Volkswagen Ag Unsp/Adr

Good morning, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the Volkswagen Group Investor Analyst and Press Call Q1 2023. Throughout today's recorded presentation, all participants will be in a listen-only mode. The floor will be open for questions following the presentation. If you'd like to ask a question, you may press star followed by one on your telephone keypad. Please press the star key followed by zero for operator assistance. Let me now turn the floor over to Rolf Woller, Head of Group Treasury and Investor Relations. Please go ahead.

Thank you very much. A warm welcome to all of you wherever you are. Welcome to our Q1 conference call. Together with us here in Wolfsburg today is our CFO slash COO Arno Antlitz and Pietro Zolino also from the media side. Before we start, the usual housekeeping remarks. This morning we published the press release, our interim report on Q1 and the Q1 presentation. If you have not received them, please grab them from our website, the Volkswagen IR website. And I also wanted to draw your attention to the recently released association climate review. which you also find on our website, which has been asked frequently, in particular by our proxy advisors ahead of the ASM. After the presentation on our Q1 results from Arno, we will host a question-answer session with the investors and analysts first. And after that Q&A session, we will have a short break. And then Arno, together with Pietro, will take over the media side. And we will, as I said, after this short break, then continue with the Q&A session here. Before we kick off with the presentation, I would like to draw your attention, as always, to the disclaimer, which you find on page two. Please read it carefully because I won't read it to you. And with that short intro, I now hand over to Arno and ask him to guide us through the presentation. Arno.

Thank you, Rolf. Good morning and a warm welcome to our combined investor analyst and media call. Earlier today, we released our 2023 first quarter results, and I'm going to give you an overview of our highlights and financials. To make a long story short, we consider our Q1 financial performance a truly solid start into the year 2023, for which we have set ourselves ambitious targets. Let me first touch on just a few highlights of the first quarter. Each single event stands for itself and underlines our progress we relentlessly pursue in order to transform our business and to create sustainable value. Progress in ramping up our platforms. PowerCore SA is taking the next step. to our global battery business. It will start production of the unified cell in the Spanish region of Valencia in 2026. Since its launch in July 2022, PowerCore has decided three sites for cell factories, Salzgitter, Valencia, and St. Thomas in Ontario, Canada. Two of them are already under construction. Progress in North America with decisions for cell production in Canada and a scout site in South Carolina, we are fast-forwarding the execution of our North American strategy. With the iconic brand Scout, we are addressing one of the most promising segments in North America. Ramping up our electric product lineup, the new ID.3 shows a fresh design, higher quality materials, and the latest generation of assist systems. Two and a half years after the launch of the first generation, the all-electric bestseller from Volkswagen is now coming to the market with a comprehensive upgrade. We are not standing still in our ICE business as well with the new Porsche Cheyenne. We will continue our successful and profitable path on the traditional drivetrains as well. The ID.7 is a significant leap forward and underpins the versatility of our MEB platforms. Our efficiency champion ID.7, who had its world premiere just two weeks ago, offering everything you expect from such a beautiful BEV. Range up to 700 kilometers, premium technology and software, and a high-quality interior. It will go on sale in the second half of this year. The feedback we received specifically during the Shanghai Motor Show was more than promising. Let's have a look on our deliveries in Q1. We are stepping up in our deliveries, driven primarily by Western Europe and North America. Deliveries to customers in Q1 2023 reached 2 million vehicles, up 7.5% versus Q1 2022. The supply situation is easing slowly but continuously. We still experience disruptions, mainly in global logistics, hindering us to deliver our vehicles to customers worldwide. in vehicle delivery are also the reason for slightly higher inventory of finished goods. We continue to experience a healthy level of order index specifically in our ICE cars. Our order book stands unchanged at around 1.8 million vehicles in Europe, thereof around 260,000 PVs. Deliveries in China slowly picking up in speed after COVID lockdowns dissipating and the regular seasonality of Chinese New Year in February. The whole market was down in Q1 2023 significantly year over year, but we expect both the region and our own deliveries to recover from April onwards. With 141,000 BEVs sold, equalling 7% of our deliveries, we are on track towards the targeted of around 10% of BEVs deliveries in 2023. Due to pre-buy effect at the end of 2022, the order intake is lower in Q1 2023 versus Q4 2022, but is expected to recover during the remainder of the year. As availability of BVs specifically in H2 is expected to improve and the IT7 is kicking in. And of course, we are proud and excited that the IT4 in the US was confirmed all necessary criteria to benefit from the full IRA tax subsidy. Coming to our financial performance, vehicle sales for Volkswagen Group came in at 2.1 million units in the first quarter, again limited by disruptions in global supply, mainly logistics. We were able to step up in revenues even stronger by 22% to 76.2 billion euros driven by strong vehicle sales outside China and driven by a healthy mix and continued favorable pricing. Operating result came in at 5.7 billion euro and a margin of 7.5%. What looks at first glance underwhelming is in fact a very robust result. Last year's Q1 benefited from valuation effects of our commodity hedging outside hedge accounting by a positive 3.2 billion euro. This quarter in contrast was burdened by minus 1.4 billion euro. In fact, Q1 showed significant progress and a strong underlying operative performance. Profit before valuation effects from commodity hedging increased by more than 30% to €7.1 billion, resulting in an underlying operative margin of 9.3%. Our financial result improved from €588 million to €706 million, particularly driven by a positive interest result and other financial results. The group generated net cash flow in Q1 2023 of 2.2 billion euro, despite the slightly negative effect from working capital. As we grow production and sales, we have more capital tied to inventories and more cars in the pipeline. Clean net cash totaled 2.7 billion euro and was up by more than half a billion year over year. Net liquidity at the end of Q1 stood at a robust 38.4 billion euro. automotive net liquidity position declined from 43 billion at the end of 2022 as expected the decline was however smaller than the cash out from the special dividend in connection with the porsche ipo of 6.5 billion euro coming now to the performance of our divisions passenger cars delivered 3.6 billion euro operating result and a margin of seven percent before special items these numbers were obviously impacted by the valuation effects already mentioned. Our commercial vehicles are back on track and came in at 0.9 billion euro and a margin of 8%. Trajan lifted its margin guidance for full year 2023 from 6.5% to 7.5% to 7% to 8% return on sales. The financial services division continued with their solid performance in Q1 and recorded a profit of 1.2 billion euro. Avid Bridge of our passenger car business is significantly driven by volume price mix and hedging result. Positive impact of volume price mix as seen in Q4 2022 continued with the biggest increase resulting from volume. Pricing continues to be strong and mix was slightly negative as expected due to better availability of our entire product portfolio. Operating result in the first quarter was burdened significantly with negative effects from raw material hedges outside hedge accounting. Negative impact of broader costs totaled to minus €0.9 billion and came in significantly lower compared to Q4 2022. We expect this bucket to moderate further down in Q2 and eventually to turn positive in H2 2023 compared to 2022. PIX costs increased slightly, which is attributable to a higher R&D cost mainly. Overhead cost discipline continues to be very strong. Coming to our group steering model, we steer the Volkswagen Group financially through a transformation as a unique combination of strong brands combined to brand groups. In parallel, we want to build up industry-leading platforms as value drivers. Especially on platform level, we took some significant steps ahead as outlined earlier. Coming now to the brand group and platform performance. Brand group volume showed a decent uplift in volume. Sales revenues increased by 36%, operative margin and brand group level reached 5.3%. Brand group volume contributed a 1.7 billion euro net cash flow to the group. Volkswagen brand yet with a 3% margin, still with a lot of upside potential, but rest assured the teams are working hard to make Volkswagen brand a solid contributor to brand group volume performance in future. Q1 margin of brand group premium went down to 10.8% from 24.8% in 2022. Similar to what we've seen on group level, brand group premium was heavily impacted by valuation effects from raw material price hedging outside hedge accounting. The underlying margin in Q1 2023 before these effects was 13%. Lamborghini, Bentley, and Ducati contributed significantly to the strong performance. Net cash in Q1 was burdened by investments in PPE electrical platform ramp-up and increase in working capital due to the increase in production volume, but still slightly ahead of Q1 2022. At Porsche, performance followed its track record and remained strong, 18.5% operating margin, despite increasing product costs. The operating result benefited from improved pricing, better product mix, and of course, higher volumes by plus 29%. Coming to the performance of our platform that carried, we recorded higher license revenues from our MAB cars on the 1.1 platform and were able to limit the losses to previous year level, and at the same time, continued investments in software platforms. We promise even more transparency on our platforms and with PowerCore, we will follow the quarterly reporting from now on accordingly to carry it and provide KPIs shown on a regular basis. Although the current figures are still rather small, PowerCore and Cellco continues to build the global battery business with cell factories planned for Valencia in Spain and St. Thomas in Canada and the construction of the plant in Salzgitter fully underway. Trayton saw unit sales increase by 25%, with overall sales revenues up 31%, driven by strong volume expansion, positive price mix, and vehicle sales. Operating margin came in at 8%, thanks to better capacity utilization and price mix compensating for higher input costs. Net cash flow saw strong increase, due to enhanced operating performance and proceeds from sales of Scania financed Russia and despite further working capital build-up. At financial service, we saw an increase of sales revenue in comparison to previous year, particularly resulting from additional results from remarketing, the growth in operative lease, and growth of the used car business. However, operating income as well as margin in Q1 2023 are below previous year, impacted by a normalization of used car prices and the change of interest rate environment. Coming to our proportionate operative result of our JVs in China, driven by lower total industry in the first quarter and a slight decrease in market share, the proportionate operating result came in at 625 million euros. FIA Volkswagen performed solid and came in robustly on par this prior year. And for the total year, we currently expect the industry to come in about plus 4% above 2022 and proportionate operating result of up to €2.8 billion at Volkswagen. Coming to our outlook, we can keep it short on this page. We confirm all KPIs. We are aware that our outlook was seen as ambitious when we announced it back in March, but our Q1 performance in the following months gave us a sample of what we are capable of in this environment. and how committed we are to improve our financial performance and also keep our targets firmly in sight with a decent increase in sales revenue and the underlying margin before hedging running even above our ambitious full-year margin corridor. R&D and CapEx spending reflect the continued upfront investment in electrification and digitalization. At the same time, we keep our combustion engine cars competitive with final investments in this technology in the coming two years. The investment also reflects now first significant expenditures for our North American strategy with R&D for Scout, CapEx for the ramp-up of our battery business, as well as regional strategies with Volkswagen Anhui and the Audi Nefco in China. R&D expenses to that €5.1 billion, R&D ratio standards 8.1%, R&D costs increased also due to new model launches and further technologies. CapEx to that €2.2 billion, CapEx ratio stands at 3.4%. Our outlook remains for R&D ratio of around 8% and CapEx ratio of around 6.5%. Ladies and gentlemen, today we sent the invitation for our Capital Markets Day on June 21st at the Hockenheimring. We will provide an update on where Volkswagen Group stands today and where we want to stand in three years from now. The presentation will focus on the new team and the new entrepreneurial spirit, our strong technology platforms and how the brand groups will benefit from it, our regional strategies and our future financial targets. And you will have the opportunity to learn everything about our current BV product lineup. For those of you who attend the Deutsche Bank conference, we will make sure that logistics are seamless and convenient to allow to join our capital markets day. Looking forward to meet you in person in a few weeks from now. And now I really look forward to your questions and the discussion we will have. Thank you very much so far.