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UPDATE 2-VW profit slumps on European gloom and tech costs
October 24, 2012 / 9:01 AM / 5 years ago

UPDATE 2-VW profit slumps on European gloom and tech costs

* Q3 op profit down 19 pct to 2.34 bln euros, as expected

* Q3 VW group sales up 27 pct to 48.9 bln euros

* Q3 VW group deliveries up 13 pct to 2.3 mln cars

* Shares up 4.1 pct, among biggest gains on Germany’s DAX (Adds detail, analyst comment)

By Andreas Cremer

BERLIN, Oct 24 (Reuters) - Volkswagen’s third-quarter profit fell by a fifth as the deepening slump in Europe’s car market caught up with the region’s biggest auto maker and it invested in a technology overhaul aimed at extending its lead.

The German group is less exposed to austerity-hit Europe than rivals like PSA Peugeot Citroen, Fiat and Renault and has been leveraging strong sales elsewhere to offer cut-price deals that have helped it to gain market share in its home region.

Still, a downturn in Europe’s new car market, which shrank at its fastest pace for a year in September, is filtering through to Volkswagen (VW), which makes more than a third of its deliveries in western Europe.

Operating profit dropped to 2.34 billion euros ($3.04 billion) in the third quarter from 2.89 billion a year earlier, VW said on Wednesday.

That was in line with analyst expectations, though, and they expect profits to rebound when VW starts to reap the benefits of its technology revamp.

“VW is holding up well in an increasingly tough environment,” Metzler Bank analyst Juergen Pieper said.

VW’s preferred shares were up 4.1 percent to 152.45 euros by 1200 GMT, one of the biggest rises on Germany’s benchmark DAX index. The shares had fallen around 4 percent over the last month on concerns over darkening economic skies.

Benefiting from a strong performance in overseas markets like the United States and China, VW reaffirmed goals to increase group vehicle sales and revenue for 2012, and to match last year’s operating profit of a record 11.27 billion euros.

Company sources said, however, that Wolfsburg-based VW has cut a global production target to 9.4 million cars this year - up on last year’s output of 8.5 million but short of the goal originally set for 2012 of about 9.7 million.

VW, whose brands include Audi and Skoda, is aiming to increase annual global deliveries to at least 10 million vehicles by 2018, when it wants to replace Toyota Motor Corp as the world’s biggest car maker.

COST OF TECHNOLOGY

Third-quarter results were burdened by the cost of rolling out a new car platform, or architecture, to factories to assemble as many as 3.5 million small and medium-sized vehicles including the Golf hatchback and the CC coupe.

Finance chief Hans Dieter Poetsch has previously said the costs of the technology, which may absorb about 15 billion euros through 2016, could peak in the July-September quarter when VW started to build a new version of its best-selling Golf model, due to hit showrooms on Nov. 10.

“The modular toolkit system will have an increasingly positive effect on the group’s cost structure in the future,” VW said in its results report.

Net cash reserves fell to 9.2 billion euros from 14.9 billion euros at the end of June, following VW’s purchase of the second half of sports-car maker Porsche AG on Aug. 1 and luxury division Audi’s acquisition of Italian motorcycle maker Ducati.

Full consolidation of Porsche’s auto-making operations in VW’s accounts will boost VW’s full-year financial results by about 11 billion euros this year, VW has said, without specifying which financial metric it means

$1 = 0.7714 euros Reporting by Andreas Cremer; Editing by Hans-Juergen Peters and Mark Potter

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