PSA Peugeot Citroën posted its first annual profit in three years after slashing costs by closing a plant, cutting jobs and reducing spending on new car models, reports Bloomberg.
Operating income was 905 million euros ($1.03 billion) in 2014 after a loss of 364 million euros a year earlier, the Paris-based company said in an e-mailed statement today. Revenue edged up 1 percent to 53.6 billion euros.
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. Today it said it would generate 2 billion euros in operating free cash flow in the period through 2017 and repeated a goal of achieving a 2 percent operating margin in the automotive division by 2018.
“They need to generate some profit from here,” said Kristina Church, a London-based analyst for Barclays Plc who rates the shares underweight. “It’s great that they’re generating some cash, but they need to start showing that cash is sustainable.”
Peugeot shares rose as much as 4.1 percent to 14.05 euros and were up 2.6 percent at 10:48 a.m. in Paris trading. The stock has risen 35 percent this year, valuing the company at 10.8 billion euros.
The French manufacturer’s operating free cash flow, excluding one-time gains and charges, totaled 2.18 billion euros last year. The company said it was net-debt free.
“We are ahead of our reconstruction plan,” Chief Executive Officer Carlos Tavares said in the statement.
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 the money-losing regions of Russia and Latin America. Industrywide demand for cars will probably plunge by about 30 percent this year in Russia and about 10 percent in Latin America, Peugeot said today.
“Even though we’re seeing an improvement of our financials in Russia and Latin America, these geographical zones remain in the red,” Chief Financial Officer Jean-Baptiste de Chatillon told reporters in a conference call. “Pressure on foreign exchange rates was strong in 2014 and should remain strong this year in these two zones.”
In China, the carmaker said it expects demand to rise by about 7 percent. In Europe, it said it expects a 1 percent increase.
Last year, Peugeot’s global deliveries rose 4.3 percent to 2.94 million cars and light commercial vehicles, boosted by expansion in China and demand for the 2008 and 3008 crossovers. That total is still about 18 percent lower than in 2010, when 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 country. Together with Dongfeng, it aims to sell 1.5 million vehicles annually in China by 2020 from 734,100 last year.
As part of the turnaround, Peugeot has reduced its manufacturing costs by 730 euros per vehicle over the past few years. That helped it lower its break-even point to an annual sales rate of 2.1 million cars, excluding China, from 2.6 million in 2013. The company is targeting break-even with deliveries of 2 million a year.