Porsche Automobil Holding SE

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Investors and Analysts' Call regarding the Porsche AG Q3 2023 results. This call will be hosted by Lutz Meschke, Deputy Chairman and member of the Executive Board for Finance and IT. All materials such as the investor deck or the quarterly statement are available in the investor section of the Porsche website. Before we begin, Let me remind you that any forward-looking statements to be made during today's call are subject to the risks and uncertainties mentioned in the safe harbour statement included in the portion materials. The score will also be governed by this language. During the intro statement at the beginning of our call, all participants will be in a listen-only mode. After the intro, we will jump to the question and answer session. If you would like to ask a question, you may press start followed by 1 on your touchtone telephone. Please press the star key followed by zero for operator assistance in case of any technical difficulties. And now, I would like to hand over to Björn Scheib, Head of Investor Relations. Please go ahead.

So, good morning, everyone. Welcome to our Analyst Investors Call on the Q3 numbers of Porsche AG. My name is Björn Scheib, and today with me is our CFO and Deputy Chairman of the Executive Board, Lutz Meschke. Today, we would like to give you a brief insight on our business performance about the first nine months of 2023. And after this, as every quarter, we'll take your questions. So, Lutz, the stage is yours. Yeah.

Thank you, Björn. Good morning and welcome, everyone. Thank you for joining us today. We highly appreciate your interest in portions. Reflecting our discussions during the last few months, we recognize that there has been some uncertainty with regard to the performance of our company. In particular, after our unit sales in July and August. This triggered some questions if and how we would be able to compensate our pricing before volume strategy in China. Taking a look at our numbers, one can see a very robust demand at good pricing from around the globe. Yes, our global footprint has become even more balanced. At the same time, taking a closer look at our earnings and our P&L, one can see two effects. We are currently impacted by inflation and peak investments for product, innovation, our brand, and the digitalization of our ecosystem. Both have materially impacted our numbers, something we have on our agenda and we will address in our Road to 20. With our year-to-date performance and all what we know about Q4 2023, we are very confident about our guidance for the full year 2023. It remains unchanged. After this brief summary, let me start with my quick intro. This quarter, we have continued to inspire our customers, not only with the current product lineup, but also with exciting new additions. One year after the IPO, we are well on track in executing our Porsche modern luxury strategy. We have increased prices and more tailwind is about to come. We will also use new product launches to improve pricing and we will increase our customization offers. Benefiting from an increased product availability during this quarter, we were able to turn more and more soon-to-be owners into now happy Porsche drivers. The excitement about our products is also reflected in our incoming orders, especially for the new Cayenne. The first of our four upcoming product launches will be the all-new Panamera. We will be presenting the third generation of the four-door sports car on November 24th. With a completely new exterior and interior, new colors and many more design details. We will also increase electrical performance of the Panamera plug-in hybrid models with regard to driving dynamics, electric speed and charging performance. And let's not forget the most impressive technical highlight of the new Panamera. The active chassis, a system which actively controls dampers and enables a totally new level of driving comfort and body control. In addition, the new E-Macan is well underway. We are on track in bringing this very attractive product to market in 2024. As shown in our online Q3 presentation, press feedback on the first test drives has been very good. The EMAC card will be introduced to global markets in a staggered approach as usual. For sure, you will get invited to the world premiere that will take place early next year. Let's now turn to the financial results. Group revenue in the first three quarters was 30.1 billion euros. This is an increase of 30% compared to the previous year. Group operating profit was 5.5 billion euros at a margin of 18.3%. The earnings per preferred share for the first nine months amounted to 4.33 euros. In the automotive business, on basis of the strong demand for our products, we have produced more vehicles year to date than in the same period of last year. Production in Q3 was below sales. As you know, Porsche stops production during the month of August at all our plants for the summer break. We increased deliveries year to date, despite the challenging market environment in China. This reflects the strong demand by our customers around the globe. Germany, Europe, North America, and the area overseas and emerging markets have grown over proportionally, leading to a balanced and therefore resilient sales mix. In the first three quarters, we delivered more than 242,000 vehicles. This corresponds to an increase of 9.6% compared to the same period last year. Vehicle sales in Q3 2023 increased too. After a slow start to the quarter, we benefited from better product availability in September. Thus, our vehicle sales increased by 10% to 79,000 in Q3 2023 compared to previous year. Especially deliveries of our two-door sports cars and Taycan grew very strongly, benefiting from improving parts availability. Incoming orders during Q3 stayed robust. Thus, our order bank is unchanged on quite a strong level, covering production well into 2024. The mix and quality of our orders and order book show that our customers appreciate our exclusive product offerings. The opportunity to personalize our vehicles is highly utilized. As before, the 911 has the largest order book, a strong model mix, and the longest waiting time, around a year on average, across all derivatives. In uncertain times, we are benefiting from our strong product portfolio and our loyal customer base. Pricing was also robust. However, please note that during Q3 2023, we have only in part benefited from the price increases launched mid-year. The average sales price on retails this quarter was €118,000 per vehicle. However, this increase is mainly driven by relatively low retail numbers because of the reduced product availability in that period of time. The average sales price on sales in Q3 2023 was 112,000 euros, slightly higher than last year. Positives were pricing and model mix, while the fewer share of China sales, where revenues per vehicle include import tariffs and also taxes, had a dilutive effect. Automotive revenues amounted to 27.8 million euros year-to-date. The operating return on sales for automotive was 18.8%. At 5.2 billion euros, the automotive segment's operating profit in the first nine months of 2023 exceeded the prior year figure by around 500 million euros. This increase was a result of positive impacts from increased volume, better pricing, and a beneficial mix. Investing in our brand and product innovation to excite our customers is one of our key priorities. For 75 years, the Porsche brand has had a consistent and unique DNA like no other. Thanks to the clearly defined brand and product identity, all our sports cars have an unmistakable character. It is our task to transfer these values into the age of electromobility and digitalization. Year-to-date, we book tire sales and marketing expenses. With this, we return to the pre-COVID level by increasing our activities to strengthen our brand with events such as our 75-year anniversary and our motorsport engagements. In addition, we accelerated our broad-based digitalization initiatives. For example, the update of our well-known car configurator. At the same time, we incurred higher costs in the preparation of the four upcoming product launches in the next quarters. This is a unique cluster in the history of Porsche's launch calendars. We spent more than 2 billion euros net on research and development, the highest number in nine months in the company's history. Most of the R&D expenses in the reporting period were due to the conversion of the product range towards electromobility. The R&D ratio was 7.3%. Capitalized R&D amounted to 1.7 billion euros in the first nine months of 2023. As mentioned, the increase is due to the rising expenditure for ongoing projects, which are close to being ready for series production. Appreciation and amortization of capitalized development costs amounted to 691 million euros. The expense of R&D at 1.1 billion euros was slightly higher than last year. equaling around 4% of automotive revenues, which is at last year's level. Automotive EBITDA in the first nine months rose by 11% to 7.1 billion euros, corresponding to an automotive EBITDA margin of 25.5%. We earned an automotive net cash flow in our automotive business of 3.4 billion euros at a net cash flow margin of 12.2% in the first nine months of 2023. In Q3, the cash flow from our operational business benefited from a reduction in inventories, mainly because of the increased number of new Cayennes arriving at the dealers. The cash flow from investing activities reflects our increased spending for our transformation with focus on technological excellence, product innovation, and the entire Porsche ecosystem. Not to forget the four new products that will be introduced in the next quarters. In total, we achieved a net cash flow of 1.2 billion euros in the third quarter. All businesses of Porsche contributed to this result. Financial services revenue amounted to 2.52 billion euros in the first nine months. The operating profit of the financial services segment decreased to 0.23 billion euros. The decline was mainly due to the valuation of interest rate hedging transactions and derivatives outside hedge accounting in the context of regular refinancing activities. As discussed in previous quarters, this is part of our regular refinancing activities, while the credit quality of our book is still very strong. Reversals in loan loss provisions were lower than in the same period of the previous year, drivers that also impacted on our Porsche Financial Services results in the last quarter. Our financial services penetration in the first nine months was 40%, which was 160 basis points lower than last year. This development reflects that we pass on the market terms in our offers. At the end of the third quarter, our automotive net liquidity was at 6.6 billion euros. As you may remember from our capital allocation discussions during the IPO process, we are targeting a net liquidity ratio of 15 to 20% of automotive net revenues. Let's move on to the outlook for 2023. Porsche is benefiting from its strong global customer base. In Q4 2023, we expect improved product availability and continued robust pricing, while costs will stay inflated. For the full year 2023, Porsche AG Group confirms its forecast published in the Combined Management Report, also regarding the highlighted conditions. Based on these assumptions, the Porsche AG Group expects an operating return on sales for 2023 in the range of 17 to 19%. This forecast includes assumed group sales revenues in the corridor of 40 to 42 billion euros. Our forecast for the automotive segment is a net cash flow margin between 10 and 12 percent and an automotive EBITDA margin between 25 and 27 percent. As part of the 2023 sales forecast, the company expects electrified vehicles to account for up to 12 to 14% of total new vehicles delivered to customers. However, this target requires a continued stable supply situation for the Taycan. Porsche is pursuing a disciplined capital allocation strategy. As of today, reflecting on our expected robust automotive net cash flow generation, we intend to have our shareholders participate with the outlined dividend policy of 40%. Distribution of 50% of net profits is planned in the midterm. Before we will start with the Q&A session, let me summarize. Unchanged dividends. Our products remain in high demand and our order bank covers our production far into 2024. In addition, Porsche is preparing for one of the biggest product offensives in its history, which will further strengthen our product offering. However, as with any product launch, we have to pay attention to industrialization and stability of the supply chain. especially regarding new suppliers to the brand. We will also carefully monitor the potential implications from the growing geopolitical tensions. Further details of our 2024 outlook will be shared within our full-year disclosure in March next year. Overall, we have a clear strategy for the future of Porsche, which we are continually enforcing. Our priorities are improving the quality of results at a higher price point and disciplined sales growth. Furthermore, the review of our offer strategy, for example, the derivatives portfolio. Additionally, we will keep investing in our brand and our ecosystem, such as charging hubs and new point of sale concepts. Combined with the stringent efficiency management, this will lead us to the successful execution of our road to 20. Thank you very much for your attention. I'm very much looking forward to answering your questions now.