PSA Peugeot Citroen posted its first annual profit in three years

PSA Peugeot Citroen posted its first annual profit in three years after reducing costs by closing a plant, cutting jobs and reducing spending on new car models. Operating income was €905 million in 2014 after a loss of €364 million a year earlier, the Paris- based company said in an e-mailed statement today.

After teaming up with Dongfeng Motor Group 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 in operating free cash flow in the period through 2017 and repeated a goal of achieving a 2 per cent 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. She rates the shares underweight.

“It’s great that they’re generating some cash, but they need to start showing that cash is sustainable.”

Peugeot’s operating free cash flow, excluding one-time gains and charges, totaled €2.18 billion 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.

Mr Tavares took over as chief executive 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 per cent this year in Russia and about 10 per cent 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 per cent. In Europe, it said it expects a 1 percent increase.

Peugeot’s total deliveries rose 4.3 per cent 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 per cent 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.

Bloomberg