“In 2019, our attractive product portfolio convinced many customers, allowing us to expand our position in an overall declining market,” said Frank Witter, member of the Group Board of Management responsible for Finance and IT. “We increased sales revenue and operating profit of the Group as well as net cash flow and net liquidity in the Automotive Division, which means that financially we are still very robust. We expect a continuously challenging market environment this year. Consequently, achieving our ambitious targets will require a major effort from the entire company.”
One of the drivers of the Volkswagen Group’s operating profit in 2019 was the slight increase in deliveries to customers, which rose 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. Higher sales volumes, improvements in the mix and the good performance of the Financial Services Division positively impacted the higher sales revenues, while exchange rates had an opposing effect. 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. Despite challenges in the Chinese market, the share of operating profit attributable to the Chinese joint ventures remained close to the previous year’s level at EUR 4.4 (4.6) billion.
Net cash flow in the Automotive Division rose to EUR 10.8 billion compared with the low prior-year level. The main reasons were the increase in profit, a decline in cash outflows attributable to diesel and a smaller increase in inventories. Despite negative effects from IFRS 16 (accounting for leases), net liquidity in the Automotive Division developed positively compared with the end of 2018 and increased to EUR 21.3 (19.4) billion. The R&D ratio (research and development costs as a percentage of sales revenue) actually fell marginally below the prior-year level to 6.7 (6.8) percent. The ratio of capex to sales revenue stayed unchanged at 6.6 (6.6) percent.
Outlook
Volkswagen expects that deliveries to the Volkswagen Group customers in 2020 will be in line with the previous year amid a continued challenging market environment. Challenges will arise particularly from the economic situation, the intensifying competition, volatile commodity and foreign exchange markets and more stringent emissions-related requirements. We expect the sales revenue of the Volkswagen Group to grow by up to 4 percent in 2020 and the sales revenue of the Passenger Cars Business Area to be moderately higher than the prior-year figure. In terms of the operating profit for the Group and the Passenger Cars Business Area, we forecast an operating return on sales in the range of 6.5–7.5 percent in 2020. For the Commercial Vehicles Business Area, we anticipate an operating return on sales of 4.0–5.0 percent amid a moderate decrease in sales revenue. In the Power Engineering Business Area we estimate that sales revenue will match the previous year’s level and that the operating loss will narrow. For the Financial Services Division we anticipate that sales revenue and operating result will be in line with the previous year.
In addition to the described challenges, the expectations presented in the outlook are subject to assessment uncertainties due to, among other factors, 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.
In the Automotive Division, the R&D ratio and the ratio of capex to sales revenue will probably range between 6.0–6.5 percent in 2020. We expect further cash outflows in 2020 as a result of diesel as well as significantly higher cash outflows for mergers and acquisitions activities. Accordingly, we estimate that net cash flow will be distinctly positive albeit perceptibly below the prior-year figure. Excluding the effects from diesel and mergers and acquisitions activities, we continue to aim for a net cash flow in 2020 of at least EUR 10 billion.