Thursday, July 27, 2006

Volkswagen Increases in Deliveries, Sales Revenue, and Earnings

Text from Volkswagen AG.
Pischetsrieder: Successful model initiative – further efforts necessary

WOLFSBURG, Germany - The Volkswagen Group sold more vehicles, substantially increased sales revenue and improved earnings in the first six months of 2006.

Deliveries to customers were up by 11.9% year-on-year to 2.9 million vehicles. Sales revenue rose by 14.2% to €51.9 billion. At €2.0 billion, operating profit before special items increased by 51.3%. “Our model initiative is successful and our customers find it compelling. We have increased our market share in relevant countries,” commented Dr. Bernd Pischetsrieder, Chairman of the Board of Management of Volkswagen AG, when the interim report for the first six months of 2006 was presented on Thursday. “We are on the right track and have made significant progress in improving our competitiveness. In absolute terms, however, our profit remains unsatisfactory. Further considerable efforts are still needed to secure sustained profitability and the future of our Group,” Pischetsrieder said.

In the period from January to June 2006, the Volkswagen brand group generated an operating profit before special items of €730 million, up €561 million on the previous year. Deliveries to customers rose by 13.5% to 1,958,000 vehicles. Skoda continued to develop well. “Performance by the Volkswagen Passenger Cars brand is not satisfactory. Restructuring must continue at full speed. This is fundamental to an appropriate earnings level for the Volkswagen Group,” Hans Dieter Pötsch, Member of the Board of Management, Finance and Controlling, emphasized.

The Audi brand group continued its positive growth in the second quarter of 2006. At €722 million, its operating profit in the first six months exceeded the already high prior-year figure by 9.9%. Deliveries to customers rose by 8.3% to 691,000 units.

The upward trend in the commercial vehicles business continued. The Commercial Vehicles business line generated an operating profit of €85 million compared with €10 million the previous year. Volkswagen Commercial Vehicles delivered 215,000 vehicles to customers, representing a year-on-year increase of 10.1%.

The Financial Services Division again made a major contribution to the Volkswagen Group’s operating result. Operating profit increased by 3.4% year-on-year to €486 million.

“In difficult world markets we have successfully increased sales revenue per vehicle while simultaneously keeping sales promotion costs per vehicle below the prior-year level,” Pötsch said. “We have the right sales strategy, and tailored financial services complement our range of attractive vehicles.”

Special items and the sale of Europcar affected the Group’s earnings in the first half of 2006. The company established provisions of €1.3 billion for the restructuring measures. Gains on the sale of gedas AG and Volkswagen Bordnetze GmbH amounting to €0.3 billion had a positive effect. The Group’s operating profit after special items was €1.0 billion (2005: €1.3 billion). After-tax gains from the sale of Europcar amounted to €0.8 billion and are reported as profit from discontinued operations. Consolidated profit after tax amounted to €1.2 billion (2005: €403 million).

“Despite the improvement, earnings and return on investment are still well below our medium-term targets,” Pötsch emphasized. “Global competitive pressure will continue to tighten, and high energy and commodity prices plus continuing unfavorable exchange rates will also impact the development of our business. 2006 is the year in which we must create the conditions for long-term competitiveness. 2006 is the year of restructuring.”

Looking to the full year, the Board of Management reiterated its forecast for increased deliveries to customers and a year-on-year improvement in operating profit before special items. The Automotive Division is expected to record a positive net cash flow and a further improvement in net liquidity compared with December 31, 2005.

The medium-term target remains a consolidated profit before tax of €5.1 billion in 2008. “Getting there will be difficult. We can secure the sustainable performance of our company with the continued success of our new model initiative, competitive costs and higher productivity,” Pischetsrieder said. “We will continue our ForMotionplus performance enhancement program and the systematic restructuring in order to reach our target.”


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