Troubled German carmaker Volkswagen reported a bigger-than-forecast drop in first-quarter profit on Tuesday, with the company's chief warning of a tough year ahead as sales slumped in the wake of the emissions-rigging scandal that has rocked the group.

Net profit for the first three months of the year fell to 2.3 billion euros (2.56 billion dollars) from 2.9 billion euros in the same period of 2015, the company said. Analysts had forecast a drop to 2.45 billion euros.

Based in the northern-German city of Wolfsburg, VW has faced mounting costs from legal action as well as recalls and refits of thousands of diesel cars after it admitted last September that it had fitted about 11 million vehicles around the world with software designed to cheat environmental emissions.

First-quarter revenue fell 3.4 per cent to 50.96 billion euros, the company said, with the economic slowdown in China also taking its toll on VW's operations in the world's biggest car market.

The release of the results sent the company's shares down 2.4 per cent to 134.7 euros in early trading on the Frankfurt Stock Market.

"In light of the wide range of challenges we are currently facing, we are satisfied overall with the start we have made to what will undoubtedly be a demanding fiscal year," VW chief executive Mattias Mueller said in a statement.

"In the first quarter, we once again managed to limit the economic effects of the diesel issue and achieve respectable results under difficult conditions," he said, with the VW group's luxury sports carmaker Porsche once again acting as a key pillar of the 12-brand group's profits.

But underlining the emissions scandal impact on the group, first-quarter earnings from VW-brand vehicles dropped to just 73 million euros from 514 million euros a year earlier.

The VW group plunged into its first loss in more than 20 years in 2015 as the scale of the emissions scandal began to emerge.

Europe's biggest carmaker reported on a 1.58-billion-euro net loss for the whole of last year, after being forced to more than double its provisions to about 16.2 billion euros to help pay the bills for the emissions scandal. VW posted a 10.85-billion-euro profit in 2014.

VW reaffirmed its 2016 business forecast on Tuesday, saying that it expects sales to drop 5 per cent for the whole of the year compared to 2015.

But Mueller said 2016 "will be a transitional year for Volkswagen that will see us fundamentally realign the group."

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