Volkswagen warns of challenges, to redouble efforts to meet targets

FRANKFURT (Reuters) - Volkswagen warned investors about a tough year ahead as the car and truck making group reported preliminary annual results on Friday that were weighed down by currency headwinds and supply bottlenecks caused by new emissions testing rules.

Volkswagen suffered from an increase in inventories at its Audi and VW brands after a new emissions testing procedure, known as WLTP, took effect in September and delayed road certification for many of its vehicles.

"The headwinds in key markets are expected to strengthen further in 2019," Chief Executive Herbert Diess said in a statement accompanying the earnings.

"Overall, however, we will have to redouble our efforts to meet our ambitious targets in the new fiscal year."

Volkswagen reiterated it wanted to achieve an operating return on sales of between 6.5 and 7.5 percent for the passenger cars division and the group this year, a step welcomed by analysts.

"The results are pretty solid, and it's positive that they stick to their margin forecast especially when contrasted with rivals like Daimler which was more cautious," Nord LB analyst Frank Schwope, who has a buy rating on the stock, said.

VW is proposing a dividend of 4.80 euros a share for ordinary stock and 4.86 euros for each preferred share.

Vehicle deliveries are expected to rise slightly in 2019, and group revenues are seen up to 5 percent higher, Volkswagen said.

Volkswagen's 2018 operating profit came in at 13.92 billion euros ($15.79 billion), only 0.7 percent higher than the prior year and below 14.53 billion euros forecast in a poll.

VW said it expected positive net cashflow for 2019 thanks to lower penalties and compensation payments related to the company's 2015 diesel-cheating scandal. Last year cash flows from the automotive division rose 59 percent, VW said.

Volkswagen is due to release more detailed full-year earnings on March 12.

($1 = 0.8818 euros)

(Reporting by Edward Taylor; Editing by Tom Sims and Susan Fenton)