"On the way to long-term success, new trends must be recognized and made usable for the brand."Association representative
"It is about how we conduct operations. We need constructive dialogue on that topic."Audi employee

Creating value through
responsible action

Intro to Operations section

One of a company’s key tasks is not just to safeguard its continued existence, but to conduct its business in a value-oriented and sustainable manner in the interest of its stakeholder groups.

The goal is to equip Audi to master the challenges of the future on its way to becoming the leading premium brand, and to delight customers worldwide. The Audi self-perception encompasses both the business success it seeks to achieve as well as social and ecological aspects. We are living out our corporate responsibility by seeking to attain and further develop a balance between these three areas.

Our innovative products, technological competence and a fascinating brand experience are the key tools for accomplishing our mission, "We delight customers worldwide." We take responsibility for our actions, not just in regard to compliance with the rules, but are seeking to anchor sustainability in all processes and products along the entire value chain (cf. Strategy).

For the Audi Group, the focus is on qualitative growth as a strategic corporate goal.

Economic stability

In a challenging market environment, the Audi brand set yet another record for new deliveries in 2012 by handing over more than 1.45 million vehicles to customers. The Audi Group's great financial strength can be measured by its long-term earnings performance. Growth only meets the premium standards of the Audi Group if it is simultaneously profitable, in keeping with a value-oriented corporate management approach. Qualitative growth in the sense of a long-term increase in corporate value is therefore a strategic corporate goal of primary importance to us. In this context, both operating return on sales as well as return on investment are used as internal management tools. Different investment projects can thus be evaluated by type and size in regard to their return and the capital employed. The development of return ratios reflects our Company's high earning power.

2012

0

2011

0

2010

0

Operating profit

(EUR million)

In managing our Company, we prioritize effective and efficient structures and processes, long-term investment management and continuous cost optimization. A high level of self-financing helps to lastingly preserve the Company’s scope to invest and act. The objective of fundamentally covering investment from self-generated cash flow therefore remains a key pillar of our corporate strategy. In addition, Audi practices active capital maintenance and keeps adequate liquid funds on hand to enable consistent use of entrepreneurial opportunities even in a challenging economic environment. The current equity ratio reflects our balanced capital structure and is a clear sign of the Audi Group's high stability.

Safeguarding goals against risks

We are using our Group-wide risk and compliance management systems (cf. Compliance and risk management) to safeguard our strategic and operative corporate goals against business risks to the greatest extent possible. In so doing, we not only fulfill the statutory minimum requirements laid down in stock corporation law, but have also aligned ourselves to the German Corporate Governance Codex as well as the internationally recognized standard for risk management and internal control systems from the Committee of Sponsoring Organizations of the Treadway Commission. Together with the responsible managers from the divisions and the companies, our central Governance, Risk & Compliance organization strengthens the efficacy of our preventative risk and compliance management systems, and promotes conduct by our employees that conforms with regulations.

We have therefore adopted a Code of Conduct that is binding for all employees and forms the basis for guidelines on the following topics: prevention of conflicts of interest and corruption, interaction with business partners and third parties, handling of information, occupational safety and health protection, environmental protection, proper use of property belonging to the Audi Group as well as implementation of the Code of Conduct.

Other elements of sustainable operations

We cooperate closely with the Volkswagen Group in selecting our suppliers (cf. Supplier relationships). Since 2006, procurement management has been based on the concept of "sustainability in supplier relationships." It is aligned with important international guidelines and codes, such as those from the UN Global Compact, the ILO and the OECD.

Constructive teamwork between the workforce and Group management (cf. Co-determination and social partnerships) is a key foundation stone for our economic success. This cooperation between the two partners has been documented in a participation agreement and illustrates the in-company participation rights.

The mission "We delight customers worldwide" is at the focus of our Strategy 2020. In addition to innovative sales concepts, we are therefore focusing in particular on open customer relationship management (cf. Customer orientation).

The stakeholders' viewpoint

In 2012, we surveyed our stakeholders with regard to aspects of responsibility related to operations, asking them to evaluate the relevance of these aspects. Our stakeholders regard safeguarding the Company's economic stability and customer orientation as especially relevant. Our stakeholders also give high priority to the importance of corporate governance and compliance. We are continuing to improve our performance in this area in order to live up to these expectations.

Compliance and risk management

Acting in accordance with values, making risks transparent and manageable

In the Audi Group, corporate leadership in accordance with ethical standards and the constructive handling of risks are the basis for responsible operations.

Corporate governance

AUDI AG last year once again aligned its activities with the current version of the German Corporate Governance Codex from June 15, 2012. The Codex is designed to make the regulations governing corporate management and monitoring effective in Germany transparent for both national and international investors.

The Board of Management and Supervisory Board of AUDI AG have turned their attention to the recommendations and suggestions of the German Corporate Governance Code, discussed them at great length and made appropriate resolutions. In November 2012, the committees published a joint declaration of compliance on the website www.audi.com/cgk-declaration. More information on the regulations can be found in our 2012 Annual Report on page 271 f.

Compliance

Ensuring that corporate decisions are made in accordance with the relevant laws, internal rules and values is a fundamental aspect of corporate management at AUDI AG. In light of this, the Governance, Risk & Compliance area developed a preventive approach to the concept of compliance in which the analysis of commercial and legal risks is bracketed together both organizationally and thematically.

This area is headed up by the Chief Compliance Offer, who reports directly to the Chairman of the Board of Management. The Chief Compliance Officer's remit includes in particular advising and supporting the Board of Management, as well as coordinating all necessary measures to assure compliance. He also reports on behalf of the Board of Management to the Audit Committee of AUDI AG's Supervisory Board on compliance-related issues. Additionally, the individual divisions of AUDI AG each have risk compliance coordinators, who act as multipliers in relation to compliance issues. The Audi Group's compliance concept and the relevant structure and approach are set out in an internal Board Directive.

New employees are informed about compliance as well as the Audi Code of Conduct at introductory events. Internal communications on compliance have been stepped up further with the "Protect what you love" campaign, encompassing brochures, films, articles in the staff newspaper and information on the intranet. The department also held a one-week event at which employees at the Ingolstadt plant could learn about compliance issues and have any questions answered on a one-to-one basis. Elements of the communication campaign, including the Code of Conduct and the compliance brochure, were implemented internationally as well.

Preventive measures in the areas of anti-corruption and cartel law were a particular focus of the compliance program. Training sessions were carried out on site for employees in Ingolstadt and Neckarsulm, and information brochures were distributed and published on the intranet. A Web-based training program was also offered and has thus far been used to train a total of 3,025 employees on the handling of invitations and gifts. In addition, the subsidiaries are implementing a reporting system created back in 2011 for regular reporting to Governance, Risk & Compliance on their compliance activities.

In order to detect and prevent corruption within the Company, AUDI AG is connected to the Volkswagen Group's global anti-corruption system. Independent lawyers, acting as ombudsmen, and the Volkswagen Group's Anti-Corruption Officer are the points of contact on such matters, including with regard to anonymous information (cf. www.audi.com/corporate-management) Audi employees are advised by Governance, Risk & Compliance on the admissibility of giving and accepting invitations and gifts.

Moreover, the early identification and evaluation of risks is a key aspect of AUDI AG's approach to compliance. Compliance interviews are conducted on a successive basis in the divisions, and in addition to the standardized risk survey organized throughout the Audi Group, compliance risks are identified and risk-controlling measures initiated.

Risk management

Ensuring that potential risks are handled carefully is of high priority within the Audi Group. As a result, a Group-wide risk management and internal control system is in use based on the internationally recognized standard of the Committee of Sponsoring Organizations of the Treadway Commission. This aids in identifying, minimizing and if possible avoiding potential risks. It also provides a basis for responding swiftly and comprehensively to changing framework conditions.

Central Risk Management operates in partnership with the local risk managers in the divisions and subsidiaries. The standards and rules that are set for the entire Group by Central Risk Management ensure that risks are recorded and assessed in the same way across the Group and are enshrined in an internal Board Directive.

Training sessions and fact-finding events tailored to specific target groups are offered in order to communicate the content and methodologies that form the risk management system. Regular and up-to-date information on the risk management system is available via in-house communication media, such as the Audi intranet for example.

Regular, standardized risk surveys in the Audi Group and successive risk modeling processes in the individual divisions and subsidiaries are used to identify key issues. With the aim of ensuring comprehensive and effective risk-management, these identified key issues are subject to in-depth review and, where applicable, potential optimization measures are identified and put in place. Leaving aside the defined reporting intervals, the risk officers are obliged to inform Central Risk Management in the event of any unexpected external influences or internal information coming to light. Central Risk Management is also on hand whenever necessary to provide individual departments with tailored support at short notice. Further detailed information on the Group-wide risk management system and in-depth information on the internal control system for financial reporting can be found in the Management Report of the Audi Annual Report on pages 190 to 196.

The Audit Committee set up by the Supervisory Board is briefed in proper form by Central Risk Management on the risk management and internal control system. Central Risk Management is responsible for providing the Board of Management and the Supervisory Board with regular updates on the Audi Group’s risk profile, using the reporting channels defined Group-wide.

In dialogue with policymakers

Relationships to policymakers are an integral part of Audi's stakeholder management. Firstly, the Company wants to ensure acceptance of future technologies and products. In this way, Audi involves experts from the world of politics as early on as the product creation process. Secondly, good cooperation helps in finding solutions when companies and policymakers join forces to address social challenges such as future issues like electric mobility. Audi offers its expertise and shares its ideas and experience during legislative and regulatory processes. We serve as contacts from the automotive industry for working groups and dialogue events from government agencies and ministries, using these as an opportunity to present our perspective in the discussion. For instance, Audi is currently building the world's largest power-to-gas facility in Lower Saxony, which will convert excess electricity from renewable energy sources into methane gas and feed it into the natural gas network. This innovative procedure makes it possible to store renewable energy in large quantities. In order to publicize this technology, safeguard its continued development within the scope of the shift to renewable energy and lay the groundwork for it to become independently profitable in the medium-term future, Audi is engaging in intensive dialogue with representatives from the ministries and the world of politics.

Supplier relationships

Considering the value chain

In addition to demanding a high level of performance and competitiveness from its suppliers, the Audi Group also expects them to adhere to strict sustainability standards.

One of the stated goals of the procurement policy of AUDI AG is to fulfill the brand promise "Vorsprung durch Technik" through its selection of suitable suppliers. In order to make optimum use of synergy potential, we choose suitable business partners in cooperation with the Volkswagen Group. The Volkswagen Group's procurement management has been based on the concept of "sustainability in supplier relationships" since 2006.

The concept is aligned with principles laid down in the UN Global Compact, the OECD Guidelines for Multinational Enterprises as well as the relevant conventions of the International Labour Organization (ILO). In this way, the Volkswagen Group has established the importance of environmental and social standards in business relationships with suppliers. The concept has been continuously and systematically further developed since its introduction.

Among other things, it requires suppliers to implement an environmental management system, to avoid damage to the environment or human health during production, to guarantee their employees freedom of association, to refuse to tolerate discrimination, to ban child and forced labor as well as to meet at least national statutory guidelines and minimum standards in regard to working times and remuneration. We also expect our suppliers to ensure the sustainability of their own suppliers (cf. www.vwgroupsupply.com).

Aluminum makes vehicles lighter, but should also be produced sustainably.

Together with other companies in the sector and the environmental organization IUCN (International Union for Conservation of Nature), we are also active in the Aluminium Stewardship Initiative (ASI). The objective of this initiative is to develop a global standard for sustainable aluminum by late 2014. Environmental and social criteria valid for all stages of raw material extraction, production and processing are to be defined here.

Playing by the rules

Like all of the Group brands, Audi draws from a joint supplier pool. The main contact for the respective supplier is the unit of the Group that does the most business with that supplier. Before potential suppliers can even submit a bid, they must confirm in writing the "Volkswagen Group requirements regarding sustainability in its relationships with business partners."

For the purpose of effective monitoring, the Volkswagen Group developed a cross-departmental process in 2012 in cooperation with the brands and regions of the Group. We requested all of our suppliers to fill out a digital questionnaire on sustainability issues. If the answers do not conform with our requirements in regard to ecological and social topics, our partners are asked to comment on the issue in detail. Ad-hoc teams of experts from the brands and regions evaluate the supplier's response and if necessary plan on-site appointments.

Supporting partners

As we see it, the focal point of all measures is positive development of business relationships and dialogue with our suppliers. If we feel that improvements are needed in regard to environmental protection or social standards, we offer our support – if necessary we even involve our Works Council members, company doctors and environmental experts. In addition, a mandatory e-learning training model on the topic of sustainability has been available in nine languages on the central business platform of the Volkswagen Group since early 2012. If a supplier is not able or willing to meet our sustainability requirements despite our support, we will consider terminating our cooperation.

Overall, AUDI AG continued to solidify its relationships with suppliers in 2012, strengthening the basis for long-term, stable and fair partnership. During the reporting period, there were no complaints in regard to suppliers for which Audi is the main customer within the Volkswagen Group.

We will continuously and systematically develop our sustainability concept in our supplier relationships in the future too. At present we are developing a concept for more effective monitoring of compliance with standards by our suppliers, who are spread out across the entire globe.

Customer orientation

Customer relationships: handling strong emotions

For many Audi customers, our cars are much more than just vehicles that provide mobility. As proven by surveys and the experience of the approximately 100 Audi employees who hand over more than 100,000 automobiles to customers picking up their cars directly from the plants in Ingolstadt or Neckarsulm each year: An automobile is a vehicle for strong emotions. The heart of the Audi strategy is therefore our mission "We delight customers worldwide."

The automotive world is changing at a rapid pace, and with it expectations and needs in regard to purchasing of vehicles – in particular in our market segment. Today, nine out of ten customers planning to buy a new car also gather information online.

Contact to customers: fast, honest, open

Many people do not go through a car dealership, but instead seek direct contact to the manufacturer. The number of customer contacts in 2012 totaled nearly 700,000 for the German market alone. Some are seeking information, some are ordering brochures. Others contact Audi to lodge complaints, while a few even want to share a word of praise. The volume of information inquiries clearly decreased in 2012 as compared to the prior year – many questions in 2011 were related to uncertainty regarding the fuel type E10.

The good news for customer advisors in regard to 2012: There were fewer complaints and the number of customer contacts involving positive acknowledgment went up. Also noticeable is that the percentage of e-mail and Internet contacts has risen sharply, matched by a corresponding decrease in letters and calls. Customers are also using the Audi social media channels to address concerns requiring intensive support.

Audi Customer Service pursues high goals in the interest of ensuring customer satisfaction. One example is answering calls within 20 seconds. This goal was achieved for more than 200,000 calls in the German market in 2012 – equivalent to 80 percent of all incoming calls. To ensure continuous process improvement, a portal has been set up on the Audi intranet to provide access to reports and evaluations regarding customer support. The objective of this portal is to specifically incorporate customer opinion in the Company's decision-making processes.

Bringing customer concerns to the table

Just how seriously we take our customers' concerns is evident in the creation of the "Kundentisch" (Customer Table), where specific customer issues are analyzed and solved on a regular basis. Present at this table are the Chairman of the Board of Management, the Board Member for Sales and top managers from the various specialist areas. Customer relationships have thus been declared a top-level issue. The idea behind the "Kundentisch" is to bring together all those who can bring about rapid improvements in order to increase customer satisfaction.

Virtual reality with millions of variations

In July 2012, we opened the first Audi City in downtown London: an innovative sales format for major cities, which supplements the existing dealer network. The digital presentation of Audi cars on floor-to-ceiling projection surfaces provides the main attraction.

For the first time ever, modern media technology makes it possible for a dealership to show customers the entire Audi portfolio, which has grown significantly over the course of the past several years as a result of the model initiative. Across the entire model range, Audi City has several hundred million possible configurations to choose from, including all colors, equipment options and functions. The store concept thus also caters to the sharply increasing worldwide demand for individualization and personalization.

The second Audi City opened in Beijing in January 2013. The shops are designed in particular to appeal to those for whom the purchase of a premium car is still just a dream. Audi City is therefore a meeting point for fans of the brand that provides an inviting setting and awakens curiosity.

Audi City digitally presents the full model diversity of the Audi brand on floor-to-ceiling projection surfaces.
0
cars are handed over each year to customers picking up their cars directly from the Ingolstadt and Neckarsulm plants.
0
is the number of times customers sought direct contact to Audi in 2012.

Co-determination and social partnerships

Bearing responsibility together

Co-determination is the democratic participation and co-decision making of employees in an enterprise. As a fair social partner, cooperation between company management and the Works Council plays a key role for Audi.

Constructive teamwork between employees and corporate management is a key foundation stone for the economic success of Audi and, with it, job security. Our workforce is actively involved in the development of our Company.

Spheres of action for the Works Council

In the interest of the employees, the employees' elected representatives monitor compliance with valid laws and guidelines as well as collective bargaining agreements and company agreements. The German Works Constitution Act gives the Works Council the right to co-determination and participation in social, HR and economic affairs. In addition to job security, the Works Council at Audi seeks to maintain the Company's profitability and ensure its readiness for the future. Our flexible production system, for example, enables us to respond to difficult economic conditions and thereby secure jobs. To this end, the Works Council and company management work together closely each month to coordinate optimum production procedures.

The Works Council also actively supports training and advancement of members of the workforce. In addition to the Committee for Vocational Training and Competence Development, there is an Ideas Commission at the level of the General Works Council. With voluntary employee collections, support funds and death benefit collections, the Audi Works Council has for decades operated a solidarity-based system offering participants financial support in the case of emergency in exchange for a minimum contribution.

Structure of the employees' elected representatives
All Audi sites worldwide and the subsidiaries have a representative elected by the workforce who represents employee interests. All European site representatives of the Volkswagen Group are organized in the European Group Works Council (EKBR) and together with all other international site Works Council members in the Global Group Works Council of Volkswagen (WKBR). To promote better international cooperation among all European sites and subsidiaries, the Audi Europe Committee was founded as a networking body within the European Group Works Council structure. 51 employees represent the interests of their colleagues at the Ingolstadt site, 39 in Neckarsulm. Of this number, 44 in Ingolstadt and 33 in Neckarsulm are from IG Metall. All sites have both representatives for the disabled as well as for young people and trainees. The General Works Council of AUDI AG has 15 committees and commissions which address topics such as demographics, competence development and occupational safety/health protection.

Successes and milestones in 2012

  • Expansion of the guarantee of employment initially in effect until 2014 to the end of 2018 (cf. Attractiveness as an employer)
  • Stipulating production capacities at the two German plants
  • Permanent hiring of apprentices, students from the cooperative universities as well as participants in the StEP program (Study and Experience in Practice) after successful completion of their qualifications (cf. Training and advancement)
  • Payment of an employee profit share (MEB) as well as the agreed Audi profit share (AEB) for pay-scale employees of AUDI AG, dependent on the operating profit of the Audi Group
  • Taking on workers on temporary contracts as permanent members of the workforce at the Ingolstadt and Neckarsulm sites

In addition, the employee representatives negotiated the revision of partial retirement arrangements with the Company and supported a series of initiatives such as the introduction of a job ticket for local public transportation (cf. Social benefits and remuneration and The locations as vibrant communities), the first Audi Volunteer Day (cf. Voluntary employee activities), flexible child care for better compatibility of family and working life (cf. Working life and family) as well as various donation campaigns (cf. Donations).

The profit share is an important collectively agreed salary component which acknowledges the performance of each individual employee.
0
is the year up to which the employment guarantee was extended.

A look back over 25 years:
from AUDI AG to the Audi Group

AUDI AG 1987
Audi Group 2012

In the past 25 years, AUDI AG has developed into the globally operating Audi Group. The following statistics reveal how our Company has changed since 1987.

5,811 / 48,771
Revenue in EUR million
2 / 8
Production sites
(excluding contract
manufacturing at VW Group locations)
39,633 / 67,231
Average number of employees
0 / 38
Consolidated
subsidiaries
418,921 / 1,455,123
Deliveries of the Audi brand worldwide
583 / 405,838
Deliveries of the Audi brand
in China, including Hong Kong

Sustainable
operations

by Rupert Stadler
Chairman of the Board of Management

For a company whose roots go all the way back to 1899, 25 years is not a huge span of time. Over the past quarter century, Audi has developed into one of the world’s most successful players in the premium automobile market.

I joined Audi in 1990, in the early days of German reunification. Domestic sales were booming, but the situation on international markets was becoming ever more difficult. On the back of record-breaking years, the worldwide recession finally reached our Company as well: Annual production had been just shy of half a million cars in 1992, only to slump to 340,000 one year later.

1994 finally saw decisive changes: The brand identity with new logo and new model names, the highly successful Audi A4, the launch of our A8 full-size model, which revolutionized the entire premium market with its lightweight aluminum construction, TDI engines and quattro drive – and we also started engine production at our Hungarian subsidiary Audi Hungaria.

After our venture into the Chinese market 25 years ago, this was the second major step towards giving our Company an international setup. We acquired Lamborghini in 1998, and in 2007 the production of Audi models started in India and at our new plant in Brussels.

Deliveries to customers exceeded the one million mark in 2008. Today, we are already rapidly approaching unit sales of 1.5 million. And by the end of the decade we aim to be handing over more than two million cars per year to their new owners. We now have some 69,000 employees worldwide. Our bottom line and rates of return are healthy, and the Audi Group is operating highly profitably.

The foundations for this pleasing corporate development were laid quite some years ago. Our employees and managers know how important motivation, a sense of solidarity and the striving for perfection are. That special attitude, that team spirit, still exists today, and I am certain it is a major factor in our innovative prowess, our potential for growth and our attractiveness as an employer. In the long term, I believe this Audi spirit, more than anything else, is the key to our success.

Living
responsibility

by Peter Mosch
Chairman of the Audi General Works Council

25 years ago I started training as an industrial mechanic at Audi in Ingolstadt. At that time, Audi, already the region’s biggest company with around 28,000 employees, was a carmaker with still a very European focus.

Five years before I was voted onto the Works Council, we faced a first major crisis in 1993. The employees played their part in overcoming the crisis and helped to get the Company fit for the years ahead. Obviously there was some criticism of its plans in that same year to set up its first base outside Germany, in creating an engine plant in Győr. But contrary to widespread fears, our international activities did not lead to a shedding of jobs at the German locations. On the contrary, the venture actually protected jobs here in Ingolstadt and Neckarsulm.

The Company’s fortunes improved rapidly in the ensuing years, and the steadily growing workforce and internationally more widespread production network meant the Works Council, too, faced a growing challenge. In 2005, we agreed a new deal for our colleagues on key issues in the shape of the “Audi’s Future” package. In addition to extending the profit-sharing arrangements for employees, we reached agreement with the Company management on extensive advancement opportunities and introduced the Audi Checkup as a form of preventive health care.

My first major personal challenge as Chairman of the General Works Council came in 2008 with the worldwide financial and economic crisis. Thanks to the various general collective and company agreements, we at Audi did not need to make a single worker redundant and pulled through the crisis by running down timebanking accounts and introducing short time for just a few weeks. We emerged from that difficult phase stronger, and the preservation of the core workforce paved the way for the further rapid growth in production and deliveries that we have seen over the past five years.

This growth, along with the internationalization of the production network, has aided the further expansion of the workforce. The German locations will increasingly step into the role of lead plants for various technologies, with their level of production utilization staying constant. This transformation in the corporate structure will also make it necessary to extend the international network of employees’ elected representatives.

That will take us gradually closer to the goal of placing the viability of our locations and job security on an equal footing with economic efficiency as corporate goals. From the employee perspective, that is what it takes to remain a global player at the top of the premium segment in the long run.

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