Peugeot accelerates profit, Nissan hits reverse and Mitsubishi drives off a cliff

The French car maker PSA Peugeot Citroën shrugged off a drop in Chinese sales and an ageing lineup to deliver record first-half profit on Wednesday, as the chief executive Carlos Tavares made progress on his turnaround plan for the maker of Peugeot, Citroën and DS cars.

PSA said net income more than doubled to €1.21 (Dh4.88bn) despite a decline in revenue and deliveries, soundly beating market expectations.

“This was a very strong result, and Tavares continues to make significant headway in transforming the company,” said the Evercore ISI analyst Arndt Ellinghorst.

The closely watched core automotive division increased profit by one third to €1.3bn, lifting its operating margin to an all-time high of 6.8 per cent from 5 per cent.

Since emerging in 2014 from a brush with bankruptcy and a government-backed bailout, PSA has been pushing an international expansion to reduce its dependence on the European mass market.

But the Paris-based car maker fell behind archrival Renault in global deliveries for the first half, as sales of its ageing model line-up fell almost 20 per cent in China and lost market share in a recovering European market.

Pricing nonetheless improved for all three brands, PSA said, and sales are expected to gain momentum from a product offensive getting underway, with eight model launches this year.

PSA is seeking to cut its China operating costs by 10 per cent annually under a plan agreed with the shareholder and joint venture partner Dongfeng, said the chief financial officer Jean-Baptiste de Chatillon.

He also pledged €200 million in extra savings this year as PSA cuts wage costs towards a targeted 11 percent of revenue, from 12 per cent last year.

“These action plans are not over,” he said. “We’re continuing to right-size our fixed costs.”

The results beat analysts’ expectations of €796m in net income and €1.01bn in car division profit, based on the median of 12 estimates in a Reuters poll.

PSA, which has flagged openness to mergers and acquisitions, frustrated some analysts by issuing no 2016 guidance, nor changes to mid-term profitability goals it has already beaten.

“Peugeot may stay unclear at this point on cash uses to keep its options open on M&A as long as possible,” said Thomas Besson of Kepler Cheuvreux.

Also yesterday, the Japanese car maker Nissan reported a 9.2 per cent fall in operating profit for the first quarter, its first year-on-year decrease in five quarters, as a the impact of a stronger yen offset gains made from cost reductions.

Operating profit at Japan’s second-largest car maker by sales came in at ¥175.8 billion (Dh6.13bn), exceeding an average estimate of about ¥168bn from nine analysts surveyed by Reuters.

Nissan maintained its forecast for operating profit to fall 11 per cent to ¥710bn in the year to March.

The US dollar has tumbled around 12 per cent against the yen since the start of 2016, and broad strength in the domestic currency seen in the past year has weighed on profits at Japanese car makers, which sell the majority of their vehicles overseas.

Nissan, whose manufacturing plants are spread overseas, said it expects to take a ¥255bn hit to its operating profit this year due to currency volatility.

The company expects the yen to average around 105 to the US dollar and 120 to the euro this year, compared with about ¥120 and ¥133, respectively, during the year ended March. Each ¥1 rise versus the dollar slashes operating profit by about ¥14bn.

Vehicle sales in North America and China, Nissan’s biggest markets, rose on the year, while sales slipped in Europe and other regions, including Southeast Asia and South America.

Analysts expect sales to pick up in the coming months due to launches for new models including the Serena minivan in Japan, along with the new Kicks 4×4 crossover initially in Latin America and the Datsun redi-GO compact crossover in India. The drag from currency fluctuations, though, is seen intensifying.

Sales growth in European markets may be subdued in the mid-term due to uncertainties surrounding the British vote to leave the European Union.

Nissan may be particularly vulnerable to the UK’s departure from the free-trade region as the car maker operates a plant in northern England with an annual output of around 500,000 units, the largest among car makers producing in the country.

Nissan’s domestic rival and minicar partner Mitsubishi, meanwhile, reported a 75 percent plunge in first-quarter operating profit on Wednesday as domestic sales slumped after it admitted to overstating the fuel economy of some of its vehicles.

Japan’s sixth-largest car maker by vehicle sales posted an operating profit of ¥4.6bn in April-June, compared with a SmartEstimate loss for ¥140m from five analysts surveyed by Reuters .

Mitsubishi stuck with its forecast for an annual net loss of ¥145bn for the year to March as the fallout from the mileage-cheating scandal drags down operating profit by a whopping 82 per cent.

The company said it will book an extraordinary loss of ¥125.9bn for the full business year as a result of the cheating.

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