Dr. Ing. h.c. F. Porsche AG (P911) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for participating in the Media, Analyst and Investor Call regarding Porsche AG's Q3 2026 results. This call will be hosted by Dr. Jochen Breckner, member of the Executive Board of Finance and IT. [Operator Instructions]. At this time, it's my pleasure to hand over to Bjorn Scheib, Head of Investor Relations. Please go ahead, sir.

Thank you very much, and good morning to everyone. This is our Media and Analyst call of Porsche AG on the Q3 2026 results. My name is Bjorn Scheib, and I'm the Head of Investor Relations. And with me today is [indiscernible], our Director of Corporate and Product Communications. Before our CFO, Jochen Breckner will give you an overview of our business performance in the first 9 months of 2026, just a couple of words on the procedure. After the intro statement by John, we will start the Q&A session with the analysts. Our separate Q&A session for journalists will be held in German and start at 9 a.m. Central European time. You can find further detailed information online in the Porsche Newsroom as well as on the Investor Relations website. And as always, we would like to remind you that all forward-looking statements are subject to the risks and uncertainties mentioned in the safe harbor statement in our documents. And with that, I hand over to Johan.

Bjorn, thank you very much. Good morning, everyone on this call, ladies and gentlemen. Warm welcome, and thanks for joining us today for analysts, investors and media conference. As outlined at our Capital Markets Day 3 weeks ago, we continue to execute our strategy, Sportwagenschmiede '35 with clear focus and discipline. And we are beginning to see the first benefits in our financial performance. We are sharpening our product portfolio and focusing on our core business. We are improving our cost structure and reducing capital intensity. We continue to sharpen our focus on the core business and have reached two important milestones. First, the divestments of our stakes in Bugatti Rimac and Rimac Group were completed in the third quarter. Second, a sale agreement and foundation of a strategic partnership for MHP has been signed. At the same time, we delivered a solid operating result and generated strong net cash flow in the first 9 months, despite the challenging market environment. Combined with a strong balance sheet, this gives us the financial resilience and the strength to continue executing our strategy with discipline and we confirm our outlook for the full year 2026. Let me now turn to our financial performance in the third quarter and the first 9 months of 2026 in more detail. Looking at the first 9 months of this year, group revenue came in at EUR 25.3 billion, down approximately 6% year-on-year. While vehicle sales were lower, strong pricing and positive mix effects continue to support the quality of our revenues. This results in a significantly more resilient revenue development compared with unit sales. And this reflects the strength of our value-over-volume approach, our pricing discipline and the quality of our sales mix. At the same time, our geographically balanced sales footprint continues to provide resilience across different markets. As you know, we have significantly reduced our exposure to China. This makes our overall business less dependent on developments from this challenging market environment. With the successful launch of the all electrical Cayenne, BEVs account for 22% of our vehicle sales year-to-date. Automotive revenues per vehicle sold increased to around EUR 126,000. This is an increase of approximately EUR 6,000 against last year. In addition, revenues in the Financial Services segment continued to grow. Ladies and gentlemen, you also know that we maintain to operate in a challenging cost environment. This is characterized by inflationary pressures costs associated with the slower transition to Electric Mobility and Elevated Development expenses and depreciation. Despite these headwinds, we've made tangible progress on costs. The disciplined execution of our Push-to-Pass performance program contributed to a reduction in our underlying cost base. Turning to cost of sales. In the first 9 months of this year, cost of sales declined by EUR 3.2 billion to EUR 10.4 billion. This development mainly reflects substantially lower expenses related to our strategic realignment and it includes the release of provisions following successful negotiations in connection with the realignment of our product strategy. This improvement was also clearly visible in the third quarter. Cost of sales declined by approximately EUR 2.2 billion to EUR 6.6 billion. Strategic realignment expenses amounted to around EUR 300 million, mainly related to the Zukunftspaket. Compared to this, in Q3 last year, the expenses in connection with the strategic realignment measures amounted approximately EUR 1.9 billion. Overall, we achieved a clear improvement in profitability. For the first 9 months, group operating profit reached EUR 1.7 billion, up significantly from EUR 40 million last year, resulting in an operating return on sales of 6.9%. This development was also reflected in our third quarter performance. Strong pricing and mix, improved cost of sales and substantially lower strategic realignment expenses supported an operating profit of EUR 387 million and an operating return on sales of 4.8%. What is also important, we continue to deliver strong cash conversion, reflecting our disciplined approach to capital allocation and cash management. In first 9 months of 2026, automotive net cash flow increased significantly to EUR 2.5 billion. This corresponds to a strong net cash flow margin of 11.3%, compared with 5.6% last year. This increase was supported by lower cash outflows from investing activities and, in particular, the proceeds from the completed Bugatti Rimac and Rimac Group transactions. This strong cash generation continued in the third quarter. Automotive net cash flow increased significantly to around EUR 1.5 billion. This includes a net extraordinary contribution of around EUR 500 million mainly related to the more than EUR 900 million for mainly Bugatti Rimac transactions. On the other hand, this was partly offset by cash outflows for the strategic realignment and pension contributions. Excluding these extraordinary effects, automotive net cash flow remained broadly in line with the prior year quarter. Now this brings me to our capital allocation. We remain disciplined in our investment approach and continue to focus resources on strategic priorities. Year-to-date, CapEx amounted to EUR 1.2 billion, including around EUR 300 million of license payments to Audi, slightly below the prior year level. We also continue to manage R&D spending with discipline. R&D expenditures decreased to EUR 1.5 billion year-to-date, compared with EUR 1.8 billion last year. At the same time, we maintained our conservative R&D accounting approach with a capitalization rate of around 43% year-to-date. This continues to support the quality and sustainability of our earnings and cash flow generation. This is fully aligned with the directions we outlined at our Capital Markets Day. Our strategy, Sportwagenschmiede '35 is about stronger cash duration and a structurally more capital-efficient business model. We are becoming more focused and disciplined in how we allocate capital. But let me be clear, this is not about investing less. It's about investing better. We will continue to invest in our products, technologies and innovation leadership, but with an even sharper focus on value creation, capital efficiency and returns. As a result, Automotive net liquidity stood at EUR 8.2 billion at the end of Q3. With this, we see Porsche in a very strong financial position. Our healthy balance sheet gives us both the resilience to execute our transformation and the financial flexibility to continue investing in Porsche's future. With that, let me turn to the outlook. Again, first and foremost, despite the continued challenging market environment, geopolitical uncertainties and external headwinds, we confirm our guidance for the full year 2026. Our guiding principle remains unchanged. Value over volume. Vehicle sales are expected to decline significantly compared with 2025 due to several reasons. The phaseout of the 718 and the ICE-Macan model lines. Base effects, especially from the first full PHEV-Macan year 2025. The impact of changes to U.S. tax incentives on demand for electric vehicles as well as our conservative outlook for the Chinese market. Based on current assumptions, second half volumes are expected to be broadly in line with first half levels. At the same time, the ramp-up of the all-electric Cayenne is expected to drive a significantly higher BEV share in the second half of the year. We continue to expect the group operating return on sales of 5.5% to 7.5% for the full year. As I previously outlined, our profitability guidance includes approximately EUR 800 million to EUR 900 million of net extraordinary burdens related to our strategic realignment. With this, let us turn to cash flow. We continue to expect an automotive net cash flow margin of 5.5% to 7.5%. This includes several extraordinary effects. First, around EUR 1.3 billion of cash outflows related to the strategic realignment. This includes the Audi license payment in the high triple-digit million euro range. Second, around EUR 500 million of pension contributions and third, around EUR 900 million of net cash flow relevant inflows related to the Bugatti Rimac transactions. Together, these extraordinary items are expected to result in a net cash outflow of around EUR 900 million to EUR 1 billion. Now let me come to the end following conclusion. Overall, we remain firmly on track with the execution of our strategic and financial priorities. While the environment remains challenging, our focus is clear, strengthening profitability, improving cash generation and building a more capital-efficient Sportwagenschmiede. With that, after a short break, I look forward to your questions. Thank you very much.

Thank you, Mr. Breckner. Ladies and gentlemen, we will now have a short break afterwards the Q&A session for the analysts and investors will start.

Ladies and gentlemen, we will now begin the question-and-answer session for the analysts and investors. [Operator Instructions] With this I will handover to Bj�rn Scheib. Please go ahead, sir.

Thank you very much. So we will start the Q&A session with analysts investors now. And first in the row will be Tim of Deutsche Bank. And next after Tim will be Patrick of UBS. Tim, the line is open.

I have two questions, please. The first one would be on the Zukunftspaket. We're starting to see the moving parts on cash and cost. Obviously, at the CMD, you indicated that you expect the progress relatively quickly. Can you quantify where we stand on the Zukunftspaket particularly the headcount reduction? How much of the targeted savings is already secured? How much is still depend on further negotiations and execution? And then secondly, very impressive free cash flow today, even though that have expected you to print the [indiscernible] were still positively surprised here. With the strong free cash flow and the liquidity situation, how should investors think about capital returns from here, especially how do you balance the regular dividend and the participation of shareholders and proceeds of what you call M&A, such as Bugatti and Rimac, i.e., thinking about the potential for a special distribution in the year.

Tim, thank you very much for the two questions. Let me answer them in the order that raised these two points. First one was on the Zukunftspaket and the question how we progress with the reduction in our workforce and the headcount. And what I can confirm here again is, as we also communicated and confirmed on the Capital Markets Day is that the development of headcount reduction is completely in line with our expectations. The programs that we've set up. With regards to partial retirement and also the mutual termination agreements are well on track. Reduction is going on as we've planned it and we do not see any risk that we will not fulfill our targets that we've defined. You might remember, we communicated that we will reduce our workforce by in total 9,000 full term equivalents by 2032, and that is still the target and will be achieved. On top of that, no additional negotiations are needed for that one. If I got the second part of your first question correctly, this is all in line with the Zukunftspaket. Zukunftspaket is signed. And as I said, we are already executing and progressing quite well on that one. The second question was on capital returns, given our very strong net liquidity and also the very strong net cash flow that we had in Q3, including the M&A proceeds from the Rimac Group and Bugatti Rimac. With that, I confirm what we've also communicated on the Capital Markets Day. We've updated our dividend policy from around 50% dividend payments of the net proceeds based on IFRS on our group results to more than -- or at least 50% to be precise. And this is what we are targeting. We have not yet defined the dividend payment for the full year yet. This is something that we will discuss with the corporate bodies and then suggest to the Annual General Meeting in spring or early summer 2027. But from today's perspective, we think that this will be in line with the updated policy that we've communicated on the Capital Markets Day.

So next in a row is Patrick of UBS. And after Patrick, we will have Jose of JPMorgan.

Two questions also for me, please. First one, starting with the full year guide and what it what's implied for the fourth quarter. I think for revenues, you said already that you expect results at the lower end of the range, which would still be close to EUR 10 billion of revenues in the fourth quarter, so a substantial improvement quarter-over-quarter. If I take the midpoint of your EBIT margin corridor for the full year, you wouldn't make only 5.5% margin on that relatively high number. So is there anything on the cost front that we should be aware of? I think you're guiding realignment costs even a bit lower by about EUR 100 million than you did previously. So if you could just elaborate a little bit on what implied here for the fourth quarter. And also when it comes to cash flow for the fourth quarter, the underlying one should still be solid. And I think R&D, cash R&D is a key contributor here because it went down couple of hundred million year-over-year. Was that cash R&D of the third quarter an outlier, a positive outlier? Or is that sort of the run rate from here? And my second one, very simple, you launched Mission X concept on the day somebody else has shown a flying car to the world, but I think you've got the really, really good traction. Can you just share a little bit qualitative feedback and what that means for your thinking about the product launch?

Yes. Patrick, thank you very much. Also good morning to you. I start with our Mission X, a fantastic vision model that we've communicated on the Capital Markets Day and then presented it to the worldwide audience 2 or 3 weeks ago in New York at a historic place, and that car received really overwhelming feedback from all the stakeholders and groups that we were targeting with that car. From our perspective, that vision model is in terms of design, in terms of positioning of the brand, a great proof point for our strategy Sportwagenschmiede '35 and also the feedback we receive from our customer groups is, as I said, really overwhelming. Most of these guys ask for the piece of paper where they can sign a purchasing contract, which is not possible yet, of course, since that car is not decided it's still a vision model and a design model, but it received really fantastic feedback, and we are really happy with the feedback we received since then. Now on your first questions on financial performance. We confirm the outlook for the full year. As I said, 5.5% to 7.5% return on sales. We are just above the midpoint with 6.9% as per Q3. And this year, again, has a lot of, as said, moving parts in terms of extraordinary expenses that we had. And indeed, in quarter 4, we expect additional expenditures both for the Zukunftspaket, but also for the other line items that we have in the extraordinary expenses for the strategic realignment. That gives us a bit of a headwind so that we do not expect that profitability would increase for the full year. But as I said, we will be, yes, really in the corridor between 5.5% and 7.5%. And no surprises are to be expected there. Cash R&D was the second part of the question that was quite positive until Q3 and also in Q3, we usually see a bit of a hike and increase in Q4 with the year-end rally that we have with closing all the bookkeeping and the project work that we are doing. So therefore, that is not something that you should take as a performance for the fourth quarter and also into next year. As we said, we are still sitting on elevated strategic capital allocation in terms of R&D and also CapEx '26, '27. The improvements that we are targeting based on our Sportwagenschmiede activities will kick in thereafter with a minus 20% to 25% that we are targeting for the midterm. Maybe on top of that, what you've asked, what is also important of cash R&D is our conservative bookkeeping that we have. I mentioned that in the interest statement, we're sitting at 43% per of capitalized R&D, which is compared to what we had in the past quite conservative and therefore, also shows that the bigger part of R&D is expensed and therefore already included in our EBIT and return on sales as we communicated it today for the third quarter.

Thank you very much. So next in the row then is Jose of JPMorgan, and he will be followed by Michael of HSBC.

Could you provide some comments with regards to the moving parts for 2027, so we can get sense of the trajectory into next year? And then second, strategically, when you think about manufacturing of vehicles across different plants, is the discussion still on the table to potentially move the Cayenne to [indiscernible]? Or is this not currently in the discussions?

Thank you. On your first question into 2027, you were asking about the moving parts, but let me start with a more general and broader statement. As we communicated, as you know, we expect 2027 to be a rather transitional year, where we recommend to rather look through that year for '28 and the years to come for the positive effects of our Sportwagenschmiede '35 strategy to kick in. Why is that? Why is '27 expected to be the trough. That's because of the holes that we have in our product portfolio. It will be the first full year without the ICE-Macan and given other movements in the markets and the life cycle effects, we expect that 2027 will have less volume than 2026. And given our contribution margins, that's definitely a headwind. Now on the strategic realignment expenditures, we will see improvements in '27 compared to '26. The most important part that we will still have there are the budgets for our Zukunftspaket and restructuring initiatives that we have. So for partial retirement also for the mutual agreements for reducing the workforce, we expect EUR 300 million to EUR 400 million as a headwind and as a cost item in 2027. Now moving from '27 to the more specific question in terms of production footprint that we have concerning the Cayenne, you've mentioned that for an auto maybe potentially the additional SUV above the Cayenne, which is still under investigation. There is no final decision made yet. There are alternatives that we are evaluating. Of course, one of the scenario is [ Bratislava ] where the current model is manufactured, but also [indiscernible] could be an option. We're still in the process of doing the math and see what would be beneficial for Porsche. We are in discussion also with the group in Volkswagen since [indiscernible] is not our own factory. So we need to also realign on that question there. And yes, decisions are still to be made. So the short answer would be it's open, and we will communicate as soon as we've made final decisions on the location where we will produce the next Cayenne.

John, thank you very much. So as I said, Michael of HSBC is next in a row and thereafter, we're going to have Horst of Bank of America.

A couple from me. I wonder if Jochen, you can just talk through, you've closed quite a few businesses and sold a few businesses this year. What does that mean in terms of savings? Because I assume things like e-bike Sales force were actually a drag on the P&L. So how much of that do you get sort of relief in '27?? And then the second one is more about your relationship with Audi, you're paying them for a platform, but if I'm not wrong, they're going to be paying you for a platform, where does that end up net-net once they've got the BEV EV [indiscernible] platform? Is it still in their favor? I mean can you give some steer as to where that sort of whole thing plays out?

Michael, thanks for the first question. You're raising a very important topic. We closed some businesses that we've started as a Porsche group, and we also sold off some subsidiaries and financials that we had with Bugatti with Rimac and also with MHP, at least with the signing we had on MHP. And all these initiatives come down to say, the sub strategy that we have in the context of our Sportwagenschmiede, which is called Focus on the core, which is very important. We want to reduce distraction and the kind of adventures in other business opportunities that we had seen in the past and really focus on what is Porsche about, Sportwagen, Heritage Legacy and convincing technology. So these are first and very important proof points on that strategy and that helps to focus Porsche and make it also more profitable company. When it comes to the relief in terms of cost items, you need to understand that we've baked those closures when it comes to e-bike, but also, for example, the self group and the smaller companies that we had like TTTech into our specialists that are communicating this year. So the most important effect that you will see is that the special effects will be lower in 2027, as I just said, with the other question from Jose, we will just have EUR 300 million to EUR 400 million remaining in 2027, and that's for the Zukunftspaket. So that's a positive effect that you will see. Other than that, these companies were not really significant as they were still growing and being built in the phase that they were at when we were closing them. Of course, selling MHP when the closing happens, that would give definitely a relief of cost items since that was a fully consolidated 100% subsidiary of Porsche with more than 4,500 employees. There, you will see the reductions in SG&A but also in the cost of sales. And having mentioned that, just to be clear on that one, these 4,500 employees come on top to the 9,000 that we've communicated for a reduction in general for making Porsche slimmer than it has been in the last year. On your second one, completely different topic, platform strategy. which really is the basis for a joint synergy generation and exploration between the brands, especially Audi and Porsche, but also in our case, we have synergy projects with Bentley, for example, and to some extent, Lamborghini, that's an important part for our financial model. And you are right. this goes in both directions. We are using platforms, modules and technology from Audi, especially when it comes to our SUV cars. And we will have elevated high cash spending for the license payments for the next platform for the successors of our Cayenne, for the potential additional SUV above the Cayenne and also for the the ICE-Macan. On the other hand, we are offering our electric form for the 718 Box and Cayman, which is about to be launched next year, for an Audi project, they call CSport internally, and we will get cash from their side. That payment is expected to come in at 2027. But what is important to understand is that, that will be a much lower number than that what we have to pay to Audi. And this is for the sole reason that what happens within the group is that you distribute expenditures that are in the books and the platforms and the modules that we use from Audi are say much bigger and have a much bigger extent than what we are giving to Audi on the 983. So you should not think into high EUR 100 million or even EUR 1 billion for the 983. It's rather a low 3-digit number that we expect in 2027.

So next, in the row then, as I said, is a Horst of Bank of America. And he will be followed by Daniel of Matla.

I have got a few questions. First of all, related to deliveries and volumes. I still struggle with the forecasting of the volume outlook. I mean, the Macan phase out that flagged on your side, and I understand that impact. But aside from that, when we look at the other model lines, and we see recently some wealth deflation around the world. Do you see any impact in your order book already on the deflation trends and take the Macan side, we should expect for Q4 and higher volumes versus Q3 or rather flattish. Then the second question relates to tariffs. I know it's a dead-end question and probably hard for you to comment on that, but it was always said that the entire Volkswagen Group is basically looking for kind of tariff deals. So if Volkswagen adds capacity in the U.S. the entire group could get a kind of tariff exemption. Is that still under discussion? I know nothing has been announced. So therefore, you can't say it's in the books, of course. But is it the possibility that you get a tariff exemption if Volkswagen expand capacity in the U.S.? That would be the second question. And the last one relates to FX rates because the dollar strengthened recently and maybe you can again mention, what are your assumptions regarding currencies going forward? Is this -- the strengthening of the dollar is also based on your assumption?

Horst, thank you very much. I'll start with the third question. On the the development of the U.S. dollar lately. You are right, we've seen the appreciation of the U.S. dollar to [ 1.12 ] on some days, even below [ 1.12 ], which is a positive development for our export-oriented business. But what is important to understand, if you look for the midterm, where we've communicated that for 2030, 2031, we assumed a rather conservative approach on FX rates, especially on the U.S. dollar, that it's quite early days to predict the appreciation that we've seen today, what will happen in 2030, '31. That's one. And second, based on the interest rate differential that we have or difference that we have between the eurozone and the U.S. dollar, even given the fact that we see this rather strong U.S. dollar during the last couple of days and few weeks. It's still not possible to hedge at these rates for our midterm business plan. So these short-term movements are beneficial for short-term performance to some extent for the exposures that are not hedged yet. But for the midterm and the strategy, there is no change in what we've communicated on the Capital Markets Day with our midterm ambition of 10% to 15% and return on sales for the midterm with the indication that from today's perspective, given this conservative approach on macroeconomic and especially FX assumptions, we expect to be in the lower bracket of that one. Now, on your second question, I do it in the inverse order. I hope that is all right with you, horst and everyone on the call. It was about tariff and a potential tariff deal of the Volkswagen Group that was debated around the time when the tariffs were imposed and implemented on the U.S. side, but there were a lot of discussions. There are some comments from the Volkswagen Group. But as then, we do not have any knowledge that there is something under discussion that there will be something agreed. And in our financial ambition, midterm and also in our financial guidance for current year and the indication that we are giving for the next year. We do not expect that something positive happens. We are basing our -- or putting our business model on the assumption that the 15% import tariffs remain in place. And your first question was on the volume movements. We expect Q4 to be rather flat. So there are some increases, some decreases in terms of model lines, but also in terms of the regions, that we have, especially China remains a headwind. You know that we [indiscernible] the volume there substantially following our over value strategy, stabilizing the business. This is also something that we expect for 2027. The second reason next to the San that we expect that 2027 will have a lower module. What is important is the 9/11, we see a very strong demand on that icon of our business model still very strong. We still have waiting times that are in line with our strategy, and this gives us really a robust order bank. Also, the Cayenne Electric especially in Europe, where we see a positive trend into the Electric Mobility is received very well by our customer base.

Okay. Just one small follow-up. If the currency rate stays where it is at the moment, would that be a headwind or a tailwind in '27?