Peugeot returns to profit

PARIS: PSA Peugeot Citroen posted its first annual profit in three years after slashing costs by closing a plant, cutting jobs and reducing spending on new car models.

Operating income was €905 million ($1 billion) in 2014 after a loss of €364 million a year earlier, the company said in an e-mailed statement.

Recurring operating income including the company’s finance unit was €1.12 billion, beating the €953.2 million average of 12 analyst estimates compiled by Bloomberg.

After teaming up with China’s Dongfeng Motor Corp to expand outside the saturated European car market, Peugeot reached its goal of positive operational free cash flow two years earlier than originally targeted.

The company said yester that it would generate €2 billion in operating free cash flow in the period through 2017 and repeated a goal of achieving a 2% operating margin in the automotive division by 2018.

“We are ahead of our reconstruction plan,” chief executive Carlos Tavares said in the statement.

Peugeot’s operating free cash flow, excluding one-time gains and charges, totalled €2.18 billion last year. The company said it was net debt free. Tavares took over as CEO a year ago aiming to streamline the French carmaker’s product line, better position its three brands, including the new luxury DS nameplate, and continue his predecessor Philippe Varin’s efforts to restructure, in particular in Russia and Latin America.

“Industrywide demand for cars will probably plunge by about 30% this year in Russia and about 10% in Latin America,’’ Peugeot said yesterday.

In China, the carmaker said it expected demand to rise by about 7%. In Europe, it said it expected a 1% increase.

Peugeot’s total deliveries rose 4.3% to 2.94 million cars and light commercial vehicles last year, boosted by demand for the 2008 and 3008 crossovers as well as the 308 hatchback.

That’s still about 18% fewer than in 2010, when Peugeot, Europe’s second-biggest automaker, reported its last full-year growth with record sales of 3.6 million autos.

Peugeot now sells more cars in China than in its home country and is betting on further expansion in the region. Together with Dongfeng, it aims to sell 1.5 million vehicles annually in China by 2020.

Meanwhile, Peugeot’s group sales in the country surged 32% to 734,100 vehicles last year, with the market accounting for 22% of the new DS brand’s global deliveries.

Demand in China was propelled by the Peugeot brand’s 2008 and 3008, the introduction of the 408 sedan and the Citroen marque’s C-Elysee sedan, the division’s best-selling model in the country.

Among other cost-cutting measures, Peugeot plans to move its headquarters to the Paris suburb of Rueil-Malmaison by 2017.

It also decided to sell a majority stake of its unprofitable scooters unit to Mahindra & Mahindra Ltd, shuttered a car plant in the Paris suburb of Aulnay and signed a three-year labor agreement with French unions in October 2013 to freeze pay and make work hours more flexible for remaining employees.

The company has set a goal of cutting total wage costs as a share of its revenue to less than 12.5% in 2016 from 15.1% in 2013.

In return for the wage freeze, Peugeot agreed to refrain from large-scale firings and pledged to produce one million vehicles in France in 2016 and keep its factories in the country open until then.

B7