PSA Peugeot Citroen on the road to recovery; gets green light for 7 billion state aid image

PSA Peugeot Citroen, Europe’s second largest automaker announced that the company succeeded to reduce its losses in the first half of this year even if the European car market has contracted to a minimum low.

Peugeot said it had managed to nearly halve its net loss in the first six months to eur 426 million ($565 million) from eur 818 million in the first half of 2012. On the same time the French carmaker which had previously targeted 1.5 billion euros in full-year cash burn recorded positive cash flow of 203 million euros in January-June as it cut capital expenditure by 764 million euros.

“We see the first signs of the group’s recovery,” said Philippe Varin, chairman. “We undertook measures, sometimes difficult, aimed at restoring profitability.”

Shortly after the announcement the market reacted positively sending PSA Peugeot Citroen shares to €9.93 in morning trading in Paris – up almost 10 percent (PSA stock surged 76 percent this year, valuing the company at 3.41 billion euros).

PSA Peugeot Citroen, the second largest carmaker after Germany’s Volkswagen Ag is trying to reduce costs as much as possible by cutting almost 20 percent of its domestic workforce. On the same time the company said its new vehicles like the 2008 urban crossover, 208 hatchback and Citroen DS vehicles line have exceeded targets, helping narrow the loss.

“The loss in the automotive division is lower than expected, while cash flow was higher,” said Sascha Gommel, an analyst with Commerzbank AG in Frankfurt.

“The company is well on track to reach its guidance.”

State Aid
PSA, the carmaker worst hit by Europe’s five-year auto market slump won EU approval for a 7 billion euro (6.09 billion pounds) state-backed debt rescue on Wednesday.

“This agreement has strengthened Banque PSA’s financing and offers visibility and financing confirmed for more than three years,” the company said in a statement welcoming the decision.

The state backing gives Banque PSA a crucial lifeline to keep providing finance to customers and dealers at attractive rates. However PSA must set in motion a “major” plan for asset sales, and said the company and its subsidiaries can’t make any new acquisitions for more than €100 million without its approval.