VW lifts profit target as cost cut­ting pays off

The Star Malaysia - StarBiz - - Foreign News -

BER­LIN: Volk­swa­gen lifted its profit target for the year after cost cuts at its core au­tos di­vi­sion helped it out­strip third-quar­ter earn­ings fore­casts.

Shares in the world’s largest car­maker

� rose 1.9% to an eight-month high at 148.20 by 0756 GMT, mak­ing them the big­gest ris­ers on the STOXX Europe 600 au­to­mo­biles in­dex , which was up 1%.

VW is spend­ing bil­lions of eu­ros to re­po­si­tion it­self two years after a diesel emis­sions scan­dal, fo­cus­ing on elec­tri­fi­ca­tion of its mass-mar­ket and lux­ury brands while de­vel­op­ing what it calls “dig­i­tal mo­bil­ity ser­vices” for those who do not want to own a ve­hi­cle.

Higher earn­ings at mass-mar­ket di­vi­sions such as VW’s name­sake brand and Czech unit Skoda as well as the trucks busi­ness lifted group re­sults, while pre­mium brands Audi and Porsche posted flat and lower profit.

“Earn­ings in the first nine months make us quite op­ti­mistic about the year as a whole,” Volk­swa­gen fi­nance chief Frank Wit­ter said. “This is a strong foun­da­tion we can build on.”

Quar­terly group earn­ings be­fore in­ter­est and taxes (EBIT) and be­fore spe­cial items

� jumped 15%to 4.31bil (US$5bil). That beat

� even the high­est es­ti­mate of 4.17bil in a Reuters poll of banks and bro­ker­ages.

VW said it booked 2.6bil in the three months ended Sept 30 to fix diesel en­gines in the United States, con­firm­ing an an­nounce­ment last month that will raise to­tal provi-

� sions for its “Diesel­gate” scan­dal to 25.1bil.

Wolfs­burg-based VW said it ex­pected the group op­er­at­ing mar­gin to mod­er­ately ex­ceed a target of be­tween 6% and 7%, hav­ing pre­vi­ously said the mar­gin would hit that range.

VW said its re­sults ben­e­fited from cost cuts, agreed a year ago with labour unions, and grow­ing ve­hi­cle sales.

“The re­sults show that cus­tomers at least abroad are ready to for­give VW the diesel scan­dal,” NordLB an­a­lyst Frank Sch­wope who has a “buy” rat­ing on the stock, said. “The strength is enor­mous.” Quar­terly VW brand de­liv­er­ies rose 7.3% on strong de­mand from China, the United States and South Amer­ica, al­most triple the 2.7% gain in year-to-date sales and off­set­ting de­clines in Ger­many, helped by or­ders for the new Tiguan SUV.

VW’s core brand is in the midst of cut­ting thou­sands of jobs through nat­u­ral at­tri­tion, has ceased un­prof­itable mod­els, re­duced parts com­plex­i­ties and stream­lined model devel­op­ment to lift the core di­vi­sion’s mar­gins.

Re­struc­tur­ing helped more than dou­ble its quar­terly re­turn on sales to 3.8% from 1.5% a year ago, near­ing VW’s target of at least 4% by 2020.

“This is a strong re­sult,” said M.M. War­burg an­a­lyst Marc-Rene Tonn, who rates the stock “hold”. “There is grow­ing ev­i­dence of cost sav­ings and ben­e­fits from mod­u­lar pro­duc­tion.”

Quar­terly prof­itabil­ity at Porsche fell to 17.2% from 19.3%, weighed down by spend­ing on new fa­cil­i­ties at its Zuf­fen­hausen head­quar­ters to build the all-elec­tric Mis­sion E sportscar and fall­ing de­mand for the ex­pir­ing Cayenne SUV, the brand’s sec­ond-best sell­ing model.

Mar­gins in VW’s truck op­er­a­tions nearly dou­bled to 5.2%, ben­e­fit­ing from the deep­en­ing co­op­er­a­tion be­tween the MAN and Sca­nia brands which have been shar­ing pur­chas­ing and de­vel­op­ing of gear­boxes, axles and en­gines.

Al­though group rev­enue was up 6.8% after nine months com­pared with year-ago lev­els, VW kept its guid­ance for an in­crease

� by more than 4% from last year’s 217.3bil, cit­ing risks from pro­tec­tion­ist ten­den­cies, fi­nan­cial mar­ket tur­bu­lence and struc­tural deficits in coun­tries.

While VW is pro­duc­ing a strong op­er­at­ing per­for­mance, the car­maker is fac­ing a bar­rage of law­suits from cus­tomers, in­vestors and reg­u­la­tors over Diesel­gate and is stak­ing its fu­ture on a costly elec­tric ve­hi­cle pro­gramme.

Rolling out bat­tery-pow­ered cars in high vol­umes at Golf-type price points “has the po­ten­tial to lose sig­nif­i­cant amounts of money,” Bern­stein an­a­lyst Max War­bur­ton said.

To­gether with ri­vals Daim­ler and BMW, it has also be­come the target of in­ves­ti­ga­tions by Euro­pean and Ger­man an­titrust staff into al­leged col­lu­sion. — Reuters

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