Billions in profits and a warning about the consequences of the war in Ukraine

Volkswagen production in Zwickau

The automaker warns of the consequences of the Ukrainian war on business.

(Photo: Reuters)

Dusseldorf The Volkswagen Group benefits from the valuation effects of its own commodity hedging operations and can therefore post a significantly higher operating profit for the first quarter.

As the Wolfsburg-based automaker announced on Thursday, operating profit fell from 4.8 billion euros in the same period last year to 8.5 billion euros in the first three months. . Sales performance increased from 7.7 to 13.5%.

The valuation effect of commodity hedging transactions amounts to around 3.5 billion euros, a company spokesperson said. Thanks to these hedging operations, the Group avoids sharp price increases when purchasing major raw materials such as steel or nickel.

With this longer-term hedging through financial instruments, Volkswagen is paying commodity prices back to where they were before the war started in Ukraine. The difference with the current price level is responsible for the accounting profit now declared in billions. The additional income is not cash efficient and therefore not reflected in the cash flow.

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If the special income from hedging operations is deducted, the actual operating activity of the VW Group improves by approximately 200 million euros compared to the same period last year. Unlike other companies, Volkswagen recognizes special income from hedging transactions in operating activities and not in the financial result.

Volkswagen: Accounting profit does not boost stocks

Investors and financial investors evaluate companies based on their performance in actual operational activities. Therefore, the multi-billion high book profit at Volkswagen did not cause a particular reaction from stocks. On the contrary: in the morning, the preferred shares of VW were even among the losers in the Frankfurt Dax stock index. The Volkswagen paper was down a good percent.

Philippe Houchois, automotive analyst at Jefferies, called the operating result without hedging effect “solid”. With an actual operating profit of five billion euros, the VW Group is slightly above analysts’ expectations, which averaged around 4.7 billion euros.

Houchois described the cash position of 1.5 billion euros as “relatively low”. This was also to be expected due to ongoing production shutdowns and recurring delivery issues with parts from suppliers – compounded by the war in Ukraine. Since Volkswagen has sold fewer cars, less money ends up in the fund.

At the start of the year, the VW group suffered the expected drop in sales. 655,800 vehicles were delivered worldwide in March, a decrease of 31.4% compared to the previous year. Shipments fell 23.7% in Western Europe and 30.4% in North America.

In the first quarter, a total of nearly 1.9 million vehicles were brought to customers, a significant drop of 21.9%. Premium brands have also been hit harder by first-time sales issues. At Porsche alone, sales figures fell 5% in the first quarter compared to the previous year.

>>Read here: Why the VW Group is making fewer company cars available to its own employees

The VW group remains very cautious about its outlook for the rest of the year. This is due to the war in Ukraine and ongoing semiconductor delivery issues.

The new Covid restrictions in China are also difficult to calculate. The VW group therefore had to stop production in several Chinese factories. The People’s Republic is the most important single market for the automotive group from Wolfsburg; VW sells nearly 40% of its cars there.

The war in Ukraine creates great uncertainty – a ray of hope thanks to electric cars

There is always a risk that new developments in the war in Ukraine could have a negative impact on the Volkswagen Group’s business activities, the company added. A further tightening of the supply of spare parts and raw materials cannot be ruled out. Changes in commodity markets could lead to significant new effects on the valuation of its own hedging transactions. The supply situation for semiconductors remains tight.

Business with new electric cars has been positive at Volkswagen. The VW Group increased the number of fully electric vehicles delivered by 65% ​​compared to the same quarter of the previous year. Despite supply bottlenecks in semiconductors and wiring harnesses, 99,100 pure-electric cars were delivered to customers by the end of March, after 60,000 in the first three months of the previous year.

Volkswagen achieved the biggest increase in China, where 28,800 customers took delivery of an all-electric model from a VW Group brand. This was more than four times more than the same period last year.

After: Hans Michel Piëch and Wolfgang Porsche want to be on the Supervisory Board of Porsche again.

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