October 30, 2013 10:16 am

Volkswagen shares jump despite euro’s impact on sales

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Volkswagen’s quarterly revenues declined as weak demand in Europe and the stronger euro put the brake on the carmaker’s efforts to overhaul General Motors and Toyota as the world's biggest carmaker by sales.

Third-quarter earnings before interest and taxation (ebit) rose a fifth to €2.77bn, roughly in line with analysts’ expectations. However, revenues dropped 4 per cent to €47bn due to weak European demand and currency effects.

The results sent VW shares up 3.8 per cent to €181.50 in early Frankfurt trading.

VW said it would retain a firm focus on cost discipline even as wealthy customers’ yearning for its Porsche and Audi vehicles keeps its profits and cash levels well ahead of rivals such as PSA Peugeot Citroën and Fiat.

The company had €16.6bn in net cash at the end of the quarter, more than €6bn above the levels at the end of last year. 

This is helping to sustain VW through a difficult period for the European car market, tepid demand at its truck units MAN and Scania, and negative currency effects linked to the stronger euro.

VW’s passenger car business also suffered a temporary blow this summer when a hail storm damaged thousands of cars, delaying deliveries to customers. 

Total unit sales increased 3.8 per cent to 7.2m vehicles in the first nine months of the year. 

Hans Dieter Poetsch, chief financial officer, said VW was “focusing on disciplined cost and investment management, as well as on further improving all of our processes”. 

“This is particularly important given the fact that the economic environment is not expected to improve in the short term,” he added. 

Analysts have begun to speculate whether VW’s best period for profitability may be behind it. They are concerned that a new production architecture known as MQB in which VW has invested billions may not deliver the full cost-cutting benefits that management promised. Meanwhile, after growing strongly in the US over the past couple of years, VW’s sales momentum in the US has begun to wane again as its model line-up ages. 

Harald Hendrikse, analyst at Nomura, asked: “Our biggest question for VW is, with China growth slowing . . . with US sales growth slowing, with little improvement in Europe’s larger markets including Germany, and no recovery in Latin America, from where will full-year 2014 and beyond growth come? Without growth, how will VW maintain ebit margins, let alone improve them?” 

VW maintained its full-year guidance for revenues to exceed last year’s total and for operating profit to be steady at €11.5bn.

Martin Winterkorn, chief executive, insisted VW will “not be making any compromises in the future either in terms of key vehicle projects, core technologies and the further internationalisation of the group”. 

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