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VW Warns Of Poorly Second Half To 2002

Europe's biggest car and tyre manufacturers presented contrasting...

Europe's biggest car and tyre manufacturers presented contrasting stories yesterday with Volkswagen cutting its earnings estimate for this year but Michelin announcing that it expected to boost operating margins.

Both companies warned, however, that the second half of the year will be tough. VW said it saw no sign of an expected upturn in the US and Western Europe while Michelin predicted a "challenging and uncertain environment".

VW, now under former BMW boss Bernd Pischetsrieder, revealed that its second quarter profits had risen by a better-than-expected 13.5% to ?1.26bn, despite a one percent fall in sales to ?22.8bn.

But it was the company's forecast for the second half which caught most attention.
Blaming the lack of evidence of a second-half pick-up, the impact of the strength of the euro on VW's export business and the sharp downturn in Latin America the company warned that pre-tax profit for the year would be about ?4.0bn. That would mean VW falling some way short of its previous forecasts that it expected to match last year's record profit of ?4.4bn.

But the decision to lower its forecasts was well received by the market. "This is the first sign that VW management understands what equity investors want. The long-term story at VW was good but the profit forecast for 2002 was at odds with what analysts expected and that created short-term risk," said Chris Will at Lehman Brothers.

Mr Pischetsrieder predicted the last quarter of this year would be the toughest. "Just by experience, and this is more market driven than by internal expectations, it will be the last quarter of this year that will be the most difficult one when we look at the next six quarters."

Results from Michelin showed that first-half profits fell by almost a third to ?254m but the slump was more than accounted for by a capital gain of ?304m from the sale of a stake in car maker in PSA Peugeot-Citroen in the same period last time.

Stripping out the profit from the share sale left Michelin showing an underlying rise in operating profits of 16% to ?570m. Despite the downturn in the European car market sales were up by 1.4%.

The performance was backed by a promise of higher second-half margins. "Provided tyre markets, raw materials prices and exchange rate parities do not deteriorate further, and taking into consideration the internal improvements already achieved... Michelin raises its annual operating margin target from 6.7-7.4% to 7.0-7.4%," the company said.