Volkswagen Ag Unsp/Adr

Good morning, everybody, and a warm welcome to our Q3 conference call. I'm Sebastian Rudolph. I'm heading global group communications, and this time this is a joint call with media and with investors and analysts, and that's why two nice colleagues are with me. Rolf Woller, our head of treasury and IR for the investors and analysts, and Nicole, as you all know, for the media team, our head of With us today are two important persons, our CEO, Oliver Blume, and our CFO, Arno Antlitz. Welcome to you as well. And before we start, I want to make some housekeeping remarks. First, we have already published and you should already receive the press release, the interim report for the first nine months. and all other PR-related materials. If not, you can find them on our media and investor relations website or give us a call and we send them the material directly. Let me give you a brief run-through of the next 90 minutes. First, all of our will talk to you about the highlights of the first nine months and the third quarter. He will also outline the current and upcoming challenges and foremost his strategic approach to tackle them. After that, Arno will take a closer look at the financials and then we will host a Q&A session like described with investors and analysts community and after a short break with the media. And with this, I hand over to Oliver. The floor is yours.

Yeah, thanks, Sebastian. Good morning, ladies and gentlemen. I'm excited to be here with you today for the first time as Volkswagen Group CEO. And thanks to you for joining us and taking the time. Despite numerous global changes, we achieved a lot with solid financial results. Overall, Volkswagen Group's operating results before special items in the first nine months increased to 17.5 billion, reflecting an operating margin of 8.6%. In quarter three, the operating result increased to 4.3 billion, corresponding to a margin of 6%. The performance was burdened by non-recurrent items, totally 1.6 billion euros. The underlying margin came in at around 8%. Our recovery in China continues to accelerate with a 26% increase in deliveries in Q3 and 33% increase in deliveries only in September. The Porsche IPO has demonstrated the continued strength of our brands and the opportunity of realizing their full potential across the Volkswagen Group. Arno will talk in detail about the last quarter shortly, but first I want to talk about my leadership priorities. I want to build on our recent success using the five leadership principles I applied at Porsche and I've been rolling out across the whole group. The Volkswagen brands are among the most important criteria for customers buying our products. We will be positioning and sharpening our brands better. And I've seen the great work from colleagues across the different brands when I visited the sites of Volkswagen, Seat and Cupra, Skoda and Audi within my first weeks. I personally was impressed by the great team spirit, brand strategy, and the individual design language. Our products start with a clear strategy, a design focused on brand identity, product identities, and above all, quality. When I visited the major brands, I asked for status quo reports per brand to define the current gap versus benchmark, particularly in terms of user interface. We will not compromise on quality or user experience ever. I'm very focused on people working together, helping each other, and winning together. Culture plays a big role. To live it every day. being role model, and that starts with me personally. So too does entrepreneurship. Innovation combined with engineering excellence is a bedrock of what Volkswagen does. We intend to drive this even more going forward. And last but not least, sustainability. For me, the biggest challenge of our generation is to leave behind a better planet for future generations. As one of the world's largest automobile companies, we will ensure we take a global approach to help solving the environmental challenges with which confront us. There are several challenges that the automobile industry currently faces. First of all, there are worrying geopolitical developments, particularly the rise of nationalism and protectionism. This includes growing barriers to technology transfer between East and West. Challenges to our supply chains will become the rule, not the exception. In order to set up our supply chains more resiliently, we founded a separate organizational unit. This organization will provide the Volkswagen Group with relevant risk and strategy information and analyzes potential risks in advance to identify threats to the supply security. We want to be in a position to deal with different possible risk scenarios at any time and avoid having long lead times for preparation. At the same time, the speed of technological change is transforming our industry. In markets like China, we are competing with new BEV-only entrants to the industry that are appealing to young people, the country's future drivers. That means when it comes to software, autonomous driving, but also the performance range and charging times of our cars, we must accelerate our transformation. I have no doubt that Volkswagen will successfully meet all of these challenges from a position of strength, and we will work hard to continuously show proof points along the way. This is due to our financial resilience scale, great products that millions of people across the world aspire to buy. We know we have the opportunities and the means to win. I have introduced a 10-point program outlining our key priorities for the next few months. This is about executing our new auto strategy, which we strongly believe is the right framework to accelerate our ambitions. To do so, I will be critical to speed up the implementation of my 10-point program. And that's the advantage when I started at Volkswagen, that I was involved during the last years very deeply in the situation of Volkswagen, and I was able to start from the beginning. And now I would like to lead you a bit through the top 10 program that you understand what is behind. First of all, it starts with our planning round to focus on increasing our financial resilience to give a very clear KPI framework for the brands, and focusing on our product range. Then it comes overall to our products, starting with a clear product strategy. Then it comes to design, having a clear profile for brand identity, for product identity. Then the technology strategy, having a long jump when it comes to a new product, comparing to the competition. Then we already started a speed quality initiative. And at the end, what is very important are the product returns on the financial level. Talking about the regions, China plays a big role. And there it's up to us to have the right China product strategy when it comes to production. profit pools, customer profiles of our brands, because everything is about the customer perspective. And then having the right product, talking about technologies and the content we are offering to our customers. North America plays a big role being flexible in our global footprint, and therefore also the product portfolio and cycle plans plays a big role. It is about localization of our issues in the U.S., planning to continue with our Chattanooga plant, where we are ramping up currently the ID4. And what we already published is a new approach with the brand Scout, where we will tackle the pickup business. Coming to the software issue, and this one was discussed a lot during the last session, And I think what is very important to look ahead and making a redesign of Carriot, focusing on the core competencies for the future, having clear where we have the interfaces with the brands and what partnering do we want to have. And I think when there are existing solutions in the market, it's not necessary to design and develop them by our own, to working together with strong partners. And then it's up to us to optimize our processes, tools, and the organization of the carrier. And we already kicked up this process, and this afternoon we will come to the first decisions. Then it comes to technology, our platforms for the future, and the profiles we do have with the technological footprint. It will be about the platform allocations and the product mapping in between the brands with a big opportunity we do have with the scale effects in between the Volkswagen Group. Important for the ramp-up of our strong battery and electrification strategy is the deployment planning of our battery plants and supported with our charging strategy and a clear implementation plan. And beside of this, more important than ever, is a clear energy strategy. Mobility services play a big role for us as a global company, and we announced that we bought Europcar as a new partner for our mobility services for Volkswagen, and there we kicked off a restructuring program. This top 10 point is about development of our mobility platform and at the end of consolidation of mobility activities. And as we announced, also when it comes to autonomous driving, we ordained our roadmap. We announced a partnership with Horizon Robotics in China. We will continue to develop level 4 driving with Bosch for the other regions of the world And we are in good decisions and talks with another partner approaching with level 2++ and level C driving all over the world. And on the other side, we decided not to invest ever more in Argo. And that's like in a transformation. Years ago, we started with different approaches, and now it's up to us to order our roadmap. Sustainability plays a big role for us and in our strategy, and I personally stand for sustainability as you know it with the sustainability footprint of Porsche. For us, it's important to have clear KPIs for all our brands and regions and then establish an AESG program for all the brands and brand groups of our group and having the right footprint and being measured in our progress of our sustainability approaches. And last but not least, and this is what my experience of the last month, is being focused on the capital markets, having clear analysis of the levers to increase the value of the group. And when you see the big success of the Porsche IPO for us, this is a role model and looking only to the last four weeks, the shares increased over 20%. And that shows the potential we do have in our brands. And therefore, I established and kicked off a virtual equity story for all brands to unleash the full potential. And this will lead to a complete equity story for the Volkswagen Group, where we will plan a capital markets day in the next year. presenting you how we want to lift up the value for the whole group. All this shows that we are ready to accelerate our group transformation with a relentless focus on product quality and shareholder value. I will continue to update you on the progress we have made and provide further details about my specific priority in due course. With this, I will hand over to my colleague Arno to run you through our quarter three results in greater detail. Thanks for listening.

Good morning and welcome everyone to today's nine-month combined investor analyst and media call. Thank you, Oliver, for the introduction and brief overview. Now let's change to the financials and the operative business. Before getting into details of our finances, we should not forget to mention that the war in Ukraine is lasting now for 246 days and that our thoughts and wishes are with the people in the Ukraine. Within the next 20 minutes, I will take you through the major milestones we have achieved in Q3. In summary, Our supply of semiconductors has somewhat improved and COVID impacts have at least temporarily reduced. We see, as expected, a significant higher impact from material costs, including energy costs. At the same time, disruptions in supply chains prevail, but are carefully managed. We delivered solid nine-month results with an operating profit before special items of 17.5 billion euros, corresponding to an operating margin of 8.6%, slightly ahead of our full-year target, and showing the robustness of our business model. The premium and sport brand groups continued on their strong path. Volume brand group was a little weaker, reflecting the regular seasonal pattern and impact of semiconductor shortages. Non-recurring costs related to the Porsche IPO and impacts from the revaluation of certain parts of our activities in Russia, burdened the result in the third quarter by around €1.6 billion. Before these effects, the underlying margin in Q3 was above 8% for the Volkswagen Group. At the end of September, we ended a new era by successfully listing Porsche HG on the stock market. This was the largest IPO in Europe in terms of market capitalization, an achievement we are very proud of, specifically in the current environment. PowerCore and Umicore established a joint venture for European battery materials production at the end of September, and we are in the process of realigning our mobility as a service and transport as a service activities. Going forward, Volkswagen Commercial Vehicles has decided to cooperate with a different partner to develop a self-driving system. Therefore, Volkswagen will not continue to invest in Argo, and is withdrawing as a shareholder. This decision led to a non-cash impairment of €1.9 billion in Q3, shown in our financial result. I'm aware that the gas issue is on top of your minds, so let's spend a few moments right away on this topic. We are effectively managing the gas supply situation and have put a group-wide task force in place. Effective countermeasures have been implemented in our German and Eastern Europe plants, like switching fuel to coal and oil, reducing energy consumption by reducing heating. We have also stocked up on selected critical parts to buffer production, and we see a low risk of any production stops in the winter period of 2022-2023, assuming average temperatures. Let's have a brief look at our unit sales in Q3. Our deliveries included favorable pricing and low incentives. July and August were weaker due to the typical summer holiday seasonality, with September improving to a run rate of around 750,000 units a month. We recorded a significant increase in deliveries in China as the COVID shutdowns were gradually lifted and the government stimulus kicked in. Order Bank in Western Europe remains on a high level, that will stretch well into the first half of next year. Vehicle sales for Volkswagen Group came in at over 6 million units in the nine-month period, around 220,000 units less than the prior year, caused by ongoing limited vehicle availability. Despite lower sales, sales revenues amounted to €203 billion, including €7.6 billion from the consolidation of Navistar and up 9% from the comparable period. The operating result before special items came in at 17.5 billion euro, the operating margin stands at 8.6%. Operating result for Q3 came in at 4.3 billion euro, corresponding to an operating margin of 6%. This clearly looks underwhelming at the first glance. However, as mentioned earlier, the underlying margin without the cumulated non-recurring items of €1.7 billion for Russian impact and the Porsche IPO costs was about 8.3%. This solid result demonstrates the continued robustness of our group in a challenging environment. In Q3, we had a negative effect of €0.1 billion from fair value measurements on hedging instruments outside hedge accounting. Our financial result came in at minus 0.1 billion euro in the nine-month period. Our interest results improved significantly year on year due to the positive effects from discounting of long-term provisions based on higher interest rates. As mentioned earlier, we made a non-cash impairment of 1.9 billion euro in Q3, reflecting our withdrawal from Argo. Reported net cash flow came in at €5.6 billion. Clean net cash flow amounted to €9.2 billion. The difference relates to diesel payouts of €950 million and M&A outflows of €2.6 billion, thereof €1.7 billion related to the Europe car settlement in Q2. Working capital is burdened by higher inventories due mainly to the ongoing supply disruptions with a significant increase in unfinished goods, especially in Q3. Currently, about 150,000 unfinished vehicles are waiting to be completed and finally delivered to our customers soon. The Volkswagen Automotive Net Liquidity stood at a robust €31.6 billion, an increase compared with €26.7 billion at the end of 2021 and at the end of Q2. It's not including the proceeds from the Porsche IPO, which will be booked in Q4 2022. Now, coming to the performance of our divisions, passenger cars delivered a solid 12.1 billion euro operating result and a margin of 8.8% before special items. Our commercial vehicles came in at 1 billion euro and a margin of 3.4%. The financial services division continued with their strong performance also in Q3 and recorded a cumulative profit of 4.2 billion euro. Moving to our passenger car Abbott Bridge, the strong result before special items of €12.1 billion for the passenger car business was mainly driven by a positive mix effect from well-equipped cars and favorable pricing. The bucket exchange rates and derivatives turned year-on-year into a small burden of €0.3 billion. Product costs deteriorated further to €-3.7 billion due to increasing raw material costs. The position fixed cost and others had a negative effect of minus 1.8 million euro from higher R&D, non-recurring Russian impairments, Porsche IPO costs and other effects, while our fixed cost program continuously contributed to the resilience of our business. After special items, the result came in at around 11.7 billion euro, including a minus 0.4 billion euro for diesel related Looking briefly at the brand group reporting within the passenger car business, the volume group came in with an operating result of 3.7 billion euro. The cumulative margin for the nine-month period amounted to 4.6%. The margin of volume group decreased in Q3 to 3.8%, mainly as a result of summer seasonality and planned shutdowns during the holiday season. Brand Volkswagen reported came in at a cumulative margin of 4.7%, positive mix in pricing, and good performance of the regions North and South America had a positive impact, while increased raw material costs burdened the result. Skoda's margin at 5.6% year-to-date, which is a decent performance as they are continuing to consolidate our Russian business. Our premium group came in with a very solid operating result of €6.3 billion and a margin of 14% for the first nine months, benefiting both from strong mix and pricing, positive forest effects, as well as positive effects from derivatives. The demand for well-equipped vehicles remains strong, and the order bank is well-filled. Lamborghini and Bentley performed extremely strong. Synergies within the premium group are clearly materializing. Porsche is well underway with 221,000 units sold in the first nine months, showing an impressive return on sales of 19.4% in its automotive business. The result was mainly driven by improved pricing, better product mix, and positive forex. Net cash flow continued to be solid and totaled to 3.3 billion euro in the first nine-month period. The average price per vehicle remains at 110,000 euros per car, up 10% versus prior year. Carrier sales revenue improved driven by license revenues with brand groups reflecting the ramp-up of our MAB cars. The negative operating result and cash flow reflect the ongoing ramp-up of our business. Volkswagen will significantly strengthen its regional development expertise for autonomous driving in China through the joint venture between Carriot and Horizon Robotics recently announced. Coming now to our commercial vehicle business, trade and unit sales are up 11% supported by Navistar consolidation. The operating result came in at nearly €1 billion for the first nine-month period with an operating margin of 3.4%. We saw a significant impact on operating results from supply shortages, higher costs for raw materials and production stops at MAN, as well as impairments related to the disposal of sales business of Russia of a communicated €0.2 billion. Net cash flow was impacted mainly by payments related to legal proceedings, 1.4 billion euro, and working capital movements. Our financial services contributed to deliver strong results and reported an operating result of 4.2 billion euro. The Q3 operating result was burdened by impairments related to financial services business in Russia of around 0.5 billion euro. Contracts remained stable while used car business positively contributed. Looking at our JV business in China, Q3 improved significantly, driven by improved chip availability and boosted by the governance stimulus. However, the quarter still was impacted by heatwave and regional COVID resurgences. The proportionate operating profit of our JV business in Q3 came in at 1.2 billion euros, driven by pent-up sales. We continue to thrive in 2022 for a higher Chinese proportionate operating profit than in 2021. depending on the further development of the pandemic and semiconductor supply. Let's come to the outlook for 2022. And to make it short, we confirm outlook from H1 in major material aspect. However, we now expect our deliveries to customer to come in on similar level as prior year. This is mainly due to limitations in our production driven by the supply chain constraints. Revenues are expected to reach the upper end of the range, between 8 and 13%, due to the continued positive mix effect and pricing. We remain confident to end up at the upper end of our margin guidance, between 7% and 8.5%. Reported net cash flow is expected to stay at the same level as in 2021. However, this depends on the ability to transport and deliver the Q4 production to customers and also on the timely completion of processing and settling of the corresponding invoices. We are determined to reduce stocks as much as possible by year-end. However, this will be challenging since we are holding a buffer of critical parts and expect a certain amount of nearly completed vehicles awaiting specific semiconductors also at the end of the year. Ladies and gentlemen, We are focused on the financial steering of the transformation. Let me give you a brief glance on where we stand on some of these topics at the end of nine months. In Q3, we sold 149,000 BEVs, reflecting a total share of 6.8%. Our year-to-date share is now 6%. Especially in Western Europe, we continue to hold a strong order bank above 350,000 vehicles. Fave Group continues to hold the number one position in Europe, Demand for ID.5 is above our expectations, and ID.Bus shows great customer response for both cargo and people variants. In China, the Q3 e-tron was also well-received. In China, we are currently at 113,000 BEV units and still see our year-over-year target of up to 180,000 units in reach. Reflecting the continuous increase in BEV deliveries in Q3, we have our 7% to 8% full-year targets firmly in sight. To finance our ambitious transformation towards electrification and digitalization, we have initiated in 2021 our overhead cost program. We achieved our 2023 target of minus 10% cut in overhead costs already in 2021. So far, we are able to largely compensate inflation on the fixed cost side. However, there are first evidence that fixed costs are surpassing prior years level, driven by higher energy prices. To compensate for that, we will intensify our efforts. Synergy and capital deployment and synergies across brands stay on our top priority. In the first nine months, the R&D expenditures within the automotive division increased to €13.8 billion due to significant development activities for future BEV models and software technologies within Carriot. At the same time, the group spent around €7.2 billion on CapEx. CapEx ratio is at 4.3%. with the retooling of the MAB in our Empton plant, Hannover, and Chattanooga being one of the major drivers, increasing worldwide MAB capacity to close to 1.5 million cars in 2023. Further CapEx expenditure in Q4 can be expected relating to our new Audi plant in China and for a new electric platform PPE at Audi at Porsche. Our forecast for R&D as percentage of sales is at 8%, while we now expect our CapEx ratio to be around This shows clearly our focus to compensate for higher R&D for BEVs and our software stacks with CapEx discipline. With the Porsche IPO, we pursued a successful and at the same time one of the largest IPOs in Europe in a challenging environment. Looking at the proceeds from the Porsche IPO according to the exemplary deal value in total, we will receive a gross proceeds of €19.5 billion Our shareholders will participate via a special dividend of €9.6 billion. It is planned to be paid out at the start of January 2023 based on the resolution of the Extraordinary General Meeting, which will be held on coming December 16th. Funds of more than €9 billion that will stay with us will play a vital role in financing the acceleration of the transformation, in particular in supporting the development of our own battery business within PowerCore. We expect a safe and sufficient supply and efficient supply of batteries to be a key differentiator in our industry. PowerCo will be a key decisive competitive advantage in the future and will make a significant positive contribution to our business. Ladies and gentlemen, 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 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 so far. BEV sales are significantly up year on year, and we are inside of our share overall sales target for the full year. The joint venture between Carrot and Horizon Robotics to develop ARAS demonstrates a further step in software strategy. China for China, the partnership between PowerCore and Bumicor further enables our BEV strategy and our realignment of mass tasks will allow us to optimize our development of solutions for autonomous driving. We have achieved strong operating results across all brand groups and our financial services business despite tough conditions. Based on a very sound balance sheet and a robust net liquidity position, we continue to transform Volkswagen So it's electrification and digitalization. Keep focusing on integrity and ESG and continue our path of decarbonization for a planet worth living on. Ladies and gentlemen, I'm aware that you're anticipating an event in Q4 as part of our regular reporting that would usually cover five-year planning round. After careful consideration, we have decided not to hold this event in November. we are facing a different economic reality than in the time when we set up the framework and assumptions for the planning round. This has to be reflected in our plans, which takes a little bit more time. We will for sure give you an update by March 2023 during the annual press conference and in detail in our capital markets day in Q2 next year at the latest. Thank you for taking the time and listening so far, and now we are very much looking forward to answering your questions.