Audi sticks to 2013 profit target despite 17% third-quarter drop

Article by Anita Panait, on November 5, 2013

Audi reiterated its full-year 2013 profit target even after it suffered a 17-percent drop in operating profit in the third quarter of the year to EUR1.10 billion. Audi reiterated its goal to achieve its sales target of 1.5 million cars and SUVs in 2013, two years earlier than planned.

The German luxury carmaker, a unit of the Volkswagen Group, attributed the drop to higher investment costs on sites and technology. Audi is currently inducing overseas expansion, adding capacity in China, Mexico and Brazil – as part of its bid to surpass BMW as the top-selling luxury brand by 2020.

The carmaker’s second site in China will commence production at the end of 2013. It is also investing almost EUR1 billion ($1.35 billion) for a new facility in Mexico that will build the next generation Q5 SUV from 2016.

Audi chief financial officer Axel Strotbek said in the quarterly earnings statement that the carmaker is making high upfront expenditures and investments “now and in upcoming years” to create an “even stronger global position.”

Profit from Audi accounts for around 40 percent of VW group operating earnings and is considered vital to the parent’s target to surpass General Motors and Toyota Motor Corp. as the biggest carmaker in the world by 2018. Audi posted a 9.4-percent operating margin in the third quarter of 2013, compared to 7.3 percent return on sales for Mercedes, which posted a 23-percent surge in earnings before interest and tax (EBIT) to EUR1.2 billion.

In 2012, Audi’s earnings in were adversely affected by the declining market in Europe. This prompted the luxury carmaker to target a "slight" increase in revenue for 2013. Audi said that it predicted to hit an operating margin at the upper end of its long-term target. For 2013, Audi is also targeting to do better than the record 1.46 million vehicle sales posted in 2012. The brand is seeking to capture the top sales record from BMW in 2020.

According to Audi, its operating profit jumped by 0.6 percent to EUR5.38 billion ($6.99 billion) in 2012, while net profit dropped by 2 percent to EUR4.35 billion.

Audi saw its revenue grow by 11 percent in 2012 to EUR48.8 billion. On the other hand, its operating profit as a percentage of sales was at 11 percent, which is slightly higher than its long-term target range of between 8 percent and 10 percent. Audi accounted for around 40 percent of VW Group’s earnings, making it the primary profit driver of the VW Group.

Audi is currently struggling with the effect of a weakening auto demand in core European markets.

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Topics: audi, sales

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