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article imagePeugeot Citroen shares slump as unveils recovery plan

By Laure Fillon (AFP)     Apr 14, 2014 in Business

French auto group Peugeot Citroen, fighting to recover from crisis with a new Chinese shareholder, presented a global recovery strategy on Monday, but its shares slumped.

The group is to reposition its brands in markets worldwide and notably in Asia, pursue cost cuts and put all its efforts into raising profits and building a money-making culture.

But traders held that the targets for a return to profits amounted to too little, too late and PSA Peugeot Citroen shares ended the day down 6.28 percent at 12.83 euros.

The group would focus overall on a culture of performance and global branding, it said in a statement.

New chief executive Carlos Tavares told a conference for analysts that the group had to change mentality. "The profit culture is a point on which we are going to focus," he said.

"Cash is king," he added, referring to the important business principle of paying close attention to how money is used relative to the speed with which it is earned.

A crippling problem for PSA Peugeot Citroen in recent years has been the speed at which it has used up cash resources, to the point of needing huge French state guarantees for its credit arm in an effective rescue of the group.

PSA Peugeot Citroen, which has made net losses of 7.2 billion euros ($10.0 billion) in the last two years, titled its programme "Back in the Race", and emphasised ambitions to grow in China and South-East Asia.

"The group needs to develop a real profit-driven culture and a global approach in order to return to profit more quickly," the company said in a statement.

Tavares said his basic objective was to concentrate every resource on raising profitability.

The group said it aimed to generate operating cash flow, a measure of the speed with which money is earned before it is allocated, of 2.0 billion euros from 2016 to 2018.

It was aiming for the car division to generate an operating margin of 2.0 percent by 2018 and then 5.0 percent under the next medium-term plan for the years 2019 to 2023.

- Targets 'not great' -

Stock trader Yves Marcais at Global Equities in Paris, commented: "The share had risen strongly recently and the conference by Carlos Tavares was somewhat disappointing, both in terms of margins and in terms of the outlook."

He said: "The approach is rather cautious. Everything that Tavares says goes in the right direction, but it's too far away from the market timetable ... two-percent margin in 2018, this is not great.

"It won't be until 2023 until we seen something substantial. The timetable is too spread out. That's why the market has knocked back PSA."

To achieve the targets, the group said it would focus on boosting its Peugeot and Citroen brands, and develop the upmarket Citroen DS brand cars so that they no longer competed with other models by the group, and to obtain higher prices for its vehicles.

To do this the group would concentrate on 26 models by 2020 to offer a broader range, higher profitability and target lucrative market segments.

PSA is in the process of acquiring two new shareholders: the Chinese state-controlled Dongfeng auto group, which already works with Peugeot Citroen as well as with the other French auto maker Renault, and the French state.

"The partnership signed with Dongfeng will also help to drive faster growth in the ASEAN region," the company said in a statement.

PSA, which halved its net loss last year from 5.0 billion euros in 2012 to 2.3 billion euros, has been in dire financial straits for some time and desperately needed new capital as well as a way of accelerating its penetration of the Chinese market.

Monday's strategic plan said the group would also aim to turn around its businesses in Latin America and in Russia, two regions where it is losing money, to achieve profitability in these areas within three years.

This meant the group would reorganise itself on the basis of six big regions.

Another priority was to modernise its factories while reducing costs and its inventories.

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