Global Business
Overview
Volkswagen AG and Honda Motor Co. Ltd
Joel Tay
22 APRIL 2013
1
Contents
1.
Executive Summary ......................................................................................................................... 2
2.
Economic Outlook ........................................................................................................................... 3
3.
Regional Market Developments ..................................................................................................... 4
4.
Company Summary: Honda Motor Co. Ltd ..................................................................................... 5
4.1 Earning Drivers: Honda Motor Co. Ltd .......................................................................................... 6
4.2 SWOT Analysis: Honda Motor Co. Ltd........................................................................................... 8
4.2.1 Strengths: ............................................................................................................................... 8
4.2.2 Weaknesses: .......................................................................................................................... 8
4.2.3 Opportunities ......................................................................................................................... 9
4.2.4 Threats ................................................................................................................................. 10
5.
Company Summary: Volkswagen AG ............................................................................................ 13
5.1 Earning drivers: Volkswagen AG ................................................................................................. 14
5.2 SWOT Analysis: Volkswagen AG.................................................................................................. 16
5.2.1 Strengths .............................................................................................................................. 16
5.2.2 Weaknesses.......................................................................................................................... 16
5.2.3 Opportunities ....................................................................................................................... 17
5.2.4 Threats ................................................................................................................................. 17
6.
Comparative Analysis & Outlook .................................................................................................. 19
7.
External Views ............................................................................................................................... 21
8.
Appendix ....................................................................................................................................... 22
8.1 Sales Forecasts: Honda Motor Co. Ltd ........................................................................................ 22
8.2 Balance Sheet: Honda Motor Co. Ltd.......................................................................................... 24
8.3 Income Statement: Honda Motor Co. Ltd................................................................................... 25
8.4 Retained Earnings: Honda Motor Co. Ltd ................................................................................... 26
8.5 Valuation: Honda Motor Co. Ltd ................................................................................................. 27
8.6 Sales Forecasts: Volkswagen AG ................................................................................................. 28
8.7 Balance Sheet: Volkswagen AG................................................................................................... 30
8.8 Income Statement: Volkswagen AG ........................................................................................... 31
8.9 Retained Earnings: Volkswagen AG ............................................................................................ 32
8.10 Valuation: Volkswagen AG ........................................................................................................ 33
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1. Executive Summary
After a thorough analysis of the two companies, “Volkswagen AG” and “Honda Motor Co.
Ltd”, “Volkswagen AG” is the better choice between the two to invest in. The results have been
achieved through a variety of means; 3-year financial forecasts, SWOT analyses and an examination
of macro-economic trends of the regions that both companies operate in.
Both companies are among the top ten auto manufacturers across the globe. Volkswagen
AG has a highly diversified brand portfolio that appeals to a wide segment of customers. Although its
main market has traditionally been in Europe, we are seeing a shift in, mainly to Asia and South
America. The rise of the emerging BRIC markets and the subsequent increased consumer demand
for automobile products has helped the company increase its sales despite the economic slowdown
in Europe.
Honda Motor Co. Ltd is a more highly diversified business as it deals with both the
automobile and motorcycle markets. While its traditional key markets have been Japan and North
America, recent economic developments have led it to focus on other markets as well.
Although both companies show growth potential in the coming years, the business strategy
that is employed by Volkswagen AG places it in a better position to cater to the increasing demands
and expectations of the consumer and weathering the harsh economic climate. As such, I would
recommend Volkswagen AG over Honda Motor Co. Ltd as a company to invest in.
3
2. Economic Outlook
Regional Economic Fundamentals by Standard and Poors FY20131
•
According to analysts, the risk of the US falling into another recession in the next twelve
months is now at about 15-20%, lower than previously forecast. GDP growth is forecasted to
be at 2.3%.
•
Europe will continue to face tough economic conditions in 2013. There is likely to be zero
GDP growth for the Eurozone region, with countries such as Spain, Portugal, Ireland and
Greece facing negative growth.
1
•
Japan’s GDP growth is likely to be less than 2%
•
There will be high single-digit GDP growth in China
Top 10 Investor Questions For 2013: Global Autos and Trucks
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3. Regional Market Developments
Latest Market developments and highlights by just-auto2
Europe
•
West European markets continuing to slide
•
German car market seen to be slowing
•
Overcapacity problems being felt by OEMs
North America
•
Market recovery on track
•
Recovery of Japanese OEMs in light vehicle market
•
Exit of Suzuki due to difficulties in entry-level market
Asia
2
•
Chinese economy slowing but market still forecasted to exceed 20 million units in 2013
•
Chinese consumers being drawn more towards foreign brands than domestic brands
•
Continued huge inward investment by foreign partners in JVs
•
Japanese OEM still seeing negative fallout in Chinese sales due to diplomatic dispute
•
ASEAN markets looking buoyant in 2012 and 2013 (especially Indonesia)
•
Diesel hike in India
•
Japanese car outlook for 2013 weak due to end of eco-car subsidies
Automotive markets intelligence service. Just-auto. 5th March 2013.
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4. Company Summary: Honda Motor Co. Ltd
Honda Motor Co. Ltd is a diversified company. It manufactures and sells motorcycles,
automobiles and power products. It also has a financial services segment that provides financial
services to support the sales for its products.
The company operates globally through its 378 subsidiaries and 88 affiliate companies. Among that,
it also has manufacturing facilities located across Asia, North America, South America and Europe3.
Its headquarters is located in Tokyo, Japan.
For its automobile segment, the company produces passenger cars, speciality cars (such as
hybrid vehicles) and related parts. Its passenger car consists of mini vehicles, small to medium sized
passenger cars, light commercial vehicles and cross utility vehicles. As for its specialty vehicles,
Honda’s hybrid vehicles run on dual systems that include gasoline and electric motors. Fuel cell
vehicles are run on hydrogen powered fuel cell technology. This segment accounts for 73% of the
company’s total net sales in FY2012.4
The motorcycle segment manufactures motorcycles, all-terrain vehicles and the related
parts. There is a huge variety in the types of motorcycles that are manufactured in terms of size and
performance; motorcycles sold range from the 50cc scooters to 250cc sports motorcycles. The
segment has accounted for 17% of net sales in FY20125.
The power products segment of the company manufactures engines and generators for
households, OEM and construction machinery and other miscellaneous products such as grass
cutters, snow throwers and water pumps. Other technologies include thin film solar cells. The
segment has not been too profitable in recent years and only accounts for 3% of net sales in 20126.
Finally, as stated above, the Financial Services business provides retail lending and leasing
for its products. Wholesale financing services are available to its dealers worldwide through the
company’s numerous subsidiaries. The segment has accounted for 6% of net sales in 2012.
3
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013., Honda Motor Co.
Ltd Annual Report 2012
5
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013., Honda Motor Co.
Ltd Annual Report 2012
6
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.,Honda Motor Co.
Ltd Annual Report 2012
4
6
4.1 Earning Drivers: Honda Motor Co. Ltd
From my analysis of the company’s performance and current economic climate and trends, I have
identified key areas that I believe will perform as earning drivers for the company. These are;
•
The ASEAN motorcycle market
•
Small to mid-sized automobiles in the North American market
•
Fuel efficient “Eco” cars and motorcycles
•
The Financial Services Division
The company has been performing well in ASEAN markets, with it having significant presence in
countries such as Vietnam, Thailand and Indonesia with market share of 61%, 69%, 52% respectively.
The expected increase in motorcycle sales in this region is expected to benefit Honda Motor Co. Ltd
as the company is the current market leader with a global market share of 29.3%. Its closest
competitor is Yamaha, who has a global market share of 17.9%7. In fact, while motorcycles sales
have fallen in recent years in markets such Europe, the Asia-Pacific market have seen a CAGR of 1.5%
over 2007-20118. With plans to introduce at least 10 newer models into the market in 2013, I believe
that the company will well positioned to be leverage on the growing urbanisation rates in these
countries, thus being to further expand its foothold in these markets.
Despite a dismal performance in the North American markets in FY2012, Honda is poised to
make a comeback in FY2013. This is due to the introduction of its new redesigned Civic and Accord
sedans. While the Civic has historically been a popular mainstay in the U.S market, the 2011 iteration
was not well received. While Honda had lowered the cost of the car by not investing much in design
and using cheaper materials for the interior trims, consumers were not pleased and instead turned
to rival competitors such as Toyota or Hyundai. Instead of waiting for another 3 years for a model
refresh, Honda executives brought forward the newer iteration by 1.5 years. The new Civic has been
redesigned in both its exterior and interior, with it now being marketed as an upscale and premium
small sedan9.
7
Global – Motorcycles. Datamonitor Industry Market Research.
Global – Motorcycles. Datamonitor Industry Market Research.
9
http://www.nytimes.com/2013/03/03/automobiles/autoreviews/a-well-done-do-over-raises-the-finalgrade.html?pagewanted=all
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The new Honda Accord has been gaining market share in North America, with it competing with
Toyota’s Camry model for the top spot in the mid-sized sedan category. Several factors have led to
its success; its new sportier design, variety of line-up in terms of engine capacities and interior trim.
These two models are believed to be the ones that will increase Honda’s revenues in the North
American market, which is also Honda’s biggest market for automobiles. In fact, sales for Q1 2013
have been encouraging, with Honda expecting that its sales in March being 8% more than 1 year
ago10.
Another key earnings driver for Honda will be the “eco” car market. With increasingly strict
regulations put in place by governments across the world, Honda’s key competency and long
experience in fuel efficient vehicles puts the company in a good position to gain further market
share. According to analysts, demand for light hybrid vehicles is expected to reach 5.2 million units
due to rising costs and stricter emissions controls, such as the Euro3. Honda currently has about 3
hybrid automobiles in its line-up, the Civic hybrid, the Insight and the CR-V with 3 high fuel economy
motorcycles in the pipeline11. It is believed that the growing market demand for these fuel efficient
vehicles will enhance the revenue of the company.
Finally, the Financial Services Division is set to benefit from the estimated increase of sales of
vehicles. Due to the current economic conditions and tight credit, it is believed that automobile
financing will play an even bigger role in the years to come. As such, the commercial leasing and
lending programs of the Financial Services Division will continue to play a big part as an earnings
driver for the company.
10
11
http://online.wsj.com/article/SB10001424127887324789504578384912617473262.html
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
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4.2 SWOT Analysis: Honda Motor Co. Ltd
4.2.1 Strengths:
Global presence
Honda Motor Co. Ltd has a wide reach in terms of geography, allowing it to attain economies
of scale and recognition of its brand. It operates across the globe in the Americas, Europe, Middle
East, Africa, Asia and Oceania. Honda is very experienced in setting up operations overseas and
further expansions should be able to be done with relative ease. Another advantage that the
company has due to its huge worldwide presence is the ability to mitigate business risks that is
associated with an overdependence on any single market12.
Strong engineering capabilities
Following the words: “Do not imitate” by its founder Soichiro Honda, the company has
placed a huge emphasis on its innovation and engineering capabilities13. The company has its roots
in racing, with it being one of the earliest Japanese automobile manufacturers to participate in the
F1 races. As such, the company has always put the development of engines as its top priority. This
has allowed the company to be a leading player in naturally-aspirated engines, fuel-efficient engines
and hydrogen powered fuel cell technologies. In 2011, the company announced that it would start
the development of next-generation technologies titled “Earth Dreams Technology”, which consists
of next generation gasoline, diesel and hybrid engines14.
4.2.2 Weaknesses:
Product Design
The design strategy of Honda has not been consistent, which has proven to be one of its
biggest challenges in recent years. The Honda Civic is an excellent example of this inconsistency;
while the eighth generation of the Civic was well received in the North American market due to its
sleek design curves and interiors, Honda did not leverage on its success. Instead, the company
introduced the ninth generation which was not popular due to its blander, boxier design and
perceived inferior interior trim quality.
12
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
http://corporate.honda.com/innovation/
14
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
13
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One of the reasons why Honda has not been able to perform well in the European market is
due to design issues as well. According to research, Europeans have not viewed favourably upon the
design of Japanese cars and prefer European automobile manufacturers such as Peugeot, BMW and
Alfa Romeo due to their preference for style rather than practicality.
Supply-Chain Issues
The company faced logistical disruptions in 2011 due to the flooding in Thailand and the
earthquake and subsequent tsunami disaster in Japan. These disasters reduced global production of
the company to 47% in April 2011 as compared to previous years. As such, shortage of equipment
and inventory prevented the availability of new vehicles, such as the 2012 Civic15.
Product Recalls
The company has conducted numerous recalls of its products in recent years, with the latest
being the recall of 1.135 million vehicles worldwide due to problems with the airbags in its
automobiles16. The company recalled a total of 649,800 vehicles in the US in 2012 due to various
mechanical problems such related to the driveshaft, wiring and struts17. These recalls have affected
the brand image and safety of the company’s cars and might lead to a reduction in sales.
4.2.3 Opportunities
Emerging Markets
Although North America and Japan has been its traditional markets for its automobile
segment, emerging markets will be just as important for continued growth of the company. While
Honda has maintained its lead in markets such as Thailand, Vietnam and Indonesia, the market
penetration rate is still hovering at a low 25.4%, 29.6% and 20.8% respectively. Furthermore, it is
expected that there will be an increased demand of at least 20 million motorcycles in India in by
202018. As such, these markets still plenty of potential for further growth of which Honda should
capitalize on.
15
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
http://www.japantoday.com/category/business/view/toyota-honda-nissan-mazda-recall-3-39-mil-vehiclesover-air-bags
17
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
18
Honda Motor Co. Ltd Financial and Strategic Analysts Review. GlobalData. 7th March 2013.
16
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Fuel Efficient Vehicles
With rising fuel costs and stricter regulations, consumers are paying greater attention to the
fuel-economy of their vehicles. Fuel efficiency technologies, such as electrical or hybrid system
engines will play a bigger role in the automotive industry. As a leading market player in the field of
green technology and engines, Honda is well positioned to deal with these upcoming changes.
Joint Ventures
While Honda already has joint ventures in emerging countries, such as China and India,
Honda should consider other joint ventures with European partners. Honda’s presence in Europe has
been insignificant, with its market share overshadowed by bigger European rivals such as
Volkswagen, Daimler and Fiat. This is due to the lack of design issues (as mentioned above) and the
lack of diesel engines in its product line up. One possible option for Honda to reverse its ailing
fortunes in Europe is to partner with a European automobile company. This way, Honda would be
able to leverage on the design skills and possibly diesel engine technologies from its partner whilst
providing its technological expertise in terms of hybrid engines, reliability and safety mechanisms.
4.2.4 Threats
Intense Competition
The company faces an extremely competitive environment, with many different players in
the market. While Honda has traditionally competed against home grown rivals such as Nissan and
Toyota, there has been increased competition from foreign rivals such as Korean automakers like
Hyundai and Kia. Competition from these Korean rivals have been intense, as the Korean companies
have been investing heavily in R&D for the past few years. The Korean cars are known to be cheaper
than its Japanese counterparts and are technologically advanced as well. In fact, the Hyundai brand
was announced as the most fuel-economical brand in the United States, a designation which had
been traditionally held by Honda19. Hyundai has been doing very well in North America, with its
19
http://www.bloomberg.com/news/2012-11-16/hyundai-fuel-economy-flap-seen-as-turned-tables-forhonda.html
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current market share at 8.7% in the United States, which is a mere 0.1% lower than Honda’s market
share of 8.8%20.
In the emerging markets of India and China, Honda faces increasing pressure from low cost
players such Tata and Geely. These companies are competing with Honda in the small to mediumsized automobile segment. Although the build quality and performance of the cars from the low cost
players may be considered inferior to Honda’s products, consumers in these developing markets
may overlook purchasing factors such as quality and performance and instead choose to focus on
price only.
Loss of intellectual property
As with all other automobile manufacturers who operate joint ventures in emerging
countries, there is a constant fear of a loss of intellectual property. As the rules and regulations
governing intellectual property in these countries may not be fully developed yet, companies may
not have legal recourse should intellectual theft occur. Domestic companies may have the incentive
to form joint ventures with the foreign investing company for a few years before incorporating any
technologies gained into their own products, thus becoming the investor’s competitor.
Economic Slowdown
While the global economy is seen to have relatively stabilised from the Lehman shock crisis
since 2008, the ongoing European crisis has a potential to destabilize and reverse any economic
recovery gains. Should the European debt contagion spread to key economies such as the United
States, it is highly likely that sales will be negatively affected to a great degree.
Sino-Japanese Crisis
While there has been a recovery since the recent Sino-Japanese Crisis over the Senkaku
Islands dispute, any further disputes will cause a huge disruption in the Chinese operations of
Japanese companies. During the crisis, many production facilities faced a drop in production due to
labour strikes and damage to equipment. Products that were Japanese in origin, such as automobiles
20
China Autos Report. Business Monitor International.
12
were boycotted by Chinese customers21. As such, Honda may see a huge drop in revenues from the
Chinese mainland should any political crisis reoccur.
21
http://www.fairobserver.com/article/economic-costs-china%E2%80%99s-anti-japanese-sentiment
13
5. Company Summary: Volkswagen AG
Volkswagen AG is one of the world’s biggest automobile manufacturers and the largest car
maker in Europe. The company manufactures and sells engines and vehicles such as passenger cars
and commercial vehicles. The company has 62 production facilities worldwide and operates in more
than 153 countries22.
The company operates four business segments; the Automotive division, Trucks and Buses
division, the Power Engineering division and lastly, the Financial Services division.
The Automotive division develops engines and vehicles and the production of passenger
cars, commercial vehicles and related parts. The company has a diverse portfolio of brands, such as
Volkswagen, Skoda, Audi and Lamborghini23. These brands operate as an independent entity in the
market24. Out of all these brands, the majority of sales has been from the Volkswagen-branded
group of cars25. The segment accounted for 57.9% of net sales in FY2012.
The Trucks and Buses division develops, manufactures and sells heavy commercial vehicles,
buses and related parts. While the segment was originally named as “Scania”, the division was
renamed due to the consolidation of the MAN Group and its commercial vehicle businesses26. The
segment accounted for 14.8% of net sales in FY2012.
The Power Engineering Division is involved in the development of production of large bore
diesel engines, turbo compressors, industrial turbines and chemical reactor systems27. The segment
is relatively new one, which was formed in FY2011. The segment currently account for only 3.9% of
net sales in FY 2012.
The Financial Services division of the company provides financial support to its dealers and
customers. It also is involved in commercial lending and leasing, banking and insurance and fleet
management. These businesses operate through a number of subsidiaries located in North America
and Europe28. This segment accounted for 23.4% of net sales in FY2012.
22
Global – Automotive Manufacturing. Marketline. June 2012.
Volkswagen AG Annual Report 2013.
24
Global – Automotive Manufacturing. Marketline. June 2012.
25
Volkswagen AG Annual Report 2013.
26
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
27
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
28
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
23
14
5.1 Earning drivers: Volkswagen AG
Through my analysis of the company’s business models and current economic trends, I have
identified key areas that I believe has and will constitute Volkswagen AG’s earning drivers;
•
Volkswagen-branded cars (Golf)
•
Asian markets
•
Luxury Market
•
Financial Services Division
Volkswagen-branded cars have traditionally formed the majority of sales for the company.
Despite the tough economy, Volkswagen-branded car sales were up by 9% in FY2012 as compared to
the previous fiscal year29. Driving this growth is the Volkswagen Passat, Jetta and Golf. One of the
reasons why Volkswagen has managed to increase its sales during this period is due to the build
quality of its vehicles as well as its competitive pricing despite it being a premium brand30. The
Volkswagen Golf hatchback has been a particularly popular model, due to its small compact size,
drivability, design and good fuel economy31. Reviews of the latest iteration, the Golf 2013 has
positive, with the car been lauded for its performance and handling by famed British WhatCar?
magazine32. As such, it is expected that the new model will continue to drive sales growth for the
company. In terms of pricing, the car is competitive priced against its rivals, with its base model in
the U.S going for $18,095 as compared to its American rival, the Ford Focus at $19,200.
The Asian market, particularly China and India is expected to constitute a key are of growth for
the company in the coming years. The Asian market now accounts for 17.6% for total global sales, up
6.2% from FY2010’s levels of 11.4%. While the global economy has been set back by the recent
financial crises, the economies of China and India has been proven to be resilient. Rising
urbanisation rates and growing affluence of the middle class in these countries have led to an
increase in demand for automobiles. Volkswagen has been doing very well with its joint-ventures in
China. Currently, its two JVs in China, Shanghai-VW and FAW-VW, is ranked number 2 in terms of
29
Volkswagen AG Annual Report 2013.
http://online.wsj.com/article/SB10000872396390444230504577617662726166818.html
31
http://www.telegraph.co.uk/motoring/car-manufacturers/volkswagen/9815598/VWs-Golf-one-of-the-bestthings-of-our-age.html
32
http://www.whatcar.com/car-reviews/volkswagen/golf-hatchback/full-review/26158-5
30
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sales volume, with General Motors and its JV taking the number 1 spot33. The importance of “face”
and status have led to an increase in demand for branded foreign vehicles, which have led domestic
customers, especially in China, to be drawn towards brands such as Volkswagen and Audi34.
Despite the economic downturn, Volkswagen AG has unveiled new super luxury models for its
brands Bentley and Lamborghini at the Geneva Motor Show held this year35. With the introduction
of this new models, it seems that there is still appetite for luxury cars from wealthy consumers
whom are relatively unscathed from tough economic conditions. Volkswagen’s luxury brand, Audi,
has been doing well in the Chinese market, with sales overtaking other German rivals such as
Mercedes Benz and BMW36.
Lastly, earnings from the Financial Services division is set to increase due to expected growth in
sales for the company. The biggest increase in revenues is set to come from India, as it is estimated
that at least 70% of all car purchases in India are financed37. In the Chinese market, the company
expects financing to increase by at least 2 billion CNY in the coming years38. As such, it can be said
the Asian market will the highest priority for Volkswagen AG.
33
China Auto Report. Business Monitor International.
Automotive markets intelligence service. Just-auto. 5th March 2013.
35
http://www.bbc.co.uk/news/business-21381911
36
China Auto Report. Business Monitor International.
37
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
38
China Auto Report. Business Monitor International.
34
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5.2 SWOT Analysis: Volkswagen AG
5.2.1 Strengths
Market Presence
Volkswagen AG is the third largest auto manufacturer in the world. Its global market share
for FY2011 has been estimated to be at a high 11%. Key markets for the company are Germany,
Europe and Asia Pacific which made up 80% of total company sales in 2011. The company’s market
share in Europe, the Middle East and Africa currently stands at 19.27%. North American market
share is at 8.01%39. The company and its products is highly recognisable across the world, giving it a
strong brand equity. With numerous production facilities located globally, the company is able to
attain economies of scale, thus allowing it to decrease its costs.
Brand Portfolio
The multi-brand strategy of the company has given it a competitive advantage against its
competitors. The vast variety of vehicles and brands that the company owns allow it to cater to
almost all segments ranging from compact cars to super luxury cars. It is believed that the
company’s brand portfolio and product line-up have contributed much to the increase of
Volkswagen’s market share across the globe40. Another advantage of having a vast brand portfolio is
that it allows the company to retain loyalty from its customers. Current satisfied customers looking
to upgrade or downgrade their automobiles (eg: Volkswagen to Audi and vice-versa) have plenty of
choice to choose from within the portfolio, which allows the company to retain its customer base
regardless of the brand.
5.2.2 Weaknesses
Majority of sales from Europe
Europe has historically been the biggest market for the company, with combined sales in
Germany and Europe accounting for 59.9% of net sales in FY2012. The automobile market in Europe
can be considered a mature one and such, is highly unlikely to see any amount of growth. With
declining sales and an ongoing debt crisis in the European region, it is expected that consumer
demand will fall.
39
40
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
17
Late entry to fuel-efficient vehicle market
While Volkswagen has a strong brand portfolio, the company has not had hybrid vehicles in
their line-up until this year41. This has put them at a disadvantage in terms of market share as other
competitors such as Honda and Toyota have been in the market for a much longer time. As such, the
company may face difficulties into breaking into the market and capturing market share.
5.2.3 Opportunities
Emerging Markets
Developing markets, such and India and China are expected to growth and this is expected
to boost sales of the company. In fact, analysts have predicted that the Asian market will account for
at least 40% of growth in the auto industry over the next five to seven years42. As domestic car
makers in these growing economies are still in the midst of developing their own technologies to
international standards, Volkswagen AG has plenty of opportunity to further enhance their presence
in these markets. Possible options include other joint ventures, strategic partnerships or M&A.
Financing
The company has been able to secure cheap financing through its bonds. Volkswagen bonds
have a much lower couple rate than its competitors. For example; Volkswagen AG has managed sell
its 2015 at a 2.125% coupon as compared to Peugeots’ 2014 issue at 6%43. This difference in funding
has allowed Volkswagen to pass on its savings to consumers through lower car prices. Given that
about 36% of all Volkswagen car sales’ are financed, it is believed this percentage will increase, this
benefiting the Financial Services Division.
5.2.4 Threats
European Debt Crisis
41
http://web.vw.com/hybrid/
http://finance.yahoo.com/news/auto-industry-outlook-review-feb-211459510.html
43
http://online.wsj.com/article/SB10000872396390444230504577617662726166818.html
42
18
The company faces increased risk than other companies due to its huge exposure to the
European market. With the current ongoing European debt crisis and austerity cuts, consumers are
spending less on automobiles than before. With no clear recovery in sight, the fragile Eurozone is in
danger of falling into a deeper recession should any further European Union member default from
its obligations.
Emissions Regulations
The company’s operations could be negatively impacted if stricter emission regulations are
put into place. While Euro5 standards have been put into place since 2009, the stricter regulation,
Euro 6, which governs emissions from diesel engines will be put into effect in 2013. These new
emission regulations bring about requirements which will lead to increased cost for the company.
Other emissions standards are currently in the pipeline, with the United States Environmental
Protection Agency (EPA) suggesting a new standard to be placed in 200744.
Loss of intellectual property
As with the case of Honda, Volkswagen constantly has to fear a loss of intellectual property.
While the company has numerous joint ventures in developing economies such as China and India,
the rules and regulations governing intellectual property in these countries may not be fully
developed yet. As such, the company may not have legal recourse should intellectual theft occur.
44
Volkswagen AG – Financial and Strategic Analysts Review. 21st March 2013.
19
6. Comparative Analysis & Outlook
The two companies are fundamentally different, with Honda Motor. Co Ltd focusing on its
motorcycle and automobile segment. Its key competencies lie in its strong engineering capabilities
and technological prowess in fuel efficient technologies. Honda is currently focuses on the low-mid
end segment of the automobile market, and its top competitors are Toyota, Nissan, Ford with other
Korean rivals such as Hyundai and Kia.
On the other hand, Volkswagen AG is mostly focused on the automobile sector and has
pursued a multi-brand strategy to gain market share. Due to its large brand portfolio, the company
faces immense competition from all segments of the market, from the lower-mid to super-high end
segments. Competitors of Volkswagen include but are not limited to; Daimler, BMW, GM, Honda,
Toyota.
While the main markets of Honda have been Japan and North America, Volkswagen has not
gained significant market share in the U.S market and has played a rather niche role. This could be
attributed to the cheaper prices of Japanese cars45, the lack of a hybrid model and weak SUV lineup46. With regards to the European market, the presence of Honda in Europe is insignificant, while
Volkswagen is the market leader. Again, this weakness of Honda can be attributed to the preference
of highly stylized cars as compared to its European counterparts.
However, the main emphasis of this report is about the key importance of emerging markets
such as India and China. As stated before, these two markets will be the growth drivers of the auto
industry in the near future. Therefore, I believe that the performance of any major auto company in
these two markets can be an indicator of a company’s future performance. According to my analysis
of key company trends and the macroeconomic environment, Volkswagen is in a better position to
leverage on the growth of these markets.
Honda has not been doing too well in the Indian market, as reports show that its latest sales
for the month of March 2013 has plunged 9% as compared to the previous fiscal year47. Meanwhile,
Volkswagen sales for the months of January and March has increased by 21% as compared to the
last fiscal year48. I believe that Honda’s low-cost car strategy in India will not work well as expected,
45
http://www.businessweek.com/magazine/content/11_22/b4230011766104.htm
http://www.thetruthaboutcars.com/2011/01/vw-might-launch-big-suv-in-the-u-s/
47
http://www.moneycontrol.com/news/business/honda-cars-domestic-sales-fall-9march_845159.html
48
http://articles.economictimes.indiatimes.com/keyword/volkswagen-india
46
20
as high inflation and planned fuel price hikes in the country are more likely to affect the low-end
customers that Honda is targeting, rather than the mid-higher end customers that Volkswagen
caters to49.
As for the Chinese market, Honda has not fully recovered from the effects of the recent
protest. Sales of the company has decreased by 5.2% for the first quarter of FY2013 as compared to
last year50. For Volkswagen, their sales in China has increased by 23.7% for the first quarter of this
year as compared to the last51. It is also worthy to note that while Honda has joint ventures in China
as well, they are not performing as well as Volkswagen, which sales are number two in China, behind
General Motors. The future performance of Honda in China in unclear, due to the ongoing tension
between Japan and China over the Senkaku Islands. Should any dispute reoccur, sales of Honda will
be expected to drop, with other non-Japanese rivals such as Volkswagen taking away Honda’s
market share.
Honda may succeed in the North America market, due to the recent depreciation of the
Japanese yen. While Korean competitors have been able to price their cars lower than the Japanese,
the depreciation of the yen will enable Honda to price its cars more competitively. However, the
current dismal performance of the company in its home market Japan and emerging markets may
offset the gains. Also, the overdependence on the North American market increases the amount of
risk the company is exposed to as the American economy is still in its recovery stages.
Although Europe is still in a crisis, Volkswagen still remains the market leader with a
significant market share. The company’s exposure to the European market and its associated risks
can be mitigated by its relatively good performance in the emerging markets. The main risk that the
company faces now is stricter emissions control in these markets. This is especially the case in China,
where government authorities have been worried about the high levels of pollution. However, the
new Jetta and Touareg hybrid models and 3 other EV models that Volkswagen is developing with its
Chinese partners will allow it to overcome these new obstacles52.
Overall, these factors and developments in the market have led me to believe that
Volkswagen AG is the better company to invest in.
49
http://online.wsj.com/article/SB10001424127887323296504578398482826617730.html
http://online.wsj.com/article/BT-CO-20130402-700626.html
51
http://www.chinaknowledge.com/Newswires/NewsDetail.aspx?type=1&cat=CMO&NewsID=51177
52
China Auto Report. Business Monitor International.
50
21
7. External Views
According to a survey conducted by auditor and consulting company KPMG, German
companies Volkswagen AG and BMW were the favourites to gain market share in the global auto
industry over the next five years. Among those who were surveyed were 200 senior global auto
industry executives who were mostly based outside of North America53.
(Above) Chart from KPMG’s Global Automotive Executive Survey 201354
Echoing my analysis, the majority of those polled were more in favour of Volkswagen gaining
market share rather than Honda.
53
54
http://www.reuters.com/article/2013/01/09/us-autos-survey-kpmg-idUSBRE90805R20130109
KPMG’s Global Automotive Executive Survey 2013. KPMG International.
22
8. Appendix
8.1 Sales Forecasts: Honda Motor Co. Ltd
Total Revenue
2010
2011
2012
2013E
2014E
2015E
Motorcycle
1,140,292
1,288,194
1,348,828
1,433,804
1,542,423
1,672,388
Automobile
6,554,848
6,802,316
5,822,742
6,224,886
6,930,266
7,774,565
FS
618,811
573,458
526,576
547,412
603,721
671,794
Other
304,618
318,279
289,734
305,428
311,721
319,171
Total
8,618,569
8,982,247
7,987,880
8,511,530
9,388,131
10,437,918
Less: Eliminations
(39,395)
(45,380)
(39,785)
(47,412)
(48,253)
(45,742)
Consolidated Total
8,579,174
8,936,867
7,948,095
8,464,118
9,339,878
10,392,176
Operating Income
2010
2011
2012
2013E
2014E
2015E
Motorcycle
58,837
138,594
142,602
120,330
134,512
143,825
Automobile
126,758
264,550
(77,206)
74,960
98,777
100,927
FS
194,901
186,279
170,006
151,633
172,060
194,148
Other
(16,721)
(5,525)
(4,038)
(9,786)
(9,214)
(7,412)
Adjustment
-
(14,123)
-
-
-
-
Total
363,775
569,775
231,364
337,137
396,135
431,488
Operating
Margin %
Motorcycle
Automobile
FS
Other
Total
2010
5.2%
1.9%
31.5%
-5.5%
4.2%
2011
10.8%
3.9%
32.5%
-1.7%
6.4%
2012
10.6%
-1.3%
32.3%
-1.4%
2.9%
2013E
8.4%
1.2%
27.7%
-3.2%
4.0%
2014E
8.7%
1.4%
28.5%
-3.0%
4.2%
2015E
8.6%
1.3%
28.9%
-2.3%
4.2%
23
Total Revenue
2010
2011
2012
2013E
2014E
2015E
Japan
3,305,777
3,611,207
3,362,952
3,503,467
3,794,745
4,165,387
North America
3,908,216
4,147,897
3,714,756
4,010,843
4,499,764
5,078,818
Europe
825,472
699,298
580,792
505,285
454,601
422,491
Asia
1,518,580
1,841,167
1,490,478
1,682,517
1,921,195
2,188,947
Others
896,491
982,083
893,132
981,663
1,111,194
1,246,733
Total
10,454,536
11,281,652
10,042,110
10,683,774
11,781,500
13,102,376
Less: Eliminations
(1,875,362)
(2,344,785) (2,094,015)
(2,219,656)
(2,441,621) (2,710,200)
Consolidated Total
8,579,174
8,936,867
7,948,095
8,464,118
9,339,878
10,392,176
2011
2012
2013E
2014E
2015E
Operating Income
2010
Japan
(29,135)
66,118
(109,834)
(128,203)
(155,977)
(218,740)
North America
236,379
300,922
223,293
296,400
366,877
453,944
Europe
(10,872)
(10,203)
(12,109)
(94,820)
(182,980)
(261,737)
Asia
113,006
150,637
76,870
171,908
236,162
300,985
Others
45,808
69,549
56,956
91,852
132,053
157,036
Total
355,186
577,023
235,176
337,137
396,135
431,488
Eliminations
8,589
6,875
(3,812)
-
-
-
Consolidated Total
363,775
583,898
231,364
337,137
396,135
431,488
Operating Margin
Japan
North America
Europe
Asia
Others
Total
Eliminations
Consolidated Total
2010
-0.9%
6.0%
-1.3%
7.4%
5.1%
3.4%
-0.5%
4.2%
2011
1.8%
7.3%
-1.5%
8.2%
7.1%
5.1%
-0.3%
6.5%
2012
-3.3%
6.0%
-2.1%
5.2%
6.4%
2.3%
0.2%
2.9%
2013E
-3.7%
7.4%
-18.8%
10.2%
9.4%
3.2%
0.0%
4.0%
2014E
-4.1%
8.2%
-40.3%
12.3%
11.9%
3.4%
0.0%
4.2%
2015E
-5.3%
8.9%
-62.0%
13.8%
12.6%
3.3%
0.0%
4.2%
24
8.2 Balance Sheet: Honda Motor Co. Ltd
Consolidated balance sheets
2010
2011
2012
Assets
Current assets
Cash and deposits
1,119,902
1,279,024
1,247,113
A/R
892,031
795,595
819,448
(8,555)
(7,904)
(7,293)
Less: Provision for doubtful accounts
Notes Rvcd
1,100,158
1,131,068
1,081,721
Inventories
935,629
899,813
1,035,779
Deferred income taxes
176,604
202,291
188,755
Other
397,955
390,160
373,563
Total current assets
4,613,724
4,690,047
4,739,086
Noncurrent assets
Fixed Assets
PP&E
7,052,579
6,970,777
7,246,297
(3,673,789)
(3,800,082)
Less: Accumulated depreciation on (3,657,769)
buildings, equipment
and fixtures
LT Notes Rvcd
2,361,335
2,348,913
2,364,393
Other LT Assets
801,412
794,900
796,321
Total Fixed Assets
6,557,557
6,440,801
6,606,929
LT Investments and other assets
LT Investment - Affiliates
457,834
440,026
434,744
Total noncurrent assets
7,015,391
6,880,827
7,041,673
Total assets
11,629,115 11,570,874 11,780,759
Liabilities
Current liabilities
A/P
802,464
691,520
942,444
Accrued Expenses
566,468
557,500
513,209
Notes Payable/ ST Debt
1,091,048
1,119,956
991,347
Current Portion of LT Debt
722,296
962,455
911,395
Other current liabilities
236,854
236,761
221,364
Total current liabilities
3,419,130
3,568,192
3,579,759
Noncurrent liabilities
Long Term Debt
2,313,035
2,043,240
2,235,001
Other LT liabilities
1,440,520
1,376,530
1,437,709
Minority interests
127,790
132,937
125,676
Total noncurrent liabilities
3,881,345
3,552,707
3,798,386
Total liabilities
7,300,475
7,120,899
7,378,145
Shareholders' equity
Preferred stock
Common stock
86,067
86,067
86,067
Additional Paid-In Capital
172,529
172,529
172,529
Retained earnings
5,349,936
5,712,869
5,816,213
(1,208,162) (1,495,380) (1,646,078)
Accumulated other comprehensive income
Treasury stock
(71,730)
(26,110)
(26,117)
Total shareholders' equity
4,328,640
4,449,975
4,402,614
Total Equity
4,328,640
4,449,975
4,402,614
Total net assets
4,328,640
4,449,975
4,402,614
Total liabilities and net assets
11,629,115 11,570,874 11,780,759
2013E
2014E
2015E
1,156,579
872,590
(8,726)
1,102,864
1,098,279
189,217
387,226
4,798,028
1,302,606
915,674
(9,157)
1,216,974
1,043,661
193,421
383,650
5,046,829
1,301,321
944,743
(9,447)
1,354,087
1,043,144
190,464
381,480
5,205,792
8,115,853
(4,247,532)
2,357,408
797,544
7,023,274
9,089,755
(4,757,235)
2,601,323
802,130
7,735,973
10,180,526
(5,328,104)
2,894,407
810,151
8,556,980
444,201
7,467,475
12,265,503
439,657
8,175,630
13,222,459
444,054
9,001,034
14,206,825
1,000,343
547,455
1,067,450
865,382
231,660
3,712,291
1,092,968
602,475
1,184,870
960,574
257,142
4,098,028
1,195,283
670,979
1,291,508
1,047,026
280,285
4,485,080
2,197,092
1,418,253
128,801
3,744,146
7,456,437
2,438,772
1,574,261
142,969
4,156,002
8,254,030
2,658,262
1,715,944
155,836
4,530,042
9,015,122
86,067
172,529
6,026,461
(1,449,873)
(26,117)
4,809,066
4,809,066
4,809,066
12,265,503
86,067
172,529
6,266,393
(1,530,444)
(26,117)
4,968,428
4,968,428
4,968,428
13,222,459
86,067
172,529
6,501,356
(1,542,132)
(26,117)
5,191,703
5,191,703
5,191,703
14,206,825
25
8.3 Income Statement: Honda Motor Co. Ltd
Consolidated statements of income
2010
2011
Net sales
8,579,174
8,936,867
Cost of sales
(6,414,721) (6,496,841)
Gross profit
2,164,453
2,440,026
Selling, general and administrative expenses(1,337,324) (1,382,660)
R&D
(463,354)
(487,591)
Operating income (loss)
363,775
569,775
Non-operating income
Interest income
18,232
23,577
Other
45,670
Total non-operating income
18,232
69,247
Non-operating expenses
Interest expenses
(12,552)
(8,474)
Other
(33,257)
Total non-operating expenses
(45,809)
(8,474)
Ordinary income (loss)
Total extraordinary income
Total extraordinary losses
336,198
Income (loss) before income taxes and minority
interests 630,548
Current income tax
(90,263)
(76,647)
Deferred income tax
(56,606)
(130,180)
189,329
423,721
Income (loss) before equity in income of affiliates
Equity in income of affiliates
93,282
139,756
Net income before minority interest
282,611
563,477
Less: Minority interests
(14,211)
(29,389)
Net income
268,400
534,088
2012
7,948,095
(5,919,633)
2,028,462
(1,277,280)
(519,818)
231,364
2013E
8,464,118
(6,282,157)
2,181,961
(1,357,206)
(487,619)
337,137
2014E
9,339,878
(6,940,344)
2,399,534
(1,498,077)
(505,321)
396,135
2015E
10,392,176
(7,769,336)
2,622,840
(1,670,407)
(520,944)
431,488
33,461
2,956
36,417
25,090
25,090
27,376
27,376
28,642
28,642
(10,378)
(10,378)
257,403
(86,074)
(49,661)
121,668
100,406
222,074
(10,592)
211,482
(10,468)
(10,468)
351,759
(84,942)
(66,571)
200,246
111,148
311,394
(18,064)
329,458
(9,773)
(9,773)
413,738
(99,908)
(78,301)
235,529
117,103
352,632
(19,348)
371,980
(10,206)
(10,206)
449,924
(108,646)
(85,149)
256,129
109,552
365,681
(16,001)
381,682
26
8.4 Retained Earnings: Honda Motor Co. Ltd
RETAINED EARNINGS STATEMENT
2013
2014
2015
Beginning Retained Earnings
5,816,213
6,026,461
6,266,393
Add: Net Income
329,458
371,980
381,682
Less: Cash Dividends
119,210
132,048
146,720
Ending Retained Earnings
6,026,461
6,266,393
6,501,356
2013
2014
2015
65
72
80
1,834
1,834
1,834
119,210
132,048
146,720
Dividend Payouts
Div
% Change
Shares
Dividends payout
27
8.5 Valuation: Honda Motor Co. Ltd
Book Value Present Value of
IV per Share
of Equity
Residual Earnings Intrinsic Value
4,470,260 ¥
2,437.44
¥
4,402,614 ¥
67,646 ¥
Year
2012
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Beginning of
Year Book Value
¥
4,402,614
4,535,848
4,743,406
4,977,754
5,218,214
5,487,529
5,789,162
6,126,991
6,505,359
6,929,132
7,403,757
7,911,606
8,455,004
9,036,441
9,658,578
Earnings
211,482
329,458
371,980
381,682
427,484
478,782
536,236
600,585
672,655
753,373
806,110
862,537
922,915
987,519
1,056,645
Expected
Residual
Redemptions
Return on Equity
Earnings
& Dividends
¥
396,235 ¥
-184,753 ¥
78,248
408,226
(78,769)
121,899
426,907
(54,926)
137,633
447,998
(66,315)
141,222
469,639
(42,155)
158,169
493,878
(15,095)
177,150
521,025
15,212
198,407
551,429
49,156
222,216
585,482
87,173
248,882
623,622
129,752
278,748
666,338
139,771
298,261
712,045
150,493
319,139
760,950
161,964
341,478
813,280
174,239
365,382
869,272
187,373
390,959
28
8.6 Sales Forecasts: Volkswagen AG
Total Revenue
Segment
2010
2011
2012
2013E
2014E
2015E
Commerical Vehicles
111,218
138,691
158,074
169,625
188,453
213,601
Trucks and Buses
8,179
11,723
20,567
22,154
23,749
25,459
Power Engineering
-
662
4,234
4,361
4,505
4,654
Financial Services
14,069
17,245
19,854
21,599
25,341
30,463
Scania
8,179
-
-
-
-
-
Less: Scania
(8,179)
-
-
-
-
-
Total
133,466
168,321
202,729
217,740
242,049
274,177
Consolidation
(6,591)
(8,985)
(10,052)
(13,315)
(14,887)
(16,988)
Consolidated Total
126,875
159,336
192,677
204,425
227,162
257,188
2010
2011
2012
2013E
2014E
2015E
Operating Income/Loss
Segment
Commerical Vehicles
5,337
9,886
10,778
11,365
12,626
13,884
Trucks and Buses
1,050
937
358
354
380
382
Power Engineering
-
(6)
161
166
167
168
Financial Services
952
1,298
1,586
1,663
1,926
2,346
Scania
253
-
Total
7,592
12,115
12,883
13,548
15,099
16,779
Consolidation
(197)
(844)
(1,373)
Consolidated Total
7,395
11,271
11,510
13,548
15,099
16,779
29
Operating Margin
Segment
Commerical Vehicles
Trucks and Buses
Power Engineering
Financial Services
Scania
Total
Geographic Revenues
Segment
2010
4.8%
12.8%
#DIV/0!
6.8%
3.1%
5.8%
2010
2011
7.1%
8.0%
-0.9%
7.5%
#DIV/0!
7.1%
2011
2012
6.8%
1.7%
3.8%
8.0%
#DIV/0!
6.0%
2012
2013E
6.7%
1.6%
3.8%
7.7%
#DIV/0!
6.6%
2014E
6.7%
1.6%
3.7%
7.6%
#DIV/0!
6.6%
2015E
6.5%
1.5%
3.6%
7.7%
#DIV/0!
6.5%
2013E
2014E
2015E
Germany
28,702
34,600
37,734
39,863
43,956
49,457
Rest of Europe
55,102
69,291
77,650
76,659
80,302
83,329
North America
15,193
17,553
25,046
26,984
30,213
34,335
South America
13,468
14,190
18,311
19,768
22,035
24,999
Asia
14,409
22,983
33,936
41,151
50,657
65,069
Total
126,874
158,617
192,677
204,425
227,162
257,188
30
8.7 Balance Sheet: Volkswagen AG
Consolidated balance sheets
2010
2011
Assets
Current assets
18,670
18,291
Cash and deposits + Cash equivalents
Short-term investments
5,501
6,146
A/R
8,415
12,465
Notes Rvcd
30,164
33,754
Other Rvcd
2,375
5,166
Inventories
17,631
27,550
Other Current Assets
3,180
2,268
Total current assets
85,936
105,640
Noncurrent assets
Fixed Assets
PP&E
106,840
121,527
Less: Depreciation
(68,929)
(72,685)
LT Notes Rvcd
37,170
44,659
Other LT Assets
5,434
Total Fixed Assets
80,515
93,501
Intangible assets
Goodwill
3,410
4,334
Total intangible assets, net
9,694
17,841
Investments and other assets
LT Investment (Affiliates)
14,168
13,298
Other (Investment Property)
1,422
12,822
15,590
26,120
Total investments and other assets
Total noncurrent assets
113,457
148,129
Deferred assets
Deferred Income Tax - LT
4,248
6,333
Total assets
199,393
253,769
Liabilities
Current liabilities
A/P
12,841
16,325
39,694 liabilities49,090
Current portion of bonds/ Current financial
Notes Payable
158
Accrued expenses
3,402
4,956
Other current liabilities
20,804
30,865
Total current liabilities
76,899
101,236
Noncurrent liabilities
37,159
44,442
Long-term loans payable/ Noncurrent
financial liabilities
Deferred Income Tax - LT
1,669
4,055
Minority Interests
2,734
5,815
Other LT liabilities
34,954
40,684
Total noncurrent liabilities
76,516
94,996
Total liabilities
153,415
196,232
Shareholders' equity
Common stock
1,191
1,191
Capital reserves
9,326
9,329
Retained earnings
35,565
48,788
Other Equity
(104)
(1,769)
Total shareholders' equity
45,978
57,539
Total net assets
45,978
57,537
Total liabilities and net assets
199,393
253,769
2012
2013E
2014E
2015E
18,488
7,433
12,876
36,911
5,584
28,674
3,095
113,061
23,938
6,360
13,440
39,087
5,924
34,177
2,848
125,774
41,881
6,646
14,906
43,269
6,310
37,752
2,737
153,500
62,139
6,813
16,788
48,526
6,768
42,259
2,893
186,185
136,525
(76,634)
52,008
111,899
144,717
(81,041)
55,101
118,776
153,399
(88,972)
60,415
124,843
162,603
(97,562)
67,504
132,545
23,935
35,224
19,232
35,576
21,605
35,932
20,352
36,291
11,179
6,431
17,610
196,583
12,882
6,892
19,773
199,512
12,453
8,715
21,168
210,878
12,171
7,346
19,517
216,942
7,915
309,644
6,154
325,287
7,330
364,378
8,237
403,127
17,268
54,060
4,840
29,344
105,512
19,300
56,763
5,072
27,004
108,139
21,495
59,601
5,719
29,071
115,887
24,348
62,581
6,441
28,473
121,843
63,603
9,050
4,310
49,653
126,616
232,128
69,963
7,861
4,286
41,764
123,874
232,013
76,960
10,482
4,804
44,034
136,279
252,166
84,656
13,362
4,467
45,150
147,634
269,477
1,191
11,509
64,994
(179)
77,515
77,516
309,644
1,191
11,509
80,573
93,273
93,273
325,287
1,191
11,509
99,513
112,213
112,213
364,378
1,191
11,509
120,949
133,649
133,650
403,127
31
8.8 Income Statement: Volkswagen AG
Consolidated statements of income
2010
2011
2012
Net sales
126,875 159,337 192,676
Cost of sales
(105,431) (131,371) (157,518)
Gross profit
21,444
27,966
35,158
Selling, general and administrative expenses (15,500) (18,966) (25,073)
Other operating expenses
(6,450)
(7,456)
(9,070)
Other operating income
7,648
9,727
10,496
Operating income (loss)
7,142
11,271
11,511
Non-operating income
Equity in earnings of affiliates
1,944
2,174
13,568
Other
2,053
7,528
2,967
Total non-operating income
3,997
9,702
16,535
Non-operating expenses
Interest expenses
(2,144)
(2,047)
(2,552)
Total non-operating expenses
(2,144)
(2,047)
(2,552)
Ordinary income
Total extraordinary income
Total extraordinary losses
8,995
18,926
Income (loss) before income taxes and minority
interests
Total income taxes
(1,767)
(3,126)
Income (loss) before minority interests
7,228
15,800
Minority interests in income
392
391
Net income (loss)
6,836
15,409
25,494
(3,608)
21,886
168
21,718
2013E
2014E
2015E
204,425
227,162
257,188
(176,013) (195,177) (220,590)
28,412
31,985
36,599
(28,178) (31,773) (36,808)
(7,659)
(8,062)
(8,263)
12,266
15,901
18,003
4,840
8,052
9,531
14,395
3,148
17,543
15,996
3,498
19,494
18,111
3,960
22,071
(1,135)
(1,135)
(1,888)
(1,888)
(2,235)
(2,235)
-
-
-
21,248
(3,564)
17,685
391
17,294
25,658
(4,303)
21,355
391
20,964
29,367
(4,925)
24,442
391
24,051
32
8.9 Retained Earnings: Volkswagen AG
RETAINED EARNINGS STATEMENT
2013
2014
2015
Beginning Retained Earnings
64,994
80,573
99,513
Add: Net Income
17,294
20,964
24,051
Less: Cash Dividends
(1,714)
(2,025)
(2,614)
Ending Retained Earnings
80,573
99,513
120,949
2012
2013
2014
DIVIDENDS STATEMENT
2015
Preferred
170.0
170.0
170.0
170.0
Common
295.0
295.0
295.0
295.0
DIV per preferred
3.6
3.7
4.5
5.8
DIV per common
3.5
3.7
4.3
5.5
DIV PAYOUT for Preferrred
635.5
762.6
991.3
DIV PAYOUT for COMMON
1,079.0
1,262.4
1,622.5
Cash Dividends Payout (MM EUR)
1,714
2,025
2,614
33
8.10 Valuation: Volkswagen AG
Book Value
Present Value of
IV per Share
of Equity
Residual Earnings Intrinsic Value
€
114,435
€
246.10
€
77,515 €
36,920
Year
Year
2012
1
2013E
2
2014E
3
2015E
4
2016E
5
2017E
6
2018E
7
2019E
8
2020E
9
2021E
10
2022E
11
2023E
12
2024E
13
2025E
14
2026E
15
Beginning of
Year Book Value
€
77,515 €
97,061
112,626
131,493
146,996
168,642
192,770
220,275
251,631
287,378
328,128
372,445
421,193
474,815
533,801
Earnings
21,718
17,294
20,964
17,226
24,051
27,418
31,256
35,632
40,621
46,308
50,938
56,032
61,635
67,799
74,579
Expected
Return on Equity
€
10,852 €
13,589
15,768
18,409
20,579
23,610
26,988
30,839
35,228
40,233
45,938
52,142
58,967
66,474
74,732
Residual
Redemptions
Earnings
& Dividends
10,866 €
2,172
3,705
1,729
5,196
2,096
(1,184)
1,723
3,471
2,405
3,808
3,290
4,269
3,751
4,794
4,276
5,392
4,874
6,075
5,557
5,000
6,622
3,890
7,284
2,668
8,013
1,325
8,814
(153)
9,695