Peugeot defends recovery plan after record loss
PARIS (Reuters) - PSA Peugeot Citroen vowed to avoid further asset sales or government bailouts, insisting that cuts underway will be enough for it to recover from its biggest-ever full-year loss.
Peugeot shares rose on Wednesday after the troubled carmaker said it burned through cash at the expected rate in 2012 and stuck by a pledge to halve that figure this year, despite weakening prospects for a European market recovery.
"The foundations for our rebound have been laid," Chief Executive Philippe Varin told reporters in Paris, citing savings that were slightly ahead of plan.
But traders said the stock gain was exaggerated by short-covering - purchasing by hedge funds to cover bets on a price fall - and scepticism remained over the turnaround strategy.
"PSA's predicament is getting tighter," said analyst Max Warburton at brokerage Bernstein in a note highlighting Peugeot's worsening cash consumption in the second half. "One has to wonder if they are really convinced that this situation is salvageable."
Peugeot is the worst casualty of a European auto sales collapse that has been especially brutal in its core southern markets. The company's share of regional sales fell to 11.7 percent last year from 12.4 percent, as rivals such as Volkswagen and Hyundai-Kia gained ground.
The Paris-based company is scrapping 8,000 jobs and an assembly plant in an attempt to return to break-even late in 2014 and profitability in the following full year.
Last year it also received a 7 billion euro (6 billion pounds) state loan guarantee, generated 1 billion in a share issue and raised a further 2 billion by selling assets including its Paris headquarters building and profitable Gefco logistics division.
The company on Wednesday unveiled a 5 billion euro net loss, bloated by 4.74 billion in writedowns as its industrial operations continue to bleed cash.
Losses at the auto division swelled to 1.5 billion euros from 92 million as group revenue fell 5.2 percent to 58.4 billion. Divisional cashflow came to a negative 2.5 billion euros, for a 208 million monthly average.
The earnings slide has fuelled speculation that CEO Varin may be forced to consider selling the Faurecia parts division or seek a further cash injection - which could involve Peugeot become partly state-owned, like rival Renault.
Peugeot shares were up 5.4 percent at 11.12 a.m. British Time after the company sought to dismiss both possibilities.
"We have 10 billion euros in liquidity, which is more than we had a year ago," Varin said. "I have complete confidence in our ability to meet our guidance."
His finance chief went further to rule out any imminent Faurecia disposal. The separately listed business still has "some way to go" before its expansion is fully reflected in its market value, CFO Jean-Baptiste de Chatillon said, adding Peugeot saw no imminent need to raise more cash.
"Conclusion: it's not for sale," he said.
Savings in its car manufacturing operations last year reached 1.18 billion euros, ahead of a 1 billion goal, Peugeot said. The company pledged to raise a further 300 million from property sales in 2013 and save 600 million by pooling vehicle development with partner General Motors.
Helped by the GM alliance, announced a year ago, Peugeot aims to double production volumes in each of its model categories and share more parts to boost economies of scale. It also outlined plans to push sharper brand and price differentiation between Citroen, Peugeot and its upscale DS nameplate.
European auto demand is likely to fall a further 3 to 5 percent this year and remain depressed for the foreseeable future, Peugeot also predicted.
While Peugeot's earnings were "a little better than we had forecast", Credit Suisse analyst David Arnold said in a note, doubts remain about a recovery plan which is "built around a stable market at the 2012 level and a 13 percent market share for PSA ... Both look unlikely now."
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