VW profits plunge in 2003

18 February 2004

WOLFSBURG – Europe’s biggest carmaker, Volkswagen, reported Wednesday that its operating results plunged nearly one-half in 2003 to EUR 2.49 billion, forcing the company to lower its dividend to shareholders.

At the same time, while expecting its business performance to improve this year, VW declined to give a specific forecast. It spoke only of a more positive outlook for earnings “over the medium term”.

Last year’s downturn, from operating results of EUR 4.76 billion in 2002, resulted from currency-conversion losses, the high up-front investments for new car models and the costs entailed in revamping its Brazilian business operations, VW said.

Excluding one-off effects amounting to EUR 711 million, the group operating profit in 2003 came to EUR 1.78 billion, down 62.6 percent from the year before, the Wolfsburg-based company said.

Pre-tax earnings came to EUR 1.52 billion, down 61.6 percent from 2002 figures, and the lowest since 1996, the carmaker said.

The downturn came on revenues of EUR 87.1 billion, a slight 0.2 percent increase over 2002 figures, while car sales rose slightly to beyond 5 million.

VW management said it would propose a dividend of EUR 1.05 per share, down from last year’s EUR 1.30 payout.

Volkswagen said its earnings were hurt to the tune of EUR one billion alone from the dollar’s decline last year, with the company now having taken stronger measures against currency risks.

Europe’s largest carmaker said its hopes for an upturn in business were pinned on the new fifth-generation Golf V which has just come to market, with sales now rising after some initial start-up problems.

Analysts noted the price pressures which VW is coming under with Opel soon to clash head-on in the Golf category with its new Astra model. VW, in celebrating the 30th anniversary of the Golf car, is offering the Golf V with an air conditioning unit at no extra cost.

VW employee council chairman Klaus Volkert, told Deutsche Presse- Agentur dpa that the company is regarding 2004 as a “year of transition”.

He also criticised the company’s moves into the luxury segment with the new Phaeton and the sports utility vehicle Toureg, which had required large-sized investments.

Meanwhile chief financial officer Hans Dieter Poetsch, in an interview to appear in Thursday’s edition of the business weekly magazine Wirtschaftswoche, said that amid the weak demand in the market, VW now had excess capacity of 20 percent.

VW will now have to “pull all the registers in order to cut short- term costs”, he told the magazine.