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  6. Volkswagen: success in 2019, challenges for 2020

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Success and challenge

Last year, Volkswagen managed to increase sales, revenues and deliveries. That doesn’t make the challenges for 2020 any smaller.

These figures are impressive: The Volkswagen Group closed fiscal year 2019 with encouraging figures in all key areas:

  • Sales revenue increased by EUR 16.8 billion to EUR 252.6 billion. 
  • Operating profit before special items rose to EUR 19.3 (17.1) billion. 
  • Negative special items in connection with diesel decreased to EUR 2.3 (3.2) billion.
  • In the Automotive Division, net cash flow in-creased markedly to EUR 10.8 (-0.3) billion, with net liquidity reaching EUR 21.3 (19.4) billion.
  • Board of Management and Supervisory Board propose an increase of the dividend to EUR 6.50 (4.80) per ordinary share and EUR 6.56 (4.86) per preferred share. This would raise the payout ratio to 24.5 (20.4) percent.
  • At 7.6 (7.3) percent, the operating return on sales before special items slightly exceeded the forecasted range for 2019. Oper-ating profit also improved to EUR 17.0 (13.9) billion.
  • Deliveries to customers slightly increased to 10.97 million vehicles (+1.3 percent). Growth was recorded above all in Europe and South America, while deliveries to customers in North America and the Asia-Pacific region slightly declined due to overall market trends.
  • The Group’s market share rose in almost all regions.
  • Profit before tax improved by 17.3 percent to EUR 18.4 billion and the return on sales before tax increased to 7.3 (6.6) percent.  

Volkswagen expects that deliveries to the Volkswagen Group customers in 2020 will be in line with the previous year – amid challenges particularly from the economic situation, the intensifying competition, volatile commodity and foreign exchange markets and more stringent emissions-related requirements. Uncertainties result, among others, from continuing geopolitical tensions and conflicts as well as epidemics spreading across countries and regions, as we are currently seeing in the case of the corona virus, whose effects must be closely monitored.

Deliveries are therefore expected to be in the order of the previous year, with sales revenues up to 4 percent above the previous year's figure. In terms of the operating profit for the Group and the Passenger Cars Business Area, Volkswagen forecasts an operating return on sales in the range of 6.5–7.5 percent in 2020, aiming for a net cash flow in 2020 of at least EUR 10 billion.

Frank Witter, member of the Group Board of Man-agement responsible for Finance and IT, resumed: “In 2019, our attractive product portfolio convinced many customers, allowing us to expand our position in an overall declining market.” According to Witter, the company is still very robust financially – the targets for 2020 being ambitious and requiring a major effort from the entire company.

Production: from cost driver to success factor

Volkswagen is energetically driving its profitability forward – Group CEO Herbert Diess sees a total efficiency potential of 2.6 billion euros by 2025 alone. For a volume manufacturer like Volkswagen, production is by far the most important adjustment screw. The Volkswagen brand alone wants to achieve a competitive return of at least six percent through increased efficiency, in order to be able to make important investments in the future from its current business. The new production strategy “TRANSFORM.TOGETHER” serves the central goal of increasing productivity by 30 percent by 2025 – with improvements in eight central areas of activity such as the launch of products and factory adjustments. The progress is already visible. The production division alone achieved cost reductions of around €500 million in 2019. Between 2019 and 2023 a total of two billion euros is to be generated.

Future lies in the digital tech-Group

Despite all the positive trends, the rapid change from a purely automotive, to a digital auto-tech-Group remains a huge challenge for Volkswagen. “In the future, the automobile will be the most complex, most valuable internet device suitable for the masses,” said Group CEO Herbert Diess a few weeks ago. “The future of Volkswagen lies in the digital tech-Group – and only there.” Diess went on to say, “In all honesty, it also means: the storm is just beginning.”

Against this backdrop, the Group CEO calls for a further increase in speed and more “courage to take powerful and, if necessary, radical changes in course.” “If we continue at our current pace, it will be very tight,” Diess said. What the Group needs now is “to make use of our strengths, but also to leave out and abandon everything unnecessary that does not move us forward.”

Diess is demanding binding expansion plans for the charging infrastructure from the EU in order to quickly make climate-friendly electromobility capable of gaining acceptance by the masses. A “European e-mobility master plan” is needed, the Group CEO recently said in Brussels. Diess also advocated a uniform CO2 price for all sectors – a price that would encourage industry and consumers to reduce their CO2 footprint more strongly. Diess described the still high share of coal-fired power generation in Eastern Europe and Germany as the “biggest problem” on the road to climate neutrality. “We need a European coal phase-out plan with binding phase-out dates for each member state. The power supply for electric cars must be CO2-free,” said Diess. This is the only way to achieve climate goals. Volkswagen is investing around 33 billion euros in electric mobility across the Group in the coming years. By 2050, the Group wants to bring the CO2 emissions of its fleet to zero.

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