July 31 (Bloomberg) -- PSA Peugeot Citroen, Europe’s second-largest automaker, reported a narrower-than-estimated first-half operating loss as a tighter rein on costs offset a decline in deliveries that outpaced the region’s contraction.
The loss was 65 million euros ($86 million) compared with a deficit of 51 million euros a year earlier, Paris-based Peugeot said in a statement today. The loss was narrower than the 295.8 million-euro average of five analyst estimates compiled by Bloomberg. The shares rose to a 15 1/2-month high.
“We see the first signs of the group’s recovery,” Chief Executive Officer Philippe Varin said in the statement. “We have to pursue our efforts to consolidate the industrial and commercial rebound.”
Peugeot is cutting costs after its carmaking unit burned through 3 billion euros in cash in 2012 as deliveries dropped amid the fifth consecutive annual contraction in Europe’s auto market. The manufacturer, which is closing a car plant near Paris, is in talks with banks on options to shore up finances, including a capital increase and selling assets such as a stake in the Banque PSA Finance auto-loan arm, people familiar with the matter said a week ago.
Peugeot jumped as much as 10 percent to 9.94 euros, the highest intraday price since April 2012, and was trading up 7 percent at 11:38 a.m. in Paris. The stock has surged 76 percent this year, valuing the company at 3.41 billion euros.
The French company’s reorganization includes reducing its domestic workforce by 17 percent and seeking more customers with new models such as the Peugeot 2008 crossover, 208 hatchback and Citroen DS vehicle line.
The new cars exceeded targets, helping narrow the loss at the automaking unit to 510 million euros from 657 million euros a year earlier, the company said. A further boost is expected from the Peugeot 308 compact and Citroen C4 Picasso minivan in the second half of the year.
“The loss in the automotive division is lower than expected, while cash flow was higher,” said Sascha Gommel, an analyst with Commerzbank AG in Frankfurt. “The company is well on track to reach its guidance.”
First-half revenue was reduced 2.3 percent by foreign-exchange effects, particularly the performance of the Argentinian peso, Brazilian real and British pound against the euro, Chief Financial Officer Jean-Baptiste de Chatillon said today at a Paris press conference. Disruptions from labor protests at the car plant in Aulnay that Peugeot is shutting cost the company 100 million euros in the period, the CFO told analysts on a conference call.
Peugeot reiterated a target today of cutting cash consumption by at least 50 percent in 2013. The manufacturer is planning on a “very significant reduction” in cash burn throughout 2014, Peugeot said, without repeating an earlier goal of breaking even on that basis next year.
Cash flow in the first half was a positive 203 million euros, excluding 254 million euros in restructuring costs and other one-time expenses. Net debt at the end of June totaled 3.32 billion euros, an increase of 173 million euros from the end of 2012.
To cut costs, the manufacturer set up a partnership in 2012 with Detroit-based General Motors Co. to develop vehicles and buy parts together. The alliance has started its first joint purchasing negotiations, Peugeot said today.
The company forecast that Europe’s car market, on track for a sixth straight annual decline, will shrink by about 5 percent this year. It had previously predicted industrywide demand in the region to fall by 3 percent to 5 percent.
First-half European auto registrations fell 6.7 percent from a year earlier to 6.44 million vehicles, according to the Brussels-based European Automobile Manufacturers’ Association. Peugeot’s sales in the region fell 13 percent during the period to 855,000 vehicles, the company said on July 8. Weak deliveries in Europe led to 3.8 percent drop in revenue in the first half to 27.7 billion euros.
Peugeot has received financial backing including a 7 billion-euro French state guarantee of new bonds issued by Banque PSA Finance as well as an 11.5 billion-euro refinancing agreement for the unit with a pool of about 20 banks.
European Union regulators cleared the government guarantee yesterday on condition that Peugeot take steps to limit net debt and accept restrictions on large acquisitions. The bank unit also pledged not to reduce the spread currently applied to wholesale financing for Peugeot and Citroen dealers. The commitments will remain in effect until the end of 2015.
Peugeot allocated a board seat to the French state and to a labor representative in return for the guarantee.
Operating profit at Banque PSA Finance dropped 24 percent to 205 million euros. Earnings at the Faurecia car-parts division, which reported first-half figures on July 25, fell 16 percent to 256 million euros.
Peugeot owns a 57 percent stake in Nanterre, France-based Faurecia, Europe’s largest maker of car interiors. The automaker, which has sold some businesses as part of its reorganization, will continue “accompanying” Faurecia, de Chatillon said today. The CFO said in February that Peugeot’s holding in the component producer isn’t for sale.
The automaker is in talks with unions about improving productivity at factories, seeking a program along the lines of French competitor Renault SA’s agreement with workers in March. Peugeot, which is eliminating 11,200 jobs by 2015, has said it may need more restructuring if the European car market continues to slide. Renault CEO Carlos Ghosn predicted in early July that industrywide sales in the region will shrink further through 2015.
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