Volkswagen 1Q Operating Profit Plunges; Expects Profitability in 2020 -- Earnings Review

By Jessica Sier

Volkswagen AG reported its first quarter results on Wednesday. Here's what we watched:

OPERATING PROFIT: Operating profit before special items in 1Q fell to 900 million euros ($975.46 million) from EUR3.9 billion the previous year.

EARNINGS BEFORE TAX: Earnings before tax fell to EUR700 million for the quarter, compared with EUR4.1 billion a year earlier.

WHAT WE WATCHED:

--LIQUIDITY: Volkswagen reported negative cash flow of EUR2.5 billion in the 1Q, but said net liquidity had risen 11% in the same period to EUR17.8 billion. However, Volkswagen forecasts an improvement in liquidity in the second half of the year, and furthermore expects the company to be profitable in 2020.

--CHINA RECOVERY: There are "more and more signs of recovery" in China, said Christian Dahlheim, VW's head of sales. Chances are "good" that the auto market will fully recover by early summer, he added. 32 of 33 VW Chinese factories are open again.

--ELECTRIFICATION: VW will not ask for a relaxation in CO2 targets from the European Union. "We are firmly convinced to meet the CO2 standards and have to continue our electrification strategy," said Frank Witter, chief financial officer of Volkswagen.

--GOVERNMENT INCENTIVES: VW has called on European governments to offer incentives for auto-customers, as appetite is likely to be depressed following the lockdown period. "Incentives can have an immediate effect on customer behaviour, we have seen it in the past," Mr. Witter said.

--FINCOS: A drop in consumer demand will moderately damage VW's financial services businesses, but Mr. Witter said credit losses are stable at 0.4% and points to the high quality of its loan portfolio. He added VW's provision ratio is considerably above loan loss ratio. A finco is a finance subsidiary set up solely to offer auto loans to buyers of a particular dealership or car company.

Write to Jessica Sier at jessica.sier@wsj.com

(END) Dow Jones Newswires

April 29, 2020 06:26 ET (10:26 GMT)

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