UPDATE 1-MAN warns 2013 profits to be hit by weak Diesel & Turbo

Tue Jun 4, 2013 6:09am EDT

* Sees 2013 return on sales down significantly

* Says after-sales business down more than expected

* Says takes 146 mln euros of additional provisions in Q2

* Says significant tax risks have arisen at former unit (Adds company comment, details on after-sales business, tax risks)

FRANKFURT, June 4 (Reuters) - German truck maker MAN warned its return on sales would shrink significantly this year due to a slump in after-sales business at its Diesel & Turbo division, additional provisions and new tax risks.

The Volkswagen-owned company said on Tuesday the downturn in after-sales business at Diesel & Turbo so far this year was steeper than it had expected.

"Due to the continuing difficult economic situation in the shipping industry, the European sovereign debt crisis as well as the poor economic situation in particular in the important sales region of the Middle East, the situation in the after-sales business of MAN Diesel & Turbo SE will continue to be tense in the next years," it said.

Diesel & Turbo, which accounted for almost a quarter of MAN's group revenue last year, makes products including diesel engines for ships, turnkey diesel power plants and reactors for the chemical industry.

In the first quarter, MAN's results were weighed down by 140 million euros ($182.4 million) of provisions at Diesel & Turbo to cover possible risks related to a large order to construct turnkey diesel power plants.

MAN said on Tuesday it was now taking additional provisions of 146 million euros in the second quarter following a final report from an auditing firm that analysed the project's risks.

In addition, it said substantial tax risks relating to 2004 through 2006 had emerged in the course of an external tax audit of a company that used to be part of the group. It did not provide further details on the tax risks.

MAN had said in late April it expected its group return on sales for 2013 to come in well below the 2012 figure of 6.1 percent. It reiterated on Tuesday an outlook for flat revenue.

It had also said it expected the return on sales at Diesel & Turbo to be hit by a decline in license business in the marine sector, high competitive pressure, provisions and less profitable plant engineering orders.

In the first quarter, Diesel & Turbo reported a 20 percent decline in orders and an operating loss of 122 million euros.

At 1000 GMT, MAN shares were down 0.9 percent at 84.7 euros, while Volkswagen's were 1.6 percent lower at 164.45 euros.

($1 = 0.7675 euros) (Reporting by Maria Sheahan; Editing by Peter Dinkloh and Mark Potter)

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