PSA group makes surprise return to profit

Operating cash flow jumped to 1.67 billion euros (£1.31bn) in January-June from 203 million a year earlier, as new chief executive Carlos Tavares slashed vehicle inventories and began stamping out supply-chain inefficiencies. Peugeot shares rose as much as 8.5 per cent after the company narrowed its net loss to 114 million euros from 471 million and said the core manufacturing business was back in the black.

“PSA certainly surprised us,” London-based ISI Group analyst Erich Hauser said. “It looks like PSA is actually performing well ahead of plan.”

Peugeot sold stakes to China’s Dongfeng and the French state earlier this year as part of a 3 billion euro share issue, after racking up losses of 7.3 billion in two years.

Tavares pledged soon afterwards to trim the model line-up by almost half, cut capacity, raise pricing and pare wage and component costs to lift the automotive operating margin to 2 per cent in 2018 and 5 per cent by 2023.

Yesterday, the former Renault second-in-command gave an account of his efforts to press for leaner manufacturing – which frees up cash by reducing stocks of parts and vehicles.

“You look at those lines (of inventory) and ask people how you manage production,” Tavares said. “After the first step, where people tell you you’re already optimised, in fact there are many ideas,” he said. “What we’ve seen is a joyful implementation of new ideas that delivered great results.”

By 2016, Peugeot aims to cut one billion euros from stocks of parts, materials and finished vehicles through improved supply-chain management.