PSA Peugeot Citroën on Tuesday said its financial results for the six months ended June 30, 2005 were in line with the full-year outlook, announced in February, for moderate growth in sales and a consolidated operating margin between 4.0% and 4.5% of sales and revenue.

Consolidated operating margin was indeed €1,181 million, or 4.1% of sales, versus €1,277 million but net income plunged almost 21% to €681 million, from €858 million a year ago.

Worldwide sales, despite a highly competitive European market, were 1,754,200 vehicles, versus 1,743,400 in first-half 2004, an increase of 0.6%.

Outside Western Europe 509,800 units were sold versus 468,100, representing 29.1% of worldwide sales, versus 26.8% in first-half 2004 and 28.2% over the full year.

Sales and Revenue

Consolidated sales and revenue for first-half 2005 totalled €29,006 million, up 1.6% over the year-earlier period. On a quarterly basis, sales and revenue rose by 0.7% to €13,635 million in the first three months of the year, but increased 2.4% to €15,371 million in the second.

Automobile Division sales rose 1.8% to €23,375 million for the period, reflecting the net impact of higher unit sales of new vehicles, the price effect, the product mix and the geographic mix.

Gefco reported first-half revenue of €1,518 million, up 3.3%.

Faurecia sales increased 1.7% to €5,613 million.

The Banque PSA Finance loan book grew 6.0% to €21,783 million from €20,549 million at June 30, 2004.

Income

Consolidated operating margin for the period amounted to €1,181 million compared with €1,277 million in first-half 2004, representing 4.1% of sales and revenue versus 4.5%. The group met its announced target of a consolidated operating margin of between 4.0% and 4.5% of sales and revenue.

Automobile Division operating margin contracted to €650 million from €770 million. The decline reflected higher raw materials costs, unfavourable changes in the sales and geographic mix and the net impact of IFRS adjustments, which combined to offset the positive impact of new model launches and the sustained reduction in production costs.

Banque PSA Finance's operating margin rose 10.6% to €282 million from €255 million in first-half 2004, led by an increase in the loan book and a decline in credit losses.

Gefco's operating margin amounted to €80 million compared with €81 million in first-half 2004, representing 5.3% of revenue versus 5.5%.

Faurecia's operating margin declined to €160 million from €163 million in first-half 2004, representing 2.9% of sales versus 3%. The negative impact of higher raw materials costs was partly offset by ongoing productivity gains across all divisions.

Net profit amounted to €681 million, compared with €858 million in first-half 2004. Earnings per share stood at €2.95 versus €3.61 a year earlier.

Capital expenditure rose slightly during the period, to €1,326 million from €1,255 million in first-half 2004.

Outlook

Sales growth picked up slightly in the second quarter. The new models launched during those three months are expected to start having a greater impact which will drive faster growth in sales, which will also be supported at year-end by the introductions of the new 407 coupé and the Citroën C6 in the executive segment.

However, lacklustre growth in European economies means that the region's automobile markets are not likely to see a significant upturn and that the group's growth will continue to depend on expanding markets outside Europe.

Operating margin will be affected by the impact on automobile division margins of higher raw materials prices, especially for steel. By year-end, the impact should be at the top end of the €250-300 million range forecast at the beginning of the year.

As a result, the group has reconfirmed the 2005 targets, announced in February, of moderate growth in sales and a consolidated operating margin between 4.0% and 4.5% of sales.

Golding's view