October 28, 2016 / 8:26 AM / a year ago

VW's Audi warns of currency hit to sales in challenging market

BERLIN (Reuters) - Audi cut its sales forecast for the year on Friday, blaming volatile currency markets and predicting that its revenue will stagnate compared with 2015 due to “challenging” conditions.

The pessimistic outlook from Volkswagen’s (VOWG_p.DE) flagship luxury division came a day after it scaled back its profitability forecast.

Audi said that 2016 revenue may now be on a par with last year’s 58.4 billion euros ($63.76 billion), whereas it had previously forecast a moderate increase.

In Britain, Audi’s No. 2 European market, the weakening pound is causing problems, but volatility in other foreign exchange rates also contributed to the weaker sales outlook, a company spokesman said, without being more specific.

“The conditions our company faces are currently very challenging,” Chief Executive Rupert Stadler said.

Audi’s nine-month operating profit adjusted for special items plunged by a quarter to 3.03 billion euros, compared with the year-earlier period. Its operating margin shrank to 6.9 percent, well below Audi’s 8-10 percent target range.

The Ingolstadt-based carmaker said on Thursday its profitability benchmark would fall “considerably” below the 8-10 percent target this year after announcing 620 million in new risk provisions.

Audi had already set aside 132 million euros for costs of the diesel emissions scandal in the second quarter. Year-to-date, its provisions for this now total 752 million euros, and it has set aside another 133 million for possible recalls of cars fitted with Takata Corp. 7312.T airbags.

    While Audi, which developed and built the 3.0-litre engines fitted in 85,000 polluting cars in the United States, is facing tough times, VW stablemate Porsche (PSHG_p.DE) raised its profit outlook.

    The second-largest contributor to VW group profit said it now expects underlying earnings to slightly exceed last year’s 3.4 billion euros after previously guiding for operating profit to at least match the year-earlier result.

    Despite upfront spending on its first all-electric model, the sports-car maker reported a 12 percent gain in nine-month profit to 2.9 billion euros, benefiting from strong demand for its 911 model line and the top-selling Macan SUV.

    ($1 = 0.9160 euros)

    Editing by Maria Sheahan and Alexander Smith

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