VW Posts Record 2011 Net Profit of EUR15.4 Bil. Despite Momentum Slowing in Q4

The Volkswagen (VW) Group has posted record financial results for full-year 2011, according to its preliminary financial results, with the company setting a new net profit record of EUR15.8 billion (USD21.247 billion), which more than doubled from 2010's figure of EUR7.2 billion. The company has benefited from a large uplift in sales volumes during 2011, with global sales numbers rising by 14.7% year-on-year (y/y) for the year to 8,265 million units, along with a corresponding uplift in model mix and increasing higher value model sales in emerging markets. The biggest influence over the huge uplift in net profit and pre-tax profit, however, was the positive effects from equity-accounted investments and measurement of put/call rights relating to Porsche Zwischenholding GmbH on the date of the results. This also helped profit before tax more than double to EUR18.9 billion, up from the figure of EUR9.0 billion. The company's operating profit figure has also increased correspondingly to EUR11.3 billion, up from last year's figure of EUR7.1 billion. Revenue also increased at an accelerated rate, with the combined sales figure growing by 25.6% y/y to EUR159.3 billion. Some analysts were left slightly disappointed by the firm's performance in the final quarter of the year, with the quarterly operating profit declining by 0.9% y/y to EUR2.29 billion based on the annual preliminary result.

As a result of the company's financial performance, the board is proposing an increase in the dividend from EUR3.00 to EUR 3.06 on the preference shares. Although the company's net liquidity has declined somewhat in 2011, (down to EUR17.0 billion from EUR18.6 billion), this is actually a highly impressive war chest, given the equity investments the Group has made in the last 12 months, including the strategically important full takeover of MAN. The company spent a total of EUR7 billion on equity investments during the year. In fact, the MAN investment was behind one of the most impressive statistics to emerge from 2011's performance. The consolidation of MAN and other investment and recruitment programmes ensured that the company's overall head count rose by more than 100,000 staff in 2011, with the figure rising by 25.7% y/y to 501,956. Cash flows from operating activities from the automotive division rose by 22.8% y/y to EUR17.1 billion

Outlook and Implications

Remarkably, some of the financial analysts that follow VW believe these results may be received with slight disappointment as a result of the slowing growth recorded in the fourth quarter and the lack of a surprise element. This would appear to be extremely harsh on VW. Just because the world was expecting a record financial result, this does not mean it is not an extremely impressive achievement. It shows a company that is accelerating its corporate strategy to become the world's biggest carmaker in terms of sales volumes and financial performance, and it has to be acknowledged that the VW Group is the best placed of al the major global original equipment manufacturers in terms of its model and brand mix, its presence in emerging markets, and its sheer financial muscle. The fact that the company completed the consolidation and full takeover of MAN in 2011 and yet still has nearly EUR17 billion of cash in the bank is hugely impressive, and of course means the company has the cash to make further strategic investments.

The Porsche situation remains something of an annoyance for VW, as the ongoing legal battle that Porsche faces and the tax burden VW will face as a result of the takeover have until this point prevented a full legal takeover from being completed. VW appears to be confident of Porsche's potential going forward, however, and it appears as though VW is simply going to push through the purchase. The Wall Street Journal reported in February that VW was seriously considering purchasing the remaining stake in Porsche in order to push through a quick merger, after initially delaying the plan as the result of the outstanding legal cases against Porsche SE from both European and US investors that lost huge sums when there was a large price spike in VW shares in October 2008 (see Germany: 23 January 2012: VW to Push for Quicker Porsche Integration—Report). There is little doubt that VW will experience a far tougher operating environment in 2012, with specific reference to the problems that currently exist in the Eurozone, while the huge decline in January sales in the Chinese market will also be of some concern to the company's senior management (see China: 10 February 2012: Chinese Passenger Vehicle Sales Down 24% Y/Y in January, According to CAAM Summary Data).