Cost increases dent Peugeot profits

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The Independent Online

The warning came as the French group reported a 22 per cent decline in profits last year to €1.94bn (£1.3bn) - a performance which its chief executive, Jean-Martin Folz, described as "mediocre and not good enough".

Peugeot blamed the fall in profits in 2005 on a range of factors including intense price competition and the sharp rise in raw material prices, which added €340m to its costs compared with the €200m-€300m the company had told the market to expect. At the same time, the cost of complying with the latest European requirements on engine emissions cost the group almost €100m.

The increase in costs more than offset €614m of efficiency gains and cuts Peugeot's profit margin to 3.4 per cent compared with 4.4 per cent in 2004 and a target of about 4 per cent. M. Folz said the company's ambition remained to increase margins to 6 per cent and produce 4 million cars a year but he did not say when. Last year, it produced 3.39 million.

The company said it expected profit margins for the first half of this year to be around the 2.8 per cent level achieved in the second six months of last year. But it forecast a pick-up in the second half of this year as new Peugeot and Citroen models appeared, starting with the launch of the new Peugeot 207 in April.

M. Folz said he expected the west European car market to remain flat and highly competitive this year but sales growth elsewhere, particularly in China, would continue at a fast pace.