Volkswagen Ag Unsp/Adr

to all which are participating in today's investor and analyst conference call of Volkswagen AG. Fully granted that our thoughts are currently with all the people suffering in the Ukraine from this war. My name is Rolf Woller, and I am heading the treasury and investor relations teams at Group Volkswagen. Together with me in Wolfsburg is our CEO, Herbert Diess, and our CFO, Anna Antlitz. We published today our annual report, the press release, and the related IR material. You will find them, as well as all relevant documents concerning the annual shareholder meeting, on the IR website. The annual shareholder meeting is scheduled for May 12th and will be held in virtual format. We will start with an introduction by Herbert, which is followed by a presentation held by Arno. who will provide you with details on the financial results 2021 and on our outlook for 2022. Afterwards, we will host a question-answer session, which is moderated by myself. In order to raise the question, you have to press star 9. Before I hand over to Herbert, let me quickly draw your attention to the disclaimer on page 2. Please read it carefully, because I won't do it. And with that, I hand over to Herbert.

Dear ladies and gentlemen, welcome to the annual earnings conference of the Volkswagen Group. On Friday, we released our 21 earning figures, which we will discuss with you today. But before that, let me briefly address the situation in the Ukraine. Our thoughts are with the people suffering and fleeing from the violence. Volkswagen is stepping up to help where we can. Up until now, our employees have donated over 1 million euros to the UN Refugee Aid. In the Management Board, we just decided that each of us will donate another 50,000 euros to various aid organizations covering the range of our businesses across the group. Skoda and Volkswagen Financial Services have provided vehicles to aid organizations in the Czech Republic and in Poland. MAN helped with trucks and buses. At many of our sites, employees are collecting donations in kind, such as medicines, and are bringing them to the Ukrainian border. Colleagues who have left the country are receiving support from SCODA with visa procedures, accommodation, and language classes. Already now we are seeing the effects of the war on the global economy, on raw materials and on our supply chains. Volkswagen had to stop production in Russia and exports to Russia for the time being. We are continuing to pay our employees in Russia 80% of their salaries. We are also continuing to supply our Russian customers with spare parts. And we are supporting our suppliers of wiring harnesses in the Ukraine. which are keeping up operations to the extent they can. A task force under the leadership of Murad Axel and Gunnar Kilian is working hard to mitigate the current situation. We are building up additional capacities for wiring harnesses for Europe and are shifting car production to regions such as China and the Americas. We cannot assess the full impact of the war in Ukraine yet. But seeing the human tragedy is devastating. If a war drags on, it could seriously threaten a world order that has brought freedom and prosperity to many parts of the world over the past decades. Europe would suffer the most in such a scenario. That's why we have called for European and global politics to pull their full weight so that the parties will come to a solution and stop the war as soon as possible. Let me come to 2021. The past year was still impacted by the COVID pandemic and global semiconductor shortage. As a result, legal sales across the group declined 6.3%. Yet, we were able to increase revenues 12% to 250 billion euros as we allocated more chips to higher margin models and reduced sales incentives. Our strict cost discipline and efficiency measures helped us to double the operating profit before special items to 20 billion euros. And with 8.6 billion euros, we generated a net cash flow that was 35% higher than a year before. All in all, we demonstrated that our business is robust and that we are better able to cope with adversities than in the past. I would like to thank our global teams, our task force members, and our healthcare managers across the world for helping to make this happen. Despite the economic challenges, we reached some important strategic milestones last year. For years, we had lost money in our key market U.S. In fact, when I joined the company in 2015, this was one of the most pressing issues Volkswagen was facing. In 2021, the Volkswagen brand was profitable again in the U.S., as well as in Mexico and in Canada. We now have the right products with our five SUVs from the Atlas family, the Taos, Tiguan, and ID.4. The five SUV models account for about 70% of U.S. sales. The ID.Bus will be the emotional driver for our rebirth in the U.S. I just visited the South by Southwest in Austin, where we presented the bus to the public. And the reactions are just overwhelming. Passengers by spontaneously take out their smartphones and take pictures as soon as they see the car. Texas Governor Greg Abbott didn't want to miss the opportunity to get into the car and check out the interiors. With the integration of Navistar, we gained a foothold in the North American truck market and turned our Triton truck and bus business, now under the leadership of Christian Levine, into a true global champion. 21 was also the year of the turnaround for Volkswagen in South America. Six years ago, we took the right decisions, changed and modernized our product portfolio, for example, with the Taos and Nivus. Now we are wrapping the rewards. We achieved profitability and a positive net cash flow. In Europe, we were first movers in our industry for electrification six years ago, and our strategy was the right one. In 2021, we were market leader for electric cars in Europe. Every Ford EV is a Volkswagen Group car. In China, the most important growth market worldwide, we are very profitable. This 16% market share, we have almost twice the size of the second biggest competitor despite the fact that China was hit over proportionally by the semiconductor squeeze. For we is the most successful brand with 11% market share, Porsche, Bentley and Lamborghini achieved sales records. Our premium brand group performed especially well in 2021. Audi, Bentley, Lamborghini and Ducati posted outstanding results. In the volume group, the Volkswagen brand now offers EV alternatives for all ICE models. A broader product range than any other competitor. The ID.3 as the electric alternative to the Golf, the ID.4 matching the Tiguan, and with the ID.Bus, we now also have an electric alternative for the T7. From 2023, the Aero Bay will become the electric alternative for the Passat. The ID.5 and the ID.6 are completing the ID family. All EVs are coming on the dedicated MEB platform, allowing for more range and room in the car and a more sophisticated driver assistance and in-car infotainment solutions. The next major milestone will be the project Trinity, an EV sedan with futuristic design and the latest technology with level 4 capabilities. We have decided to build a new, highly productive factory for 2 billion euros next to the existing site in Wolfsburg, a key move to be able to compete with the new Tesla factory in Brandenburg. We will also be building a new state-of-the-art R&D center where we will develop the electric platform for all of our future EV models. These investments will benefit not only Wolfsburg but the whole region and create thousands of new future-proof jobs. We are counting on regional and state politicians for support to meet our timelines and remain competitive. As for the other brands in the volume group, Skoda presented the fourth generation of the Fabia and started a new market push in India with the Kushak, an SUV tailored to the taste of our Indian customers. The Kushak is just one of four new crop group products in India. As here at Cupra, both the demand for Cupra and the demand for battery electric vehicles helped the brand to raise sales by 10% last year. Cupra also launched its first fully electric car, the Born. Now the management board will be focused on further profitable growth. Porsche last year expanded its fully electric Taycan model range with the Cross Turismo. Porsche's electrification strategy has fully been paying off, with the Taycan already outselling the 911. I am sure that the potential IPO will bring a great motivational boost to the team and raise the company's ambition level even further. Ladies and gentlemen, we are well underway with the electrification of our portfolio. In Europe, with 25% market share, in EVs, we are a clear market leader, exceeding our ICE market share already. At our plant in Zwickau, we are now producing six EV models from three brands. We will add additional EV capacity with the conversion of our plants in Hannover and Empton. And we will start producing the ID3 models. In the U.S., we rank number two with an 8% EV market share, which is double our ICE market share. The ID.4 is the fastest-selling vehicle in the lineup with nearly 17,000 units sold and an order bank of over 21,000 reservations. More than two-thirds of all ID.4 buyers are new to the Volkswagen brand, and I'm looking forward to the start of the local production of the ID.4 in Chattanooga in about four months' time. With eight models of Volkswagen, Audi, and Porsche, we're rolling out one of the broadest E-car portfolios in the U.S. in 2022. In China, we executed our best strategy according to plan, with a monthly run rate of roughly 15,000 per month end of last year, matching the level of our Chinese competitors. With almost 93,000 vehicles, we delivered more than four times as many EVs in 2021. Our broad EV product range now spans five ID models, the Porsche Taycan and the Audi Q4 e-tron. We are confident that we will be meeting this year's goal to at least again double our EV sales. Beyond our own portfolio, we agreed with Ford an increase of MEB components for their Cologne plant. They will double their MEB volume to 1.2 million units over six years and are also planning a second EV model on the platform. We have made some major strides in turning the group from a classical car manufacturer into a software-driven technology company last year. We started providing our customers with the latest software updates over the year, being first in the volume segment. With the updated software, those cars, just like the new ID.Bus, now have improved features like natural language recognition and automatic lane changing. Continuous updates of the mapping data allow us to keep setting new standards in driving assistance performance. Integrating Hella Aglaya, Wireless Car, and Piconium helped us to upgrade our software capabilities. And we acquired intellectual property rights for Level 3 automated driveway that we are further developing together with Bosch. More than 1,000 software specialists joined Carriot since its start, bringing the total to more than 5,000 people. We also strengthened the team around Dirk Hildenberg with Lynn Longo as CTO and Thomas Zedran as the new CFO for Carriot. One year ago on the day, Thomas Schmal and his team presented a battery and energy roadmap for the group. Among others, we announced that we will build six battery factories across Europe. Last year, we invested another 620 million euros in our battery venture Northvolt, preserving our 20% stake. Northvolt's new factory in Sweden is on track to start production next year. In Salzgitter, we will break ground for the new cell production this summer. Salzgitter will become a blueprint for the production of our own standard cell. We will bundle all battery activities covering the entire supply chain at this site. In Spain, we are in the final discussions about the location for our third battery factory. We have started the scouting process for a fourth location in Eastern Europe already. We also established two charging joint ventures with Enel and BP, and together are working on the expansion of our fast charging network in Europe. In China, we are continuously expanding the CAMS fast charging network, and in the U.S., we have decided an additional boost plan to reach 10,000 fast charging points by 2025. We are convinced that mobility services will be a fast-growing business area and future profit pool in the new auto world, potentially generating double-digit margins. We are building up our own mobility platform to provide a range of services accessible through one app, from ride-hailing to sharing to renting and subscription. Last year, we submitted a takeover bid for Europecar, which with its modern fleet management and broad network of stations will form the basis for our mobility platform. We expect to complete the transaction in the second quarter. As the new CEO of Volkswagen Financial Services, Christian Dahlheim will not only lead our very profitable financial services business, but also run the mobility platform to leverage the synergies of the two businesses. Dear ladies and gentlemen, under normal circumstances, we would have any reason to look optimistically into 2022. We are starting from strong financial results in 2021. The pandemic is receding and semiconductor supplies are expected to improve steadily throughout the year. But the war in Ukraine has put our existing outlook into question. What I can say today is that we have increased our resilience over the past two years. We have raised efficiency and started implementing a strategy that will allow us to emerge even stronger from the transition to new auto. We have one of the best and most experienced teams in the industry. In addition to our existing board members, Ralf Brandstetter has joined the team And as board member in charge of China, he will lead our business in the fastest growing market into the future. Thomas Schaefer will take over from Ralf in Wolfsburg and take the volume group and the Volkswagen brand to the next level. Hauke Strahals is committed to building the data and technology infrastructure for new auto. Hildegard Wortmann will strengthen our customer focus and with his long track record and experience, Manfred Durst will continue to navigate us through the legal environment as we are transitioning to new auto. Please rest assured that myself and the entire management team are fully committed to leading Volkswagen through this crisis too. we will take the appropriate countermeasures and we will remain focused on the implementation of our strategy. And with that, let me hand over to our CFO, Arno Antlitz. Arno, please.

Thank you, Herbert, and also a warm welcome from my side as well. Ladies and gentlemen, dear colleagues, we've achieved solid results in 2021, which we could actually be pleased about. But our thoughts and wishes are currently with the people in the Ukraine. The war in the Ukraine is at the center stage of our thinking and acting. I would like to give you a brief overview of what we've achieved in the last year. The 2021 figures show that we increased the robustness of our business and that we are better able to deal with restrictions than in the past. Despite the semiconductor shortage, we delivered a solid operating profit of €20 billion and a strong cash flow. We benefited from favorable mix and pricing environment. We made further progress in our overhead cost initiative and demonstrated CapEx discipline. We made no compromise when it comes to future investments. In 2021, we made significant steps in our transformation towards electric and ramp-up of our software capabilities. BEV vehicles margins are progressing well in Europe and to strengthen our BEV ramp-up, we continued on our investment plan alongside the battery value chain. 2021 has been the second year in a row where external factors negatively impacted our product availability and sales. Despite these headwinds, we were able to grow our revenues to €250 billion. The main drivers were favourable pricing environment and product mix, the first-time consolidation of Navistar and the strong financial services business. Thanks to the effort of our whole teams, we achieved €20 billion operating profit and an operating margin before special items of 8%. Legal costs related to the diesel issue amounted to €0.8 billion and impacted the operating profit negatively. The reported operating profit totaled to €19.3 billion. For the sake of completeness, but not shown on the chart, profit before tax improved to €20.1 billion and profit after tax was at €15.4 billion. Let's turn to cash flow and net liquidity of the automotive business. CapEx discipline and firm grip on working capital and the contribution from our operative business drove automotive clean net cash flow to 15.5 billion euro. This is a 5.5 billion euro increase versus prior year. The reported net cash flow including M&A and diesel payments totaled 8.6 billion euro. One important milestone in our M&A activities was the acquisition of Navistar. This makes creating our global player with a leading market position in Europe, North and South America. In addition, we spent around 1.7 billion Euro to strengthen our battery capabilities. We took a stake in Goshen and participated in the latest capital increase of Northwood. Despite significant investment in future value streams, our net liquidity in automotive business stood at year-end at €26.7 billion, almost on par with 2020. Coming to the performance of our three divisions, our passenger car, business delivered and operating reside before special items of €13.8 billion, mainly driven by the strong performance of the premium and sports brands. Operating profit for Trayton, our commercial vehicle unit, came in at €0.1 billion. I will elaborate later. On this in a minute in greater detail. The financial services division doubled its result versus last year. It contributed exceptionally with 6.0 billion euros to the group result benefiting from healthy used car demand and normalization of risk costs. Moving to the operating profit bridge of the passenger car business before special items. The strong result before special items of almost 14 billion euro was driven by a substantial positive price mix effect. Exchange rates and derivatives added 2.9 billion euro to operating profit. As a consequence of the higher raw material prices, product costs deteriorated by 1.9 billion euro. Fixed costs and others at the first glance were a drag on the operating result, but let's have a closer look on the fixed costs. The position fixed cost others had a negative effect of €4.3 billion versus 2020. 2020 is a difficult year to compare as the COVID pandemic drove fixed costs to unsuitable low levels. In 2021, some of the expenses normalized. Yet we managed to structurally improve our business versus 2019 levels. Overhead costs were reduced by €1 billion versus 2020, including positive effects from our ongoing restructuring efforts. Turning to the trucks. Truck markets globally saw recovery in 2021. As a consequence, MAN and Scania benefited and saw sales revenues improving. Revenues were up €8 billion in total. Half of this increase relates to the first-time consolidation of Navistar. However, the operating results were impacted negatively by a couple of factors. A. The first-time consolidation of Navistar. the Comprehensive Restruction Program at MAN. The related expenses amount to €0.7 billion and c the EU antitrust proceedings related to Scania which led to a provision of €0.5 billion. The latter two amounted in total to €1.2 billion, extraordinary expenses in 2021. The page to our Chinese joint ventures, the proportion of operating profit in 2021 came in at 3.0 billion euro. Looking at the trend in 2021, the fourth quarter showed clear signs of recovery. In Q4 2021 alone, the proportion of operating profit totaled to 1.1 billion euro. This leads the way to an improved expectation for 2022. We aim to rebuild our profitability. It will be challenging to achieve given the current environment. Currently, some of the plants have to halt production because of the resurgence of the COVID pandemic in China. We now turn the page and have a look at our financial results. The total financial result came in at around €850 million, down around €1.1 billion year-on-year. The lower equity result was mainly driven by a weaker contribution from our Chinese activities, The decrease in the line other financial results was primarily driven by losses in the measurement and realization of forward purchase agreements for the new shares in QuantumScape. This alone amounted to a negative year-on-year impact of €0.7 billion. In the prior year, the measurement and realization of these forward agreements led to a non-cash gain of €1.4 billion. Profit after tax came in at €15.4 billion, significantly higher compared to 2020 and also compared to 2019. The tax rate was at about 23%, slightly down from previous year, where it stood at 24%. Based on the solid net income achieved in full year 2021, the Board of Management and Supervisory Board proposed to distribute a dividend of €7.50 per ordinary share and €7.56 per present share for full year 2021 to be paid out in 2022. In absolute terms, this totals €3.8 billion dividend payout for full year 2021. Our virtual general meeting, which decides on the dividend payment for full year 2021, is scheduled for May 12, 2022. The agenda and the other associated documents can be already found on our investor relations website. One of the core financial KPIs is return on investment. It stood at 10.4% in 2021, therefore significantly above the prior year level and also above our required rate of return. The main drivers of this development was a substantial improvement in our operating results. In addition, invested capital was €1.5 billion lower than in the prior year, demonstrating our working capital and capex discipline. Now let's come to the outlook for 2022. We are convinced to be well prepared for the future challenges in our business and the regional automotive markets. Given the challenging market conditions, we anticipate deliveries to customers of the Volkswagen Group in 2022 will be 5-10% up on the previous year. 2022 will continue to be affected by shortfalls in supply due to the structural shortage of semiconductors. However, we expect the intensity of shortage to decrease as the year progresses. We expect sales revenue of the Volkswagen Group in 2022 to be 8-13% higher than the prior year figure. In terms of operating results for the group, we forecast an operating return on sales in the range of 7% to 8.5%. Reported net cash flow is expected to stay on the same level as 2021. In 2022, net liquidity in the automotive division is anticipated to be up to 15% higher than the previous year. This again underlines our self-funding capabilities. Of course, we want to know what you have already backed into our guidance. The guidance is based on the assumption that price and mix will continue to support our 2022 results. It already includes the rise in raw material prices included in our product cost. We expect semiconductor supply bottlenecks to continue in 2022, but gradually improve in the second half of the year. We expect drayton to contribute substantially to our result, We are, however, aware that the FS division results achieved in 2021 are not sustainable. We expect FS division to contribute about 4.5 billion Euro in 2022. Not included in our guidance, however, a resurgence of the COVID-19 pandemic situation, which negatively affects our business. The guidance presented is also subject to the further development of the crisis in the Ukraine. and in particular the impact of our supply chains and the global economy as a whole. At the time of preparing this outlook, there is a risk that the latest developments in the Russia-Ukraine conflict will have a negative impact on the Volkswagen Group's business. This may also result from bottlenecks in the supply chain. At the present time, it is not yet possible to conclusively assess the specific effects, nor is it possible at this stage to predict with sufficient certainty To what extent further escalation in the Russia-Ukraine conflict will impact on the global economy and growth in the industry in fiscal year 2022? Ladies and gentlemen, let me elaborate now on some of the achievements in 2021 towards the outdoor from a CFO perspective. We keep momentum high. We drive the company's transformation towards electrification and digitalization and aim to achieve a leading best position in 2025. Therefore, the majority of our investments is veered into future technologies. Based on these investments, we have been able to increase our BEV sales quarter by quarter, and we will increase our BEV sales this year as we sit on a high-order bank and aim for a BEV share of 7% to 8% in 2022. We are also aware that one of the key considerations of the capital market community is how our BEV margins develop and contribute to future earnings. Our MEB models are on high demand, pricing is strong. We have also made significant progress in 2021 on the profitability of our BEVs. Despite current headwinds and raw materials, we are optimistic to achieve the margin parity to ICE earlier than we originally thought we would. The main drivers are our new dedicated electric platform MEB, the ramp-up of our retooled plants, Lastly, the MEB is open to third parties. Before the announcement yesterday, we will gain additional economies of scale to boost the profitability of our BEVs. To finance our ambitious transformation towards electrification and digitalization, we have initiated last year our overhead cost program. We achieved our target for 2023 of 10% cut in overhead costs already today. This important milestone contributes €4 billion versus 2019. The main structural drivers were process and progress efficiencies, synergies, cancelled projects with low prospects and a cost freeze in the indirect areas. Capital deployment is another important area for us to stay focused on. Due to significant investments in electrification and especially into software competencies, our R&D ratio for the full year 2021 came in at 7.6%, slightly higher than our target of around 7%, largely due to the fact that we sold fewer vehicles than originally targeted. Despite all our investments, such as retooling ICE plants to BEVs, we spent in 2021 around 500 million less than in 2020. Also, the CapEx ratio is with 5.1%, one full percentage point below the prior year. This is a true proof point for our CAPEX discipline. As part of the European Green Deal, the European Union supports environmental protection. Therefore, an action plan was initiated to finance sustainable growth. A core part is the EU taxonomy. As you are aware, we are committed to the Paris Climate Agreement and we are in the midst of a ramp-up of our BEV strategy. The EU taxonomy reporting will become mandatory to report on next year. We at Volkswagen are ready one year earlier. In 2021, 560,000 electric vehicles were sold in the European Union, thereof 367,000 BEVs and 192,000 plug-in hybrids. They account for 11% of our sales. Looking at sales revenue, the taxonomy-aligned revenues accounted already for 9% of the group total. Switching to sustainable investment, the total capital expenditure for Volkswagen Group in fiscal year 2021 amounted to €54 billion, thereof taxonomy-compliant capital expenditures amounted to €15 billion, which already is coming close to 30% total investment. This includes additions to capitalized development costs of €3.5 billion and additions to property, plant and equipment of €3.8 billion for all our electric passenger cars and light commercial vehicles. You may recognize but this fits nicely into our investment framework we provided during Planning Round 70, where BEV-related investments are planned with one-third of total investments over a five-year timeframe. Ladies and gentlemen, we have strong brands. At the same time, we will continue to shape our transformation with focus on technology, ramping up BEVs, and developing and deploying a leading automotive software stack. We will continue to financially steer our transformation by focusing on synergies and building resilience by working hard on cost and efficiency to be less reliant on volumes and growth. Based on our robust business model, we are strongly committed to transform our company towards future revenue pools based on strong values and commitment. Over the past two years, we have learned to better manage the impact of crisis on our company I am confident that we will make the best possible use of these experiences to stay on track in these difficult times. With that, I turn back to Rolf for the moderation of the Q&A session. Thank you very much so far.