ForMotion Sees An Increase
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with Next Car,
15th March, 2006
Pischetsrieder: "Further efforts necessary to safeguard the long-term future of the Group"
- Record deliveries at 5.24
The Volkswagen Group significantly increased its earnings last year thanks to the ForMotion programme and a comprehensive new model initiative. Profit before tax rose by 58.2 percent to €1.7 billion in 2005. Despite a continued difficult market environment, the Group was able to meet the forecasts, said Dr. Bernd Pischetsrieder, Chairman of the Board of Management of the Volkswagen Group, on Tuesday 7th March, 2006, at the presentation of Volkswagen’s financial statements in Wolfsburg. “Overall, however, the level of earnings we achieved remains unsatisfactory”, he emphasised. “That is why we will continue our performance enhancement programme in the form of “ForMotion plus”, and in particular systematically restructure the core Volkswagen brand. There is no alternative for our Group. Considerable efforts are still needed to safeguard the long-term future of Volkswagen AG”, Pischetsrieder stressed.
“Last year, we already made substantial progress in improving our competitiveness. Nevertheless, nobody in the Group can assume that we have already reached all our goals”, underlined the Chairman of the Board of Management. “Together with all involved, Volkswagen’s management must now prepare the way for ensuring the long-term survival of the Group. Only a successful company can safeguard jobs.”
The Group’s new model initiative in 2005 had been successful on world markets, said Pischetsrieder. A record 5.24 million vehicles were delivered to customers (+3.2 percent). “We continued our new product initiative with a total of 16 new vehicle models and derivatives in Europe alone, and extended our market share in the face of stiff competition, especially in Europe.” The large number of new models again underscores the Group’s innovative strength. Sales revenue rose by 7.1 percent to €95.3 billion.
Record new model rollout
Pischetsrieder added: “Competitive pressure on global automotive markets remains high. The Volkswagen Group still has surplus capacity despite rising deliveries. But because this also applies to most of our competitors, price pressure in the markets is high.”
Outlook for 2006
Pischetsrieder reiterated the medium-term earnings forecast when he presented the consolidated financial statements. This projects a consolidated profit before tax of €5.1 billion for 2008, a €4 billion improvement as against 2004. “These goals represent a challenge”, said Pischetsrieder. “However, we are confident that we will achieve them with the support of our new products, the restructuring programme and ForMotion plus.”
ForMotion target exceeded
CFO Hans Dieter Pötsch added: “In particular the disciplined approach to investments improved net liquidity in the Automotive Division by €2.6 billion year-on-year, and at €0.7 billion, this returned to a positive figure for the first time since 2002.” It was particularly encouraging to note that investments were reduced without cutting back on the development of new models. Pötsch: “New cars are our future.”
Pötsch explained that consolidated sales revenue increased by €6.3 billion in 2005, with the automotive business accounting for €5.4 billion of this increase and the Financial Services Division contributing €0.9 billion. Of the €5.4 billion from the automotive business, €2.8 billion is attributable to volume effects, €1.0 billion to improvements in the product mix and €0.9 billion to price increases. In contrast to the previous year, exchange rates increased sales revenue by €0.7 billion in 2005.
Sales revenue development by region
Earnings development in 2005
The financial result fell by a total of €516 million because of a reduction in the result from investments accounted for using the equity method, attributable primarily to the Chinese joint ventures, and because of the interest result. The profit before tax was thus €1.7 billion, a 58.2 percent improvement compared with the previous year. The profit after tax generated in 2005 was thus €1.1 billion (+ 60.7 percent). “Based on sales revenue of more than €95 billion, this represents an after-tax margin of only 1.2 percent. It goes without saying that we are not satisfied with this figure”, said Pötsch.
Operating profit by market (before special items)
Operating profit by business line (before special
The Volkswagen brand group’s operating profit of €638 million was a significant improvement over 2004, but was “still nowhere near good enough. Although the Škoda and Bentley product lines developed extremely well last year, Volkswagen Passenger Cars was just above operating break-even, despite considerable efforts”, said Pötsch. “Further restructuring of this business line is inevitable.” The recovery of the core brand is fundamental to returning the Volkswagen Group to an adequate level of earnings. “Unless, in particular, the traditional German plants are restructured, no long-term future for the Volkswagen Group would be conceivable, even if all the other parts of the Group reach their earnings targets.”
- Competitive production and labour costs by focusing on designs that reflect production and assembly requirements, and by introducing differentiated working time models.
- Increased productivity, especially at the vehicle assembly plants, for example by using innovative working time models and accelerating part-time schemes for employees near to retirement.
- Full capacity utilisation at plants, inter alia through capacity adjustments.
- Restructuring of component production.
The analysis of in-house component production facilities is guided by the following key questions: Is this a core competency, and can the component in question be produced at competitive costs? Pischetsrieder stressed: “As an automobile manufacturer, the production of engines and gearboxes is part of our core production competency and is not therefore covered by this review.”
As already announced, up to 20,000 employees directly and indirectly involved in the activities of the Volkswagen brand could be affected by the restructuring programme over the next three years. The question of how productivity and structural improvements can be achieved and implemented in concrete terms is currently the subject of negotiations with the Works Council and the IG Metall trade union.
The Chairman of the Board of Management emphasised that “the restructuring programme, coupled with the implementation of ForMotion plus, are necessary measures that will allow us to meet our long-term responsibility for the future of the Company and its employees. Making particularly good products is not enough: they must also be affordable for our customers and generate an adequate return to secure the future. That is the only way we can safeguard jobs at Volkswagen and ensure the survival of our Company.”
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