Economy, Auto

Peugeot Promises Turnaround on Restructuring

Peugeot Promises Turnaround on RestructuringPeugeot Promises Turnaround on Restructuring

PSA Peugeot Citroen will set new growth goals after cost-cutting and recovering demand in Europe helped the French automaker beat targets set two years ago following a bailout.

Automotive operating profit last year was 5% of revenue, far exceeding a 2% margin goal for 2018, the company said in a statement on Wednesday.

Free cash flow was almost double the target set through 2017. The carmaker will issue its profit plan on April 5 and said it will start paying a dividend in line with the industry from this year’s earnings, its first since 2011, Bloomberg reports.

The result “puts our company back in the race and proves its potential”, Chief Executive Officer Carlos Tavares said in the statement. “We will be able to harness this strength when implementing our new plan for profitable growth.”

The shift to expansion comes after two years spent stabilizing the business. Peugeot shut a plant, cut jobs and froze pay after a bailout by the French state and China’s Dongfeng Motor Corp. in 2014.

The planned dividend is a sign the company believes the turnaround is now sustainable despite a slowdown in China, the world’s biggest auto market, and the diesel emissions scandal at Volkwagen AG. While Peugeot has denied cheating, more than half its European sales rely on the engine type.

  Expectations Dashed

“This is a major beat to expectations,” Arndt Ellinghorst, a London-based analyst for Evercore ISI, wrote in a note.

The margin was the highest since 2002, Chief Executive Officer Jean-Baptiste de Chatillon said on a conference call with reporters. The carmaker benefited from paring down its product range to 39 models from 45 cars in 2014, he said.

“We are finalizing our economic reconstruction,” de Chatillon said.

Last year, recurring operating income climbed to €2.73 billion ($3 billion) from €797 million in 2014. Revenue rose 6% to €54.7 billion. Peugeot generated €3.8 billion of operating free cash flow, beating a €2-billion target for the two years through 2017.

Global deliveries rose 1.2% to 2.97 million cars and light commercial vehicles, boosted by the Middle East, Africa and Asia as well as Peugeot’s home European market.

The company is betting on further expansion in China and renewed its ties in Iran earlier this year with a deal to produce 100,000 vehicles annually with Iran Khodro, its longtime partner in the country, starting in late 2017.

The biggest European and US automakers paid, on average, about 28% of their profit in dividends last year, according to data compiled by Bloomberg.