VW with loss of billions: Shareholders get one billion euros less

Volkswagen actually wanted to distribute a good three billion euros to its shareholders. But the corona crisis is forcing the company to be more economical.

One billion less divided

The Volkswagen Group will pay than originally planned because of the Corona crisis for the year 2019 less dividend. In order to protect their own cash register, only a little more than two, instead of the approximately three billion euros announced in February, are now to be distributed to shareholders. The Wolfsburg-based automaker announced this on Thursday.

Coronavirus hit hard

The corona crisis, which peaked in spring, hit the VW group hard. In the first half of the year, Volkswagen slipped into the loss zone in terms of operating profit. Minus 800 million euros are now on the books. A year ago, the operating plus was still ten billion euros (before special items such as from the diesel affair). The pre-tax result fell year-on-year from plus 9.6 to minus 1.4 billion euros.

“The first half of the year was one of the most challenging in our company’s history,” commented VW CFO Frank Witter on the result. The group took early steps to reduce costs and secure liquidity. “This enabled us to keep the effects of the pandemic within reasonable limits,” he added. “Nobody can rule out a second Covid 19 wave,” warned Witter at the same time.

Signs of Recovery

Nevertheless, Volkswagen sees signs of a recovery. After the absolute low point in April, there is now an improvement from month to month. In May the number of vehicle deliveries in Western Europe was still 57 percent below the previous year’s result, in June it was still 30 percent. The market continued to recover in July, the group said. The gap in deliveries should only be in the single-digit percentage range compared to July 2019.

Volkswagen estimates that the improvement will continue in the second half of the year. “Due to the positive trend in our business in recent weeks and the introduction of numerous attractive models, we are cautiously optimistic about the second half of the year,” stressed CFO Witter. New austerity programs are probably not necessary at VW.

Witter also defended the many personnel changes in top management over the past few weeks. “With the new management team, we are well prepared,” said the CFO. “Rauch from Wolfsburg” is also a sign of the intense struggle for positive changes in the group.

Herbert Diess almost lost his job

The VW chief of finance also explicitly professed himself as CEO of Herbert Diess, who almost lost his post in early June after internal quarrels. “But the most important message is that the Supervisory Board and the Management Board … are completely in agreement that our CEO Herbert Diess is in the lead in implementing our strategy,” Witter emphasized in a conference call. “Believe me, nothing has changed in his ambition and urge for rapid and sustainable change,” he added.

Increase in net liquidity in 2nd quarter

In the past crisis months, Volkswagen was very reluctant to handle its cash in hand. In the first quarter of this year, Volkswagen lost 3.5 billion euros in its net liquidity. The Wolfsburg-based group was able to stop this downward trend in the second quarter and even increased net liquidity by EUR 900 million to EUR 18.7 billion. The issuance of a bond with a volume of three billion euros was instrumental in this.

A tough austerity policy has helped to prevent billions from flowing out of the group. The new economy was most evident in the material costs. In the first half of the year, they were cut by 20 percent to 4.1 billion euros. Volkswagen slightly reduced development spending by EUR 300 million to EUR 6.7 billion. Inventories have also been reduced.

Production disruption

Because production was at a standstill and car dealerships in many countries had closed, Volkswagen was only able to sell vehicles to an extremely limited extent in the spring. The delivery of new cars in the first half of the year fell by more than 27 percent to 3.9 million. Accordingly, sales also fell 23 percent to EUR 96 billion.

Optimistic about 2nd half of 2020

Despite the increasing positive signals, Volkswagen is sticking to its April outlook and avoiding further specification. The VW Group spoke again of a positive operating result in Wolfsburg for the whole year (before and after special items). Volkswagen will fall significantly short of the previous year’s figure. The statements on sales and turnover are not very specific. Because of the corona pandemic, both values ​​would be “significantly” below the level of the previous year.

The cautious Wolfsburg optimism for the second half of the year is shared in financial circles. “In the full year 2020, the group should still be in the black,” said Frank Schwope, automotive analyst at NordLB in Hanover. However, VW will probably not reach the profit sizes of the good past year again until 2022.

Revival of Chinese market

The revival of the Chinese car market will help Volkswagen this year. “China gives hope and may show the way out of the coronavirus crisis,” said Schwope. The Wolfsburg-based company sells around 40 percent of its vehicles in the People’s Republic.

Other automakers without strong China business, such as Renault, are struggling with significantly larger losses. The French company announced a loss of 7.3 billion euros on Thursday.

Porsche comparatively strong

The slump in earnings at the Volkswagen Group level in the first half of the year is also having a negative impact on most vehicle brands. Out of a total of nine car brands, only three achieved a positive operating result.
Porsche achieves comparatively good figures in times of crisis and is the most important source of income for VW.

In spite of Corona, the sports car manufacturer earned 1.23 billion euros operationally in the first six months, a decrease of 26.3 percent compared to the previous year. However, the return on sales suffered at 9.9 percent. Porsche aims to achieve at least 15 percent. “But we do everything we can to achieve a double-digit operating return on sales in 2020,” said Porsche CFO Lutz Meschke.

In addition to Porsche, Skoda and Scania reported a positive operating result to Wolfsburg. The Czech car subsidiary posted an increase of 228 million euros (previous year: 824). The development of the Swedish truck subsidiary Scania was similar: the operating plus fell from 828 to 221 million euros.

The Volkswagen Passenger Cars brand tops the list of losers. The operating loss in the first half of the year was 1.5 billion euros. Audi contributed a loss of 643 million euros. The operating loss for the truck subsidiary MAN is 423 million euros, for the VW vans it is 334 million euros.

Annual General Meeting on September 30

The Annual General Meeting planned for early May is now scheduled to take place on September 30. Like most other large Dax groups, Volkswagen also refrains from attending a face-to-face event due to the corona dangers and instead relies on a virtual form on the Internet.

Volkswagen justifies the withdrawal of the dividend proposal from February with the “further development, which cannot be reliably estimated”. The company originally proposed a dividend of EUR 6.50 for the ordinary share and EUR 6.56 for the preference share. The group is now going down to 4.80 and 4.86 respectively. This corresponds exactly to the dividend level for 2018.

Volkswagen received the expected receipt on the stock exchange for the partial withdrawal of the dividend. The VW share was one of the losers in the Frankfurt share index Dax. By the afternoon, the stock had lost more than five percent on a tendingly weaker trading day.

Author: Nabeel K
Email: nabeel@wheelsjoint.com

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