Volkswagen
The group made a profit of 17.1 billion euros last year.
WolfsburgEmpassed corporations from the automotive industry have in recent months attracted attention with negative headlines, Profit warnings at Daimler and BMWbut also with large suppliers like Continental worried the financial markets.
Volkswagen is a different story: after a stable financial year, the Wolfsburg company is rewarding its shareholders with an increasing dividend. For each ordinary share there are 4.80 euros and for preferred papers 4.86 euros, in each category 90 cents more than in the previous year.
The operating profit before special items from the diesel affair rose by 17.1 billion euros by about 100 million euros, as the group announced on Friday in Wolfsburg. When sales has Volkswagen comparatively moderately increased, 235.8 billion euros compared to 2017, an increase of 2.7 percent.
The auto company is thus moving within its own expectations. The operating return on sales before special items, such as the charges from the diesel affair, has now reached the upper end of the forecast at almost 7.3 percent. Analysts had expected on average with a slightly lower operating profit.
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To tackle the diesel affair has Volkswagen in the past year, as in 2017, another 3.2 billion euros have been set aside. In principle, the costs of the exhaust gas scandal tend to continue decreasing; in 2019, a decline is expected in Wolfsburg. The total effort now amounts to around 28 billion euros.
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If the diesel loads are included in the calculation, the group has an operating profit of 13.9 billion euros (previous year: 13.8). The operating return then amounts to 5.9 percent (6.0). Also with it moves VW in the context of its announcements.
“We have done well,” commented CEO Herbert dies the balance for the past year. “Our operations have once again proven to be resilient. Overall, we can be satisfied with the result, “added CFO Frank Witter. The group has been helped by the renewed model range, most notably by a number of new SUVs.
Daimler has lost premium lead
The fact that Volkswagen missed out on profit warnings last year has two main reasons: The Group is benefiting from its strong Chinese business and its sheer size. The diesel scandal is only playing more in public discussion Germany a role. By contrast, normality has largely returned to foreign markets. In terms of operating profits, 4.6 billion euros will come from China alone.
For example, Volkswagen looks a lot better than its competitor Daimler. The Stuttgart had already presented their annual results in early February. The operating result (EBIT) of Daimler fell within a year from 14.3 to 11.1 billion euros.
The operating return for 2018 is 6.6 percent – and thus at the level of a volume manufacturer. As a result, the Daimler Group has lost its premium lead and the gap to Volkswagen has narrowed considerably.
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Volkswagen has too the title as the world’s largest vehicle manufacturer defend last year. An annual production of nearly eleven million vehicles gives the Wolfsburgers cost advantagesthat smaller manufacturers can not reach by far. In particular, VW benefits from its modular system (“platforms”), which significantly reduces production costs.
Volkswagen has been able to sell 10.8 million vehicles last year, 100,000 more than in 2017. The Wolfsburg-based company has thus come out ahead of its rivals Toyota and Renault-Nissan set.
Net liquidity in the automotive sector has not led to major collapses, despite the outflows associated with the diesel affair. 19.4 billion euros (previous year: 22.4) are an appropriate amount for the industry and for the size of the group.
The net cash flow in the automotive sector, at minus 0.3 billion euros, was significantly better than in the previous year (minus 6.0 billion). “Despite the large bloodletting as a result of the diesel scandal, the Volkswagen Group is financially quite solid,” said Frank Schwope, automotive analyst at the NordLB,
Volkswagen has set itself the goal of pushing the research and development expense ratio to a level of six percent. However, Volkswagen has not made progress in the past year. On the contrary, the rate has even increased slightly to 6.8 percent. Like other car companies, VW has to invest a lot of money in electromobility and digitizing the fleet.
Nevertheless, from an investor’s point of view, Volkswagen could be much further on its cost-cutting side, including in terms of development spending. Arndt Ellinghorst, automotive analyst at the investment firm Evercore ISI, sees some progress in Wolfsburg, but he doubts sustainability.
PSA serves as a role model
“Even after the three years of Herbert Diess as head of the Volkswagen brand, the costs have not fallen in a significant and visible way,” says the analyst. 2019 will show whether the management succeed in the turnaround in the brand. This rose almost a year ago to the CEO, so he could actually put more pressure and push for change.
The role model is the French PSA group, with its brands Peugeot and Citroën as Volkswagen is mainly on the volume segment of the mass manufacturers. PSA boss Carlos Tavares had succeeded in raising the return on his group to more than eight percent. What is possible in France with PSA, also Volkswagen in Germany must succeed, says Ellinghorst.
After all, the VW management has set a signal that promises a higher return in a shorter time. Before Christmas, the Volkswagen brand had announced that the return target of six percent should be achieved not just in 2025, but three years earlier.
However, with the announcement alone, Volkswagen has yet to prove that the Group will truly achieve this goal. Car analyst Ellinghorst remains skeptical whether the VW Group actually makes significant progress. “Markets will lose interest in Volkswagen if 2019 is just another year of transition,” says Ellinghorst. Volkswagen must finally deliver results.
In 2018, switching to the new WLTP standard was another major cost driver. As a result, Volkswagen lost a good billion euros in operating profit. In 2019 there should be no major WLTP problems. On 1 September, there is still a further tightening of WLTP requirements on the agenda. The Group, however, claims this second WLTP level under control.
However, Volkswagen has a new problem in vehicle production. This year, the production of the new Golf begins in the parent plant in Wolfsburg. The most important car of the entire group will then be reissued in the eighth generation. The Golf 8 is to become much more digital than its predecessor, which requires a new and complicated electronic architecture.
Many uncertainties remain
But that’s exactly what gives Wolfsburg massive problems. As reported by group of companies, Volkswagen has therefore massively cut back the planned planned for this year numbers of the new Golf 8. While initially more than 80,000 vehicles of the new type were planned for the Wolfsburg-based main plant, it is expected that this year only about 10,000 cars will be ready.
This would mean that tens of thousands of vehicles would be missing from the Volkswagen brand, thus losing important revenues. VW will therefore probably try to produce the predecessor model Golf 7 a little longer and with larger quantities than originally planned. However, that would reduce the revenue, because VW can no longer demand the prices of a completely new type for the older model.
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In the short term, Volkswagen, like the other automakers, faces completely different problems again this year. Should the United States actually levy import duties on European cars, the VW Group is threatened with a significant loss of profits. First estimates by industry experts amount to about 2.5 billion euros, which could thus lose the Group’s earnings.
Uncertainties in economic development are also increasingly present in Europe, if only because of the unresolved issues in connection with Brexit. If then the export market to the US because of new duties In parts, this would further aggravate the problems in Germany and Europe. In addition, the car market in China is no longer growing for the first time in 20 years.
Accordingly, Volkswagen is careful for the new year. As in the previous year, the Group announced in 2019 an increase in sales of a maximum of five percent. The operating return before special items will once again be in the 6.5 and 7.5 percent range.
“The headwind in key markets is likely to be even stronger in 2019,” said CEO Diess. It requires “considerable effort” to achieve the annual targets. CFO Witter demanded “great spending discipline”.
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