Volkswagen AG intends to keep driving profit growth beyond the record 5.1 billion euros ($6.6 billion) before tax it has targeted for 2008, management told analysts on Monday.
Ahead of key negotiations on Friday with German union IG Metall over reinstating the 35-hour work week, Chief Financial Officer Hans Dieter Poetsch said the profit target marked just one step in the overall goal to comprehensively restructure or weatherproof the world's fourth-largest carmaker.
We're not satisfied even if we reach the 5.1 billion in 2008 and I think the reasoning behind this is very clear. As I said, in reaching the 5.1 we would only achieve our cost of capital, but no margin on top of this, the Volkswagen CFO said.
It's very clear that we're targeting to reach the 9 percent return on investment (after tax) in Automotive and that's why the situation we're targeting for 2008 is just a step in between, Poetsch continued.
In the call, Chief Executive Bernd Pischetsrieder tried to soothe market concerns that the target could only be achieved at the peak of its product cycle, emphasizing that his ForMotion Plus restructuring program would lead to a sustainable rise in profitability.
In many discussions we had with you and your colleagues, the question always was 'we're not sure whether you are going to make 2008, but if you make it what comes there after', he said.
I think its important for you to understand that Mr Poetsch's objective is not that we achieve a figure in 2008, but that we improve the company's performance in its basics and therefore ... this is what is meant with 2008 is not a spike, it must be sustainable, he added.
VW's best pre-tax profit of 4.4 billion euros came in 2001.
Analysts have questioned whether ambitious mid-term profit targets such as those of VW and its French rival Renault can be repeated, as core European auto markets become even more competitive with Asian carmakers ramping up new capacity on the continent.
Renault aims for an operating margin of 6 percent by 2009 and higher profitability after that.
SCANIA STILL STRATEGIC
Volkswagen reaffirmed its 2006 forecast for higher operating profit before special items and said earnings would improve next year despite an expected slowdown in vehicle sales growth.
We do not expect volume growth anywhere near to the growth we have this year by 2007, but we definitely do not expect a deterioration in the volume, Pischetsrieder said.
Instead of banking on unit sales to drive earnings, Poetsch said profit growth next year would come from a strict emphasis on costs, costs, costs and capex.
VW gave an update on its staff reduction plan, saying 3,500 employees have signed voluntary redundancy packages to date.
Another 9,700 took early retirement contracts, of which 3,700 are in the so-called passive phase when they no longer work at Volkswagen even though they are still on the payroll.
VW has said that up to 20,000 jobs at its VW brand in Germany could be affected by its ForMotion Plus program.
When asked about Volkswagen's 34 percent voting stake in Swedish truckmaker Scania, Pischetsrieder reaffirmed it remained strategic to the group and could play a part in an expected wave of M&A activity in the truck industry.
If we can, we wish with our heavy truck business in Brazil and our light truck business in Europe to play a role in the consolidation. If this is not a viable proposition for us then we can take other decisions as well, he said.
VW shares were nearly flat at 63.34 euros by 1319 GMT, lagging a firmer DJ Stoxx European car sector index.