VOLKSWAGEN AG Iberian Roadshow with BBVA Mr. Oliver Larkin Investor Relations Officer Madrid / Lisbon, 14/15 July, 2005 Timetable
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VOLKSWAGEN AG
Iberian Roadshow
with BBVA
Mr. Oliver Larkin
Investor Relations Officer
Madrid / Lisbon, 14/15 July, 2005
1
Timetable
Half Year Results 2005 29 July 2005
IAA Frankfurt* 12-14 Sept. 2005
Q3 Results 3 Nov. 2005
Supervisory Board Approval PR 54 November 2005
* Press Days
2Agenda
Timetable
Reflection on H1 2005
Ongoing Earnings Improvement Measures
Regional Update
3
Impact on Volkswagen Group:
Deliveries to Customers January – March 2004/2005
January – March 2004
‘000 units
January – March 2005
- 1.9%
1,200
+ 3.2% 1,206 1,183
1,000 1,068
1,034
- 4.9%
+ 3.4%
800 840
798 784
759
600
400 - 1.9%
- 25.9%
301 295 -7.8% + 10.2%
200 + 37.2% 198
124 125 137 147
90 114
65
0
Volkswagen Audi Brand Commercial Volkswagen Volkswagen Europe / North America South Asia-Pacific
Brand Group Group Vehicles Group excl. Group incl. Remaining America/
China China markets South Africa
4Analysis of Operating Profit
€ €billions
billion
0.6
0.5
0.4 0.2
0.3
0.5
0.2 0.2
0.3 0.3
0.1
0.1
0.0
Jan.-March Volume / Mix / Currency w/o Product costs Fixed costs / Jan.-March
2004 Prices China Start-up costs 2005
5
Other Operating Income: Provisions
1. P&L Statement:
Cost of Sales
Creation of Provision Distribution Expenses
Administrative Expenses
Provisions
Income from Reversal Other Operating Income
of Provisions and Accruals
2. Balance Sheet:
Use of created Provisions via Payments
6Impact on Volkswagen Group:
Outlook
• As expected, the most important automotive markets experienced a relatively difficult start to 2005.
Neither are we forecasting any significant change in the macroeconomic environment over the coming
months, so we do not expect any improvement in the situation in the high-volume automotive markets in
the short term. We believe that price pressure will continue unabated. In addition, the persistently
unfavorable exchange rates and uncertainty about developments in the costs of raw materials, especially
steel, will put further pressure on the automotive manufacturers.
• For the current year, we are expecting an improvement in our sales figures in the USA on the back of the
full availability of the Audi A4 and Audi A6, as well as the current model changes for the Jetta and the
Passat. We are convinced that following the start-up phase, we will gain additional market share in
Western Europe from the launch of the new Passat, the Golf Plus, the new Polo and the Fox. In addition,
the start of sales of the successor to the SEAT Leon and of the new Audi RS 4 will follow in the second
half of the year. Based on the large number of new models we are launching in 2005, we believe that the
Volkswagen Group will deliver a higher volume over the year as a whole than in 2004.
• The ForMotion program will continue to be systematically implemented to improve our competitive
strength and cost structures; we are confident that we will achieve the target earnings contribution of
EUR 3.1 billion for 2005.
• 2005 operating profit after special items will improve year-on-year – although the extent of this
improvement depends on external factors that cannot be predicted today. The same applies to profit
before tax.
Source: Interim Report January-March 2005
7
Agenda
Timetable
Reflection on H1 2005
Ongoing Earnings Improvement Measures
Regional Update
8Automotive Division ROI1)
%
3.0
Mid-term target: ROI 9%
2.5
2.0
1.5
1.0 2.0
0.5 1.2
0.0
2)
2003 2004
1) Proportionate inclusion of Chinese joint ventures.
2) Restated
9
The Automotive Value Chain –
Facts and Impacts of the Main Units
Accordingly, the Automotive value chain of the Volkswagen Group has Loyalty Products
(Direct Banking,
been expanded by essential areas of „Mobility“: we develop,
Insurances etc.)
produce, sell, finance, provide leases, insure, let, repair and remarket
vehicles. Furthermore, we offer products to our customers, Used Car
which provide them with an additional „financial mobility“ in
addition to their „automotive mobility“… Rent-a-car
Wertschöpfung Audi Bank
“…We have two strategic business fields: the primary automobile Fleet Management
service and life cycle services. Life cycle Services comprises …
customer-related services such as financing, leasing, rental and
insurance. Insurance
The relationship between the two strategic business fields is
Credit/Leasing
reciprocal."
Wertschöpfung Audi AG
Dr. Bernd Pischetsrieder After Sales
Chairman of the Board Sales
of Volkswagen AG
(Investor Conference, March 9, 2005) R&D, Procurement,
Production
10The Automotive Value Chain –
Facts and Impact
Financing: Credit/Leasing
Facts: Impact:
* Europe’s largest automotive financial * Increase in sales/turnover for group brands;
services provider in a scale driven * Significantly increased brand loyalty
business model;
* Approx. 4.3 million contracts in portfolio
Financing: Credit
Facts: Impact:
* Financing stocks of group dealers * Stabilizes dealer network and sales channel
(€ 9.0 bn receivables) * Secures high retail penetration
Insurance
Facts: Impact:
* 1.6 million cars in portfolio * Tailor-made insurance products support
the sale of vehicles at group dealerships
11
Top Line Growth:
Volkswagen Group Product Matrix
Pickup/ Sport Lim. Road-
Hatch Notch Station MPV SUV Conv.
Del. Van Coupé Coupé ster
Luxury
*)
Upper
Upper
Middle
Middle
Compact
Small
Mini
new in 2005
12Top Line Growth:
Volkswagen Fox
13
Top Line Growth:
Audi Q7
14Focussed Cost Control:
ForMotion Program Status as of March 31, 2005
4%
5%
Overheads / Process Optimization
7%
Product Costs
8% 41% One-time Expenditure
Foreign Sales Subsidiaries
11% Commercial Vehicles
Performance Enhancement Sales
Financial Services
24%
Total ForMotion effects January-March 2005: €684 million
15
Focussed Cost Control:
ForMotion Product Cost Savings
ForMotion 2005 Target:
€3.1 billion
of which Product Costs Savings contribute:
approx. €1.0 billion
examples
Reviewing Design Streamlining
Materials Solutions with Contracts Benchmarking
Suppliers
16Focussed Cost Control:
Tariff Agreement, November 2004
Effect in
mid/long-term
1. Wage freeze
„ERA component“ of 2.8 % cancelled
2. Partial retirement / termination contracts
3. Working time flexibility account incl. savings of allowances
4. New pay structures for new employees
5. Bonus system
6. New rules for apprentices
7. Effects on pensions
8. Effects on subsidiaries
17
Investment Discipline: Efficient Use of Resources
through increasing modularization
100%
model
80%
specific
60% model
specific
40%
50% modules
20%
10% modules
0%
Golf V Passat
Modular strategy complements platform strategy
18Investment Discipline:
Capex in Fixed Assets – Automotive Division
€ billion
8 10%
Capex
Capex/Sales Ratio
8%
6
Target Corridor 6-7%
6%
4
4%
2
2%
0 0%
2001 2002 2003 2004 Q1 2005 2006 2007
19
Agenda
Timetable
Reflection on H1 2005
Ongoing Earnings Improvement Measures
Regional Update
20Regional Update:
Volkswagen in North America Region
• In 2004 VW posted an Operating Loss of close to €1 bn.
• The following operational steps will influence 2005:
• New volume models will be launched; for VW the new Jetta is already available
in Q2 and the Passat will be available in Q3. The new Audi A6 and A4 will be
fully available in 2005 and the Audi Sport-Back has been launched.
• Although we do not expect a better market environment, new models should
help our position in 2005, but the full impact will only be seen in 2006.
• The whole organization in the USA is currently under review and in 2005 cost
reductions will be implemented. Overall cost savings from ForMotion, in
particular product costs, will also benefit the region.
• The difficult market environment combined with an ongoing negative exchange rate
development means that break-even is unlikely.
21
Regional Update:
Puebla, Mexico
22Regional Update:
Volkswagen in China
• Challenges
• The market remains attractive long term
but
• Pricing has come down dramatically
• Chinese consumer preferences are different from European
• Challenging exchange rate
• Too much capacity in the market
• Volkswagen response
• Dramatic reduction in cost structure through permanent dialogue with our
suppliers and internally
• Investment directed to deepen our value chain
• Capacity investment will take Volkswagen up to 900,000 units
• Volkswagen starts purchasing raw materials and components in China, with
dramatic cost advantage
• Volkswagen strong at selling to government; this strength is now being
developed in retail sales
23
Regional Update:
Volkswagen in South American Region
• 2003
• Economic crisis resulted in substantial reductions in unit sales
• Devaluations of the major currencies exacerbated the fall in sales revenue
• Volkswagen Restructuring (2003)
• Division between export and domestic markets
• Fixed cost reduction program
• Product cost optimization and local parts sourcing
• Restructuring of dealer network
• Launch of the Fox in Q4 2003
• Current Situation
• Strong economic growth in Brazil and Argentina
• Pick up in export activity; upturn in domestic demand
• Sales success of the Fox
• Some negative exchange rate impact from stronger Brazilian Real
• South Africa: economy profits from positive development of the global economy
and high commodity prices
24New Volkswagen Passat Estate
25
VOLKSWAGEN AG
Iberian Roadshow
with BBVA
Mr. Oliver Larkin
Investor Relations Officer
Madrid / Lisbon, 14/15 July, 2005
26Appendix
27
ForMotion Program
Total Effects January-March 2005: €684 million
Example: Additional Heating for Diesel engines
¾ Current case
Fuel based auxiliary heater in engine compartment
¾ Now / Future
Electricity based auxiliary heater
in the climate control unit
¾ Benefits
Less costly
Heating comfort remains untouched
Weight reduction
28Volkswagen Golf GTI
29
Volkswagen Golf Plus
30The New Bentley Continental Flying Spur
31
Škoda Octavia Combi
32Volkswagen Caddy Combi
33
Audi A4 Avant
34SEAT Leon
35
Lamborghini Murciélago Roadster
36Volkswagen Group – Group Structure
VOLKSWAGEN GROUP
UNIT/ FINANCIAL SERVICES
AUTOMOTIVE UNIT
SEGMENT UNIT
Volkswagen Audi Commercial Remaining
BUSINESS LINE Financial Europcar
brand group brand group Vehicles companies
Services
PRODUCT LINE/ Dealer and
BUSINESS FIELD customer
financing
Rental
Leasing
business
Insurance
Fleet business
37
Why pursue a multi-brand strategy?
Development of the number of market segments
1992 2004
Notchback Estate Roadster Notchback Estate Roadster
Traditional Hatchback Coupé Convertible Hatchback Coupé Convertible
SUV (Robust) SUV (Robust)
Innovative MPV SUV (Street) MPV SUV (Street)
(growth potential)
Crossover Crossover Crossover
Conclusions:
• Customers become more individualistic and seek out innovative concepts.
• Former niche „microsegments“ become the mainstream.
• The number of segments grows, but these segments become smaller.
• As the significance of individual models declines, the importance of model families grows.
38Why pursue a multi-brand strategy?
Development of the number of market segments
1992: 16 Segments (Germany) 2002: 33 Segments (Germany)
Performance / Fun Performance / Fun
CONV.-B/C
CONV.-B CONV.-D
CONV./ROADSTER-A
ROADSTER-B COUPE/ROADSTER-D
CONV.-A
COUPE/CONV.-D
A-3DR.
A0-3DR. COUPE-D/PORSCHE
A-3DR.-TOP/COUPE
D-SAL.
A00
Single „mainstream“ C-SAL.
B-TOP-SAL.
A00 A0-3DR A-3DR
brand DIV.A00-A(FUN)
SPORT-B A0- A/B-LOW-4/5DR.
5DR. A-5DR.
C
D A/B-LOW-5DR./JAPAN Prestige
Value Prestige Value EST.-C
SOFTROAD
EST.-B-TOP
A-4DR/-4/5DR EST.-B-LOW OFFROAD-TOP-5DR.
A0/A-5DR
EST.-A0/A
SUV VAN-A-TG
EST.-A OFFROAD-MED.-5DR.
EST.-B EST.-C
MPV-A OFFROAD-3DR.
OFFROAD-LOW-5DR.
MPV VAN-A-2RD
MPV-B-6+SEATS
MPV-TOP
MPV-B-5SEATS
Utility / Versatility Utility / Versatility
39
Implementation of the multi-brand strategy
Stratification of society
• This creates new positioning opportunities for our brands
Today Tomorrow
Industrialised
countries
today *)
Upper 5%
15 %
Income class
Upper
Middle
Middle 35 %
Lower
Middle 35 %
10 % Lower limit new car market Lower limit new car market
Lower
*) German Ministry of Development (2002) % Society % Society
40Implementation of the multi-brand strategy
Brand claim / brand values
Volkswagen AG
• Customer orientation
• Responsibility for the individual and the enviroment
• Safety
• Quality
Seat Audi Volkswagen Škoda
Aus Liebe zum
Auto Emoción Vorsprung durch Škoda - Simply Clever
Automobil
Technik
• extrovert-sporty • sporty • substantial • appealing • intelligence
• unconventional • progressive • innovative • zest for life • attractiveness
• athletic • high quality • dedication
Lamborghini Bentley
The Ultimate The Sporting Grand
Sports Car Tourer
• extreme • supreme
• uncompromising • exhilarating
• Italian • potent
41
Implementation of the multi-brand strategy
Brand positioning: Volkswagen AG brands
emotional
value prestige
rational
42Implementation of the multi-brand strategy
Example: The new generation of VW AG A-segment vehicles
emotional
Leon (2005) A3 (2003)
Toledo (2004)
Golf (2003)
A3 Sportback
(2004)
Altea (2004)
value prestige
Jetta (2005)
Common
module set Golf Plus (2005)
Octavia (2004)
Caddy (2004) Touran (2003)
Octavia Combi
(2004)
rational
43
Implementation of the multi-brand strategy
Example: Shift from a „platform“ to a „module“ strategy
Platform strategy Module strategy
Module Other
Component
D D
Body C C
B B
Platform A Synergies A Synergies
A0 A0
Platform components are developed Each platform is composed of a series
for all Group models in a particular of modules, which are part of a
market segment common module set
Platform strategy enables the use of A number of modules continue to be
a large number of common used on a segment-wide basis, as in the
components and assemblies within platform strategy (e.g. underbody)
a particular segment
Different modules are optimised
Significant cost savings as a result according to different criteria (e.g. low
of synergies between models of cost or segment-wide application)
different Group brands
Goal: maximum perceived brand differentiation at minimal cost
44Implementation of the multi-brand strategy
Example: Brand-typical exterior design
A3 Sportback Golf
Altea Octavia
45
Implementation of the multi-brand strategy
Example: Brand-typical interior design
A3 Sportback Golf
Altea Octavia
46VOLKSWAGEN AG
Iberian Roadshow
with BBVA
Mr. Oliver Larkin
Investor Relations Officer
Madrid / Lisbon, 14/15 July, 2005
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