PSA Profit Hits Record as Tavares Gets Going on Opel Turnaround

(Bloomberg) -- PSA Group reported record profit for 2017 as the French carmaker was able to limit the losses at its newly acquired Opel division, a sign that Chief Executive Officer Carlos Tavares is making progress toward a turnaround.

The shares rose to their highest in four months after the company said its operating margin had remained steady for the year, despite the purchase of the money-losing Opel and Vauxhall brands from General Motors Co. in August. Tavares has been busy integrating the German and British nameplates into the overall operation that includes PSA's traditional Peugeot, Citroen and DS marques, where earnings have been on an upswing.

“We are very bullish,” Tavares told analysts and reporters at a conference.

The CEO has pledged to apply the methods he used to revive Peugeot and Citroen following a 2014 bailout that brought in new investors -- measures that included freeing pay and reducing the headcount. Europe's third-largest automaker is negotiating with unions to cut jobs and reduce work hours at Opel to halt almost two decades of losses.

‘Strong Changes'

“We have strong changes which are happening in Opel Vauxhall,” Chief Financial Officer Jean-Baptiste de Chatillon told journalists by phone. After reaching labor agreements across most of the former GM operations in Europe, “we are very confident” of achieving profitability and cash-flow goals for the unit by 2020.

PSA shares rose as much as 6 percent to 19.73 euros, the highest intraday price since Nov. 9, and were trading up 4.9 percent as of 10:05 a.m. in Paris.

The cost savings are important because the manufacturer, based in the Paris suburb of Rueil-Malmaison, sees little growth in the European car market this year. PSA become even more reliant on the region since acquiring Opel and Vauxhall, even as it continues to expand abroad.

The loss at Opel, which was consolidated in PSA's books in August, totaled 179 million euros ($218 million). That was less than half the amount expected by JPMorgan Chase & Co. analyst Jose Asumendi.

23% Jump

Group recurring operating income last year jumped 23 percent to a record 3.99 billion euros, beating the 3.44 billion-euro average of analyst estimates compiled by Bloomberg. The profit margin Peugeot, Citroen and DS widened to 7.3 percent of revenue from 6 percent in 2016, “effectively the best result ever achieved by PSA,” de Chatillon said.

PSA is also battling to reverse last year's sales drop in China. As part of its expansion strategy in Asia, it extended a vehicle-assembly tie-up in Malaysia earlier this week to include a majority stake in the partner.

The French company reiterated targets through 2021 that it set two years ago. The carmaker will unveil details on the second part of its strategic plan in early 2019, according to de Chatillon.

The CFO also denied a news report from last year that PSA is seeking millions of euros from GM because it was misled about Opel's auto-emissions strategy.

“There is no problem with emissions,” as terms were included in the sales contract, even as “accounting technical discussions” are still going on with Opel's former U.S. owner, he said. GM has also said the French company hadn't made any claims.

To contact the reporter on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net.

To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, Anthony Palazzo at apalazzo@bloomberg.net, Tom Lavell

©2018 Bloomberg L.P.