Peugeot Profits Expected to Remain Strong

Peugeot Profits Expected to Remain Strong.

But French Government Says Tavares Paid Too Much.

Peugeot has surprised and pleased investors with its quick return to profitability, but the French government, now a major shareholder, is unhappy with CEO Carlos Tavares’ big pay increase.

Tavares’ pay reached €5.24 million in 2015, up from €2.75 million the previous year, according to the annual report.

“I regret this increase, which does not correspond to the reality of the employees of this great company,” French Prime Minister Manual Valls told RTL radio, according to Reuters.

In 2015, Peugeot-Citroen posted a net profit of €1.2 billion, its first profit in three years, and compared with a loss of €555 million the previous year. Automotive operating profit was five per cent. In 2014 Tavares set a two per cent profit margin goal for 2018, which at the time was ridiculed for being under-ambitious. The plan included cutting fixed costs of about €1 billion, shutting some capacity and insisted on cutting discounts on new car sales to bolster profit margins.

On the brink
Peugeot was on the brink of bankruptcy a couple of years ago and was saved by a €3 billion state-backed rescue plan after racking up more than €7 billion in losses over a couple of years. France and Chinese carmaker Dongfeng each bought 14 per cent of the company. The Peugeot family stake was reduced to 14 per cent.

Meanwhile the plaudits continue to pile up for Peugeot.

Fitch Ratings, in a report, said Peugeot’s recovery is sustainable and is solidly positioned despite its over-reliance on Europe. It does have problems though.

“(Peugeot) has limited capability for synergies and a potential need for external alliances, notably to lower development costs,” Fitch said.

Fitch expects Peugeot’s automotive profit margin to remain between 4.0 per cent and 4.5 per cent through 2018.

Barclays Equity Research wonders if Peugeot’s new spending plan, revealed on April 5, would scare the market, but still thinks the company is worth investing in.

“Following an impressive 2015, we believe it isn’t too late to jump on this equity story. The company is still very ambitious and we believe a very limited part of the recovery is currently priced in,” Barclays said.

Tavares lagging
It’s not clear if government criticism of Tavares wages will make an impact, given that the Peugeot family and Dongfeng can outvote it. Naturally, unions didn’t like it, but according to Reuters, Tavares lags behind Renault CEO Carlos Ghosn’s €7.25 million, and Daimler CEO Dieter Zetsche’s €9.75 million.