Audi answers questions from investors and analysts

Audi holds regular analyst and investor events that serve as an opportunity to provide updates on its business performance and the strategic direction of the company. Two virtual meetings again took place in May, with a large number of questions for Audi CFO Arno Antlitz. Here is a condensed summary of the five most frequently asked questions, along with the answers given.

06/03/2020 Copy: Dorothea Joos Talking Business Reading Time: 4 min

Talking Business – Key Facts

  • Adequate net liquidity and swift adjustment of production operations in line with demand create a sound basis during coronavirus crisis
  • Short and long-term measures taken to cut fixed costs
  • Synergies on hardware and software development within Group plus joint production reduce spending further
  • Product portfolio and innovations not affected by cutbacks
  • Outlook for 2020: major impact from coronavirus expected; signs of recovery in the markets, but with regional variations

Audi Q3

Fuel consumption, combined*: 7.6–4.7 l/100kmCO₂ emissions, combined*: 174–124 g/km

Fuel consumption, combined*: 7.6–4.7 l/100kmCO₂ emissions, combined*: 174–124 g/km

#1 The automotive industry has steadily optimized its tied-up capital and the stock risk by adopting just-in-time production. At a time of lockdowns and interrupted supply chains, this production approach is massively disrupted. That brings inventories particularly into focus. How have Audi’s inventories developed in recent months?
Compared to the first quarter of 2019 our inventories shrank by 12 percent over the period January through March 2020, meaning we achieved almost our ideal stock level before the lockdowns in Europe. We responded quickly at the start of the coronavirus pandemic and systematically adjusted production in line with demand. That enabled us to prevent a significant rise in inventories despite the crisis. In the first quarter of 2020 overall, we recorded an increase of two percent compared with the 2019 year-end position.

Audi Inventories 2020, -12% in comparison to last year, +2% in comparison to last quarter

This development was driven mainly by taking in stocks of raw materials and supplies in readiness for the production restart. We are also supporting our core suppliers who in some cases were not able adjust their production operations as swiftly, and have increased some stocks for a limited period. Further developments now depend substantially on how fast the individual markets recover. We are offering our customers attractive leasing, service and insurance arrangements. That means we are also helping our dealers to reduce their stock levels. It remains our target for 2020 to achieve an optimal stock level.

#2 Liquidity is especially important to Audi during the coronavirus crisis. Cutting fixed costs is a common solution to staying solvent. How is Audi addressing this issue?
As a short-term measure, Audi has adjusted production in line with demand. Like many other businesses, we also temporarily agreed short-time working arrangements for some of the workforce. In the Audi Transformation Plan, we have already embarked on a long-term program that aims to reduce fixed costs, among other goals. In addition, Audi intends to reduce capacity at its German sites by 25 percent over the coming years. We will scale back our personnel resources in a socially responsible way by up to 9,500 jobs by 2025, via such arrangements as partial retirement programs.  At the same time Audi will create around 2,000 new jobs in strategically important areas such as electrification.

#3 Audi also wants to cut development costs but at the same time provide the market with “Vorsprung durch Technik.” How does that go together?
We need to make our processes even more efficient and clamp down further on complexity – including in products. That doesn’t mean we will be cutting corners with our brand’s innovativeness. Instead, we will focus on customer-relevant characteristics that you can put a price on. We will continue to invest in future technologies. 12 billion euros will be invested in electric mobility by 2024. Audi will also draw on synergy effects within the Group. Together with our sister brand Porsche, we are for instance developing an electric-model platform for future premium models in the upper segments. We will also build future electric cars at multi-brand plants, for example the Q4 e-tron at the Volkswagen Zwickau plant. That will reduce investment costs. And for software, again we will be tapping Group synergies. We are pooling software development across brands in the Car.Software organization. All these measures will have a positive effect on our research and development costs. For 2020, we expect a lower R&D ratio than in the previous year without any cutbacks to our planned portfolio.

How Audi is making electric mobility profitable

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#4 Alongside cost savings, optimum working capital is a sign of adequate liquidity. How will Audi’s working capital develop this year?
Audi also specifically uses working capital management to control its liquidity. Despite the crisis, in the first quarter we managed to limit the increase in our inventories to a minimal two percent. Compared to the first quarter of 2019, we actually succeeded in reducing stocks by about one billion euros. How quickly we are able to reduce inventories again to the optimal level will now depend on the markets’ recovery. Developments in China give us cause to be hopeful, and Europe too is showing the first positive signs. Our receivables have increased, among other reasons because we have extended the credit periods for a number of dealers to help them get through the coronavirus crisis. However, this effect should be reversed as the year progresses along with rising unit sales. Our liabilities will remain low for the time being because of the production stop. We will further optimize our working capital in 2020.

#5 What is the financial outlook for 2020 and subsequent years?
The performance must be looked at market by market. In China, the automotive industry is currently staging a good recovery. In April 2020, Audi actually delivered 21 percent more vehicles to customers in China than in April 2019. Having invested in online sales, Audi for example almost tripled the sales total via that channel in China compared with the whole of the previous year. Nevertheless, the lockdown due to the coronavirus means deliveries in this market for January through April are still 17 percent down on the prior-year figures. Nor can the performance there simply be applied to other markets. In Europe, we are seeing demand for automobiles pick up more slowly. Many customers are unsettled and are awaiting government incentives. That is correspondingly affecting the forecast for our financial figures for 2020. Audi has a solid financial basis and sufficient net liquidity, and recent months have shown that we are capable of fine-tuning the balance between production and demand very quickly. That equips us well for further developments.

  Forecast for 2020 2019 fiscal year
Deliveries to customers (Audi brand) significantly below prior year 1,845,573 cars
Revenue significantly below prior year €55,680 m
Operating return on sales significantly below prior year 8.1%
Net cash flow below prior year €3,160 m
Return on investment below prior year and below 9% minimum rate of return 12.7%
R&D ratio below prior year 7.9%
Ratio of capex at prior-year level 4.9%

Click here for the presentations for the investor and analyst events in May 2020.

Please do not hesitate to contact ir@audi.de with any further questions.

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