VOLKSWAGEN AG, a day before it will announce a response to a growing bribery scandal, said yesterday that 1996 group profit doubled to 678 million deutschmarks (£254.5 million) on the back of a 14 per cent rise in sales to DM100.1 billion.

VW said profit at the group level rose to DM678 million from DM336 million in 1995 and earnings at the parent level rose 54 per cent to DM630 million from DM410 million.

But the group said cash flow, viewed by analysts as a more transparent look at VW's health, rose a meagre 4.4 per cent to DM10.85 billion from DM10.4 billion in 1995.

"I suspect that they were a little light of where most people had assumed the figures would be," said Mr John Lawson, an analyst at Salomon Brothers in London, but he warned against reading too deeply into VW's results, known to be padded with provisions, saying VW was still performing better than its industry peers.

VW did not say whether the results reflected the $100 million (£63 million) payment made to General Motors Corp as part of a deal reached in January to settle GM's lawsuit charging VW with industrial spying when it hired away purchasing guru Mr Jose Ignacio Lopez in 1993 from its US rival.

Stock traders were unimpressed with the results, saying the profit figures were below market expectations and that they were more concerned about allegations of some VW employees demanding and receiving bribes from industry suppliers.

A VW official confirmed the group would issue a statement today about the bribery allegations, which centre on the alleged payment of DM20 million in bribes in connection with a DM400 million plant expansion contract for VW's Czech Skoda unit.

Despite the fresh legal scandal for VW, analysts said the motor manufacturer was on a path to higher profits compared with dire times in 1993.