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Peugeot Stabilising Losses, Helped By New Vehicle Launches

E.U. Probe Into Government Bank Loan Support Might Be A Negative.

The Peugeot-Citroen automotive division’s operating losses will hit €740 million in the first half of 2013, but helped by important new launches of vehicles like the C4 Picasso, Peugeot 308 and 2008, and the first benefits from restructuring, the tide will start to turn in the second half of the year, a report from HSBC Global Research said.

HSBC didn’t go into detail on what losses were likely in the second half.

Peugeot-Citroen reported a massive net loss of €5.01 billion for 2012 after write-downs, compared with a net profit of €588 million in 2011. The automotive division reported an operating loss of €1.5 billion for 2012. Earlier this year Moody’s Investors Service said it expects the operating loss to reach €1.5 billion again in 2013, and this could worsen if European sales weaken further or pricing pressure intensifies. HSBC’s forecast implies a very small improvement in the first half at least.

HSBC said the risk of failure remains high for Peugeot-Citroen, although it didn’t go into details. It is concerned about the high level of automotive debt, which is set to reach €5.2 billion in 2014, and worried that the E.U. investigation into the French government’s help for the financing arm Banque PSA might result in some irksome conditions.

Sequential improvement
“We expect the first half of 2013 to represent the trough for the Peugeot-Citroen’s automotive division. In the second half we expect Peugeot Citroen to benefit from a combination of cost cuts, recovery of the European market as well as some important new model launches. We do not assume that pricing will improve for the group, but cost cuts as well as improving mix will lead to sequential improvement of Peugeot-Citroen’s (negative) EBIT margins versus the first half of 2013,” said HSBC analyst Horst Schneider.

Peugeot-Citroen has pledged that its automotive division will break even by the end of 2014. The company has announced a factory closure programme and last year sold assets worth €2 billion and announced a €1 billion rights issue. The French government has already intervened to back a loan of €7 billion to Peugeot-Citroen’s bank, and some investors are wondering if the government might acquire shares in the company if more help is needed. As part of its recovery plan Peugeot-Citroen has said it plans to move the Peugeot brand upmarket.

Late last month Peugeot-Citroen denied a report it was planning another capital increase. The report, in the French newspaper La Tribune, said the controlling Peugeot family had discussed what would be an acceptable dilution in its ownership. The family owns 25 per cent of Peugeot-Citroen, and has 38 per cent of the voting rights.

 Neil Winton – June 12, 2013

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