French carmaker PSA Peugeot Citroen, Europe’s second largest, said its upturn targets are a step closer now after it decided to increase the key cash-flow objective on the back of strong demand in China and a market recovery in its core European region.
The automaker managed to beat expectations last year, managing to return to profit last year after a 1 percent sales gain to 53.6 billion euros. The company now pledged to have a cumulative operating cash flow by 2017 of 4.2 billion euros – double the earlier 2018 target. “Our 2014 results show evidence that the process of rebuilding the group’s financial fundamentals is underway,” commented CEO Carlos Tavares. “We are ahead of our reconstruction plan.” PSA’s manufacturing unit jumped to a 63 million euro operating profit after a 1.04 billion loss during the same period a year ago and its overall net loss slowed to 555 million from 2.23 billion; with operating income now positive at 905 million euros. Peugeot almost didn’t survive the European six-year slump that brought two-decade low sales and needed a 3 billion euro share issue last year that brought in as investors China’s Dongfeng and the French government with matching 14 percent stakes.
The “Back in the Race” strategy envisioned by new company leader Tavares has brought pledges of a reduced lineup (cutting unprofitable models), lower production capacity, increased prices and a halt of wage and parts cost growth – needed to lift the automotive division’s operating margin to 2 percent in 2018 and 5 percent by 2023. The company further reported it made progress on several levels: labor costs, for example, dropped from 14.5 percent of revenue to 13.4 percent and will further go down to 12 percent by 2016.