Volkswagen's first quarter profit slips on legal risks

New Delhi, PTI | Updated : 03 May 2019, 07:44 AM
Volkswagen brand, one of the company’s 12, saw operating profit rise 5% to 921 million euros as cost control and a more profitable model mix compensated for lower volumes
Volkswagen brand, one of the company’s 12, saw operating profit rise 5% to 921 million euros as cost control and a more profitable model mix compensated for lower volumes

German automaker Volkswagen saw profit slip in the first quarter as the company set aside 1 billion euros for legal risks related to its 2015 diesel scandal but saw better results from its core brand and stronger profit margins. After-tax profit fell to 3.05 billion euros ($3.41 billion) from 3.30 billion euros in the same quarter a year ago. Group sales revenue rose 3.1% to 60 billion euros even though the total number of vehicles sold declined.

A key measure of profitability - the profit margin on sales - rose to 8.1% from 7.2% in the year-earlier period. The current figure exceeds the company’s targeted margin range of 6.5% to 7.5%.

Chief financial officer Frank Wittner said it was a “very strong first quarter” and “to an extent better actually better than we expected.” “I think the key drivers were obviously the operational performance even though volume declined, but we were able to offset that with price and mix effects,” Wittner told the Associated Press.

Wittner said that earnings were under pressure from high outlays for the company’s future lineup of battery vehicles, but said that was “without alternatives.” The company is pivoting to zero-local emissions vehicles to meet lower EU limits on greenhouse gas emissions. The company expects to begin production later this this year of the battery-powered ID hatchback at its plant in Zwickau in eastern Germany.

The Volkswagen brand, one of the company’s 12, saw operating profit rise 5% to 921 million euros as cost control and a more profitable model mix compensated for lower volumes.

Earnings fell however at two of the company’s chief money makers, its luxury Audi and Porsche divisions. Audi saw profits fall to 1.1 billion euros from 1.3 billion euros because of model changes and higher spending on new products and technologies. Porsche’s operating profit fell 12% to 829 million euros.

Volkswagen faces legal risks from its 2015 scandal over cars rigged to cheat on diesel emissions test, including pending suits from investors who say the company didn’t inform them of the emissions issue in time. The company says it met its disclosure requirements. The company didn’t specify which diesel legal matter led to the risk set-aside. The deduction brings total costs for the diesel scandal to 30 billion euros.

The company increased its sales revenues despite selling 2.8% fewer vehicles, at 2.6 billion, thanks to better pricing and more-profitable models taking a larger portion of the company’s sales. Last year Volkswagen was the world’s largest carmaker by volume, selling 10.8 billion vehicles.

The Wolfsburg-based automaker said it was holding to its forecasts for sales and profits this year, predicting that sales revenue could increase by as much as 5% over the prior year and that returns on sales would be between 6.5% and 7.5%.

First Published: Friday, May 03, 2019 07:44 AM
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