German car company Volkswagen AG reported a record $29 billion earnings for 2012 on Feb. 22. Shares lost ground, however, as much of the gain was due to the increased value of stocks and options in the Porsche AG subsidiary instead of with stellar operating performance.
“The economic environment for our business became noticeably more difficult as the year progressed. Nevertheless, we succeeded in meeting the targets we set ourselves for 2012,” Volkswagen CEO Martin Winterkorn said in Wolfsburg, Germany, Feb. 22.
While operating earnings went up by 1.7 percent compared to 2011 (from $14.9 billion to $15.14 billion), the record $29 billion net profit was partially due to the revaluation of Volkswagen’s stake in Porsche.
“This includes the clearly positive effects from the final [valuation of Porsche options and shares] as of July 31, 2012,” reads the company’s press release. The total pretax contribution from the Porsche AG stake, which became a wholly owned subsidiary in August 2012, was $15.9 billion. Since the company is now fully consolidated, these paper gains will not be reported going forward and the focus will be on operations, which are facing some headwinds in 2013.
“We, too, are not completely immune to the intense competition and the far-reaching crisis in key European markets. Furthermore, uncertainty in the economic environment continues,” said Winterkorn. His cautious comments led to a drop in the share price of 6.3 percent to 165 euro in Frankfurt trading.
“The key concern is the unambitious goal for operating profit to match the prior-year level in 2013, when consensus and [Société Générale estimates] are currently at 14.4 billion euro [approximately US$19 billion],” wrote investment bank Société Générale Group in a note to clients.
Investors will also be worried about the mismatch between revenue increase and the small rise in operating profit. Revenues went up by 21 percent to $252 billion, but profits rose less than 2 percent. Vehicle sales also increased by a strong 11.8 percent to 9.3 million units, but operating cash flow declined by 5.1 percent, indicating higher cost of sales.
The Société Générale analysts think that this will improve with the rollout of new production technology.
“A large amount of that spending is being directed toward the MQB Modular Toolkit System, which is being continuously expanded, and will, according to VW, have an increasingly positive effect on the group’s cost structure,” wrote Société Générale, which has a target price of 215 euro and a “buy” recommendation.
The Epoch Times publishes in 35 countries and in 21 languages. Subscribe to our e-newsletter.