PSA Profit Jumps 32% as French Carmaker Downplays Brexit

PSA: Brexit Not a Top Concern, China Profit Will Improve
  • Brexit is opportunity to ‘demonstrate agility,’ CFO says
  • PSA first-half automotive recurring profit margin was 6.8%

PSA Group’s first-half earnings jumped 32 percent as Europe’s second-biggest carmaker promised cost cuts will keep its turnaround on track and downplayed the future impact of Brexit on its home market.

Recurring operating income rose to 1.83 billion euros ($2.01 billion) from 1.38 billion euros a year earlier, the company said in a statement Wednesday. That compared with a 1.47 billion-euro average of five analyst estimates compiled by Bloomberg. Revenue fell 0.9 percent to 27.8 billion euros.

Chief Executive Officer Carlos Tavares is seeking to prove the maker of Peugeot and Citroen cars can grow again after pay freezes, cost cuts and a 2014 bailout by China’s Dongfeng Motor Corp. and the French government. PSA said Wednesday it’s confident a wave of new models will help it meet growth targets through 2018.

“Negative headwinds such as Brexit will be an opportunity for us to demonstrate our agility,” Chief Financial Officer Jean-Baptiste de Chatillon said in a conference call with reporters, referring to the U.K. vote in June to leave the European Union. PSA doesn’t expect “major turbulence” in terms of British customers’ willingness to buy cars, though it will need to contend with the drop in the value of the pound compared with the euro, he said.

The shares rose as much as 9 percent, the most in intraday trading since February 2014, and were trading up 8.5 percent to 13.55 euros at 1:10 p.m. in Paris. 

“What they delivered in profit terms is simply superb,” said Hans-Peter Wodniok, an analyst at Fairesearch. “The question is -- and that will be my headline for this morning -- how much better can it get?”

Economic Fallout

Reliant on Europe for most of its sales, PSA is the carmaker most exposed to the fallout if economic uncertainty sends British car sales plunging, according to Evercore ISI estimates.

PSA’s cost cuts have made it “perfectly fit to face this event,” de Chatillon said in a Bloomberg TV interview. The manufacturer aims to boost its total savings on fixed costs to 1.2 billion euros by the end of this year. An income boost of some 431 million euros will come from factories and suppliers, according to a presentation on PSA’s website. The carmaker signed a deal with five of its six unions this month to help give it more flexibility on staffing.

Another piece of PSA’s growth strategy is technology-based mobility services. The company also announced the purchase Wednesday of a majority stake in Denmark’s Autobutler, an online platform to connect garages and customers. The acquisition follows investments in French car-sharing startups Koolicar and TravelerCar.

Deliveries Fall

The French carmaker’s global deliveries fell 0.2 percent to 1.54 million vehicles in the six months to June, with demand in Europe almost compensating for plunging sales in China and South Asia, Russia, the Middle East and Africa. In Europe, sales growth of 7.4 percent trailed the 9.1 percent increase in the market. 

PSA was more positive on China than it had been after the first quarter, saying it now expects the market there to gain 8 percent this year and saying a cost-cutting plan will help boost the margin of its joint venture with Dongfeng to 10 percent of sales by 2018.

The carmaker is aiming for average automotive operating profit of 4 percent of sales between 2016 and 2018, followed by a 2021 target of 6 percent. Its automotive-division margin in the first half was 6.8 percent.

PSA restated last year’s first-half results to account for Faurecia, the car supplier in which Peugeot is the major shareholder, having sold its exteriors business to Plastic Omnium SA.

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