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UPDATE 2-BMW aims for flat earnings in 2003

(Adds fresh CEO, CFO quotes, analyst comment)

By Nick Tattersall

MUNICH, March 19 (Reuters) - BMW said on Wednesday it would strive to match last year's profits in 2003 as it grapples with high development costs, but stopped short of giving a precise forecast, citing uncertainty over Iraq.

"Considering the tense geopolitical situation, it is difficult to make a specific forecast for the development of business throughout 2003 as a whole," BMW Chief Executive Helmut Panke told the group's annual news conference.

"Nevertheless, the BMW Group seeks once again to achieve the same overall result this year as in 2002," he said, noting that spending on new products would remain high this year.

BMW has never brought so many new cars to market in such rapid succession, and most investors expect the company's profit to be down in the first half of the year as development and launch costs continue to weigh.

Relief that the company was nonetheless aiming for flat results over the year as a whole boosted its stock by close to four percent by 0942 GMT, outperforming a broadly flat DJ Stoxx European autos index .

"Launch costs are going to be high and keeping earnings constant under these circumstances is quite an achievement," Sal Oppenheim autos analyst Michael Raab said. "It tells you something about the earnings power of the company."

Raab said BMW's comments were in line with his expectations.

A pick-up in profits is widely expected in the second half of 2003 as BMW unveils its new products, which include an updated 5-series saloon, one of its key profit drivers, a new small X3 sports utility and a high-margin 6-series coupe.

"As we know from BMW in the past, their outlook is usually conservative," said HVB analyst Georg Stuerzer, adding that the company could well beat its forecast in the full year.

The consensus forecast among 19 analysts polled by Multex Global Estimates is for pre-tax profit to rise by around six percent to 3.5 billion euros ($3.72 billion) in 2003, with net profit up just under five percent at 2.115 billion.

WEAK Q1

But business so far this year does not bode particularly well. Panke said record sales of the group's Mini brand would keep overall unit sales flat in the first quarter, but BMW brand sales would slump eight percent to 215,000 units.

He said sliding sales of the outgoing 5-series, which dropped 11 percent in 2002, combined with a blip in sales of the smaller 3-series as updated coupe and convertible versions hit the market in March, would be behind the first-quarter weakness.

BMW has tripled the number of model ranges it offers since the early 1990s, and will have 11 product lines in its portfolio by the end of the year, from its small Mini to the luxury Rolls-Royce saloon.

"The current model year is a very important milestone in the history of the company," Panke said. "Never before have we introduced as many new models as we will be doing in these 12 months."

The company's focus on high-margin luxury niches has in the past kept its profits roaring ahead of those of mass market car producers and Panke said he expected that trend to continue even in difficult market conditions this year.

By contrast, mass carmaker Volkswagen warned earlier this month that its operating profit would fall this year if current weak demand and unfavourable exchange rates persist, sending its shares tumbling.

Finance chief Stefan Krause said BMW's exposure to currency fluctuations was almost completely hedged for 2003, and said he expected no impact on earnings from shifts in exchange rates.

BMW can partly offset the effect of exchange rate swings as its key X5 sports utility vehicle and Z4 sports car are manufactured at its Spartanburg factory in the United States.

A large chunk of the estimated 150,000 vehicles to be produced there this year will be destined for the U.S. market.

BMW posted a 1.7 percent rise in pre-tax profit to 3.3 billion euros in 2002, its third record year in a row. Overall net profit climbed 8.3 percent to 2.02 billion euros.