Volkswagen Group reports strong financial results in Q1

MANILA: Despite a challenging global environment, the Volkswagen Group delivered good financial results in the first quarter of the year. The driving factors were a better sales mix, better pricing, sustained cost discipline, and the flexibility provided by the Group's global setup. As a result, Volkswagen was able to offset the impact of the global semiconductor and wire harness shortages by reallocating resources across its key markets in Europe, China, and the Americas.

This resulted in €62.7 billion of sales revenue and an operating profit before special items of €8.5 billion including positive effects primarily due to commodity hedging activities. Even without these effects, the underlying operating profit of about €5 billion is much higher than the previous year, demonstrating the group's resilience. The group confirms its projection for 2022 based on the results and the forecasted improvement in semiconductor supply in the second half of the year. However, objectively assessing the particular effects of recent events in the Russia-Ukraine war, as well as the impact of the COVID-19 pandemic on the Volkswagen Group, the global economy and industry growth in fiscal year 2022 is still not conceivable.

In a statement, Volkswagen Group Chief Executive Officer Herbert Diess said, “Our group has shown great resilience again in the first quarter despite the unprecedented challenges the world faces due to the terrible war in Ukraine and the ongoing pandemic situation with its impact on supply chains. As a truly global company, we have extensive production capacities in all major growth and sales markets worldwide. Volkswagen’s global set up helped us to mitigate many of the adverse effects we are currently seeing. Even in a more polarized world, Volkswagen is firmly committed to expanding its global footprint, further driving its transformation into a sustainable and fully digital mobility provider.”

The Volkswagen Group will keep expanding in emerging markets around the world. The North American region, particularly the United States, will receive special attention, with an ambitious growth plan in place to achieve a 10% market share target by 2030. The group's battery electric vehicle (BEV) portfolio will expand to more than 25 models by the end of the decade, making BEVs a key component of its strategy. In addition, the Group plans to establish a standalone battery cell manufacturing facility in the United States. Volkswagen previously announced a US$7.1-billion investment in North America to expand its BEV product line, R&D, and production.

Volkswagen has sustained a rapid rate of digitalization and electrification in its largest single market, China. Volkswagen Anhui will become the new e-mobility center, with production of MEB-based cars set to begin in 2023. A battery systems plant will also begin operating in China next year. As a result, the Group allocated €1 billion each to Anhui and Gotion. Cariad has started operations in Beijing with 600 people, targeting a statewide distributed R&D network with Beijing, Shanghai, Chengdu, and Hefei selected as initial hub locations to better adapt the user experience of the group's software stack to the demands of Chinese customers. Strengthening the company's R&D expertise in China requires using local talent.

Because of significant development initiatives for future fully electric vehicles and technologies, R&D spending in the Automotive Division increased by 10% to €4.4 billion. The R&D ratio was 8.5%. At the same time, the group's capital expenditures were decreased by 11.5% to €1.7 billion. As a result, the capex ratio was reduced to 3.3% from 3.7% in the prior-year quarter.

“In a challenging environment our first quarter results demonstrate the robustness of our business. Our teams managed to mitigate the disruptions of the supply chains as much as possible. Strong product mix towards higher equipped vehicles combined with ongoing cost discipline contributed to strong results in Q1. On top, we benefited from our risk management concerning raw materials. Our Q1 results and our solid net liquidity position demonstrate that we are able and willing to continuously invest in our transformation and the future of the company, also in difficult times,” Volkswagen Chief Financial Officer Arno Antlitz stated.

The Automotive Division's net cash flow is around €1.5 billion, indicating a seasonal build up in inventory combined with reduced production levels towards the end of the quarter.

This includes €0.5 billion for M&A activities and €0.2 billion in cash for diesel-related matters. The Automotive Division's net liquidity is around €31 billion, backed by clean net cash flow, including the repayment of a hybrid bond for €1.1 billion last March and the issuance of a new hybrid bond worth €2.25 billion the same month.

Volkswagen continues to make progress toward becoming a sustainable mobility provider. The new setup agreed upon by the Group will be essential as Volkswagen transitions from a traditional OEM to a vertically integrated mobility firm.

Volkswagen's brands will become more independent, with the group's general strategy and synergies taking precedence. Volkswagen's tech platforms will also gain more autonomy, allowing them to maximize synergies across the group.

This is evident in the group's financial steering model. The group began reporting on its brand groups Volume, Premium, and Sport in the first quarter of 2022. TRATON, which is reported on without separate disclosure of Scania, MAN, and Navistar, is also apparent as a separate entity, as is CARIAD, which is responsible for the standard software stack.

Open and transparent global markets are the foundation for successful companies. They are, nonetheless, required for the cooperative achievement of high sustainability targets. The Volkswagen Group is stepping up its efforts in this area, raising its emissions reduction targets in its own manufacturing plants from 30% to 50% by 2030. The group's increased climate targets in production are now in accordance with the 1.5-degree target, according to the Science Based Targets initiative (SBTi).

The current negative effects of the Ukraine crisis, the ongoing COVID-19 pandemic, and the semiconductor shortage were mostly encountered in the Volume brand group. Despite the challenges, the Group has had a good start to the year. Despite double-digit percentage declines in unit sales, all brands in the Volume group witnessed a rise in average sales prices.

Margins increased for the VW brand, Seat, and Commercial Vehicles. Only Skoda experienced a drop as they consolidated their Russian operations. The Volume brand group achieved €24.4 billion in sales and €0.9 billion in operating profit before special items.

The Brand Group Premium (including Bentley) was at par with the prior-year period, with sales revenue of €14.4 billion. Despite lower volumes, operating profit before special items more than doubled to €3.5 billion. This was mostly attributable to ongoing strong demand for well-equipped premium vehicles, as well as the positive impact from fair value measurements of commodity hedges and decreased fixed costs.

The 911, Panamera, and Cayenne models were in high demand among the Sport & Luxury brand group. The sales revenue climbed to €7.3 billion. Higher earnings contributions resulted in a €1.4 billion rise in operational profit. Operating margin was at 18.6%.

TRATON's sales revenue of €8.4 billion was 29.7% greater than the prior-year quarter, which did not include Navistar's operations. Operating profit increased by more than three times compared to the previous year, despite restructuring actions at MAN Nutzfahrzeuge in Europe. Mix and exchange rate effects were also beneficial.

CARIAD boosted its net sales to €110 million. The operational loss grew because of higher upfront investments in software stacks.

Photo from Volkswagen Group

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