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Domestic demand, new models fuel PSA H1 profits
By Noah Barkin
PARIS, Sept 6 (Reuters) - PSA Peugeot-Citroen, Europe's number two carmaker,
said on Wednesday net profits surged by 39 percent to 755 million euros
($677.1 million) in the first half of 2000, boosted by a robust French market
and snazzy new models.
Cost cuts, volume growth and a firm pricing environment helped the dual-brand
company report a 36 percent rise in underlying profits to 1.16 billion euros,
and PSA confirmed it would meet sales and earnings targets for the full year.
Analysts polled by Reuters forecast bottom-line profits, which came in at 543
million euros last year, to rise to between 640 million and 670 million euros
and operating profits to increase to 1.1 billion to 1.2 billion euros.
``Growth was led by sustained demand for the Peugeot 206 and the Citroen
Xsara Picasso, together with further market share gains for the two marques
across all their geographic markets,'' the company said.
PSA shares, which were the darling of the European car sector in 1999 but
have stagnated this year, were up 2.46 percent at 217 euros at 0900 GMT. They
are about 11 percent below a lifetime peak of 245 euros hit in January.
PSA said the continued strength of Peugeot 206 sales and the roll-out of
several new models put it on track to meet its full-year objectives for sales
of 2.7 million vehicles, an auto division operating margin of four percent
and consolidated operating profit of 1.9 billion.
``These are strong results,'' said Gaeten Toulemonde, analyst at Deutsche
Bank in Paris. ``You have the impact of higher volumes, plus they have a lot
of new models in the pipeline.''
OPERATING MARGIN JUMPS IN AUTO DIVISION
Particularly encouraging to analysts was news that operating margins advanced
strongly in tandem with a robust 18.2 percent increase in revenues.
The margin in the automobile division, which contributes roughly three
quarters of total profits, rose to 4.5 percent from 3.4 percent last year,
while overall operating margin rose to 5.2 percent from 4.5 percent.
The company said that marketing costs in Britain had increased significantly,
but that discounts and additional no-cost options had been largely kept under
control during the six-month period.
PSA said it had decided to increase the research and development (R&D) budget
at its automobile division further. Previously, the company had said it would
increase overall R&D budgets by 10 percent in 2000.
``The only concern I would have is pricing pressure, especially in the UK,
from here on out,'' said Xavier Gunner, analyst at SBC Warburg.
Pressure to reduce prices in Britain has led PSA and other firms to offer
incentives there. But analysts say much of this drag could be offset in the
company's bottom-line by the strength of the pound against the euro.
PSA, which realises just under 10 percent of its unit sales in Britain, books
a foreign exchange gain on all UK-based revenues.
The company said that at mid-year it was on course to meet its full-year
savings target of 840 million euros, but that sharply higher raw material
prices had reduced the positive impact by 31 million.
It said that in the second half of 2000, the European-wide introduction of
its high-end Peugeot 607 saloon, the launch of the 206 cabriolet and the
roll-out of a restyled Citroen Xsara would help fuel growth.
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