Peugeot share price plunges on €1.1 billion writedown

French carmaker and China’s state-owned Dongfeng agree on strategic partnership

Peugeot share price plunges on €1.1 billion writedown Thursday, December 12: Peugeot’s share price (EPA:UG) plunged by more than eight percent this morning after the French car maker announced it would write down the value of its automobile division by €1.1 billion (₤924 million) and warned that the cost savings from its partnership with General Motors would be smaller than expected. As of 09.40 UTC, Peugeot’s shares had plunged by €0.90 or 8.09 percent to €10.57.

The asset impairment is due to weaker than expected car markets and unfavourable exchange rate shifts in Russia and Latin America. It will hit the company’s bottom line in its current fiscal year but won’t worsen its consumption of cash. In its fiscal 2012 Peugeot posted a net loss of €5 billion (₤4.21 billion) due to asset impairment charges.

According to Peugeot, every one percent change in the value of the euro against currencies such as the Russian rouble, Argentine peso and Brazilian real has an impact of some €80 million (₤67 million) on the company’s operating profit. Peugeot said it’s stepping up its efforts to offset the negative effects of exchange-rate fluctuations.

Peugeot also announced that it expected cost savings from its two-year-old alliance with General Motors to be at about $1.2 billion (₤733 million) by 2018, lower than a previous forecast of $2 billion (₤1.22 billion). The lower cost savings projection is the result of a decision to abandon development of a new platform for B-segmented vehicles. Peugeot’s chief financial officer Jean-Baptiste de Chatillon told reporters that the company still intended to develop the platform on its own.

Peugeot and Dongfeng agree on strategic partnership

Peugeot and China’s state-owned Dongfeng Motor have agreed the main terms of a partnership that will include a major capital injection into the French carmaker in return for technology sharing.

The two manufacturers are still discussing the details but the agreement is expected to involve a €3-€4 billion (₤2.5-₤3.4 billion) cash injection for Peugeot and a deal for the two groups to jointly build low-cost small cars for southeast Asian markets.

The existing partnership with GM is focused on reducing costs in Europe and offers limited opportunities because the two carmakers compete in the same market. That’s why Peugeot said in October that it was considering backing away from part of the cooperation. However, the Detroit-based carmaker, which has a seven percent interest in Peugeot, has said it would only agree to vote in favour of an agreement between Peugeot and another partner if its alliance with the French carmaker would still be supported.

“The partners are now focused on execution of the alliance while remaining open to new opportunities,” Karl-Thomas Neumann, president of GM’s European operations, said today in a statement.

In a move that may help secure the deal with Dongfeng, Peugeot last week named former Renault chief operating officer Carlos Tavares as its new chief executive officer.

As of 11.00 UTC buy Peugeot shares at €10.55.

As of 11.00 UTC sell Peugeot shares at €10.45.

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