Volkswagen share price down, steps up cost cuts at core brand amid 20% profit jump

Volkswagen AG announced on Thursday it would seek to achieve cost cuts of more than €1 billion in the year ahead as Europes largest car manufacturer aims to revive sales at its namesake brand.

Last year the company introduced an “efficiency program” for its Volkswagen passenger car brand with the aim to reduce costs by €5 billion by 2017. The auto giant said it had already achieved half of its target so far and it expects “a benefit of well over €1 billion in our result for the current year,” said Chief Executive Prof. Dr. Martin Winterkorn in a statement.

The namesake brand generated a revenue of €99.8 billion in the past year, nearly flat when compared to sales of €99.4 billion in the prior year. However, operating profit dropped from €2.9 billion to €2.5 billion as lower sales in South America and Russia took their toll. Additionally, the company said operating profit was hit by higher upfront payments for investing in new technologies. However, the company said the figures excluded the positive impact of its Chinese operations.

Volkswagen owns 40% of AW-Volkswagen Automotive Company, 50% of Shanghai-Volkswagen Automotive Company and 30% of the sales division of Shanghai Volkswagen.

From its Chinese operations the company reported profit of €3.99 billion, up for the €3.6 billion stated in 2013. The company said it has sold 3.7 million units, or 12.7% up, in the worlds largest automotive market.

Mr. Winterkorn said that the company would boost its production capacity in China in order to reach 5 million units annually by 2019, outlining efforts to protect Volkswagens leading position.

“We expect deliveries to increase moderately in full-year 2015 despite the persistently challenging market environment”, said Mr. Winterkorn.

The company also said it will release 50 new models this year, including successors and upgrades to existing models. Important mentions are a new Touran, the Audi Q7 and Porsche 911.

Additionally, Volkswagen projected to achieve group sales growth in 2015 of 4% and operating profit increase of between 5.5% and 6.5%. However, it warned that economic instability in Latin America and Eastern Europe may impact estimates.

All-in-all net profit for the past year jumped 20% to 10.85 billion, boosted by robust performance of the Audi, Porsche and Skoda brands.

Volkswagen gained 4.73% on Wednesday and closed at €242.25 in Frankfurt. On Thursday the stock slipped 0.60% to €240.80 at 09:35 GMT, marking a one-year increase of 32.31%. The company is valued at €109.11 billion.

According to the Financial Times, the 31 analysts offering 12-month price targets for Volkswagen have a median target of €235.00, with a high estimate of €300.00 and a low estimate of €180.00. The median estimate represents a 2.99 % decrease from the last closing price.