FRANKFURT -- Volkswagen aims to achieve an annual pretax profit of around 5.1 billion euros ($6.17 billion) in 2008 thanks to a planned 4 billion euro gain as part of its "ForMotion Plus" efficiency program.
"The basis (for comparison) is the pretax profit figure of 2004, and in fact we recorded 1.099 billion euros as the pretax profit figure in 2004, so that is the basis," VW finance chief Hans Dieter Poetsch told a conference call on Friday.
Volkswagen first set out in early June the target to improve earnings by 4 billion euros by 2008, but it served to confuse the media and financial markets, as until now it would not give the starting point and only recently said the rise would be absolute and on a pretax level.
The gain stems in part from a targeted 7 billion euro gross improvement in earnings at its loss-making VW brand, but Chief Executive Bernd Pischetsrieder warned in a conference call that "this is not possible without reduction of personnel costs".
This could feature headcount reductions via early retirement or other measures as well as more flexible deployment of staff.
Europe's largest carmaker reported a 7.4 percent decline in second-quarter pretax profit to 551 million euros, in line with the average Reuters analyst poll estimate.
Earnings before taxes took a hit of around 150 million euros due to a total collapse in profitability at its two key Chinese joint ventures and tarnished an otherwise strong set of results.
A turnaround at both its flagship VW Brand Group and Commercial Vehicles led to a quarterly operating profit of 911 million euros that beat the most bullish poll estimate by about 100 million euros. Negative currency effects pulled down results by some 200 million in the quarter.
"It seems they have made a lot of effort to present a strong set of figures today," Sal. Oppenheim analyst Patrick Juchemich said, calling the operating profit "a positive surprise".
The Wolfsburg-based group reaffirmed that 2005 operating profit including special items and pretax profit would grow despite severe problems in China, its largest foreign market.
Pischetsrieder said VW would restructure its Chinese operations and merge wherever possible the separate retail channels controlled by joint venture partners FAW and SAIC.
The CEO also wants to lower local sourcing costs by some 40 percent for its volume models. Many of its newest products lag sales targets since their prices are not competitive, he said.
"The restructuring in China involves basically the whole business process, and unfortunately I have to say it will take quite some time before we get things to a level of profitability, which we have to expect," the VW CEO told the conference call.
Any charges resulting from the restructure would be expected to be carried by the joint ventures, Pischetsrieder said.
He added that VW stopped all plans to increase its capacity in China, except the ongoing completion of its engine, gearbox and suspension plant in order to increase local content.
SCANIA STAKE COULD BE SOLD
Operating profit at its core Automotive division nearly tripled to 637 million euros in the second quarter, lifting its operating margin to 2.8 percent versus just 1.1 percent a year ago. Free cash flow at Automotive doubled to 1.23 billion.
The division benefited primarily from a steep rise in VW Brand Group, which includes VW, Skoda and Bentley nameplates, where operating profit climbed to 222 million euros from 104 million.
The Brand Group's first-half operating profit of 169 million included a 39 million euro loss at the flagship VW brand.
Commercial Vehicles swung to an operating profit of 49 million euros from a loss of 46 million euros last year.
Pischetsrieder wouldn't rule out selling VW's 34.3 percent voting rights stake in Swedish truckmaker Scania, should plans to consolidate VW's heavy truck business fail.
"If (this) doesn't arise, we will possibly one day take a decision to sell the Scania shares," he said, adding he neither intended to buy a higher share in Scania nor acquire German truckmaker MAN.
Its money-spinning Audi Brand Group improved operating profits by 17 percent to 354 million euros.
On a regional level, North America remained weak but managed to keep operating losses stable in the quarter at 268 million euros.
Looking at its U.S. business, the VW CEO said the situation could improve by the end of the year, but warned he expected it would be "completely impossible" to break even there next year.