VW's net profit rises 59% in Q3 on effects of Porsche merger

The Volkswagen (VW) group has posted an accelerated increase in net profit of 59% to EUR11.328 billion during the third quarter of 2012, largely as a result of the complex financial effects of the merger with Porsche AG. This accelerated increase in net profit was down to the complex structure of the deal, which saw the sports carmaker become the 12th brand in the VW Group portfolio at the end of July, with the merger resulting in the revaluation of share options and how the company's stake in Porsche stake is accounted for its books. For the first nine months of the year net profit rose in a similarly marked fashion with a 47.7% rise to EUR20.062 billion (USD14.668 billion). A more accurate barometer of the company's performance in recent months is the 19% decline in operating profit to EUR2.343 billion. Operating profit excluded items such as interest and taxes as well as the valuation effects on VW's Porsche stake. Operating profit for the first nine months of the year came in at EUR8.835 billion, which was a 1.3% y/y fall. Profit before tax in the third quarter rose by a similarly accelerated figure as the net figure, with a 53.5% y/y rise to EUR12.300 billion. In the first nine months profit before tax rose 38% to EUR22.956 billion, which again was influenced by the put/call rights relating to Porsche and from the remeasurement at the contribution date of the shares already held in the sports carmaker, which came in a EUR12.3 billion in comparison to last year's figure of EUR6.8 billion.

The Group's revenue rose by 26.8% y/y to EUR48.848 billion in the third quarter which was at a slightly higher rate than the YTD rate of increase for the first nine months of the year which came in at EUR144.226 billion or 24% y/y. These revenue figures were generated from deliveries that rose by 12.8% y/y to 2,303,000 units in the third quarter which was a 12.8% y/y increase in sales from last year's figure of 2,042,000 units. This was an acceleration on the rate of increase shown in the YTD figure, which rose by 11.1% y/y to 6,855,000 units. Net liquidity fell significantly in comparison to the EUR14.9 billion that the company had in reserve at the end of the first half of 2012, with the figure declining to EUR9.2 billion following the full integration of Porsche and the purchase of Ducati.

Outlook and implications

There is little doubt that the latest financial figures show a company in robust health in comparison to the rest of the industry, especially its European peers, which are beginning suffer badly as a result of the decline that is currently occurring in the region's automotive market. The European market declined at its highest rate this year in September with a 10.8% y/y fall for the month, which in turn contributed to a 7.6% y/y fall for the combined first nine months of the year (see Europe: 16 October 2012: European passenger car demand falls 10.8% y/y during September – ACEA). VW has managed the impressive trick of almost maintaining sales volumes in this declining market, recording a 1.2% y/y fall in the first nine months, meaning it has increased its market share by almost 2% Europe-wide in the first three quarters of the year. However, even the VW Group could not maintain its volumes in Europe in September and the company witnessed an 8% y/y fall in sales during the month. This rapid deceleration in demand in the European market will hit VW, although not to the same extent as its European peers. However, the fall in high value European sales is likely to have an influence on the 19% fall in operating profit during the third quarter. However, with the new Golf just being rolled out across Europe, and other important new launches imminent such as Skoda Rapid and SEAT Leon and Toledo, the company's portfolio in Europe will provide some stimulation to sales, although new model launches, aside from Golf, are likely to have somewhat limited impact in the current environment. VW will be hit by any rapid contraction in the Chinese market and the company will be watching developments there very closely after the market contracted by 1.7% y/y in September (see China: 16 October 2012: Chinese vehicle sales slide 1.75% y/y – CAAM). However, elsewhere the company's sales continue to develop well in the US following the investment in its new plant at Chattanooga, Tennessee and Audi will accelerate its sales push in the US and NAFTA region following the recent decision to build a plant in Mexico. The group's sales continue to develop well with sales up 11.1% y/y during the year in the first three quarters to 6.9 million units, although the comparison is marginally skewed in comparison to last year by the addition of Porsche and MAN. Indeed on a global basis VW continue to grow share as has been the case on a consistent basis in recent years, with the firm's share of the global passenger car business rising by 0.3% in the first nine months of the year to 12.6%. As a result we can still say that despite the growing headwinds that VW is wary of in the European market, and fears that the economic dynamics currently being experienced in Europe could spread elsewhere, the company remains in very good health overall.