Monday 14 April 2014

PSA: Looking for 5% margin by 2019-2023

Carlos Tavares, chairman of the PSA Peugeot Citroën managing board, says he wants a two per cent operating margin in the Automotive Division by 2018, with a target of five per cent during the next medium-term plan covering the period 2019-2023.

A major 2014-2018 “Back in the Race” roadmap unveiled today by Tavares is designed to accelerate the group’s recovery.

Tavares revealed his three metrics: Recurring positive group operating free cash flow by 2016 at the latest; €2 billion in total group operating free cash flow over the 2016-2018 period; and a two per cent operating margin in the Automotive Division by 2018, with a target of five per cent during the next medium-term plan covering the period 2019-2023.

He added that “Back in the Race” is built around four operational objectives:

● DS, Peugeot and Citroën, are three brands recognised around the world
● Development of DS as a full-fledged premium brand will be stepped up.
● The group will continue to reposition the three brands, while clarifying their line-ups to ensure their complementarity, and will improve their price positioning.

In addition he declares his requirement for a targeted global product plan more aligned with market demand. As part of this:

● The group’s line-ups will be “gradually” streamlined to 26 models by 2020. By focusing on a more compact range, PSA Peugeot Citroën will be able to improve market coverage and improve margins by targeting the most profitable segments.
● This will help to optimise the use of platforms and programmes around the world and to allocate R&D spend and capex more efficiently.

 On the international front, he requires a drive for profitable international growth accordance with the fundamentals of the automobile business. As part of this:

● The Group will continue to accelerate its expansion in China, by tripling volumes with Dongfeng in 2020 and successfully completing the development of the DS brand.
● The partnership signed with Dongfeng will help to drive faster growth in the ASEAN region.
● The Group will also “turn around” the situation in Russia and “transform” the business model in Latin America, with the objective of returning to profit in the two regions in the next three years. The chairman does not elaborate quite how these two issues will be resolved, especially in the light of the deepening crisis in the Ukraine with Russia which looks certain to impact on Europe.

● Finally, Tavares requires that PSA Peugeot Citroën “will seek” expansion opportunities in new growth countries, for example in Africa or the Mediterranean basin.

To set these in motion, the chairman requires that a new global organisation structured around six major regions – Eurasia, Europe, Middle East/Africa, Latin America, China and ASEAN, Asia-Pacific – will be put into place.

Tavares also wants to see improved competitiveness, especially in Europe. As part of this he notes that PSA Peugeot Citroën has stepped up the modernisation of its plants and will bring them in line with global benchmark production facilities, while continuing to reduce costs and inventory.

Finally, Tavares sees a need to “transform the corporate culture”. This will be difficult although he said that recovery “is well under way”.

“But the group needs to develop a real profit-driven culture and a global approach in order to return to profit more quickly,” he added. “Pursuing the cultural change already underway at PSA Peugeot Citroën is an important prerequisite for meeting the preceding four objectives.

Tavares declared: “With this Back in the Race plan, I am committed to accelerating the group’s recovery by channelling all of our teams’ creative potential so that we can quickly get back on the road to profit.”

Comment: It is all very well Tavares having aims and objectives but the motivation, sustained commitment and effectiveness in which they are delivered across the board is quite another thing. Time will tell if Tavares and his “team” can deliver. One question can be asked: Why does it take so long to achieve five per cent operating margin?                 ∎

No comments: