Results of Operations - Volkswagen Group Annual Report 2022 (2024)

Results of operations of theGroup

In the period from January to December2022, the VolkswagenGroup generated sales revenue of €279.2billion, up 11.6% on the prior-year figure. Improvements, above all in the price positioning, the product mix and exchange rate trends, as well as healthy business performance in the Financial Services Division had a positive effect, while lower vehicle sales due to parts supply shortages had an adverse impact. Navistar, which has been consolidated since July1, 2021, is included in theGroup’s sales revenue in an amount of €10.7(3.6)billion. In fiscal year 2022, 82.6(82.3)% of the VolkswagenGroup’s sales revenue originated abroad. Gross profit improved by €5.0billion to €52.2billion. The gross margin was 18.7(18.9)%.

The VolkswagenGroup’s operating result before special items increased by €2.5billion to €22.5billion in the reporting year. The operating return on sales before special items amounted to 8.1(8.0)%. The rise in the operating result was mainly attributable to improved price positioning and the product mix. Positive effects amounting to €3.7(2.7)billion from derivatives to which hedge accounting is not applied (in particular commodity, currency and interest rate hedges) boosted theGroup’s earnings. These factors were offset by increased product costs, especially for commodities, and expenses of around €2billion relating to loss allowances and risk provisions as a consequence of the direct impact of the Russia-Ukraine conflict. In the reporting period, the Passenger Cars Business Area reported one-off expenses for restructuring measures atSEAT in an amount of €0.2billion. In the previous year, one-off expenses had been incurred for restructuring measures in the Commercial Vehicles Business Area (€0.7billion) as well as expenses in connection with the EU antitrust proceedings against Scania (€0.5billion). An expense of €0.1billion was recognized for transaction costs in connection with the IPO of PorscheAG. In addition, employees of VolkswagenAG, VolkswagenSachsenGmbH and the PorscheAGGroup participated in the economic success of the sale of shares in PorscheAG by way of a one-off payment; to this end, an amount of €0.5billion was recognized in personnel costs.

Special items in connection with the diesel issue reduced the operating result, which amounted to €−0.4 (−0.8)billion. In the period from January to December2022, the VolkswagenGroup’s operating result amounted to €22.1billion, up €2.8billion on the prior-year figure. The operating return on sales increased to 7.9(7.7)%.

The financial result amounted to €−0.1(0.9)billion. The interest expenses included in this item decreased due to measurement-related factors resulting primarily from a change in the discount rates used in the measurement of provisions. The other financial result was negatively impacted by the impairment loss of €1.9billion recognized on the equity investment in Argo AI, which weighed on net other investment income, and by changes in share prices, mainly as a result of the Russia-Ukraine conflict, which affected net income from securities and funds. Both factors were offset by favorable exchange rate effects. The measurement of forward purchase agreements for new shares in QuantumScape had additionally weighed on the previous year. The share of the result of equity-accounted investments of the Chinese joint ventures was up on the previous year.

The VolkswagenGroup’s earnings before tax were up €1.9billion to €22.0billion in fiscal year2022. The return on sales before tax amounted to 7.9(8.0)%. Income taxes resulted in an expense of €6.2(4.7)billion in the reporting year, which in turn led to a tax rate of 28.2(23.3)%. Earnings after tax rose by €0.4billion year-on-year to €15.8billion.

Results of operations in the Automotive Division

The Automotive Division recorded sales revenue of €232.4 (206.2)billion in fiscal year2022. Favourable price positioning, product mix and exchange rate trends were set against the fact that vehicle availability continued to be limited due to parts supply shortages. In the period from January to December 2022, sales revenue in the Passenger Cars Business Area went up noticeably, by 9.5%. In the Commercial Vehicles Business Area, sales revenue rose very sharply by 31.3% compared with the previous year; it should, however, be noted that the prior-year figure had included the Navistar business only from July2021 onward. The Power Engineering Business Area’s sales revenue was noticeably higher than in2021. As our Chinese joint ventures are accounted for using the equity method, theGroup’s business performance in the Chinese passenger car market is essentially reflected in theGroup’s sales revenue only through deliveries of vehicles and vehicle parts.

Cost of sales increased for reasons that included higher product costs (especially for commodities) and higher research and development costs recognized in profit or loss. Its share of sales revenue was on a level with the previous year. Driven by a sharp rise in total research and development costs, the research and development ratio (R&D ratio), defined as total research and development costs as a percentage of the Automotive Division’s sales revenue, was higher than in the previous year, at 8.1(7.6)% for the reporting year. In addition to new models, our activities focused above all on the electrification of our vehicle portfolio, digitalization, new technologies and enhancements of our modular and electric toolkits and platforms.

There was a year-on-year increase in both distribution and administrative expenses in fiscal year2022. The ratio of distribution expenses to sales revenue went down, while the ratio of administrative expenses remained virtually unchanged. The other operating result stood at €1.5(0.7)billion. Positive factors included, at €2.9(2.4)billion, the fair value measurement and realization of derivatives to which hedge accounting is not applied, offset by negative special items in connection with the diesel issue and one-off expenses for restructuring measures in both periods. The prior-year period had, moreover, been influenced by expenses in connection with the EU antitrust proceedings against Scania in the Commercial Vehicles Business Area.

In the period from January to December2022, the Automotive Division’s operating result improved by €3.2billion to €16.5billion. The operating return on sales of the Automotive Division climbed to 7.1(6.4)%. The main contributing factors were improvements in price positioning and in the product mix. Compared with the previous year, the decline in unit sales as a result of parts supply shortages, higher product costs (especially for commodities), charges incurred because of the Russia-Ukraine conflict, and expenses in connection with the IPO of PorscheAG had an adverse effect. The negative special items recognized in fiscal year 2022 were lower than in the year before.

The operating result before special items increased by €2.9billion to €16.9billion, while the operating return on sales before special items went up to 7.3(6.8)%.

Our operating result largely benefits from the business performance of our equity-accounted Chinese joint ventures only through deliveries of vehicles and vehicle parts and through license income, as these joint ventures are included in the financial result.

Results of operations in the Financial Services Division

At €46.8billion, the sales revenue reported by the Financial Services Division in 2022 was 6.6% higher than in the prior-year period. Cost of sales increased proportionately.

The Financial Services Division’s operating result of €5.7billion was €0.4billion down on the previous year. The decline was caused mainly by expenses relating to loss allowances and risk provisions due to the direct impact of the Russia-Ukraine conflict; they were recognized in the other operating result. Continued strong demand for used vehicles and positive effects from derivatives to which hedge accounting is not applied (interest rate hedges) had a beneficial effect. The operating return on sales decreased to 12.1(13.8)%. The return on equity before tax was 14.0(17.3)%.

Principles and goals of financial management

Financial management in the VolkswagenGroup covers liquidity management, the management of currency, interest rate and commodity price risks, and credit and country risk management. It is performed centrally for allGroup companies byGroup Treasury, based on internal guidelines and risk parameters. Some functions of the MANEnergy Solutions, PorscheAG, PorscheHoldingSalzburg and TRATON GROUP subgroups and of the Financial Services Division are included in the financial management and, in addition, have their own financial management structures.

The goal of financial management is to ensure that the VolkswagenGroup remains solvent at all times and, at the same time, to generate an adequate return from the investment of surplus funds. We use a liquidity pooling system to optimize the use of existing liquidity between the significant companies. Among other features of this system, the balances, either positive or negative, accumulating in cash pooling accounts are swept daily into a regional target account and thus pooled. The overriding aim of currency, interest rate and commodity risk management is to hedge, using derivative financial instruments and commodity forwards, the prices on which investment, production and sales plans are based when making planning assumptions and to mitigate interest rate risks incurred in financing transactions. In the management of credit and country risk, diversification is used to limit the VolkswagenGroup’s exposure to the so-called counterparty risk. To achieve this, counterparty risk management imposes internal limits on the volume of business allowed per counterparty when financial transactions are entered into. Various credit rating criteria are applied in this process. These focus primarily on the capital resources of potential counterparties, as well as the ratings awarded by independent agencies. The relevant risk limits and the authorized financial instruments, hedging methods and hedging horizons are approved by theGroup Board of Management Committee for Risk Management. For additional information on the principles and goals of financial management, please refer to the chapter on “Financial risk management and financial instruments” in the notes to the consolidated financial statements.