Volkswagen Ag Unsp/Adr

Ladies and gentlemen, please hold the line. The conference will begin shortly. Thank you. Thank you. Ladies and gentlemen, welcome to the Volkswagen Group Investor Analyst and Media 9-month 2025 conference call. I'm Vicky, the call's call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star, then zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Pietro Zollino, Head of Corporate Communications. Please go ahead.

Good morning, everyone, and welcome to the third quarter 2025 results call of Volkswagen Group. This is, as usual, a call for both the media as well as investors and analysts, moderated by Rolf Voller, our head of treasury and investor relations, and myself, Pietro Zolino, head of corporate communication. With us today is Arno Antlitz, CFO and COO of the Volkswagen Group. Good morning, Arno. You should have received the press release, the interim financial report, and all other related materials, which were published this morning already. If you do not have them yet, You can find all documents on our Volkswagen Group website. In case of any issues, give us a call or drop us an email. Now let me hand over to my colleague, Rolf, who will give you a brief run-through of the next about one and a half hours. Rolf, please.

Thank you, Pietro, and good morning to everyone on the call. Thanks for joining us this morning. Let us have a look at our agenda. I will first present the key developments of the third quarter, And after that, we will take a closer look at the financial results and the full year outlook for 2025. Following the presentation, we will first host a Q&A session for the investor and the analyst community, moderated by myself. And after the session, we will have a short break before continuing with the media Q&A, which is then hosted by Pietro. Since today's call includes forward-looking statements, the safe harbor language, and and other cautionary statements on the slide will govern today's presentation. I encourage you to read the disclaimer carefully as all forward-looking statements are qualified by this language and in the interest of time, as always, I will not read it out to you loud. And with that, I hand over to Arno. Arno, please go ahead. Thank you, Rolf. Ladies and gentlemen, Our nine-month results continue to tell a story of two sides. On the one hand, there is a huge success of our products, combustion engine and electric vehicles. The positive momentum in auto intake in Western Europe persists and is reflecting the strong support from our customers. Our global BEV share increased to 11%. In Europe, every fourth electric vehicle is delivered from the Volkswagen Group. And we make further progress in implementing our strategy and in the restructuring of our business. However, operating result in Q3 was negative at minus 1.3 billion euro. Two main reasons for that. First, the successful ramp-up of electric vehicle continues to dilute the operative margin. On top, results were significantly impacted by headwinds of 5.3 billion in the third quarter. mainly by cost related to realignment of Porsche product strategy and the goodwill impairment of our stake in Porsche in the combined magnitude of 4.7 billion euro and the increased US tariffs of about 800 million euro. Including these effects, including these impacts, we achieved a 5% margin in Q3, which we consider to be a decent performance in the current economic environment. And I really want to say thank you to our teams worldwide for the efforts and the dedication and their commitment. However, we expect the tariffs to stay. Before special effects, but including tariffs, we stand at 4.5% margin after nine months and a net cash flow of 1.8 billion. These figures clearly show that we need to step up our efforts to reduce costs and increase productivity in all brands and units. to strengthen the resilience of the Volkswagen Group. With that, let us dive straight into the presentation with the key developments in the quarter before we continue with the financial results in more detail. As said, we continue to see strong product momentum as highlighted at the IAA in Munich. Here, Brand Group Corp. presented the new Urban BV family, complementing the BV product lineup with very attractive entry-level offering from autumn 2026 onwards. Audi unveiled its Concept C, which exemplifies the brand's new design philosophy and spirit. The third quarter also saw the launches of two key models, the all-new T-Roc, one of Volkswagen's brand's bestsellers, hitting the markets with enhanced design and state-of-the-art technologies. And the new E5 Sportback from Audi's China-exclusive four-letter brand has just been launched. The Audi A5 Sportback has been well received by the market and first deliveries to customers have been made. Back to the financial results and starting with volumes. Global deliveries to customers in the first nine months increased to 6.6 million vehicles, 1% above the prior year period. Auto intake in Western Europe continued its strong trajectory. on the combustion engine vehicle side and on the BEVs, reflecting the positive reception of our upgraded model portfolio by our customers. Order book in Western Europe stands at 885,000 vehicles at the end of September. This is about 4% above the level at the end of the year 2024. BEV order intake increased by 64%. And electric vehicles account now for 25%, of the total order book. We recorded strong delivery growth of 9% in Europe in the third quarter, thus accelerating the positive trend seen in the first half of the year. Year-to-date we stand at plus 4%. South America achieved even double-digit growth in the quarter and year-to-date. In contrast, North America recorded a decline of minus 10% in Q3. This is largely the result of trade uncertainties and the implementation of measures to mitigate effects from increased tariffs. Year-to-date, the standard is minus 8%. In China, we recorded a decline of 7% in the quarter and 4% year-to-date, in line with our planning. Despite lower PV sales in China, global deliveries of battery electric vehicles improved by 42% year-to-date, to 718,000 units. The share in group deliveries increased to 11% versus 8% one year ago. This was particular due to strong growth in Europe. Our BV share in Western Europe almost doubled in the first nine months, 2025 to more than 20%. With that, let's move on to the financial and operating performance of the Volkswagen Group in the first nine months of 2025. On the back of rising vehicle sales, group sales revenue increased by 1% to €239 billion. The operating result came in at €5.4 billion. This is 60% or €7.4 billion below the prior year. Accordingly, the operating return on sales stood at 2.3%. The result after nine months includes special effects in a magnitude of 7.5 mainly increased US tariffs in a magnitude of €2.1 billion, €2.7 billion from Goodwill Impairment Porsche, and €2 billion related to the Porsche realignment as announced on the 19th of September. Excluding these effects, the margin of the nine months stands at 5.4%, which we consider a decent performance in the current environment. However, as said before, we expect the tariffs to stay. excluding the non-recurring effects, but including costs related to the U.S. tariffs, the group operating margin would have amounted to 4.5%. And these figures clearly show that we need to intensify our cost reduction efforts, must advance or pull forward parts of the efficiency programs, and find new ideas. Profit before tax largely followed the development of the operating results, with higher income from participation than valuation effects, outweighing a more negative interest result. Profit after tax declined by 61% to €3.4 billion as a result of a higher tax rate, worth noting that the goodwill impairment is not tax deductible. Net cash flow in the automotive division totaled to €1.8 billion, Euro in the first nine months, here a significant improved cash flow from working capital management and lower investment spend, more than compensated for the lower operating profit. Operating cash flow includes cash out of 1.9 billion Euro for U.S. tariffs and about 1 billion related to restructuring measures. Not to forget the about 0.9 billion Euro we had to spend in the second quarter for the acquisition of additional shares in Rivian. For the MotivNet liquidity in the first nine months declined by 3.4 billion euro compared to year end 2024. Further to the operating cash flow major factors for the development of the net liquidity year to date were dividends and interest payments to hybrid bond holders of in total 4.4 billion euro and M&A expenditures of 1.5 billion euro. This was partly compensated by operating cash flow. The other bucket includes negative 1.2 billion effects from changes in lease liabilities. Overall, at €31 billion at the end of September, net liquidity is at a solid level. Moving on to the performance of the divisions. Passenger cars recorded an operating result of €2.2 billion in the first nine months of 2025, 74% below prior year period. Commercial vehicles saw a decline of 46% to €1.7 billion and this corresponds to an operative margin of 5.4%. The Financial Services Division strongly improved the operating result by 40% to 3.1 billion euro. Let's have a look on the drivers of the operating result in the passenger car segment. Volume had a positive impact of 1.3 billion euro. Price mix was combined negative at 3.0 billion euro. This was mainly the result of the dilutive effect from the higher BV share and unfavorable regional and brand mix effects. It's worth noting that volume price mix in Q3 was almost a wash and in line what we guided for at the beginning of the year. Provisions related to European and US emissions regulations had a negative net impact of 0.4 billion euro after nine months. Exchange rate movements posed a headwind mainly driven by negative valuation effects of balance sheet positions in foreign exchange rates. Product costs improved by €1.3 billion. Last but not least, fixed costs had a negative effect of €2.5 billion. However, when excluding the impact from Porsche alignment and the Goodwill impairment of in total €4.7 billion, fixed costs improved compared to the prior year period. This is also visible when taking a more detailed look at the overhead cost development. In the first nine months of the year, overhead costs in the automotive division are reduced by €1 billion. Accordingly, the overhead cost ratio, improved by 60 basis points with positive momentum in the second and third quarter in particular. Increases at Trayton and the ramp-up of new businesses like Battery and Scout are more than compensated for by improvements, specifically Brand Group Core and Brand Group Sport Luxury. The good news to our teams worldwide is the efforts to reduce cost base and increase robustness are paying off. more to come over the course of the following months and years. For BrandVolkswagen, as well as the group in total, the stringent implementation of the performance program is key to achieve a sustainable reduction of overhead costs. As you can see on the left side of the chart, the program ZukunftVolkswagen is delivering tangible results. In the first nine months of 2025, Volkswagen reduced the number of active employees at its German sites by around 6,000, Overall, since the end of 2023, headcount was reduced by approximately 11,000. In addition, Audi, Porsche and Carriot in particular are pushing ahead with their respective programs. As a result, headcount in Germany on group level has been reduced by a total of 7,000 in the first nine months. Let's now move on to the development of the brand groups, the platforms and the financial services business. Every business starts with the customer and the top line. Here, Brand Group Core recorded solid levels of revenue growth of 5%, respectively, year-on-year. The operating result amounted to €4.7 billion. The margin stood at 4.4%, broadly in line with the prior year figure, despite tariffs and restructuring costs incurred totaling almost €1 billion. Product momentum at Audi is increasingly paying off. Bank Group Progressive recorded sales revenue significantly above last year, with a plus of 5% driven by growth in unit sales. Despite the strong top line, operating results came in 26% lower year-on-year at €1.6 billion, corresponding to a margin of 3.2%. Positive effects from volume growth were compensated for, in particular by restructuring increased US tariffs and a strong increase in the BV share. Underlying margin calculated based like we said before, brand group progressive stands at 5.7% after nine months. Operating results of Porsche automotive business came in at minus 0.2 billion euro. The loss is largely due to costs incurred related to realignment of the product strategy, totaling 1.8 billion in the third quarter. In addition, headwinds resulted from a significantly lower sales volume, in particular in China. U.S. tariffs as well as extraordinary charges recorded in the first half related to further strategic realignment measures and for battery-related activities. Let's have a short look at the brand group core. Volkswagen passenger cars improved profitability by 30 basis points to 2.3% despite significant headwinds from U.S. tariffs. Skoda impressively continued their exceptional performance in a difficult market environment. first-class products on Volkswagen Group platforms combined with a competitive cost base. Whereas margin continued to stay strong at 8% at strongly improved unit sales and sales revenue, the slight decline in the margin of 30 basis points versus prior year period is a result of significantly higher BV sales, namely driven by the success of the LROC. Leaving the non-operational effects aside for a moment, the performance of the Brand Group Core and Volkswagen brand specifically was pretty solid. The increased U.S. tariffs and costs incurred for restructuring activities negatively impacted profitability. Excluding these effects, Volkswagen passenger cars recorded a margin of 4%, which is the target the brand has set itself in the beginning of the year. One point of caution here again, restructuring expenses burden the result now, but help us to achieve a leaner cost structure in the future. However, we need to prepare for a scenario where tariffs are to stay as part of the operating business. This clearly means the restructuring work must continue and we even need to speed up our measures. The period continues to increase license revenue, backed by increased sales volume on the 1.1 and the 1.2. Sales revenue rose accordingly to around $1 billion in the first nine months. Operating loss was reduced to $1.5 billion, mainly as a result of the implementation of the announced restructuring measures. The power core, the ongoing ramp-up of the Salzgitter plant, intensifying construction works at the Valencia and the St. Thomas plants, and the build-up of the organization are continuing. As a result, PowerCore recorded a significant expansion of the operating loss to €1.1 billion year-to-date. Brayton recorded a decline of 9% both in vehicle sales and sales revenue. Truck sales were weak, in particular in Latin America and North America. Sales revenue in Europe was stable. As a result of the lower sales volume increases in fixed cost and exchange rate, the operating profit declined by 46%. to 1.7 billion euro. Our financial services business continued to perform well in the period under review supported by improved contract volume plus 5% specifically in Europe and an expansion of the portfolio margin. In addition, the used car business benefited from still positive remarketing results while the normalization of used car prices continued in the quarter. The credit loss ratio continues to be on a solid level As a result, operating profit increased to a strong €3.1 billion. Investment spend for CapEx and R&D in the automotive division declined by €2 billion to €24.3 billion in the first nine months of the year compared to the prior year period. We remain fully committed to sustainably reducing investment spend in the years to come, despite significant investments required for the transformation of the portfolio and the development of new business. The initiatives to reduce complexity and actively manage our portfolio participations continue with full force as we speak. Moving on to the performance of our joint ventures in China. The market environment remains highly competitive, with pressure specifically in the premium segment. Pricing and incentives levels, however, seem to have stabilized sequentially, but on a sub-DU level. Unit sales were 1% lower year-on-year at 1.9 million vehicles, driven by declines in premium and BEVs. In contrast, ICE volumes held up very well. As a result, the proportionate operating result of our joint ventures in China came in at 744 million euros in the first three quarters of 2025. This is about one third below the prior year basis, but well in line with our target of up to $1 billion for the full year. This brings me to the full year outlook. Building on what we have achieved year-to-date, we factor in the following key assumptions for the final quarter. The current U.S. tariff situation is expected to pose headwinds in terms of cost, cash-out, and volumes. Continued support from the model offensive, a further increase in the BV share with respect to effects on price and mix, increasing contributions from the implementation of our performance programs, a sequentially improved financial performance of the premium brands, and at the same time, our forecast is based on the assumption that there will be no supply bottlenecks for semiconductors. On that basis, we confirm the operating return on sales safely in the range of 2% to 3%. Given the financial performance here to date, there's even a chance to close the year in the upper half of the range. Investment ratio in automotive division is expected to be in the range of 12 to 13%. We also confirm our expectations for the automotive net cash flow at around zero with a good chance to end positive depending on the operating performance and working capital movements in the fourth quarter. Ladies and gentlemen, we continue to make progress in the implementation of our strategy Our product offensive is increasingly paying off, as evidenced by the positive order intake and top-line performance. We delivered a decent financial performance in the first nine months before considerable headwinds from special effects. However, reported numbers matter, and the operating margins stand at 2.3% after nine months. And even before non-recurring effects, our margin amounted to only 4.5%. And this is not sustainable yet. for our business model, in particular in light of the ongoing volatile geopolitical situation and market environment. It once underlines that we must stay fully focused on driving our strategic initiatives, improving the cost base with full force, and continue our initiatives to reduce complexity and increase execution speed. With that, I hand it back to Rolf. Thank you, Arno, for that comprehensive overview of our nine-month results in the third quarter. Before we move on to the Q&A, let me provide you with a financial calendar 2026. The next group event will be the release of our full-year results on March 10th. I think this was for the sake of completeness because this wasn't missing, I think. Let us now enter into our Q&A session, starting with our analysts and investors. I think actually it's star one in order to ask a question, and we give it a couple of seconds before we see the first question on the screen, and here we go. The first one is from Patrick Hummel from UBS. Patrick, please go ahead.