Volkswagen reports record sales revenue and vehicle deliveries
The Volkswagen Group reached its targets last year: “We cut costs, increased productivity and quality, and launched a fireworks of new models”, said Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen AG, on Friday at the presentation of the 2006 financial results in Wolfsburg. “The Volkswagen Group sold more vehicles worldwide in 2006 than ever before. All brands contributed to this success.” This growth is also positively reflected in the financial data. Sales revenue exceeded the €100 billion mark for the first time. Operating profit before special items rose 51.7 percent to €4.4 billion. “We recorded an impressive result”, emphasized Chief Financial Officer Hans Dieter Pötsch. “The ForMotionplus performance enhancement program helped the Group to optimize its cost structures and processes and increase its competitiveness.”
The Group’s new model rollout was successful in 2006, said Winterkorn. 5.7 million vehicles were delivered to customers worldwide, an increase of 9.4 percent compared with 2005. "We were able to offer our customers a sparkling fireworks of 38 new models and product upgrades", said Winterkorn. Growth rates for deliveries recorded particularly strong performance in China, where they rose by 24.3 percent compared with the previous year, and South America/South Africa (up 14.9 percent). But Volkswagen also scored a hit in its home market, recording 7.3 percent growth in deliveries in Germany. As a result, the Group extended its market share to 32.6 percent. In Western Europe, one in five new vehicles came from the Volkswagen Group, whose share of the global passenger car market increased from 9.1 to 9.7 percent.
The Board of Management has defined ambitious goals for the future. "We will bring the Group onto a new, higher, level in terms of content and technology, and will focus rigorously on our customers in the process", said Winterkorn. "We offer mobility across all vehicle size classes, from subcompacts through to large saloons, and even heavy trucks." As an innovation leader, the Volkswagen Group will extend its leading position in the global competitive environment, develop new markets and continue to grow profitably. It will focus in particular on the Russian and Indian markets, which have strong growth potential.
According to Winterkorn, the tremendous potential of the Group lies in the value of its brands, and these assets must be leveraged. "That’s why we need strong, independent brands", he said. Volkswagen dissolved the brand groups at the beginning of this year and returned complete independence and responsibility for their entire business to the brands.
"Over the next ten years, the Volkswagen brand will develop into the most innovative volume manufacturer with the best quality in its class", stressed the Chairman of the Board of Management. Strategically, it is excellently positioned and offers unique growth potential with an unbeatable range of models. To be able to leverage this potential to the full, however, the restructuring process that was successfully initiated must be continued systematically and proactively, continued Winterkorn.
A core issue for Volkswagen is the reduction in CO2 emissions demanded by the EU. The Company’s goal, according to Winterkorn, is to accelerate the use of alternative fuels and to reduce fuel consumption overall. Volkswagen has already sent clear signals here, and has been committed for some time now to developing second-generation biofuels. The Group will also offer hybrid vehicles in the future: it will launch a hybrid version of the Audi Q7 and the Volkswagen Touareg in 2008, followed by a hybrid in the compact class. In addition, further economical, environmentally friendly models will be added to the "BlueMotion" series.
Winterkorn announced that the new model rollout would be continued systematically in the current fiscal year. The Company had recorded a good start to the year, and had already sold 8.3 percent more vehicles in the first two months than in the same period of the previous year. "We are confident that we will be able to increase our deliveries to customers slightly in 2007, and exceed 2006 sales revenue. 2007 operating profit is expected to be higher than 2006 operating profit before special items." For 2008, the Board of Management is expecting profit before tax of at least €5.1 billion. "Innovative products, competitive costs, productive processes and an aggressive position in the markets will enable us to put the Company on an even better footing and demonstrate that we are well equipped to master the future", said the Chairman of the Board of Management, summing up the Group’s goals.
Earnings development 2006
Volkswagen CFO Pötsch noted that Group sales revenue had risen by 11.6 percent in 2006 to around €105 billion, while the cost of sales before special items had risen by only 10.5 percent. "This demonstrates the success of our strict cost discipline", said Pötsch. "We achieved this despite continued unfavorable exchange rates and higher energy and raw materials prices." Distribution and administrative expenses also rose at a slower pace than sales revenue. The operating margin before special items therefore improved from 3.1 percent to 4.2 percent.
Last year, the Board of Management implemented extensive measures to improve Volkswagen’s competitiveness. "The expenses for the restructuring will ensure a sustainable increase in the Group's earnings power", emphasized Pötsch. The net special items from these expenses and the income from the sale of gedas and Volkswagen Bordnetze reduced earnings by €2.4 billion. Operating profit after special items was €2.0 billion (previous year: €2.5 billion). The corporation tax credit of €951 million and the €795 million gain on the sale of Europcar had a positive effect on profit after tax. Overall, the Group generated profit after tax of €2.8 billion (previous year: €1.1 billion).
Shareholders should also profit from the good result. The Board of Management and Supervisory Board will therefore propose to the Annual General Meeting to increase the dividend to €1.25 per ordinary share and €1.31 per preferred share.
The strong cost and capital management discipline resulted in a substantial improvement in liquidity in the Automotive Division. Without affecting the development of new models, the ratio of expenditure on property, plant and equipment (capex) to sales revenue decreased from 5.0 to 3.8 percent. Net cash flow rose by €3.2 billion last year to €5.6 billion. Net liquidity increased by €6.4 billion to €7.1 billion. In the medium term, Volkswagen expects a ratio of capex to sales revenue in the Automotive Division at a competitive level of just under six percent.
Operating profit by business line
"The figures for the two brand groups Volkswagen and Audi reflect the tremendous market acceptance for our attractive models and the success of our sustainable cost and process optimization measures", said Pötsch. The Volkswagen brand group almost trebled its operating profit before special items in 2006, which rose from €516 million to €1.4 billion. "We’ve made progress with restructuring the core Volkswagen Passenger Cars brand", according to Pötsch, "but we still have some way to go before we return to the level of earnings we recorded there in the past." Škoda again recorded encouraging development last year. The Audi brand group increased its operating profit by just under half to around €2 billion, despite the continued unsatisfactory result at SEAT. Strong sales by the Commercial Vehicles business line generated operating profit of €101 million (previous year: €96 million). The Financial Services Division again made a stable contribution to the earnings of the Volkswagen Group. Operating profit again reached a high level, at €843 million (previous year: €829 million).
Presenting the annual financial statements, CFO Pötsch reiterated the medium-term target of a return on investment after tax of at least nine percent in the Automotive Division. Eliminating special items from the return on investment produces a 2.9 percentage point increase to 5.8 percent for 2006. "Although this still does not cover the cost of capital, we have made a significant step in this direction", stressed Pötsch.