H1 2010 (January-June) Earnings Call

July 29, 2010 2:00 pm ET


Christine Ritz - Head of Group IR

Hans Pötsch - Member of the Board of Management, Finance and Controlling

Christian Klingler - Member of the Board of Management, Group Sales and Marketing


Jochen Gehrke - Deutsche Bank

Thierry Huon - Exane

Horst Schneider - HSBC

Adam Hull - WestLB

Arndt Ellinghorst - Credit Suisse

Charles Winston - Redburn Partners

Max Warburton - Bernstein

Jose Asumendi - RBS

John Buckland - MF Global

Christian Breitsprecher - Macquarie

John Schwartz - Reuters

Marc Schneider - Handelsbank



Ladies and gentlemen, welcome to Volkswagen's conference call on the results for the period January to June 2010 based on the interim report we published this morning.

I am joined today by Hans Dieter Pötsch, Member of the Board of Management, Volkswagen AG, responsible for Finance and Controlling; and by Christian Klingler, Member of the Board of Management, Volkswagen AG, responsible for Group Sales and Marketing.

As usual, you can also follow the webcast and download the charts from our website, Questions can be sent by e-mail or calling. After the presentation, we will first respond to the questions of analysts and later answer those of journalists.

I would now like to hand you over to Mr. Pötsch.

Hans Pötsch

Thank you and allow me to add my warm welcome to those of you joining this call today. In June, we released an ad hoc statement advising that we were expecting a good first half in 2010. I am pleased to report to you today that our unit sales and operating profit have indeed considerably outperformed our initial expectations for the first six months, with unit sales of almost 3.6 million cars, trucks and buses, that's up 500,000 units on the first half of 2009; and with an operating result more than double at €2.8 billion.

As we stated during our Q1 call, the German car market remains weak following the ending of the scrapping support. However, our exposure to the emerging growth markets, including of course China coupled with good performance in the main Western European markets outside Germany and in the U.S., has been key to our positive performance.

Our excellent brand mix has ensured that we are perfectly positioned for the upturn we have seen in the premium sector, while we continue to benefit from excellent design and leading fuel efficiency, combined with localized designs in the demanding volume car business.

Our exposure to heavy trucks is paying off too as the world economy shows some early signs of improvement, with an excellent performance in Scania and good progress at MAN.

Our solid business performance is reflected in the automotive division's net liquidity, which continued to improve, ending the period at an excellent €17.5 billion, which includes the remaining €1.1 billion received in April from the March capital increase. This strong liquidity provides an excellent foundation of our implementation of our Strategy 2018 and will provide protection should the economy turn out be not so favorable, a note of caution I will return to later in the presentation.

But for now, Mr. Klingler, it's over to you.

Christian Klingler

Ladies and gentlemen, also a warm welcome from my side. On this chart four, you can see the development of the world car market last year through to the first half of this year in comparison to the previous year.

After dramatic decline of 17% in the first half of 2009, world market showed the first signs of relief in the second half of the year. The market recorded further growth of 15% in the first half of 2010. Please bear in mind that most of the growth in the world car market was due to governmental support.

But however, I must add a note of caution. As the car market has started to decline from May 2008, the comparison with the previous year figures shows signs of improvement in relative terms only, while in absolute terms, the market is stabilizing on a very low level. To avoid this statistical distortion, the comparison to the last normal year of 2007 is appropriate, as you can see on chart five.

In the second half of 2009, in many cases, the markets were mainly as a result of the positive influences of the governmental support measures in many markets. The first quarter of 2010 almost reached the same level as in the normal year of 2007, driven by additional registrations of vehicles contracted in late 2009, before the ending of the scrapping incentive programs in many of the major markets.

In the second quarter of 2010, we can see a normalization of the market trend, as the positive effect of incentives programs started to fade out. However, our latest estimations suggest a decline of the overall market in the second half of the year due to the ending of the support measures in major European markets. This will make the second half of 2010 a difficult period for the whole automotive industry.

The car market in Europe, especially Western Europe, is expect to contract further in 2010, while North and South America as well as Africa are said to maintain the recovery, which had already started in 2009. Despite continuous growth in Asia and robust recovery in North America, this year the world car market will fail to reach its pre-crisis level.

Starting with the second quarter of 2009, our deliveries to customers have shown positive year-over-year development. This first half of 2010, the Volkswagen Group again outperformed the overall car market. This was supported by the development in China, with plus 46%, North and South America, plus 19% and 4%, as well as certain Western European countries such as Spain and U.K.

Overall, as a result of our outperformance, we continue to gain global market share. Due to this shift in relative importance of some markets within the regions, we expect a challenging second half of 2010 in terms of market share performance. For example, after a year that was highly influenced by the scrappage incentives in 2010.

The German market is set to lose some of its shares of the total Western European sales. This puts additional pressure on the performance of the Volkswagen Group, as we have an extraordinary strong market position in Germany. Or let's take it differently, we are increasing our market share in Germany, we are increasing our market share in West Europe without Germany, and if you add to that the increase is much less tangible.

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