Peugeot Citroen Confirms Capital-Increase Plan

By David Pearson

PARIS--French carmaker PSA Peugeot Citroen (UG.FR) Wednesday confirmed a wide-reaching plan to shore up its balance sheet that will see the entry of China's Dongfeng Motor Group Co. (0489.HK) and the French state as key shareholders, and disclosed that 2013 losses had narrowed despite a fall in vehicle sales.

Peugeot Citroen, badly mauled by the six-year slump in automobile sales in Europe, is embarking on a new era in its development as it seeks to escape from Europe's stagnating market and expand its operations in Asia and other faster-growing emerging markets.

Europe's second-largest automotive group plans to raise 3 billion euros (US$4 billion) in fresh capital that will allow Dongfeng and the French state to acquire shareholdings of 14% in the company, it said in a statement. At the same time, the Peugeot family that has been at the helm of the company in its various forms for two centuries will no longer have a blocking minority and will see its stake reduced to the same level as the state and Dongfeng.

Peugeot Citroen also confirmed reports that its in-house banking unit Banque PSA Finance and Spain's Banco Santander have entered into exclusive negotiations to form a 50-50 partnership to develop the French bank's activities in Europe.

Peugeot Citroen, which has been consuming cash at an unsustainable rate in recent years, said it had managed to reduce its cash burn in 2013 to EUR426 million, a much better performance than the company's original guidance that it would at least halve the EUR3 billion cash burn recorded in 2012. It said it is aiming to become cash-positive by 2016 "at the latest."

The company posted a net loss of EUR2.32 billion for 2013, less than half the EUR5.01 billion loss in 2012 that was chiefly due to a EUR3 billion charge for asset impairments. Recurring operating losses shrunk to EUR177 million last year from EUR560 million in 2012, despite a 2.4% fall in revenue to EUR54.09 billion.

Commenting on the results, Chief Executive Philippe Varin, who will be replaced by Carlos Tavares at the end of March, said in a statement: "We have gone through some very challenging years for the European automotive industry, which have added to the Group's structural difficulties, notably its over-dependence on Europe. We vigorously implemented difficult restructuring measures which are now starting to bear fruit. We also launched core models this year that have exceeded their initial sales targets. The globalisation process is proceeding apace, with in particular an excellent performance in China."

Peugeot's Wednesday statement confirms a Wall Street Journal report that the French firm would be getting a capital infusion from China's second-biggest domestic auto maker, Dongfeng.

Write to David Pearson at [e-mail]

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