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Volkswagen profit has tumbled 20% in the first three months of 2016 as it continues to grapple with fallout from the diesel emissions scandal.

Pre-tax profit fell to €3.2bn (£2.4bn) in the first quarter, down from €3.97bn in the same period a year ago.

Chief executive Matthias Mueller said he was "satisfied" with the start of "what will undoubtedly be a demanding" 2016.

VW admitted last year that it installed software to cheat US emissions tests.

It has already set aside more than €16bn to pay for costs arising from the scandal. Analysts at the bank NordLB expect the total to rise to between €20bn and €30bn.

The German giant has agreed a deal with the US Department of Justice in which it will buy back and "substantially" compensate more than 500,000 American owners of its diesel cars affected by the emissions cheating. Final details are expected in June.

"In the first quarter, we once again managed to limit the economic effects of the diesel issue and achieve respectable results under difficult conditions," Mr Mueller added.

Outlook

Group sales revenue fell 3.4% to €51bn in the period.

Sales of VW-branded cars were particularly hard hit, with profit from that part of the business falling 83% to €73m from €514m last year.

The company maintained its forecast of a 5% fall in 2016 sales revenue compared with last year, "depending on economic conditions - particularly in South America and Russia - and exchange rate developments as well as against the backdrop of the diesel issue".

However, it predicted "a marked decrease in sales revenue" in 2016 for its passenger car brands, which include Audi, Seat and Skoda.

"2016 will be a transitional year for Volkswagen... we remain confident that our operating business will again record solid growth this year," Mr Mueller added.

VW shares fell 3% in Frankfurt to €133.57 and are down 40% over the past 12 months.

Ana Nicholls, automotive analyst at the Economist Intelligence Unit, said: "Unit sales continue to rise, up 0.8% in the first quarter of 2016, suggesting that customers care less about the emissions scandal than investors and the media do.

"Ironically that means Volkswagen is now on track to become the world's biggest vehicle-maker this year, given that Toyota and General Motors have both seen tables fall back so far."