Peugeot Citroen says China sales, new models help drive return to profit

By Emma Vandore, AP
Wednesday, July 28, 2010

Peugeot Citroen returns to profit in first half

PARIS — Carmaker PSA Peugeot Citroen SA on Wednesday reported a return to profit in the first half of 2010, beating market expectations and boosting its outlook thanks to strong demand in China and a raft of new models.

The French company said it made a net profit of €680 million ($886 million) in the six months through June compared with a €962 million net loss in the same period a year ago, above analysts’ forecasts.

Revenues increased by 20.8 percent to €28.39 billion.

Peugeot Citroen is looking outside Europe for growth, where sales accounted for a growing percentage of its total — 36 percent in the first half, compared with 34 percent in 2009.

The phasing out of scrappage schemes will make the second half tough at home in Europe, with Peugeot Citroen expecting to break even in its automobile division.

“From the beginning, it was clear that the scrappage scheme couldn’t continue for an eternity,” CEO Philippe Varin told journalists in Paris.

That’s why the French carmaker’s priority is “to have access to strong growth” in markets outside Europe.

Peugeot Citroen has a Chinese factory with its local joint venture partner Dongfeng Automobile Co Ltd. that “delivered a major increase in both sales and earnings” in the first half, the French automaker said.

This month Peugeot Citroen also began a joint venture to make small, low-emission cars in China with China Changan Automobile Group.

Varin said in a statement that this second partnership “represents a major step toward growing our business outside Europe.”

“We are now confident that we will generate half of our vehicle sales outside Europe by 2015, compared to one third at the beginning of the current year,” he said.

Thanks to a better than expected first half, Varin said Peugeot Citroen has raised its forecast for the European market, saying it predicts a contraction of 7 percent this year, less than the 9 percent it was forecasting previously.

It is also forecasting more than 10 percent growth in the Chinese market, and less than 10 percent in Latin America.

Peugeot Citroen says it expects to deliver a recurring operating income for the full year of around €1.5 billion.

In the first half, the French carmaker made €1.14 billion according to this measure of underlying profit, compared to a recurring operating loss of €826 million a year ago.

Shares, which had risen on Tuesday, were down 4.2 percent in morning trade on Wednesday, at €23.82.

Despite the stronger than expected first half, Barclays Capital analyst Kristina Church said in a research note that Peugeot Citroen may have been optimistic in its guidance.

“We expect the outlook for the second half of 2010 to deteriorate, especially in the fourth quarter,” she said.

Morgan Stanley analyst Stuart Pearson said the first half result is “good, but unlikely good enough” and he expects earnings to fall in 2011.

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