August 1, 2014 / 9:20 AM / 3 years ago

UPDATE 1-Audi's profits rise as sales growth offsets costs

* H1 production costs up 8.3 pct to 21.9 bln euros

* Q2 op profit edges up 1.5 pct to 1.36 bln euros

* Audi pushes efficiency programme to rein in costs (Adds CFO comment, detail and background)

BERLIN, Aug 1 (Reuters) - Audi reported higher second-quarter operating profit on Friday, as gains from record luxury-car sales outweighed the impact of spending on technology and foreign expansion.

Volkswagen’s flagship division, accounting for over 40 percent of VW group profit, is setting up production facilities in Mexico and Brazil, aiming to assemble more cars outside Germany than within its home country for the first time in 2014.

Operating profit edged up 1.5 percent in the quarter to 1.36 billion euros, reflecting growth in sales of models such as the A8 high-end saloon and the Q7 three-row sport-utility-vehicle, Audi said.

First-half production costs increased 8.3 percent to 21.9 billion euros ($29.31 billion), while sales costs gained 5.9 percent, Ingolstadt-based Audi said on Friday.

“Audi is continuing its qualitative expansion course despite major challenges,” finance chief Axel Strotbek said.

Audi’s investment drive, based on a five-year record 22 billion-euro budget to fund model, plant and technology projects, is weighing on the carmaker’s profitability.

Audi’s operating profit margin eased to 9.9 percent of sales in the second quarter, from 10.1 percent in the first three months, within a target range of 8-10 percent and still comfortably ahead of rival Mercedes-Benz’s 7.9 percent.

To secure future growth, Audi is now pushing a programme to review spending on all levels of its organisation to boost efficiency, following similar measures announced by BMW and Mercedes.

Rival luxury-car maker BMW is due to publish second-quarter results on Aug. 5.

$1 = 0.7471 Euros Reporting by Andreas Cremer; Editing by Maria Sheahan and Jane Merriman

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