Azernews.Az

By Bloomberg

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 euros ($1 billion) in 2014 after a loss of 364 million euros a year earlier, the Paris- based company said in an e-mailed statement today. This missed the 953.2 million-euro 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. 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.

“We are ahead of our reconstruction plan,” Chief Executive Officer Carlos Tavares said in the statement.

Peugeot’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.

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 percent this year in Russia and about 10 percent in Latin America, Peugeot said today.

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

Chinese Expansion

Peugeot’s total deliveries rose 4.3 percent 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 percent 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 percent to 734,100 vehicles last year, with the market accounting for 22 percent 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.

Cost Cuts

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 percent in 2016 from 15.1 percent in 2013. In return for the wage freeze, Peugeot agreed to refrain from large-scale firings and pledged to produce 1 million vehicles in France in 2016 and keep its factories in the country open until then.