Global Insight Perspective | |
Significance | Operating profit for VW climbed by 55% y/y in the first quarter to 726 million euro (US$917 million) as sales revenue climbed by 21% to 25.3 billion euro. |
Implications | VW described the first-quarter results as 'a step in the right direction' but added that growth had been inflated in the period due to a weak year-earlier performance. The carmaker added that growth would slow for the remainder of the year. |
Outlook | The launch of new models will help boost VW's sales performance in 2006 but the carmaker faces difficult negotiations with its workforce over planned restructuring measures. |
VW Announces Strong Q1 Profit Growth
German carmaker Volkswagen (VW) has announced a 55% year-on-year (y/y) rise in its operating profit in the first quarter of 2006 to 726 million euro (US$917 million). Sales revenue for the group rose by 21% to 25.3 billion euro with deliveries to customers up by 15% to 1.361 million vehicles.
By brand the VW group posted the following performance.
- The VW brand group reported an operating profit of 134 million euro, up by 187 million euro on the negative performance in the year-earlier period. Deliveries to customers rose by 16% y/y to 927,000 units. The division was boosted by strong Passat, Jetta and Golf Plus sales and a strong contribution from Skoda.
- Audi brand operating profit rose by 5% y/y to 318 million euro thanks to a 13% rise in deliveries to 334,000 units.
- Disappointing earnings at SEAT held down operating profit growth.
- The Commercial Vehicles division posted an operating profit of 36 million euro, up by 75 million euro on the year-earlier period. VW Commercial Vehicles deliveries rose by 11% to 99,000 vehicles.
- The Financial Services division posted a slight rise in operating profit to 237 million euro.
Further good news was provided by a return to an operating profit of 15 million euro at VW's China division following a 332 million loss in the year-earlier period and a fall in losses in North America to 233 million euro from 332 million euro.
VW group member of the board of management, finance, Hans Dieter Pötsch described the first-quarter results as a 'further step in the right direction' but cautioned that the strong growth in deliveries was due to a weak year-earlier performance and would not continue for the rest of the year. Revenue growth in the period was boosted by new model launches by VW.
Outlook and Implications
Pötsch predicted that VW's market position in the United States and Western Europe would continue to improve in 2006 due to the launch of new models. Further growth is expected in China, South America and South Africa leading to an overall rise in global deliveries in 2006. Pötsch added that operating profit before special items would improve over the previous year with the automotive division expected to post a positive net cash flow and an improvement in net liquidity. He added that the improved performance illustrated that VW's cost-cutting measures were taking effect but cautioned that return on investment was still well below target.
By playing down the steep rise in profit over the first quarter VW's management aims to maintain a strong hand in ongoing restructuring talks with its works council over 20,000 jobs cuts. The company reported a 1 billion euro unexplained charge with its first-quarter financial results which conspiracy theorists have alleged is a ploy to further depress profits in order to strengthen the management's hand in workforce talks.
While VW is set for a stronger sales performance in 2006, led by growth in South America, the Middle East and Western Europe thanks to the launch of new models, the carmaker faces difficult negotiations with its workforce over lay-offs while calls continue from its unions for the ouster of chief executive Bernd Pischetsrieder. Directors are to vote on Tuesday (2 May) on extending Pischetsrieder's contract ahead of an annual meeting on Wednesday. VW's group brands also continue to perform unevenly with the VW brand underperforming and SEAT needing further restructuring to improve its competitiveness.