Peugeot Promises Return to Profit This Year After 2012’s ₤4.3 Billion Loss

French Government Allowed by The European Commission to Deliver First Tranche of ₤6 Billion State Aid to Banque PSA Finance

Peugeot Promises Return to Profit This Year After 2012’s ₤4.3 Billion Loss

PSA Peugeot Citroën (EPA:UG), the struggling French automaker, reported record losses in 2012 of €5 billion (₤4.3 billion) but said it remained on target to reduce the rate of its cash burn by half this year. On an operating basis, Peugeot lost €576 million (₤496 million), compared with a €1.1 billion (₤947 million) operating profit in the previous year. Revenue dropped by five percent to €55.4 billion (₤48 billion), while sales in the automotive division were ten percent lower at €38.3 billion (₤33 billion). The heavy losses were expected however after Peugeot last week announced a €3.9 billion (₤3.38 billion) writedown as a result of reassessing its automotive business. The company’s stock appreciated by more than 6 percent in the intraday trading session on the Paris Stock Exchange, exchanging at €6.33 at 12.00 GMT.

Reuters reports that Peugeot has been the worst casualty of a European auto sales collapse, which was especially brutal in the Paris-based automaker’s core southern markets. Its share of regional sales fell last year from 12.4 percent to 11.7 percent as rivals such as Hyundai-Kia and Volkswagen gained ground.

Despite the 2012 loss, Philippe Varin, Peugeot’s chief executive officer, remains positive saying the company’s asset disposal and cost reduction plan had “exceeded our targets”. The ailing carmaker, which is in the process of letting go thousands of workers, said it had slashed costs by €1.2 billion (₤1.03 billion) against a €1 billion (₤861 million) target and sold €2 billion (₤1.73 billion) of assets. “It looks not as quite catastrophic as the market in general expected” because of cost reductions, Juergen Pieper, Bankhaus

Metzler analyst who recommends buying Peugeot stock, said in an interview. “The outlook is certainly not great, but it seems that maybe the most negative points have been passed.”

Europe’s second-biggest carmaker laid out plans to swing back to profit as an upscale shift of its main brand and cooperation with General Motors add to the effects of its cost reductions. Peugeot cars will be upgraded to differentiate them more from the Citroën models, while average volume will double through the alliance with GM.

European auto-demand is expected to fall a further three to five percent in 2013 and remain depressed “for the foreseeable future”, Peugeot predicted on Wednesday.

Peugeot Finance Arm to Receive €1.2 billion Aid

On Monday 11 February the European Commission gave a green light to €1.2 billion (₤1.04 billion) of rescue aid from the French government for Banque PSA Finance, Peugeot’s struggling financial arm. The support is the first tranche of €7 billion (₤6.06 billion) in planned guarantees from France’s government, the biggest state intervention yet launched.

Before the full package is paid out, the commission will require that Peugeot present a complete restructuring strategy for its entire carmaking business. “The recipient of aid must implement appropriate compensatory measures to minimise distortions of competition created by the state support and contribute adequately to the costs of restructuring,” the commission said in its statement.

Peugeot’s share price as of 13.02.2013, 13.00 GMT, was €6.32.

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