Fitch Sees Small Profits Coming Soon.
But Market Weakness Might Jeopardise Progress.
Peugeot, desperately trying to turnaround its rocky finances, continues to attract more admirers than detractors.
The Fitch Ratings agency believes Peugeot is on track to breakeven in 2014 and gradually improve to small profits in 2015 and 2016, although it cautions that the recovery is fragile.
One criticism of Peugeot, that it was overly dependent on Europe, could well swing in its favour as any recovery will bring it greater gains than the competition. Unfortunately for Peugeot, the health of the European recovery is beginning to look doubtful. At the same time many emerging markets, where Peugeot is a belated contender, are entering troubled times.
“Peugeot’s core automotive operations’ profitability will increase to around breakeven in 2014 and improve further to above one per cent in 2015 and two per cent in 2016, from a negative 2.9 per cent in 2013 and a negative 3.9 per cent in 2012,” Fitch said in a report.
But this might be in jeopardy if the economic recovery stalls.
“The improvement remains fragile and could be derailed if the operating environment deteriorates more than expected, notably outside of Europe where the group is trying to diversify further, and sales do not increase as we assume. The benefits of cost cutting actions would also be absorbed by higher-than-planned investments or higher-than-expected working capital needs. We currently project group revenue to increase by 2.5 per cent in 2015 and more than five per cent in 2016, which should benefit operating leverage and, in turn, profitability,” the report said.
Highly exposed
“We also believe that the current recovery of the European automotive market, to which Peugeot remains highly exposed, will mitigate the weakness in other markets and will support a gradual rebound of earnings and cash generation,” Fitch said.
Peugeot cut losses to €114 million in the first half of 2014 from €471 million in the same period of 2013. The auto division made a €7 million half year operating profit after a whopping loss of €538 million in the same period of 2013. Peugeot lost more than €7 billion between 2012 and 2013.
Family owned Peugeot was bailed out by the French state and Dongfeng Motor of China taking 14 per cent stakes in the company. The deal diluted the Peugeot family stake to 14 per cent also. CEO Carlos Tavares’s turnaround plan called “Back in the Race” seeks a two per cent operating profit margin by 2018 rising to five per cent between 2019 and 2023.
Fitch is concerned by this new ownership structure.
“The new shareholding may present some renewed challenges to coordinate the various shareholders’ interest, which could be divergent.”
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