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By Geoffrey Smith
Investing.com -- Volkswagen (ETR:VOWG_p) reported what it called a "strong" first quarter, as higher margins at its premium car segment and a big financial gain on its hedging activities offset the damage done by Russia's war in Ukraine and ongoing supply chain problems.
VW preferred stock rose 0.7% in early trading in Frankfurt on Wednesday, outperforming the broader DAX index.
"Based on the figures and the expected better semiconductor supply in the second half of the year, the Group confirms its outlook for 2022," VW said in a statement accompanying its quarterly results. However, it warned that the war in Ukraine and pandemic effects still made it impossible to give detailed guidance for the full year.
Sales revenue was stable at 62.7 billion euros in the quarter, despite a 15% drop in vehicle deliveries, as the company responded to shortages of chips and other components by prioritizing its higher-margin premium brands - Porsche, Audi, Lamborghini, and Bentley.
The shift in the sales mix helped the group's operating margin to rise to 13.5% from 7.7% a year earlier. However, most of the improvement was delivered by the group's hedging activities in a period of extreme volatility in markets for key raw materials. VW said fair value revaluations of its hedges contributed 3.5 billion euros ($3.7 billion) out of a total operating profit of 8.5 billion euros. The core automotive division's operating cash flow actually fell 35% on the year to 5.8 billion euros.
The group also reaffirmed its commitment to investing heavily in electric mobility, and in the U.S. market in particular, where it is targeting a market share of 10% by the end of the decade.
"Battery-electric vehicles (BEVs) will be the central element of this strategy, with the Group’s BEV portfolio growing to more than 25 models by the end of the decade," VW said.
VW chief executive Herbert Diess told Bloomberg that he still sees the war in Ukraine as the biggest threat to the group's outlook, given its capacity to disrupt the German economic model, and the danger that it will accelerate the splintering of the global economy into a handful of less efficient regional ones.
However, he noted that the short-term outlook has improved as its factories in China have reopened, even though he admitted that they are currently working at 'low volume'. VW sells over a quarter of its output globally in China, and its factories in Shanghai were closed for weeks during the city's recent lockdown, which is still dragging on despite attempts by the authorities to relax quarantine restrictions.