Despite Scandals And Allegation Of Collusion, Volkswagen Delivered An Impressive First Half; Revised Outlook Upwards For The Full Year

by Trefis Team
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It seems that Volkswagen’s performance is scandal proof. The Wolfsburg-based car maker’s operating profit more than doubled to €4.5 billion in Q2 mainly driven by a boost in its European sales, despite its dieselgate scandal and more recently the allegations of collusion with other German car makers. With this, Volkswagen rounded up the first half of 2017 on an extremely successful note. Its H1 operating profit reached almost €9 billion, reflecting an 18% y-o-y growth. The drivers for this growth were positive effects from higher volume and mix improvement and also the fact that there was a special items expenditure to the tune of €2 billion in the last year, which was missing this time. In terms of markets, Western Europe, Central, and Eastern Europe continued with their strong performances whereas there were improvements in the erstwhile weaker regions in North and South America.

Volkswagen Revised Its Outlook Upward In View Of Its Recent Performance

The company registered revenues of around €116 billion (excluding the Chinese joint ventures) reflecting around 7% y-o-y growth. This was mainly due to the positive impact of the volume and mix adjustments. The equity result primarily contributed by the Chinese joint venture was slightly below the last year at €1.6 billion, but if the sale of LeasePlan in Q1 2016 was excluded from the results then the overall trend was positive.

However, the only setback seemed to be the significant negative cash flow of €4.8 billion after the high cash outflow due to the dieselgate issue that the company is currently mired with. Cash outflows so far this year stand at a total of €12 billion. Excluding the diesel issue related outflows, the cash flow from operating activities stood at almost €14 billion  for the first six months of 2017.

In light of the recent performance, the company now expects its revenues for 2017 to grow by over 4% of its last year’s record €217 billion. Earlier it had said that its revenues are expected to grow up to 4% y-o-y compared to the 2016 levels. It expects the operating returns on sales for the year to hover between 6% to 7%.

Despite Industry Slowdown, Volkswagen’s Growth Continued

Though the global car market had been growing this year, its growth in Q2 decelerated from that in Q1. Though regions such as Western Europe, Asia-Pacific, Brazil, and Russia were some of the key contributors to growth, however, the slowdown in markets such as the U.K. and the U.S. dampened the overall growth in Q2. Despite all this, Volkswagen still improved its sales, especially in Q2.

The first half of 2017 witnessed Volkswagen delivering 5.2 million vehicles with a 0.8% y-o-y growth. June was a particularly successful month for the company with 920,700 Group vehicles being delivered depicting a y-o-y rise of 4.2%. The stable growth in its core regions gives Volkswagen’s management the confidence that this impressive growth streak will continue in the second half of 2017.

Performance In China Was Pulled Down Mainly By Audi And Weak Macroeconomic Conditions

The Chinese joint ventures (accounting for the majority of Volkswagen’s equity investments) witnessed a 10% y-o-y decline in the operating profit to €2.1 billion for the first half of 2017. The weak macroeconomic scenario in China, coupled with Audi grappling to improve its sales were two major factors behind this setback. The Audi sales figures were around 12% lower in H1 2017 than the same period last year. As a turnaround measure, Audi has entered into future collaboration agreements with Chinese partners in May and this has led to a sales recovery. The company expects sales growth from China to remain flat for 2017.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Volkswagen

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