Volkswagen Ag Unsp/Adr

This was the kickoff sign for me. Dear all, thanks for joining us today to our investor and analyst Q&A. Together with me here in Berlin are our CEO, Olli Blume, and our CFO, Arno Antlitz. Before I hand over to Olli and to Arno some housekeeping remarks, you should have all received today our press release, the annual report 2022, and the investor and analyst presentation. If not so, please visit our website, www.volkswagenag.com. The session will be opened by a brief summary from Olli and from Arno, focusing on the most relevant topics for fiscal year 2022 and our outlook for 2023. Before we start, I would like to draw your attention to the disclaimer, which you will see now. Very good. Please read it carefully because I'm not going to read it to you. After the intro, we will host the Q&A and would ask all of you to stay disciplined on the Q&A, limiting yourself to, let's say, two questions per person in order to give everybody a chance to raise his or her question upon due time. If anything is left unanswered, the IR team will be happy to take your questions afterwards. With that, I hand it over to Olli and Arno for the opening remarks. Odi, the floor is yours.

Thank you very much for your introduction, dear ladies and gentlemen. Thanks for joining our investors and analysts Q&A session today after our annual media conference. Last year's success was a great team effort. Each of our brands has also contributed to our success, and that in all four brand groups. Let me start with the volume group. And I'm particularly very proud of the IDBus. Its success shows that the combination of tradition and state-of-the-art technology is extremely well received by our customers. The premium brand group, Bentley, sold more than 15,000 vehicles in one year for the first time in 2022. And looking to the results, an operating profit over 700 million euros with a profitability over 20%. This is a great team effort of which we can particularly proud of. Lamborghini continue to build on its impressive growth, delivering over 9,000 vehicles worldwide last year, a 10% increase over the previous sales record set in 21, and that with an operating profit over 600 million euros and a profitability over 25%. And in sports and luxury, my personal highlight was the Porsche IPO, which a lot of you joined during the last year. The IPO marked a historic day. Porsche is more independent and agile after the IPO. The newly gained independence makes it possible to develop even more speed. And yesterday we were able to present it on the annual media conference of Porsche. The IPO has shown that we can be successful on the capital market. We are now using this experience to sustainably increase the value of the group. And last but not least, coming to Trayton, also with a positive development. For the first time in history, we achieved over 300,000 units. And that's also driven by Navy Star and everything with an operating profit of 1.6 billion euros. We are confident that we have a successful fiscal year ahead of us. To turn this confidence into reality, we will continue to systematically implement our 10-point plan. Let me touch on some highlights here. Our top priority remains financial robustness. We will use our capital more efficiently and focus more on our financial income and net cash flow. At the same time, controlling our costs and the proceeds generated by the Porsche IPO in September 22 have provided additional headroom. On products, our customers buy brands and our brands are iconic. We will continue to focus on product strategy, design, quality and future oriented technology profile of our products and we'll release a series of new models. Coming to China and I had the opportunity to visit China four weeks ago and I was very impressed because of the speed you can see there in the market in terms of technology. The Chinese market is changing very quickly, and we need the right strategy and the right speed to safeguard our leadership position there. We are naming our approach in China for China, which will center local partnerships, including Horizon Robotics and Carriot, what we announced last year. Coming to Carriot, one of our most pressing issues last year was a reorganization of our software activities. Now we continue to develop Carriot with exciting projects and a new realistic software roadmap. Coming to PowerCo, a stable supply of competitive battery cells is necessary for the ramp-up of e-mobility. That is why we established PowerCo in July. PowerCo is responsible for all activities along the entire battery value chain. Our plant in Salzgitter, which is scheduled to start production in 2025, is the blueprint for our global battery offensive. And as you have mentioned, we already announced a battery plant in Canada as well. Sustainability. Last year, we tightened our CO2 targets in production and received an award from the renowned science-based targets initiative. Instead of the previous 30% reduction, We are now aiming for 50% reduction in production-related CO2 emissions from our passenger cars and light commercial vehicles by 2030. By the end of the year, our European production sites will already be supplied with 100% renewable energy. And important capital markets, our strategic investment planning up to 2027, proves that the Volkswagen Group is looking to the future. for all our brands. We are therefore further fine-tuning virtual equity stories for our brand groups and value drivers in the group. The results will be presented at the Capital Markets Day on June 21st. Strong, robust, resilient, digital and sustainable. This is how we will continue to play a leading role in the era of electric and digital mobility. And at the end of my words, I would like to comment something about our Capital Markets Day we have announced for the 21st of June this year, which will take place in Hockenheim, and what you can expect from the Capital Markets Day. First of all, we thought that it will be very useful for you to experience our great products at the Capital Markets Day during a driving event at the Hockenring racetrack. Content-wise, the Capital Markets Day will provide an update of key focus areas and the new steering approach at Volkswagen. We plan to detail the strategy of our brand groups, including the planned EV ramp-up, give an update of status and key milestones for our technology business, provide an overview of our strategy in key regions, explain our new steering model, share the group financial targets and framework, and we target that U.S. investors will have better transparency on where we currently stand and how the new team will turn the company into a better one. The Capital Markets Day is planned as the start of a series of events, string of pools over the coming years, more to be revealed at the Capital Markets Day. So thank you very much for listening. And now I would like to turn over to Arno. I think this is where the financials come into play. Can you give us a short overview on the results and an overview for the upcoming year?

Thank you, Oliver, and I promise I'll make it short. The Volkswagen Group generated solid financial results in the year 2022 in a challenging environment. At the same time, we made for the progress in key areas of our corporate strategy and thus vigorously advance our transformation. This again proves the robustness of our business model and the commitment of our team to drive change. Volkswagen Group is well positioned, operates from a strong financial position, and has the will to continue to transform toward electrification and digitalization, also in challenging times. We now look at our financial figures just briefly. I'm sure by now everyone of you had the chance to have a look at them in detail. Our sales volume were at the weak level of the previous year due to various restrictions and distortions in the supply chain and the continued shortage of semiconductors. Our sales revenue increased by 12% to $279 billion as the trend of higher mixed and better equipped vehicles from the previous year continued. This increased Our operating profit before special items to 22.5 billion euro, the operating margin increased slightly to 8.1%. This strong result benefited from non-cash valuation effects of around 1.8 billion on our raw material hedges. On the other hand, we had to absorb write-downs in connection with the closer of our business in Russia in the order of 2 billion euro, and the cost associated with the very successful IPO of Porsche amounted to around half a billion euro. Earnings adjusted for these effects would have even exceeded the reported 22.5 billion. Our passenger car business came in at 15 billion euro, a strong performance given the challenges in supply chains and the burden from our Russian business. Trucks came in at 1.6 billion euro corresponding to a 4% margin and really strong results again in our financial services business with an operating result of 5.7 billion euro. Coming to our EBIT bridge, performing in the passenger car division was driven by a convincing product substance across all brands, enabling us once again able to compensate for the negative effects of the slightly lower sales volume through strong mix and better pricing discipline. However, raw material costs for steel, aluminum, or battery raw materials have become considerably more expensive compared to 2021. For the year as a whole, the resulting increase in product costs had a negative impact of almost $8 billion on the operating profit. Despite the continued high discipline, we were unable to completely avoid an increase in fixed costs due to sales growth and upfront expenditures for new products. Nevertheless, our fixed cost reduction initiative contributed significantly to the good result and to an improved competitive position. We will spend a short moment on net liquidity as well as net cash flow. We cannot be satisfied with the reported net cash flow generated of around €5 billion in fiscal year 2022. also reflecting an unstable supply situation throughout 2022 and disruptions in the logistics chains, particularly at the end of the year. As a result, working capital and in particular inventories of finished goods, raw materials were at the end of the year significantly higher than expected. In addition, CapEx as well as R&D increased versus fiscal year 2022 as we continue to invest in our future. The liquidity of the automotive division end of 2022 increased to 43 billion, including proceeds of 16.1 billion euro from the successful Porsche IPO in September 2022. For the payout of the net dividend in January, the net liquidity for the automotive business stands to around 36.5 billion at the end of the beginning of 2023. Two words on China. Our proportionate operative result of our JVs in China came in at 3.3 billion euro, well above the 2021 figure, but still under the respective result of 2020. Last but not least, you are aware that we proposed a regular dividend of 8.70 euro per ordinary share. This is around 16% above previous year and adds to the special dividend of 19.06 euro per ordinary share. This clearly underpins our conviction that our shareholders benefit from the robust financial performance of the Volkswagen Group. Coming to our outlook, important core economic indicators such as growth prospects in individual regions or expected inflation rates remain challenging. On the other hand, we expect that in 2023, the structural shortage of semiconductors will improve and the supply with raw materials and logistics will gradually stabilize. The latter one is within our clear focus. We have fascinating brands with convincing product offerings in all major segments and an order backlog of almost 2 million vehicles in Western Europe alone. On this basis, we assume that deliveries to customers of the Volkswagen Group in 2023 will amount to around 9.5 million vehicles. For the Volkswagen Group, we expect sales revenue in 2023 to exceed the prior year figure by 10 to 15% and the operating return on sales to remain between a solid 7.5 and 8.5%. Volkswagen Group expects reported net cash flow in the region of 6 to 8 billion Euro in 2023. This implies the reversal of the negative effect in working capital at the end of 2022 mentioned earlier. On the other hand, this guidance takes into account the provision for additional cash-effective expenses for the development of our battery business in power core of around $5 billion on top of our current core business. These upfront expenditures for our battery activity are an important prerequisite for the successful ramp-up of electric vehicle production and, in our opinion, represent a key success factor in the future. So far to our financial figures, and now let's kick off So the Q&A.