Volkswagen AG (VLKAY.PK)

Q3 2011 Earnings Conference Call

October 27, 2011 08:00 ET


Hans Dieter Pötsch – Member, Board of Management, Finance and Controlling

Christian Klingler – M ember, Board of Management, Group Sales and Marketing


Jochen Gehrke – Deutsche Bank

Horst Schneider – HSBC

John Lawson – Citi

Michael Tyndall – Barclays Capital

Stephen Reitman – Societe Generale

Fraser Hill – Bank of America-Merrill Lynch

Thierry Huon – Exane BNP Paribas

Stuart Pearson – Morgan Stanley

Ranjit Unnithan – JPMorgan

Christian Breitsprecher – Macquarie

Jan Schwartz – Reuters

Chris Bryant – Financial Times


Unidentified Company Speaker

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Good afternoon ladies and gentlemen welcome to Volkswagen’s Conference Call on the results for the period January to September 2011 based on the ad hoc and the interim report, we published this morning.

Joining me today are Hans Dieter Pötsch, Member of the Board of Management Volkswagen AG responsible for Finance and Controlling, and Christian Klingler, Member of the Board of Management Volkswagen AG, responsible for Group Sales and Marketing.

You can follow the webcast and download the chart from our website Questions can be sent by e-mail or called in. Following the presentation, we will first take questions from analysts, and then at the end, we will make sure there is time for questions from journalists.

Let me now pass you over to Mr. Pötsch.

Hans Dieter Pötsch – Member, Board of Management, Finance and Controlling

Thank you and allow me to add my warm welcome to those of you joining this call today. It is my pleasure to be able to report on the strong performance over the first nine months of this year. We delivered more than six million cars for the first time an increase of 14.1%, which equates just over 2.5 times the rate of the global market.

The volume increase drove sales revenue up 25.6% with operating profit up just over €4 billion to €9 million and beating the full year figure for 2010. Profit before tax more than tripled to €16.6 billion benefiting as well from strong earnings from our equity investments and also from our revised valuation of the put call rights we hold on the balance of Porsche Zwischenholding.

As you are aware, this was necessary and the Board of Management had concluded in September that the planned merger cannot be implemented within the timeframe provided for into comprehensive agreement. Automotive net liquidity ended the quarter at over €21 billion. We had a busy quarter with regards to the regulatory reviews on our offer with respected to MAN SE. This process has moved forward as scheduled as soon as we get the last required regulatory approval we will then move to settle the offer to the shareholders that tended their share.

Full consolidation of MAN results within the Volkswagen Group will begin from closing of the transaction. We will come back to the operational points concerning our results in more detail a little bit later. For now, I would like to hand you over to Mr. Klingler, who will take you through our excellent sales performance. Mr. Klingler, over to you.

Christian Klingler – M ember, Board of Management, Group Sales and Marketing

Ladies and gentlemen, a warm welcome to the conference call from me also. This first chart shows the development of the world car market by quarter in comparison to the same quarter of the previous year.

The growth recorded last year was mainly due to recovery of economic environment on the one hand and government support measures in many markets on the other. In some markets, the support measures expired last year, which explains declining growth rates. Therefore on a quarter-by-quarter comparison, we see that the global market lost some of its growth momentum in the second half of 2010.

Despite a high comparison base from a year ago and a more challenging economic environment in many countries, the global market recorded further positive growth rates in the first three quarter of 2011. However in order to evaluate the relative development of the global markets, comparison to the last so called normal year of 2007 is appropriate what you see at the next chart.

The positive influence of the support measures by the government in many markets led to significant market rebound in the second half of 2009. As incentives in many markets essentially in Europe were phased out, the rebound continued on a slower pace through 2010. Improving economic conditions in the major markets as well as the strong increase of demand in China and India lifted the market above the normal year 2007 during 2010. Continuously improving conditions in major European markets and expiring incentives in China brought us strong fourth quarter in 2010. In early 2011 the market lost some of the positive momentum as some of the emerging economies increased interest rates in order to prevent the economies from overheating.

Some support programs like for example France were phased out. Conflicts in the Middle-East and North Africa as well as the situation in Japan resulted in some negative impacts for the market. In addition the industry struggled with supply shortages due to the disruptions in Japan. As a result the market for us also slowed in the second quarter. In the third quarter of the year despite the gradual relief in the supply chain the market for us remained muted.

With the s sovereign debt crisis dominating the news, especially in Western Europe consumers are more and more unsettled putting the markets under increasing pressure. However the effects differ by region while the German market remains strong markets in Southern Europe are weaker. In addition, in some emerging markets has cooled. So we continue to closely monitor this elevated level of market risks. For 2011, out latest forecast suggest the global market will remain above the pre-crisis level of 2007 around about 5% higher than 2010.

In the last quarter of this year the projected improvements in the major growth markets are likely to remain muted. However, we are confident that the year 2011 will have an all time record level in market conditions.

We’ll now go to the next chart and turn to our own performance. In the first three quarters of 2011 our deliveries to customers have shown a double-digit growth. The Volkswagen Group continued to out perform the overall car market in the third quarter of 2011. We gained global market share in the first three quarters of 2011 supported mainly by the Group performance in China, Russia, India as well as in Germany and the U.S.

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