Volkswagen's record year results beat expectations, showing Europe's largest carmaker has enough financial firepower to complete its planned takeover of Porsche.

Fiscal year 2010 was the best year in the history of the group. Volkswagen already provided impressive proof of its robustness during the crisis and our group is now following that up by leading the field during the economic recovery, Chief Executive Martin Winterkorn said on Friday.

Credit Suisse analyst Arndt Ellinghorst said the results made Volkswagen stand out from the crowd of global carmakers, after lackluster earnings from Daimler as well as VW's lower-margin French peers Renault and PSA Peugeot Citroen.

Volkswagen also forecast another year of record vehicle sales, revenue and operating profit for 2011 as it proposed raising the 2010 annual dividend by just over a third to 2.26 euros per preferred share.

Ellinghorst did however say VW burned nearly 1 billion euros in cash in the fourth quarter compared to his expectation of a breakeven cash balance, while the payout was an undemanding 14 percent of after-tax profit.

VW's more liquid preferred shares added to their healthy gains prior to the figures, trading up 5.3 percent at 118.90 euros on the back of results.

It's a positive that more growth was forecast despite the existing uncertainties regarding the economy in China, the current increase in raw material prices and the bottlenecks in the supply of car parts, said Markus Huber, senior trader at ETX Capital.


Volkswagen's operating profit, which strips out earnings from its two Chinese joint ventures, climbed to 7.14 billion euros ($9.87 billion) last year, beating the average forecast of 6.75 billion euros given by analysts in a Reuters poll. VW's automotive net cash swelled to 18.6 billion euros, enough to buy the remainder of Porsche's sports cars business and independently-owned Porsche Holding Salzburg, while still maintaining its minimum target of a 5 billion euro cash cushion.

On Wednesday VW's controlling shareholder Porsche Automobil Holding SE said the likelihood of merging with Volkswagen this year had dropped, raising the chances that VW may have to resort to its call option to take control of what is currently its parent's core unit.

Volkswagen already agreed to pay 3.3 billion euros in the first half of this year to acquire Porsche Holding Salzburg, Europe's largest auto dealer group.

After racking up blistering third-quarter results, Volkswagen said in October that its performance would not continue at that same pace during the fourth quarter.

Its success has caught the attentions of unions, which struck a deal earlier this month to increase wages of VW's 100,000 German workers by over 3 percent.

(Additional reporting by Edward Taylor; Editing by Greg Mahlich)