Volkswagen warns of risks, impacts from Russia-Ukraine conflict

While German carmaker Volkswagen has doubled its operating profit in 2021, the company has warned that Russia's invasion of Ukraine and its impact on supply chains could hit business this year in various unforeseen ways. The conflict has lead to halting of assembly lines and breaking complex supply chains.

This has led to carmakers scrambling to find alternative sources of vital parts made in Ukraine such as wire harnesses, from as far afield as China and Mexico. "The conflict... has an impact on the entire global economy, on raw materials, on supply chains and therefore on our company," Volkswagen finance chief Arno Antlitz told journalists after publishing preliminary 2021 results, Reuters reported.

He further stated that the impact of this conflict cannot be conclusively assessed at this point in time, adding the group was currently working on tapping other suppliers in Eastern Europe and North Africa to obtain wire harnesses.

As Russia calls its actions in Ukraine a “special operation", it worries Volkswagen about a risk that these latest developments will have a negative impact on its business. However, the company proposed to raise its annual dividend by more than half to 7.50 euros per ordinary share and 7.56 euros per preferred share for 2021, after operating profit doubled to 19.3 billion euros ($21.1 billion) last year.

The move of doubling of operating profit in 2021 was made, thanks to higher prices and a more favorable product mix, the company said, adding it expects an operating margin on sales of 7.0%-8.5% in 2022, compared with 7.7% in 2021. Sales are forecast to rise 8%-13% in 2022, compared with a 12.3% increase to 250 billion euros in 2021.

However, this guidance is subject to change depending on further development of the war in Ukraine and in particular the impact on the group's supply chains and the global economy as a whole.

(with inputs from Reuters)