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Volkswagen AG (VLKAY.PK)

H1 2012 Earnings Call

July 26, 2012 8:00 am ET


Christine Ritz

Hans Dieter Pötsch - Chief Financial Officer, Head of Controlling & Accounting and Member of Management Board

Christian Klingler - Executive Officer of Sales & Marketing, Group Board of Management Member for Sales and Member of the Management Board

Martin Winterkorn - Chairman of Management Board and Chief Executive Officer

Stephan Gruhsem - Head of Group Communications, External Relations & Investor Relations


Michael John Tyndall - Barclays Capital, Research Division

Horst Schneider - HSBC, Research Division

Stephen Reitman - Societe Generale Cross Asset Research

Daniel Schwarz - Commerzbank AG, Research Division

Bernard Donges - JP Morgan Chase & Co, Research Division

Charles Winston - Redburn Partners LLP, Research Division

Stuart Pearson - Morgan Stanley, Research Division

Fraser Hill - BofA Merrill Lynch, Research Division

Frank Biller - Landesbank Baden-Wurttemberg, Research Division

Christian Breitsprecher - Macquarie Research



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Good day, ladies and gentlemen, welcome to the Volkswagen AG's Yearly Financial Report January to June 2012 Conference Call. For your information this conference is being recorded. At this time, I would like to turn the conference over to Christine Ritz, Head of Group Investor Relations for Volkswagen AG. Please go ahead.

Christine Ritz

Ladies and gentlemen, welcome to Volkswagen conference call on the results for the period January to June 2012 based on the ad hoc and the half yearly report we published this morning. Joining me today on this call are Hans Dieter Pötsch, Member of the Board of Management Volkswagen AG, responsible for finance and controlling; and the Member of the Board Management Volkswagen AG responsible for group sales and marketing, Christian Klingler. As usual, you can follow the webcast and download the chart from our website at Questions can be sent by e-mail or coded. After the presentation, we will take questions first from analysts and then those from journalists. Let me now pass you over to Mr. Pötsch.

Hans Dieter Pötsch

Thank you, and allow me to add my warm welcome to those of you joining this call today. I'm happy to be able to report to you today that the positive start we saw in the first quarter has continued in the second quarter despite an increasingly difficult economic environment particularly here in Europe. In the first 6 months of 2012, the Volkswagen Group delivered 4.6 million vehicles to customers across our car and truck division, an increase of over 10% showing the strength of our brands and our globalization strategy. The volume increase, including the consolidation of MAN [ph] drove sales revenue up to EUR 95.4 billion and operating profit to EUR 6.5 billion. Profit before tax increased to more than EUR 10 billion for the first 6 months, benefiting from a higher financial result in particular from strong earnings at our equity account and investments, in particular in China, as well as from a further positive EUR 2.6 billion improvement in the measurement of the put/call rights we hold in Porsche. Automotive net liquidity ended the first half at close to EUR 15 billion, down just over EUR 2 billion on the year end as we continue to invest in new product and plant and also in trucks.

Allow me now to hand you over to Mr. Klingler who will take you through our sales performance in difficult market conditions during the first 6 months. Mr. Klingler, over to you.

Christian Klingler

Ladies and gentlemen, a warm welcome to the conference call from me also. This chart shows the half yearly [ph] of the World Car Market and group deliveries to customers in comparison to the same period of last year. Market growth is observed in most regions around the world and especially in Asia. The exception is Western Europe where the Eurozone debt crisis had led to heavy contractions in the markets such as Italy, France, Portugal and Greece. Our markets such as Germany still reports on growth. An elevated level of market risks exist across the whole region. Negative developments stemming from Euro are impacting consumer confidence around the globe and in particular in economies which exports to the region. In spite of this, in the first half of 2012, we see growth in major markets such as China, Russia and North America. However, even this positive development has upticked [ph] Increasing risks which we continue to closely monitor.

Now looking at the top of the car market performance and their a comparison to the Volkswagen Group in the first half of 2012 on a regional base. As you can see, the Volkswagen Group has outperformed the market in every region. However, our worldwide market has grown by on 0.1% due to the change of the market mix. Western Europe, a region with a strong performance has declined further regions where our market shares are lower, for example, North America have grown. The Western European market declined by 7%, although the Volkswagen Group recorded a decline of just 2.2%. As already mentioned, major market in the region suffered significant reductions and made a weak economy background. In particular, the Portuguese and Greek market contracted by over 40% against the first half of 2011, and Italy and France are down by 20% and 15% respectively. While the current European crisis remains unresolved, we see considerable further risk to the car market volumes. Strong market had been [indiscernible] to continue such as record-high unemployment in Southern Europe plus weak consumer sentimental [ph] across the region. Austerity measures like the recent Spanish VAT increase further constrained these markets. The situation is placed in the whole automated industry under considerable pressure. Competition has intensified significantly which places particular strain on manufacturers which focus on smaller vehicles and Southern Europe. We closely monitor the situation in each market. The potential impact for the car market and our business from further shocks to the financial systems and balance sheet substantial. While likely, the Euros in color up scenario will heavily impact the entire global economy. The impact on our business [indiscernible] severe considerably worse than in 2009.

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