Volkswagen Ag Unsp/Adr

Okay, I hope everyone can hear me loud and clear. Warm welcome to all of you to our today's H1 conference call. It's a combined investor, analyst, and media call, which is moderated by Nicole Mommsen, our head of group communications, and myself, Rolf Woller. I'm heading the treasury and our activities at Volkswagen. Together with us here in Wolfsburg is our CFO, Arno Ansitz. And before we start, I have to make some housekeeping remarks. We have already published, and you should have already received, the press release, our interim report for the half year of 2022, and all related IR materials. If you have not received them, you can find them on our website. How will we proceed today? After Arno's presentation, we will host first a Q&A session for the investor and analyst community, followed then by a Q&A session for our media community. The latter is moderated by Nicole. Before I hand over to Arno, let me quickly draw your attention to the disclaimer in the presentation, which is on page three. I will not read it to you and therefore ask you kindly to read it carefully yourself. And with that, I hand it over to Arno, who guides us through the deck. Arno, the floor is yours.

Yeah, thank you, Rolf. Good morning from my side and welcome everyone to our today's first half 2022 combined investor analyst and media call. Within the next 30 minutes, I will take you through the major milestones we've achieved in H1 and achievements in our financial performance and robustness. The war in Ukraine has been going on now for almost half a year, and we always should be aware of this extraordinary situation. It not only continues to challenge our business, but also the human tragedy continues. Before I start, let me make some opening remarks around last week's decision taken by our supervisory board. I sincerely want to thank Herbert Diess for his outstanding commitment and contribution to Volkswagen's transformation over the past six years, with new auto being a clearly defined strategy for the challenges ahead. Herbert and myself worked closely together to drive this process. During his leadership, significant progress across a number of important strategic frontiers were made. With our new group steering model, we systematically have aligned the group focus towards the future profit pools of the mobility industry in the future, including batteries, software, and mobility services. We also formed strong brand groups, strengthening entrepreneurial freedom and responsibilities. I am convinced that thanks to this setup, we can continue to transform the group from a procession of strengths. This is illustrated again by the results of the second quarter, where we performed remarkably well in a demanding environment. If Oliver Blum is assuming CEO position for Volkswagen Group starting from September onwards, I am very much looking forward to continuing the transformation journey we have begun together with him. Driving the transformation forward consequently means that we continue to execute our plan for a potential IPO of Porsche later in this year. The preparation is continuing with a decision expected late summer, now with even more emphasis than before. The potential IPO would give us additional financial flexibility to accelerate our strategy and emerge as one of the leading companies from this fundamental transformation in the auto industry. Oliver Blum in his capacity as CEO of both companies Volkswagen and Porsche stands for an independent Porsche with access to Volkswagen synergies. He has an excellent track record as CEO of Porsche AG. Porsche is strategically, technologically, financially and culturally well positioned to be a leader of the sustainable transformation in the automotive industry. Lastly, I fully understand your interest on the future working mode. How exactly Oliver and I will work together in my capacity as CEO is something we will talk about in more detail in the coming weeks. I know Oliver since many years. and I'm very much looking forward to working even closer together with him in the future. But now let's switch over to the H1 performance. In summary, solid operating results again showed the robustness and resilience of our business model in a challenging environment. The supply chain disruptions related to wire and harness have been taken care of and the improved supply of semiconductors should bode well for our H2 sales ambitious. Positive fair value measurements on hedging instruments outside hedge accounting burdened our result in Q2 by about minus 2.4 billion euro and the positive from Q1 declined to 0.9 billion euro in H1. Including this more positive effect, we reported an operating result of €13.2 billion and an operating margin at 10% for the first half of the year. Thanks to our robust net liquidity position, we are able to consequently continue our transformation including required investments toward electromobility and digitalization. Let's have a brief look at our unit sales in Q2. The demand especially for well-equipped cars, continued and led to a strong product mix. However, sales in the second quarter were heavily impacted by the semi-environment harness shortage as well as COVID-related measures in China. The situation stabilized in May and we saw a clear upward trend in June with more than 800,000 deliveries worldwide. In China... We recorded an increase of deliveries in June. They were up 27% year on year, and we regained market share. We are moving in the right direction here. In Q2, we sold 118,000 BEVs, reflecting a total share of 6%. The shortage of wiring harness hit our electric cars especially hard, but we are all set for higher BEV volumes in the second half of the year. Especially in Western Europe, We continue to sit on a strong order bank. BV order intake is in Western Europe up 40% in H1 versus prior year. Demand for ID.5 is above our expectation and ID.Bus was great customer response. From where we are now, we anticipate a constantly growing BV volume and share in the remaining quarters of 2022. The next chart provides an overview of already retooled MAP plans in major regions. Based on a better supply of parts, we operate now three shifts in Zwickau and ramping up our Empton plant. The ramp-up of our retooled plants Empton, Hannover and Chattanooga will support volumes. The global production footprint will help and new exciting models will be launched. Especially in the US, we see huge opportunities for BEVs and we will intensify our activities in the future with the revival of the Scout brand. PowerCore established our European battery center with the group's first own cell factory at the Salzgitter site, which is expected to begin production in 2025, a further milestone in our electrification roadmap. With the unified cell and the standard factory, we are able to set new industry standards. The plants are highly flexible with regards to cell chemistry. We are convinced that POWERCORE will have one of the most standardized and most cost-efficient cell factory networks globally. Let us move from strategy implementation now to our financial performance. Vehicle sales for Volkswagen Group came in at 4 million euros in H1 2022, around 650,000 units less than in H1 2021, caused by an ongoing limited vehicle availability. Despite lower sales, sales revenues amounted to €132 billion, including around €5 billion of the first consolidation of Navista. The operating result before special items came in at €13.2 billion, the operating margin stands at 10%. This demonstrates impressively the robustness of our group in a challenging environment. The result still contains a cumulative positive effect of around 900 million Euro from positive fair value measurements on hedging instruments outside hedge accounting. But this is significantly less than the 3.2 billion Euro as of the end of the first quarter. Our financial result came in around 1.2 billion Euro in H1. This is up €1.4 billion year-on-year, benefiting mainly from slightly higher equity contributions from our Chinese joint ventures and an improvement of our interest results. QI net cash flow amounted to almost €6 billion and reported net cash flow came in at €2.3 billion. The difference relates to diesel payments of €0.9 billion and M&A of €2.6 billion. They are of €1.7 billion are related to the Europe car settlement in Q2. Despite the strong operating performance, net cash flow of the automotive divisions is somewhat mooted due to the working capital being burdened by higher inventories. We build up goods in transit, especially to our overseas markets, and working process in anticipation of higher sales volume in H2. Net liquidity in the automotive division amounts to 28 billion euros, slightly down versus Q1, but still up year-on-year 2021. So far, only around 500 million euros of Chinese dividends were declared and paid in H1, representing a significant lower amount compared to the prior year period. The remaining declaration and payments of around €2 billion are expected for H2. Coming now to the performance of our divisions. Passenger cars delivered very solid €9.3 billion operating result and a margin of 10.4% before special items. Our commercial vehicles came in at around €600 million and a margin of 3.5%. H1 was impacted. by the production stop at MAN due to the war in the Ukraine and this was partly compensated by Navistar which contributed 155 million Euro in H1. The financial services division continued with their strong performance also in Q2 and recorded a profit of 3.1 billion Euro. Now moving to our passenger car Abbott Bridge. The strong results before special items of €9.3 billion for the passenger cars business was driven by a positive mix effect from well-equipped cars and favorable pricing. This more than offset the negative impact from lower volumes. As already mentioned earlier, the bucket exchange rates and derivatives reversed significantly and resulted year-on-year even into a burden of €0.5 billion. Product costs deteriorate further to minus 1.5 billion euro due to an increasing raw material costs. We expect this position to increase even further in the second half. It could total more than 5 billion euro by the end of this year. The position fixed cost and others had a negative effect of minus 300 million from higher R&D, while our fixed cost program contributing to the resilience of our business. After special items, the result came in at €9 billion, including minus €360 million for the diesel-related costs. Let's now have a brief look at our newly established brand group reporting within the passenger car business. A closer look into the volume group represents paint and encouraging pictures. The margin of volume growth improved from 3.6% in Q1 to 6.1% in Q2, resulting in a 5% margin for the full half year. Brandt Volkswagen performed quite well in H1 with a margin of 5.6%. Contributions to this major step towards our 6% margin target came from an excellent performance of the region North and South America, a favorable mix, and fixed cost discipline. Skoda's margin? is with 6.6% on par with Q1, which is a decent performance as they are consolidating our Russian business and they are ramping up the factory and our business in India. Looking at SEAD, a restructuring program has been initiated, leading to an extraordinary burden of minus €244 million in June. Excluding that, the performance is quite solid which is mainly due to the success of the Cupra brand. Our premium brands are well underway. Audi with a very solid margin of 16.6% in H1, benefiting both from strong mix and pricing, as well as positive effects from derivatives. Lamborghini and Bentley performed strongly. Synergies within the premium group are clearly materializing. Premium Brand Group combined achieved almost stable revenues and a solid operating result of almost €5 billion. Q2 margin states well within the strategic corridor. Q2 showed €0.9 billion negative effects from hedging after this position contributed with €1.5 billion in Q1. Porsche is well underway. With 149,000 units sold in H1 2022, showing an impressive return on sales of almost 20% in H1 in its automotive business. Deliveries in Europe increased, while other markets, especially China, were still impacted by the semi and wiry harness shortages. Boasting a 20% operating margin in its automotive business is exceptional and shows what the business and the Porsche team is capable of. Yet the results were supported by price and mix as well as forest effects. Carried sales revenue improved by 36% driven by license revenues with brand groups reflecting the ramp-up of MEB cars. The negative operating result is in the ramp-up phase a consequence of our established business model. Just for a reminder, Carat is developing the group-wide software architectures, financing the upfront investments incurred, and receives license fees from the brands for the use of their software for every car sold. So far the details for our passenger car business, coming now to our commercial vehicle business. Trayton unit sales are up 9%, supported by the Navistar consolidation. We saw a significant impact on operating results from supply shortages and production stops at MAN. Lower capacity utilization and higher costs for raw materials were partially compensated by Navistar consolidation. Net cash flow was impacted mainly by payments related to legal proceedings, 1.4 billion euro, and working capital improvements. For the full year, we are adapting our outlook for trade and operating margin to a range of 4-5%. Our financial services business again came in strong. It continued to benefit especially from growing used car business and demand better residual values and lower risk costs. Operating profit margin of 13.4% in H1 remains on the high level already shown in Q1. For full year 2022, we are raising our forecast for the financial services division from 4.5 billion euro operating profit to 5 billion euro. Looking at China, our joint venture has had a decent start into the year before the COVID-related lockdowns caused distortions in the supply chain, production, logistics and sales, especially at our psych joint venture. In total, 1.47 million vehicles have been delivered to Chinese customers, thereof 36,000 BEVs. Despite the lockdown, the proportionate operative profit in Q2 came in at €578 million. Since June, a strong catch-up has now fully kicked in, and recovery accelerating in June sales outperformed the market, allowing us for a regaining market share. Let's now come to the outlook for 2022. And to make it short, we largely confirm our outlook for March 15, and are in certain aspects even more constructive. We expect our deliveries to customers to stay between 5 and 10% above prior year, but now be more likely at the lower end of this range for the full year. Yet revenue is likely to reach the upper end of the range of 8 to 13% due to continued positive mix effects. We expect our operating margin guidance still between 7% and 8.5%. However, given the strong H1 performance and the encouraging outlook, we are confident to clearly end up at the upper end of this range. We expect mix to slightly normalize as semi-supply eases and raw material costs starting to roll over in the second half. Reported net cash flow is expected to stay at the same level as in 2021, despite the effect of filling up our worldwide pipelines in the second half of the year and the challenges of the transport sector. In 2022, net liquidity in the automotive division is further anticipated to be up to 15% higher than the prior year figure. Our planning is based on the assumption that the global economic output will continue to grow in 2022, albeit at a lower level overall after the recovery observed in the past fiscal year. provided that COVID-19 pandemic does not flare up and that the shortages of intermediates and commodities become less intense. Ladies and gentlemen, we are focused on the financial steering of the transformation. Let me give you a short brief glance on where we stand on some of these topics. To finance our ambitious transformation towards electrification and digitalization, we have initiated in 2021 an overhead cost program. We achieved our 2023 target of 10% cut in overhead costs already in 2021. So far, we showed continued fixed cost discipline and achieved to maintain this level despite an increase in energy costs and despite the rise in inflation. Stringent Capital deployment and synergies across brands stay our top priority. In the first half of 2022, the R&D expenditures within the automotive division increased to €9.3 billion due to significant development activities for future BEV models and technologies. At the same time, the group spent around €4 billion on CapEx. CapEx ratio is at 3.8% only. despite the retooling of MAB in our Ampen plant, Hannover and Chattanooga, showing a sticking discipline on capex spending. For the full year, we are increasing our forecast for R&D as percentage of sales from 7% to 8%, but we lower our capex ratio from 5.5% to 5%. This shows clearly our focus to compensate for higher R&D with greater discipline in capex. Let me finish today's presentation with our steering metrics. In our view, the key of successful managing the transformation. Based on a very convincing product range, our brand groups performed really well in a challenging environment. At the same time, we continue to drive forward our key platforms. Within all value drivers, we achieved good progress in H1 this year. PV sales are significantly up year on year. and are further gaining speed. With the signed partnering agreement, we are all well underway to add an additional partner on our MAB platform. Carriot significantly improved the 1.1 performance, and we initiated localization in China. PowerCore was established, and we had the groundbreaking of Salzgiger, our first-owned cell factory. Siemens entered Electrify America as first external investor, driving the valuation of our asset towards 2.5 billion US dollars. Europcar was successfully settled as one of the building blocks for our mobility platforms. So, we are not standing still. We are moving forward, seizing the opportunities within the operative business as we go along. We have achieved robust operating results in H1 2022 across all brand groups and in our financial services business and can rely on a very solid balance sheet and a robust net liquidity position. We continue to execute our plan for a potential IPO of Porsche later in the year. The preparation is continuing with a decision expected late summer, now with even more emphasis than before. Of course, we are aware of some of the challenges that we might face in H2 and beyond, but confident we stick to our plan and execute on our targets based on integrity and on our values. Thank you for taking time and listening in so far. Now we are very much looking forward to answering your questions.

Very good. Thank you very much, Arno. Before we start with the Q&A session, let me remind you that you register your question by pressing the star key followed by one. So we give it a couple of minutes or a couple of seconds, better said, in order to give people a chance to register. Then We would start with the first question, which comes in from Tim from Deutsche Bank. Tim, please go ahead. Yes, good morning. Thank you very much for doing this. Tim from Deutsche Bank. I have two questions, please. Obviously, pretty impressive Q2 and H1 numbers.