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Peugeot-Citroen Makes Progress, But Remains Challenged

Generated Cash In First Half, Thanks In Part To Slashed Spending.

Peugeot-Citroen looks to be in slightly better financial shape than feared, but still faces a tough route back to break-even, according to investment bankers.

In the first half of 2013, Peugeot-Citroen’s automotive losses shrank to €510 million, better by €147 million compared with the same period of 2012. The automotive division had been expected to lose about €740 million in the first half, and about the same again in the second half of 2013. Peugeot-Citroen has pledged the automotive division will break even by the end of 2014.

Financially troubled Peugeot-Citroen burned through €3 billion in cash in 2012, pledged to halve that in 2013 and become cash neutral by the end of 2014. But in the first half of 2013 it generated about €203 million in cash, thanks largely to slashing capital spending by close to €740 billion, higher earnings and asset sales.

Commerzbank reckoned Peugeot-Citroen could be profitable again by 2015, but warned that its future was still in doubt.

“Keep in mind that Peugeot-Citroen is still loss-making, burns cash and although the restructuring plan is on track, margin for error remains thin,” said Commerzbank analyst Sascha Gommel.

Morgan Stanley also pointed to some problems which threaten the future of Peugeot-Citroen, which has been weakened by its failure to expand away from its home market. Cutting development spending now might rebound later.

“Peugeot-Citroen continues to execute well on what is under its own control, but continues to suffer from a footprint skewed to France, lack of international exposure and limited strategic options long-term. We also believe cutbacks to (investment spending) could prove detrimental to future product at a time when peers are stepping up their efforts, which could lead to further market share erosion,” said Morgan Stanley analyst Laura Lembke.

Peugeot-Citroen’s Western Europe market share fell to 11.3 per cent in the first half of 2013, from 13.8 per cent in the same period of 2012.

In the first half, Peugeot-Citroen sales were helped by the success of the Peugeot 2008 small SUV, 208 hatchback and Citroen DS brand. Launches later this year include the Peugeot 308 small family car, which competes with the VW Golf, and the Citroen C4 Picasso.

The Financial Times’ Lex column said Peugeot-Citroen’s latest numbers showed it was on track for stabilisation.

“But this does not resolve the issue of whether further recapitalisation may be needed medium-term, nor whether enough capacity has been removed,” Lex said.

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