IHS Global Insight Perspective | |
Significance | The Volkswagen (VW) Group has posted a record profit after tax figure in 2010 with an eightfold rise to EUR7.2 billion to in comparison to the recession-blighted figures recorded in 2009. |
Implications | These figures are further evidence that VW's Strategy 2018 plan to become the world's largest carmaker by that date is not just corporate PR and that its mix of brands and strong presence in emerging markets are giving it a strong competitive advantage as it looks to take market share from key competitors. |
Outlook | As the VW Group was the best-performing major global automaker during the financial downturn, it has proved the best-performing as the recovery gathers momentum. This massive increase in profit after tax corresponds with another sizeable increase in the company's liquidity as it further strengthen its challenge to Toyota and GM. |
The Volkswagen (VW) Group has confirmed that its financial and sales performance in 2010 was extremely strong and that Europe's biggest carmaker continues to build its momentum with a set of record financial figures for the year according to a company press release. In the first year of the concerted global recovery following the financial downturn of 2008/09, the company posted a record profit after tax (net profit) figure of EUR7.226 billion (USD9.93 billion). This massive increase in profit after tax corresponded with an equally impressive rise in sales revenue, which rose by 20.6% y/y to EUR126.9 billion, from which the company posted an operating profit of EUR7.141 billion, in comparison to the figure of EUR1.855 billion during 2009. The prior year's results were affected as the light-vehicle industry struggled to cope with the aftermath of the global financial downturn, although the VW Group was one of only two major OEM groups—the other being Hyundai—to remain in the back in 2009. Commenting on these impressive headline figures, chief executive officer Martin Winterkorn said, "Fiscal year 2010 was the best year in the history of the Volkswagen Group. Volkswagen already provided impressive proof of its robustness during the crisis and our Group is now following that up by leading the field during the economic recovery as well." He added that, "The outlook for the current year is good, too – despite all economic uncertainties. Volkswagen will play a decisive role in shaping the growth anticipated for world markets." The Group also posted a positive improvement in profit before tax of EUR8.994 billion, up from EUR1.261 billion, which it attributed to positive effects from equity-accounted investments and from measurement of put/call rights relating to Porsche Zwischenholding GmbH at the reporting date. As a result of these strong consolidated financial figures the company's supervisory board has recommended a dividend of EUR2.20 per ordinary share and EUR2.26 per preferred share.
2010 Volkswagen Group Financial Results (EUR, Bil.) | |||
2009 | 2010 | % Change | |
Sales Revenue | 105.187 | 126.875 | 20.6 |
Operating Profit | 1.855 | 7.141 | - |
Profit Before Tax | 1.261 | 8.994 | - |
Profit After Tax | 0.911 | 7.226 | - |
These extremely strong financials were created off the back of the equally robust global sales figures that the VW Group has already reported (see World: 11 January 2011: VW Group Posts Record 2010 Sales with 13.5% Rise to 7.14 Mil. Units). However, this figure has been adjusted marginally upwards by VW from their initial release, with sales rising by 13.7% to 7.2 million units. However, the increase in sales volume was comfortably outstripped by a huge 20.6% rise in revenue which suggests that the Group as a whole enjoyed a higher value model mix of sales. This certainly tallies with the strong performance of Audi during the year which enjoyed record sales of 1.09 million units, an increase of 15%. VW passenger car brand sales rose by 13.9% to 4.5 million units, while the other volume passenger car brands in the group, Skoda and SEAT, recorded rises in sales of 11.5% and 0.8% y/y respectively. The strong volume increases across all the company's major volume brands (barring SEAT) also helped the company's free cash flow and witnessed and increase in net liquidity to EUR18.6 billion up from last year's equivalent figure of EUR10.6 billion. Such a huge war chest provides the company with funds to make further acquisitions, including the much-talked-about interest in the Fiat Group's Alfa Romeo brand. However, this interest has been continually rebuffed by Fiat CEO Sergio Marchionne.
Outlook and Implications
The VW Group's profit after tax figure looks impressive against the financial performance of key rivals such as General Motors (GM), which last week posted a net profit figure for the full year in 2010 of USD4.7 billion (see World – United States: 25 February 2011: GM Posts USD510-Mil. Q4 Profit, USD4.7-Bil. Full-Year Profit), although this figure should be viewed with the caveat that it took in the period of the firm's emergence from Chapter 11 administration. Meanwhile earlier in February Toyota announced that for the first three quarters of the company's 2010/2011 financial year which will end in March, it posted net income of JPY382.7 billion (USD4.7 billion) If the full-year financial results is roughly extrapolated from the company's performance in the first three quarters its combined net profit figure is likely to fall significantly short of VW's full-year 2010 performance. However, this should be viewed with the proviso that Toyota's 2010/2011 sales performance will have experienced some negative impact from the unprecedented slew of bad publicity which surrounded the global recall programme. With all these factors taken into account, it remains clear that the VW Group is in the most robust shape of all the major global OEMs at this point in time. The company's much vaunted line up of brands, as well as its shared component, powertrain and modular platform technology between these brands, continues to prove a significant competitive advantage, as does its market-leading position in China and its strong presence in other dynamic emerging markets such as Brazil.
However, VW also faces substantial risk going forward, despite the superficially positive prognosis for 2011 by CEO Martin Winterkorn. While Winterkorn is correct that VW is well placed to maintain profit and sales growth into 2011 all things being equal, further global macroeconomic shocks cannot be discounted, especially given the increasingly febrile situation that exists in the Middle East. Meanwhile the news that the investigation into the Porsche share trade deals of VW stock that occurred during 2009 during the sports carmaker's failed takeover is being widened (see Germany: 25 February 2011: VW Signs Russian Assembly Deal with GAZ, Widened Porsche Probe Set to Delay Takeover) is another potential stumbling block to VW's otherwise smooth progress. At the very least it looks set to delay the full merger of VW and Porsche into 2012 and take up further time and management resources, which are already at a premium. This is perhaps the chief danger that VW faces at this time. As the company looks to generate further growth through acquisitions and push through the Porsche merger and the integration of its 19.9% shareholding in Suzuki efficiently into its operations, the company faces dealing with increasingly complex business structures which will require more and more focus from top management. VW must hope these do not affect the bedrock of its success in recent years; namely its skill in developing attractive new product and generating cost savings and synergies across its brands.