April 2012 management briefing: OEM financial summaries (PSA, Renault, Tata)
The tough European market will be a drag on profits for PSA and Renault
In this month's management briefing, Rob Golding runs his financial rule over the financial position of the automotive industry's major OEMs. In this instalment: PSA, Renault and Tata Motors (including Jaguar Land Rover).
PSA Peugeot Citroen
Phillippe Varin, PSA chairman, likes to tell it straight: “We had very disappointing results from our automotive division in 2011.”
To be fair, it has not been clement weather for any volume car manufacturers and just getting revenue up (by 7%) was an achievement. There was an EUR92m loss from the automotive division which was just about recovered by its components, delivery business and finance company.
But the outlook is not too bad with plans in progress to both make disposals and to expand globally. Property is to be sold and investors will be invited into Gefco, the subsidiary logistics company. Long-awaited diesel hybrid engines are about to become available to the assembly plants.
Important imminent new cars are the Peugeot 208 and the innovative upmarket Citroen DS5 which creates a new premium range for the budget car maker.
There are pros and cons in the demand outlook. The home market of France is expected to be down 10% this year while the Europe 30 countries will all on average be down only 5%. However, the work that PSA has done over the years in the emerging markets has given it a foothold in markets expected to grow this year – namely China, Brazil and Russia.
One-off costs rose EUR417m compared to only EU€60 million last year because of the restructuring plan needed to bring employment down in manufacturing. And there was a one-off of EUR60m to settle risk on the Yen which had been deployed to manage component deliveries.
Peugeot had been forced to borrow from the French government when the downturn first bit but the company has now repaid the EUR3bn loan in full and made substantial interest savings.
Renault sold more last year than it did in 2010 but its profit slipped. Revenues were EUR42bn which was up by nearly 10%, but the operating margin was down to 2.6% compared with 2.8% in 2010.
It is international growth which is compensating for the rough competition of Europe. Nearly 20% gain was achieved in sales by pushing hard into Brazil and Russia and this year chairman and chief executive Carlos Ghosn wants over 40% from overseas markets while keeping leadership of the French market and the number two position in Europe.
Discounting in Europe has been punitive, sourcing and distribution worldwide has been disrupted by the effects of the Japanese Tsunami, and production has been hit. Together these negatives are estimated to have cost EUR200m.
The association with Nissan has been very fruitful though and has yielded EUR300m of benefit.
Debt in the automotive division fell despite the need to repay the substantial loans that it was forced to take from the French government.
Ghosn is forecasting growth of 4% this year for cars and light vans globally. Within that, Brazil and Russia could be up 5% and 8% respectively while the home market of France could also be down by as much as 8%.
What hurts is the refusal of the French government and governments elsewhere to subsidise or tolerate capacity closures. Ghosn believes that this will create long-term damage and that the strength of the industry in future will be compromised by the failure to take tough action now.
Life is doubly difficult when there is expected to be a 10% demand fall in France this year. Standard & Poor’s is forecasting a 5% fall across the whole of Europe.
India’s car demand is no more dependable than anywhere else at the moment. Inflation, increases in the cost of loans, and more expensive fuel have all played a part in slower sales and fewer visitors at dealerships.
Sales in the 12 months to the end of March 2012 rose a mere 2.2% taking the total from just under two million cars to just over, according to the Society of Indian Automobile Manufacturers.
That sales rate was almost back to the lowly levels of 1.4% growth in 2009.
Sales have been recovering slowly in the last five months but recorded a bumper year-on-year 20% gain in March.
The performance of the major players was mixed. Market leader Maruti-Suzuki was down 11% over the year to end March, while Hyundai was up 8%. Tata Motor, which makes the tiny budget car, the Nano, was restricted to the same sales of just over a quarter of a million units that it sold the previous year.
Ford and Toyota ran neck and neck with sales annualising at around 90,000. But while Toyota grew to that total by quadrupling sales year-on-year, Ford fell 5% compared with the year to end March 2011.
Jaguar Land Rover
Thanks principally to the confidence that Tata has shown in Jaguar Land Rover since taking ownership from Ford, the fortunes of the British company have been transformed. Turnover for the nine month period was up 40%. Range-Rover Evoque and smaller-engined versions of the Jaguar XF have made prices more accessible. Profit after tax rose an extraordinary 57% year on year.
Every trend is favourable. Unit sales, revenue, and profit are all substantially improved. There is some luck in the timing in that more choice and more expensive derivatives as well as better unit sales have driven the margin hard. The icing has been continued favourable exchange rates. JLR also has very even demand from the major markets. China, North America, UK and Europe each accounted for between 16% and 23% of total sales revenue. Tata has just raised GBP700m in the money markets to finance further expansion.
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|Revenue||€ 56061||€ 59912|
|Operating income||€ 1796||€ 1314|
|Net debt||€ 1236||€ 3359|
|Operating margin (% of revenue)||2.8||2.6|
|Associate income from Nissan||1.1||1.3|
|Earnings per share (Euros)||12.7||7.7|
|Summary financials||9 months to end 2011|
|Profit before tax||7526||9110|
|Summary financials||9 months to end 2011|
|Operating profit (EDITDA)||462m||752m|
|Profit after tax||280m||440m|