PSA Peugeot-Citroen says 2006 net profit plummets

French automaker PSA Peugeot-Citroen said Wednesday that its earnings tumbled last year on weaker worldwide sales, a poor product lineup, the cost of complying with new European pollution standards and higher raw material prices.

Photo: PSA Peugeot-Citroen says 2006 net profit plummets

Peugeot's new CEO Christian Streiff said the company's loss of market share in Europe, where competition is fierce, is one of its main problems.

The supervisory board has set him a goal of growing the company while improving profitability as quickly as possible, Streiff said, promising a review over the next six months of the product launch strategy and the unveiling of a medium-term plan of action through 2010.

Peugeot shares rose 1.3 percent to EUR52.80 (US$68.32) in Paris trading.

The company said net income fell to EUR176 million (US$228 million) from EUR1.03 billion in 2005. Revenue rose 0.6 percent to EUR56.59 billion (US$73.31 billion).

Analysts had anticipated a sharp decline in Peugeot-Citroen's 2006 profitability as the company battled fierce competition from Asian and German manufacturers with an aging product line.

Nonetheless, the figures came in well below an average consensus of EUR533 million (US$691 million) among analysts polled by Dow Jones Newswires, but the operating margin a closely watched barometer of carmakers' health was slightly above the consensus figure of 1.8 percent.

The company's operating margin fell to 2.0 percent in 2006 from 3.4 percent a year earlier.

Operating profit fell to EUR1.12 billion (US$1.45 billion) from Ђ1.94 billion in 2005, while net cash from operating activities of manufacturing and sales operations increased to EUR3.44 billion (US$4.46 billion) in 2006 from EUR3.39 billion a year earlier.

The company expects operating earnings to be reduced by about Ђ300 million (US$389 million) in 2007 due to rising raw material prices, Chief Financial Officer Yann Delabriere said.

That compares with a reduction of EUR424 million (US$549 million) in operating earnings in 2006 for the same reason, reports AP.

Delabriere said launches of new models will have a positive impact on the company's product mix later this year after being negative since the second half of 2005. The average age of the company's models will decrease to 3.0 years by 2008 from 4.5 in 2006, he said.

Streiff, whose appointment was confirmed by the board on Tuesday, said he will aim to improve the quality of its products and services, which repay dividends in terms of lower guarantee costs.

Peugeot expects the European automobile market to remain stable this year, and sees no let up in the "rampant competition" that it suffered last year.

Still, "while group sales are likely to be affected by a certain slowdown in demand for models that are due to be replaced, they will be boosted by the steadily increasing product dynamic over the year, leading to a gradual improvement in the product mix," the company said in a statement.