Axel Strotbek, Member of the Board of Management of AUDI AG, Finance and Organization
Speech to the Annual Press Conference 2013
Ladies and Gentlemen,
I also would like to welcome all of you to our Annual Press Conference.
The positive development of the Audi Group is reflected not only by the growth of our workforce, as we have just seen in the film; the past financial year was a great success also in financial terms. In 2012, we once again posted record levels of revenue and operating profit, despite challenging economic conditions.
The expansion of the world economy slowed down considerably last year, with growth of 2.6 percent. Above all in the second half of the year, the economic climate worsened significantly in nearly all regions of the world.
There were sharp differences between developments in the individual regions: While economic developments in many industrialized countries were sluggish or even negative, most emerging countries once again enjoyed an above-average development. The overall development in Western Europe was recessive and economic output contracted, primarily due to the ongoing sovereign-debt crisis and the related budgetary consolidation, by 0.2 percent compared with the prior year. The countries of southern Europe in particular posted negative growth, but some of the economies of EU member states in northern Europe also contracted. The German economy was for a long time the driver of growth in Europe; however, due to its dependence on export markets it was increasingly affected by the economic downward tendency in Europe as the year 2012 progressed. But private consumption profited mainly from a robust labor market and proved to be a stabilizing factor.
As a result, gross domestic product grew by 0.9 percent – a significantly lower rate than the 3.1 percent recorded in 2011. The region of Central and Eastern Europe also developed less dynamically than in the prior year. For example, Russia’s economic output increased by 3.4 percent. The region’s most important economy had expanded by 4.3 percent in the previous year. The United States achieved moderate economic growth of 2.2 percent in 2012, despite the difficult situation in the labor market and restrained domestic demand. The expansive monetary policy of the US central bank proved to be an important growth driver.
On the other hand, the Asian emerging markets were once again amongst the key drivers of the world economy, although their growth rates were lower than in previous years. For example, China’s gross domestic product increased by 7.8 percent. Although this was above the government target of 7.5 percent, it was below the high level of the previous years.
In contrast to only moderate growth of the world economy, global demand for automobiles in 2012 increased by 7.2 percent to the new record level of 66.6 million units. But like the economy in general, the picture here was disparate, whereby all sales regions except Western Europe showed market growth. The Asia-Pacific and North America regions actually posted double-digit growth rates. Audi profited to an above-average extent from the positive development of the world’s car markets. We developed better than the market in general in all of our sales markets! Some of the car markets in Western Europe slumped dramatically. But thanks above all to our attractive premium compact models, the new Q3 for example, we were able almost to match the record number of shipments recorded last year, despite the negative overall market demand. We also profited from the first-time full availability of the A6 Avant.
We achieved the most dynamic growth in the region of Central and Eastern Europe, where we profited above all from the strong demand for Audi models in Russia. In that market, we sold 44.1 percent more Audi vehicles than in the prior year, although the overall market grew by only 10.9 percent.
In North America, we continued along our high-quality growth path. Altogether, 18.5 percent more automobiles with four rings were shipped than in 2011. In comparison: The car market expanded in the same period by 12.4 percent.
In the Asia-Pacific sales region, we also increased Audi shipments more dynamically than the overall market demand. The main growth driver here was once again China – our biggest single market – where we further extended our market lead in the premium segment with a plus of 29.6 percent.
Ladies and Gentlemen,
Let me now explain to you how this development is reflected by our key financial metrics. Before we look at the numbers in more detail, I would like to point out a change in our financial reporting: With the acquisition of Ducati, we report on the year 2012 for the first time with the segments of “Automotive” and “Motorcycles.”
First of all, I would like to begin with the main items of the income statement of the Audi Group. In 2012, we increased our revenue to the new record figure of 48.8 billion euros. The substantial increase of 10.6 percent – or 4.7 billion euros – is mainly the result of the positive development of unit sales. Among other effects, demand for Audi automobiles in the large-sedan and luxury segments increased due to full availability worldwide of the new A6 models and the A7 Sportback in China. We also profited from the ongoing great popularity of our luxury model series, the A8.
In the premium compact segment, we gained additional impetus above all from our new models. The new Q3 for example was responsible for significant sales impetus last year. And with the new Audi A3, we will further improve our strong competitive position in this segment in the future.
Our new “Motorcycles” segment generated revenue of more than 200 million euros since the acquisition of the Ducati Group in July 2012 – in the seasonally weaker half of the year; in the full year, the Ducati brand posted revenue of approximately 600 million euros.
Due to the demand-related expansion of our production volume, cost of sales increased to approximately 39 billion euros. With an increase of 8.5 percent, cost of sales once again increased at a lower rate than revenue.
The Audi Group therefore increased its gross profit in 2012 by more than 1.6 billion euros – or 20.1 percent – to 9.7 billion euros. The gross margin increased accordingly to 19.9 percent – compared with 18.4 percent in 2011.
Distribution costs of 4.6 billion euros were significantly above the level of 2011. In addition to a larger sales volume, higher marketing costs because of the launch of numerous new models and intensive competition in some key markets, the increase compared with the prior year is also due to the implementation of strategic market development programs – such as the new Audi City sales format and various measures taken in service and to enhance customer appeal.
Primarily due to changes in the consolidated group, administrative expenses increased to 527 million euros in 2012. Other operating income, net, fell to 775 million euros in the reporting period. The decrease compared with the prior year is mainly the result of lower income from currency hedging transactions in relation to changes in exchange rates.
In total therefore, we were able to slightly increase our operating profit compared with the prior year, reaching a new record in our company’s history of 5.4 billion euros. Let me now give you some details of the key drivers of this growth in earnings. I would like to begin with the opposing factors, those that had a negative impact on earnings: We also were unable to escape the aforementioned high intensity of competition, especially in China and Western Europe, and the resulting pressure on prices. But one thing is clear to us: Our premium customers expect us to maintain price stability. For this reason, we have not participated in buying market share in the past, and we will not do so in the future either. Instead, we have applied the funds available to ensure above all that we secure our strategic market positioning.
Let’s turn to investment: We are currently making large advance expenditure to implement our ambitious growth strategy and the resulting expansion of our worldwide manufacturing network. We are currently making large investments in new plants such as in Győr, Hungary, or in Mexico. We will only generate revenues there after the upcoming start of production.
In addition, we will continue to strengthen our German locations in Ingolstadt and Neckarsulm in order to further enhance the company’s innovative power and competitiveness. At the same time, we have further intensified our efforts for the expansion and renewal of our product range and have pushed forward with the development of innovative drive systems.
Now to the drivers of earnings: As in the prior year, Audi’s significant volume growth was the biggest positive effect and thus the main driver of earnings. Another factor is that we were able to achieve further progress in the area of product costs, thanks to significant productivity advances and improved material expenses. Exchange-rate effects also had a positive impact on the development of operating profit.
Financial income amounted to 576 million euros in 2012. One of the main negative items was the interest-related decrease in income from the measurement of currency hedging transactions. In addition, due to falling real interest rates, expenses for the compounding of non-current provisions increased. The Audi Group thus posted profit before tax of approximately 6 billion euros in the year 2012.
The ongoing strong profitability of the Audi Group is also reflected in the development of our key figures for return: In 2012, we achieved an operating return on sales of 11.0 percent. In other words, we significantly surpassed our strategic return corridor of eight to ten percent once again last year, despite the challenging economic environment. Our return on sales before taxes also reached the excellent level of 12.2 percent. With the return figures achieved, the company is once again one of the most successful manufacturers in the worldwide automotive industry.
Ladies and Gentlemen,
Let me now explain the main items of the cash flow statement. The cash flow from operating activities of 6.1 billion euros was almost at the prior-year level. The cash outflow for investing activities for business operations increased – without consideration of changes in investments in companies – from 2.8 billion euros to 3.2 billion euros. The main focus was on the aforementioned investments in new products and innovative drive technologies, as well as in the expansion of our worldwide production plants.
We financed all of the investments in the operational business completely out of our own resources once again in 2012. At the same time, we generated a net cash inflow of 2.9 billion euros – without considering cash outflows for acquisitions of shares in companies. Net liquidity decreased to 13.4 billion euros at the end of 2012, primarily due to the acquisition of the Ducati Group and of a 30-percent interest in Volkswagen Group Services.
Ladies and Gentlemen,
The year 2012 stand featured great economic challenges in many markets. In this environment, the Audi Group once again demonstrated the success of its corporate strategy with a focus on sustainability and qualitative growth. We must consistently continue along this path! Continuing uncertainty with regard to ongoing economic developments and the increasing intensity of competition throughout the entire automotive industry – thus also affecting the Audi Group – will continue to present great challenges. In this environment, it is essential to actively shape the transformation to alternative mobility and drive concepts! At the same time, we are steadily continuing the investment phase we have initiated as part of our worldwide growth plans, in particular with the construction of new plants, despite the growing economic insecurity.
For the year 2013, our target for the Automobile segment is to achieve an operating return on sales at the top end of the strategic target corridor of eight to ten percent. In this context, the development of earnings should continue to profit from the productivity and process improvements initiated in the past. An operating return on sales of between eight and ten percent is planned also for the Motorcycles segment.
As in previous years, the Annual report is available as a printed version in the languages German, English and Chinese. In addition to the print version, the Multimedia Annual Report offers additional exciting content such as video or audio contributions relating to the magazine section. A special feature this year: With a version of our Multi Media Interface (MMI) adapted for the iPad®, you navigate faster, more easily and more conveniently through selected highlights of the app: Intuitively control of a wide range of functions – just like the original in your Audi! Thank you for your attention!