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Volkswagen CEO Herbert Diess Declares VW on Right Path Despite Profit Hit

The group said it set aside no more significant funds between January and March to cover fines, compensation and vehicle refits related to its 2015 emissions scandal after it raised provisions by another 600 million euros in the fourth quarter to a total of 25.8 billion euros.

Reuters

Updated:April 30, 2018, 3:25 PM IST
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Volkswagen CEO Herbert Diess Declares VW on Right Path Despite Profit Hit
Herbert Diess, Volkswagen's new CEO, speaks at a Volkswagen Group's media event ahead of the Beijing Auto Show in Beijing, China April 24, 2018. (Photo: Reuters)
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Volkswagen's first-quarter operating profit fell, but optimism over its new chief executive, the carmaker's financial health and lower provisions for the diesel emissions scandal lifted its shares. Two weeks after elevating brand chief Herbert Diess to group CEO as part of the biggest management shake-up in more than a decade, Europe's biggest carmaker is shifting the focus to making its operating business more efficient. "The Volkswagen group is in a robust economic position. The quarterly results confirm that we are on the right path," Diess said after VW posted group earnings before interest and taxes of 4.21 billion euros ($5.1 billion), a fall of 3.6 percent. This was below the 4.47 billion euro consensus forecast in a Reuters poll of banks and brokerages.

VW said negative effects of 300 million euros from switching to the IFRS accounting standard contributed to the profit drop, adding that underlying earnings slightly exceeded last year's 4.37 billion if the changes were excluded. The group said it set aside no more significant funds between January and March to cover fines, compensation and vehicle refits related to its 2015 emissions scandal after it raised provisions by another 600 million euros in the fourth quarter to a total of 25.8 billion euros.

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"The market is hoping for Diess to push further profitability gains and is taking joy from the fact that Dieselgate risks are abating," said NordLB analyst Frank Schwope who has a "Buy" recommendation on the stock, in reference to the diesel emissions test cheating scandal which has cost VW about $30 billion in fines and other costs. Net cash flow, a benchmark for financial health and a buffer against future challenges, increased to 2.4 billion euros from minus 2.6 billion a year earlier, VW said, even excluding 800 million euros in cost outflows for the "Dieselgate" scandal. "We believe the market needs to wake up to the underlying cash strength of this company," Evercore ISI analyst Arndt Ellinghorst said.

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The scandal has prompted major changes at the German group, which is reorganising its multiple car brands and carving out truck operations while shouldering billions of investments in battery-powered and self-driving vehicles. But investors have urged more progress in cutting R&D and material costs as VW keeps grappling with high complexity in products and parts although it has pledged to scale back model variants, platforms and drivetrains. Quarterly profitability at VW's core namesake brand slid to 4.4 percent from 4.6 percent a year ago on advance costs for its electric-car offensive and eased to 8.5 percent from 8.7 percent at luxury division Audi amid spending to launch over 20 redesigned and new models this year.

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Czech division Skoda, the biggest intra-group beneficiary from VW's modular production platforms, kept its return on sales at 9.6 percent, only lagging sports car brand Porsche where investment in electric-car assembly brought down the operating margin to 17.3 percent from 18.5 percent. Despite the quarterly profit drop and second-half risks expected from introducing so-called WLTP lab tests related to car emissions and fuel consumption, VW stuck to its full-year guidance published in February, predicting a return on sales of between 6.5 and 7.5 percent before special items, compared with 7.4 percent in 2017. Revenue is expected to exceed the 2017 record of 231 billion euros by as much as 5 percent while group deliveries may moderately exceed last year's 10.7 million vehicles, VW said.
| Edited by: Manav Sinha
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