Results of Operations

Results of operations of the Group

Against the backdrop of a global economic recovery and despite the continuing impact of the Covid-19 pandemic, and in particular limited vehicle availability as a result of the semiconductor shortage, the Volkswagen Group generated sales revenue of €250.2 billion in fiscal year 2021, 12.3 % more than in the previous year, despite the decline in unit sales. Mix effects, better price positioning, and the good business performance of the Financial Services Division and the Commercial Vehicles Business Area particularly had a positive impact. Bottlenecks in the supply of semiconductors and the resulting limited availability of vehicles led to a reduction in vehicle sales. Changes in exchange rates also had a negative effect. At 82.3 (80.8) %, most of the sales revenue was generated abroad. Gross profit increased by €8.3 billion to €47.2 billion. The gross margin went up to 18.9 (17.5) %.

The Volkswagen Group’s operating result before special items improved by €9.4 billion to €20.0 billion in the reporting period. The operating return on sales before special items increased to 8.0 (4.8) %. The rise was mainly attributable to positive mix effects, improved price positioning and positive effects of €2.5 (−0.1) billion from the measurement of derivatives to which hedge accounting is not applied (especially commodity hedging derivatives). The good business performance of the Financial Services Division also made a positive contribution. One-off expenses of €0.7 billion for restructuring measures were recognized in the Commercial Vehicles Business Area. These primarily include expenses from the sale of the commercial vehicle plant in Steyr, which became effective on August 31, 2021. In addition, incurred expenses of €0.5 billion in connection with the EU antitrust proceedings against Scania had a negative effect. Special items in connection with the diesel issue weighed on the operating result, reducing this item by €−0.8 (−0.9) billion. The Volkswagen Group’s operating profit doubled to €19.3 (9.7) billion, resulting in a rise in the operating return on sales to 7.7 (4.3) %.

SHARE OF SALES REVENUE BY MARKET 2021

in percent

SHARE OF SALES REVENUE BY DIVISION/BUSINESS AREA 2021

in percent

The financial result decreased by €1.1 billion year-on-year to €0.9 billion. The other financial result included negative effects from forward purchase agreements for new shares in QuantumScape (€−0.6 billion). In the previous year, the measurement and realization of these forward agreements had led to a non-cash gain of €1.4 billion. Moreover, the share of the result of equity-accounted investments was down on the prior-year period. This is primarily attributable to the lower profit generated by the Chinese joint ventures, which is again a reflection of the bottlenecks in the supply of semiconductors and the resulting limited availability of vehicles. The interest expenses included in the financial result increased, due mainly to the interest cost on provisions. In the previous year, changes in share prices had weighed on net income from securities and funds as a result of the Covid-19 pandemic.

The Volkswagen Group’s profit before tax rose to €20.1 (11.7) billion. The return on sales before tax increased to 8.0 (5.2) %. Income taxes resulted in an expense of €4.7 (2.8) billion in fiscal year 2021, which in turn led to a tax rate of 23.3 (24.4) %. Profit after tax went up by €6.6 billion to €15.4 billion.

Results of operations in the Automotive Division

Despite the decline in unit sales, the Automotive Division’s sales revenue of €206.2 billion in fiscal year 2021 was 13.3 % higher than in the prior-year period, which had been more severely impacted by the spread of the Covid-19 pandemic and its negative consequences. Improvements in the mix and in price positioning had a positive effect, while limited vehicle availability due to the semiconductor shortage and changes in exchange rates had an adverse impact.

In the Passenger Cars Business Area, sales revenue in the reporting period increased by a noticeable 10.6 %, while the Commercial Vehicles Business Area recorded a very strong year-on-year rise of 35.8 %. In the Power Engineering Business Area, sales revenue was 9.9 % lower than in fiscal year 2020, which had included the business of Renk until October. Since our Chinese joint ventures are accounted for using the equity method, the Group’s business performance in the Chinese passenger car market is primarily reflected in the Group’s sales revenue only through deliveries of vehicles and vehicle parts.

Cost of sales increased, driven by factors such as a rise in research and development costs recognized in profit or loss. As a result of the marked growth in sales revenue, the ratio of cost of sales to sales revenue decreased. Total research and development costs as a percentage of the Automotive Division’s sales revenue (research and development ratio or R&D ratio) was unchanged from the previous year, at 7.6 (7.6) %. In addition to new models, our activities focused above all on the electrification of our vehicle portfolio, digitalization, new technologies and our modular toolkits and platforms.

There was a year-on-year rise in both distribution and administrative expenses in the reporting period. The ratio of distribution expenses to sales revenue went down, while the ratio of administrative expenses was virtually unchanged. The other operating result amounted to €0.7 (−0.5) billion, benefiting in particular from the effects of the fair value measurement of derivatives to which hedge accounting is not applied (especially commodity hedging derivatives) in the amount of €2.4 (−0.1) billion, and from currency effects. This was set against factors such as negative special items in connection with the diesel issue in the Passenger Cars Business Area which had to be recognized here, an increase in provisions in connection with the EU antitrust proceedings against Scania in the reporting period and one-off expenses for restructuring measures in the Commercial Vehicles Business Area. In addition, the contribution of the two Bugatti subsidiaries to the newly established company Bugatti Rimac d.o.o. led to a non-cash gain after proportional profit elimination. The prior-year figure had included a gain of €0.8 billion from the contribution of the consolidated subsidiary Autonomous Intelligent Driving to Argo AI and a gain on the sale of the shares in Renk.

The Automotive Division’s operating result doubled to €13.2 (6.7) billion in the reporting period. The operating return on sales of the Automotive Division climbed to 6.4 (3.7) %. Positive factors included favorable price positioning, the fair value measurement of derivatives to which hedge accounting is not applied and changes in the mix. Negative special items attributable to the diesel issue were down on the previous year. These factors were offset by limited vehicle availability as a result of the semiconductor shortage, an increase in provisions in connection with the EU antitrust proceedings against Scania in the reporting period, and one-off expenses for restructuring measures in the Commercial Vehicles Business Area.

The operating result before special items increased by €6.4 billion to €14.0 billion, while the operating return on sales before special items went up to 6.8 (4.2) %.

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

The Financial Services Division’s sales revenue amounted to €44.0 billion in fiscal year 2021, 7.8 % more than in the prior-year period. Cost of sales increased slightly more slowly than sales revenue, rising by 5.6% to €35.3 billion.

The Financial Services Division’s operating result grew by €3.0 billion to €6.0 billion thanks to improved business performance, which was driven above all by strong demand for used vehicles, and lower risk costs for credit and residual value risks. The operating return on sales increased to 13.8 (7.4) %. The return on equity before tax almost doubled to 17.3 (8.8) %.

Principles and goals of financial management

Financial management in the Volkswagen Group covers liquidity management, the management of currency, interest rate and commodity price risks, and credit and country risk management. It is performed centrally for all Group companies by Group Treasury, based on internal guidelines and risk parameters. Some functions of the MAN Energy Solutions, Porsche Holding Salzburg and TRATON 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 Volkswagen Group remains solvent at all times and at the same time to generate an adequate return from the investment of surplus funds. We use cash pooling to optimize the use of existing liquidity between the significant companies. In this system, the balances, either positive or negative, accumulating in the cash pooling accounts are swept daily to 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 Volkswagen Group’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 the Group 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.