PARIS: PSA Peugeot Citroen rebounded to a first-half profit, the French carmaker said on Wednesday, turning the page on three years of losses as a recovery plan led by Chief Executive Carlos Tavares bears fruit.
Posting 571 million euros ($631 million) of net income, after a 114 million loss the same time last year, Peugeot met key goals three years early but warned against hasty conclusions in the face of a Chinese slowdown and other approaching hurdles.
"We've achieved all of our Back in the Race goals faster than expected," Chief Financial Officer Jean-Baptiste de Chatillon told reporters on a conference call.
"But we remain cautious because this first half benefited from favourable conditions and positive seasonal effects," Chatillon said. "We're aware that we face some headwinds in the second half."
Following a 3 billion euro bailout that saw the French government and China's Dongfeng buy matching 14 percent stakes last year, Peugeot hired former Renault second-in-command Tavares and pledged to cut labour costs, inventory and model line-ups to restore profitability.
Peugeot shares rose as much as 5.7 percent to 18.80 euros after trading opened in Paris, before settling back to 18.13 euros at 0715 GMT, up 2.2 percent.
First-half revenue rose 6.9 percent to 28.9 billion euros, the company said, helped by promised improvements to the pricing of its Peugeot and Citroen cars.
Core manufacturing earnings jumped to 975 million euros from 7 million, lifting the auto division operating margin to 5 percent, a level not seen for more than a decade. Operating free cash flow surged by two-thirds to 2.79 billion euros.
The company nonetheless stuck to medium-term recovery goals it already surpassed in the first half, including a 2 percent auto division margin and 2 billion euros of cumulative cash flow by 2018.
"Peugeot is executing better", said Morgan Stanley analyst Harald Hendrikse, keeping his "equal weight" rating after what he described as "a very impressive first half" for the carmaker.
"On the other hand, expectations were already very high, and guidance is unchanged," he said.
A weaker euro, falling raw material costs and other seasonal tailwinds accounted for about one-third of the gain in operating income, Chatillon said, adding conditions would get tougher.
Approaching challenges include slowing demand in China, he added, where the company slashed its market growth forecast to 3 percent from 7 percent.
Peugeot will weigh new cost-cutting moves in response to the China slowdown, CEO Tavares said, adding a consumer shift to Chinese brands had sparked "panic mode" price-slashing by some foreign rivals.
Peugeot's Asia chief Gregoire Olivier will present the new proposals on Thursday, Tavares said. Other coming headwinds include a second-half surge in engine manufacturing costs to comply with stricter Euro 6 emissions regulation, Peugeot said.
But elsewhere the carmaker showed progress in even the toughest markets, slashing fixed and operating costs by an expected 50 percent in Russia this year in response to a 35 percent market contraction.
In Latin America, where demand is set to shrink by another 15 percent in 2015, Peugeot returned to a small profit after cutting its line-up by 6 models and halving fixed costs.
Comments
Comments are closed.