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Porsche Expects Profit to Rise 'Significantly' on SUV

From Bloomberg| June 27,2007

Porsche AG, the carmaker with the highest profit margins, said full-year earnings will jump "significantly'' as a new Cayenne sport-utility vehicle goes on sale and a stake in Volkswagen AG contributes more profit.

Revenue in the 10 months through May rose 0.3 percent to 5.98 billion euros ($8.04 billion) from 5.96 billion euros a year earlier, the Stuttgart, Germany-based company said in a statement. Vehicle sales declined to 79,540 cars and SUVs from 79,564 units.

Porsche, which has spent more than 5 billion euros buying almost a third of Volkswagen, booked a 520 million-euro first- half gain from raising the stake in Europe's biggest carmaker. The sports-car manufacturer has introduced a new version of the Cayenne along with an updated 911 model, helping profit rise a 13th consecutive year.

``If the top line isn't moving very much and their margins are already very high, I think the market expectation is that they will post a very token increase in profit'' from the Porsche brand, said Stephen Cheetham, an analyst at Sanford Bernstein in London with a ``market perform'' recommendation on Porsche stock.

Shares of Porsche fell as much as 53.15 euros, or 4 percent, to 1,279.85 euros and were down 3.7 percent at 1,283.74 euros as of 11:30 a.m. in Frankfurt. The stock has risen 33 percent this year, valuing the carmaker at 22.4 billion euros.

Panamera Introduction

Chief Executive Officer Wendelin Wiedeking has targeted the fast-growing economies of Asia, eastern Europe and the Middle East to help reduce dependence on the U.S. and Germany, Porsche's two largest markets. The company expects the Panamera, a four- door sports car being introduced in 2009, to raise sales by 20,000 vehicles, about one-fifth of last year's deliveries.

``Considering the 10 months of the year so far, it is not difficult to predict that our annual earnings at the end of this business year, will be significantly -- and I mean, significantly -- better than the 2.1 billion euros in the previous year,'' Wiedeking said in the statement, released in advance of an extraordinary shareholders meeting in Stuttgart today.

Sales of the 911 sports car rose 12 percent to 31,287 vehicles. Cayenne sales as of the end of May were down 11 percent to 25,436 SUVs as customers waited to buy the new model.

Model Introductions

Porsche introduced new versions of the 911 as well as the Cayman sports car at the end of 2005. The next big sales increase will come in two years when the company introduces the Panamera, Wiedeking has said.

Net income in the year through July 2006 totaled 782.5 million euros and revenue amounted to 6.57 billion euros. Profit in the six months through January 2007 jumped sixfold to 1.14 billion euros on the gain from the Volkswagen stake, while revenue declined 1.4 percent to 3.07 billion euros.

``The core business of Porsche is not going anywhere until they launch the Panamera,'' Cheetham of Sanford Bernstein said. ``We've always seen a bit of a hole in their product cycle, and I think we're seeing that in their top-line numbers.''

Porsche in March offered 35.9 billion euros, the lowest legally possible amount, to take full control of Wolfsburg, Germany-based Volkswagen. The bid expired May 29, leaving Porsche with a 30.94 percent stake and enabling it to add to the holding without making another offer to all investors.

With consolidation of the Volkswagen stake, "it would be very strange if they didn't post a record profit,'' Cheetham at Sanford Bernstein said.

Voting on Structure

Porsche is asking shareholders today to approve making the business a holding company that will manage the Volkswagen stake and Porsche operations. The company also wants to change the corporate designation to a Societas Europaea, a company registration recognized across the European Union.

Volkswagen and Porsche will remain independent of one another as vehicle manufacturers, Wiedeking told shareholders at the meeting.

The partnership will succeed, unlike Bayerische Motoren Werke AG's takeover of Rover or Daimler-Benz AG's purchase of Chrysler Corp., because it won't be a  "marriage in heaven,'' he said, referring to former DaimlerChrysler CEO Juergen Schrempp's description of the company he formed in 1998.


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