PSA Peugeot Citroen has booked a half-year operating loss of EUR826m on revenues down 21.8% to EUR23,497m from EUR30,066m in 2008, citing “adverse market and industry conditions”.

The automaker said reducing inventory had helped improve its cash flow but noted that only its finance arm was profitable in H1 2009, though results were down year on year.

PSA Peugeot Citroën’s 2009 first half results reflect the impact of the global economic crisis which has hit the automotive industry,” it said in a statement.

“The automotive division and Faurecia were the most affected by the market collapse. Banque Psa Finance has shown good resilience.”

PSA said its European markets benefited from government scrappage incentive schemes to the point production was boosted in May and June. China and Brazil saw growth of 18.4% and 4.1% respectively.

CEO Philippe Varin said: “First half results reflect the impact of adverse conditions in the European markets, which were only partially mitigated by the benefits from performance action plans and new model launches. Our priority has been to ease our financial constraints by strengthening the group’s liquidity.”

The automaker said the European market would fall by around 12% in 2009 and expects to book an operating loss of EUR1bn to EUR2bn.

“The recovery of the European market should take place towards the end of 2010,” it added.

“The CEO’s strategic plan will take priority over the H1 numbers,” Exane BNP Paribas analysts said in a results preview note on Tuesday.

“Despite a significant improvement seen in Q2, thanks to the positive effect of the French and German scrappage measures, PSA is likely to report big losses in H1.”

Societe Generale analysts had expected a PSA group operating loss of EUR730m while Exane BNP Paribas estimated the loss at EUR760m versus the EUR826m reported this morning.

According to Reuters, both had warned that Varin could attempt some ‘kitchen-sinking’ – booking significant charges in the first half to allow for a fresh start.

“However, his room for manoeuvre is not total as he must preserve cash and the equity,” Exane BNP Paribas analysts said.

PSA said the collapse of worldwide automotive affected all group divisions and reduced overall margin on sales to -3.5% compared with +3.7% a year earlier.

Non-recurring operating expenses totalled EUR506m compared to EUR86m in the first half of 2008 and included EUR294m of restructuring costs, mainly resulting from the extension to March 2010 of the group’s December 2008 voluntary separation plan and EUR217m of impairment costs in the automotive division.

Net financial expenses totalled EUR226m compared to EUR70m in the first half of 2008 due to reduced income from cash deposits, interest costs on higher borrowings, and increased financing costs at Faurecia.

The net loss was EUR962m for the first half of 2009.

Automobile division revenues fell 20% to EUR18,658m in the first half and the operating loss was EUR904m versus a EUR633m profit in 2008. Inventory was reduced 31% to 431,000 vehicles.

PSA said parts unit Faurecia reduced direct production and other costs by EUR400m and was “well on track to meet its annual target of EUR600m”. Operating loss was EUR187m (versus a EUR90m profit in H1 2008), on revenue down to EUR4.4bn from EUR6.6bn but PSA insisted the unit “achieved a strong improvement in operating income, as early as the second quarter, resulting in positive cash flow and an easing of the debt burden”.

Gefco revenues dipped to EUR1.395bn from EUR1.904bn and operating income fell to EUR7m from EUR79m.

Banque PSA Finance remained in the black though operating income was down to EUR244m (from EUR308m) on revenues down from EUR1.059bn to EUR915m.

“Strict credit scoring and rigorous debt recovery ensured that the bank’s cost of risk remained benchmark,” PSA said.

The group said it expected the European automotive market to decline by around 12% in 2009, with a 7% drop in the second half, and to start recovering towards the end of 2010. New model launches were expected to hike European market share in the second half to “above 14%”.