Peugeot parent turns loss-making Opel around

Peugeot maker PSA Group turned its recently acquired Opel-Vauxhall business sharply back into the black while achieving record first-half profitability at its French car brands, sending its shares to a 10-year high on Tuesday.

Net income rose 18 percent to $1.73 billion (1.481 billion euros) over January to June, the company said, as revenues jumped 40 percent to 38.6 billion.

PSA is benefiting from runaway sales of its Peugeot 3008 and 5008 SUVs enhanced by years of cost savings under Chief Executive Carlos Tavares, who pulled the group from near-bankruptcy in 2014.

Tavares is now applying the same medicine at Opel, acquired from General Motors barely a year ago and which last turned a profit for GM in 1999.

"The turnaround of Opel-Vauxhall is now clearly under way," Chief Financial Officer Jean-Baptiste de Chatillon told reporters on a call.

PSA shares rose as much as 12.6 percent to their highest since 2008 and were up 9.6 percent at  22.39 euros) at 0724 GMT.

"The improvement PSA has achieved over the last six months is remarkable given that (Opel) lost 179 million euros in the second half of 2017," said Arndt Ellinghorst, a London-based analyst with Evercore ISI.

Profits recorded

Cost-cutting at Opel, which had lost a billion dollars a year under GM ownership, helped the division record a $584 million (half-billion euro) profit for a five-percent operating margin.

The profitability of the French brands, which also include Citroen, topped 8.5 percent, overshooting PSA's six-percent goal for 2021.

Overall recurring group operating profit rose by almost half to $3.53 (3.02 billion euros), PSA said, for a 7.8 percent margin.

The results soundly beat analyst expectations of $1.58 (1.35 billion euros) in net income and  $2.72 (2.33 billion euros) in operating profit on revenue of $1096.69 (938.49 billion euros), based on the median estimates in an Inquiry Financial poll for Reuters.

Opel's better-than-expected performance and return to profit could signal readiness for further consolidation moves. In his call with reporters, CFO Chatillon stressed the company's $9.7 (8.2 billion euro) net cash position, up by one-third since December.

But it could also complicate talks with German unions, as PSA seeks to offload engineering departments at the carmaker's Ruesselsheim headquarters near Frankfurt.

PSA, which is already cutting 3,700 Opel manufacturing jobs, enraged unions last month when it confirmed it was seeking a buyer for research and development activities that currently employ another 4,000 staff.

"We have overcapacity over time at this R&D centre," Chatillon said. Talks are ongoing with "partners that could bring in work", he said, declining to identify potential buyers understood to include engineering consultant Altran.

Opel's improvement was helped by purchase accounting that slashed some asset values and resulting depreciation costs. PSA's upbeat earnings will nonetheless draw "repeated double-takes" from investors, said Jefferies analyst Philippe Houchois.

PSA unveiled "impressive numbers all around even if we adjust for abnormally low capital expenditure and depreciation", Houchois added.

The group reiterated its full-year global auto market outlooks and said it would update investors on its mid-term goals early next year.