Volkswagen Group lifts profitability substantially in first half of 2010

The Volkswagen Group significantly increased its profitability in the first half of 2010 and continued its growth path in all key international automotive markets.

• Sales revenue up 20.7 percent to €61.8 billion (€51.2 billion)
• Operating profit climbs to €2.8 billion (€1.2 billion)
• Profit before tax more than triples to €2.6 billion (€0.8 billion)
• Automotive Division net liquidity up 42.2 percent to €17.5 billion (€12.3 billion)
• Chairman of the Board of Management Prof. Dr. Martin Winterkorn: "Earnings clearly in excess of our expectations"

The Volkswagen Group significantly increased its profitability in the first half of 2010 and continued its growth path in all key international automotive markets. Deliveries rose by around 16 percent to 3.6 (3.1) million vehicles, lifting the Group's global market share to 11.7 percent (11.6 percent). Operating profit rose to €2.8 billion (€1.2 billion) on the back of a 20.7 percent increase in sales revenue to €61.8 billion (€51.2 billion). This figure does not include the operating profit of €804 million (€294 million) attributable to Volkswagen from the joint ventures in China. Europe's largest automobile manufacturer more than tripled its profit before tax, which amounted to €2.6 billion (€0.8 billion) after the first six months. The Group generated a profit after tax of €1.8 billion (€0.5 billion).

"First-half earnings were clearly in excess of our expectations", said Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen Aktiengesellschaft, on Thursday at the presentation of the interim report for the first six months of the year. "We were able to expand our position in the international automotive markets even further. We shall systematically extend our competitive position on the way to becoming the world's leading automaker by selectively expanding our extensive range of new, environmentally friendly vehicle models", he continued.

CFO Hans Dieter Pötsch added: "High demand for Group models in Western Europe, China, and North and South America was a key reason for our strong result, along with the boost provided by lower product costs and positive exchange rate effects. This has allowed us to improve our financial strength even further. Our goal is now to systematically continue this profitable growth path."

Continued high liquidity in the Automotive Division

Net liquidity in the Automotive Division increased further in the reporting period to €17.5 billion (€12.3 billion), up 42.2 percent year-on-year. The company already recorded cash inflows of approximately €3.0 billion in March from the successful capital increase. An additional cash inflow of approximately €1.1 billion followed in the second quarter. Apart from continuing to improve its financial strength, the Volkswagen Group maintained its strict investment discipline; the ratio of investments in property, plant and equipment (capex) to sales revenue in the Automotive Division amounted to 3.5 percent (5.6 percent).

Brands and business fields

The mainly positive trend seen in the global automotive markets in the first three months of 2010 continued in the second quarter. All major markets improved on their weak prior-year performance, with the dynamic increase in sales revenue and earnings being driven in particular by strong demand in key markets such as China, Western Europe, and North and South America.

The Volkswagen Passenger Cars brand sold 1.9 million vehicles in the reporting period (1.7 million), a year-on-year increase of 17.5 percent. Operating profit improved substantially to €1.0 billion (€0.2 billion). The Polo, New Beetle, Tiguan and Touareg models, the Golf derivatives, and the Jetta and Passat versions available in China experienced particularly strong demand.

At 660,000 (567,000) vehicles, unit sales by the Audi brand were up 16.4 percent year-on-year. Operating profit rose by 61.6 percent to €1.3 billion (€0.8 billion) thanks to continuous process improvements and systematic cost optimization. Among others, the Audi Q5, Audi Q7 and the new Audi A5 Sportback and Audi A8 models recorded strong growth rates. The figures for the Lamborghini brand are included in the key figures for Audi.

The Škoda brand also recorded encouraging unit sales growth of 13.7 percent, to 298,000 (262,000) vehicles. As a result, operating profit climbed €92 million to €227 million. In addition to volume increases, the rise was driven by cost reductions and more favorable exchange rates.

The recovery in the Spanish automotive market had a positive effect on unit sales by the SEAT brand, which rose by 17.7 percent in the reporting period to 186,000 (158,000) vehicles. The operating loss amounted to €-157 million (€-159 million).Unit sales by the Bentley brand rose thanks to a slight improvement in the luxury segment, with the operating loss narrowing by €5 million to €-109 million.

Volkswagen Commercial Vehicles benefited from increased demand in the commercial vehicles business; sales amounted to 159,000 (135,000) units, 18.3 percent more than in the prior-year period. Its operating profit amounted to €118 million (€463 million). The figure for the prior-year period includes the proceeds of €0.6 billion from the sale of the Brazilian commercial vehicles business. Adjusted for this item, operating profit rose significantly.Unit sales by the Scania brand increased by 37.0 percent in the reporting period to 28,000 (21,000) vehicles. At €577 million (€48 million), operating profit was up clearly on the figure for the previous year, which was impacted by the difficult operating environment.Volkswagen Financial Services again made a significant contribution to the Volkswagen Group's profit: at €362 million (€321 million), its operating profit exceeded the prior-year level by €41 million.

Strategy for profitable growth to continue

The total volume of the global automotive markets in the current year is expected to be above the weak prior-year level, primarily due to the strong growth in the Chinese market. Although the automotive year 2010 will remain challenging due to intense competition and a persistently difficult operating environment, the Board of Management expects that deliveries to customers will be significantly higher than in 2009, due among other factors to the positive business growth in China. "We are confident that we remain extremely well positioned going forward to meet the complex challenges facing the global automotive markets thanks to our efficient model portfolio, the strength that comes from being a multibrand group and our technological expertise", said Winterkorn.

The dynamic growth in the Volkswagen Group's sales revenue and earnings in the first six months of this year will not continue undiminished in the second half. "Nevertheless, we believe that our sales revenue and operating profit in 2010 will be significantly higher than last year's figures, despite shifts in volumes between the markets", Pötsch continued. To ensure the Volkswagen Group's long-term success, the company is continuing to pursue the core elements of its strategy: in addition to disciplined cost and investment management and continuous process optimization, ecological relevance and the return on vehicle projects play a major role.