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PSA PEUGEOT CITROËN Worldwide sales held firm despite flat demand and a more aggressive promotional environment in Europe 2005: 3,390,000 cars sold,€1,940 million in operating margin 2006: Return to growth in Europe and sustained expansion in the global marketplace 2005 HIGHLIGHTS Worldwide sales held firm despite flat demand and a more aggressive promotional environment in Europe: 3,390,000 cars, up 0.4% from 3,375,300 units in 2004 Negative impact of higher raw materials prices and cost of compliance with new Euro IV environmental standards: Raw materials (steel, precious metals and plastic): €340 million Higher unit sales and improved margins outside Western Europe: 1,029,500 units, versus 950,600 in 2004 Sustained reduction in production costs: Favorable impact of €614 million, in line with the Group’s target Development and renewal of the model line-ups: New models launched on schedule and in line with objectives Consolidated operating margin: €1,940 million, or 3.4% of sales and revenue, Profit attributable to equity holders of the parent: €1,029 million, versus €1,646 million in 2004 2005 RESULTS Sales and revenue Net sales and revenue for 2005 totaled €56,267 million, an increase of 0.3% over the previous year’s €56,105 million. Automobile Division sales and revenue edged back 0.4% to €45,071 million, due to the combined impact of lower new vehicle sales, changes in the country and product mix, and the currency effect. Gefco revenue totaled €3,000 million, up 3.7% over 2004. Revenue from services performed for other Group companies was virtually unchanged, rising 0.7% to €1,843 million, while revenue from third parties increased 8.7% to €1,157 million. Faurecia sales and revenue rose 2.4% to €10,978 million. On a constant exchange rate and scope of consolidation basis, and excluding catalytic converter sales, sales and revenue were up 1.4% for the year. Sales to other Group companies totaled €2,468 million. Non Group sales rose 4.3% to €8,510 million, led by sales outside Europe, which have grown in parallel with the expansion of Faurecia’s manufacturing presence in North America and Asia. The Banque PSA Finance loan book grew 5.8% to €22,417 million from €21,181 million at December 31, 2004. Profit Automobile Division operating margin amounted to €916 million compared with €1,503 million in 2004. The decrease reflected the decline in Group unit sales and output in an aggressive promotional environment in Europe, the sharp increase in raw materials prices, the cost of Euro IV compliance and the impact of IFRS adjustments—all of which combined to offset the sustained reduction in production costs and the positive currency effect. Banque PSA Finance’s operating margin rose 17.2% to €607 million from €518 million in 2004, thanks to an increase in the loan book and a decline in net charges to provisions for credit losses. The operating margin rate continued to improve significantly, rising to 2.9% of average outstandings from 2.6% in 2004. Gefco’s operating margin amounted to €145 million, or 4.8% of revenue, versus €158 million or 5.5% in 2004, as the increase in transportation costs due to higher fuel prices exceeded the positive impact of continued productivity gains in operating expenses, supply chain processes and purchasing. Faurecia’s operating margin came to €267 million, or 2.4% of sales, versus €283 million or 2.6% in 2004, due to the increase in raw materials costs, the year-end decline in sales to French carmakers and the costs incurred on the start-up of new units in the United States, Asia and Eastern Europe. Restructuring costs of €160 million primarily related to restructuring plans implemented at various Faurecia plants in France and Germany. Other income and expense also included €180 million in impairment losses recognized on the assets of Faurecia’s Vehicle Interior Systems and Modules businesses following the decline in their operating income as a result of higher plastics prices. Profit attributable to equity holders of the parent amounted to €1,029 million, versus €1,646 million in 2004. Earnings per share came to €4.47 compared with €6.97. Financial position Working capital provided by operations of the manufacturing and sales companies totaled €3,689 million for the year, compared with €4,171 million in 2004, and represented 6.7% of sales and revenue, versus 7.6%.Capital expenditure came to €2,873 million, largely unchanged from the previous year’s €2,804 million. As of December 31, 2005, the manufacturing and sales companies had net cash of €381 million compared with net cash of €1,347 million at end-2004 and €598 million at January 1, 2004. The decline primarily resulted from a temporary increase in the working capital requirement caused by the impact on production programs and inventory of weaker European demand in the final quarter. OUTLOOK FOR 2006 For 2006, the Group expects automobile demand to remain flat in Western Europe, where the market will continue to be shaped by aggressive promotional activity. 2006 will see a major new stage in the model renewal process, beginning with the launch of the Peugeot 207 in April. When combined with the impact of the first full year of sales of models introduced in 2005 (the Citroën C1 and C6 and the Peugeot 107, 1007 and 407 Coupé), the new products should enable the Group to go back on the marketing offensive and return to unit sales growth in Europe. Sales outside Western Europe are expected to continue to increase at the same fast pace as in the past two years, led by the launch of new Peugeot and Citroën models in the Mercosur countries and China.Financial performance, however, will be adversely affected by the continued increase in raw materials costs, the second round of Euro IV compliance costs and the negative impact of IFRS adjustments. Nevertheless, even as the new launches replace a third of its full-year model line-up, the Group expects to see a further reduction in production costs, continued improvement in margins outside Western Europe and a stable contribution from the non-automotive businesses. As a result, the Group estimates that operating margin will be similar to the second-half 2005 figure in the first half of 2006, before showing an improvement in the second six months of the year.
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