PSA’s record loss – Rebound promised
Written by Hilary Barnes
PSA Peugeot Citroen, which with 2.8m vehicles sold is last year Europe’s second largest automaker, reported a record €5bn group loss in 2012 as sales fell by 5.2% to €55.4bn and sales by the automotive division down by 10.2% to €38.3bn following a slump in European car sales last year by 8.2%.
As with its compatriot Renault, PSA’s sales are concentrated in southern Europe, where sales fell by 19.9% in Italy, 13.9% in France and 13.4% in Spain. PSA expects European sales to decline again this year – by 3 – 5%. There was a group consolidated operating loss of €567m followed a profit of €1.09bn in 2011, with the automotive division’s operating loss going to €1.5bn (-92m in 2011).
Both the net loss and the operating loss were lower than analysts had expected and the share price recovered in Paris by 5.98% to €6.32 at lunch time.
The €5bn net loss included €4.1bn in non-recurring items, of which €3bn write downs in the value of French operating plants. PSA announced last July plans to cut the group work force by 17%, including a plant closure in France with the loss of 3,600 jobs that is hotly contested by the trade unions. It was initially also opposed by the socialist government, which has now accepted that the closure will have to go ahead. The group cut its costs by €1.2bn last year, ahead of its 1bn target, and raised €2bn by asset disposals and raised €1bn in new equity capital.
These and other measures, said the group, enable the group to start 2013 “with a solid base to reassure its rebound.“
Paris has been rife with speculation that the group would have to seek to raise new equity capital.
The minister for the budget, who holds the first floor at the Ministry of Finance, said earlier this month that if necessary the government would be prepared to take an equity stake in the group, although this was immeditely denied by the minister for the economy (holds the top floor at the ministry), who said the subject “is not on the agenda.”
In today’s statement, however, PSA said:
“With a strong €10.6 billion in financial security, compared with €9.3 billion at 31 December 2011, the financial position is solid, with €7.3 billion in cash reserves and €3.2 billion in undrawn lines of credit.”
Equity amounted to €10.55bn at 31 December 2012 and gearing stood at 29.8% compared with 23% at end-2011, said the statement.
The group said it has agreements for refinancing for €11.3bn and a French government state guarantee (awaiting approval by the European Commission) of €7bn to cover a bond issue to finance its banking arm, which in turn finances car sales. In addition to the automotive division and the bank, PSA’s other division is car interiors manufacturer Faurecia, maker of auto interiors, with sales last year up by 7.3 % to €17.3bn, but operating profit down to €514m from 651m.
The French automakers have been under heavy pressure from German and other international competitors, which has halved production at its plants in France since 2000, leaving both PSA and Renault with substantial surplus capacity (or, as a distinguished European economist said recently, turning their factories into Potemkin villages). Rising wage costs in France at a time when Germany suppressed wage increases for many years contributed to the tribulations of the French car makers. Hourly wage costs in France are now about €35, slightly higher than in Germany, while in Spain they are around €20 and in Slovakia and the Czech Republic only €10, Mr Varin, CEO of PSA noted recently.
Both French automakers concentrate on small and compact vehicles, a segment in which competition is ferocious. This, say industry analysts, reflects French car taxation policy, which discriminates against large vehicles, for which the French domestic market is therefore small and dominated by German brands. The result is that the profit margins of the French producers have been much lower than those of their German competitors in recent years.
“Plan Rebound 2015” includes vehicle upgrading in an effort to improve margins.
It also includes a further expansion of PSA’s global reach. Last year sales outside Europe increased from 33 to 38 % of total sales and the aim is to take the share to 50 % in 2015. Sales in China increased by 6 % to 427,000 (4.5 % market share) last year, in Russia by 7.4 % to 77,200 units and sales in Algeria doubled to 81,000. Sales in Brazil were down by 8 % to 277,000.
