employees on rules deriving from legislation
that could bear down most heavily on the Company. It also encourages employ-
ees to comply with universally recognised social values.
ANNUAL REPORT 2017
CORPORATE GOVERNANCE
In this respect, the Code of Conduct clearly formulates the Company’s general
requirements regarding the behaviour of its employees, reminds them of their
role in protecting the Company’s reputation, and details rules on the preven-
tion of conflicts of interest and corruption and on the handling of Company’s
information and assets. The Code of Conduct also outlines basic yardsticks of
behaviour towards business partners and other parties and clearly formulates
the Company’s interest in protecting fair competition. Other Company’s com-
mitments, covered by the Code of Conduct, include occupational health and
safety and environmental protection.
The Company does not fully comply with the recommendation of the Code
of Corporate Governance under Section VI-E-2 (in conjunction with paragraph
18 of the Code annotations) that it should establish committees responsible for
remuneration and nomination. In view of the Company’s shareholder structure,
committee-related activities are concertedly ceded to the Group level as far as
this is effective. The activities of the remuneration and nomination committee,
including relevant disclosures, are carried out by the VOLKSWAGEN AG Board
of Management’s Human Resources Committee. Nor is the Company fully com-
pliant with the recommendation of Section VI-E-1 of the Code (in conjunction
with paragraph 5 of the Code annotations) that the Board of Management or
Supervisory Board should have a sufficient number of members who are not
employed by the Company and are not in a close relationship with the Company
or its management through significant economic, family or other ties.
The above incomplete fulfillment of the respective provisions of the Code
does not constitute a failure to comply with the mandatory requirements of
Czech law and poses no legal risk to the Company.
Governance, Risk & Compliance, a unit active within the Company since 2011,
is tasked, among other things, with providing guidance on issues of governance
and compliance and with introducing a prevention programme for the Company
and its subsidiaries. It also supports Internal Audit in the enforcement of inter-
nal standards and legislative requirements.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
Business
Operations
16
ANNUAL REPORT 2017
BUSINESS OPERATIONS
STRATEGY
We live in an era of rapid technological overhaul. New scientific and technical dis-
coveries are being made every day. These innovations and the resulting technical
progress change not only people’s daily routines, but also the industry. Mega-
trends such as digitalisation, electromobility or urbanisation pose the question of
how ŠKODA AUTO will shape mobility in the future. Our objective: we will not
only respond to changing customer needs and growing competition – sometimes
even from completely new players – but we will set the trends ourselves.
Last year, we developed the Strategy 2025 and communicated it across the
whole Company to ensure ŠKODA AUTO will remain one of the most successful
companies in the automotive industry in future. In years to come, the ŠKODA
brand will not only offer cars. We are realigning our portfolio and complement-
ing it in particular with mobility services and other earnings from digital sources.
ŠKODA is transforming from a car manufacturer into a mobility services pro-
vider. This transformation is also outlined in ŠKODA’s vision: “The ‘Simply Cle-
ver’ company for the best mobility solutions.” The ingenuity that has marked
ŠKODA AUTO throughout its history of more than 120 years will also successful-
ly power this further development of the Company.
The Strategy 2025 defines the brand’s direction and objectives up to 2025.
ŠKODA has already developed and implemented many of its key elements in
the past year. The strategy’s important pillars include electromobility, the digi-
talisation of products and services, entry into new markets and complementing
conventional car production with many other mobility-related services.
THE FUTURE OF ŠKODA IS ALSO ELECTRIC
In its pursuit of e-mobility, ŠKODA AUTO unveiled the brand‘s first-ever study
of a purely electric-drive car, the ŠKODA VISION E, at Auto Shanghai. It made
arrangements for not only the production of electric motors and electrical com-
ponents but also for a purely electric-drive vehicle at the Mladá Boleslav and
Kvasiny plants to cover the needs of the Company and the Group as a whole. In-
ternally manufactured electric motors and electrical components will soon pave
the way for the launch of another five purely electric models by 2025, contrib-
uting, among other things, to improvements in the environment. While the first
mass-produced purely electric car will leave the factory gates in 2020, ŠKODA’s
customers will be able to drive hybrid cars from 2019 onwards. The first such car
will be a plug-in hybrid version of the ŠKODA’s flagship, the ŠKODA SUPERB.
In the future, the ŠKODA brand is keen to not only offer vehicles,
but also to complement its portfolio with mobility services.
The Digitalisation
department
covers testing and
developing services
related to vehicle
connectivity and
mobility concepts.
18
ANNUAL REPORT 2017
BUSINESS OPERATIONS
In February 2017, the carmaker invited a number of high-ranking political fig-
ures, economists and trade unionists to its headquarters in Mladá Boleslav to
discuss important issues and opportunities for the future of the domestic auto-
motive industry at the AutoSAP seminar held by the Automotive Industry As-
sociation. These discussions resulted in the Memorandum on the Future of the
Automotive Industry in the Czech Republic, signed in October 2017. The Mem-
orandum has now advanced to the stage of actual implementation. The agree-
ment includes an Action Plan that encompasses 25 measures on core themes
such as e-mobility, autonomous driving and digitalisation, as well as cross-cut-
ting themes such as support for education and R&D. These topics are also de-
fined as key topics in Strategy 2025.
As also indicated by the Memorandum, an active focus on the latest trends is
also essential. When it comes to digitalisation, ŠKODA AUTO customers are be-
coming increasingly digital and expect the products offered by the Company to
keep pace. Great strides in artificial intelligence mean that ŠKODA AUTO cus-
tomers will gain a better understanding and range of new products and services
coinciding with their wishes and inclinations at just the right moment.
Another area in the future automotive industry is autonomous driving. Arti-
ficial intelligence will open up new opportunities for customers and carmakers
and take them to a higher level. ŠKODA AUTO has taken important steps here,
too, and is heavily engaged in such matters.
Besides thinking about the future, the Company also continues to develop in
traditional areas. ŠKODA AUTO is working on entering further markets and seg-
ments and winning new customers. Naturally, the Company is also consolidating
its position on current markets.
THE COMPANY’S KEY DRIVER IS DIGITALISATION
In 2016, ŠKODA AUTO ushered in a new Digitalisation department to develop
new digital areas of business. In 2017, this department was responsible, in col-
laboration with specialist departments across the Company, for testing and de-
veloping services related to vehicle connectivity and mobility concepts. Guided
by the digitalisation of the Company and its processes, conditions important for
ŠKODA AUTO‘s future were created to reflect the intensifying orientation to-
wards Industry 4.0 principles in production, the use of virtual reality in technical
development and to collate data on sales-related trends and customers‘ wishes.
Digitalisation also entails a change of culture throughout the Company.
The brand new
compact SUV
ŠKODA KAROQ
combines design
and modern
technologies in
harmony with the
vision “Simply
Clever”.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
ŠKODA AUTO DigiLab – the birthplace of innovation
This is where ŠKODA AUTO DigiLab, opened in Prague in early 2017, plays
an extraordinary role. This is a creative workshop spearheading the search for
ideas and trialling new business models, taking into account the evolving needs
of customers, such as car-pooling, carsharing and smart parking. The goal is to
extend the business model to cover such solutions.
An important part is played not only by ŠKODA AUTO DigiLab itself, but also
by a far-reaching partner network of startups, tech companies, universities and
the public sector. ŠKODA AUTO DigiLab has sponsored a number of events in
the Czech Republic and, more broadly, Europe to build up this network and spot
new ideas and talents. At the Smart Mobility Hackathon in Prague, for example,
20 teams of 13 nationalities spent four days developing creative concepts for
„Smart Cities“, green mobility and connectivity.
Innovation partnership in Israel
Cooperation is not limited to the Czech Republic or even Europe. An internation-
al aspect in the search for new innovative ideas emerged in August 2017 when an
innovation partnership was established with Champion Motors Ltd., an Israeli
importer of ŠKODA cars. Israel is regarded as one of the world‘s digital startup
hubs. By cooperating with a partner who has good contacts in this area, ŠKODA
AUTO will gain direct access to innovative projects, hi-tech startups and talents
in IT. Documents establishing the joint venture between ŠKODA AUTO DigiLab
and Champion Motors in Tel Aviv were signed in Prague on 14 December 2017.
THE ŠKODA KAROQ IS A GLIMPSE INTO THE FUTURE
At the turn of 2016 and 2017, the manufacture of the Company‘s first large SUV, the
ŠKODA KODIAQ, began. Soon after the start of production, two new variants,
the ŠKODA KODIAQ SPORTLINE and the ŠKODA KODIAQ SCOUT, were de-
buted at the Geneva Motor Show in March. In May, ŠKODA AUTO introduced
the brand new ŠKODA KAROQ compact SUV. The impressive premiere of this
model, hosted by Stockholm‘s Artipelag cultural centre, was witnessed by thou-
sands of people around the world because it was filmed and broadcast online.
At the end of July, the first mass-produced ŠKODA KAROQ rolled off the line at
ŠKODA AUTO‘s Czech plant in Kvasiny.
ŠKODA AUTO has incorporated state-of-the-art technologies into the
ŠKODA KAROQ, including an optional digital instrument panel, which replaces
the analogue indicators in ŠKODA cars for the first time. Drivers can customise
the digital display by taking their pick of several different configurations, so they
only see what they want and deem necessary. ŠKODA CONNECT offers remote
access to the vehicle. The fuel status can be monitored, comparisons can be run
with historical data from previous drives, and the parked vehicle can be located
on a map, all by means of a smartphone. Another essential feature is the ability
to make plans for a future route, with a smartphone then keeping track of the
current traffic situation to ensure that the driver leaves in time.
In 2017, selected
models of ŠKODA
AUTO were
modernised to
fully meet new
trends in the
Company.
20
ANNUAL REPORT 2017
BUSINESS OPERATIONS
PRODUCT PORTFOLIO
ŠKODA CITIGO
The ŠKODA CITIGO facelift was launched in mid-2017. The whole fascia has
a new look, with changes to the radiator grille, bonnet, headlamps and front
bumper. The interior has also been redesigned. For safer driving, especially
in crowded city streets, City Safe Drive with automatic emergency braking
is available.
The ŠKODA CITIGO is a three- or five-door city car that comes with optional
LED daytime running lights and Climatronic air-conditioning. ŠKODA’s city car
is available in several economical petrol engine versions. Alternatively, there is
the ŠKODA CITIGO G-TEC, a vehicle powered by compressed natural gas to
make it particularly environmentally friendly. Customers have a choice of man-
ual or semi-automatic five-speed transmission.
ŠKODA FABIA
The dynamic new 1.0 TSI three-cylinder engines introduced to the ŠKODA
FABIA in 2017 consume up to six per cent less fuel than previous engines. The
optional ŠKODA CONNECT enables passengers to be online at all times in the
ŠKODA FABIA. SmartLink+ transfers smartphone apps, music or navigation
data to the ŠKODA FABIA’s centre display. Several ŠKODA FABIA models offer
ample opportunity for customisation, including two-tone bodywork and a wide
range of engines. ŠKODA FABIA MONTE CARLO and ŠKODA FABIA COMBI
SCOUTLINE versions are also available.
ŠKODA RAPID
In 2017, ŠKODA revamped its compact ŠKODA RAPID visually and technically.
A modernised fascia, bi-xenon headlights, ŠKODA CONNECT online services,
and new 1.0 TSI engines – these are but a few examples from the list of innova-
tions in the second most popular ŠKODA model series. The ŠKODA RAPID has
retained its very spacious passenger and luggage compartments and its undeni-
ably international disposition. In fact, special versions of this model have been
engineered for the key markets of China, India and Russia, where it is also made.
ŠKODA OCTAVIA
The ŠKODA OCTAVIA, ŠKODA’s bestseller and its beating heart, was thorough-
ly revamped in 2017. The grille, air intakes and headlights are all newly designed.
The outer lights are used for the dipped beam, while the inner ones – following
on from the radiator grille – are for the full beam. Full LED headlights are an
option from the Ambition trim level upwards. The ŠKODA OCTAVIA also fea-
tures a newly shaped rear bumper. The C-shaped tail light is illuminated uni-
formly throughout thanks to the use of LED technology in the rear light clusters.
ŠKODA CONNECT services are also available, along with a completely new
range of mobile online services and other “Simply Clever” elements. The ŠKODA
OCTAVIA range of models is highly varied. Besides the liftback and the estate, it
includes the adventurous ŠKODA OCTAVIA SCOUT, the extremely economical
ŠKODA OCTAVIA G-TEC running on natural gas, and RS models, now deliver-
ing engine power of 230 hp and 245 hp, which, like the higher trim levels, are
increasingly attracting customer interest.
Among the
advantages of
ŠKODA KAROQ
is a luggage
compartment with
a capacity of up to
1,630 litres.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
ŠKODA KAROQ
In 2017, the ŠKODA KAROQ expanded the range of SUV models with a com-
pletely newly developed compact SUV 4.38 m in length. Its crystalline design is
fully in line with the new SUV design language. Its numerous features include
a luggage compartment with a capacity of up to 1,630 litres, full LED head-
lights and a freely programmable digital instrument panel, available for the first
time in a ŠKODA. Customers can choose from five engine variants with power
ranging from 85 kW to 140 kW. In addition, the new ŠKODA KAROQ offers
ingenious pieces of equipment, such as the VarioFlex rear seats and a virtual
pedal for contactless boot opening. Also available are a glass-design capacitive
touchscreen and a set of ŠKODA CONNECT services, i.e. Infotainment Online,
used to elicit a wealth of important transport and weather information, and the
Care Connect assistance system, incorporating an emergency call service. In
addition, the car can create a local wi-fi network so that all passengers enjoy a
connection to the internet.
ŠKODA KODIAQ
The first big SUV, 4.70 m long, with up to seven seats and the largest luggage
compartment in its class, offers exceptional interior space and a complete set
of ŠKODA CONNECT services. It also boasts a whole range of new functional
and “Simply Clever” details and innovative technologies that are usually found
only in higher-end cars. The ŠKODA KODIAQ spearheaded ŠKODA’s major SUV
offensive when it was launched in February. Two derived versions were also
showcased at the Geneva Motor Show in March. The ŠKODA KODIAQ SPORT-
LINE, offering four petrol and diesel engines delivering power of up to 140 kW,
black painted body elements, specially designed nineteen- and twenty-inch alloy
wheels, and other specific equipment, and the ŠKODA KODIAQ SCOUT, also
with four petrol and diesel engines providing power of up to 140 kW, which –
courtesy of its sophisticated details and specifically tuned equipment – is also
suited to off-road driving.
ŠKODA SUPERB
The ŠKODA SUPERB has always been a pioneer in its class. The third gen-
eration of this model, unveiled in 2015, heralded a new era for the ŠKODA
brand. With two body versions and the VOLKSWAGEN Group’s advanced
MQB technology, the ŠKODA SUPERB has completely redefined ŠKODA’s
design language and ascended to a new plane of comfort and technology. The
new ŠKODA SUPERB impressively combines space, functionality, connectivity
and emotion.
BUSINESS OPERATIONS
ANNUAL REPORT 2017
22
BUSINESS OPERATIONS
ANNUAL REPORT 2017
In 2017, ŠKODA
AUTO reported
record sales,
record turnover,
record operating
profit and record
operating cash
flow.
24
ANNUAL REPORT 2017
BUSINESS OPERATIONS
FINANCIAL SITUATION
ŠKODA AUTO’s financial results are reported according to IFRS.
In many respects, 2017 was the most successful financial year in ŠKODA
AUTO’s history, yielding record sales, turnover, operating profit and operat-
ing cash flow. The Company’s further improvements in financial performance
in 2017 were built on its expanding sales and successful efficiency-boosting
measures.
COMPANY BUSINESS PERFORMANCE
1,201 thousand ŠKODA brand vehicles were delivered to customers worldwide
(including deliveries in China) in 2017, up 6.6% year on year, making this the
fourth year in a row in which it had broken through the million-delivery mark.
Company sales climbed by 13.7% year on year to 910 thousand cars. Sales rev-
enue rose by 17.1% year on year to CZK 407.4 billion. In the reporting period,
vehicle sales accounted for 84.3% of the Company’s total turnover (2016: 84.0%).
The top-selling models were the ŠKODA OCTAVIA, the ŠKODA FABIA, and
the ŠKODA SUPERB. The ŠKODA KODIAQ also reported robust sales. The
genuine parts and accessories business constituted 5.2% of total sales revenue
(2016: 5.6%). The remaining 10.5% (2016: 10.4%) was made up of receipts from
the supply of components and kit cars to VOLKSWAGEN Group companies and
other revenues.
In absolute terms, the cost of sales increased by 17.7% year on year to
CZK 347.5 billion. Much of this increase can be attributed to material costs (the
cost of raw materials, consumables and purchased goods). Compared to the pre-
vious year, gross profit increased by 13.5% to CZK 59.9 billion.
Distribution costs climbed by 11.4% year on year to CZK 15.0 billion. In 2017,
administrative costs were 23.8% higher year on year at CZK 9.7 billion. These
administrative costs were pushed up in particular by the purchase of IT services
to digitalise the Company and its processes.
The Company’s CZK 40.5 billion operating profit in the reporting period was
31.2% higher than in the previous year. Profit before tax came to CZK 39.1 billion
(2016: CZK 30.8 billion). Profit after tax was CZK 31.8 billion (2016: CZK 25.2 bil-
lion). The profit before income tax-to-revenues ratio was 9.6% (2016: 8.9%).
COMPANY CASH FLOWS
In 2017, cash flow from operating activities climbed by 20.6% year on year to
CZK 60.8 billion. There was a 34.1% year on year increase in net liquidity to
CZK 95.1 billion as at 31 December 2017.
The Company spent
CZK 15.4 billion
on new product
research and
development
in 2017.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
COMPANY ASSET AND CAPITAL STRUCTURE
As at 31 December 2017, the Company’s total assets amounted to CZK 250.9 bil-
lion, a 9.9% increase, equal to CZK 22.7 billion, on the previous year-end balance.
The value of non-current assets was up just slightly when juxtaposed with the
comparative period (+1.8%), standing at CZK 106.7 billion. The rise on the asset
side of the balance sheet can be attributed in particular to an increase in current
assets. This development mainly reflected the upbeat trend in net liquidity. As
at the reference date, current assets stood at CZK 144.2 billion, up 16.9% on the
figure reported as at 31 December 2016.
Equity dipped during 2017 by CZK 20.1 billion to a total of CZK 117.5 billion.
The drop in equity was prompted by the sole shareholder’s decision to draw on
retained earnings in order to pay out dividends of CZK 38.5 billion.
The dividend decision was also behind the hike in current liabilities to
CZK 116.6 billion as at 31 December 2017 (31 December 2016: CZK 72.1 billion)
as the dividends were not paid out before the year end. Non-current liabilities,
on the other hand, were nudged down by 9.1% year on year to CZK 16.8 billion.
COMPANY INVESTMENT ACTIVITY
In 2017, capital expenditures (net of development costs) amounted to
CZK 18.9 billion, the largest proportion of which was channelled into product
investment related to the launch of new models and engines.
The Company spent CZK 15.4 billion on new product research and develop-
ment in 2017 (2016: CZK 10.0 billion).
As at 30 March 2017, the Company established ŠKODA AUTO DigiLab s.r.o.,
registered office: Jankovcova 1603/47a, Holešovice, 170 00 Praha 7, and became
its sole partner.
26
ANNUAL REPORT 2017
BUSINESS OPERATIONS
OTHER INFORMATION
In the past, certain ŠKODA vehicles were produced with 1.2 litre, 1.6 litre and
2.0 litre EA 189 diesel engines. The competent authorities raised questions about
software that detects when these vehicles are running in test conditions. This
software was found in approximately 1.2 million ŠKODA brand vehicles.
ŠKODA AUTO decided to hold a servicing campaign to update the vehicles.
Technical measures were developed and prepared for these modifications so
that servicing could begin in 2016. Technical measures were drawn up for all of
the ŠKODA vehicles in question and were presented to the competent homolo-
gation authorities. The servicing campaign will continue in 2018.
Servicing campaign costs were taken into account in the financial statements
for 2016 and 2017.
Top speed 180 km/h
and 500 km per
charge. That is the
ŠKODA VISION E
study.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
TECHNICAL DEVELOPMENT
In 2017, ŠKODA AUTO invested CZK 15.4 billion in technical development. Rev-
enue from external orders in 2017 came to CZK 1.3 billion. 1,928 employees at
the Company’s headquarters were involved in the development of new models
in 2017. ŠKODA AUTO also continued to expand Technical Development, entail-
ing the creation of 240 new jobs.
The internal Innovation Fair (IVET) was held in 2017 to support and develop
customer and technical innovations. With the participation of members of the
Board of Management, spearheaded by Bernhard Maier and Christian Strube,
and Technical Development managers, innovations and innovative concepts
from across ŠKODA AUTO Technical Development were showcased. Over an
area of more than 1,000 m2, the carmaker presented the topics pursued by Strat-
egy 2025, with an emphasis on electrification, CO2 abatement, roadside assis-
tance systems, mobile services and “Simply Clever” solutions. Visitors could get
a hands-on grasp of most of these topics by trying out static exhibits, demonstra-
tors, and prototype cars.
SHANGHAI GETS ITS FIRST VIEW OF ŠKODA VISION E STUDY
April’s Auto Shanghai 2017 motor show was a major event for ŠKODA AUTO. It
was here that the Company introduced the ŠKODA VISION E study, with purely
electric drive and autonomous driving, for the first time. The study dovetails ful-
ly with the e-mobility concept under Strategy 2025. It sheds light on the outlook
for drive technology, design and automotive transport in the near future, and
also defines the concept of digitalisation and the use of virtual reality.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
The ŠKODA VISION E study, based on the Group’s MEB modular kit for elec-
tric vehicles, has a system capacity of 225 kW. Two powerful electric motors en-
able the car to reach a top speed of 180 km/h. It draws on economical and pow-
erful lithium-ion batteries and smart recuperation, which in practice equates to
a range of up to 500 km per charge. The study also entertains the possibility of
inductive charging batteries, fast charging to give an 80% charge in 30 minutes,
and autonomous driving.
The ŠKODA VISION E study has impressive dimensions, measuring 4.65 me-
tres in length, 1.9 metres in width and 1.6 metres in height. The ŠKODA KODIAQ,
for example, is of a similar size, indicating that the ŠKODA VISION E’s interior
is exceptionally large and well-appointed. The electric car’s parameters allow for
different bodywork design and an alternative interior layout. Like other electric
vehicles, the ŠKODA VISION E does not have a classic radiator grille. Instead,
the bonnet is elongated, reaching below the lights until it reaches the bumper.
The study has rear suicide doors, the B-pillar has been taken out completely, and
the seats are tilted 20 degrees outwards when the door is opened. The ŠKODA
VISION E concept has no wing mirrors. These are replaced by cameras, which
capture what is going on around the car and screen this on an interior display.
With its wide range of other sensors and cameras, the ŠKODA VISION E has
been designed for level-3 driving automation. This means it can move autono-
mously in heavy traffic, use autopilot to drive along motorway sections, keep to
a lane or overtake, and independently search for free parking spots, which it can
automatically enter and exit.
The ŠKODA VISION E study also incorporates all of the customary ŠKODA
driver-assist technology, along with features developed specifically for the au-
tonomous driving of an electric vehicle. For example, the park pilot is self-learn-
ing via Educated Parking, a system that remembers and then seeks out the
driver’s preferred parking position. Nor have the infotainment systems, range
of ŠKODA CONNECT services and “Simply Clever” solutions been forgotten.
ŠKODA VISION E is a concept that visitors to Shanghai’s spring motor show
and the IAA’s autumn International Motor Show Germany in Frankfurt were able
to explore. The study has outlined the approach to development that ŠKODA
AUTO will continue to follow intensively in the coming years. In addition to its
plug-in hybrid models, the carmaker will launch five electrically powered cars
by 2025.
NOT ONLY DEVELOPMENT BENEFITS FROM VIRTUAL REALITY
Virtual reality is a technology already successfully used in many different fields,
starting with the video game industry and ending with the automotive industry.
ŠKODA AUTO has been using this technology for almost 20 years and expects
to continue harnessing it in the future in technical development and other areas
of the Company as part of its Strategy 2025 digitalisation. A practical example of
virtual reality’s potential use outside of development was the introduction of the
ŠKODA VISION E study in Shanghai, which could be witnessed by essentially
the whole world. Thanks to new technologies and the ŠKODA Virtual Reality
App, anyone interested was able to explore the study and experience the future
of mobility from the comfort of home. Simultaneously with the presentation of
the ŠKODA VISION E study at the Auto Shanghai motor show, the carmaker in-
vited guests to thematic events in selected cities around the world. Here, visitors
were able to watch the presentation by putting on the latest HTC VIVE virtual
reality headset and headphones. This gave those interested the chance to learn
about the innovative electric drive, explore the futuristic design of the emotion-
ally designed coupe, and even take a digital test drive.
28
The contest for the
prestigious prize
“Autonis” is decided
by readers of the
German technical
magazine Auto
Motor und Sport.
ŠKODA KAROQ
succeeded in
excelling amongst
seventeen
competitors.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
At ŠKODA AUTO, the use of virtual reality in the development of new car
parts and models also works on the principle of research by means of projec-
tors, computers, headsets and a tracking system that detects the position of the
observer in relation to what they are observing. Most commonly, virtual reality
helps to assess the look, design and structure, including aerodynamics and body
strength. To simulate the interior, a “cave” is used – this is a multi-screen projec-
tion with 3D glasses.
THE AWARD-WINNING AND TECHNOLOGY PACKED ŠKODA KAROQ
For Technical Development, 2017 (especially the autumn) saw the culmination
of work on the ŠKODA KAROQ. In October, this model was awarded the pres-
tigious Autonis award for the best new design of a compact SUV. The Euro-
pean New Car Assessment Programme (Euro NCAP), an independent organi-
sation, assessed the ŠKODA KAROQ’s safety. This compact SUV is another of
the Czech carmaker’s models to earn five stars, making the ŠKODA KAROQ
one of the safest compact SUVs around today. The car magazine Autobild and
the Sunday newspaper Bild am Sonntag awarded the ŠKODA KAROQ a Golden
Steering Wheel. Readers from more than 20 European countries propelled the
ŠKODA KAROQ to the final of the “small SUV” category with their votes. Af-
ter challenging test drives, the expert jury eventually selected the new ŠKODA
KAROQ as the compact SUV category winner. The ŠKODA KAROQ performed
well not only in ŠKODA’s well-known domains of comfort and spaciousness,
but also in connectivity: it has the latest infotainment system with a capaci-
tive touchscreen and an individually programmable digital instrument panel.
The car also thrilled test drivers with its impressive powertrains and well-tuned
chassis. The ŠKODA KAROQ’s other new features to enhance passenger com-
fort are “Simply Clever” solutions, such as the third-generation virtual pedal to
open the fifth door. Gently moving a foot under the wing automatically opens
and closes the luggage compartment. All of the mobile online services offered
by ŠKODA CONNECT and SmartLink+ are available as a matter of course, en-
abling passengers to use both their smartphones and the onboard touch-based
infotainment systems with navigation.
NEW EMISSIONS CENTRE SOUTH FOR DEVELOPMENT
One of ŠKODA AUTO’s largest current development investments is the new
Emissions Centre South, which took more than a year and a half to build and
was opened in the spring of 2017. The total construction cost was EUR 15 mil-
lion, i.e. more than CZK 400 million, including three new emission measuring
boxes. The Emissions Centre South will be used not only by the Development
department, but also by the Quality department to run prescribed checks of
mass produced vehicles. It has the capacity to cover the expanding development
and inspection activities necessitated by the increasing quantities of cars being
made. The opening of this centre has created twenty new jobs.
The modern Emissions Centre South has been designed and built to meet, as
much as possible, increasingly stringent legislative requirements for measuring
pollutants in exhaust gases. In this respect, the carmaker is preparing for chang-
es expected in the use of drives, fuel and measurement technology, and for new
markets with different emissions legislation.
ŠKODA AUTO
is assuming full
responsibility for
the development
of the MQB A0 IN
platform for the
VOLKSWAGEN
Group.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
At the new Emissions Centre South, emissions are measured at various tem-
peratures. Besides the “normal” temperature of +23 °C, measurements are taken
at temperatures of +14 °C and -7 °C. Two of the three measuring boxes can be
used for special measurements over a wide temperature range from -40 °C to
+65 °C. All three measuring boxes are equipped with chassis dynamometers for
4×4 drive vehicles. These simulate tyre rolling resistance and the car’s aerody-
namic resistance, replicating real road driving conditions. Braking is simulated
by electric motors, each with an output of 220 kW. The input power per device
is 650 kW. The car is cooled by air, the flow of which can be simulated propor-
tionally up to a speed of 135 km/h. The chassis dynamometer can then be used
to simulate driving up to 250 km/h. During the measurement, the exhaust gases
are collected in an analytical system, where the total volume and concentration
of the individual pollutants are measured.
The construction of the Emissions Centre South reflects the trust the VOLKS-
WAGEN Group has in ŠKODA AUTO and the demands it places on the Compa-
ny. The construction significantly fortifies the Company’s competence in this
area and guarantees the cultivation of our know-how and our leading position
internationally.
DEVELOPMENT OF THE NEW MQB A0 IN PLATFORM FOR
THE INDIAN MARKET IN ŠKODA AUTO’S HANDS
At the end of 2016, it was decided that ŠKODA AUTO would take over the full
development of the VOLKSWAGEN MQB A0 IN platform, designed for devel-
oping countries. A newly formed unit within Technical Development is respon-
sible for this project. The new platform needs to be adapted to climatic condi-
tions, local requirements and standards pinned down further to an analysis of
the Indian market. Particular requirements include the temperature range of
the air-conditioning and the interior design. Local resources are preferred for
the development of the new platform and cars, and production will be local-
ised. During 2017, several workshops were held with local suppliers to recruit
strong partners for quality cooperation in development activities. Preparations
surrounding the platform and the Indian market are not restricted to Technical
Development, but involve all areas of the Company. The assumption of develop-
ment responsibility for the new platform shows that ŠKODA AUTO is a strong
partner within the VOLKSWAGEN Group.
30
More than
170 unique
racing cars of the
ŠKODA FABIA R5
have already been
sold.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
THE ŠKODA MOTORSPORT TEAM ENJOYED
ANOTHER SUCCESSFUL SEASON
ŠKODA has had another excellent season in motorsport. The factory crew of
Jan Kopecký and Pavel Dresler ran out winners of the 2017 Czech champion-
ship in their ŠKODA FABIA R5. A ŠKODA FABIA R5 crewed by Gaurav Gill
and Stéphane Prévot won the Asia-Pacific Rally Championship (APRC), with
ŠKODA AUTO winning the 2017 APRC Manufacturers’ Cup. In the WRC2 cat-
egory, Pontus Tidemand and Jonas Andersson were named 2017 world champi-
ons. The ŠKODA Motorsport team won the WRC2, which is the most important
companion rally series to the World Rally Championship.
ŠKODA FABIA R5s were victorious not only in the colours of the ŠKODA
Motorsport factory team, but also chalked up huge success among customers
purchasing the ŠKODA FABIA R5. More than 170 of these unique cars have been
sold since spring 2015. This racing model has been bought by 76 teams from 27
countries. Consequently, the ŠKODA FABIA R5 is a regular participant in rally
championships in 50 countries.
On 12 December 2017, more than 70 leading journalists and VIP guests attend-
ed a press conference where the factory drivers for the upcoming 2018 season
were introduced. The winners of a competition also had a unique opportunity to
take a ride in the ŠKODA FABIA R5 at the Mladá Boleslav plant.
In 2017, ŠKODA
AUTO’s outlay
on production
material purchasing
totalled
CZK 217 billion,
consistent with
a year on year
increase of
CZK 39 billion.
32
ANNUAL REPORT 2017
BUSINESS OPERATIONS
PROCUREMENT
Procurement is responsible for all needs and requirements cropping up in every-
day work at ŠKODA AUTO, whether in production or non-production, and over-
sees the optimisation of costs. In this respect, the procurement strategy drew on
Strategy 2025, adopted the year before.
NEW CAR LAUNCHES
One of the most important events of 2017 was the start of production of the
ŠKODA KAROQ, the new compact SUV, in Kvasiny. Procurement oversaw the
procurance of 2,100 new parts specifically for this model, which were made
and delivered by more than 600 suppliers. Increased demand for the ŠKODA
KAROQ and ŠKODA KODIAQ and their specific features also made it necessary
to expand capacity and to work with other departments to safeguard the smooth
launch of the car. Procurement was also responsible for purchasing parts for
ŠKODA‘s facelifted models – the ŠKODA CITIGO, the ŠKODA RAPID and the
ŠKODA RAPID SPACEBACK – and for the ŠKODA OCTAVIA, which was to un-
dergo the biggest revamp of all.
The ŠKODA KAROQ‘s launch was the last part of a multi-year project that
had also encompassed the SEAT ATECA as a sister model. ŠKODA proved, in
this way, that the VOLKSWAGEN Group‘s various brands are able to work well
together. Both models are currently made at the Kvasiny plant.
Demand for general procurement centred on the construction of a new paint
shop block at the Mladá Boleslav plant, with a daily capacity of 300 painted
vehicles (expandable to 600). This was the biggest investment of 2017 and will
be put into operation in 2019. Other investments include the upgrading and
expansion of welding lines, extensions to the production halls, and the con-
struction of a new logistics and quality centre at the Kvasiny plant. Another
major infrastructure investment was the opening of a new multistorey car park
in the immediate vicinity of Gate 6. The car park, with an investment value of
more than EUR 6 million, has 1,150 parking spaces spread over five floors. This
means that there are now 5,444 employee parking spaces around the Mladá
Boleslav production plant.
The General Procurement department handled marketing requirements. As
ŠKODA AUTO put the ŠKODA KAROQ in the spotlight in 2017, the investment
in this compact SUV‘s world première at Stockholm‘s Artipelag art hall in May
was a particularly important event.
Strategy 2025, with its emphasis on digitalisation and e-mobility, focused
mainly on securing the procurement of all parts needed for the smooth expan-
sion of ŠKODA CONNECT services. This is because all ŠKODA models, aside
from the ŠKODA CITIGO, have featured online services since 2017. The ground-
work to make these services available to smaller cars had been laid a year earli-
er with, for example, the purchase of software solutions capable of effortlessly
handling millions of users‘ connections to all online services. The Procurement
department is currently paving the way for the carmaker to roll out its first elec-
tric vehicle in 2020.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
PROCUREMENT GROWTH, RISING MARKET
PRICES OF KEY RAW MATERIALS
In 2017, ŠKODA AUTO’s outlay on production material purchasing totalled
CZK 217 billion, consistent with a year on year increase of CZK 39 billion. Much
of this material continues to be sourced in the Czech Republic (48.8 %), followed
by Germany, which accounts for about a quarter (24.8 %) of the production ma-
terials purchased. General procurement aggregated CZK 41 billion, equal to a
CZK 5 billion increase year on year.
ŠKODA AUTO and the VOLKSWAGEN Group saw the market prices of their
raw materials rise in 2017. The price of rhodium, for example, shot up by almost
100% year on year to USD 1,500 per troy ounce. Palladium prices registered a
leap of at least 40% to break through USD 1,000 per troy ounce. The only pre-
cious metal to develop along positive pricing lines was platinum, which hovered
around USD 900-1,000 per troy ounce. The year on year growth in copper, al-
uminium and lead prices, though significant, was not as steep as for other ma-
terials. Regardless of these factors, costs were radically optimised and this was
instrumental in the brand’s sound overall performance.
In September,
ŠKODA heralded
another milestone
when worldwide
production since
1905 surpassed
20 million vehicles.
The breakthrough car
in this sense was
the ŠKODA KAROQ.
34
ANNUAL REPORT 2017
BUSINESS OPERATIONS
PRODUCTION AND LOGISTICS
The Company continued to pursue the Strategy 2025 in 2017. The SUV offensive
is part and parcel of that strategy. A major event was the start of production of the
ŠKODA KAROQ, the new compact SUV. Alongside this, ŠKODA AUTO kept up
production of the ŠKODA KODIAQ and innovated many aspects of the ŠKODA
RAPID, ŠKODA CITIGO and ŠKODA OCTAVIA. To meet increased customer de-
mand, the Company increased its production capacities even further in 2017.
Concurrently with this, the carmaker expanded and upgraded the production
and servicing technology at its plants. This modernisation project was charac-
terised by advances in robotics, automation, and the digitalisation of manufac-
turing processes in line with the Industry 4.0 concept.
ŠKODA PRODUCTION STRATEGY ABROAD
Foreign plants around the world braced themselves to start making new or inno-
vated models on their production lines in 2017.
In China, production of the ŠKODA KODIAQ started in February. This was
followed by the launch of production of the facelifted ŠKODA OCTAVIA and
ŠKODA OCTAVIA SCOUT in May and the revamped ŠKODA RAPID and
ŠKODA RAPID SPACEBACK in August. The ŠKODA KAROQ, the new compact
SUV, started being produced in China in November.
The Aurangabad plant in India started producing the revamped ŠKODA
OCTAVIA in May, followed by the ŠKODA KODIAQ in August.
Production of two models was also launched in Russia – the facelifted ŠKODA
OCTAVIA at the Nizhny Novgorod plant in March, and then the innovated ŠKODA
RAPID at the Kaluga plant in June.
A month before that, the production of the rejuvenated ŠKODA CITIGO be-
gan in Slovakia.
PRODUCTION OF NEW MODELS IN THE CZECH REPUBLIC
The Company’s domestic plants increased their capacity in 2017. Production was
ramped up significantly at the Kvasiny plant in particular, with production of the
ŠKODA KAROQ starting in July.
At the parent plant in Mladá Boleslav, the first distinctively revamped ŠKODA
OCTAVIAs rolled off the production line in February, followed in May by the
innovated ŠKODA RAPID. Capacity utilisation was made more efficient in July
when production of the ŠKODA RAPID was switched from the MB I plant to the
MB II plant.
MLADÁ BOLESLAV – A PARENT FACILITY WITH PROSPECTS
In 2017, global production of ŠKODAs numbered 1,232,042 cars, up 79,734 on
2016. In September, ŠKODA heralded another milestone when worldwide pro-
duction since 1905 surpassed 20 million vehicles. The breakthrough car in this
sense was a ŠKODA KAROQ.
One of the brand’s most popular cars, the ŠKODA OCTAVIA, hailing from
the MB I plant, also passed several major milestones in 2017. Production of the
distinctively revamped ŠKODA OCTAVIA started in February. Come May, em-
ployees had made one and a half million of this third-generation car. In June,
the six millionth ŠKODA OCTAVIA since 1959 rolled off the line. The ŠKODA
OCTAVIA saw its average daily output climb to 1,121 units, a 3% rise on the pre-
vious year.
The Kvasiny plant
has produced
2 million cars
since 1947.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
The ŠKODA FABIA, made at the MB II plant, is now a fixture on the auto-
motive market, as evidenced by the annual production of 196,022 cars, equating
to average daily output of 813 units. The 500,000th third-generation ŠKODA
FABIA rolled off the line in June. Capacity utilisation was made more efficient in
July when production of the ŠKODA RAPID was switched from the MB I plant
to the MB II plant.
The rising volume of production necessitated the expansion and upgrading
of production capacities at the plant in Mladá Boleslav. In response, ŠKODA
AUTO put its state-of-the-art PXL II servo-press line into operation. The main
advantages of this press line are the possibility of pressing aluminium parts and
the speed at which tools can be replaced. Up to 20,000 press parts for various
models can be turned out every day here. The PXL II makes the production
process a lot more flexible and consumes 15% less energy than normal systems,
so it is important for the GreenFuture environmental strategy. The new press
line resulted in the creation of 140 new jobs in Mladá Boleslav. The PXL II was
officially put into service in January 2017.
Another key investment in the Company’s future has been the new paint shop.
The foundation stone of the new paint shop at the Mladá Boleslav plant, with
a planned painting capacity of 600 bodies per day, was laid in December 2017.
When it is put into operation in June 2019, it will be one of the most modern
and most environmentally friendly paint shops anywhere in Europe. Numerous
work operations will be taken over or assisted by robots. The high degree of
automation will make it possible to lay out the various workstations extremely
economically.
THE DYNAMICALLY DEVELOPING KVASINY PLANT
The Kvasiny plant’s portfolio currently boasts the ŠKODA SUPERB, ŠKODA
SUPERB COMBI and ŠKODA KODIAQ. These were joined in July by a compact
SUV, the ŠKODA KAROQ. The Kvasiny plant responded to the expansion in pro-
duction capacity by recruiting new employees and switching to an 18-shift oper-
ation. In July, the plant also put its new AKL automatic small-parts warehouse
into operation (it takes its name from the German – AKL stands for Automa-
tisches Kleinteilelager). The construction of the AKL has been one of the biggest
logistics projects in the Company’s modern history. This automatic small-parts
warehouse will streamline the way the mounting complexity of material types is
handled and will make the plant’s logistics processes even more flexible.
The Kvasiny plant also marked two significant milestones. The two millionth
vehicle – a Moon White-coloured ŠKODA KODIAQ – was built here in early
2017. In addition, the plant celebrated the 70th anniversary of its opening, with
ŠKODA cars having rolled off the production line in Kvasiny since 1947. Today,
8,500 employees make an average of 1,052 vehicles per day.
COMPONENT PRODUCTION
In 2017, ŠKODA AUTO made 1,168,306 gearboxes, of which 366,287 were MQ 200
gearboxes, 272,019 were MQ/SQ 100 gearboxes, and 530,000 were DQ 200 gear-
boxes. By the end of 2017, production at the Vrchlabí plant was running at full
capacity of 2,200 units per day.
The Company also produced 577,346 engines in 2017. ŠKODA AUTO makes
components not only for internal consumption, but also for the needs and re-
quirements of other Group brands. In total, 248,123 engines and 757,611 gearbox-
es (65% of all gearboxes manufactured) were produced for other Group brands.
36
ANNUAL REPORT 2017
BUSINESS OPERATIONS
In 2017, ŠKODA AUTO celebrated three milestones in the production of its
components. In February, the Mladá Boleslav plant chalked up the production
of 13 million engines since 1899. In the same month, the Vrchlabí plant made its
one-and-a-half-millionth DQ 200 gearbox. In October, the Company recorded
the 10-millionth gearbox to have been made at the Mladá Boleslav and Vrchlabí
plants since 2001.
Axle production is integral to the manufacture of components. ŠKODA AUTO
currently makes 6,950 of them every day. Overall, 1.721 million axles were made
for the assembly plants in Mladá Boleslav, Kvasiny and India in 2017.
INCREASED PRODUCTION OF ŠKODA CARS ABROAD
At the Group’s Pune plant in India, 11,800 vehicles were made, a 22.8% year on
year rise. The partner plant in Nizhny Novgorod produced 44,042 vehicles in
2017, 50.5% more than in 2016. The Kaluga plant made 32,956 cars, equal to
14.7% growth. Chinese partner plants produced a combined total of 332,275
ŠKODA FABIAs, ŠKODA RAPIDs, ŠKODA OCTAVIAs, ŠKODA YETIs, ŠKODA
KAROQs, ŠKODA KODIAQs and ŠKODA SUPERBs in 2017. Compared to the
year previous, car production in China was up by 1.3%.
PRODUCTION BY MODEL
ŠKODA CITIGO
ŠKODA CITIGO production fell by 6.1%. VOLKSWAGEN’s Bratislava plant
made 38,749 ŠKODA CITIGOs (2016: 41,247).
ŠKODA FABIA
In 2017, 209,471 ŠKODA FABIAs were made worldwide (2016: 203,308), a 3.0%
year on year rise.
ŠKODA RAPID
In 2017, 209,836 ŠKODA RAPIDs were made worldwide (2016: 216,773),
a 3.2% dip.
ŠKODA OCTAVIA
In 2017, the ŠKODA OCTAVIA once again remained ŠKODA’s most important
model. Worldwide production of this model was reported at 420,811 units, tan-
tamount to a 5.5% drop (2016: 445,415 units). This model accounted for the
lion’s share of the total annual worldwide production of ŠKODA cars, coming
in at 34%.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
ŠKODA YETI
In 2017, 66,625 ŠKODA YETIs were made worldwide (2016: 95,426). Production
of this model ended in the Czech Republic and China.
ŠKODA KAROQ
Production of the ŠKODA KAROQ, the new compact SUV, started in the Czech
Republic in July 2017 and in China in November. Overall, 15,445 of these cars
were made.
ŠKODA KODIAQ
Production of ŠKODA AUTO’s first large SUV started in October 2016. World-
wide production in 2017 amounted to 124,002 vehicles (2016: 1,259).
ŠKODA SUPERB
In 2017, 147,103 ŠKODA SUPERBs were built worldwide (2016: 148,880), a mod-
est 1.2% dip.
PRODUCTION OF CARS
AT ŠKODA AUTO COMPANY
VEHICLES VEHICLES CHANGE (%)
2017 2016 2017/2016
Production of ŠKODA–branded cars
ŠKODA FABIA 119,730 117,397 2.0%
ŠKODA FABIA COMBI 76,292 75,479 1.1 %
ŠKODA FABIA total 196,022 192,876 1.6%
ŠKODA RAPID 31,561 31,715 (0.5%)
ŠKODA RAPID SPACEBACK 49,553 52,975 (6.5%)
ŠKODA RAPID total 81,114 84,690 (4.2%)
ŠKODA OCTAVIA 89,667 90,130 (0.5%)
ŠKODA OCTAVIA COMBI 180,102 176,093 2.3%
ŠKODA OCTAVIA total 269,769 266,223 1.3%
ŠKODA YETI 24,555 61,038 (59.8%)
ŠKODA SUPERB 47,697 46,775 2.0%
ŠKODA SUPERB COMBI 57,211 58,540 (2.3%)
ŠKODA SUPERB total 104,908 105,315 (0.4%)
ŠKODA KODIAQ 76,108 1,167 –
ŠKODA KAROQ 14,998 – –
Total ŠKODA brand 767,474 711,309 7.9%
Production of SEAT–branded cars
SEAT TOLEDO 13,146 18,029 (27.1%)
SEAT ATECA 77,483 35,833 116.2%
Total SEAT brand 90,629 53,862 68.3%
Total ŠKODA AUTO production 858,103 765,171 12.1%
BUSINESS OPERATIONS
38
ANNUAL REPORT 2017
PRODUCTION OF CARS
AT ŠKODA AUTO COMPANY
ŠKODA BRAND PRODUCTION WORLDWIDE*
VEHICLES VEHICLES CHANGE (%)
2017 2016 2017/2016
Production of ŠKODA cars in India
ŠKODA RAPID 11,800 9,608 22.8%
ŠKODA OCTAVIA 2,406 2,356 2.1%
ŠKODA SUPERB 1,502 1,825 (17.7%)
ŠKODA KODIAQ 838 – –
Total ŠKODA in India 16,546 13,789 20.0%
Production of ŠKODA cars in Slovakia
ŠKODA CITIGO 38,749 41,247 (6.1%)
Total ŠKODA in Slovakia 38,749 41,247 (6.1%)
Production of ŠKODA cars in Russia
ŠKODA RAPID 32,956 28,743 14.7%
ŠKODA OCTAVIA 21,479 22,356 (3.9%)
ŠKODA YETI 22,543 6,914 226.0%
ŠKODA KODIAQ 20 – –
Total ŠKODA in Russia 76,998 58,013 32.7%
Production of ŠKODA cars in China
ŠKODA FABIA 13,449 10,432 28.9%
ŠKODA RAPID 83,966 93,732 (10.4%)
ŠKODA OCTAVIA 127,157 154,480 (17.7%)
ŠKODA YETI 19,527 27,474 (28.9%)
ŠKODA SUPERB 40,693 41,740 (2.5%)
ŠKODA KODIAQ 47,036 92 –
ŠKODA KAROQ 447 – –
Total ŠKODA in China 332,275 327,950 1.3%
Total ŠKODA worldwide** 1,232,042 1,152,308 6.9%
Production of other Group brands in India***
VW 1,134 519 118.5%
AUDI 6,513 5,667 14.9%
Total other Group brands in India 7,647 6,186 23.6%
Total ŠKODA worldwide, including other Group brands 1,330,318 1,212,356 9.7%
* Including other Group brands
** Including production of ŠKODA cars at ŠKODA AUTO company (as stated on page 38) as well as at foreign plants in the rest of the world
*** Production at the subsidiary Skoda Auto India Private Ltd.
BUSINESS OPERATIONS
ANNUAL REPORT 2017
ŠKODA AUTO
also broke its sales
record by delivering
1,200,535 vehicles
to customers in
2017 to make it the
most successful
year in the brand’s
history.
BUSINESS OPERATIONS
SALES AND MARKETING
ŠKODA AUTO ended 2017 with the new sales record, making it the brand’s most
successful year ever. Worldwide, a record 1,200,535 ŠKODAs were delivered to
customers, up 6.6% on the previous year. This was the fourth year in a row in
which the Company made more than a million vehicle deliveries in a single cal-
endar year. Europe reported growth in the overall number of vehicles delivered
to customers, a result rooted in the expanding automotive market combined
with thriving progress in the model offensive. The European region, taken as a
whole, saw sales climb by 8.3% year on year.
CENTRAL EUROPE
In Central Europe, the ŠKODA brand has kept to its growth trajectory. The Com-
pany pushed up overall sales and enjoyed a 12.7% rise in its market share here,
with customers taking possession of 207,143 vehicles. In the Czech Republic,
ŠKODA AUTO underpinned its market leadership by delivering 95,017 cars to
customers on its way to 8.0% year on year growth. Looking beyond the Czech
Republic, sales figures were also sound in all other Central European markets. In
Poland, a record 66,582 ŠKODAs were delivered, reporting a double-digit 18.5%
increase on 2016. This confirmed ŠKODA as the number-one brand in Poland
and continued to rank the country among the Company’s five largest markets for
sales. In Slovakia, too, ŠKODA led the field, delivering 21,017 vehicles. Another
place where customers took receipt of record numbers of vehicles was Slovenia,
with Company deliveries up 12.7% to 7,121. ŠKODA AUTO also reported an up-
beat 12,658 vehicle deliveries (+16.2%) in Hungary.
CUSTOMER DELIVERIES
– LARGEST MARKETS
VEHICLES VEHICLES CHANGE (%)
2017 2016 2017/2016
Total ŠKODA brand 1,200,535 1,126,477 6.6%
China 325,009 317,088 2.5%
Germany 173,302 165,196 4.9%
Czech Republic 95,017 88,016 8.0%
United Kingdom 80,056 80,325 (0.3%)
Poland 66,582 56,180 18.5%
Russia 62,302 55,386 12.5%
France 27,272 23,013 18.5%
Turkey 24,996 28,893 (13.5%)
Italy 24,700 20,530 20.3%
Austria 24,254 20,563 17.9%
Spain* 24,230 23,241 4.3%
Israel 23,351 20,402 14.5%
Slovakia 21,017 18,860 11.4%
Belgium 19,240 18,925 1.7%
Switzerland 18,853 18,579 1.5%
* excluding the Canary Islands
ANNUAL REPORT 2017
40
ANNUAL REPORT 2017
BUSINESS OPERATIONS
EASTERN EUROPE
With the car market in Russia recovering, ŠKODA reported an upswing in cus-
tomer deliveries in Eastern Europe. Deliveries were up 14.6% year on year to
103,634 vehicles. ŠKODA deliveries on the Russian market levelled out after the
previous years’ developments. In fact, they began to rise, with customers tak-
ing possession of 62,302 vehicles, tantamount to a 12.5% rise year on year. In
Ukraine, the resurgence on the car market continued in 2017. This was echoed
in the uptick in ŠKODA deliveries, which, at 6,113 vehicle sales, was 69.4% higher
than in the previous year.
Positive trends also abounded elsewhere in Eastern Europe in 2017. In Ro-
mania, for example, ŠKODA registered double-digit growth, delivering 11,632
vehicles, up 13.1% on the previous year. ŠKODA made good headway in customer
deliveries in the Baltic countries, too, reporting 13.3% year on year growth to
7,417 vehicles. In Estonia, the ŠKODA brand sold a record 3,754 vehicles as it
defended its second-place ranking among makes of cars here.
WESTERN EUROPE
Western Europe’s automotive market continued its growth trajectory in 2017.
ŠKODA also tapped into the spiralling demand by delivering a record 477,735
cars to Western Europe, equal to 5.2% growth on the previous year.
In Germany – the largest European market – ŠKODA wound up with a re-
cord 5.0% market share. Taking delivery of 173,302 vehicles (+4.9%), Germany
reported the best result ever, with ŠKODA remaining the market’s bestselling
import brand.
BUSINESS OPERATIONS
In 2017, in the United Kingdom, ŠKODA clinched a record 3.2% market share.
It also enjoyed a record 6.9% market share in Ireland. Other positive develop-
ments were reported in Belgium, with 19,240 cars (+1.7%), and Sweden, where
ŠKODA delivered 17,408 vehicles (+8.4%).
On the French, Finnish and Norwegian markets, ŠKODA AUTO reported not
only its highest sales ever, amounting to 27,272 (+18.5%), 11,519 (+4.0%), and
8,606 (+11.7%) vehicles respectively, but also carved out its biggest ever market
shares (1.3%, 9.7% and 5.4%).
The Company also performed well on other key Western European markets.
ŠKODA celebrated a year of thriving sales in Italy, achieving double-digit growth
(+20.3%) by delivering 24,700 vehicles. ŠKODA also did well elsewhere in South-
ern Europe, clocking up 24,230 customer deliveries in Spain as it made a 4.3%
gain over the year. In Austria, too, ŠKODA AUTO nudged up deliveries to 24,254
vehicles in 2017, and in doing so netted a record 6.9% market share. In Switzer-
land, the final number of deliveries stood at 18,853, a small 1.5% year on year
increase. The market share here was at its highest ever level (6.0%).
OVERSEAS / ASIA
The Overseas / Asia region, and especially the growing market in China, plays a
pivotal role in the ŠKODA growth and product offensive. In all, 412,023 ŠKODAs
were delivered to customers here, up 3.5% on the previous year.
This productive trend was spearheaded by China, globally ŠKODA’s biggest
market, where we succeeded in delivering a record of 325,009 cars (+2.5%)
in 2017. The ŠKODA OCTAVIA is most in demand here, and the new ŠKODA
SUPERB flagship unveiled towards the end of 2015 has also been a success story.
Israel is another country where ŠKODA celebrated record sales, delivering
23,351 cars (+14.5%). Other progressive sales results in the Overseas / Asia region
in 2017 were reported as far afield as Australia (5,350) and Taiwan (5,117). In
India, the final number of sales stood at 17,113, up 31.4% on 2016.
CUSTOMER DELIVERIES BY REGION
VEHICLES VEHICLES CHANGE (%) SHARE OF PASSENGER
CAR MARKET (%)**
2017 2016 2017/2016 2017 2016
Central Europe* 207,143 183,770 12.7% 19.0% 18.9%
Eastern Europe 103,634 90,446 14.6% 5.3% 5.3%
Western Europe 477,735 454,001 5.2% 3.3% 3.3%
Overseas / Asia 412,023 398,260 3.5% 0.6% 0.6%
Total ŠKODA brand 1,200,535 1,126,477 6.6% 1.4% 1.4%
* including the Czech Republic
** total markets
42
ANNUAL REPORT 2017
ANNUAL REPORT 2017
BUSINESS OPERATIONS
DELIVERIES BY MODEL
ŠKODA CITIGO
The ŠKODA CITIGO is the brand’s smallest model and currently the only one
available in both three-door and five-door versions. In 2017, it was given a
facelift and the interior was upgraded. This compact city car was purchased by
37,115 customers in 2017, down by 8.8% on the previous year.
ŠKODA FABIA
Since hitting the market in the autumn of 2014, the third-generation ŠKODA
FABIA has kept ahead of the pack, triumphing over the competition thanks
to its high-quality workmanship, roomy interior and luggage compartment,
sumptuous range of equipment and excellent handling. The available engine
combinations were also innovated in 2017. An extremely popular model on the
markets, in 2017 deliveries rose by 2.1% year on year to 206,499. The emotion-
ally tuned ŠKODA FABIA MONTE CARLO, teeming with features, is another
version of this model that has won plaudits.
ŠKODA RAPID
The ŠKODA RAPID and the ŠKODA RAPID SPACEBACK fuse the practicality
of ŠKODA cars with a fresh and appealing design. The liftback ŠKODA RAPID
was rolled out globally in 2012, followed by the ŠKODA RAPID SPACEBACK
a year later. This was another model to be modernised in 2017. In all, 211,480
ŠKODA RAPIDs / ŠKODA RAPID SPACEBACKs were delivered to customers in
2017, equal to a 0.6% year on year decline, i.e. deliveries of this model stalled. In
2017, the ŠKODA RAPID range of models remained the second bestselling in the
portfolio, just after the ŠKODA OCTAVIA.
ŠKODA OCTAVIA
In 2017, there were 418,767 ŠKODA OCTAVIA deliveries. This was a slight 3.9%
drop in the number of annual deliveries. The third generation of what has long
been the top-selling ŠKODA model entered the market in 2013, and in 2017 was
treated to a major product and design overhaul. The ŠKODA OCTAVIA also has
a decent track record with its sporty incarnation, the ŠKODA OCTAVIA RS, and
its more rugged offering, the ŠKODA OCTAVIA SCOUT.
ŠKODA YETI / ŠKODA KAROQ
There were 69,467 customer deliveries of the first-generation ŠKODA YETI in
the year of its retirement, tantamount to a 27.3% year on year decline. In its
place, the ŠKODA KAROQ, a compact new SUV, saw the light of day in 2017,
debuting with 6,335 customer deliveries. Sales of this model were officially
launched in October 2017.
ŠKODA KODIAQ
Having premiered in 2016, the ŠKODA KODIAQ, the brand’s first large SUV,
enjoyed a hugely successful inaugural year by chalking up 99,961 customer de-
liveries. Further growth is forecast in 2018.
ŠKODA SUPERB
The third-generation ŠKODA SUPERB, unveiled in 2015, saw the ŠKODA brand
enter a new era. Customer deliveries rose in both 2016 and 2017. Last year,
150,910 ŠKODA SUPERBs were delivered worldwide, equating to year on year
growth of 8.7% and a personal best for this model.
44
CUSTOMER DELIVERIES BY MODEL
VEHICLES VEHICLES CHANGE (%)
2017 2016 2017/2016
ŠKODA CITIGO 37,115 40,674 (8.8%)
ŠKODA FABIA 130,186 127,325 2.2%
ŠKODA FABIA COMBI 76,313 74,978 1.8%
ŠKODA FABIA total 206,499 202,303 2.1%
ŠKODA RAPID 136,729 133,583 2.4%
ŠKODA RAPID SPACEBACK 74,751 79,073 (5.5%)
ŠKODA RAPID total 211,480 212,656 (0.6%)
ŠKODA ROOMSTER 1 20 –
ŠKODA ROOMSTER PRAKTIK 0 9 –
ŠKODA ROOMSTER total 1 29 –
ŠKODA OCTAVIA 236,309 262,863 (10.1%)
ŠKODA OCTAVIA COMBI 182,458 173,111 5.4%
ŠKODA OCTAVIA total 418,767 435,974 (3.9%)
ŠKODA YETI 69,467 95,540 (27.3%)
ŠKODA KAROQ 6,335 0 –
ŠKODA KODIAQ 99,961 447 –
ŠKODA SUPERB 94,522 81,288 16.3%
ŠKODA SUPERB COMBI 56,388 57,566 (2.0%)
ŠKODA SUPERB total 150,910 138,854 8.7%
Total ŠKODA brand 1,200,535 1,126,477 6.6%
BUSINESS OPERATIONS
ANNUAL REPORT 2017
ANNUAL REPORT 2017
BUSINESS OPERATIONS
A BRAND MARKETING STRATEGY BUILT ON RESOURCEFULNESS
ŠKODA’s global communication strategy was transformed within the framework
of Strategy 2025. It has been conceived on the basis of the Company’s mission
and vision. The upshot is a brand identity defined by the yearning to invent and
offer products that are about people and for people, and that are also brimming
with spirit.
ŠKODA AUTO Makes Life Easier
The brand is devoted to “Simply Clever” solutions, i.e. minor details that make
using a ŠKODA easier for customers. These include a virtual pedal for contact-
less boot opening, a magnetic torch in the luggage compartment, spaces for
plastic drinks bottles, including special grooves to hold a bottle in place so that it
can be opened with one hand, a net restraint system in the boot to prevent items
from sliding around, and intuitive control of the dashboard.
ŠKODA AUTO Springs Surprises
The Company offers high-quality emotionally-designed cars with a plethora of
resourceful features that will surprise customers. Beyond the “Simply Clever”
solutions, there are ŠKODA CONNECT services, the cars are always very roomy
and boast market-beating luggage compartments, and a range of vehicles are
available with 4×4 drive. And yet ŠKODA products remain affordable.
ŠKODA AUTO is a People Company
Mindful of the fact that customers are individuals, ŠKODA AUTO offers prod-
ucts chiming with their needs and requirements. The Company also pursues
this human aspect in its care for customer comfort in all ŠKODA cars and in its
ability to keep passengers entertained no matter how short or long their journey.
The ŠKODA brand strategy also centres on e-mobility issues. The aim is to heed
the customer’s view of this area and to adapt products and services accordingly.
SUVS – PROOF OF INVENTIVENESS EVEN
WHERE IT IS NOT EXPECTED
Key events for ŠKODA AUTO in 2017 were unquestionably the sales launch of
its first large SUV, the ŠKODA KODIAQ, and the May unveiling of the ŠKODA
KAROQ as a compatible, yet highly emotionally charged SUV.
Both of ŠKODA AUTO’s SUVs captivated customers not only with their tech-
nical prowess and handling, but also with their names, concealing an ingenious
symbolic dimension. The name ŠKODA KODIAQ alludes to the Kodiak, a bear
living on an island of the same name off southern Alaska’s coastline. The written
form of this name is derived from the language of the indigenous Aleut people,
and fully articulates the nature of both the bear and the car, i.e. its size, strength
and exceptional outdoor capabilities. The Kodiak bear also inspired the design-
ers to incorporate bold muscular lines into the new SUV. Confirmation that the
Company was on the right track with its ŠKODA KODIAQ design came in the
form of a Red Dot Award, a prize recognised around the world as the benchmark
for high-quality product design. This award is one of the world’s best-known
prizes in the realm of design.
Although the ŠKODA KODIAQ was introduced in 2016, it continued to play a
central role in events last year. One prime example was the World Dealer Con-
ference in Bilbao, Spain, where ŠKODA partners had the opportunity to discover
more about this car in person. At the Geneva Motor Show in March and the IAA
Motor Show in Frankfurt in September, ŠKODA showcased its two new versions
of the large ŠKODA KODIAQ SUV – the ŠKODA KODIAQ SPORTLINE and
ŠKODA KODIAQ SCOUT.
CUSTOMER DELIVERIES BY MODEL
46
ANNUAL REPORT 2017
BUSINESS OPERATIONS
The second – more compact – ŠKODA SUV, called the ŠKODA KAROQ, is
steeped in the concept of power and outdoor prowess, which is why the people
of the Kodiak Island once again served as inspiration for the name. The descrip-
tion of the new SUV reminded them of the word “uyowoq”, which means “little
brother” in their traditional language. The word “qarruk” alludes to the arrow
forming the centrepiece of the ŠKODA logo. The final impetus came from the
mind of a 12-year-old boy, who came up with the term “kaaraq” – which means
“automobile” in the islanders’ language. This combination of “kaaraq” (automo-
bile) and “qarruk” (arrow) formed the basis for the name of the ŠKODA KAROQ.
This compact SUV first saw the light of day in Stockholm, Sweden, in May.
It made its exhibition debut in Frankfurt in September. At this motor show, the
ŠKODA KAROQ featured alongside another 15 models, including the new ver-
sions of the ŠKODA KODIAQ and the ŠKODA VISION E study. This set of exhib-
its was spread out over more than 2,350 m2 and took 27 days to put together. It
required 70 tonnes of steel, five and a half kilometres of electrical wiring and 12.5
kilometres of LAN cable, all transported to Germany by 29 lorries and assembled
by a 98-member team.
ŠKODA AUTO OPENS ITS FIRST DIGITAL SHOWROOM
Digitalisation is a thread running through all areas of ŠKODA AUTO, and Mar-
keting department is no exception. In January 2017, the Company opened a dig-
ital showroom as a pilot project in Spain designed to let customers explore all
ŠKODA models. Now, on the Spanish ŠKODA website, visitors can chat online
with a ŠKODA expert and learn about the brand’s latest models live on the screen
of a computer, tablet or smartphone. Using a simple icon on the homepage, they
can call the number provided themselves or ask for a consultant to call them back
either immediately or at a time of their choosing. A video call enables the expert
to take the caller around the exhibition live. Twelve stationary cameras and four
mobile cameras show off the cars from several perspectives. The consultant can
present car exteriors and interiors, point out “Simply Clever” solutions, explain
details such as the logic behind the infotainment system menu, and answer any
individual questions. For example, if prospects are interested in the luggage com-
partment, the consultant can use a mobile camera to guide them to the rear of the
vehicle and show them the boot in a live transmission.
In 2017, ŠKODA AUTO harnessed the internet for promotional purposes that
went beyond the digital showroom, also using it as a communication channel
to reach out to the general public. Besides redesigning its website, the Compa-
ny also maintains an active presence on social media. It has its own YouTube
channel featuring interesting “story” videos and serials. The Company posts its
latest photographs and news on Instagram, its new releases and behind-the-
scenes peeks on Twitter, and many other interesting features and campaigns
on Facebook.
Final Touches to the Global Modernisation of Showrooms
At the same time as it decided to build a virtual showroom, the Company also
chose to revamp its conventional showrooms in 2016, in a process that extend-
ed into 2017. The new concept placed a particular emphasis on personal, direct
and open communication with customers. This dictated the overall look of the
dealerships, making them inviting inside and out and easy to navigate. The de-
sign relies on simple shapes, ŠKODA’s signature colours, i.e. green and white,
and modern lighting. To optimise customer care, the sales and service sections
of showrooms have been closely interlocked in the new layout. The operating
structures and sales processes have also been optimised.
Car and arrow.
That is the basis of
the name KAROQ.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
ŠKODA AUTO IS HANDS ON IN NUMEROUS PROJECTS
The marketing strategy includes seeking out and supporting activities that res-
onate with ŠKODA AUTO’s heart and soul. Reflecting the fact that the Company
taps into emotionality, resourcefulness, the desire to triumph, and fair play, in
its marketing campaigns it has associated its name primarily with sports such
as ice hockey, rally racing and motorsport at large, and cycling, and has recently
moved into acrobatics. The main impetus here is to support athletes and artists
while trying to motivate them to perform better and better.
The ŠKODA KAROQ in the Himalayas
In this vein, ŠKODA AUTO – as a long-standing sponsor of cycling – supported
four extreme athletes’ wildly courageous attempt to set an unorthodox record.
The plan was to cycle the highest mountain road in the Himalayas in record
time. The cyclists were accompanied by a ŠKODA KAROQ, which maintained
the exact speed reported for the current record holder. This compact SUV was
alongside the cyclists right up to the finish of the 40-km long mountain stage.
This route’s average 5% gradient makes it one of the most difficult in the world.
ŠKODA KAROQ Accompanies Cyclists on the Tour de France and La Vuelta
Within the framework of these most prestigious of cycling races, the ŠKODA
KAROQ took to the road at the 2017 Tour de France. In its capacity of service
vehicle, it took the cyclists of three teams to the start: Team Dimension Data
(South Africa), Team Lotto NL – Jumbo (the Netherlands), and Lotto Soudal
(Belgium). This initial stage of the Tour – a 14-km stretch – started at the exhi-
bition centre in Düsseldorf, progressed along the famous Königsallee and ran by
the Rhine, before returning to the exhibition centre.
Come September, it was La Vuelta’s turn. The ŠKODA KAROQ, as the service
car, accompanied the cycling star Alberto Contador on an individual time trial.
The compact SUV carried the cyclist’s technical team and spare parts for Conta-
dor’s race bike. ŠKODA singled out the race’s most prestigious 16th stage for this
debut. The route between Circuito de Navarra and the town of Logroño not only
marked the ŠKODA KAROQ’s introduction to La Vuelta, but was also the very
first time this model had been seen on Spanish roads.
The Company Establishes Long-term Partnership with Cirque du Soleil
In 2017, ŠKODA AUTO expanded its brand promotion to include a far-reach-
ing partnership with the world-famous Cirque du Soleil. The Canadian enter-
tainment troupe is renowned for its fascinating live performances and highly
talented artistes. This partnership is underpinned by the fact that ŠKODA and
Cirque du Soleil subscribe to the same values, and each of them is people-ori-
ented and striking. Other common denominators are their innovativeness and
the way they combine human traits such as the desire to be inspired, creativity
and the will to create something new. Both partners are also characterised by
their innovative thinking and approach, making our world a better place to live.
A further bond is their passion, a basic ingredient that can be found in both the
automotive industry and art. With all this in mind, the new partnership between
ŠKODA AUTO and Cirque du Soleil is a prime example of how innovative ideas
can even be successfully promoted and championed in areas such as e-mobility.
ŠKODA AUTO
builds on
emotions.
That is why the
Company supports
sportsmen and
artists from many
fields.
48
ANNUAL REPORT 2017
BUSINESS OPERATIONS
HUMAN RESOURCES MANAGEMENT
Building on ŠKODA Strategy 2025, which establishes the objectives to be pur-
sued and the direction to be taken by the Company as a whole in the coming
years, the human resources management strategy was also revised and updated.
This is why, in 2017, HR focused both on numerous activities within the Compa-
ny and on key areas to safeguard the future of the automotive industry at large.
ŠKODA AUTO also engaged in earnest dialogue with representatives of the
political sphere. Working in tandem with the Automotive Industry Association,
it initiated and launched a discussion on the future of automotive industry in
February. By signing the government’s October memorandum, it sent out a clear
signal that it was already addressing forms of future mobility.
A major role was played by corporate social responsibility, focusing in par-
ticular on a long-term sustainability and competitiveness strategy. In addition,
Human Resources contributed to the digitalisation and gradual transformation
of the whole Company through its many innovative activities. HR was also a
driver of change in management culture. In its HR marketing, the Company in-
troduced modern unconventional recruitment campaigns aimed at finding new
Technical Development and IT employees.
STUDENT INTEREST IN TECHNICAL FIELDS IS ESSENTIAL
In its HR marketing, the Company focused on a wide range of candidates, con-
centrating on hiring experts for Technical Development and meeting Produc-
tion’s personnel requirements. In 2017, ŠKODA AUTO used targeted recruitment
campaigns and a host of unconventional and alternative channels to attract new
employees in both production and non-production areas. It used classic forms
of HR marketing alongside unconventional social networking campaigns geared
towards candidates for Technical Development (called Echoes of the Future)
and IT (where sci-fi stories incorporating elements of the ŠKODA IT environ-
ment were gradually published).
If ŠKODA AUTO is to have enough high-quality technically educated employ-
ees in the future, it needs to work intensively with secondary schools today. In
addition to recruitment roadshows at secondary schools and colleges, ŠKODA
AUTO is also involved in long-term collaboration directly with many schools, for
example, on a system of dual education.
Modernising the Secondary Vocational School of Engineering in Preparation
for the Future
Training and readiness for change are the key to future success. This is one
of the reasons why ŠKODA AUTO completed the three-year modernisation of
its Secondary Vocational School of Engineering in Mladá Boleslav in February.
Overall, the Company spent CZK 260 million on modernisation, which includ-
ed besides other things the construction of a robotics centre, a multipurpose
hall, and a language centre. With an eye to the production of electric vehicles,
due to start in 2020, further changes will gradually be made to vocational train-
ing. Forms of self-learning are also advancing, with a major emphasis on new
trends in the digitalisation of teaching, including the use of the latest techno-
logical resources.
ŠKODA AUTO
supports the
interest of
students in
technical areas.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
The ŠKODA AUTO Secondary Vocational School also celebrated its 90th an-
niversary of uninterrupted vocational education in 2017. In that time, almost
23,000 students have been trained up here. Some 950 students, in all forms of
study, are currently enrolled at the school, which is a Company facility. In June,
the ŠKODA Academy hosted a special colloquium, where experts from the pro-
fessional community and industry representatives debated, among other things,
the benefits of dual study. At this meeting, ŠKODA presented the concept of dual
education it employs at ŠKODA AUTO University (ŠKODA AUTO Vysoká škola
o.p.s.), combining a bachelor’s course and targeted long-term work experience
with elements of vocational education. In 2017, the university also opened a new
Global Management in Automotive Industry MBA programme. This programme
has been devised in cooperation with foreign universities and multinational en-
terprises under the auspices of the Automotive Industry Association and the
Czech-German Chamber of Industry and Commerce.
In 2017, the ŠKODA Academy also focused on the further training of employ-
ees, especially in new technologies and the preparations for e-mobility. Close
attention was paid to language lessons and multidisciplinary training. In total,
more than 5,400 courses were run. The advantage of concentrating all educa-
tional activities at the ŠKODA Academy is that synergy can be created between
secondary vocational education and adult education.
STABILISATION OF THE KVASINY REGION
By developing the Kvasiny plant, ŠKODA AUTO is writing a new chapter in the
modern history of the whole region. In connection with the development of
this plant, which has ushered in higher employment and major investment by
ŠKODA AUTO, in June 2017 the Company and the Czech Government thrashed
out a deal to increase the public resources earmarked for projects to devel-
op transport infrastructure, a new industrial zone, regional development, the
health sector, education, security and the construction of rental housing from
CZK 3 billion to CZK 6 billion.
The HR priority at Kvasiny focused on stabilising the personnel here, re-
ducing employee turnover, investing in the development of social services,
establishing shuttle services, improving transport infrastructure, and promot-
ing the Company’s interest in integrating non-local workers. ŠKODA AUTO’s
current SUV offensive safeguards long-term job stability in the region. By
agreement with the KOVO Trade Union, the Company’s social partner, 18-shift
operations were launched at the Kvasiny plant in January. As part of its “Good
Neighbour” CSR strategy, the Company also promotes regional development
and improvements in the quality of life, with an accent on culture, sports and
leisure. For the region, all of these measures – by both ŠKODA AUTO and the
state – guarantee stability.
7.2%
45.4%
33.2%
14.2%
Higher education
Secondary with maturita
Secondary without maturita
Lower secondary education
QUALIFICATION
STRUCTURE OF
THE COMPANY’S
PERMANENT
EMPLOYEES
ANNUAL REPORT 2017
BUSINESS OPERATIONS
In 2017, ŠKODA AUTO reported a record level of employment despite the
tricky labour market situation in the Czech Republic. In Vrchlabí, the Company
also concentrated on supporting the regional education sector and working with
the town on the Smart City project. In Mladá Boleslav, the Company boosted
staffing in all areas.
All of these activities by ŠKODA AUTO helped the Company to win several
important awards once again. In 2017, strong employer branding was affirmed
by top spot in the Universum assessment of engineering students from all uni-
versities in the Czech Republic and in the TOP Employers survey, where it was
named the most popular employer, earning the title of Clear Choice, and won
the Automotive and Engineering Industry category. The Company was once
again named the “Most Admired Company in the Czech Republic” and, in De-
cember, was announced as the Czech Republic’s Exporter of the Year for the
twenty-third time in a row. In October, Bohdan Wojnar, the member of ŠKODA
AUTO’s Board of Management responsible for human resources, received the
“TOP Responsible Leader of the Year 2017” award at a gala evening.
COMPANY WORKFORCE
NUMBER OF
EMPLOYEES
NUMBER OF
EMPLOYEES
CHANGE (%)
31 December 2017 31 December 2016 2017/2016
ŠKODA AUTO – permanent employees 30,690 27,462 11.8%
of which:
— Mladá Boleslav plant 22,932 21,240 8.0%
— Vrchlabí plant 861 831 3.6%
— Kvasiny plant 6,897 5,391 27.9%
ŠKODA AUTO – apprentices 936 911 2.7%
ŠKODA AUTO total* 31,626 28,373 11.5%
* Actual number of employees as at 31 December, including apprentices, excluding temporary staff, excluding subsidiaries.
NUMBER OF
EMPLOYEES
NUMBER OF
EMPLOYEES
CHANGE (%)
31 December 2017 31 December 2016 2017/2016
ŠKODA AUTO – temporary staff 2,802 3,467 (19.2%)
50
ANNUAL REPORT 2017
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52
ANNUAL REPORT 2017
BUSINESS OPERATIONS
SUSTAINABILITY
ŠKODA AUTO actively promotes the enduring harmonisation of its economic
and social development with existing ecosystems and the preservation of natural
values, including biodiversity, for the present and future generations. Company
sustainability rests on social, economic and environmental pillars. These pillars
include the CSR strategy, the Green Future environmental strategy, and princi-
ples of ethical and transparent conduct.
The top management is kept informed of progress in the Company’s sustain-
ability management. On the basis of this policy, since 2007 ŠKODA AUTO has
published a report on its activities in this field every two years. In 2017, the sixth
report, covering 2015 and 2016 was published according to internationally rec-
ognised Global Reporting Initiative (GRI) guidelines.
ENVIRONMENTAL PROTECTION
Steadfast environmental protection is one of the central pillars of sustainable
development and is deployed in all Company activities. Environmental respon-
sibility therefore influences the way ŠKODA AUTO conducts itself in all areas,
encompassing the development of cars, production, sales and recycling.
The Company systematically monitors and evaluates all key environmental
parameters and, on the basis of the results, takes permanent measures aimed at
improvements.
Within the scope of its integrated management system, ŠKODA AUTO’s
environmental management system has been certified as compliant with ISO
14001 and its energy management system has been certified as compliant with
ISO 50001.
Environmental Investments Reduce Consumption
The Environmental Forum regularly evaluates and approves energy-saving
measures. One major project in 2017 was the introduction of intelligent power
regulation at various production sites. Prior to this change, body paint ovens at
the Mladá Boleslav paint shop would be operated at full power even when no
bodywork was passing through them. When the amount of air heated is regulat-
ed, the power varies depending on the number of bodies to be dried. Aeration
fan control is another area where savings are being made. With frequency in-
verters, measurements found that the amount of intake and exhaust air could
be reduced by 10% without impairing the quality of the bodies painted. This
meant that the fan speeds could be reduced. Both changes (to the ovens and
aeration systems) at the Mladá Boleslav paint shop will make annual savings of
approximately 4,500 MWh in electricity and 740,000 m3 in natural gas, sparing
the Company some CZK 11.2 million per year in energy costs.
Compressed air is the driving force of the production plants. The greatest
savings can be achieved by reducing the consumption of pneumatic energy
in casting, machining and maintenance processes, in particular by preventing
compressed air leaks, optimising day-to-day facility operations, consistently dis-
connecting unused equipment from the compressed air network, and adjusting
the pressure or timing. In 2017, compressed air consumption at the foundry was
cut by 15 per cent, equating to CZK 1.5 million per year. This had a positive im-
pact on the price of each cast marketed by ŠKODA AUTO.
The Green
Future Strategy
is geared towards
environmental
friendliness with
a view to making
production at
ŠKODA AUTO
60% greener by
2025.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
New Emission Abatement Equipment Delivers Improved Air Protection
The main pollutants released into the atmosphere when cars are made are vol-
atile organic compounds (VOCs, NOx and CO). Consequently, reducing these
emissions is a top air protection priority at the Company. Replacing the emission
control equipment on Lines 1 and 2 during plastisol coating and gelation at the
Mladá Boleslav paint shop significantly reduced VOC, NOx and CO emissions.
The original equipment for the thermal after-burning of VOCs in a natural gas
stream has been in operation for more than 20 years. NOx and CO emissions
will also be cut substantially by the replacement of the boiler used to heat wax
for cavity sealing. In the wake of these measures, car production was up by 12%,
yet the associated increase in VOC emissions was tightly reined in, climbing by
just 7%. In addition, the quantity of VOCs emitted per m2 of painted area fell to
less than 36% of the 45 g/m2 statutory limit. What is more, the heat recuperated
from VOC thermal after-burning is used to warm up drying technology in the
paint shops.
An Emphasis Was also Placed on Soil and Water Protection
The Company attaches great importance to the safe handling of compounds
that, if leaked, could contaminate the soil or groundwater. It is standard proce-
dure to observe safety rules, such as multiple barrier protection. Where tech-
nologically feasible, ŠKODA AUTO uses substances that are less harmful to the
environment or deploys effective technologies to eliminate adverse effects. In all
circumstances, the Company selects technological procedures and processes to
minimise water consumption with the aim of scaling down specific water con-
sumption per vehicle produced. In 2017, reused (recycled) water accounted for
more than 42% of overall consumption.
The Kvasiny and Vrchlabí Plants Manage Waste Environmentally
In waste management, the waste hierarchy is respected as much as possible,
with a stress on prevention. In 2017, the outcome of tendering procedure fun-
damentally influenced waste management at the Kvasiny and Vrchlabí plants.
Maximum waste recovery was one of the central requirements imposed on
partner companies and prompted a drastic reduction in for-disposal waste gen-
erated from production processes to less than 1 kg per vehicle in 2017, down
from 6.7 kg per vehicle in 2016. In the coming years, the Company plans to
intensify the application of circular economy principles by transforming waste
into resources.
Half of the Energy Consumed is from Renewable Sources
When we refer to energy consumed at ŠKODA AUTO production plants, we
mean electricity, about 50% of which is from renewable sources, plus com-
pressed air, heat supplied in hot water, and natural gas. Specific energy con-
sumption per car produced was 1.48 MWh in 2017, an improvement thanks to
the more efficient utilisation of production capacities and the deployment of a
raft of energy-saving measures.
Key
CSR strategy
priorities include
technical
education, road
safety, disabled
mobility and care
for children.
54
ANNUAL REPORT 2017
BUSINESS OPERATIONS
CORPORATE SOCIAL RESPONSIBILITY
ŠKODA AUTO, one of the oldest carmakers in the world, has traditions deep-
ly entrenched in the Czech Republic. From the outset, the Company has fo-
cused not only on its commercial development, but also on relations with its
employees, the regions in which it operates, business partners and, not least,
customers. The CSR strategy focuses on activities related to the Company’s core
business that yield social and economic benefits and have a tangible impact on
society and the community. ŠKODA AUTO holds dialogue with employees, trade
unions, and municipalities in the vicinity of the production plants (this includes
not only municipal representatives, but also, for example, the supply chain).
The CSR strategy’s priorities are split into two categories. Key CSR strategy
priorities include technical education, road safety, disabled mobility and care
for children. One regional priority is the “Good Neighbour” project, encompass-
ing the regions where ŠKODA AUTO has production plants, i.e. Mladá Boleslav,
Kvasiny and Vrchlabí. A second regional priority is employee care, which in-
cludes all benefits, health care, staff collections, sheltered workplaces and volun-
teering. These two basic areas also included seven grant schemes.
Road Safety
ŠKODA AUTO has long been committed to the development of vehicle safe-
ty features and is traditionally involved in road safety awareness. In 2017, as
in previous years, the Company ran two regional grant schemes in support of
road safety education and enhancing traffic safety in towns and villages. Grants
totalling CZK 1,175,000 were awarded to 14 projects. ŠKODA AUTO also con-
tinues to promote its own unique “Road Safety Research” initiative, in which
it collaborates with the fire service, the state police and health professionals.
Besides increasing the safety of ŠKODA cars, the aim of the research is to ed-
ucate drivers and other road users, for example through interactive roadshows
with “cross-section” ŠKODA cars throughout the Czech Republic, where both
active and passive safety features are presented. Online education remained
a traffic safety priority in 2017. This includes the children’s website at “sko-
dahrou.cz”, which teaches how to behave correctly in road traffic. For adults, the
“bezpecnecesty.cz” website focuses on prevention in this area. It informs drivers
of the safety of Czech roads and provides them with useful advice.
Promotion of Technical Training and Education
ŠKODA AUTO supports a practical education system for technical training. The
Company teams up with dozens of schools at all educational levels to work on
specific projects, and also has its own secondary vocational school and corporate
university. The Company continues to have a voice in nationwide debates and
projects on the concept of the education system in the Czech Republic.
Strategic support for technical education in 2017 included the benchmarking
of primary schools in Mladá Boleslav to define the strengths and weaknesses of
individual schools with targeted surveying and personal interviews. This result-
ed in a strategic and individual list of projects for the various schools, which will
be implemented in the first half of the next year. The carmaker plans to extend
this project to all of its production regions in the future.
The fifth year of the “Young Designers” competition continued to foster the
creativity and team spirit of primary school children. In 2017, it attracted almost
900 children, who created over 320 works shaping a vision of the future of cars.
The “Science Has a Future” programme provides further training and motiva-
tion for primary school teachers, head teachers and education counsellors. Over
the course of four years’ support, this project has successfully involved over 100
teachers from more than 50 schools in the Central Bohemian, Hradec Králové
and Liberec Regions. The partnership with the iQLANDIA science centre in Li-
ANNUAL REPORT 2017
BUSINESS OPERATIONS
berec engages with young people in fun ways as it popularises research, science
and engineering among this demographic. The grant scheme here distributed
an aggregate of CZK 600,000 among 10 projects.
Caring for Children
The Company has long had a hand in helping socially disadvantaged children
from children’s homes, and tries to guide them towards a decent education and
employment. With this in mind, it continued its long-running cooperation with
the Tereza Maxová Foundation. The “ROZJEDU TO!” (“GET STARTED!”)
project supports and motivates 11- to 15-year-olds from children’s homes. In
2017, 45 children received assistance. The aim is to draw on a personal ap-
proach and education to forge better job opportunities for them. The ŠKODA
AUTO and Tereza Maxová Foundation Education Fund, set up to provide edu-
cation-related financial assistance for children over 15 years old, is a follow-up
to this project. In 2017, the Fund supported 53 children from eight children’s
homes, contributing to tutoring, psychological care, study materials, driving
licences or commuting.
In 2017, ŠKODA AUTO was once again the general sponsor of the unique
“TERIBEAR Moves Prague” charity run, which is also organised by the Tereza
Maxová Foundation. The ŠKODA team’s members comprised almost 100 em-
ployees, who ran a combined 2,143 kilometres and raised CZK 107,160. It has
now become a tradition for the Prague event to be followed by the regional
TERIBEAR Moves Mladá Boleslav run, where 5,510 kilometres were clocked up
and more than CZK 457,000 was raised. ŠKODA AUTO rounded this sum up to
half a million crowns. These funds were shared equally by the children’s home in
Vrchlabí and the children’s centre at Klaudian Hospital in Mladá Boleslav. Under
this grant scheme for children, ŠKODA AUTO donated a total of CZK 600,000
to 15 projects last year.
The “This is
My Home”
grant scheme
awarded funding
to 25 projects
placing a stress on
solidarity with the
region and local
community.
56
ANNUAL REPORT 2017
BUSINESS OPERATIONS
For 16 years, ŠKODA AUTO has partnered the Clown Doctor (Zdravotní
klaun) project, under which 86 specially trained and certified clowns visit chil-
dren hospitalised in 64 hospitals across the Czech Republic and help them to
overcome this difficult time in their lives by spreading happiness. The project
has successfully expanded to include visits to seven retirement homes, as the
clowns are a welcome diversification for lonely seniors. Besides its financial con-
tributions, ŠKODA AUTO also provides the Clown Doctor organisation with four
cars so that the clowns can make visits throughout the country. ŠKODA AUTO
supported almost 4,000 performances in this way, working with the clowns to
bring a smile to the faces of more than 70,000 children and seniors.
Disabled Mobility
The Company has set up the “ŠKODA Handy” project to assist the personal
mobility of the disabled by providing them with comprehensive advice in this
field. The Company also collaborates with the Czech Paraplegic Association on
a mobile app and the website vozejkmap.cz, mapping disabled access sites in
the Czech Republic. The CZEPA organisation benefits from two ŠKODA AUTO
cars, which are made available to disabled drivers via a rental scheme. In 2017,
the Company supported 12 projects with a total of CZK 600,000 under the
grant scheme.
Employee Welfare and Cooperation with the Regions
ŠKODA AUTO has forged strong ties not only with its employees, but also with
their families and those living near its plants. Reflecting this, it contributes to
specific projects for regional development in partnership with trade union or-
ganisations active at the Company. The “Good Neighbour” strategic priority en-
compasses a wide range of activities, including improving infrastructure and the
environment, supporting leisure activities, and negotiating with regional repre-
sentatives. As part of a second regional priority, ŠKODA AUTO attaches great
importance to the welfare of its employees and offers them a wide panoply of so-
cial benefits, comprehensive health care, a sound work-life balance and opportu-
nities for professional advancement. The Company guarantees compliance with
occupational safety and health standards and runs a unique system of corporate
training and professional development. The “This is My Home” grant scheme
awarded funding to 25 projects placing a stress on solidarity with the region
and local community. Overall, CZK 670,000 was shared among these projects.
Employees had an active role to play in nominating projects under this scheme.
ŠKODA AUTO is also involved in local, regional and national forms of spon-
sorship. In its work with frontline foundations and charities, the Company sup-
ports the full gamut of social, cultural and humanitarian projects. Employee col-
lections, which are entirely voluntary, play a major role here. Employees support
one of six non-profit organisations of their own choice by making a donation of
at least CZK 25 each month. In 2017, employees donated a total of CZK 2,587,729
to Světluška, Život dětem, Helppes, Centrum Orion, and the conservation or-
ganisation ČSOP Klenice. The Company then doubled this amount.
The environmental project “One Tree Planted for Each Car Sold in the Czech
Republic” celebrated its eleventh anniversary in 2017. Every year, grant award
proceedings are held to award applicants funds for a number of seedlings equal
to the annual number of new ŠKODA vehicles sold in the Czech Republic. Over
the project’s lifetime, nearly 730,000 trees have been planted, tantamount to
about 150 hectares of new woodland. In the year up to the end of 2017, over
88,000 trees were planted. In 2017, the project was expanded to the whole of
ŠKODA AUTO has
been supporting
prestigious
cultural and
social institutions.
ANNUAL REPORT 2017
BUSINESS OPERATIONS
the Czech Republic. This was the first time a customer personally planted a tree
upon collecting a car from a ŠKODA dealer in Mariánské Lázně. Important proj-
ect partners include Krkonoše National Park, České Švýcarsko National Park,
the environmental organisation Čmelák – Společnost přátel přírody and others.
The ŠKODA Museum hosted an exhibition called “Voice of the Forest”, inter-
actively acquainting visitors with the project while providing them with a qui-
et place to relax. Everyone is welcome to continue composing their own forest
symphony at “hlaslesa.cz”.
ŠKODA AUTO and its employees also supported the clean-up event “Let’s
Tidy Up the Czech Republic”. More than 150 employees volunteered their
time to help clean up parks and forests by removing fly-tips and litter. In Mladá
Boleslav, Kvasiny and Vrchlabí, employees collected 2.5 tonnes of waste overall,
or approximately 15–16 kg of litter collected per volunteer.
Culture and the Arts
In 2017, ŠKODA AUTO’s traditional partners once again featured prestigious
Czech cultural and social institutions: the Czech Philharmonic and the National
Theatre. The most interesting projects included the Czech Philharmonic’s an-
nual Open-air Concert in Prague’s Hradčany Square and the opening concert
to usher in the new season. The Company also sponsored top cultural events
held outside Prague, such as the acclaimed Smetana’s Litomyšl International
Opera Festival and the International Film Festival for Children and Youth in
Zlín, the largest such show in the world, which attracts over 100,000 visitors ev-
ery year. The Company forged ahead with its sponsorship of the Prague German
Language Theatre Festival and the Mladá Boleslav Municipal Theatre. ŠKODA
AUTO also supported the Forum 2000 conference, focusing on the responsibil-
ity of leaders in public affairs, the respected Arnošt Lustig Prize, and Post Bel-
lum’s Memories of the Nation Prize. Both of these accolades celebrate powerful
human values, such as courage, bravery, humanity and justice, and enjoy respect
and repute among the general public.
CORPORATE GOVERNANCE AND COMPLIANCE
This division’s aim is to engage in corporate governance in a reliable, qualified,
and transparent manner dedicated to the Company’s long-term success and the
protection of stakeholders’ interests. Corporate Governance is a system to man-
age and supervise the Company. It defines how rights and duties are distributed
among ŠKODA AUTO stakeholders, including shareholders, executive manage-
ment, Company bodies, employees, and customers.
Via the Compliance unit, the Company is particularly attentive to its responsi-
bility to comply with legislation, internal regulations, ethical principles and oth-
er voluntary commitments. Compliance is not limited to business relations, but
encompasses all activities both within and outside the Company. This is ŠKODA
AUTO’s way of showing that its actions will always respect the requirements of
legal and ethical rules on competition, finances and taxes, environmental pro-
tection and employee welfare, including equal opportunities.
The department responsible for Corporate Governance and Compliance also
organises several important compliance training sessions covering the Code of
Ethics, Anti-Corruption Training and Personal Data Protection. These training
courses are mandatory for management and all white-collar professions. Anoth-
er compliance activity is specialised training on competition for selected em-
ployees within the Company.
58
ANNUAL REPORT 2017
RISK AND OPPORTUNITY REPORT
ŠKODA AUTO’s long-term success hinges on the early detection and predict-
able management of risks and opportunities stemming from the Company’s
activities. This is why a comprehensive risk management system and internal
control system (“RMS/ICS”) have been built. Only the timely identification, ju-
dicious assessment, and efficient and effective management of business risks and
opportunities can ensure the Company’s sustainable success. The objective of
the RMS/ICS is therefore to identify potential risks early on in order to deploy
appropriate countermeasures in a timely manner, to prevent potential damage
and to eliminate any risks that could undermine the continued existence of the
Company.
The probability and impact of future events is always cloaked in a degree of
uncertainty. Not even the finest RMS can predict all potential risks, and not even
the very best ICS can guard fully against unforeseen events.
STRUCTURE OF THE RISK MANAGEMENT SYSTEM
AND INTERNAL CONTROL SYSTEM
The structure of ŠKODA AUTO’s RMS/ICS draws on the VOLKSWAGEN
Group’s uniform risk management principle, which is based on the internation-
ally recognised COSO Enterprise Risk Management Framework (COSO: Com-
mittee of Sponsoring Organisations of the Treadway Commission).
The RMS/ICS are centrally managed by Governance, Risk and Compliance
department in collaboration with Controlling department. Principles and re-
sponsibilities and individual components in the risk management process and
the internal control system are governed by the organisational standard “Risk
Management System and Internal Control System” and the guidelines “Periodic
GRC Process” and “Operational Risk Management System”.
While the Board of Management has ultimate responsibility for the risk man-
agement system, responsibility for day-to-day risk management is decentralised
within the Company. Each organisational unit must run risk assessments at least
Report on
Risks and
Opportunities
The department
Governance,
Risk & Compliance deals
with the management
of short- and
long-term risks.
ANNUAL REPORT 2017
RISK AND OPPORTUNITY REPORT
once a year. The risks detected must be assessed for their potential negative
impact on the achievement of organisational units’ targets and the Company’s
objectives. When assessing risks, it is necessary to take into account the possi-
ble financial damage, damage to the Company’s reputation, legal consequences,
the likelihood of occurrence, and other relevant factors. Subsequently, counter-
measures are proposed and taken to mitigate the probability of a risk and/or to
reduce the potential impacts. Managers constantly review and evaluate these
countermeasures.
The RMS/ICS also include regular risk reporting to the Company’s Board of
Management and to VOLKSWAGEN AG in order to provide information paint-
ing an overall picture of the current risk situation. The adequacy, effectiveness
and transparency of the entire system is periodically independently reviewed.
This independent reviewing is an integrated part of the RMS/ICS.
RISKS AT ŠKODA AUTO
Risks at ŠKODA AUTO are split into systematic risks and operational risks. Sys-
tematic risks are assessed in the periodic GRC process and are treated as long-
term or permanent risks. The periodic GRC process is an annual activity to cap-
ture or update relevant systematic risks. The Company’s Board of Management
is informed of systematic risks once a year. Governance, Risk and Compliance
department is responsible for this reporting. Operational risks are primarily tak-
en to be short-term risks, typically up to one year. The aim is to gain an overview
of the most significant risks currently looming and to come up with countermea-
sures. The Company’s Board of Management is kept informed of current risks on
a quarterly basis through operational risk reporting provided by Governance,
Risk and Compliance department.
Economic, Political and Legislative Risks
In view of ŠKODA AUTO’s business activities, from a financial perspective its
position both as an exporter and as a local manufacturer is influenced not only
by general global and European economic conditions, but also by the conditions
of local economies, such as the state of the economy and the related economic
cycle, legislative changes, the political situation, terrorist activities and potential
pandemics in the countries where the Company is active. This is fraught with
the persistent threat of risks associated with high public debt ratios, high rates
of unemployment and fluctuations in prices of precious metals, oil and plastics.
Other significant risks that could affect the Company’s business activities in
global markets include divergent paces of economic growth in different coun-
tries or regions and a vulnerable banking system. Exports to countries carrying
potential territorial and political risks are identified well in advance and hedged
using standard approved products available on the financial and insurance mar-
kets. The Company’s partners there are Czech and international banking organ-
isations, including EGAP (the state-controlled export guarantee and insurance
company). The Company’s economic situation may also be adversely affected
by additional technical development costs as a result of changes in legislation,
such as stricter legislative requirements for vehicle safety, fuel consumption or
emissions of pollutants, as well as adjustments to standard vehicle specifications.
With environmental protection laws, it should be borne in mind that EU legisla-
tion on exhaust gas emissions is likely to be tightened.
Demand-side Risks
Growing and more aggressive competition in the automotive sector is reflect-
ed in increasing sales support. The situation is further exacerbated by market
risks associated with changes in customer demand, since customers’ purchas-
ing patterns depend not only on actual conditions, such as real wages, but also
on psychological factors. To minimise these risks, ŠKODA AUTO continuously
analyses the customer and the competition behaviour.
Risks in research
and development
are evaluated
based on
extensive
analysis and
customer
surveys.
60
ANNUAL REPORT 2017
RISK AND OPPORTUNITY REPORT
Procurement-related Risks
Close and economically beneficial collaboration between carmakers and their sup-
pliers poses procurement-related risks capable of disrupting production and poten-
tially triggering major financial losses. These include late goods delivery, failure to
deliver and quality defects, or – in extreme cases – suppliers becoming insolvent
and dropping out of the supply chain. Other risks stem from growing competition in
the supply industry. To mitigate these risks, ŠKODA AUTO sources parts for vehicle
assembly from multiple suppliers so that it is able to respond flexibly to any negative
developments. In addition, preventive measures are adopted within the risk man-
agement system to address any supplier insolvency. The financial stability of suppli-
ers is continuously reviewed. Taken as a whole, all these measures, both preventive
and reactive, help to minimise risks in the Company’s relations with suppliers.
Financial Risks
Financial risks and how they are managed are among the most closely monitored
aspects of risk management at ŠKODA AUTO. From the perspective of mate-
riality, the risk associated with exchange rate fluctuations in the Czech crown
and their impact on cash flows, financing and the overall economic performance
of the Company is of paramount importance. The risk and impact of exchange
rate fluctuations are regularly monitored, planned and managed using standard
hedging instruments. The products and strategies employed are discussed and
agreed by internal and Group committees. This hedging instrument meets the re-
quirements of International Financial Reporting Standards for hedge accounting.
Risks arising from the procurement of aluminium, copper and lead, i.e. raw mate-
rials purchased to manufacture products at ŠKODA AUTO, are tackled with simi-
lar procedures and strategies, but from the perspective of International Financial
Reporting Standards these are reported outside the hedge accounting system.
Other integral risk control components are the active management of the po-
tential impacts on the financing of the Company’s activities, and liquidity man-
agement. The Company uses standard procedures and instruments to manage
liquidity risk and ensure sufficient coverage of operations and liabilities for the
period required, as defined by its internal rules. The mainstays here are ŠKODA
AUTO’s own funds and the resources of VOLKSWAGEN Group companies. The
Company manages export risk using standard hedging tools, including docu-
mentary letters of credit, standby letters of credit, and bank guarantees.
Research and Development Risks
New products carry the inherent risk that customers might not accept them. For
this reason, the Company conducts extensive analyses and customer surveys.
Trends are identified early, and their relevance to customers is probed. The risk
of the inability to launch new products according to the scheduled timeline, to
the requisite quality and in line with target expenditures is minimised by ongo-
ing project inspections and cross-checks with specifications, allowing necessary
action to be taken in response to any deviations that are identified.
Quality Risks
In light of the ever intensifying competitive pressure, the increasing complexity
of production technologies, the high number of suppliers, and the use of Group-
wide systems, the Company places a huge emphasis on the risk management
system when it comes to quality. From the outset of product development, it
seeks to identify and eliminate quality-related problems as quickly as possible
in order to avoid delays in the start of production. The Company safeguards
durable quality and timely deliveries right from the start of the supply chain
via its risk management system. This helps to meet customer expectations. As
ANNUAL REPORT 2017
RISK AND OPPORTUNITY REPORT
a result, the brand’s reputation is strengthened, and sales and profits increase.
Despite the Company’s effective and systematic approach to quality in the risk
management system, not all risks can be ruled out.
The quality of the Company’s products, processes and management system
is audited annually by an independent accredited certification company. Qual-
ity control system certificates, which ŠKODA AUTO has successfully held and
maintained since 1993, are a guarantee of smoothly running processes and figure
among the underlying documentation used in product homologation.
The Company is constantly updating its qualified auditor and test engineer
network to ensure that deviations, internally or at suppliers, can be spotted in
right time. Department managers regularly report to the executive management
on testing and measurements.
ŠKODA AUTO is mindful of its responsibility for its own products. The qual-
ity management department keeps track of customer satisfaction and provides
information on the latest developments in individual markets. Measures to min-
imise potential damage are instantly deployed in response to negative deviations
from expectations.
Human Resources Risks
Against the backdrop of a dynamically evolving automotive industry and ever
keener competition, the Company needs to secure its future competitiveness in
the form of a stable, skilled and flexible workforce both on and behind the front
line. This can only be achieved in the long run by an aptly composed strategy
that covers the entire HR process, encompassing planning, recruitment, train-
ing and incentivisation. At the same time, potential risks – such as the loss of
skilled staff responsible for key corporate processes, risks deriving from legis-
lative amendments, legal risks or risks associated with long-term demographic
changes – must be correctly analysed and averted.
Information Technology (IT) Risks
At ŠKODA AUTO, a global growth-focused corporation, IT is taking on increas-
ingly important roles. IT risks may include unauthorised access to data or the mis-
use of sensitive electronic business data, limited system availability, or non-com-
pliance with regulatory requirements (such as the GDPR). Particular attention
is paid to the risk of unauthorised data access. This area is covered by various
measures relating to employees, organisation, applications, systems and data net-
works. Examples include a firewall, restrictions on system access privileges, and
the backup of critical data sources. ŠKODA AUTO uses only technical resources
that have been tried and tested on the market and comply with internal standards.
ŠKODA AUTO has established an information security management system
(ISMS) to minimise information IT risks and their impact on the Company’s
objectives.
Legal Risks
ŠKODA AUTO does business in more than a hundred countries worldwide, po-
tentially running the risk of litigation with suppliers, dealers, employees, inves-
tors or customers, as well as the risk of administrative proceedings related to
particular areas of the Company’s business activities.
Other Operating Risks
Aside from the risks explained above, there are factors of influence that cannot
be predicted and that may affect the Company’s future development, including
natural disasters, epidemics and other threats.
62
ANNUAL REPORT 2017
OUTLOOK
SHORT-TERM AND LONG-TERM
OUTLOOK
OVERVIEW OF PLANNED ACTIVITIES AND OBJECTIVES
Digitalisation
Major changes lie ahead of the automotive industry. One of the driving forces
behind these changes is digitalisation. Although this poses significant challenges
to the Company, a more important factor is that it is also an opportunity to move
into new lines of business while enhancing efficiency. Company-wide digitalisa-
tion, connectivity and new mobility solutions are therefore pillars underpinning
the digital strategy.
In the future, ŠKODA AUTO will be more than a manufacturer of ever im-
proving, ever safer, and ever greener vehicles. It will also be a supplier of mobil-
ity services focusing on customer needs and user-friendliness. The importance
of integrated mobility solutions will also increase within the framework of Smart
City projects. This is already a key area of ŠKODA AUTO engagement, which is
being pursued in collaboration with ŠKODA AUTO DigiLab, set up in 2017, and
a number of partners from the private and public sector.
Besides all the new products and services derived from digitalisation, this
process is also ushering in a change in culture. As they harness this new digital
technology, the entire Company and all of its employees must be willing to adopt
an open approach to new tasks and to capitalise on the resulting opportunities.
The new technology will make ŠKODA AUTO even faster, more adroit, more
adaptive, more precise and, consequently, more competitive.
Technical Development
Several world premieres are in the pipeline for ŠKODA cars in 2018. The first
will be at the 82nd Geneva Motor Show, where Technical Development’s all-new
study, the ŠKODA VISION X, will be unveiled together with the facelifted ŠKODA
FABIA and the Laurin & Klement version of the ŠKODA KODIAQ. Further new
releases are planned for the 120th Paris Motor Show. With prospects on the
Chinese SUV market growing all the time, ŠKODA rolled out a new crossover
utility vehicle (CUV) in early 2018 as part of its SUV offensive. As 2018 progress-
es, more SUVs will be launched there.
The new-generation infotainment systems and the connectivity devised
for the upcoming crop of vehicles are important development pillars. Anoth-
er stage in development has been the expansion of the portfolio of services
and features that ŠKODA customers will be able to enjoy in the future. In the
coming year, Technical Development will continue to work in earnest on the
virtual development methods that are now becoming a general fixture in the
development process.
Outlook
In 2018 ŠKODA AUTO will
be focused on Strategy
2025. The Company
wants to be a symbol of
modern technologies and
emotional perception.
Autumn 2019 will
see the launch
of the very first
plug-in ŠKODA
SUPERB.
ANNUAL REPORT 2017
OUTLOOK
In 2017, ŠKODA Motorsport was enormously successful in the WRC2 (World
Rally Championship 2), with the factory team winning both the driver and the
constructor categories. In 2018, the ŠKODA FABIA R5 will benefit from further
improvements and will now also be put on sale to customers. This year will also
see the market launch of the ŠKODA FABIA R5 limited edition, perfected by
Technical Development to celebrate the ŠKODA Motorsport factory team’s
world-beating season.
Now that the development of the brand new SUV, the ŠKODA KAROQ, has
been brought to fruition so successfully, Technical Development will focus on
electrification and the development of alternative drives. ŠKODA will unveil the
very first plug-in ŠKODA SUPERB in mid-2019. In 2020, this will be joined at
the Mladá Boleslav plant by the first purely electric drive car. Technical Devel-
opment is hard at work on this model.
Major challenges facing Technical Development are the development and
takeover of capacity for the VOLKSWAGEN Group’s MQB A0 IN platform, and
the engineering of cars for emerging markets. This move strengthens Technical
Development’s position within the Group and makes it a strong development
partner. Linked to expanding development capabilities and headcount growth,
this trend is set to continue in 2018.
Production and Logistics
The Strategy 2025, which has set ambitious targets for the coming years, is mak-
ing headway in 2018. In the next few years, the Company will remould its pro-
duction capacities at its plants so that it is able to provide greater manufacturing
flexibility. One of the main projects in this process is the construction of a new
paint shop in Mladá Boleslav. When it is put into operation in June 2019, it will
be one of the most modern and most environmentally friendly paint shops any-
where in Europe. The Company will also move forward with its preparations to
make electric vehicles. In tandem with this, in 2019 the Mladá Boleslav plant
will introduce the production of electrical components for the plug-in hybrids
of several VOLKSWAGEN Group brands.
Logistics will also continue to support the ŠKODA brand strategy by optimis-
ing logistics processes and costs, deploying innovative solutions, further autom-
atization, and taking measures to protect the environment.
Environmental Protection
ŠKODA AUTO is progressing with its GreenFuture strategy, which is included
in the Strategy 2025 as part of the Sustainable Development strategic objective.
Since 2010, the Company has shrunk the environmental impact of its vehicle
production considerably in five monitored key parameters. The Company con-
tinues to work on long-term goals for 2025. The aim is to support sustainability
primarily by making sparing use of resources throughout the Company.
Markets, Sales and Marketing
In 2018, ŠKODA AUTO will focus on successfully driving forward its growth, ex-
panding its market shares and increasing deliveries in key markets. The ŠKODA
brand will continue to innovate its product portfolio at full stretch. This year,
the ŠKODA KAROQ, the brand’s baby, will continue conquering global markets,
while the ŠKODA FABIA is in line for a modernising facelift. The plan behind
the expanded and modernised portfolio of sports utility vehicles is for ŠKODA to
gain a much firmer footing in this fastest-growing segment.
In the future,
ŠKODA AUTO
will be more than
a manufacturer of
ever improving,
ever safer, and
ever greener
vehicles.
It will also be a
supplier of mobility
services focusing
on customer
needs and user-
friendliness.
64
ANNUAL REPORT 2017
OUTLOOK
ŠKODA AUTO’s marketing will centre on continuing and developing a cam-
paign to boost the emotional perception of the brand in partnership with Cirque
du Soleil. The Company is also planning campaigns linked to e-mobility as one
of the spearheads of its Strategy 2025. In sport, ŠKODA AUTO will continue to
sponsor the Ice Hockey World Championships, the Tour de France and WRC2.
Employees
In 2018, ŠKODA AUTO will focus on several fundamental HR issues, especial-
ly the continued stabilisation of staff at the Kvasiny plant following its large-
scale expansion in 2016. The Company will also pave the way for the start
of production of the ŠKODA KAROQ in Mladá Boleslav. One of the top HR
priorities in 2018 will be collaboration on the INDIA 2.0 project. This will also
be a year of digitalisation. Intensive training will be provided on the digital-
isation, automation and electrification of products and on the preparation of
staff for the production of electric vehicles and electrical components. The
Innovation Academy, enhancing employees’ digitalisation skills, will be con-
tinued with the opening of new courses. The Company-wide strategy will see
more of an emphasis on innovative culture devoted to performance, diversity
and teamwork.
The Company plans to develop three production sites in the Czech Republic
in 2018. Another goal will remain the recruitment of the best specialists available
for frontline and other operations. The Company is particularly interested in
highly skilled degree-holding candidates with excellent language skills who will
be able to work in the worldwide network of Group companies, and in frontline
experts. The Company works closely on all issues with the KOVO trade union
organisations active at ŠKODA AUTO. Cooperation with the towns and regions
where it operates remains important to the Company in 2018. Negotiations will
be held with the Czech Government on the need to speed up the development
of these places. Another prime objective is to maintain ŠKODA AUTO’s lead in
employer branding.
Finance
In 2018, ŠKODA AUTO will once again strive to achieve robust results and main-
tain its financial stability. The optimisation of processes and production costs
while maintaining a high level of productivity will be central to meeting the
Company’s financial targets. The Company also plans to focus on the targeted
management of costs and liquidity by consequently respecting planned cost tar-
gets, optimising the use of working capital and continuously monitoring invest-
ment objectives.
ANNUAL REPORT 2017
Financial
Section
Auditor’s Report 68
Separate Financial Statements for the Year Ended 31 December 2017 70
Notes to the Separate Financial Statements 2017 74
Report on Relations 128
Glossary of Terms and Abbreviations 138
Persons Responsible for the Annual Report and Events after the Balance Sheet Date 140
Key Figures and Financial Results at a Glance 141
68
ANNUAL REPORT 2017
AUDITOR’S REPORT
Auditor’s
Report
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDER OF ŠKODA AUTO A.S.
OPINION
We have audited the accompanying separate financial statements of ŠKODA AUTO a.s., with its registered office at tř. Václava Kle-
menta 869, Mladá Boleslav (“the Company”) prepared in accordance with International Financial Reporting Standards as adopted
by the European Union, which comprise the balance sheet as at 31 December 2017, the income statement, the statements of com-
prehensive income, changes in equity and cash flows for the year then ended and notes to the separate financial statements, which
include significant accounting policies and other explanatory information.
In our opinion, the accompanying separate financial statements give a true and fair view of the financial position of the Company as
at 31 December 2017, of its financial performance and its cash flows for the year then ended in accordance with International Finan-
cial Reporting Standards as adopted by the European Union as modified by the European Commission’s interpretation as described
in Note 1.1 in notes to the separate financial statements.
BASIS FOR OPINION
We conducted our audit in accordance with the Act on Auditors and Standards on Auditing of the Chamber of Auditors of the Czech
Republic. These standards consist of International Standards on Auditing (ISAs) which may be supplemented and modified by re-
lated application guidance. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the Act
on Auditors and Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants
(IESBA) and accepted by the Chamber of Auditors of the Czech Republic, and we have fulfilled our other ethical responsibilities
in accordance with these regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
OTHER INFORMATION
In compliance with Section 2(b) of the Act on Auditors, the other information comprises the information included in the Annual
Report other than the separate financial statements and auditor’s report thereon. The Board of Management is responsible for the
other information.
Our opinion on the separate financial statements does not cover the other information. In connection with our audit of the separate
financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the separate financial statements or our knowledge about the Company obtained in the audit or
otherwise appears to be materially misstated. In addition, we assess whether the other information has been prepared, in all ma-
terial respects, in accordance with applicable law and regulation, in particular, whether the other information complies with law
and regulation in terms of formal requirements and procedure for preparing the other information in the context of materiality, i.e.
whether any non-compliance with these requirements could influence judgments made on the basis of the other information.
Based on the procedures performed, to the extent we are able to assess it, we report that:
– The other information describing the facts that are also presented in the separate financial statements is, in all material respects,
consistent with the separate financial statements; and
– The other information is prepared in compliance with applicable law and regulation.
In addition, our responsibility is to report, based on the knowledge and understanding of the Company obtained in the audit,
on whether the other information contains any material misstatement of fact. Based on the procedures we have performed on the
other information obtained, we have not identified any material misstatement of fact.
ANNUAL REPORT 2017
AUDITOR’S REPORT
RESPONSIBILITIES OF THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD
FOR THE SEPARATE FINANCIAL STATEMENTS
The Board of Management is responsible for the preparation and fair presentation of the separate financial statements in accordance
with International Financial Reporting Standards as adopted by the European Union and for such internal control as the Board
of Management determines is necessary to enable the preparation of separate financial statements that are free from material mis-
statement, whether due to fraud or error.
In preparing the separate financial statements, the Board of Management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Board of Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Supervisory Board is responsible for overseeing the Company’s financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE SEPARATE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from mate-
rial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the above stated requirements will
always detect a material misstatement when it exists. 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 separate financial statements.
As part of an audit in accordance with the above stated requirements, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
– Identify and assess the risks of material misstatement of the separate financial statements, 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 opinion. 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 override of internal controls.
– Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls.
– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the Board of Management.
– Conclude on the appropriateness of the Board of Management’s 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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the separate financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Company to cease to continue as a going concern.
– Evaluate the overall presentation, structure and content of the separate financial statements, including the notes, and whether the
separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Board of Management and Supervisory Board 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.
20 February 2018
represented by
Jiří Zouhar Pavel Kulhavý
Statutory Auditor, Evidence No. 1538
70
ANNUAL REPORT 2017
BALANCE SHEET AS AT 31 DECEMBER 2017 (CZK MILLION)

ASSETS NOTE 31 DECEMBER 2017 31 DECEMBER 2016
Intangible assets 4 23,497 21,483
Property, plant and equipment 5 66,060 64,509
Investments in subsidiaries 6 79 49
Investments in associates 7 2,352 2,352
Other non-current receivables and financial assets 8 12,890 13,575
Deferred tax asset 14 1,797 2,870
Non-current assets 106,675 104,838
Inventories 9 17,614 16,093
Trade receivables 8 18,452 16,830
Other current receivables and financial assets 8 10,917 17,163
Cash and cash equivalents 10 97,201 73,256
Current assets 144,184 123,342
Total assets 250,859 228,180
EQUITY AND LIABILITIES NOTE 31 DECEMBER 2017 31 DECEMBER 2016
Share capital 11 16,709 16,709
Share premium 1,578 1,578
Retained earnings 12 88,177 113,726
Other reserves 12 11,020 5,567
Equity 117,484 137,580
Financial and other non-current liabilities 13 3,450 4,164
Non-current provisions 15 13,302 14,270
Non-current liabilities 16,752 18,434
Trade liabilities 13 44,278 41,903
Financial and other current liabilities 13 47,093 8,278
Current income tax liabilities 2,165 3,294
Current provisions 15 23,087 18,691
Current liabilities 116,623 72,166
Total equity and liabilities 250,859 228,180
The notes on pages 74 to 127 are an integral part of these financial statements.
Separate
Financial
Statements
FOR THE YEAR ENDED 31 DECEMBER 2017
SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
ANNUAL REPORT 2017

NOTE 2017 2016
Sales 16 407,400 347,987
Cost of sales 24 347,519 295,232
Gross profit 59,881 52,755
Distribution expenses 24 15,040 13,503
Administrative expenses 24 9,710 7,843
Other operating income 17 13,397 6,498
Other operating expenses 18 7,997 7,015
Operating profit 40,531 30,892
Financial income 3,373 2,777
Financial expenses 4,779 2,820
Net financial result 19 (1,406) (43)
Profit before tax 39,125 30,849
Income tax expense 21 7,284 5,686
Profit for the year 31,841 25,163

NOTE 2017 2016
Profit for the year, net of tax 31,841 25,163
Net fair value gain / (loss) net of tax
on financial derivatives designated as hedging instruments 12 5,791 9,179
Net fair value gain / (loss) net of tax
on available-for-sale financial assets 12 (338) 1,156
Other comprehensive income / (loss) for the year, net of tax* 5,453 10,335
Total comprehensive income for the year 37,294 35,498
*Other comprehensive income / (loss) includes only such items which will be subsequently reclassified to the income statement.
The notes on pages 74 to 127 are an integral part of these financial statements.
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017 (CZK MILLION)
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2017 (CZK MILLION)
SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
72
ANNUAL REPORT 2017
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017 (CZK MILLION)

SHARE
CAPITAL
SHARE
PREMIUM
RETAINED
EARNINGS
OTHER
RESERVES*
TOTAL
EQUITY
Balance as at 1 January 2016 16,709 1,578 103,963 (4,768) 117,482
Profit for the year – – 25,163 – 25,163
Other comprehensive income / (loss) – – – 10,335 10,335
Total comprehensive income for the year – – 25,163 10,335 35,498
Dividends – – (15,400) – (15,400)
Balance as at 31 December 2016 16,709 1,578 113,726 5,567 137,580

Balance as at 1 January 2017 16,709 1,578 113,726 5,567 137,580
Profit for the year – – 31,841 – 31,841
Other comprehensive income / (loss) – – – 5,453 5,453
Total comprehensive income for the year – – 31,841 5,453 37,294
Dividends** – – (57,390) – (57,390)
Balance as at 31 December 2017 16,709 1,578 88,177 11,020 117,484
* Explanatory notes on Other reserves are presented in Note 12.
** The detailed information about dividends is presented in Note 11.
The notes on pages 74 to 127 are an integral part of these financial statements.
SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
ANNUAL REPORT 2017

NOTE 2017 2016
Cash and cash equivalents as at 1 January 10 73,256 62,280
Profit before tax 39,125 30,848
Depreciation, amortisation and impairment of non-current assets 4.5 22,376 22,528
Change in provisions 3,420 4,942
Gain / (loss) of non-current and financial assets 32 (9)
Net interest (income) / expense 19 131 115
Dividend income 19 (1,121) (1,100)
Adjustments for non-cash transactions on derivatives
and other adjustments for non-cash transactions 2,513 692
Change in inventories (1,521) (1,171)
Change in receivables (1,687) (4,899)
Change in liabilities 6,313 5,092
Income tax paid from operating activities (8,621) (6,448)
Interest paid (179) (196)
Interest received 30 32
Cash flows from operating activities 60,811 50,426
Purchases of tangible and intangible assets (20,299) (14,095)
Payment for establishment of subsidiary 6 (30) –
Purchases of available-for-sale financial assets – (7,592)
Repayment of granted loans 8,300 –
Additions to capitalised development costs 4 (7,111) (3,475)
Proceeds from sale of non-current and financial assets 23 11
Proceeds from dividends 1,121 1,100
Cash flows from investing activities (17,996) (24,051)
Net cash flows (operating and investing activities) 42,815 26,375
Dividends paid 11 (18,870) (15,400)
Cash flows from financing activities (18,870) (15,400)
Net change in cash and cash equivalents 23,945 10,975
Cash and cash equivalents as at 31 December 10 97,201 73,256

The notes on pages 74 to 127 are an integral part of these financial statements.
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017 (CZK MILLION)
SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
74
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Notes to the
Separate
Financial
Statements 2017
COMPANY INFORMATION
FOUNDATION AND COMPANY ENTERPRISES
ŠKODA AUTO a.s. (“the Company”) was incorporated as a joint-stock company on 20 November 1990. The Company’s principal
business activities are the development, production and sale of vehicles and related accessories.
Registered office: tř. Václava Klementa 869
293 01 Mladá Boleslav
Czech Republic
Identification number: 00177041
www address: www.skoda-auto.cz
The Company is registered in the Commercial Register maintained with the Municipal Court in Prague, Section B, Insert 332, with
File No. Rg. B 332.
The organisational structure of the Company is divided into the following main areas:
– Central management department
– Technical development
– Production and logistics
– Sales and marketing
– Finance and IT
– Human resources management
– Procurement
The Company has its main production plant in Mladá Boleslav and two other production plants in Vrchlabí and Kvasiny.
ŠKODA AUTO a.s. is a subsidiary of VOLKSWAGEN FINANCE LUXEMBURG S.A. included in the consolidation group of its ul-
timate parent company and its ultimate controlling party, VOLKSWAGEN AG (“Volkswagen Group”), with its registered office in
Wolfsburg, the Federal Republic of Germany (for details see Note 29).
Note
The financial statements have been prepared in Czech and in English. In all matters of interpretation of information, views or opin-
ions, the Czech version of these financial statements takes precedence over the English version.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
* The Company prepares the separate financial statements in accordance with IFRS as adopted by the European Union as modified by the agenda paper issued
by the European Commission Internal Market and Services for the meeting of the Accounting Regulatory Committee (document ARC/08/2007) about
relationship between the IFRS regulation and the 4th and 7th Company Law Directives, which were subsequently replaced by Directive 2013/34/EU of
the European Parliament and of the Council. The Commission Services Department was of the opinion that, if a company chooses or is required to prepare
its annual separate financial statements in accordance with IFRS as adopted by the European Union, it can prepare and file them independently from the
preparation and filing of consolidated financial statements. At the time of approval of these separate financial statements, the approved consolidated financial
statements of Volkswagen Group have not been available.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
PRINCIPLES
1.1 COMPLIANCE STATEMENT
These financial statements are separate financial statements of ŠKODA AUTO a.s. for the year ended 31 December 2017. Financial
statements of the Company, its subsidiaries and associates are included in the consolidated financial statements of Volkswagen
Group for the year ended 31 December 2017.
The Company as a controlled entity is required to be consolidated by its ultimate parent company VOLKSWAGEN AG in its financial
statements prepared in accordance with the International Financial Reporting Standards as adopted by the European Union that
are available for public use.
The Company prepares the separate financial statements in accordance with IFRS as adopted by the European Union (“IFRS”) based
on the Company’s sole shareholder’s decision in accordance with paragraph 19a Article 7 of Act No. 563/1991 Coll., on Accounting.
The Company publishes these separate financial statements as its only financial statements prepared in accordance with IFRS*, and
relied on the exemption from consolidation under paragraph 4(a) of IFRS 10 and exemption from applying the equity method in
accordance with paragraph 17 of IAS 28.
The consolidated financial statements of Volkswagen Group prepared in accordance with IFRS will be publicly available on the fol-
lowing website after their release at: http://www.volkswagenag.com/en/media/publications.html

The Company publishes only separate financial statements in Collection of documents of respective court maintaining the commer-
cial register based on the exemption from consolidation under paragraph 22aa Article 1 and 2 of Act No. 563/1991 Coll., on Account-
ing, (effective as at 31 December 2017). Consolidated financial statements of VOLKSWAGEN AG and the auditor’s report thereon will
be published in Czech language in the collection of documents in the Commercial register.
For more information about the Company refer to the preceding note “Company information“.
For more information about the ultimate parent company VOLKSWAGEN AG refer to note 29.
76
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
1.2 ADOPTION OF NEW OR REVISED STANDARDS, AMENDMENTS AND
INTERPRETATIONS TO EXISTING STANDARDS
1.2.1 New standards, amendments and interpretations to existing standards mandatory for accounting periods beginning on
1 January 2017
New standards, amendments, interpretations and improvements to existing standards that are effective for the financial year begin-
ning on 1 January 2017 have no material impact on the separate financial statements of the Company.
1.2.2 New standards, amendments and interpretations to existing standards published not yet effective for accounting periods
beginning on 1 January 2017
New standards, amendments and interpretations to existing standards, which will be relevant for the Company but have not been
early adopted by the Company:
IFRS
Standard/
Interpretation
Effective
in EU Description Effect
IFRS 9 Financial
Instruments
1 January 2018 New standard IFRS 9 “Financial Instruments”
should ultimately replace IAS 39 and some financial
instruments disclosure requirements based on IFRS 7.
The project to replace IAS 39 is
implemented in three phases:
Phase 1: Classification and measurement of
financial assets and financial liabilities
IFRS 9 classifies all financial assets currently under
the scope of IAS 39 into three categories: assets
subsequently carried at amortised costs using
effective interest rate method, assets subsequently
measured at fair value through other comprehensive
income and assets subsequently measured at fair
value through profit or loss. The classification must
be performed at the time of acquisition and on
initial recognition of financial assets and depends
on entity’s business model and the contractual cash
flow characteristics of the financial instrument.
Debt instrument that (i) is held within a business
model which objective is to collect contractual
cash flows, and (ii) that has contractual cash flows
represented only by payments of principal and
interest on the outstanding principal amount (i.e.
financial instrument has only “basic loan features”)
are generally measured at amortised costs.

Debt instrument shall be measured at fair value
through other comprehensive income if both of the
following conditions are met: (i) the financial asset
is held within a business model whose objective is
achieved by both collecting contractual cash flows
and selling financial assets and (ii) the contractual
terms of the financial asset give rise on specified dates
to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
All other debt instruments should be measured
at fair value recognised in profit and loss.
Equity instruments under the scope of IFRS 9 are
subsequently measured at fair value. Gains or losses
arising from equity instruments are always included
in profit and loss except for equity instruments that
are not held for trading. An entity may irrevocably
elect for these instruments on initial recognition that
realised and unrealised gains and losses arising from the
investment will be recognised in other comprehensive
income. Dividends are included in profit and loss only
if they represent a return on investment. This decision
may be done separately for each equity instrument.
The new IFRS 9 standard
has impact on classification,
measurement and disclosure
of financial instruments in
the notes to the financial
statements. With respect to
classification and valuation,
the number of categories
of financial assets will be
reduced in the notes to
financial statements and any
reported financial assets will
be measured at either the
amortised costs or fair value.
Another impact is the
change in the impairment
methodology of financial
instruments. As a result of
this change, the amount
of allowances for financial
assets will be increased as at
1 January 2018 in line with
the decrease in equity in the
item “Changes in Equity as
a result of the transition to
IFRS 9” after the transition
to the new standard. The
amount will not be material.
The Company will opt for
a prospective application
of hedge accounting of
foreign currency risk in
accordance with par. 7.2.22.
Therefore, no impact on
comparatives is expected.
The Company has not early
adopted this standard. The
disclosure of information
in the area of financial
instruments will be set by
IFRS 7 para. 44S to 44W.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
IFRS
Standard/
Interpretation
Effective
in EU Description Effect
Phase 2: Impairment methodology
New IFRS 9 has introduced more progressive
loss impairment model that will require more
timely recognition of expected credit losses
compared to incurred-loss model under IAS 39.
Phase 3: Hedge accounting
Hedge accounting requirements are amended to
ensure a better link with risk management activity. The
reporting of forward component of financial derivatives
has been changed for currency hedges. The change
in the forward component is newly reported in other
comprehensive income in accordance with IFRS 9
instead of the profit and loss where it was reported
according to IAS 39. The standard enables a choice
between applying IFRS 9 and continuing with the
application of IAS 39 to all hedging relationships as the
current standard does not deal with macro hedging.
IFRS 15 Revenue from
Contracts with
Customers
1 January 2018 IFRS 15 introduces the new core principle that revenue
must be recognised when the goods or services
are transferred to the customer, at the transaction
price. The goods or services are transferred when
the customer obtains control of these. Any bundled
goods or services that are distinct must be separately
recognised, and any discounts or rebates on the
contract price must generally be allocated to the
separate elements. Variable consideration should be
involved into transaction price at such amount to
avoid significant risk of considerable revenue reversal
in the future. Costs incurred to secure contracts with
customers have to be capitalised and amortised over the
period when the benefits of the contract are consumed.
The Company expects that the
new standard IFRS 15 would
have impact especially on
amount of recognised revenues
as a result of new recognition
criteria and new conditions
for determining amount of
variable consideration.
In 2017, the Company
conducted a detailed analysis
of all the impacts of the
new standard. Based on this
analysis, the Company came
to the conclusion that the
impact on its net assets as at
1 January 2018 is not material.
Further, the Company
anticipates an impact on
the change in the balance
sheet structure, in particular
on the liabilities side.
IFRS 16 Leases 1 January 2019 New standard IFRS 16 fully replaces recognition of
leases in accordance with IAS 17. Significant changes
concern in particular the lessees’ recognition of
leases. IFRS 16 provides a single accounting model
for recognition of all lease transactions. New IFRS
requires lessee to recognise a right-of-use asset
and a lease liability in the balance sheet. Lessor’s
recognition is more or less comparable with the IAS 17.
The Company expects that
the new IFRS 16 will have
especially impact on the
reported amounts of non-
current assets, long-term
liabilities, depreciation, interest
expense and rental expense.
The Company continuously
carries out and analyses all the
impacts of the new standard.
However, the overall estimate
of the financial impact on the
reported figures has not been
quantified as of the date of
the financial statements.
Other new standards, amendments, interpretations and improvements to existing standards that are not effective for the financial
year beginning on 1 January 2017 will have no material impact on the separate financial statements of the Company.
78
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
These separate financial statements have been prepared under the historical cost convention, except for fair value measurement of
available-for-sale financial assets, of financial assets and financial liabilities at fair value through profit or loss, and of all derivative
contracts.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise their judgment in the process of applying the Company’s accounting policies. Amounts in the
financial statements including the notes are disclosed in millions of Czech crowns (CZK million), unless stated otherwise.
2.1 FOREIGN CURRENCY TRANSLATION
Functional and presentation currency
Items included in the financial statements of the Company are measured using the currency of the primary economic environment
in which the Company operates (“the functional currency”). The financial statements are presented in Czech crowns (CZK), which
is the Company’s functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates published by the Czech National
Bank prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transac-
tions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates pub-
lished by the Czech National Bank are recognised in the income statement.
2.2 INTANGIBLE ASSETS
Purchased intangible assets are recorded at cost less cumulative amortisation and impairment losses. All research costs are rec-
ognised as expenses within the income statement when incurred. In accordance with IAS 38, all development costs of new ŠKODA
models and other products are recognised as intangible assets when it is probable that the project will be a success considering its
commercial and technical feasibility, and costs can be measured reliably. Capitalised development costs and other internally generat-
ed intangible assets are carried at cost less accumulated amortisation and impairment losses. If the criteria for recognition as an asset
are not met, the costs are recognised in the income statement in the year in which they are incurred. Tooling rights are capitalised
as intangible assets. Capitalised costs include all direct costs as well as an appropriate portion of development-related overheads.
The cost of qualifying intangible assets also includes borrowing costs represented by interest and other costs that an entity incurs in
connection with borrowing funds. A qualifying asset is an asset that necessarily takes at least one year to get ready for its intended
use. The Company ceases capitalising borrowing costs when the qualifying asset is ready for its intended use or sale.
The development costs are amortised using the straight-line method from the start of production over the expected life cycle of
the models or components. Amortisation recognised during the year is allocated to the relevant functions in the income statement.
Intangible assets are amortised applying the straight-line method over their estimated useful lives as follows:
– Capitalised development costs 1 – 9 years according to the product life cycle
– Software 3 years
– Tooling rights 5 years
– Other intangible fixed assets 3 – 8 years
Estimated useful lives and depreciation method are reviewed at the end of each accounting period, the effect of any changes in
estimates are accounted for prospectively.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Intangible assets not yet available for use are tested annually for possible impairment and are carried at cost less accumulated im-
pairment losses. Intangible assets are derecognised on sale or when no future economic benefits are expected from their use or sale.
The gains or losses arising from derecognition of an intangible asset, which are determined as the difference between the net dispos-
al proceeds and the carrying amount of the asset, are recognised in the profit or loss when the assets are derecognised.
2.3 PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment are stated at historical cost less cumulative depreciation and impairment losses. Historical cost
includes expenditure that is directly attributable to the acquisition of the assets.
All repairs and maintenance costs are charged to the income statement during the reporting period in which they are incurred. Sub-
sequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
The cost of qualifying tangible assets also includes borrowing costs represented by interest and other costs that an entity incurs in
connection with borrowing of funds. A qualifying asset is an asset that necessarily takes at least one year to get ready for its intended
use. The Company ceases capitalising of borrowing costs when the qualifying asset is ready for its intended use or sale.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method over their estimated useful lives
as follows:
– Buildings 9 – 50 years
– Technical equipment and machinery (incl. special tooling) 3 – 18 years
– Other equipment, operating and office equipment 3 – 23 years
– Means of transport 5 – 25 years
Estimated useful lives and depreciation method are reviewed at the end of each accounting period, the effect of any changes in
estimates are accounted for prospectively.
Items of property, plant and equipment are derecognised on sale or when no future economic benefits are expected from their use.
The gains or losses arising from the derecognition of items of property, plant and equipment, which are determined as the difference
between the net disposal proceeds and the carrying amount of the asset, are recognised in the profit or loss when the assets are
derecognised.
2.4 IMPAIRMENT OF ASSETS
Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
inflows (cash-generating units).
80
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
2.5 FINANCIAL INSTRUMENTS
2.5.1 Financial assets
Classification
The classification depends on the purpose for which the financial assets were acquired. Management of the Company determines
the classification of its financial assets at initial recognition.
The Company classifies its financial assets in the following categories:
a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading or so designated by management. Derivatives
are also categorised as held for trading unless they are designated as hedging instruments. Realised and unrealised gains and losses
from changes in the fair value of financial assets valued at fair value through profit or loss are recognised under financial income or
expenses in the period in which they arise. During the accounting periods 2017 and 2016, the Company only had financial derivatives
within this category (Note 2.5.3).
b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active mar-
ket. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivable.
They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as
non-current assets. Loans and receivables are classified as trade receivables, or other receivables and financial assets in the balance
sheet (Note 8).
c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other
categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the
balance sheet date. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are
included in the income statement. In the accounting period 2017 (2016), the Company only had, within the category of available-for-
sale financial assets, investments to equity instruments that did not have quoted price in an active market.
Recognition and measurement
Purchases and sales of financial assets are recognised on trade date – the date on which the Company commits to purchase or sell
the asset. Financial assets, with the exception of financial assets carried at fair value through profit or loss, are initially recognised at
fair value plus transaction costs. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and
transaction costs are expensed in the income statement.
Financial assets at fair value through profit or loss are subsequently carried at fair value. Long-term loans and receivables are carried
at amortised costs using the effective interest method.
Available-for-sale financial assets (equity instruments) that otherwise do not have quoted prices in an active market but their fair
value can be reliably measured are subsequently carried at fair value. Changes in fair value of an available-for-sale financial assets are
recognised in other comprehensive income. The Company recognises dividends from equity instruments in financial income when
its right to receive the dividend is established.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Impairment
The Company determines at each balance sheet date whether there is objective evidence that a financial asset or a group of financial
assets which are not carried at fair value is impaired. Initially the Company determines, in line with IAS 39, if objective evidence
exists that individually material financial assets are impaired and performs the same assessment individually or collectively for indi-
vidually immaterial financial assets. In the event that the Company does not find objective evidence of impairment for individually
assessed financial assets, whether material or not, these assets are included in the group of financial assets with common credit risk
characteristics and the group of financial assets is assessed collectively for impairment. Individual assets for which objective evi-
dence of impairment has been identified are not included in a group of assets that are assessed collectively for impairment.
Trade receivables are considered to be impaired if objective evidence exists at the balance sheet date that the Company will not be
able to collect all outstanding balances in accordance with initially agreed conditions. Significant financial difficulties, the probability
that the debtor will enter bankruptcy or financial reorganisation, and default or delays in payment of liabilities are considered indica-
tors that trade receivables are impaired. For trade receivables, the allowance is quantified on the basis of detailed information about
the financial situation of the customer and payment history. When the receivable is assessed as uncollectible, an allowance equal to
100% of the receivable balance is created. For other receivables, the allowance is quantified on the basis of detailed information about
the financial situation of the customer and payment history. The value of the allowance is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the original effective interest rate of the receivable. The
creation of the allowance is recognised in the income statement within Other operating expenses. When the receivable cannot be
collected through legal action (i.e. the receivables have lapsed; insufficient assets due to bankruptcy of the debtor; debtor was liqui-
dated without a legal successor, etc.), it is written off through profit or loss and the allowance is utilised.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred
and the Company has transferred substantially all risks and rewards of ownership.
2.5.2 Financial liabilities
Classification
The classification depends on a purpose for which financial liabilities have been concluded. The Company management designates
the appropriate classification of financial liabilities on initial recognition.
The Company classifies its financial liabilities into following categories:
a) Financial liabilities measured at fair value through profit or loss
Financial liabilities at fair value through profit or loss are financial liabilities held for trading or so designated by management. Deriv-
atives are also categorised as held for trading unless they are designated as hedging instruments. Realised and unrealised gains and
losses from changes in the fair value of financial liabilities valued at fair value through profit or loss are recognised under financial
income or expenses in the period in which they arise. During the accounting period 2017 (2016), the Company only had financial
derivatives in this category (Note 2.5.3).
b) Financial liabilities measured at amortised cost
Financial liabilities are measured at fair value net of transaction costs at initial recognition. Subsequent measurement is at amortised
cost by applying the effective interest rate method.
Derecognition
The Company derecognises financial liabilities only when the contractual liabilities of the Company are discharged, cancelled or
expired. The difference between the carrying amount of a derecognised financial liability and the consideration paid is recognised
in profit or loss.
82
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
2.5.3 Financial derivatives
The Company uses derivatives to hedge currency and price risks. Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting
gain or loss depends on whether the derivative is designated as a hedging instrument or instrument held for trading. The Company
designates as hedging instruments only those which fulfil the requirements of hedge accounting.
The Company uses derivatives to hedge future cash flows. The hedged items in this case are highly probable future transactions.
The Company is hedging against changes in cash flows from highly probable future transactions caused by changes in foreign ex-
change spot rates and other price changes (arising especially from the combination of commodity and currency risk).
The changes in the spot component of currency financial derivatives that qualify as effective cash-flow hedging instruments are
recognised in other comprehensive income. The changes in the forward component of currency financial derivatives that qualify as
effective cash-flow hedging instruments are recognised as a gain or loss in the income statement.
The changes in fair value of commodity swaps that qualify as effective cash-flow hedging instruments are recognised in other com-
prehensive income. The changes in fair value of commodity swaps that do not qualify as effective cash-flow hedging instruments are
recognised in the income statement and classified as a gain or loss.
The cumulative balances recognised in other comprehensive income are recycled into the income statement as a gain or loss in the
periods when the hedged item affects the income statement. If the timing of the hedged cash flow is deferred, in compliance with
its hedging strategy the Company prolongs the maturity of the original hedging instrument. In such case the spot component of the
original derivative contract is retained in equity until the hedged item affects the income statement. When this occurs, the previously
retained balance is recycled from other comprehensive income to the income statement and recognised as a gain or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss previously recognised in other comprehensive income from the effective part of the hedging instrument at that time
remains in other comprehensive income and is reclassified to the income statement when the forecast transaction is ultimately rec-
ognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in other comprehensive income is immediately transferred to the income statement.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques, such as
the net present value of future cash flows. The fair value of currency forwards and swaps is determined as the present value of future
cash flows based on forward exchange market rates as at the balance sheet date. The fair value of commodity swaps is calculated as
the present value of future cash flows based on the rates of LME (London Metal Exchange).
2.5.4 Offsetting of financial instruments
The Company presents financial assets and financial liabilities offset in statement of financial position in net amount only when it
has currently a legally enforceable right to set off the recognised financial asset and liability and intends to settle on net basis or to
realise the asset and settle the liability simultaneously. Legal right must be enforceable both in the normal course of business, but
also in the event of default, insolvency or bankruptcy of any contractual counterparty.
2.6 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
Subsidiaries are investees (including structured entities) that are controlled by the Company.
The Company controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
The subsidiaries controlled by the Company as at 31 December 2017 (as at 31 December 2016) (see Note 6):
– ŠKODA AUTO Slovensko s.r.o. (100%);
– Skoda Auto India Private Ltd. (100%);
– ŠKODA AUTO DigiLab s.r.o. (100%) – established in 2017.
Associates are all entities in which the Company has significant influence, which is the power to participate in the financial and op-
erating policy decisions of the investee but is not control or joint control over these policies. This power is generally connected with
ownership of 20 to 50 per cent of the voting power or is usually evidenced in one or more of the following ways:
(a) representation on the board of directors or equivalent governing body of the investee;
(b) participation in policy-making processes, including participation in decisions about dividend or other distributions;
(c) material transactions between the investor and the investee;
(d) interchange of managerial personnel; or
(e) provision of essential technical information.
The ŠKODA AUTO a.s. had significant influence as at 31 December 2017 (as at 31 December 2016) in the associates (see Note 7):
– OOO VOLKSWAGEN Group Rus,
– ŠKO-ENERGO FIN, s.r.o.
Recognition, measurement and derecognition
Investments in subsidiaries and associates are carried in the separate financial statements at cost less any impairment loss. The Com-
pany recognises a dividend from a subsidiary or associate in financial income when its right to receive the dividend is established.
Impairment
The Company determines at each reporting date whether there is objective evidence that the value of share on equity of subsidiaries
and associates is impaired. In case investments in subsidiaries and associates are impaired, the impairment loss is presented in the
line financial expenses in the income statement.

2.7 CURRENT AND DEFERRED INCOME TAX
The income tax expense consists of current income tax and deferred income tax. The tax expense is recognised in the income state-
ment with the exception of cases when it relates to items recognised in other comprehensive income or directly in equity. In such
cases the current income tax and deferred income tax are recognised in other comprehensive income or directly in equity.
2.7.1 Current income tax
Current tax liabilities (receivables) for the current period and preceding periods are recognised in the amount of expected pay-
ments to or claims from tax offices, using the tax rates (and tax laws) valid in the respective period. Current income tax relating to
the current accounting period and to preceding periods reduced by the amount already paid is recorded as a liability. If the amount
already paid in the current and in preceding periods exceeds current income tax related to these periods, the difference is recorded
as a receivable.
The situations, in which the expected amount of payment to the tax authorities (or expected receipt from them) is based on the
interpretation of tax laws, are regularly reassessed and the expected payments to tax authorities (or expected receipt from them) are
adjusted accordingly to reflect the best estimate of the amount to be paid to tax authorities (or to be received from them) based on
legislation enacted or substantially enacted by the balance sheet date.
2.7.2 Deferred income tax
Deferred income tax is determined using the balance-sheet liability method, based on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from
initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss, it is not accounted for.
84
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Deferred income tax is determined using tax rates and tax laws, that have been enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets
are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
In accordance with IAS 12, deferred tax assets and liabilities are offset, where the Company has the enforceable right to offset the
current tax assets and liabilities and if the deferred tax assets and liabilities relate to income taxes levied by the same taxation au-
thority.
Deferred tax relating to items recognised in other comprehensive income (for example the effective portion of changes in the fair
value of financial derivatives that are designated and qualify as cash flow hedges) is also recognised in other comprehensive income.
The Company recognises deferred income tax assets relating to unused tax credits from investment incentives against deferred tax
income in the income statement to the extent that it is probable that future taxable profits will be available against which the unused
tax credits can be utilised.
2.8 INVENTORIES
Purchased inventories (raw materials, consumables, supplies and materials used in production, goods) are stated at the lower of cost
and net realisable value. Costs include purchase costs and other acquisition costs (e.g. transport and packaging).
Inventories generated from own production, i.e. work in progress and finished goods, are stated at lower of own production costs
or net realisable value. Own production costs include direct material, direct wages and production overheads. The administration
overhead expenses are not included in the valuation of work in progress and finished goods.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion less applicable
variable selling expenses. Net realisable value reflects all risks of obsolete and redundant raw materials and excessive original parts.
A weighted-average calculation is used to account for the consumption of materials.
2.9 CASH AND CASH EQUIVALENTS AND CASH FLOW STATEMENT
The cash and cash equivalents disclosed in the cash flow statement also comprise, in addition to cash and short-term deposits in
banks, short-term deposits in Volkswagen Group companies (mainly in Volkswagen Group Services (VGS), the Regional Treasury
Center) with original maturity of less than three months, which are readily convertible to known amounts of cash, the risk of changes
in value is not significant and are held to meet short-term financial liabilities rather than for investment or other purposes.
Detailed information relating to cash and cash equivalents is disclosed in Note 10.
Cash flows are presented in the cash flow statement and are classified into cash flows from operating activities, investing activities
and financing activities.
Cash flows from operating activities are derived indirectly from profit before tax. Profit before tax is adjusted to eliminate non-cash
expenses (mainly depreciation and amortisation) and income and changes in working capital.
Investing activities include additions to property, plant and equipment, financial assets, as well as to capitalised development cost.
Financing activities include in addition to the outflows of cash from dividend payments, redemption of liabilities from financing, also
outflows and inflows from other borrowings.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
2.10 PROVISIONS FOR EMPLOYEE BENEFITS
Provisions for other long-term employee benefits
The following types of long-term employee benefits are included in the provision for other long-term employee benefits:
– service anniversaries
– other long-term loyalty benefits
The entitlement to these benefits is usually conditional on the employee remaining in service for a certain service period or up to the
moment of a certain work anniversary of the employee. The amount of provision corresponds with the present value of long-term
employee benefits for past service at the balance sheet date determined using the projected unit credit method.
These obligations are valued annually by independent qualified actuaries. Actuarial gains and losses arising from changes in actuarial
assumptions and experience adjustments are charged or credited to the income statement.
The present value of long-term employee benefits is determined by discounting the estimated future cash outflows arising from their
settlement using interest rates equalling market yield of treasury bonds because there is no deep market of high-quality corporate
bonds denominated in CZK. The term and currency of these corporate or treasury bonds are consistent with the currency and term
of the respective other long-term employee benefits.
2.11 OTHER PROVISIONS
In accordance with IAS 37, provisions are recognised where a present obligation exists to third parties as a result of a past event;
where a future outflow of resources is probable; and where a reliable estimate of that outflow can be made. Future outflows are esti-
mated with respect to particular specific risks. Provisions not resulting in an outflow of resources within one year are recognised at
their settlement value discounted to the balance sheet date. Discount rates reflect the current market interest rates and the specific
risks of the respective liabilities.
Where there is a number of similar obligations, the likelihood that an outflow occurs upon the settlement is determined by consid-
ering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item
included in the same class of obligations may be small.
2.12 REVENUE AND EXPENSE RECOGNITION
Revenue comprises the fair value of consideration received or receivable for the goods sold and services provided, net of value-added
tax, rebates and discounts.
Sales of goods are recognised only when the goods have been delivered, that is, when the significant risks and rewards have passed
to the customer, the sales price is agreed or determinable and receipt of payment is probable. This corresponds generally to the
date when the products are provided to dealers outside the Company or to the delivery date in the case of direct sales to consumers.
Revenues from one-off licences are recognised only when the intellectual rights are transferred or when partial delivery has been
completed (e.g. delivery of technical documentation, technical support, etc.). Revenues from per-piece licences are recognised based
on the number of cars produced in the current accounting period. Dividend income is generally recognised on the date at which the
dividend is legally approved and when the payment is probable.
Based on license agreements with certain contractual parties the royalties may be returned if licence is not utilised by the
counterparty. This royalty income is recognised in the contracted amount taking into account the estimate of the risk of royalty
income refund.
Revenue arising from rendering of services, which are separable from the product (e.g. revenue from the sale of extended guarantee),
which will be provided in future periods are recognised when the services are rendered respectively on a straight-line basis over the
period of time when the services are provided via an indeterminate number of acts over a specific time period.
86
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Costs of sales include production costs, costs of goods purchased for resale, and additions to warranty provisions. Research and de-
velopment costs not eligible for capitalisation in the period, depreciation and impairment charges for capitalised development costs
and production equipment are likewise presented as cost of sales.
Distribution expenses include personnel and material costs, and depreciation and amortisation applicable to the distribution func-
tion, as well as the costs of shipping, advertising, sales promotion, market research and customer service.
Administrative expenses include personnel costs and overheads as well as depreciation and amortisation applicable to administrative
functions.
2.13 LEASES
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leas-
es. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
2.14 SUBSIDIES
Subsidies of entrepreneurial activities and of employee training and retraining costs are recognised as income over the periods
necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Government grants,
including non-monetary grants related to the purchase of tangible and intangible assets, are recognised at fair value as reduction in
the value of tangible and intangible assets.
2.15 RELATED PARTIES
A related party is a person that has control or joint control over the reporting entity; has significant influence over the reporting
entity; or is member of the key management personnel of the reporting entity or of a parent of the reporting entity. A related party
is also an entity which is a member of the same group as the reporting entity and other entities as defined by IAS 24 article 9 para. b.
2.16 SHARE CAPITAL
The substance of a financial instrument, rather than its legal form, governs its classification in the Company’s statement of financial
position. Ordinary shares are classified as share capital. The Company typically incurs various costs in issuing or acquiring its own
equity instruments. Those costs might include registration and other regulatory fees, amounts paid to legal, accounting and other
professional advisers, printing costs and stamp duties.
The transaction costs of an equity transaction are accounted for as a deduction from equity (net of related income tax deduction)
to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. The
costs of an equity transaction that is abandoned are recognised as an expense.
Share premium is represented by the difference between the nominal value of shares issued on share capital increase and the market
price of shares and is recognised within equity.
2.17 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, sel-
dom equal the related actual results. The estimates and assumptions are continuously assessed by management. The estimates and
assumptions are based on historical experience and other factors, including the realistic assessment of future developments. Esti-
mates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
Capitalisation of development costs
The Company continuously invests in research and development of new products, which are either developed internally within the
Company’s research and development centre or within the Volkswagen Group. In compliance with IAS 38, for each development
project the Company performs an assessment whether the project meets the development costs recognition criteria, especially the
probability that the asset will generate future economic benefits. The Company’s assessment is based on assumptions and estimates
for the next five and more years with respect to the products future sales, development of the individual markets and automotive
industry itself. Although the Company’s analyses are based on the best currently available information, the risk of future changes and
uncertainty with respect to future development of the assumptions applied remain significant. Please refer to Note 4 for additional
information including the respective amounts.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Impairment of non-current assets
In the course of the product life cycle and in exceptional situations also before its commencement, there may be circumstances
which indicate that “cash generating units” (tangible and intangible assets employed for production of vehicles of a certain model)
might have suffered impairment. To determine any possible impairment, the Company estimates value in use of the cash generating
units which is calculated as discounted expected future cash flows associated with the employment of the cash generating units. For
determination of the estimated future cash flows, the Company applies estimates and assumptions regarding future sales of a partic-
ular product, economic development of the individual markets and development of the automotive industry during the next five and
more years. Although the Company estimates the value in use of the cash generating units based on the best information and data
currently available to the Company, the risk of future changes and uncertainty with respect to the future development of the applied
assumptions in the following years remains significant. More detailed information about impairment losses is included in Note 4 and
Note 5 in the section Impairment reviews.
Provision for warranty claims
The Company recognises provisions for warranty claims for future expenses connected with the basic guarantee (2 years), with the
guarantee for corrosion (dependent on the model for 10 or 12 years) and other guarantees beyond the scope of basic guarantee, es-
pecially good-will repairs and service actions. The Company recognises the provisions for warranty claims at the moment of sale on
the basis of the number of sold cars and in advance determined rates for individual model line.
The rates for the basic guarantee are determined on the basis of a management estimate of the average number of failures in the
guarantee period and average single failure costs with regard to the specifics of individual countries and on the basis of other spe-
cific assumptions (inflation, customers groups development, etc.). The amount of the provision for corrosion is determined through
a mathematical model which extrapolates the curve of future costs development for the relevant period on the basis of weighted
average of actual costs from previous calendar years of the model production. The amount of the provision for good-will repairs is
determined on the basis of a management estimate of existing good-will repair costs and defined strategy of the good-will repair
trademark policy with regard to specifics of individual countries. The amount of the provision for service actions is determined on
the basis of a management estimate, particularly of material, personnel and possible other expenses necessary for eliminating the
defects.
The estimates of the rates are continuously revised with the use of the most recent historical data about the number of failures and
their repair costs. Changes in these estimates can significantly influence the total amount of the provision. The detailed analysis of
the provision according to the single types, production years, guarantee types and the sales regions is prepared at the year end. More
detailed information about the provision for warranty claims is included in Note 15.
Provision for litigation risks
Certain events relating to the economic activities of the Company might result in disputes resolved in court and out-of-court pro-
ceedings. The risk that future cash outflows will be required to settle the claim (damages, court fees, etc.) is assessed by the Company
once it becomes involved in any court or out-of-court proceedings. The risk is assessed based on the Company’s experience with
similar legal actions, reflecting the latest developments in the proceedings. A provision is recognised if it is more likely than not that
an outflow of economic benefits will occur in the future (the risk is assessed as medium or high). The provision is measured based on
the best estimate of the expected future cash outflows. Please refer to Note 15 for additional information. If the risk is assessed to be
low (possible but not remote), the Company discloses further information on litigation risks under contingent liabilities. Informa-
tion on contingent liabilities that represent claims related to the EA189 issue through individual or class action lawsuits against the
Company is disclosed in Note 27.
Other provisions
Due to own economic activities in various countries, the Company faces risks related to customs and tax legislation (other than in-
come taxes). The risk is assessed based on the Company’s experience with similar cases, reflecting the actual circumstances. A provi-
sion is recognised if it is more likely than not that an outflow of economic benefits will occur in the future. The provision is measured
based on the best estimate of the expected future cash outflows. Please refer to Note 15 for additional information.
88
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Useful lives
The estimated useful lives of individual tangible and intangible assets or classes of assets are determined based on the Company’s
experience with similar assets and in accordance with the expected future economic benefits of the assets, taking into account also
changes in production plan and expected utilisation of these assets.
Intangible assets show the highest uncertainty in estimating the useful life. Net book value of intangible assets was CZK 23,497
million as at 31 December 2017 (as at 31 December 2016: CZK 21,483 million). Average useful life of intangible assets was 6 years in
2017 (in 2016: 7 years).
Cash equivalents
The Company deposits free cash with Volkswagen Group companies. These deposits are classified as cash equivalents if the Com-
pany concludes that the deposits meet criteria of cash equivalents according to IAS 7 and that they are readily convertible to known
amounts of cash, they are subject to an insignificant risk of changes in value and they are held for the purpose of meeting short-term
financial commitments rather than investment or other purposes.
Functional currency
Items included in the Company’s financial statements are measured in accordance with IAS 21 using the functional currency. The
functional currency means the currency of the primary economic environment in which the entity operates. The Company oper-
ates primarily in the economic environment of the Czech Republic, but as a result of its foreign activities it is exposed also to other
economic environments. The Company regularly performs analyses of the functional currency criteria in accordance with IAS 21.
When determining the functional currency, the Company’s management follows the general definition and other supporting criteria
according to IAS 21 and applies professional judgment.
3. FINANCIAL RISK MANAGEMENT
The Company operates in the automotive industry, sells its products in many countries around the world and therefore performs
transactions connected with a variety of financial risks. The objective of the Company is to minimise these risks through application
of a flexible hedging strategy with utilisation of various instruments. The structure of risk management in the Company is based on
the unified principle of risk management applied in the Volkswagen Group. The Volkswagen Group’s risk management principles are
in compliance with the requirements of the German Act on Control and Transparency in Enterprises (KonTraG).
In compliance with the Volkswagen Group policy all hedging operations are agreed and implemented in cooperation with the Trea-
sury department of the Volkswagen Group.
Management of the Company is regularly informed of current financial and other related risks (liquidity, foreign exchange rates,
interest rates, invoice currencies, payment conditions, taxes etc.), which is achieved through regular “liquidity meeting” attended
by representatives from Treasury, Controlling, Accounting, Sales, Volkswagen Group Treasury, representatives of subsidiaries and
management of the Finance and IT department. These meetings have predefined agenda, which includes also information on the
main macroeconomic indicators from all important countries, in which the Company sells its products. Meetings have a formalised
structure and all minutes including the decisions are recorded and their fulfilment is periodically evaluated.
3.1 CREDIT RISK
Credit risk is a risk that one party to a financial instrument will cause a financial loss to other party by failing to discharge an
obligation.
Credit risk arises in the normal course of the Company’s operations, as well as through activities connected with financial market
transactions (money market, currency conversion, derivatives transactions, etc.). Credit risk arising from operations on the financial
market is managed by Volkswagen Group Treasury through determination of maximal limits for individual counterparties.
The quantification of credit risks is based on several different primary criteria, of which the most significant are the country risk and
the counterparty risk. In assessing these risks, attention is paid to the country in which the headquarters of the counterparties are
situated. The credit rating of these countries is monitored closely and attention is focused on the analysis of macroeconomic indi-
cators. Apart from the Volkswagen Group’s Risk Management Department, the Company also uses the services of external agencies
(D&B, Creditreform, Reuters, etc.).
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
The acceptance of new business partners is reliant on standard approval procedures. The Company’s involvement with counterpar-
ties is managed by means of credit limits that are monitored and reassessed on a regular basis. Adhering to these limits is monitored
and evaluated on a regular basis.
Active administration and management of receivables is incorporated into the credit risk management process. In respect of the
trade receivables security strategy, trade receivables are divided into receivables from domestic customers, foreign customers and
Volkswagen Group entities. Receivables are secured by preventative and supplemental instruments.
Credit enhancement instruments for receivables are used mainly when the customer contracts are concluded. An obligatory security
instrument incorporated in the written contracts is interest on default payments and furthermore selected trade receivables are
secured by an ownership title to the sold goods until full settlement of the purchase price.
Trade receivables from Volkswagen Group companies and from associates are considered to bear the least risk. Therefore the sup-
plies of goods are performed on credit terms or the receivables are transferred through factoring to factoring companies within
the Volkswagen Group.
Trade receivables from customers located abroad include receivables from general importers and other customers. The receivables
from general importers are secured by the following instruments: payments in advance, letters of credit, documentary collection,
bank guarantees, standby letters of credit and transfer of receivables to factoring without recourse or with partial recourse. Only an
immaterial part of receivables from other customers arises on credit terms.
Receivables from domestic customers are divided into two groups: receivables from contractual partners bound by sales or service
agreements, and from other domestic customers. The receivables arising from sales of new and used vehicles to contractual partners
are transferred to factoring without recourse or with partial recourse. Credit limits are set up for the supplies of new and used vehi-
cles, original parts and accessories. The deliveries of goods are automatically blocked in case the customer fails to settle outstanding
balances on maturity and upon the set limit is exceeded. Supplies to other domestic customers are realised on credit terms.
Different combinations of the following instruments are used as an additional security of high-risk receivables: confirmation of debt
prolonging the statute of limitation, payment schedules, bills of exchange, pledges, or executory note.
Loans to employees are secured by other employee guarantees.
As at 31 December 2017 (as at 31 December 2016), the Company did not hold any collateral for loans given.
In the following table, the reported figures represent either the carrying value of secured trade receivables, or the collateral value
if this value is lower, determined individually for each instrument (both to third parties and related parties) presented in Note 8.3:
CZK million 2017 2016
Retention of legal ownership title to sold cars 1,069 753
Bank guarantee 1,378 933
Letters of credit 1,193 1,843
Documentary collection 108 94
Accepted deposit – 434
Total 3,748 4,057
90
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.1.1 Maximum exposure to credit risk (CZK million)
The maximum exposure to credit risk in case of activities connected to business operations, granting of loans, supplier credits pro-
vided to customers and deposits in companies within Volkswagen Group and bank deposits is calculated as the gross carrying amount
of the above mentioned financial assets less any impairment provisions and the value of guarantees unrecognised in the balance
sheet. The exposure to credit risk of derivatives is measured at fair value of the derivative.
The amount of guarantee provided by the Company is CZK 75 million as at 31 December 2017 (as at 31 December 2016: CZK 75 mil-
lion). Detailed information on the guarantee are listed in section 3.1.6.
3.1.2 Risk concentration
The Company monitors concentration of credit risk by distribution regions and denomination currency. The sensitivity of the Com-
pany to foreign exchange risk is disclosed in Note 3.4.1. During the accounting period 2017 (2016) the Company did not identify any
significant risk concentration on the basis of distribution region.
A significant portion of financial assets is of an intra-group nature. The Company loaned and deposited free cash only with Volkswa-
gen Group companies.
The total volume of loans to and deposits in Volkswagen Group companies amounted to CZK 97,196 million as at 31 December 2017
(as at 31 December 2016: CZK 81,330 million), out of which:
– loans with original maturity more than three months included in balance sheet in the line Other current receivables and financial
assets (see Note 8.2) in total amount of CZK 0 million as at 31 December 2017 (as at 31 December 2016: CZK 8,314 million),
– deposits with original maturity less than three months included in balance sheet in the line Cash and cash equivalents (see Note 10)
in total amount of CZK 80,000 million (as at 31 December 2016: CZK 40,000 million),
– overnight deposits from cash pooling included in balance sheet in the line Cash and cash equivalents (see Note 10) in total amount
of CZK 17,196 million (as at 31 December 2016: CZK 33,016 million).
The Company did not consider probable that a default could occur in connection with the free cash deposited in 2017 (2016).
Possible risk of unpaid receivables from third parties was individually not significant (spread between various debtors and regions).
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.1.3 Credit quality of financial assets neither past due nor impaired (CZK million)
The Company uses the following criteria when setting ratings of financial assets that are neither past due nor impaired. Solvency
class 1 includes receivables, loans to and deposits in Volkswagen Group companies, secured receivables from third parties and receiv-
ables that will be subject to factoring without recourse. There is no objective evidence indicating impairment of these receivables.
Solvency class 2 includes unsecured trade receivables from third parties for which there is no objective evidence indicating impair-
ment (unsecured receivables from dealers).
Balance as at 31 December 2017 Solvency class 1 Solvency class 2 Total
Loans to employees 507 – 507
Loans to and deposits in Volkswagen Group companies* 97,196 – 97,196
Positive fair value of financial derivatives 8,245 – 8,245
Other receivables and financial assets 504 – 504
Trade receivables 16,720 395 17,115
Cash 5 – 5
Total 123,177 395 123,572
Balance as at 31 December 2016 Solvency class 1 Solvency class 2 Total
Loans to employees 532 – 532
Loans to and deposits in Volkswagen Group companies* 81,330 – 81,330
Positive fair value of financial derivatives 6,262 – 6,262
Other receivables and financial assets 146 – 146
Trade receivables 15,223 376 15,599
Cash 240 – 240
Total 103,733 376 104,109
* For detailed information related to Loans and deposits in Volkswagen Group companies refer to note 3.1.2.
3.1.4 Carrying amount of financial assets past due and not impaired (CZK million)
Months past due
Trade receivables Less than 1 month 1 – 3 months More than 3 months Total
Balance as at 31 December 2017 392 159 786 1,337
Balance as at 31 December 2016 585 243 403 1,231
Receivables more than 3 months past due are represented mainly by receivables from Volkswagen Group companies. The Company
did not identify any need for impairment of these receivables.
3.1.5 Valuation allowance for receivables and other financial assets (CZK million)
Valuation allowances to other receivables and financial assets were CZK 163 million as at 31 December 2017 (as at 31 December
2016: CZK 167 million). Valuation allowances to trade receivables were CZK 148 million as at 31 December 2017 (as at 31 December
2016: CZK 156 million). Movements in valuation allowances during the year were insignificant. During the accounting period 2017
(2016) the Company had valuation allowances on individual financial assets only for which a default risk was identified. During the
accounting period 2017 (2016) the Company had valuation allowances only on financial assets included in the category of loans and
receivables.
92
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.1.6 Transferred financial assets where the Company has continuing involvement
The Company has concluded a factoring contract with the company ŠkoFIN s.r.o., under which the majority of risks and rewards re-
lating to ownership of receivables arising from sale of new or used cars are transferred to ŠkoFIN s.r.o. Under certain conditions, the
company ŠkoFIN s.r.o. can claim compensation relating to realised credit losses up to 2% of the total amount of transferred receiv-
ables during the year, however, not more than 49% of these losses and not more than CZK 75 million in 2017 (in 2016: CZK 75 mil-
lion). This amount represents carrying amount and fair value of the recognised continuing involvement in these receivables, and
related financial liabilities. At the same time, this amount represents the maximum exposure to credit risk. The loss recognised at
the transfer of the assets was CZK 37 million in 2017 (in 2016: CZK 33 million). This loss concerns the obligation to compensate for
realised credit losses incurred by ŠkoFIN s.r.o.
3.1.7 Offsetting of financial assets and financial liabilities
Balance as at
31 December 2017
Gross amount
of financial
assets / liabilities
recognised in the
balance sheet
Gross amount
of recognised
financial
liabilities / assets
set off in the
balance sheet
Net amount
of financial
assets / liabilities
recognised in the
balance sheet
Related amount
not set off in the
balance sheet*
Net amount of
financial assets /
liabilities**
Receivables from
financial derivatives 8,245 – 8,245 (575) 7,670
Liabilities from
financial derivatives 588 – 588 (575) 13
Balance as at
31 December 2016
Gross amount
of financial
assets / liabilities
recognised in the
balance sheet
Gross amount
of recognised
financial
liabilities / assets
set off in the
balance sheet
Net amount
of financial
assets / liabilities
recognised in the
balance sheet
Related amount
not set off in the
balance sheet*
Net amount of
financial assets /
liabilities**
Receivables from
financial derivatives 6,262 – 6,262 (2,487) 3,775
Liabilities from
financial derivatives 3,524 – 3,524 (2,487) 1,037
* Comprises the financial assets / liabilities (other than cash collateral) that are the subject of an enforceable master netting agreement or similar agreement,
and which were not recognised on a net basis in the statement of financial position.
** This is the net value of financial assets / liabilities recognised in the statement of financial position decreased by the value of related financial liabilities /
assets that were not recognised on a net basis in the statement of financial position.
As at 31 December 2017 the Company did not offset any trade receivables and trade liabilities in balance sheet because none of the
trade receivables and trade liabilities fulfilled criteria for offsetting according to amendment to IAS 32.
There was no collateral held or given in respect of derivative financial assets / liabilities as at 31 December 2017 (as at 31 December
2016). The total amount of collateral value of trade receivables was CZK 3,748 million as at 31 December 2017 (as at 31 December
2016: CZK 4,057 million). Details related to types of collateral are presented in Note 3.1.
3.2 LIQUIDITY RISK
Liquidity risk is a risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The objective of liquidity risk management is to ensure the balance between the funding of operating activities and financial flexi-
bility in order to ensure that all claims of the Company’s suppliers and creditors are settled timely.
Management of the Company monitors the liquidity and its development at regular monthly meetings, so called “liquidity meet-
ings”, attended by representatives of the Treasury, Controlling and Accounting departments. The predetermined agenda generally
includes the information about daily development of liquidity and its structure. The Company’s management is also presented with
the short-term forecasts of the liquidity development.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Cash management
The Company is integrated into the “Global Treasury Platform” of Volkswagen Group (GTP) which is operated by Volkswagen Group
Services (VGS), the Regional Treasury Center, located in Brussels. Centralisation and optimisation of processes is ensured within the
Volkswagen Group in the areas of cash management, payments system and liquidity management.
In the GTP, the outgoing payments are processed on behalf of the Company by VGS, based on payment orders placed by the Com-
pany and are transferred from a bank account held by VGS. The incoming payments are credited to Company’s bank accounts and
subsequently at the end of each working day they are automatically transferred to VGS’s bank accounts (master account). Terms of
such transactions are defined within the cash pooling concept agreed upon between the Company, the bank and VGS. All incoming
payments are credited to the Company’s bank accounts at the “Inhouse Bank” (IHC) operated by VGS, where the differences between
debit and credit balances on the collected financial resources are netted-off.
Major instruments used to maintain sufficient liquidity resources are represented by short-term and long-term financial plans, coor-
dination of free liquidity management within the GTP, active cooperation with banks (credit lines) and monitoring of the situation
at money market and capital market. Sufficient resources of liquidity are ensured mainly through resources from other Volkswagen
Group companies integrated into the GTP and, to a limited extent, through credit lines arranged with external banks.
The total amount of credit lines from banks as at 31 December 2017 was CZK 600 million (as at 31 December 2016: CZK 600 million).
All credit lines are contracted in Czech crowns. The Company has not utilised any agreed bank credit lines as at 31 December 2017
(as at 31 December 2016).
The Company has not drawn any credit line from the Volkswagen Group as at 31 December 2017 (as at 31 December 2016).
Contractual maturity analysis (undiscounted amounts in CZK million)
Balance as at 31 December 2017 Within 1 year 1 – 5 years Total
Trade liabilities (43,350) – (43,350)
Derivatives with positive fair value:
Currency forwards and swaps (34,731) (32,599) (67,330)
Derivatives with negative fair value:
Currency forwards and swaps (22,178) (5,661) (27,839)
Commodity swaps – – –
Total (100,259) (38,260) (138,519)
Balance as at 31 December 2016 Within 1 year 1 – 5 years Total
Trade liabilities (40,740) – (40,740)
Derivatives with positive fair value:
Currency forwards and swaps (37,830) (30,718) (68,548)
Derivatives with negative fair value:
Currency forwards and swaps (21,774) (16,230) (38,004)
Commodity swaps (58) (10) (68)
Total (100,402) (46,958) (147,360)
Cash inflows from derivatives, which are settled on the gross basis (FX forwards and swaps), match with cash outflows from these
derivatives. The inflows are not included in the maturity analysis. After deduction of the inflows, the net outflows for the derivatives
with positive fair value in table above would be zero as there are net inflows and net outflows in table above would be significantly
lower for the derivatives with negative fair value.
94
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.3 MARKET RISK
Market risk is a risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market prices.
Market risk includes three types of risks: currency risk, interest rate risk and price risk. Developments on the financial markets are
considered to be the most significant risk factor, especially the fluctuation of exchange rates.
3.3.1 Currency risk
Currency risk is a risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in foreign
exchange rates.
The fluctuation of exchange rates represents significant risk in that the Company sells its products, and purchases material, parts and
services concurrently in various foreign currencies. The Company actively manages this risk through continually updated market
analysis, worldwide procurement of material and equipment and production of its products in some sales regions. Standard deriva-
tive hedging instruments are used by the Company to manage the currency risk.
The risk exposure, as determined by the analysis of income and expense structures by foreign currency, is hedged on the basis of
expected future foreign currency cash flows. These expected cash flows are planned in the form of monthly foreign currency plans
(FX plan), which are being updated regularly and they stretch over a time horizon up to 5 years.
The Company’s management is regularly being updated about the currency risk status by means of the liquidity meeting, attended
by representatives of the Treasury, Controlling, Accounting, Sales and Volkswagen Group Treasury, representatives of subsidiaries
and management of Finance and IT department. In addition to the update of foreign currency plans, actual development of foreign
currency cash flows and exchange rates fluctuations against CZK, suggestions for additional hedging are presented and agreed
during these meetings.
Forward exchange contracts and currency swaps are used as hedging instruments for elimination of currency risk. The basic param-
eters of the hedging policy are defined by the hedging directive valid for the entire Volkswagen Group, which includes also the list of
permitted financial products (derivatives). Contracts are concluded upon the Company’s request and in its name by the Volkswagen
Group Treasury. The risk resulting from changes in exchange rates against CZK is hedged for a total of 14 currencies. The most im-
portant trading currencies are EUR, GBP, PLN, CHF, USD and RUB. The Company also applies hedge accounting for currency risk.
For the analysis of sensitivity to exchange rates please refer to Note 3.4.1.
3.3.2 Interest rate risk
Interest rate risk is a risk that the value of future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.
The objective of the interest rate risk management is to eliminate the risk arising from fluctuations of interest rates of financial
liabilities and receivables with floating interest rates by maintaining an appropriate structure of financial liabilities and receivables.
The management of the Company monitors the interest rate risk at the regular monthly meetings attended by representatives of
the Treasury, Controlling and Accounting departments. The predetermined agenda generally includes the following – information
about current development of interbank interest rates (especially PRIBOR, EURIBOR and LIBOR) and information about central
bank’s interest rates in the countries where the Company operates. The Company’s management is also presented with short-term
forecasts of the interest rates development.
The exposure to interest rate risk arises from cash deposits at Volkswagen Group companies and factoring transactions with receivables.
For the analysis of sensitivity to interest rates please refer to Note 3.4.2.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.3.3 Price risk
Price risk is a risk that the fair value of future cash flows from the financial instruments will fluctuate because of changes in market
prices, especially commodity prices (apart from that which results from currency and interest risk).
Due to continuous volatility in the prices of raw material commodities and limited accessibility to specific commodities, manage-
ment has aimed to eliminate these risks through target risk management strategies. In this regard, utilisation of alternative pro-
duction materials and procedures as well as utilisation of recycled material is being examined. In addition, emphasis is placed on
extending the international supply chain in co-operation with the Volkswagen Group. High price risk commodities include primarily
aluminium, copper, palladium, lead, platinum and rhodium. Those risks are mitigated at the Volkswagen Group level through long-
term supply contracts with suppliers.
The Company hedges against price risks in general (as a consequence of changes in particular commodity prices and foreign ex-
change rates) using commodity swaps (for copper and aluminium) and currency forwards. In 2016 the Company voluntarily termi-
nated the application of hedge accounting for those financial derivatives. The sensitivity analysis to changes in other price risks is
disclosed in Note 3.4.3.
3.3.4 Derivative financial instruments
Nominal and fair value of derivatives (CZK million)
Nominal value of derivatives Fair value of derivatives
Balance as at
31 December 2017
Balance as at
31 December 2016
Balance as at
31 December 2017
Balance as at
31 December 2016
With positive and
negative fair value
With positive and
negative fair value Positive Negative Positive Negative
Currency instruments
Currency forwards and
swaps for trading 10,450 8,508 313 379 283 695
Currency forwards and swaps –
cash flow hedging 86,441 98,401 7,646 209 5,943 2,761
Commodity instruments
Commodity swaps for trading 1,770 1,203 286 – 36 68
Total 98,661 108,112 8,245 588 6,262 3,524
The fair values of financial derivatives fulfil the criteria of level 2 in compliance with the IFRS 13 hierarchy (the fair values are de-
rived from market quotations of forward exchange rates, commodity prices and yield curves, however the financial derivatives are
not directly traded in active financial markets). For additional information on derivative financial instruments and their valuation
methods refer to Note 2.5.3.
96
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Volume of hedged cash flows (CZK million)
Volume of hedged cash flows
Balance as at 31 December 2017 Within 1 year 1 – 5 years Total
Currency risk exposure
Hedging of future cash flows – future receivables 44,669 34,459 79,128
Hedging of future cash flows – future liabilities (6,727) (580) (7,307)
Total 37,942 33,879 71,821
Volume of hedged cash flows
Balance as at 31 December 2016 Within 1 year 1 – 5 years Total
Currency risk exposure
Hedging of future cash flows – future receivables 46,475 46,607 93,082
Hedging of future cash flows – future liabilities (5,319) – (5,319)
Total 41,156 46,607 87,763
3.4 SENSITIVITY ANALYSIS
3.4.1 Sensitivity to exchange rates
The Company is exposed to the foreign currency risk arising mainly from transactions performed with EU countries, Switzerland
and Russia (EUR, GBP, CHF, PLN, RUB) and with countries using USD as transaction currency. The foreign currency risk is mea-
sured against the functional currency (CZK) as at the balance sheet date, when the financial assets and liabilities denominated in
foreign currencies are recalculated to CZK by applying the Czech National Bank exchange rate.
The sensitivity analysis includes analysis of exposure arising from derivative financial assets and liabilities and unpaid financial as-
sets and liabilities denominated in foreign currencies, and measures the impact from recalculation of these items as at balance sheet
date by using adjusted exchange rates compared to those published by Czech National Bank. As at 31 December 2017 the Company
considers as reasonably possible the movements of exchange rates EUR, USD, PLN, CHF, GBP and RUB against CZK in the fol-
lowing period of +10% (appreciation of CZK) and -10% (depreciation of CZK). As at 31 December 2016 the Company considered as
the reasonably possible movements of exchange rates EUR, USD, CHF, GBP and RUB against CZK in the following period of +15%
(appreciation of CZK) and -15% (depreciation of CZK).
The sensitivity analysis to exchange rate changes is based on the assumption of expected reasonably possible exchange rate
movements.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
The following tables present impact on profit before tax and on other comprehensive income before tax of expected possible appre-
ciation or depreciation of CZK to foreign currencies:
CZK appreciation by 10%
2017 (CZK million) EUR USD CHF GBP RUB PLN
Other
currencies
Profit before tax
Non-derivative financial instruments 1,402 (136) 1 3 (184) (11) 34
Derivative financial instruments – 401 – – – – –
Other comprehensive income before tax
Derivative financial instruments (627) – 1,492 3,323 14 2,100 833
CZK depreciation by 10%
2017 (CZK million) EUR USD CHF GBP RUB PLN
Other
currencies
Profit before tax
Non-derivative financial instruments (1,402) 136 (1) (3) 184 11 (34)
Derivative financial instruments – (401) – – – – –
Other comprehensive income before tax
Derivative financial instruments 627 – (1,492) (3,323) (14) (2,100) (833)
CZK appreciation by 15%
2016 (CZK million) EUR USD CHF GBP RUB
Other
currencies
Profit before tax
Non-derivative financial instruments 1,982 (207) (3) 20 (241) 39
Derivative financial instruments – (147) – – – –
Other comprehensive income before tax
Derivative financial instruments (609) 2,016 3,038 6,158 262 2,271
CZK depreciation by 15%
2016 (CZK million) EUR USD CHF GBP RUB
Other
currencies
Profit before tax
Non-derivative financial instruments (1,982) 207 3 (20) 241 (39)
Derivative financial instruments – 147 – – – –
Other comprehensive income before tax
Derivative financial instruments 609 (2,016) (3,038) (6,158) (262) (2,271)

98
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.4.2 Sensitivity to interest rates
The Company is exposed to interest risk mainly in relation to current deposits provided to Volkswagen Group companies.
The analysis of sensitivity to changes in interest rates was based on exposure to derivative financial assets and liabilities as at balance
sheet date in the same way as for the non-derivative financial assets and liabilities.
For current deposits provided to Volkswagen Group companies, bank deposits and currency forwards and swaps the Company as-
sumed reasonably possible increase by 100 basis points of the yield curve and reasonably possible decrease by 100 basis points of the
yield curve in 2017 (2016: 100 / (25) basis points). Currencies for which interest rates were 0% or negative only the increase of the
yield curve was considered in 2017 (2016). Result of the Company is most sensitive to movements of the CZK yield curve.
In the case of derivative financial instruments, the Company measures the impact on the change in fair value of these derivatives
that results from the change in the yield curve. For non-derivative financial instruments, the impact on profit or loss is determined
on the basis of defined change in the interest rate, which would arise at the beginning of the next accounting period and based on the
assumption that no other changes in the interest rate would occur during the entire accounting period.
The following tables present impact on profit before tax of expected increase or decrease of interest rates:

2017 (CZK million)
Interest rate increased
by 100 basis points
Interest rate decreased
by 100 basis points
Profit before tax
Non-derivative financial instruments 985 –
Derivative financial instruments (82) 84
Total 903 84
2016 (CZK million)
Interest rate increased
by 100 basis points
Interest rate decreased
by 25 basis points
Profit before tax
Non-derivative financial instruments 804 (21)
Derivative financial instruments (60) 15
Total 744 (6)
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
3.4.3 Sensitivity to changes in other price risks
The Company is exposed to a combination of commodity and currency risks due to volatility in prices of particular commodities
traded in foreign currencies. This risk of change in cash flows is hedged by a combination of commodity swaps and currency for-
wards. The sensitivity analysis to changes in commodity prices was determined based on the exposure to derivative financial assets
and liabilities as at the balance sheet date.
In 2017 the Company assumes reasonably possible movements in aluminium and copper prices in the following period of +/- 10%
(2016: +/- 20%).
The Company considers changes in the fair values of derivative financial instruments due to changes in spot commodity prices.
Other non-derivative financial assets and liabilities are deemed not to be sensitive to changes in commodity prices since the price-
sare fixed at the time of recognition of the financial liability or asset.
The following tables represent impact on profit before tax of expected increase or decrease of copper and aluminium prices:

2017 (CZK million)
Increase of
copper
prices +10%
Decrease of
copper
prices (10)%
Increase of
aluminium
prices +10%
Decrease of
aluminium
prices (10)%
Profit before tax
Derivative financial instruments 78 (78) 125 (125)
2016 (CZK million)
Increase of
copper
prices +20%
Decrease of
copper
prices (20)%
Increase of
aluminium
prices +20%
Decrease of
aluminium
prices (20)%
Profit before tax
Derivative financial instruments 92 (92) 136 (136)
3.5 CAPITAL MANAGEMENT
The Company’s capital is controlled on the Volkswagen Group level. It is the objective of the capital management function to main-
tain continued growth of the Company’s value for the shareholders. Management of the Company considers as capital equity pre-
sented in these financial statements.
100
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
4. INTANGIBLE ASSETS (CZK million)
Capitalised
development
costs for products
currently in use
Capitalised
development costs
for products under
development
Other intangible
assets Total
Costs
Balance as at 1 January 2017 28,212 4,322 12,505 45,039
Additions 807 6,304 1,972 9,083
Disposals – – (7) (7)
Transfers 3,174 (3,174) – –
Balance as at 31 December 2017 32,193 7,452 14,470 54,115
Cumulative amortisation
and impairment losses
Balance as at 1 January 2017 (16,018) – (7,538) (23,556)
Amortisation (2,764) – (1,268) (4,032)
Impairment losses (1,155) (1,087) (795) (3,037)
Disposals – – 7 7
Balance as at 31 December 2017 (19,937) (1,087) (9,594) (30,618)
Carrying amount as at 31 December 2017 12,256 6,365 4,876 23,497
Capitalised
development
costs for products
currently in use
Capitalised
development costs
for products under
development
Other intangible
assets Total
Costs
Balance as at 1 January 2016 30,799 3,466 14,433 48,698
Additions 218 3,257 848 4,323
Disposals (5,206) – (2,776) (7,982)
Transfers 2,401 (2,401) – –
Balance as at 31 December 2016 28,212 4,322 12,505 45,039

Cumulative amortisation
and impairment losses
Balance as at 1 January 2016 (15,307) – (8,578) (23,885)
Amortisation (3,406) – (1,314) (4,720)
Impairment losses (2,511) – (422) (2,933)
Disposals 5,206 – 2,776 7,982
Balance as at 31 December 2016 (16,018) – (7,538) (23,556)
Carrying amount as at 31 December 2016 12,194 4,322 4,967 21,483
Category Other intangible assets include mainly tooling rights, software and software licences.
Amortisation and impairment losses of intangible assets of CZK 6,995 million (2016: CZK 7,581 million) are included in the cost of
sales, CZK 9 million (2016: CZK 8 million) in distribution expenses, and CZK 65 million (2016: CZK 64 million) in administrative
expenses.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Impairment reviews
The requirements of IAS 1, IAS 10 and IAS 36 have been assessed by the Company’s management in relation to the decrease in
planned cash inflows regarding particular ŠKODA models and their potential impact on the carrying amount of the Company‘s
intangible assets. Due to substantial changes in the market environment, the Company has experienced in 2017 a decrease in the
planned cash inflows relating to five cash-generating units (production of cars of certain models). Impairment reviews of assets
relating to those cash-generating units have been performed. The carrying amounts of the assets relating to the cash-generating
units have been compared with the relevant recoverable amounts. The recoverable amounts have been determined based on the
calculation of the value in use of the cash-generating unit applying cash flow projections over the life cycle of the cash-generating
units reflecting financial plans approved by the Company’s management for following 5 years.
For discounting cash flows, the pre-tax discount rate of 5.8% has been applied in 2017 (2016: 5.4%), reflecting the specific risks as-
sociated with the sector in which the Company operates. The comparison of the carrying amounts with the relevant recoverable
amounts for five cash-generating units resulted in impairment loss of CZK 3,037 million (2016: CZK 2,933 million) allocated to
intangible assets, which has been posted to the income statement (within line Cost of sales) for the year ended 31 December 2017.
Capitalisation of borrowing costs
No borrowing costs have been capitalised in the cost of intangible assets in 2017 or 2016 as they were not material.
The following amounts were recognised in the income statement as research and development expenses (CZK million)
2017 2016
Research and non-capitalised development costs 8,287 6,535
Amortisation and impairment losses of development costs 5,006 5,917
Research and development costs recognised in the income statement 13,293 12,452
102
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
5. PROPERTY, PLANT AND EQUIPMENT (CZK million)
Land and
buildings
Technical
equipment and
machinery
Tooling, office
and other
equipment
Advances
paid and
assets under
construction* Total
Costs
Balance as at 1 January 2017 41,758 84,966 74,612 7,456 208,792
Additions 544 3,150 5,789 7,430 16,913
Disposals (134) (2,491) (1,375) – (4,000)
Transfers 1,345 1,268 – (2,613) –
Balance as at 31 December 2017 43,513 86,893 79,026 12,273 221,705
Cumulative depreciation
and impairment losses
Balance as at 1 January 2017 (19,314) (65,081) (59,888) – (144,283)
Depreciation (1,556) (6,421) (5,465) – (13,442)
Impairment losses – – (1,154) (711) (1,865)
Disposals 110 2,460 1,375 – 3,945
Balance as at 31 December 2017 (20,760) (69,042) (65,132) (711) (155,645)
Carrying amount as at 31 December 2017 22,753 17,851 13,894 11,562 66,060
Land and
buildings
Technical
equipment and
machinery
Tooling, office
and other
equipment
Advances
paid and
assets under
construction* Total
Costs
Balance as at 1 January 2016 40,025 79,768 69,569 9,619 198,981
Additions 1,018 5,057 5,319 2,410 13,804
Disposals (112) (2,135) (1,746) – (3,993)
Transfers 827 2,276 1,470 (4,573) –
Balance as at 31 December 2016 41,758 84,966 74,612 7,456 208,792
Cumulative depreciation
and impairment losses
Balance as at 1 January 2016 (17,940) (60,895) (54,504) – (133,339)
Depreciation (1,486) (6,260) (5,194) – (12,940)
Impairment losses – – (1,935) – (1,935)
Disposals 112 2,074 1,745 – 3,931
Balance as at 31 December 2016 (19,314) (65,081) (59,888) – (144,283)
Carrying amount as at 31 December 2016 22,444 19,885 14,724 7,456 64,509
* As at 31 December 2017 advances paid amount to CZK 4,971 million (as at 31 December 2016: CZK 1,285 million) from the total amount of Advances paid
and assets under construction.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Impairment reviews
The requirements of IAS 1, IAS 10 and IAS 36 have been assessed by the Company’s management in relation to the decrease in planned
cash inflows regarding particular ŠKODA models and its potential impact on the carrying amount of the Company‘s non-current tan-
gible assets. Due to substantial changes in the market environment, the Company has experienced in 2017 a decrease in the planned
cash inflows relating to three cash-generating units (production of cars of certain model). Impairment reviews of assets relating to
those cash-generating units have been performed.
The carrying amounts of the assets relating to the cash-generating units have been compared with the relevant recoverable amounts.
The recoverable amounts have been determined based on the calculation of the value in use of the assets applying cash flow projec-
tions over the life cycle of the cash-generating units reflecting financial plans approved by the Company’s management for following
5 years.
For discounting cash flows, the pre-tax discount rate of 5.8% has been applied in 2017 (2016: 5.4%), reflecting the specific risks as-
sociated with the sector in which the Company operates. For three cash-generating units, the comparison of the carrying amounts
with the relevant recoverable amounts resulted in an impairment loss allocated to tangible assets in the amount of CZK 1,865 million
(2016: CZK 1,935 million), which has been posted to the income statement (within line Cost of sales) for the year ended 31 December
2017 (31 December 2016).
Capitalisation of borrowing costs
No borrowing costs have been capitalised in the cost of property, plant and equipment in 2017 or in 2016 as they were not material.
6. INVESTMENTS IN SUBSIDIARIES
Subsidiary Country of incorporation Shareholding %
ŠKODA AUTO Slovensko s.r.o. Slovakia 100
Skoda Auto India Private Ltd. India 100
ŠKODA AUTO DigiLab s.r.o. Czech Republic 100
The subsidiaries in which the Company has a financial investment paid dividends to the Company in the amount of CZK 47 million
in 2017 (2016: CZK 46 million).
7. INVESTMENTS IN ASSOCIATES (CZK million)
The Company’s share in the registered capital of the company OOO VOLKSWAGEN Group Rus as at 31 December 2017 was 16.8%
(as at 31 December 2016: 16.8%). The Company exercises significant influence in the company OOO VOLKSWAGEN Group Rus
based on the following factors: the Company is participating in policy-making processes, including participation in decisions about
distribution of profit; material transactions are conducted between both companies; an interchange of managerial personnel takes
places between both companies and the Company is providing essential technical information to the company OOO VOLKS-
WAGEN Group Rus.
The carrying amount of the Company’s share totalled CZK 1,823 million as at 31 December 2017 (as at 31 December 2016:
CZK 1,823 million). The recoverable amount of the associate is significantly higher than its carrying amount as at 31 December
2017 (as at 31 December 2016).
The Company’s share in the registered capital of the company ŠKO-ENERGO FIN, s.r.o. as at 31 December 2017 was 31.25% (as at
31 December 2016: 31.25%). The carrying amount of the Company’s share totalled CZK 529 million as at 31 December 2017 (as at
31 December 2016: CZK 529 million).
ŠKO-ENERGO FIN, s.r.o. paid dividends to the Company in the amount of CZK 152 million (2016: CZK 152 million).
104
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
8. OTHER RECEIVABLES, FINANCIAL ASSETS, TRADE
RECEIVABLES AND AVAILABLE-FOR-SALE FINANCIAL
ASSETS (CZK million)
8.1 OTHER NON-CURRENT RECEIVABLES AND FINANCIAL ASSETS
Balance as at 31 December 2017
Financial assets at
fair value through
profit or loss**
Loans and
receivables
Available-for-
sale financial
assets
Financial
assets
designated
as hedging
instruments Other* Total
Other non-current receivables
and financial assets
Loans to employees – 450 – – – 450
Positive fair value of financial derivatives (673) – – 4,507 – 3,834
Equity instruments – – 8,606 – – 8,606
Other – – – – – –
Total (673) 450 8,606 4,507 – 12,890
Balance as at 31 December 2016
Financial assets at
fair value through
profit or loss**
Loans and
receivables
Available-for-
sale financial
assets
Financial
assets
designated
as hedging
instruments Other* Total
Other non-current receivables
and financial assets
Loans to employees – 472 – – – 472
Positive fair value of financial derivatives (533) – – 3,889 – 3,356
Equity instruments – – 9,023 – – 9,023
Other – – – – 724 724
Total (533) 472 9,023 3,889 724 13,575
* The category Other does not meet a definition of financial instruments in terms of IAS 32.
** Financial assets held for trading.
Notes:
As the spot component exceeded the fair value as at 31 December 2017 (2016), the forward component was negative.
There are not any significant restrictions regarding the rights of use imposed on financial assets. Potential risks of delay or default are
taken into account through accumulated impairment losses except for those financial assets that are carried at fair value.
A forward component of hedging derivatives and fair value of derivatives held for trading are disclosed in the portfolio Financial
assets at fair value through profit or loss (see also Note 3.3.4).
The carrying value of non-current loans to employees approximates their fair value. The fair value of non-current loans to employ-
ees was determined as the present value of future cash flows based on market interest rates at the balance sheet date. The fair value
of non-current loans to employees qualifies for Level 3 in accordance with IFRS 13.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
In the column Financial assets designated as hedging instruments is disclosed spot component respectively fair value of derivatives
designated as hedging instruments. For detailed information on financial derivatives, including information relating to their fair
value in accordance with IFRS 13, refer to Note 3.3.4.
In the column Other is included mainly non-current receivable from VOLKSWAGEN AG.
Investments to equity instruments of other entities are disclosed in the portfolio Available-for-sale financial assets.
After approval by the relevant Chinese authorities with effect from 29 March 2016 the Company acquired 1% share in the company
SAIC VOLKSWAGEN AUTOMOTIVE COMPANY LIMITED (hereinafter referred to as SAIC), which is related party (as a joint
venture of VOLKSWAGEN AG and a third party). The Company plans to hold this investment for the foreseeable future and does
not consider its sale.
The fair value of the investment amounted to CZK 8,602 million as at 31 December 2017 (as at 31 December 2016: CZK 9,019 million).
The fair value of the investment to SAIC was determined as the present value of future free cash flows (FCF) based on discount rate
derived from weighted average cost of capital of SAIC (WACC). The fair value of the investment qualifies for Level 3 in accordance
with IFRS 13.
As significant unobservable inputs, the assumptions regarding corporate planning (for example operating cash flows), the growth
rates used to estimate cash flow after the end of the planning period, and the discount rate are taken into account when determining
the fair value. In 2017 (2016) FCF have been extrapolated with a growth rate of 3.0% (1.0%). For discounting free cash flows, the
WACC after tax rate of 13.1% (10.5%) has been applied in 2017 (2016).
Based on information currently available as at 31 December 2017 (as at 31 December 2016), a material change in corporate planning
was considered unlikely. The cash flow forecasts used are therefore considered to be an appropriate basis for measuring fair value.
The following table shows the change of investments in equity instruments measured at fair value in Level 3:
Investments in equity instruments
Balance as at 1 January 2017 9,019
Additions –
Total change in fair value in the period (417)
Balance as at 31 December 2017 8,602
Investments in equity instruments
Balance as at 1 January 2016 –
Additions 7,592
Total change in fair value in the period 1,427
Balance as at 31 December 2016 9,019
The effect of the fair value measurement of the investment was recognised in other comprehensive income.
106
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Sensitivity of the fair value of the investment to the change in the long-term growth rate
In 2017, the Company expects as reasonably possible the movement of long-term growth rate in the following period of +/- 0.5 per-
centage point (2016: +/- 0.5 percentage point).
The following tables present an impact on the balance sheet items at the expected increase or decrease in the long-term growth rate:
2017
Increase by 0.5
percentage point
Decrease by 0.5
percentage point
Increase / (decrease) of the fair value of the investment 238 (215)
Increase / (decrease) of the other comprehensive income before tax 238 (215)
2016
Increase by 0.5
percentage point
Decrease by 0.5
percentage point
Increase / (decrease) of the fair value of the investment 262 (235)
Increase / (decrease) of the other comprehensive income before tax 262 (235)
Sensitivity of the fair value of the investment to the change in WACC
In 2017, the Company expects as reasonably possible the movement of WACC in the following period of +/- 0.5 percentage point
(2016: +/- 0.5 percentage point).
The following tables present an impact on the balance sheet items at the expected increase or decrease of the WACC:
2017
Increase by 0.5
percentage point
Decrease by 0.5
percentage point
Increase / (decrease) of the fair value of the investment (400) 442
Increase / (decrease) of the other comprehensive income before tax (400) 442
2016
Increase by 0.5
percentage point
Decrease by 0.5
percentage point
Increase / (decrease) of the fair value of the investment (403) 449
Increase / (decrease) of the other comprehensive income before tax (403) 449
There are no significant interrelationships between significant unobservable inputs.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
8.2 OTHER CURRENT RECEIVABLES AND FINANCIAL ASSETS
Balance as at 31 December 2017
Financial assets
at fair value
through profit
or loss**
Loans and
receivables
Financial assets
designated
as hedging
instruments Other* Total
Other current receivables
and financial assets
Loans to employees – 57 – – 57
Loans to and deposits in
Volkswagen Group companies – – – – –
Positive fair value of
financial derivatives (689) – 5,099 – 4,410
Tax receivables (excl. income tax) – – – 4,516 4,516
Other – 504 – 1,430 1,934
Total (689) 561 5,099 5,946 10,917
Balance as at 31 December 2016
Financial assets
at fair value
through profit
or loss**
Loans and
receivables
Financial assets
designated
as hedging
instruments Other* Total
Other current receivables
and financial assets
Loans to employees – 60 – – 60
Loans to and deposits in
Volkswagen Group companies – 8,314 – – 8,314
Positive fair value of
financial derivatives (321) – 3,227 – 2,906
Tax receivables (excl. income tax) – – – 3,531 3,531
Other – 146 – 2,206 2,352
Total (321) 8,520 3,227 5,737 17,163
* The category Other does not meet a definition of financial instruments in terms of IAS 32.
** Financial assets held for trading.
Notes:
As the spot component exceeded the fair value as at 31 December 2017 (2016), the forward component was negative.
There are not any significant restrictions regarding the rights of use imposed on financial assets. Potential risks of delay or default are
taken into account through accumulated impairment losses except for those financial assets that are carried at fair value.
A forward component of hedging derivatives and fair value of derivatives held for trading are disclosed in the portfolio Financial
assets at fair value through profit or loss (see also Note 3.3.4).
Loans to employees and loans and deposits in Volkswagen group companies are disclosed in the portfolio Loans and receivables.
The carrying value of current loans to employees approximates their fair value. The fair value of current loans to employees was de-
termined as the present value of future cash flows based on market interest rates at the balance sheet date. The fair value of current
loans to employees qualifies for Level 3 in accordance with IFRS 13.
108
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
In the column Financial assets designated as hedging instruments is disclosed spot component respectively fair value of derivatives
designated as hedging instruments. For detailed information on financial derivatives, including information relating to their fair
value in accordance with IFRS 13, refer to Note 3.3.4.
In the column Other are included mainly current receivables from employees, advances paid and other current receivables from
VOLKSWAGEN AG.
As at 31 December 2016 the weighted average effective interest rate on loans and deposits in Volkswagen Group companies based
on the carrying value was 0.364%. The carrying value of loans and deposits in Volkswagen Group companies approximated their
fair value. The fair value of loans and deposits in Volkswagen Group companies was determined as the present value of future cash
flows based on market interest rates at the balance sheet date. The fair value of loans and deposits in Volkswagen Group companies
qualified for Level 2 in accordance with IFRS 13. All loans and deposits in Volkswagen group companies disclosed in Note 8 were
denominated in CZK.
8.3 TRADE RECEIVABLES
Current trade receivables 2017 2016
Third parties 2,249 2,598
Subsidiaries 934 897
Other related parties 15,269 13,335
Total 18,452 16,830
Due to their current nature the carrying amount of current trade receivables after a deduction of allowance for impairment (if any)
approximates their fair value.
The allowance for the impairment of trade receivables of CZK 148 million (2016: CZK 156 million) has been deducted from the pre-
sented carrying values of trade receivables.
Trade receivables are classified in the portfolio Loans and receivables in accordance with IAS 39.
9. INVENTORIES (CZK million)
Structure of the inventories
Carrying value as at
31 December 2017
Carrying value as at
31 December 2016
Raw materials, consumables and supplies 5,859 5,174
Work in progress 3,843 3,726
Finished products and goods 7,912 7,193
Total 17,614 16,093
The amount of inventories (including production related personnel costs and overheads capitalised into inventories) recognised as
an expense during 2017 was CZK 339,360 million (2016: CZK 287,232 million).
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
10. CASH AND CASH EQUIVALENTS (CZK million)
2017 2016
Cash in hand 4 5
Cash pooling 17,196 33,016
Bank accounts 1 235
Cash equivalents 80,000 40,000
Total 97,201 73,256
The weighted average effective interest rate based on the carrying amount of bank accounts as at 31 December 2017 was 0.0% (as at
31 December 2016: 0.0%).
The line Cash pooling includes overnight deposits from the use of cash pooling (see Note 3.2). The line Cash equivalents includes
other current deposits in Volkswagen Group companies with original maturity less than three months. In the Note 3 are these depos-
its including cash pooling deposits included in Loans and receivables category in accordance with IAS 39.
The weighted average effective interest rate on current cash equivalents including cash pooling based on the carrying amount as
at 31 December 2017 was 0.0% (as at 31 December 2016: 0.0%). The carrying amount of cash equivalents including cash pooling ap-
proximates their fair value. Out of the total value of cash equivalents including cash pooling was denominated in CZK: CZK 96,408
million (as at 31 December 2016: CZK 70,923 million) and in EUR: CZK 788 million (as at 31 December 2016: CZK 2,093 million).
11. SHARE CAPITAL
The issued share capital consists of 1,670,885 ordinary shares at a par value of CZK 10,000 per share.
The sole shareholder of the Company is VOLKSWAGEN FINANCE LUXEMBURG S.A. based in Strassen, Grand Duchy of
Luxembourg. VOLKSWAGEN FINANCE LUXEMBURG S.A. is directly a 100% subsidiary of VOLKSWAGEN AG.
Rights to vote on the Company’s general meetings and rights to receive dividends are attached to the ordinary shares.
There was no movement in the Company’s share capital during the accounting period 2017 (2016).
In 2017, the Company paid dividend in the amount of CZK 18,870 million from profit for the year 2016 (2016: CZK 15,400 million).
Additionally, the dividend in the amount of CZK 38,520 million from retained earnings relating to the previous accounting periods
was declared by the decision of the sole shareholder exercising the powers of the general meeting in 2017. This dividend will be paid
out in 2018.
The dividend per share was CZK 34,347 in 2017 (2016: CZK 9,217).
110
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
12. OTHER RESERVES AND RETAINED EARNINGS (CZK million)
12.1 OTHER RESERVES
2017 2016
Available-for-sale financial assets revaluation reserve* 818 1,156
Reserves for cash flow hedges* 6,836 1,045
Statutory reserve fund 3,366 3,366
Total 11,020 5,567
* Net of deferred tax.
The Company has adopted the Business Corporations Act as a whole and has retained the rules for creation of statutory reserve fund.
The statutory reserve fund may be used only to offset losses.
Movement in available-for-sale assets revaluation reserve:
Available-for-sale financial assets revaluation reserve
Balance as at 1 January 2017 1,156
Total change in fair value in the period (417)
Deferred tax on change in fair value 79
Balance as at 31 December 2017 818
Available-for-sale financial assets revaluation reserve
Balance as at 1 January 2016 –
Total change in fair value in the period 1,427
Deferred tax on change in fair value (271)
Balance as at 31 December 2016 1,156
Movement in reserve for cash flow hedges:
Reserves for cash flow hedges
Balance as at 1 January 2017 1,045
Total change in fair value in the period 9,360
Deferred tax on change in fair value (1,778)
Total transfers to net profit in the period – effective hedging (2,211)
Total transfers to net profit in the period – ineffective hedging –
Deferred tax on transfers to profit or loss 420
Balance as at 31 December 2017 6,836
Reserves for cash flow hedges
Balance as at 1 January 2016 (8,134)
Total change in fair value in the period 8,953
Deferred tax on change in fair value (1,701)
Total transfers to net profit in the period – effective hedging 2,373
Total transfers to net profit in the period – ineffective hedging 6
Deferred tax on transfers to profit or loss (452)
Balance as at 31 December 2016 1,045
The transfer from reserves for cash flow hedges to profit or loss arising from effective hedging is in 2017 presented in the line Other
operating expense in amount of CZK 2,202 million (2016: CZK 3,644 million) and in the line Other operating income in amount of
CZK 4,413 million (2016: CZK 1,271 million).
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
12.2 RETAINED EARNINGS
From the total amount of retained earnings of CZK 88,177 million (as at 31 December 2016: CZK 113,726 million) profit for the year
2017, net of tax, amounts to CZK 31,841 million (2016: CZK 25,163 million).
In compliance with the relevant regulation of the Business Corporations Act, the profit of the Company for the year 2017 (deter-
mined in accordance with IFRS) is going to be allocated based on the decision of the Company’s annual general meeting. At the date
of approval of these financial statements, no dividend payments have been proposed, and the distribution of the Company’s result
for the year ended 31 December 2017 has not been approved.
13. FINANCIAL, OTHER AND TRADE LIABILITIES (CZK million)
13.1 FINANCIAL AND OTHER NON-CURRENT LIABILITIES
Balance as at 31 December 2017
Financial liabilities
at fair value through
profit or loss**
Financial liabilities
designated as
hedging instruments Other* Total
Negative fair value of
financial derivatives 90 4 – 94
Other – – 3,356 3,356
Total 90 4 3,356 3,450
Balance as at 31 December 2016
Financial liabilities
at fair value through
profit or loss**
Financial liabilities
designated as
hedging instruments Other* Total
Negative fair value of
financial derivatives (34) 1,450 – 1,416
Other – – 2,748 2,748
Total (34) 1,450 2,748 4,164
* The category Other includes items that are not financial liabilities in terms of IAS 32.
** Financial liabilities held for trading.
Notes:
As the spot component exceeded the fair value as at 31 December 2016, the forward component is negative.
The column and line Other includes mainly the deferred income from extended warranty.
112
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
13.2 FINANCIAL AND OTHER CURRENT LIABILITIES
Balance as at
31 December 2017
Financial
liabilities at fair
value through
profit or loss**
Financial
liabilities carried
at amortised cost
Financial
liabilities
designated
as hedging
instruments Other* Total
Negative fair value of
financial derivatives 462 – 32 – 494
Liabilities to employees – – – 5,366 5,366
Social security – – – 573 573
Other – 38,520 – 2,140 40,660
Total 462 38,520 32 8,079 47,093
Balance as at
31 December 2016
Financial
liabilities at fair
value through
profit or loss**
Financial
liabilities carried
at amortised cost
Financial
liabilities
designated
as hedging
instruments Other* Total
Negative fair value of
financial derivatives 812 – 1,296 – 2,108
Liabilities to employees – – – 4,098 4,098
Social security – – – 498 498
Other – – – 1,574 1,574
Total 812 – 1,296 6,170 8,278
* The category Other includes items that are not financial liabilities in terms of IAS 32.
** Financial liabilities held for trading.
A forward component of hedging derivatives and fair value of derivatives held for trading are disclosed in the portfolio Financial
liabilities at fair value through profit or loss (see also Note 3.3.4).
The dividend in the amount of CZK 38,520 million approved in December 2017 (see Note 11) is included in Financial liabilities car-
ried at amortised cost.
In the column Financial liabilities designated as hedging instruments is disclosed spot component respectively fair value of deriv-
atives designated as hedging instruments. For detailed information on financial derivatives, including information relating to their
fair value in accordance with IFRS 13, refer to Note 3.3.4.
In the column and in line Other are mainly disclosed the deferred income from extended warranty and granted licences.
None of the financial liabilities are secured by a lien.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
13.3 TRADE LIABILITIES
All trade liabilities are current in nature.
Balance as at 31 December 2017
Financial liabilities
carried at
amortised cost Other* Total
Trade liabilities
Third parties 29,050 688 29,738
Subsidiaries 243 – 243
Other related parties 14,057 240 14,297
Total 43,350 928 44,278
Balance as at 31 December 2016
Financial liabilities
carried at
amortised cost Other* Total
Trade liabilities
Third parties 28,802 933 29,735
Subsidiaries 258 – 258
Other related parties 11,680 230 11,910
Total 40,740 1,163 41,903
* The category Other includes items that are not financial liabilities in terms of IAS 32.
Liabilities to a factoring company within the Volkswagen Group in amount of CZK 2,123 million as at 31 December 2017 (as at 31 De-
cember 2016: CZK 2,346 million) are disclosed in line Trade liabilities to other related parties. These liabilities originated in the
ordinary course of business and credit terms and maturity of the liabilities have not changed upon transfer to the factoring company.
Due to the short term nature of trade liabilities, the carrying amount approximates the fair value.
In the column Other mainly advances received are disclosed.
None of the trade liabilities are secured by a lien.
114
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
14. DEFERRED TAX LIABILITIES AND ASSETS (CZK million)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset the current tax assets against
current tax liabilities, and when the deferred income taxes relate to income taxes charged by the same fiscal authority.
The movements in deferred tax assets and liabilities during the year, without taking into consideration the offsetting, are as follows:
Deferred tax liabilities Depreciation
Financial
derivatives*
Investment
incentives
Equity
instruments Total
Balance as at 1 January 2016 (4,420) 1,908 – – (2,512)
Credited / (debited) to the income statement 637 – – – 637
Charged to other comprehensive income – (2,153) – (271) (2,424)
Balance as at 31 December 2016 (3,783) (245) – (271) (4,299)
Credited / (debited) to the income statement (3) – – – (3)
Charged to other comprehensive income – (1,358) – 79 (1,279)
Balance as at 31 December 2017 (3,786) (1,603) – (192) (5,581)
Deferred tax assets Depreciation
Financial
derivatives*
Investment
incentives Other** Total
Balance as at 1 January 2016 – – 1,335 4,790 6,125
Credited / (debited) to the income statement – – 108 936 1,044
Charged to other comprehensive income – – – – –
Balance as at 31 December 2016 – – 1,443 5,726 7,169
Credited / (debited) to the income statement – – (736) 945 209
Charged to other comprehensive income – – – – –
Balance as at 31 December 2017 – – 707 6,671 7,378
Deferred tax liabilities and assets net Depreciation
Financial
derivatives*
Investment
incentives Other Total
Balance as at 31 December 2016 (3,783) (245) 1,443 5,455 2,870
Balance as at 31 December 2017 (3,786) (1,603) 707 6,479 1,797
* Further information on financial derivatives is disclosed in Note 2.5.3.
** The category Other includes mainly provisions, valuation allowances and temporary differences from accrued liabilities.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
15. NON-CURRENT AND CURRENT PROVISIONS (CZK million)
Provisions
arising
from sales
Provisions for
employee
benefits
Provisions
for litigation
risks
Provisions
for purchase
risks
Other
provisions Total
Balance as at 1 January 2016 20,492 1,933 1,429 1,066 3,116 28,036
Utilised (5,158) (406) (427) (156) (37) (6,184)
Additions 8,778 459 835 864 685 11,621
Interest expense (49) – – – – (49)
Reversals (154) (48) (6) (193) (62) (463)
Balance as at 1 January 2017 23,909 1,938 1,831 1,581 3,702 32,961
Utilised (7,037) (286) – (201) (77) (7,601)
Additions 8,158 1,180 1,091 1,397 1,233 13,059
Interest expense (18) – – – – (18)
Reversals (1,434) (46) (141) (314) (77) (2,012)
Balance as at 31 December 2017 23,578 2,786 2,781 2,463 4,781 36,389
Non-current and current provisions according to the time of expected use of resources:
Balance as at 31 December 2017 < 1 year 1 – 5 years > 5 years Total
Provisions arising from sales 12,584 8,447 2,547 23,578
Provisions for employee benefits 478 656 1,652 2,786
Provisions for litigation risks 2,781 – – 2,781
Provisions for purchase risks 2,463 – – 2,463
Other provisions 4,781 – – 4,781
Total 23,087 9,103 4,199 36,389
Balance as at 31 December 2016 < 1 year 1 – 5 years > 5 years Total
Provisions arising from sales 11,131 10,221 2,557 23,909
Provisions for employee benefits 446 479 1,013 1,938
Provisions for litigation risks 1,831 – – 1,831
Provisions for purchase risks 1,581 – – 1,581
Other provisions 3,702 – – 3,702
Total 18,691 10,700 3,570 32,961
116
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
Provisions arising from sales include provisions for warranty repairs and provisions for other obligations arising from sales. The
provisions for warranty repairs include provision for basic guarantees (2 years), provision for corrosion guarantees (dependent on
the model for 10 or 12 years) and other guarantees beyond the scope of basic warranty especially good-will repairs. The Company
recognises the provisions for warranty claims at the moment of sale on the basis of the number of sold cars and in advance deter-
mined rates for individual model lines. Provisions arising from sales include further provisions for sale bonuses and other allowances
incurred, settlement of which is expected after the balance sheet date, but for which there is a legal or constructive obligation at-
tributable to sales revenue before the balance sheet date. The additions to provisions for bonuses and other obligations arising from
sales decrease revenues. Following emissions irregularities discovered at VOLKSWAGEN AG, provisions arising from sales included
also provision for service action and other expenditures related to technical measures for cars equipped with EA189 engines. The
total balance of the provision related to EA189 issue amounted to CZK 2,640 million in 2017 (as at 31 December 2016: CZK 3,476 mil-
lion). Creation of the provision was reported in cost of sales in the income statement. Expenditures which relate to potential claim
settlement will be partly reimbursed to the Company and in connection with the fact stated above, amount receivable from VOLKS-
WAGEN AG of CZK 752 million was reported in other receivables as at 31 December 2017 (as at 31 December 2016: CZK 1,939 million) .
Provisions for employee benefits consist mainly of provision for other non-current employee benefits and provision for termination
benefits.
Provisions for litigation risks relate mainly to provision for risks arising from legal disputes, legal fees, penalty interest and other
litigation risks. The Company provides for the probable cash outflows for existing legal, arbitration or other proceedings by means
of a relevant provision. The Company is not involved in any legal cases, arbitration or other proceedings for which no provision has
been created and which could have a material impact on the financial position and the financial results (financial statements) of the
Company and there are no such proceedings expected in the near future.
Provisions for purchase risks include mainly provision for risks of retrospective changes in prices of raw materials and parts.
Other provisions include mainly provision for tax risks (other than income taxes) and customs risks in countries where the Company
operates.
16. SALES (CZK million)
2017 2016
Cars 343,452 292,300
Spare parts and accessories 21,064 19,458
Supplies of components within Volkswagen Group 34,183 27,995
Income from licence fees 2,636 3,385
Revenues from services 2,916 2,650
Other 3,149 2,199
Total 407,400 347,987
In 2017 (2016) line Other relates mainly to sales of used cars, scrap and tooling.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
17. OTHER OPERATING INCOME (CZK million)
2017 2016
Foreign exchange gains 4,242 1,523
Gains from derivative transactions 4,413 1,271
Gains on non-current assets disposal 38 13
Reversal of provisions and accruals 2,689 1,434
Reversal of provision for receivables 39 21
Other operating income from provided services 695 926
Gains from licence fees not relating to the ordinary activities 199 205
Other 1,082 1,105
Total 13,397 6,498
Other in 2017 (2016) includes mostly re-invoicing of expenses.
Foreign exchange gains include mainly gains from differences in exchange rates between the dates of recognition and payment of re-
ceivables and payables denominated in foreign currencies, as well as exchange rate gains resulting from translation as at the balance
sheet date of these receivables and payables. Foreign exchange losses from these items are included in other operating expenses.
Other operating income from provided services includes mainly gains from consultancy and IT services not relating to ordinary
activities of the Company.
Reversal of provisions and accruals resulted from changes in estimates driven mainly by the changed external conditions and cir-
cumstances on which the Company based the estimates.
18. OTHER OPERATING EXPENSES (CZK million)
2017 2016
Foreign exchange losses 2,928 1,150
Losses from derivative transactions 2,202 3,644
Receivables write-offs 124 87
Additions to provisions for litigation risks and other provisions 2,324 1,520
Other 419 614
Total 7,997 7,015
118
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
19. FINANCIAL RESULT (CZK million)
2017 2016
Interest income 48 81
Foreign exchange gains from cash 7 18
Foreign exchange gains from spot operations 69 70
Dividend income 1,121 1,100
Gains on settlement and revaluation of financial derivatives – ineffective hedging
(includes forward component of currency financial derivatives) 2,128 1,508
Financial income total 3,373 2,777
Interest expenses 179 196
Foreign exchange losses from cash 213 25
Foreign exchange losses from spot operations 100 81
Loss on settlement and revaluation of financial derivatives – ineffective hedging
(includes forward component of currency financial derivatives) 4,287 2,519
Financial expenses total 4,779 2,821
Net financial result (1,406) (44)
Dividend income in 2017 includes mainly dividend income of CZK 916 million from the investment in SAIC (2016: CZK 897 million).
20. NET GAINS AND LOSSES FROM FINANCIAL
INSTRUMENTS (CZK million)
2017 2016
Financial instruments at fair value through profit or loss (2,159) (1,011)
Loans and receivables (1,834) 109
Available-for-sale financial assets 921 902
Financial liabilities carried at amortised cost 2,805 113
Financial instruments designated as hedging instruments 2,211 (2,373)
Net gains / (losses) in profit or loss 1,943 (2,260)
Financial derivatives through other comprehensive income 7,149 11,332
Available-for-sale financial assets through other comprehensive income (417) 1,427
Net gains / (losses) in profit or loss through other comprehensive income 6,732 12,759
Total net gains / (losses) 8,675 10,499
The portfolio of Financial instruments at fair value through profit or loss contains mainly gains and losses from forward component
of hedging derivatives and gains and losses from derivatives held for trading.
Other items contain mainly unrealised and realised foreign exchange gains and losses on trade receivables and liabilities, net interest
gains and losses from derivative hedging instruments, foreign exchange gains / losses from bank deposits, impairment losses on
financial assets and dividends income from available-for-sale financial assets. For information on net gains and losses from financial
instruments through other comprehensive income refer to Note 12.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
21. INCOME TAX (CZK million)
2017 2016
Current tax expense 7,490 7,367
of which: adjustment in respect of prior years 39 376
Deferred tax (206) (1,681)
Income tax total 7,284 5,686
Statutory income tax rate in the Czech Republic for the 2017 assessment period was 19% (2016: 19%).
As at 31 December 2017 and 31 December 2016, deferred income taxes attributable to the Czech tax jurisdiction were measured at
a tax rate of 19% that corresponds with the statutory tax rates enacted for the future periods when realisation of deferred tax assets
and liabilities is expected.
Reconciliation of expected to effective income tax expense (CZK million)
2017 2016
Profit before tax 39,125 30,849
Expected income tax expense 7,434 5,861
Proportion of taxation relating to:
Permanent differences resulting from:
Tax exempt income (89) (63)
Expenses not deductible for tax purposes 538 426
Tax allowances and other tax credits* (599) (351)
Adjustment to current tax expense relating to prior periods 39 376
Recognition of deferred tax assets from unused tax credits from investment incentives (2) (108)
Utilisation of tax credits from investment incentives – (420)
Other taxation effects (37) (35)
Effective income tax expense 7,284 5,686
Effective income tax rate 19% 18%
* Tax allowances and other tax credits represent mainly tax credits from double deduction of research and development costs.
120
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
22. SUBSIDIES AND INVESTMENT INCENTIVES (CZK million)
In 2017, the Company recognised income from subsidies relating to the promotion of an entrepreneurial activity, investments in
energy-saving measures in production field, construction of employees-training premises, cooperation within research and devel-
opment projects and support of private schools and cross-border mobility of students (ŠKODA AUTO a.s., Střední odborné učiliště
strojírenské, odštěpný závod) in the total amount of CZK 64 million (2016: CZK 62 million).
Investment incentives
To be granted the investment incentives, the Company has to meet the General conditions of paragraph 2 art. 2 of the Act No. 72/2000
Coll., on Investment Incentives, as amended and conditions of paragraph 6a art. 2 and 5 of the same act and Special conditions para-
graph 35b of the Act No. 586/1992 Coll., on Income Tax as amended. For the investment incentives granted to the Company, the total
amount of the incentive is always dependent on the amount invested.
The following table summarises granted investment incentives and their use in 2017:
Investment incentive
Maximum amount
of the investment
incentive
Recognised deferred
tax asset from
investment
incentives
Utilisation of
tax credits from
investment
incentives*
Enlargement of current production by production
of automatic transmissions – DQ 200 Vrchlabí 738 – 738
Enlargement of welding shop by production technology
used for bodies based on MQB platform – Kvasiny 707 707 –
Total 1,445 707 738
* The amount represents estimated utilisation of investment incentives as at 31 December 2017, which the Company included in the calculation of corporate
income tax estimate for 2017.
The following table summarises granted investment incentives and their use in 2016:
Investment incentive
Maximum amount
of the investment
incentive
Recognised deferred
tax asset from
investment
incentives
Utilisation of
tax credits from
investment
incentives*
Enlargement of production of transmissions – MQ 100 496 – 420
Enlargement of current production by production
of automatic transmissions – DQ 200 Vrchlabí 738 738 –
Enlargement of welding shop by production technology
used for bodies based on MQB platform – Kvasiny 707 705 –
Total 1,941 1,443 420
* The amount represents estimated utilisation of investment incentives as at 31 December 2016, which the Company included in the calculation of corporate
income tax estimate for 2016.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
23. CONTRACTUAL OBLIGATIONS AND OTHER FUTURE
COMMITMENTS (CZK million)
Future commitments as at balance sheet date are as follows:
Payable until
year 2018 Payable 2019 – 2022 31 December 2017
Investment commitments – property, plant and equipment 8,989 3,717 12,706
Investment commitments – intangible assets 11,600 17,000 28,600
Operating leasing payments 431 677 1,108
Payable until
year 2017 Payable 2018 – 2021 31 December 2016
Investment commitments – property, plant and equipment 4,455 973 5,428
Investment commitments – intangible assets 7,864 10,041 17,905
Operating leasing payments 350 315 665
On the basis of non-cancellable operating lease agreements, the Company rented various machines and office equipment and build-
ings. In the case of termination of these agreements, all outstanding lease payments up to the original expiration date of the contract
must be paid.
24. EXPENSES BY NATURE – ADDITIONAL INFORMATION
(CZK million)
2017 2016
Material costs – raw materials and other supplies, goods 277,057 232,257
Production related services 12,851 12,339
Personnel costs 28,863 23,190
Wages 21,610 17,701
Pension benefit costs (defined contribution plans) 3,960 3,276
Social insurance and other personnel costs 3,293 2,213
Depreciation, amortisation and impairment losses 22,376 22,528
Other services 31,122 26,264
Total cost of sales, distribution and administrative expenses 372,269 316,578

Number of employees
Number of employees* 32,985 29,457
* Average number of employees (including temporary employees).
122
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
25. RELATED PARTY TRANSACTIONS
The sole shareholder of the Company was VOLKSWAGEN FINANCE LUXEMBURG S.A. during the whole accounting period ended
31 December 2017 (31 December 2016).
VOLKSWAGEN AG was the ultimate parent company and the ultimate controlling party during the whole accounting period ended
31 December 2017 (31 December 2016).
Items in category Other related parties are companies under joint control of VOLKSWAGEN AG, however, for the purposes of
compiling the Report on relations they do not meet the definition of an entity controlled by the same controlling entity pursuant to
paragraph 74 of the Act No. 90/2012 Coll., Business Corporations Act, as amended.
THE COMPANY PARTICIPATED IN THE FOLLOWING TRANSACTIONS WITH RELATED PARTIES:
SALES TO RELATED PARTIES (CZK MILLION)
2017 2016
Parent company
VOLKSWAGEN FINANCE LUXEMBURG S.A. – –
Ultimate parent company
VOLKSWAGEN AG 1,803 6,333
Subsidiaries
Skoda Auto India Private Ltd. 2,341 2,351
ŠKODA AUTO Slovensko s.r.o. 7,936 6,964
Associates
OOO VOLKSWAGEN Group Rus 12,802 6,817
Companies controlled by ultimate parent company 270,319 218,336
Other related parties 1,307 1,536
Total 296,508 242,337
The above table Sales to related parties comprises only revenues from sales of vehicles, spare parts and supplies of vehicle components.
In addition to revenues specified in the table Sales to related parties, in 2017 (2016) the Company also earned income from licence fees:
Income from licence fees 2017 2016
Ultimate parent company – –
Subsidiaries 25 7
Associates 130 127
Other related parties 2,481 3,251
Total 2,636 3,385
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
In addition to the revenues specified in the table Sales to related parties, in 2017 (2016) the Company also earned income with related
parties relating to interest from intercompany loans and deposits:
Interest income from loans and deposits 2017 2016
Ultimate parent company – –
Companies controlled by ultimate parent company 17 31
Total 17 31
Dividends received from subsidiaries are disclosed in Note 6. Dividends received from associates are disclosed in Note 7.
Dividends paid from other equity instruments are disclosed in Note 19.
PURCHASES FROM RELATED PARTIES (CZK MILLION)
2017 2016
Parent company
VOLKSWAGEN FINANCE LUXEMBURG S.A. – –
Ultimate parent company
VOLKSWAGEN AG 57,569 57,954
Subsidiaries
Skoda Auto India Private Ltd. 268 477
ŠKODA AUTO Slovensko s.r.o. 75 66
Associates
OOO VOLKSWAGEN Group Rus 5,317 625
Companies controlled by ultimate parent company 33,305 26,610
Other related parties 666 508
Total 97,200 86,240
Only purchases related to activities connected to business operations are included in the table Purchases from related parties, in
particular costs for acquisition of raw materials, goods and services.
In addition to the transactions related to the ordinary course of business the Company purchased from its ultimate parent company
VOLKSWAGEN AG 1% share in the company SAIC VOLKSWAGEN AUTOMOTIVE COMPANY LIMITED pursuant to a contract
dated 26 February 2016 which is after approval by the relevant Chinese authorities effective from 29 March 2016. For more informa-
tion on the acquisition of share refer to Note 8.
The amount of approved and paid dividends to the parent company is presented in Note 11.
124
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
RECEIVABLES FROM RELATED PARTIES (CZK MILLION)
31 December 2017 31 December 2016
Parent company
VOLKSWAGEN FINANCE LUXEMBURG S.A. – –
Ultimate parent company
VOLKSWAGEN AG 2,010 1,683
Subsidiaries
Skoda Auto India Private Ltd. 927 886
ŠKODA AUTO Slovensko s.r.o. 7 11
Associates
OOO VOLKSWAGEN Group Rus 1,973 1,937
Companies controlled by ultimate parent company 9,413 8,182
Other related parties 1,873 1,533
Total 16,203 14,232
The above table comprises trade receivables and receivables from licence fees. Receivables from licence fees are specified below.
Receivables license fees 31 December 2017 31 December 2016
Ultimate parent company – –
Subsidiaries 28 5
Associates 37 127
Other related parties 1,775 1,419
Total 1,840 1,551
In addition to trade receivables and receivables from licence fees, the Company as at 31 December 2017 also had loans to and deposits
including cash pooling in companies controlled by ultimate parent company in the amount of CZK 97,196 million (as at 31 December
2016: CZK 81,316 million). Receivables from interest from the loans as at 31 December 2017 amounted to CZK 0 million (as at 31 De-
cember 2016: CZK 14 million). The weighted average effective interest rate on current deposits with original maturity less than three
months (including cash pooling) is disclosed in Note 10. The weighted average effective interest rate on the loans as at 31 December
2016 is disclosed in Note 8.
In addition to that, the Company also had receivable from its ultimate parent company VOLKSWAGEN AG amounting to
CZK 908 million as at 31 December 2017 relating mainly to the claim refund necessary for settlement of the provision described in
Note 15 (as at 31 December 2016: CZK 2,457 million).
Receivables from related parties are considered by the Company to be of the least risk. The products delivered to the related parties
are supplied on credit terms or the resulting receivables are transferred to factoring companies. No impairment loss was identified
for any of the receivables from related parties. Information on Factoring of receivables with related parties is disclosed in Note 3.1
and 3.1.6.
Information on Investments in subsidiaries is disclosed in Note 6, information on Investments in associates is disclosed in Note 7 and
information on Investments in equity instruments issued by related parties in Note 8.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
LIABILITIES TO RELATED PARTIES (CZK MILLION)
31 December 2017 31 December 2016
Parent company
VOLKSWAGEN FINANCE LUXEMBURG S.A. – –
Ultimate parent company
VOLKSWAGEN AG 3,655 2,696
Subsidiaries
Skoda Auto India Private Ltd. 230 224
ŠKODA AUTO Slovensko s.r.o. 13 34
Associates
OOO VOLKSWAGEN Group Rus 86 199
Companies controlled by ultimate parent company 10,475 8,916
Other related parties 81 99
Total 14,540 12,168
Liabilities to related parties represent only trade liabilities for all the categories stated above.
Except for trade payables the Company has recognised also a dividend liability in the amount of CZK 38,520 million to the parent
company VOLKSWAGEN FINANCE LUXEMBURG S.A. as at 31 December 2017. Additional information is disclosed in Note 11.
Contractual obligations and other future commitments 31 December 2017 31 December 2016
Ultimate parent company 28,750 17,725
Companies controlled by ultimate parent company 219 261
Total 28,969 17,986
Contractual obligations to related parties include mainly commitments in respect of research and development costs and tooling
rights.
INFORMATION ON KEY MANAGEMENT PERSONNEL REMUNERATION (CZK MILLION)
2017 2016
Salaries and other short-term employee benefits* 748 678
Pension benefit costs (defined contribution plans) 15 14
Total 763 692
* Salaries and other short-term employee benefits include besides wages, salaries, bonuses and non-monetary remuneration also health and social
insurance paid by employer for employees.
Key management personnel include members of the Board of Management, Supervisory Board and managers of the Company hav-
ing authority and responsibility for planning, directing and controlling the activities of the Company.
CZK 364 million out of the total amount disclosed in the line Salaries and other short-term employee benefits was outstanding
as at 31 December 2017 (as at 31 December 2016: CZK 308 million).
126
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
26. OTHER INFORMATION (CZK million)
The compensation paid to the Company’s auditors for the accounting period 2017 was CZK 40 million (2016: CZK 26 million) and
covered the following services:
2017 2016
Audit, other audit related and assurance services 24 22
Tax and related services 1 1
Other advisory services 15 3
Total 40 26
27. CONTINGENT LIABILITIES
The Company has noted contingent liabilities in connection with the EA189 issue representing claims made through lawsuits against
the Company. These claims meet the criteria of a contingent liability, but their value could not be disclosed, because it is not possible to
quantify the potential settlement conditions of such claims. Currently, these proceedings are still in the early stages. Claimants still have
not specified the value of their claims or the number of group members of collectively filed lawsuits. Chances of success of such claims
may be currently assessed as generally less than 50%.
In some countries (Australia, Belgium, India, the Netherlands, the Czech Republic, Poland, the United Kingdom), there are judicial pro-
ceedings conducted on the basis of collective actions or legal instruments of similar nature against the Company and other companies
of the Volkswagen Group or also against other persons, in which alleged entitlement to a refund and compensation, among other, are
claimed. Since the proceedings are in the initial stage, the value of the claims cannot be quantified so far. The last year has not brought
any significant new knowledge, which would enable reliable specification of the claims.
In addition to the above, individual actions were filed in some countries (in a small number of cases) against the Company, in which
the claimants mostly seek compensation for alleged damage or replacement of allegedly defective vehicles with defect-free vehicles.
Currently, it is impossible to estimate the number of customers who will use the possibility to bring their alleged claims against the
Company by filing a lawsuit in the future, nor what the chances of success of such claims will be. Likewise, it is not possible to estimate
how many customers bring their alleged claims against dealers, service partners and importers of ŠKODA brand, what actions they will
seek and what will be the extent of their success. It can be expected that dealers, service partners and importers of ŠKODA brand who
would not be successful in disputes started by customers, could then exercise alleged recourse claims against the Company.
All potential costs arising from claims and proceedings described above would be fully compensated to the Company by the VOLKS-
WAGEN AG.
The US traffic safety authority NHTSA (National Highway Traffic Safety Administration), together with the company Takata, an-
nounced on 5 May 2016 a further extension of the recall of various models of different manufacturers, wherein certain Takata airbags
were installed.
In addition, recalls in Canada, Japan and South Korea were ordered by the local authorities. In the forthcoming year, the servicing
campaign will be expanded to China and possibly to Australia. Also some of the Volkswagen Group’s models are affected by the
above-mentioned recalls, including ŠKODA brand models. Currently it is not possible to assess whether further expansion of the recall
to other countries could occur. Due to ongoing technical investigations, it is not possible to specify further details as per IAS 37.86.
28. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE
After the balance sheet date, there were no other events that could have a significant impact on the separate financial statements
of the Company for the year ended 31 December 2017.
ANNUAL REPORT 2017
NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2017
29. INFORMATION ABOUT VOLKSWAGEN GROUP
ŠKODA AUTO a.s. is a subsidiary included in the consolidation group of its ultimate parent company, VOLKSWAGEN AG,
with a registered office in Wolfsburg, the Federal Republic of Germany.
The Volkswagen Group consists of two divisions – Automotive and Financial Services. The activities related to the Automotive
Division include the development of cars and aggregates, production and sale of passenger and commercial cars, trucks, buses and
motorcycles as well as the business with spare parts, large-bore diesel engines, special gear units and turbomachinery. The following
brands belong to Volkswagen Group: Audi, Bentley, Bugatti, Ducati, Lamborghini, MAN, Porsche, Scania, SEAT, ŠKODA, Volkswagen
Passenger Cars and Volkswagen Commercial Vehicles.
The Financial Services Division includes activities related to the dealer and customer financing, leasing, banking and insurance
services and the fleet management.
ŠKODA AUTO and its subsidiaries (see Note 6) and its investments in associates (see Note 7) are included in the consolidation of
Volkswagen Group’s financial statements. These consolidated financial statements, and other information relating to the Volkswagen
Group, are available in the annual report of VOLKSWAGEN AG and on its internet site (www.volkswagenag.com).
Mladá Boleslav, 20 February 2018
The Board of Management:
Bernhard Maier
Alain Favey Michael Oeljeklaus Klaus-Dieter Schürmann
Dieter Seemann Christian Strube Bohdan Wojnar
Persons responsible for accounting:
Dana Němečková Martina Janebová-Ciencialová
128
ANNUAL REPORT 2017
REPORT ON RELATIONS
Report on
Relations
OF THE COMPANY ŠKODA AUTO A.S. PURSUANT TO § 82 OF THE ACT ON CORPORATIONS
FOR THE ACCOUNTING PERIOD 1 JANUARY – 31 DECEMBER 2017
The Board of Management of ŠKODA AUTO a.s., having its registered office at tř. Václava Klementa 869, 293 01 Mladá Boleslav,
identification number: 00177041, registered in the Commercial Register kept by Municipal Court in Prague, Section B, insert 332
(hereinafter referred to as “the Company” or “ŠKODA AUTO”), prepared the following Report on relations pursuant to § 82 Act
No. 90/2012 Coll., Act on Corporations, as subsequently amended, in the accounting period 1 January – 31 December 2017 (herein-
after referred to as the “Period”).
1. STRUCTURE OF RELATIONS
The Company has been a part of Volkswagen Group (hereinafter referred to as the “Group”) for the whole Period, where the con-
trolling entity is VOLKSWAGEN AG (hereinafter referred to as “Volkswagen” or the “Controlling Entity”).
ŠKODA AUTO company was in the Period indirectly controlled by VOLKSWAGEN AG based at Berliner Ring 2, 384 40 Wolfsburg,
Federal Republic of Germany through VOLKSWAGEN FINANCE LUXEMBURG S.A. seated in Strassen, 19-21, Route d’Arlon, 8009,
Grand Duchy of Luxembourg, which is the sole shareholder of ŠKODA AUTO company.
The Controlling Entity is the ultimate parent company of the Group, the activities of which comprise especially the development of
vehicles and aggregates, the production and sale of passenger and commercial cars, trucks, buses, and motorcycles, as well as busi-
ness with spare parts, large-bore diesel engines, special gear units and turbo machinery (via brands Audi, Bentley, Bugatti, Ducati,
Lamborghini, MAN, Porsche, Scania, SEAT, ŠKODA, Volkswagen Passenger Cars and Volkswagen Commercial Vehicles). In addition,
the Group engages in financial services segment in activities related to the dealer and customer financing, leasing, banking and in-
surance services, and the fleet management.
Information about the structure of relations is stated as at 31 December 2017, based on the information available to the statutory body
of the Company acting with due managerial care. The ownership structure of ŠKODA AUTO and the structure of relations among
companies in which the Company holds participating interest are graphically illustrated in the Appendix.
2. FUNCTION OF THE COMPANY WITHIN THE GROUP
The Company operates in the Automotive Division of the Group and focuses on the development, production and sale of vehicles of
the ŠKODA brand, its spare parts and accessories, and the development and production of components for other Group companies.
The Company holds interests in subsidiaries within ŠKODA AUTO Group and in other companies. The overview of the interests is
illustrated in the Appendix.
3. MEANS OF CONTROL
The Company was during the Period indirectly controlled by the Controlling Entity through the sole shareholder VOLKSWAGEN
FINANCE LUXEMBURG S.A. The Company is controlled mainly through decisions of the sole shareholder during the general
meetings. Important decisions influencing the Company’s operations are approved within the Group’s respective boards.
ANNUAL REPORT 2017
REPORT ON RELATIONS
4. OVERVIEW OF TRANSACTIONS REALISED AT THE INSTIGATION OR IN THE INTEREST OF
THE CONTROLLING ENTITY OR ENTITIES CONTROLLED BY THE CONTROLLING ENTITY
The Company deposits surplus liquidity with Volkswagen Group Services S.A. in the form of deposits and cash pooling at the insti-
gation of the Controlling Entity in the usual way applied within the Group.
ŠKODA AUTO paid a dividend of CZK 18,870 million to VOLKSWAGEN FINANCE LUXEMBURG S.A., as the sole shareholder, on
30 March 2017 based on the Decision of the sole shareholder VOLKSWAGEN FINANCE LUXEMBURG S.A. from 21 March 2017.
Based on the Decision of the sole shareholder exercising the powers of the general meeting, ŠKODA AUTO will pay out a portion of
retained earnings from previous accounting periods to its sole shareholder VOLKSWAGEN FINANCE LUXEMBURG S.A. in 2018
amounting to CZK 38,520 million.
The Company has not carried out any other transactions during the Period concerning assets exceeding 10% of the Company’s equity
per the last individual financial statements as at 31 December 2017.
In 2017, dividends and share in profit of CZK 47 million were paid out to the Company by the subsidiaries. In 2017, dividends and
share in profit of CZK 157 million were paid out to the Company by the associates.
5. OVERVIEW OF THE CONTRACTS WITHIN THE GROUP
ŠKODA AUTO and Volkswagen, and ŠKODA AUTO and the companies controlled by Volkswagen concluded contracts in the follow-
ing areas during the Period:
5.1 Sale of own products, goods and services
a) vehicles
ŠKODA AUTO entered into new contracts regarding sales of vehicles with the following companies:
Porsche Austria GmbH & Co. OG
Porsche Croatia d.o.o.
Porsche Hungaria Kereskedelmi Kft.
Porsche Romania S.R.L.
Porsche Slovenija d.o.o.
SEAT, S.A.
ŠKODA AUTO Deutschland GmbH
ŠKODA AUTO Slovensko, s.r.o.
Volkswagen Group España Distribución, S.A.
Volkswagen Group France S.A.
Volkswagen Group Singapore Pte. Ltd., Singapur
Volkswagen Group Sverige AB
b) genuine parts
ŠKODA AUTO concluded new contracts regarding sales of genuine parts in the Period with the following companies:
SEAT, S.A.
Volkswagen Slovakia, a.s.
130
ANNUAL REPORT 2017
REPORT ON RELATIONS
c) others
ŠKODA AUTO entered into new contracts regarding sales of services, licenses, aggregates, bodyworks and other products with the
following companies:
AUDI AG
Audi México S.A. de C.V.
AutoVision GmbH
Connectivity Lab s.r.o.
e4t electronics for transportation s.r.o.
INIS International Insurance Service s.r.o.
Mobility Lab s.r.o.
OOO Volkswagen Group Rus
Porsche Austria GmbH & Co. OG
Porsche Česká republika s.r.o.
Porsche Slovakia, spol. s r.o.
SEAT, S.A.
ŠKODA AUTO Deutschland GmbH
SKODA AUTO India Pvt. Ltd.
ŠKODA AUTO Slovensko, s.r.o.
Smart City Lab s.r.o.
ŠKODA AUTO DigiLab s.r.o.
ŠKO-ENERGO s.r.o.
ŠkoFIN s.r.o.
Volkswagen (China) Investment Co.
VOLKSWAGEN AG
Volkswagen Argentina S.A.
Volkswagen de México, S.A. de C.V.
Volkswagen Group Australia Pty. Ltd.
Volkswagen Group Ireland Ltd.
Volkswagen Group Italia S.p.A.
Volkswagen Group of America Chattanooga Operations, LLC
Volkswagen Group Polska Sp. z o.o.
Volkswagen Group Sales India Pvt. Ltd.
Volkswagen Group Sverige AB
Volkswagen Group United Kingdom Ltd.
Volkswagen India Pvt. Ltd.
Volkswagen Japan Sales K.K.
VW Kraftwerk GmbH
ANNUAL REPORT 2017
REPORT ON RELATIONS
5.2 Purchase of goods, services and non-current assets
a) production material and goods
ŠKODA AUTO concluded new contracts regarding purchases of production material with the following companies:
AUDI AG
Audi Hungaria Zrt. (formerly AUDI HUNGARIA MOTOR Kft.)
AutoVision GmbH
AutoVision Magyarország Kft.
Italdesign Giugiaro S.p.A.
OOO Volkswagen Group Rus
SEAT, S.A.
SITECH Sp. z o.o.
ŠKO-ENERGO s.r.o.
VOLKSWAGEN AG
Volkswagen Argentina S.A.
Volkswagen Autoeuropa, Lda.
Volkswagen Automatic Transmission (Dalian) Co., Ltd.
Volkswagen Automatic Transmission (Tianjin) Co., Ltd.
Volkswagen de México, S.A. de C.V.
Volkswagen do Brasil Indústria de Veículos Automotores Ltda.
Volkswagen Group Logistics GmbH
Volkswagen Motor Polska Sp. z o.o.
Volkswagen Motorsport GmbH
Volkswagen Navarra, S.A.
Volkswagen Osnabrück GmbH
Volkswagen Poznan Sp. z o.o.
Volkswagen Sachsen GmbH
Volkswagen Sarajevo d.o.o.
Volkswagen Slovakia, a.s.
Volkswagen Transmission (Shanghai) Co., Ltd.
Volkswagen Zubehör GmbH
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REPORT ON RELATIONS
b) overheads
ŠKODA AUTO entered into new contracts regarding purchases of indirect material and services (purchases of indirect material and
services, research and development cooperation, IT services, software and hardware supplies, customer services consultancy) with
the following companies:
Audi (China) Enterprise Management Co., Ltd.
AUDI AG
Audi Hungaria Zrt. (formerly AUDI HUNGARIA MOTOR Kft.)
Audi Hungaria Services Zrt.
Auto & Service PIA GmbH
AutoVision GmbH
AutoVision Magyarország Kft.
e4t electronics for transportation s.r.o.
Italdesign Giugiaro S.p.A.
MHP Management- und IT-Beratung GmbH
Nardo Technical Center S.r.l.
OOO Volkswagen Group Rus
Porsche Austria GmbH & Co. OG
Porsche Consulting GmbH
Porsche Engineering Group GmbH
Porsche Inter Auto CZ spol. s r.o.
Scania Czech Republic s.r.o.
SEAT, S.A.
SKODA AUTO India Pvt. Ltd.
ŠKO-ENERGO s.r.o.
ŠkoFIN s.r.o.
Volkswagen (China) Investment Co.
VOLKSWAGEN AG
Volkswagen Autoeuropa, Lda.
Volkswagen de México, S.A. de C.V.
Volkswagen do Brasil Indústria de Veículos Automotores Ltda.
Volkswagen Group Australia Pty. Ltd.
Volkswagen Group Japan K.K.
Volkswagen Group of America, Inc.
Volkswagen India Pvt. Ltd.
Volkswagen Konzernlogistik GmbH & Co. OHG
Volkswagen Motor Polska Sp. z o.o.
Volkswagen Motorsport GmbH
Volkswagen Navarra, S.A.
Volkswagen Osnabrück GmbH
Volkswagen Sachsen GmbH
Volkswagen Slovakia, a.s.
Volkswagen Software Asset Management GmbH
c) genuine parts
ŠKODA AUTO entered into new contracts regarding purchases of genuine parts with the following companies:
OOO Volkswagen Group Rus
SITECH Sp. z o.o.
VOLKSWAGEN AG
Volkswagen do Brasil Indústria de Veículos Automotores Ltda.
Volkswagen Sachsen GmbH
Volkswagen Slovakia, a.s.
Volkswagen Zubehör GmbH
ANNUAL REPORT 2017
REPORT ON RELATIONS
d) non-current assets
ŠKODA AUTO entered into new contracts regarding purchases of non-current assets with the following companies:
AUDI AG
VOLKSWAGEN AG
VOLKSWAGEN FINANCIAL SERVICES AG
5.3 Other contracted relationships
ŠKODA AUTO also established new contractual relationships (particularly marketing services, training, sales support, financial ser-
vices, consultancy, production of cars, purchase of capital interests, system and other support) with the following companies:
AUDI AG
Audi Hungaria Zrt. (formerly AUDI HUNGARIA MOTOR Kft.)
Audi México S.A. de C.V.
Audi Volkswagen Korea Ltd.
Audi Volkswagen Taiwan Co., Ltd.
Autostadt GmbH
Bentley Motors Ltd.
Connectivity Lab s.r.o.
D’Ieteren Lease S.A.
Dr. Ing. h.c. F. Porsche AG
e4t electronics for transportation s.r.o.
Italdesign Giugiaro S.p.A.
MAN Truck & Bus AG
Mobility Lab s.r.o.
OOO Volkswagen Group Rus
Porsche Albania Sh.p.k.
Porsche Austria GmbH & Co. OG
Porsche BH d.o.o.
Porsche Colombia S.A.S.
Porsche Consulting GmbH
Porsche Croatia d.o.o.
Porsche Česká republika s.r.o.
Porsche Hungaria Kereskedelmi Kft.
Porsche Chile SpA
Porsche Inter Auto CZ spol. s r.o.
Porsche Macedonia d.o.o.e.l. Skopje
Porsche Romania S.R.L.
Porsche Slovenija d.o.o.
Scania Czech Republic s.r.o.
SEAT, S.A.
ŠKODA AUTO Deutschland GmbH
SKODA AUTO India Pvt. Ltd.
ŠKODA AUTO Slovensko, s.r.o.
Smart City Lab s.r.o.
ŠKODA AUTO DigiLab s.r.o.
ŠKO-ENERGO s.r.o.
ŠkoFIN s.r.o.
VfL Wolfsburg-Fußball GmbH
Volkswagen (China) Investment Co.
VOLKSWAGEN AG
Volkswagen Argentina S.A.
Volkswagen Gebrauchtfahrzeughandels und Service GmbH
Volkswagen Group Australia Pty. Ltd.
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REPORT ON RELATIONS
Volkswagen Group España Distribución, S.A.
Volkswagen Group France S.A.
Volkswagen Group Ireland Ltd.
Volkswagen Group Italia S.p.A.
Volkswagen Group Japan K.K.
Volkswagen Group of America Chattanooga Operations, LLC
Volkswagen Group of America, Inc.
Volkswagen Group Polska Sp. z o.o.
Volkswagen Group Sales India Pvt. Ltd.
Volkswagen Group Singapore Pte. Ltd.
Volkswagen Group Sverige AB
Volkswagen Group United Kingdom Ltd.
Volkswagen Immobilien GmbH
Volkswagen India Pvt. Ltd.
Volkswagen Insurance Brokers GmbH
Volkswagen Konzernlogistik GmbH & Co. OHG
Volkswagen of South Africa (Pty) Ltd.
Volkswagen Osnabrück GmbH
Volkswagen Slovakia, a.s.
Transactions relating to contracts concluded in previous years
Besides companies disclosed in points 5.1, 5.2 and 5.3, the Company carried out transactions with the following companies, controlled
by the same Controlling Entity, based on contracts concluded and presented in reports in relations of the Company in previous years:
AUDI BRUSSELS S.A.
Carmeq GmbH
Porsche Engineering Services GmbH
SITECH Sitztechnik GmbH
ŠKO-ENERGO-FIN s.r.o.
Volkswagen Bank GmbH
Volkswagen Group Malaysia Sdn. Bhd.
Volkswagen Group Import Co., Ltd.
Volkswagen Group Services S.A.
Volkswagen Vertriebsbetreuungsgesellschaft mbH
Weser-Ems Vertriebsgesellschaft mbH
6. ASSESSMENT OF A DETRIMENT AND ITS SETTLEMENT
The Company did not suffer from any damage or detriment as a result of the contracts concluded in the Period between the Com-
pany and other Group companies, or as a result of other transactions or measures realised during the Period by the Company at the
instigation or in the interest of these entities.
ANNUAL REPORT 2017
REPORT ON RELATIONS
7. EVALUATION OF THE RELATIONS AND RISKS WITHIN THE GROUP
7.1 Evaluation of advantages and disadvantages of the relations within the Group
Involvement in the Group leads mainly to advantages for the Company. The Group is a world-leading automotive manufacturer.
Involvement in the Group brings economies of scale to the Company, realised through shared platforms and modern technologies.
At the same time, it provides shared know-how and distribution channels.
Currently, there is no apparent disadvantage for the Company emerging from involvement in the Group.
7.2 There are no risks for the Company arising from the relations within the Group.
Mladá Boleslav, 20 February 2018
The Board of Management:
Bernhard Maier
Alain Favey Michael Oeljeklaus Klaus-Dieter Schürmann
Dieter Seemann Christian Strube Bohdan Wojnar
Ownership Structure
136
ANNUAL REPORT 2017
APPENDIX − REPORT ON RELATIONS
100%
100%
55.14%
16.8%
100%
99.999999%
4
4
.5
%
31
.2
5%
21.25%
22.5%
28.06%
100%
VOLKSWAGEN FINANCE
LUXEMBURG s.a.
Strassen
ŠKODA AUTO a.s.
Mladá Boleslav
OOO VOLKSWAGEN GROUP RUS
Kaluga
ŠKODA AUTO SLOVENSKO s.r.o.
Bratislava
SKODA AUTO INDIA PRIVATE Ltd.*
Aurangabad
VOLKSWAGEN KRAFTWERK GmbH
Wolfsburg
VOLKSWAGEN AG
Wolfsburg
*Residual 0.000001% voting rights in SKODA AUTO India Pvt. Ltd. holds company ŠKODA AUTO Deutschland GmbH seated in Weiterstadt, Germany.
Ownership Structure
ANNUAL REPORT 2017
APPENDIX − REPORT ON RELATIONS
10
0
%
51
%
4
9
%
3
9
%
10
%
100%
10
0
%
100%
100%
100%
1%
VOLKSWAGEN (CHINA) INVESTMENT CO., Ltd.
Peking
CARMEQ GmbH
Berlin
ŠKO−ENERGO s.r.o.
Mladá Boleslav
ŠKODA AUTO DIGILAB s.r.o.
Praha
CONNECTIVITY LAB s.r.o.
Praha
MOBILITY LAB s.r.o.
Praha
SMART CITY LAB s.r.o.
Praha
SAIC ― VOLKSWAGEN
AUTOMOTIVE COMPANY Ltd.
Shanghai
E4T ELECTRONICS FOR
TRANSPORTATION s.r.o.
Praha
ŠKO−ENERGO–FIN s.r.o.
Mladá Boleslav
138
ANNUAL REPORT 2017
GLOSSARY OF TERMS AND ABBREVIATIONS
Glossary of
Terms and
Abbreviations
BEV – Battery electric vehicle
CAS – Czech accounting standards for businesses and other accounting regulations valid in the Czech Republic, particularly
Act No. 563/1991 Coll. on Accounting and Decree No. 500/2002 Coll., implementing selected provisions of the Accounting Act, as
subsequently amended.
Company – in the Annual Report, the term “the Company” is used as a synonym for the company ŠKODA AUTO
Consolidated group – in addition to ŠKODA AUTO a.s. with registered office in Mladá Boleslav, also includes all significant subsid-
iaries and associates
CUV – Crossover utility vehicle – vehicle combining features of a sport utility vehicle (SUV) with features from a passenger vehicle
Deliveries to customers – number of ŠKODA brand vehicles delivered to end customers that were produced in ŠKODA AUTO Group
and/or partner plants
EGAP – Exportní garanční a pojišťovací společnost, a.s. – Export Guarantee and Insurance Corporation
Euro NCAP – European New Car Assessment Programme, European consumer organisation that conducts safety tests
GDPR – General Data Protection Regulation; general regulation on the protection of personal data
GRC – Governance, Risk management and Compliance
Gross liquidity – the company’s current ability to pay its due liabilities
Group – in the Annual Report, the terms “the Group” and “the ŠKODA AUTO Group” are used as synonyms for the ŠKODA AUTO
Consolidated Group
IAS/IFRS – International Accounting Standards / International Financial Reporting Standards as adopted by the European Union
ANNUAL REPORT 2017
GLOSSARY OF TERMS AND ABBREVIATIONS
IASB – International Accounting Standards Board – independent international group of accounting experts
Infotainment – Multimedia information system consisting of radio, navigation system and other multimedia devices in a vehicle
Investment ratio – ratio of capital expenditures (less capitalised development expenses) to total sales revenues
KonTraG – Gesetz zur Kontrolle und Transparenz im Unternehmensbereich – German Information Disclosure and Transparency
Act
MEB – Modularer Elektrifizierungsbaukasten – modular platform for electric vehicles
MQB – Modularer Querbaukasten – modular platform
Net liquidity – gross liquidity less financial obligations and liabilities to a factoring company within the Volkswagen Group
OECD – Organization for Economic Cooperation and Development
PHEV – plug-in hybrid electric vehicle, hybrid electric vehicle that uses batteries that can be recharged by plugging it in to an ex-
ternal source of electric power
Production – number of vehicles produced. The total production figure also includes production of vehicles for the Volks-
wagen Group brand SEAT manufactured by the company ŠKODA AUTO. For accuracy, vehicle assembly kits are reported in the
vehicles segment.
RMS/ICS – Risk Management System / Internal Control System
Sales – number of vehicles sold to importers and dealers. The unit sales figure also includes sales of vehicles of the Volkswagen Group
brand SEAT manufactured by the company ŠKODA AUTO. For accuracy, vehicle assembly kits are reported in the vehicles segment.
SUV – Sport utility vehicle in the mid-range category of cars
Temporary employees – employees of a labour agency who are temporarily seconded to work for a different employer
WLAN – Wireless Local-Area Network
140
ANNUAL REPORT 2017
PERSONS RESPONSIBLE FOR THE ANNUAL REPORT AND EVENTS AFTER THE BALANCE SHEET DATE
Persons
Responsible
FOR THE ANNUAL REPORT
AND EVENTS AFTER THE BALANCE SHEET DATE
Events after the Balance Sheet Date
No material events have occurred between the balance sheet date and the date of preparation of this Annual Report that have had an
impact on an assessment of the Company’s assets, liabilities and equity or the results of its operations.
Affirmation
The persons stated below, responsible for the preparation of this Annual Report, hereby declare that the information contained in
this Annual Report is factual and that no substantive matters that could influence an accurate and correct evaluation of the company
ŠKODA AUTO a.s. have been knowingly omitted or distorted.
Mladá Boleslav, 20 February 2018
The Board of Management:
Bernhard Maier
Alain Favey Michael Oeljeklaus Klaus-Dieter Schürmann
Dieter Seemann Christian Strube Bohdan Wojnar
Persons responsible for accounting:
Dana Němečková Martina Janebová-Ciencialová
ANNUAL REPORT 2017
KEY FIGURES AND FINANCIAL RESULTS AT A GLANCE
Key Figures
and Financial
Results
PRODUCTION, SALES AND TECHNICAL DATA
OF ŠKODA AUTO ACCORDING
TO IFRS AT A GLANCE
2013 2014 2015 2016 2017
Deliveries to customers vehicles 920,750 1,037,226 1,055,501 1,126,477 1,200,535
Sales* vehicles 682,402 773,791 778,416 799,938 909,567
Sales of ŠKODA cars* vehicles 660,634 757,330 758,742 746,551 818,976
Production* vehicles 639,889 735,951 736,977 765,171 858,103
Production of ŠKODA cars* vehicles 618,118 719,410 717,249 711,309 767,474
Employees persons 24,548 24,631 25,452 28,373 31,626
* In 2016 the method of reporting sales and production was altered. Sales and production volumes are reported excluding kits shipped to foreign production
plants not operated by ŠKODA AUTO company; these kits are reported as other intragroup deliveries.
142
ANNUAL REPORT 2017
KEY FIGURES AND FINANCIAL RESULTS AT A GLANCE
2013 2014 2015 2016 2017
Sales revenue CZK million 243,624 299,318 314,897 347,987 407,400
Cost of sales CZK million 209,538 254,944 268,184 295,232 347,519
% of revenues 86.0 85.2 85.2 84.8 85.3
Gross profit CZK million 34,086 44,374 46,713 52,755 59,881
% of revenues 14.0 14.8 14.8 15.2 14.7
Distribution expenses CZK million 13,067 13,466 13,272 13,503 15,040
Administrative expenses CZK million 6,679 6,939 7,273 7,843 9,710
Balance of other operating revenues / costs CZK million (1,803) (2,371) 8,986 (517) 5,400
Operating profit CZK million 12,537 21,598 35,154 30,892 40,531
% of revenues 5.1 7.2 11.2 8.9 9.9
Financial result CZK million 413 (249) (916) (43) (1,406)
Profit before income tax CZK million 12,950 21,349 34,238 30,849 39,125
Profit before income tax-to-revenues ratio % 5.3 7.1 10.9 8.9 9.6
Income tax expense CZK million 1,564 2,928 3,422 5,686 7,284
Profit for the year CZK million 11,386 18,421 30,816 25,163 31,841
Profit for the year-to-sales ratio % 4.7 6.2 9.8 7.2 7.8
2013 2014 2015 2016 2017
Non-current assets CZK million 87,923 105,139 107,654 104,838 106,675
Current assets CZK million 64,078 71,730 94,961 123,342 144,184
Equity CZK million 90,316 100,001 117,482 137,580 117,484
Non-current and current liabilities CZK million 61,685 76,868 85,133 90,600 133,375
Assets CZK million 152,001 176,869 202,615 228,180 250,859
Net liquidity CZK million 27,871 41,452 60,077 70,910 95,078
Cash flows from operating activities CZK million 28,965 45,158 39,622 50,426 60,811
Cash flows from investing activities CZK million (25,148) (25,512) (6,467) (24,051) (17,996)
Net Cash Flow CZK million 3,817 19,646 33,155 26,375 42,815
Investments CZK million 19,354 19,150 15,857 14,652 18,885
Investment ratio % 7.9 6.4 5.0 4.2 4.6
Equity ratio % 59.4 56.5 58.0 60.3 46.8
Equity-to-fixed assets ratio % 102.7 95.1 109.1 131.2 110.1
PROFIT AND LOSS ACCOUNT
BALANCE SHEET / FINANCING
Published by:
© ŠKODA AUTO a.s. 2018
tř. Václava Klementa 869
293 01 Mladá Boleslav
Czech Republic
Identification No: 00177041
Incorporated by entry in the
Commercial Register maintained
by the Municipal Court in Prague,
Section B, File 332
Tel.: +420 326 811 111
Fax: +420 326 721 328
The Annual Report 2017 is published in Czech and English. In all matters of
interpretation of information, views or opinions, the Czech version takes
precedence over the English version.
Both versions are available on the Company‘s website:
www.skoda-auto.cz
www.skoda-auto.com
Annual Report prepared in-house using firesys.
Consulting and print production
© R MEDIA, spol. s r.o., Prague, 2018
Contents
Foreword
Report of the Supervisory Board
Management Report
ŠKODA AUTO Company Profile
Corporate Governance
ŠKODA AUTO BODIES
DECLARATION OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE
Business Operations
STRATEGY
PRODUCT PORTFOLIO
FINANCIAL SITUATION
OTHER INFORMATION
TECHNICAL DEVELOPMENT
PROCUREMENT
PRODUCTION AND LOGISTICS
SALES AND MARKETING
HUMAN RESOURCES MANAGEMENT
SUSTAINABILITY
Report on Risks and Opportunities
Outlook
SHORT-TERM AND LONG-TERM OUTLOOK
Financial Section
Auditor’s Report
Separate Financial Statements
Notes to the Separate Financial Statements 2017
Report on Relations
Glossary of Terms and Abbreviations
Persons Responsible for the Annual Report
Key Figures and Financial Results