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February 23, 2017 12:00 AM

PSA ready for 'opportunities' as profit gain helps Opel stance

Ania Nussbaum
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    PARIS -- PSA Group's earnings jumped 18 percent last year, underscoring the French automaker's revival and buoying its efforts to buy General Motors' struggling European operations.

    "We are ready to grab opportunities" after accumulating 8 billion euros ($8.44 billion) of free cash flow since the end of 2013, Chief Financial Officer Jean-Baptiste de Chatillon said Thursday on a conference call.

    PSA can now "deploy this cash to make profitable investments and invest this money in the best interest of our shareholders," he said. Chatillon said there's no certainty a deal will be reached with GM, declining to comment further on talks.

    Three years after the French state and Chinese automaker Dongfeng Motor bailed out PSA following heavy losses, the maker of Peugeot, Citroen and DS cars is looking to acquire GM's unprofitable Opel unit.

    PSA CEO Carlos Tavares is on a mission to gain support for the deal, pledging to government and labor leaders that he can secure jobs by spearheading a similar turnaround at Germany-based Opel and its sister UK brand Vauxhall.

    Recurring operating income climbed to 3.24 billion euros in 2016 from 2.73 billion euros a year earlier on cost reductions, Paris-based PSA said in a statement. Automotive operating profit widened to 6 percent of sales from 5 percent. PSA generated 2.7 billion euros of operating free cash flow in 2016, raising its net automotive financial position to 6.81 billion euros at the end of December from 4.56 billion euros a year earlier.

    Market ranking

    Picking up GM's European operations, which are potentially valued at about $2 billion, would propel PSA back to second place in Europe's car market, behind Volkswagen Group. PSA's deliveries in the region slid last year, partly because of Tavares's decision to revamp the Peugeot and Citroen nameplates and focus on fewer, more lucrative vehicles.

    Volume is critical in the mass-market car segment, and the addition of Opel's roughly 1.2 million in annual deliveries would help PSA spread the cost of developing autonomous cars and cleaner engines across a larger number of vehicles.

    PSA increased its automotive recurring operating-margin goal in the 2016-2018 period to an average 4.5 percent of revenue from 4 percent. It reiterated plans for the figure to reach 6 percent by 2021 and for sales at constant exchange rates to jump 10 percent by 2018 from the 2015 figure, and another 15 percent by 2021. Car markets this year will be stable in Europe, Latin America and Russia and expand 5 percent in China, the company said.

    While PSA returned to profit at an operating level in 2014 after three years of losses, GM's European division has posted more than $20 billion in deficits since 1999. The companies' combined 16.3 percent market share in Europe last year compares with Renault's 10.1 percent and Volkswagen's 24.1 percent.

    An agreement with GM would give the French manufacturer, which also sells vehicles in the Middle East, Africa, South America and Asia, momentum to pursue its expansion abroad, PSA Chairman Louis Gallois said Tuesday.

    PSA is also bidding for a stake in Malaysia's Proton Holdings, the owner of British sports car brand Lotus and another money-losing carmaker. It's seeking to return to Iran and struck an agreement in January to produce cars in India.

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