Engine scandal pushes VW into first loss in 20 years | Fin24
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Engine scandal pushes VW into first loss in 20 years

Apr 24 2016 09:30

Frankfurt - Embattled German carmaker Volkswagen said the massive engine-rigging scandal it is currently engulfed in pushed it into its first year-end loss in more than 20 years in 2015 and the final total costs are still not calculable.

VW said in a statement it is setting aside 16.2bn ($18.2bn) in provisions to cover the potential fines, lawsuits and recall costs it can sensibly foresee so far.

But it was still too early to give a serious estimation of what the affair will cost VW in the end, chief executive Matthias Mueller told a news briefing.

The huge charge pushed VW to a bottom-line loss of 1.582bn in 2015, its first loss since 1993.

The year before it had chalked up a profit of 10.84bn.

"The emissions issue significantly impacted the Volkswagen group's business in the 2015 reporting period," CEO Mueller said.

At an underlying or operating level, the group booked a loss of 4.069bn in 2015 compared with a profit of 12.697bn a year earlier.

Deliveries to customers declined to 9.931 million vehicles worldwide from 10.137 million vehicles in 2014.

But revenues climbed by 5.4% to 213.3bn, propelled by positive exchange rate effects and the favourable performance of its financial services division.

Fundamentally in good shape

Without the scandal, VW's underlying performance was nevertheless robust, Mueller insisted.

"The Volkswagen group's operations are in great shape. Were it not for the sizeable provisions we made for all repercussions of the emissions issue that are now quantifiable, we would be reporting on yet another successful year overall," he said.

Despite the heavy costs of the affair, "we have the firm intention and the means to handle the difficult situation we are in using our own resources," Mueller added.

Nonetheless, shareholders would feel the pinch.

They would be paid 0.11 per ordinary share and 0.17 per preference share for 2015, compared with 4.80 and 4.86 respectively for 2014.

VW's top executive would also be hit, with 30% of their annual bonuses for 2015 being frozen for a period of three years.

VW said it would initially hold back part of the bonus, transform it into preference shares and only then pay out in full in 2018 if the price of the shares on the stock exchange had risen by at least 25% by the end of the three-year period.

In concrete terms, the variable part of an executive board member's annual remuneration would be cut by 39% to 3.2m for 2015, the carmaker said.

Of this, around one million euros would be held back for possible future payout three years later.

Public debate is currently raging in Germany over whether VW's top executives are morally entitled to performance-related bonuses for 2015 after management prescribed belt-tightening to the carmaker's 600 000-strong workforce in the wake of the scandal.

VW was plunged into its deepest-ever crisis last September when it came to light that the carmaker had installed emissions-cheating software into 11 million diesel engines worldwide.

Return to profit this year

Looking ahead to the current year, VW said it would return to profit.

"The management board estimates that, on the whole, deliveries to customers in 2016 will be on a level with the past year due to volume growth in China," the group said.

"Depending on the economic conditions - particularly in South America and Russia - and the exchange rate development and in light of the emissions issue, the board expects that group sales revenue may be down by as much as 5% on the previous year," it conceded.

But in terms of operating profit, management anticipated a positive operating return on sales of between 5.0 and 6.05.

Investors did not appear particularly convinced.

On the Frankfurt stock exchange, VW shares were among the biggest losers towards the close of trading, showing a loss of 1.06% at 125.70, while the overall market was down by 0.7%.



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