POAHY Porsche Automobile Holding SE (PK)

Porsche Automobil Holding SE (PAH.XE) said Friday it expects a smaller loss in fiscal 2010 than previously anticipated and that it is on track for the merger with Volkswagen AG (VOW.XE), with a related capital increase planned in the first half of 2011.

Porsche expects a loss of "less than EUR1 billion" in the current fiscal year, the Stuttgart-based company said in a statement. Porsche's fiscal year ends July 31.

The company previously had forecast a loss in the low single-digit billion-euro range, mainly due to accounting effects related to its 50.7% stake in Volkswagen.

In the August-to-April period, Porsche's loss after tax was EUR700 million compared with a profit of EUR4.2 billion in the same period in the prior year. Last year's result was inflated by gains from cash-settled options on Volkswagen shares.

Porsche said the deconsolidation of Volkswagen triggered "a considerable loss," which was partly offset by the first-time inclusion of Volkswagen as an investment accounted for at equity. The deconsolidation of the Porsche Zwischenholding GmbH, which mainly comprises the core sports car unit and related operations, had a positive impact on earnings on holding company level.

Porsche had to fully consolidate Volkswagen in its balance sheet after increasing its voting stake beyond 50% on Jan. 5, 2009, but the move to take over its much larger peer backfired as credit markets turned sour and both companies now are pursuing a merger under VW's leadership.

Volkswagen in December acquired a 49.9% stake in Porsche's core sports car operations through a capital increase as part of the complex merger, which is expected to be finalized in 2011. Porsche pocketed EUR3.9 billion from Volkswagen's investment in the company, which it used mainly to redeem bank liabilities.

Porsche said its net debt stood at EUR6 billion on April 30.

Porsche's sports car unit posted an operating profit of EUR600 million in the August-to-April period. Porsche noted that the operating return on sales remained in the two-digit range, making it one of the world's most profitable car manufacturers.

Revenue rose 11.8% year-on-year to EUR5.2 billion, while car sales were flat at 53,605 compared with 53,635 in the prior year. The rise in revenue amid flat vehicle sales was due to the launch of the new Panamera four-seater coupe.

The Panamera accounted for 13,906 car sales and offset a decline of 35% to 13,137 vehicles of the 911 series, a 12% decrease to 7,630 Boxster/Cayman cars and a 23% sales fall to 18,932 Cayennes.

Porsche reiterated that it expects sales to pick up in the course of 2010, driven by the Panamera and a new-generation of its Cayenne sports-utility vehicles.

The Porsche brand is due to be integrated into Volkswagen as the company's 10th brand, along with name plates such as Audi AG (NSU.XE), Bentley and Skoda.

Porsche said the Porsche and Piech owner families agreed to subscribe to ordinary shares worth around EUR2.5 billion as part of the planned capital increase at the Stuttgart-based company, with the families raising the necessary financing largely through the transfer of Austria-based Porsche Holding Salzburg's sales operations to Volkswagen.

Porsche said that following the repayment of a first credit tranche worth EUR2.5 billion, which is due at the end of June 2011, its holding company could be "left with residual debt that may have to be reduced by the sale of Volkswagen shares" if the merger plan doesn't proceed as planned.

"However, the executive board of Porsche SE is convinced that the merger with Volkswagen AG will come about," Porsche said. Volkswagen Chief Executive Martin Winterkorn and Financial Officer Hans-Dieter Poetsch last year also took charge at Porsche.

-By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com

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