PSA Peugeot Citroën has said it would increase cost-saving efforts and sell assets amid difficult market conditions this year after reporting a sharp drop in earnings.
PSA booked a 48% drop in net profit to EUR588m (US$772.1m) from EUR1.13bn in 2010, below market expectations according to media reports, dragged down by losses at its core automobile division in the second half of the year.
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“Deterioration in our business environment from the end of the first half led to very disappointing results from our automotive division. Other divisions—Faurecia, Gefco and Banque PSA Finance—made a positive contribution to our results,” chief executive Philippe Varin said, according to the Wall Street Journal.
Peugeot derived 61% of last year’s sales from Europe, whereas China’s market has become as important as Europe for the VW brand.
Peugeot Citroën expects the European automobile market, where it makes most of its sales and profit, to contract by 5% this year and said the core French market could fall by as much as 10%. Varin said market conditions in Europe will remain “difficult” in 2012, and said the group will continue its global expansion, especially in China where it has concluded a second joint venture with Chang’An Automobile Group.
The company said it plans to raise EUR1.5bn from asset disposals this year, and said the EUR800m cost savings programme set in place last October involving some 6,000 job cuts in Europe is being increased to EUR1bn. Chief financial officer Jean-Baptiste de Chatillon said there will be no extra head count reduction, according to the WSJ.
Group operating profit fell 27% to EUR1.32bn from EUR1.80bn on a 6.9% rise in revenue to EUR59.91bn. Peugeot’s automotive division made an operating loss of EUR92m for the full year compared with a profit of EUR621m as a second half loss of EUR497m wiped out EUR405m first half profit.
Peugeot has already raised EUR440m from the sale of car rental company CITER and Chatillon said the company is targeting EUR500m in real estate disposals. The remainder of the EUR1.5bn disposal program will come from the sale of a stake in Gefco, a wholly owned car transporter company. Peugeot will remain a “strategic” shareholder in Gefco, but hasn’t yet decided how much of the company it will retain, Chatillon said. Gefco’s operating profit rose 13% to EUR223m in 2011 on sales of EUR3.78bn.
Peugeot blamed slack demand for small cars and tough price competition in Europe for a 1.5% decline in vehicle sales to 3.5m units in 2011. Sales in Europe fell 6.8% but were up 11% in Latin America, 7.7% in China and 35% in Russia.
Chatillon said inventory levels of assembled vehicles at the end of 2011 were “unsatisfactory,” but declined to elaborate.
