Speech of Rupert Stadler to the 115th Annual General Meeting
Only the spoken word is binding.
Ladies and Gentlemen,
It has become something of a tradition at Audi to announce new record figures for the company at the Annual General Meeting. I am delighted to be able to uphold this tradition today in once again presenting you with highly satisfactory financial data about the company.
For German car manufacturers collectively, 2003 was a year in which the economy experienced continuing difficulties and unit sales remained flat or even slipped. In spite of this protracted negative trend, Audi was able to build on the successes of recent years. We sold more vehicles than ever before in 2003. Revenues likewise reached a new record level.
I would first of all like to comment on the changes to the consolidated companies during the past year. I will then describe developments in Audi’s consolidated financial statements in detail.
The line-up of consolidated companies grew by seven in the 2003 financial year; these seven companies are shown on the chart. The companies in question essentially comprise sales subsidiaries in Germany and internationally. Of these companies, the YANASE Audi Sales Company in Japan and the FAW-Volkswagen Automotive Company in China were included at equity, with the remaining five companies consolidated in full. The year-on-year distribution and general administrative costs in the Consolidated Income Statement have been particularly affected by this change. Shares in all the newly consolidated companies were already included in the 2002 Consolidated Balance Sheet in the form of investments.
I should now like to comment on the main items of the Consolidated Income Statement in greater detail. We were able to boost the revenue of the Audi Group by almost four percent in 2003, to EUR 23.4 billion. As I have already mentioned, this takes us to a new all-time company record.
The rise in revenue in our home market of Germany was even more marked: the increase there was over six percent, to EUR 7.4 billion – primarily thanks to a more upmarket model/volume mix. The domestic market thus contributed 31.6 percent of total revenue.
On our export markets we posted revenue of EUR 16 billion. The trading activities of Autogerma, our Italian importer, from the sale of vehicles of other Volkswagen Group brands, accounted for EUR 3.3 billion of this total. This represents 14 percent of total revenue.
In spite of the slightly recessive overall market, the Audi Group was able to maintain its revenue in Europe at the previous year’s level. In this region – excluding Germany – we posted revenue of EUR 11.3 billion – a perfectly respectable result.
On the other hand we have every reason to be satisfied with our performance in Asia and Oceania, above all in the People’s Republic of China, where Audi has been the undisputed market leader in the premium segment for many years. Our revenue in China rose by more than 120 percent to over EUR 1.2 billion. The People’s Republic is already Audi’s third-largest export market. We further expanded our range of vehicles: alongside the long-wheelbase of the A6 built specifically for China, we have also been building the A4 in China since last April. Other models in our product range, such as the Audi A8, the A4 Cabriolet and the Audi TT, have likewise been very well received by the local market.
I would like to follow this review of the regional focal points of our business with some brief comments on our product range.
Sales of vehicles of the Audi brand generated revenue of EUR 17.1 billion. The year-on-year increase is substantially attributable to the success of the new A3 and the A8. We were able to sell around 20.000 of the new Audi A8 in 2003. This model thus accounted for seven percent of revenue. As in recent years, however, we generated the lion’s share of revenue for Audi vehicles through sales of the A4 and A6 model series.
Ladies and Gentlemen,
Despite the positive overall development in revenue, the gross profit of the Audi Group fell by almost 20 percent to EUR 2.2 billion. The negative exchange rate factors that had the effect of diminishing our revenue were the main cause of this reversal. As a result, the increase in the cost of sales outstripped the rise in revenue.
Just under one-third of Audi vehicle sales are billed in foreign currency. The sustained strength of the euro – in particular against the US dollar, the pound sterling and the Japanese yen – consequently diminished revenue to the tune of over EUR 600 million. All the same, we succeeded in largely compensating for the effects of the disadvantageous exchange rate on pre-tax profit by taking appropriate measures.
Without these negative exchange rate factors, revenue and cost of sales would have developed roughly in proportion to each other.
As a result of the first-time consolidation of sales subsidiaries, distribution and administrative costs rose by around eight percent to EUR 1.7 billion.
The other operating result was boosted by EUR 367 million. The welcome rise in other operating income to EUR 841 million was accompanied by a decrease in other operating expenses to EUR 286 million.
The operating result consequently fell by EUR 278 million to EUR 1.058 billion. It has been diminished above all by the lower gross profit, as I explained earlier.
As you can see from the diagram, our finance result by contrast rose significantly. We succeeded in improving this item from minus EUR 82 million to plus EUR 50 million. The higher interest result and the investment result were the main factors in this turnaround.
Consolidated profit before tax, at EUR 1.108 billion, did not quite reach the previous year’s level. Allow me to comment briefly on the earnings figure of AUDI AG and of its principal subsidiaries.
COSWORTH TECHNOLOGY LIMITED likewise maintained the trend of recent years, breaking even for the first time since its acquisition by AUDI AG in 1998.
The Lamborghini Group posted a loss before tax of EUR 5.4 million, substantially due to the start-up costs of the Gallardo.
quattro GmbH achieved a substantial rise in profit before tax of more than 60 percent (63.5 percent) in the past financial year, to over EUR 58 million. As well as posting high sales of RS 6 models, its many customisation packages were in considerable demand.
The remaining fully consolidated companies together generated a profit before tax of around EUR 9 million last year.
Consolidated net profit amounted to EUR 816 million and was therefore a good five percent up on the prior-year figure. This is the first time that the initial recognition of deferred tax assets from tax relief on capital investments by AUDI HUNGARIA MOTOR Kft. has led to an improvement in the result.
The consolidated net profit for the year rose to EUR 813 million. Following the profit transfer of EUR 160 million to Volkswagen AG, there remained a balance of EUR 653 million. We allocated this sum in entirety to the other revenue reserves.
The net profit per share yet again rose sharply last year, to a new record level of EUR 18.91, thus comparing very favourably with the figures of our competitors.
As our company’s shareholders, you were undoubtedly following the development in the Audi share price last year. On the Munich Stock Exchange, the value of Audi shares has risen by 10.7 percent since the last Annual General Meeting. The price is currently around EUR 225. If we also include the compensatory payment of EUR 1.05, Audi shares achieved an overall rate of return of 11.3 percent.
The pre-tax rate of return fell to 4.7 percent as a result of the lower profit before tax. As you are aware, the rate of return for trading companies in general is significantly lower than for manufacturing companies. If we were to adjust the rate of return by eliminating our trading subsidiary Autogerma, we would achieve a figure of 5.1 percent – an entirely respectable rate of return, including when compared directly with other car manufacturers, though this is undoubtedly not yet approaching the upper end of the scale where we want to be.
The return on capital, i.e. the net operating result in relation to the capital employed, fell to 7.6 percent. However, it was still well above the rate of return that is generally attainable on the capital market.
I would now like to say a few words about the development in the cash flow and capital investments within the Audi Group.
As in previous years, our capital investments of EUR 2.1 billion are more than covered by our self-generated financial resources. This reflects one of the most important objectives in Audi’s financial policy: the future must be financed under our own steam.
The net cash flow, in other words the cash flow from operating activities less expenditure for investing activities, rose by quite an impressive amount from EUR 130 million to EUR 863 million. This dynamism bears testimony to the intrinsic strength of the company, and reflects and paves the way for a healthy, profit-oriented growth strategy.
Our net liquidity, in other words our cash resources and securities less borrowings, likewise made very positive progress. It reached EUR 1.5 billion at the end of the year.
The capital investments on the balance sheet amounted to EUR 2.1 billion in the past financial year. Investments in property, plant and equipment accounted for the lion’s share of this sum, with product investments comprising around 70 percent of the figure.
Our efforts are fully evident in the demand-based management of our capital investments. Thanks to “thrifty management”, we have succeeded in implementing the scheduled product and investment plans in entirety and to the customary standards of quality. At the same time, we have been able to keep our investment spending within reasonable limits.
Ladies and Gentlemen, to conclude I shall comment briefly on the principal balance sheet items.
The balance sheet total rose to EUR 14.2 billion, or by 11.2 percent.
Fixed assets rose only insubstantially, reaching a level of EUR 8.5 billion at the balance sheet date. We capitalised a significantly lower amount in development costs in the past financial year than in the previous year. The entire spending on research and development activities, on the other hand, rose by around one-fifth to EUR 1.1 billion – a further positive sign of the forward-looking nature of our company when it comes to innovations, new technology and new products. As well as research costs and non-capitalised development costs, this figure includes the depreciation and disposals from amounts capitalised in previous years.
Put simply, we burdened the operating result with increased research and development expenditure more than in the previous year, and in so doing reduced future costs by cutting the level of capitalisation. This bears testimony to the intrinsic resilience of our key financial data.
The current assets including deferred tax assets and prepaid expenses grew by around one-quarter. This change was prompted mainly by higher cash and cash equivalents, the increase in trade receivables and other receivables and assets. A large proportion of these receivables was settled this January.
Let us take a look at the equity and liabilities side of the balance sheet. Equity rose by 14.5 percent to EUR 5.7 billion – in the first instance as a result of the allocation of net profit to the other revenue reserves and the impact of first-time consolidation.
In parallel, the equity ratio rose by over one percentage point to around 40 percent – an impressive figure, including within our industry.
Borrowings including deferred tax liabilities and deferred income amounted to around EUR 9 billion at the balance sheet date. This represents an increase of 9.0 percent on the previous year. This is attributable in the first instance to the increase in provisions by a total of EUR 381 million. We have thus exercised due mercantile prudence in making adequate provision for future obligations and risks.
Liabilities rose by over twelve percent.
As you yourselves will have been able to deduce, the healthy growth of the Audi Group is also reflected by the development in the balance sheet structures.
Ladies and Gentlemen,
Despite the protracted difficulties of the market, Audi held its ground very effectively last year. This is demonstrated very impressively by the volume and financial figures.
The general forecasts for 2004 were still relatively positive at the end of last year. However, the cautious optimism being voiced at that time failed to take on more definite contours in the early months of 2004. Audi has nevertheless started the current year with enormous dynamism, as reflected by its performance in the first four months.
Important model launches, above all the new Audi A6 and the five-door A3 Sportback that will be appearing in the autumn, still await us this year. As expected, the level of orders for our new A6 is very encouraging. The A3 Sportback will for the first time give us a foothold in the premium compact class in the USA.
Thank to this excellent product substance, a highly qualified management line-up and highly motivated employees, we are confident of furthering the successful trend of recent years in 2004.
Thank you for your attention.