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Old February 15th, 2005, 16:26   #1
Join Date: Oct 2004
Location: British Columbia, Canada
Default VW shares rev up despite \'04 profit drop

Tuesday, Feb. 15, 2005

VW shares rev up despite '04 profit drop

Analysts relatively impressed as German giant exceeds not-so-great expectations
Reuters News Agency
Tuesday, February 15, 2005

FRANKFURT -- Volkswagen AG reported a sharp drop in 2004 profit yesterday, but its shares rallied as Europe's largest car maker beat its own revised worst-case earnings forecast and analysts' expectations.

Profit sank more than 12 per cent to 2.015-billion ($3.2-billion) before special items from a restated 2.297-billion the previous year, but beat a Reuters consensus estimate of 1.934-billion.

Despite the profit crunch, net cash flow at VW's automotive unit amounted to 1.87-billion in the year, compared with a cash outflow of 2.49-billion in 2003.

Shares quickly reversed earlier losses as analysts said they were impressed by the better-than-expected headline profit figure and praised VW's considerable improvement in cash flow.

"Automotive free cash flow was about 790-million in the fourth quarter, which is really unnatural for a car company since they often pay suppliers then," said Dresdner Kleinwort Wasserstein's Arndt Ellinghorst.

"Without more details one cannot see where this comes from, but it's the most positive surprise in this set of results," he added, keeping his "reduce" rating on the stock.

VW shares rose 2.6 per cent yesterday to close at 38.38, putting them among the top gainers on both the DJ Stoxx European autos index and Germany's DAX blue-chip index.

The world's fourth-largest auto group has struggled to offset the debilitating effect of a stronger euro on sales in its biggest foreign markets such as China and the United States, which added considerably to the burden of its cost-heavy production base that is mainly centred in high-wage Germany.

Credit analyst Maria Bissinger of Standard & Poor's said: "The figures were relatively strong, and the company met two important targets with its operating profit and free cash flow. But key to our 'A-' rating remains the outlook for 2005."

Although VW said its ForMotion savings program contributed 1.6-billion to profit in the year, one-off expenses of 395-million related to ForMotion weighed on the German company.

Revenue rose 4.9 per cent to 88.96-billion, while final profit fell almost 29 per cent to 716-million.

The Wolfsburg-based company proposed an unchanged dividend of 1.05 per ordinary share.

Last July, Volkswagen lowered its 2004 operating profit target to a "worst-case" outcome of 1.9-billion before expected one-offs of another 400-million.

Previously, it had aimed to beat its original 2003 result of about 2.5-billion.

The company confirmed its guidance in January and said group sales rose 1.3 per cent to 5.079 million units in 2004, thanks mainly to a jump in deliveries of commercial vehicles.

VW chief executive officer Bernd Pischetsrieder is hoping former Chrysler star manager Wolfgang Bernhard will take the scalpel to the group's excess fat.

Mr. Bernhard, who joined Volkswagen at the beginning of this month, will assume responsibility for the VW brand group by January, 2006, at the latest.
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