Peugeot SA (PEUGF) on Q2 2018 Results - Earnings Call Transcript

About: Peugeot S.A. (PEUGF)
by: SA Transcripts

Peugeot SA (OTCPK:PEUGF) Q2 2018 Earnings Conference Call July 24, 2018 2:30 AM ET


Carlos Tavares - Chairman

Jean-Baptiste de Chatillon - CFO & EVP, Information Systems


José Asumendi - JPMorgan

Thomas Besson - Kepler Cheuvreux

Gaetan Toulemonde - Deutsche Bank

Horst Schneider - HSBC

Philippe Houchois - Jefferies

Carlos Tavares

Good morning, ladies and gentlemen, and welcome. Welcome to this 2018 H1 Group PSA financial results announcement session. We know that you are very busy people and therefore we value your time. Thank you for your interest in the PSA Group.

Let's get started. 2018 H1 has been a quite interesting period, challenging, where we found significant headwinds in terms of forex volatility, in terms of raw material cost inflation, in terms of geopolitical chaos, in terms of regulatory uncertainty. Despite all of this once again the PSA Group and the employees of this company have demonstrated a significant capability to focus, to execute the plans, to work in an agile and team-spirited way to deliver for Peugeot Citroën DS automotive business a very rewarding 8.5% operating margin for the first half of 2018.

As you can see, 8.5% compares to 7.3% last year, 6% in '16, 5% in 2015, 0.2% in 2014. So you can see through these numbers the recurrence of our profitability, the demonstration that our company is now able to weather the storms. This is a rewarding result.

And in terms of cumulated group revenue growth we are now very close to 23% rate which is to be compared with the Push to Pass objective of 10% by the end of 2018 compared to 2015. So we are well on our way to improve our results. I would like here to highlight the fact that not only we could deliver these results but we could also implement in a very rigorous manner the strategic Push to Pass plan and at the same time start showing significant results in the turnaround of Opel Vauxhall which you will see on the second slide.

As you can see, on the Opel Vauxhall business we could deliver a rewarding 5% operating profit margin, yes, a positive 5% which of course links to positive operational free cash flow north of €1.1 billion. So this is a significant result. This is the result of the leadership of our Opel CEO, Michael Lohscheller, and his executive team. It's the result of the hard work of all the Opel employees. I would like here to express to them all my very sincere appreciation and my warm congratulations. This is a great job done in the implementation of the PACE! turnaround plan, congratulations.

This is totally consistent with what I told you on November 9, 2017. I told you that the PACE! plan was not a gimmick plan, I told you that it was a robust plan and I told you that I trust the Opel employees and the Opel leadership in their ability to turnaround the company which now starts to be visible. While we say this we see that we were able at the group level, including OV, to improve our operating margin from 7.4% to 7.8%. I would say despite the acquisition of Opel Vauxhall but we see that Opel Vauxhall will very soon contribute to the overall performance of the enlarged PSA Group.

You can see that at the automotive level we have improved our revenue by 54% and at the group level by 40% which is of course a significant result. I would like to tell you that while I'm expressing this to you it is quite clear that we are far from achieving operational excellence. This is what the executive committee team thinks, this is what we challenge ourselves on. We believe that we still have many, many things to improve. We believe that we did not executive everything as properly as we should and this is of course good news for the future.

I want to tell you that these results of course are totally related to people and to the rigorous execution of our plans being the Push to Pass strategic plan or being the PACE! turnaround plan for Opel Vauxhall. We demonstrate our agility in a very chaotic environment, in a very uncertain environment. We are bringing more and more to the core of our company the customer expectations. We are working more and more in a team-spirited way on a cross-functional basis. We are breaking the silos all over the company. We consider that with our union partners' co-construction approach is gaining, is gaining more and more attention, more and more positive support which is the only way to create a great company. And the only thing that protects a car company in the war is performance. And we believe that this is something that more and more our union partners are understanding all across the world. And co-construction is therefore progressing in the company.

Last but not least, of course we remain very focused and we remain very focused on the business and the efficiency and the effectiveness of our operations. We believe that only results count and only performance protects. This is what we strongly believe as a company. And I wanted to share this with you. I think it's absolutely paramount for all of us.

Of course I want to take this opportunity to express my sincere appreciation and my warm congratulations to all the stakeholders, starting with our employees and the management teams. They have demonstrated a strong commitment and they have demonstrated their ability to deliver concrete results.

I would like to express my sincere appreciation to all of our union partners. To a high extent they have understood the situation of our industry, they understood the situation of our company and they have been extremely mature and supportive of all the actions including from time to time unpopular decisions that needed to be taken to create a better company.

I would like to express my very sincere and personal appreciation to the Executive Committee members, to my team mates. It is very difficult to challenge an executive team when we deliver this kind of results. The results are rewarding and nevertheless we recognize that we are not at the operational excellence level that we want to achieve, and therefore we continue to challenge ourselves within our executive committee. And I would like to express to them my sincere appreciation for their leadership in their functions, in their brands, in their regions and my appreciation for their resilience facing all the roadblocks that we are facing in our industry.

I would like also to express my appreciation to the Supervisory Board. The Supervisory Board has been respecting rigorously the dual governance methodology and has given us enough autonomy for us to implement the strategic plans that have been approved. And last but not least, I would like to thank you, the investors and all the stakeholders, for your trust and for your support.

This being said I would like to handover now to our CFO, Jean-Baptiste de Chatillon. He will comment to you the detailed financial results. Jean-Baptiste?

Jean-Baptiste de Chatillon

Thank you, Carlos. Good morning, ladies and gentlemen. 40% up for revenues. Group operating margin at a new record level at 7.8%. Well this improvement goes down to the bottom line with the net income group share at €1,481,000,000, up more than 18% versus last year.

Nonrecurring operating expenses stand at minus €750 million. It includes minus €518 million restructuring expenses, out of which €406 million for the automotive division Opel Vauxhall and minus €77 million for the automotive division of PCD.

The expenses for Opel Vauxhall are mainly linked to the agreement signed between Opel Vauxhall and the Works Council at the end of May. This agreement has reinforced the agility and improved the competitiveness of the company. This is very positive for Opel Vauxhall on its way to becoming sustainably profitable within PSA Group. The nonrecurring operating expenses also include the impairment of the group's assets on some provision linked to Iran for an amount of minus €168 million. Income taxes stand at minus €409 million, down versus 2017. The effective tax rate has been limited to 20% as we are now using large amounts of our deferred tax asset.

Share in net earnings of companies at equity contributes for €73 million, down €39 million compared with H1 2017. So performance of our Finco partnership with Santander on Opel Bank with BNPP is, delivers a result at €191 million in H1 2018 which is up €88 million compared with last year. But this positive result did not compensate for the impairment of our capital participation in our joint venture with Saipa in Iran with a write-off of €150 million. If we now move, on Slide 8. So group revenue stands at €38.6 billion in H1. We saw at 40%. This sharp revenue growth has been generated not only by the Opel Vauxhall consolidation but also by the PCD Automotive division whose revenue is up 11.4%, on Faurecia also up 5.2%.

On Slide 9. As you see, PCD revenue growth is strong but also very sound and well-spread across the different levers. So key drivers are volumes on product mix. Volumes on country mix contributed for 5.4%, driven by our strong increase in volumes of sales on the success of our products. To a lesser extent but still significant, product mix continues to be a strong driver of our revenue growth with a 4.7% increase compared to last year. And you can also see the strong improvement coming from the sales to partners, plus 3.2%, with the ramp up of sales to Opel Vauxhall division on Toyota.

ForEx remains a strong headwind with a 2.9% negative impact. The most important part coming from the Argentinean peso, which is partly taken into account in the pricing where we had a positive impact of plus 0.6%. On Slide 10. Group's consolidated worldwide sales up 38% versus last year including Opel Vauxhall sales. Group PSA sold near 2.2 million cars in the first half of 2018, which is a historic record.

Group PSA is growing in all regions apart from Middle East and Africa because of Iran. Sales of vehicles produced in Iran have not been included in consolidated global sales since the 1st of May. In Europe consolidated sales totaled more than 1.67 million units, up 61.5%, of which 551,000 is Opel Vauxhall vehicles. So group's market share expanded by 6 points in Europe to 17.2%. Let's now have a look on the group recurring operating profit by division on Slide 11. So group ROI amounts to more than €3 billion, a very strong increase by 48.1% versus 2017. This result is very well-spread all over the businesses of the group with a strong increase of its recurring operating income in all its divisions. First PDC record margin of 8.5% with €1,873,000,000 recurring operating income which is up near to 30% compared to 2017. Opel Vauxhall has achieved during the first 6 months of 2018 a 5% recurring operating margin.

OV has started to really unleash its potential and is now already back to profitability. This performance results from the strong involvement of all Opel Vauxhall teams to activate as quickly as possible all the levers identified in the PACE! plan. Third, Faurecia reaches 7.1% margin with ROI amounting to €642 million, up 10.1%.

On Slide 12. So PCD Automotive division ROI stands at €1,873,000,000 . This performance has been delivered through our performance for €716 million in an adverse operating environment representing a negative impact of minus €285 million. So negative impact of the environment comes from input cost for €248 million coming many from raw materials, 70% of it on wage inflation, on a negative impact of ForEx for €220 million, which includes a significant hit for the -- from the Argentinean peso but also the Turkish lira. These effects were partially compensated by the -- by positive market demand especially in Europe with a plus €182 million impact.

The improvement of our performance results from the combination of a very strong product mix effect for plus €377 million, the positive impact of market share gains especially in Europe for plus €77 million. Still important cost savings on production and procurement on G&A for plus €281 million and a pricing effect of plus €18 million which shows our strong pricing discipline. On Slide 13. Well, this is Banque PSA Finance 100% basis. H1 saw a record performance for the bank with ROI up 63.5%, which includes the results of the activity of Opel Bank. You see the penetration rate going down which is linked to the mix with the Opel Bank, which has a lower penetration rate, which shows all the potential for improvement in the months to come.

If we move to Slide 14. Faurecia revenue is up at €9 billion. And recurring operating income is up more than 10%, reaching a record 7.1% recurring operating margin. Cash on Slide 15. Well our cash situation has improved significantly to a net cash position above €8.2 billion at the end of June compared to €6.2 billion at the end of 2017. This represents an increase of more than 30%. The operational free cash flow of the group excluding restructuring and exceptional CapEx stood at €3,191,000,000 at the end of June, including a positive operational free cash flow of €1,157,000,000 generated by Opel Vauxhall. The positive operational free cash flow resulted from a €4,214,000,000 cash flow from operations including €716 million from of OV operation.

A significant improvement of the working cap, as we mentioned at the end of last year, that we were expecting an improvement on OV side which was delivered here with €868 million improvement on €2,193,000,000 of investment to which we must add €115 million of exceptional investments like our regional development in ASEAN, with our investment in Malaysia and the Faurecia investment with Peugeot division like engineering division acquisition of this first half of 2018. €499 million is the restructuring cash out which includes €255 million for Opel Vauxhall. Besides, the free cash flow generated by OV in 2018 H1 more than covers its restructuring cash -- restructuring cash out on all the investment made in OV.

If we move now to Slide 16. We see that our PDC inventories are in line with sale. And we see that Opel Vauxhall inventories are still relatively high compared with the benchmark of PCD. But that will be addressed in the months and years to come to converge progressively towards the group benchmark. As you know, we have in the PCD figures the proprietary network for 35,000 cars, and this covers the worldwide group inventories. So this leaves significant room for improvement in Opel Vauxhall.

Our outlook is unchanged so I will not -- I will not make any comment. Thank you very much.

Carlos Tavares

Thank you. Thank you, Jean-Baptiste. Let's now move to the strategic Push to Pass plan and comment some of the highlights coming from this first half of 2018. Let me start with the car maker. Trying to build a great car maker with cutting-edge efficiency where are we right now? Let's start with quality. As you know, we have set for ourselves a very ambitious goal to become #1 in quality, both product and service. This creates a lot of tension, positive tension in the company. And of course trying to be number one in terms of quality, both product and service, is the best way to protect the company and to make our customers happy.

You can see here that our ability to make the right quality level on the assembly line has been progressing, that's what you see on the top-left part of this slide. We are now 12 points behind the benchmark and progressing significantly against 2013. We want to make the cars at the appropriate level of quality on the assembly line. We want to avoid rework, because rework is cost and rework is a risk of creating other quality issues while trying to fix one of them. This is very important for the manufacturing system. This is very important for our supply chain.

We see also on the bottom-left part of this slide that we are becoming more and more a global carmaker as we see that the quality, the product quality perceived by our customers is not converging across the six regions of PSA. You see that they are now very close to each other in H1 2018. And this demonstrates that our company is now able to engineer cars for very different kinds of customers with different specs that meet their expectations, which means that progressively PSA is becoming a global car maker coming from a European-centered car maker. And this is of course very important for the expertise and the skills of our R&D divisions. So significant progress here, as you can see, by having the regions very grouped on the same ballpark.

On the right-hand side, two important things. First, we see that we are progressing on service quality. And the gap against the benchmark is decreasing sharply. And I would like to highlight here a very rewarding information that we got a few days ago where through the J.D. Power survey, a third-party survey, we were blessed by the fact that in Germany, the most important market in Europe, Peugeot is number one in service quality. Citroën is number two. So our two brands, generic brands are number one and number two in terms of customer satisfaction in the biggest European market which is Germany. And of course I would like to congratulate the teams for this achievement.

Then on the right bottom part of this slide you see that we have been awarded for the fourth year in a row with the best engine of the year, the petrol engine, the EB Turbo, 1.2 liter turbo engine, petrol engine. And this is of course a very good achievement, a very great result for our engineers. But it is also a very great business result because while the diesel mix is collapsing most of the diesel customers are moving to the petrol side. And on the petrol side we have the best engine in the automotive industry which is of course a good business opportunity for PSA.

If we move forward, on the core model strategy I would like today to tell you that we are implementing the product blitz launch plan that I have been presenting to you several times. We are on track delivering the new products to the market in a very efficient way. And I will give you examples of those new launches when we review the regions.

Here I'm showing you just one example, which is the example of the C-segment crossover's market shares for the Peugeot brand only. And you can see in the comparison here that we are making significant progress in terms of market share in the C-SUV segment across the world using our SUV range in the Peugeot brand 3008, 4008, 5008 and 2008. We see that we are creating significant business growth, business profitable growth. This is just one example among many others of the core model strategy rollout that we are now implementing successfully across different years of the Push to Pass plan.

If we move to the core techno strategy. You know that we are addressing several major topics in terms of technology. We are absolutely on the right tempo, not only on the clean internal combustion engine technology with the EB Turbo petrol engine but also by using our two modular multi-energy platforms that are absolutely appropriate to manage a transition period to low emission vehicles. We see also that everything we are doing with NGOs in terms of transparency on real drive emissions is giving our customers the full knowledge of the performance of our cars. That we are also implementing a connected vehicle modular platform to support all the connected services that our customers are now starting to use. And that we are now launching significant programs in terms of fuel cells and the fuel cell expertise development.

We do this not alone. We do this with a significant number of smart partnerships. We have here some of the examples that I will not comment in detail. And the end game of this collaboration is to be on the edge from a technology perspective, not only on the electrification of our portfolios, of our brand portfolios. By 2025 we'll be 100% electrified on the core model portfolios of our brands. And it will start from next year from 2019. So we are now preparing the last things, the last validations for this launch. And we are very, very positive about this.

We are also now preparing the last steps of the onboard software update over-the-air technology. And of course we are rolling out our other systems. And we have already launched the level two with the sales of DS 7 CROSSBACK for our premium brand. And we are implementing our road map as it has been presented many times. But we do it on a step-by-step approach, maturing and fully validating each step in order to be absolutely at the right level in terms of safety and performance.

In terms of core efficiency, we are delivering the results that we have committed to you. We are on the right track to deliver the €700 of savings by 2018 compared to 2015. Not only we are on track to deliver the €700 of savings, but this savings here include all the new specs to meet the new emission regulations starting with a Euro 6d-TEMP that is now upcoming. And I want to tell you that when we talk about cost reduction we always include all the regulatory costs because of course only the bottom line counts on the end of the day.

In terms of total labor costs to revenue, our ratio in terms of Peugeot Citroën DS is now benchmark in the industry. As you know, we came from 15.1% in 2013. In 2017 we were at 10.3%. Based on everything we see, we are the benchmark. You see that significant progress has been made also on the Opel Vauxhall part moving from 15.2% to 13.5%. As a forecast for 2018, we are on our way. And as in enlarged PSA Group we are now at 11.8%. We are not as an enlarged group the benchmark, but of course we'll continue to work towards this benchmark which is currently at 10%.

If we move now to the brands. I would like to comment our PCD brands. And of course I will also comment Opel in the following slides. I will start with Peugeot. The first important thing to notice is that in 2017 Peugeot brand in Europe was the benchmark in terms of pricing power at plus 0.7% against the benchmark, which means we were the benchmark. Since then the competition has reacted which is great. And on the first half of 2018 we are now below the price band that we have set as a target for ourselves, which gives us a very nice opportunity to catch up with the benchmark and become the benchmark again. And of course this is good news for the profitability of our company.

We have demonstrated since 2015 our ability to bring our pricing power to the right pricing band. This is what we have demonstrated. The competition has reacted. And now we have the opportunity to improve the pricing power by catching up with them, which is of course what we are going to do.

I would like also to highlight the outstanding results of the Peugeot brand in Europe. Give you a few numbers. Peugeot is the strongest-growing brand in the top 10 in European market with a near 9% of registrations in growth. Peugeot has gained market share, 0.4 points in H1 '18 against H1 '17. Peugeot is number one in the SUV segment with 2008, 3008 and 5008 with a volume of 211,000 units ahead of all the other competitors.

Peugeot is progressing in 28 countries against 30. We have a very high level of mix. Levels 3 and 4 are above 50% and above 80% for 3008 and 5008. And as I already commented the benchmark, we have one opportunity ahead. So Peugeot is delivering a full performance, a real engine for the profitability of our company.

If we move to Citroën. We can see also very rewarding numbers. We are ahead of our plan in terms of pricing power, ahead of the price band that we have set for ourselves. We are also gaining share in Europe with 0.3 points more than in H1 2017 at 4.5% level PC and LCV. And of course we have an international offensive ongoing with the SUV range of Citroën C3 Aircross, C5 Aircross, C4 Aircross in China, C4 Cactus now in Brazil. So the strategy of the Citroën brand and the consistency of this strategy is now very visible with the Citroën advanced comfort technology and a very consistent styling expression of all of our models as you can see on this slide.

If I move to DS, our premium brand, the French luxury brand, the only French luxury brand, I would like to say that we have totally implemented our pricing power plan. You see that we are now above the benchmark in first half of 2018. This means that most probably by the beginning of 2019 we will update our pricing power strategy for our French luxury brand. This is something that is quite visible here. We have already delivered more than 8,400 DS 7 CROSSBACKs worldwide by the end of H1. We are the leader in the C-SUV segment in France for the last 3 months. We have now more than 15,000 orders by the end of H1 for the DS 7 CROSSBACK. 58% percent of those orders are outside of Europe. And of course we have the intention to make an international rollout of this excellent C-SUV premium car.

The pricing power of the brand, as I said, is quite rewarding. We see that the average transaction price in Europe for this car is €45,000, which of course brings our company to a new ballpark in terms of revenue per unit. And Level 3 and Level 4 represent in Europe 68% of the mix which is very good for the profitability. And I would like also to highlight the fact that in terms of technology, this premium car is at the edge of the industry, and our customers recognize that as our customers have selected the DS Pilot system by more than 53% as an option for the sales.

In terms of network, we are now deploying the premium network with 340 DS stores by the end of June 2018. And we intend to continue to grow our fully dedicated network across the world.

Let's move now to the regions and then talk about Europe. Europe is a huge success story. Thanks to the leadership of Maxime Picat we see that we are gaining share, we see that we are gaining profit and we see that we are doing this while we are progressing on the product blitz and we are implementing the product blitz.

After the DS 7 CROSSBACK we will introduce the new Peugeot 508, the new -- and then the new Peugeot 508 station wagon. We are also introducing the Citroën Berlingo and the Peugeot Rifter and Partner right now. And we see that Citroën C5 Aircross will be launched later in the year, which means that PSA is still implementing a product blitz in Europe. And you see that since the beginning of Push to Pass plan each new car launch has been a success. And I would like here to express my appreciation to the product planning teams, the engineering teams, the design teams, manufacturing and purchasing teams. They have been doing a great work even if we all know inside of the company that operational excellence is still far away.

We believe that we will continue to do so. And so far we are blessed with these results. We know also that our LCV leader position is being reinforced as we gain one point of market share, up to 21.2% during this first half of the year. If we move now to Eurasia. We are now in the process of launching our LCV offensive in Eurasia and mainly in Russia with the launch of the 3008. Because of the launch cost of the LCV offensive we are slightly below 0. This will change in the second half. And for the whole 2018 Eurasia will be positive as it was in 2017.

Our sales are growing by 16%. Our revenue is up by 50%. And we are in a very thoughtful way implementing our plan to make this region rebound. And the next steps are based on the launch of the Peugeot 5008 in Russia and Ukraine as well as the launch of this Citroën C3 Aircross in Russia and Ukraine.

We want also to make sure that we push on the LCV as the LCV is a very strong point of our product strategy. And the competitiveness of our models across the three major segments is absolutely visible for everybody. I would like also to highlight the great performance of our Ukrainian team where the market share, the profitable market share, could grow by 1.2 points, up to 5.8%. If we move now to China. China is still far. Our PSA Group, a big upside opportunity. We need to remain humble. I don't think we have understood everything we should be understanding. We are far from what we want to achieve in terms of operational excellence. But it is fair to recognize that the teams have delivered an improvement of a little bit more than 6% of our sales in the first half. It is fair to recognize that volumes are up and that profitability is up. This is fact. But we still have a lot of work to do. We see some light at the end of the tunnel for the Citroën brand, but we did not succeed yet the turnaround of the Peugeot in China. So this remains for us a priority and it remains for us an upside opportunity moving forward.

We'll continue our product offensive with our SUV momentum, Peugeot 5008, Citroën C5 Aircross, DS 7 CROSSBACK will be completed by the Citroën C4 Aircross launch in September. We are also on track on our industrial JV in Malaysia. We are now preparing for introducing the Peugeot 3008 in 2018 as a CKD in this southeast part of the world where we see a significant potential as in the first half of 2018 we could multiply by four the volumes of sales in this region. Vietnam moved from 100 to 2,400 sales with our partner Taco. Thanks to the success of the SUV models Malaysia is multiplied by two, Singapore by three, Taiwan by four. So we have significant opportunity in Southeast Asia. And we have just set a specific organization for that.

Let's move far to Middle East and Africa where we have of course the wind down of operations from Iran. This is not a gray decision, this is black or white. It's a clear-cut decision. We decided to wind down to be fully compliant and protect the company. This is the decision that we have made. While we have done this decision we continue to work very hard on all the other opportunities like Egypt where we have a significant takeoff with ourselves multiplied by five with the local -- new local partner. We have improved our market share in Tunisia, in Turkey, in Israel. And we are leader in the French overseas departments.

We are going to continue our product offensive with the Peugeot 3008 which is at -- in the --- on the podium of its segment in overseas department of France and Turkey. We will launch C3 Aircross, the DS 7 CROSSBACK, but also we are now leveraging the strength of the Opel SUVs with the Crossland and Grandland X.

While we say this, we are executing on time at the right level of investment. Our new plant in Kenitra, in Morocco, I visited the plant very recently. We are going to deliver the first engines by the end of this year and the first cars by 2019 as planned. And of course this is going to be a significant competitive sourcing point for this African and Middle East region. So I can anticipate that our results will improve in the future thanks to this very competitive sourcing.

Last but not least, last week we could assemble the first DKD car in Algeria. So we are still progressing in this promising market.

If we move to Latin America where as you know well we are facing significant chaos both in Argentina and Brazil. Despite this we could grow our volumes slightly and we could maintain our market share. We are suffering from the ForEx headwinds but managing the operations in a very agile manner thanks to the leadership of Patrice Lucas. Of course we are facing some successes in terms of LCVs with an LCV offensive thanks to our Uruguayan sourcing with our Peugeot Expert and Citroën Jumpy. The SUV offensive with 3008, 5008 and 2008 will continue. And we are now launching in H2 the New Citroën C4 Cactus in Brazil, very promising, and now DS 7 CROSSBACK in Argentina.

We believe that we have the opportunity to grasp better efficiency by localizing more the production of LCVs and by introducing in 2019 the CMP platform which is as you know well very efficient. And to finalize this point, I want to highlight the fact that outside of Mercosur, so outside of Brazil and Argentina our volumes are up by 19%, which means we are facing significant success over there. And we are also growing our LCV volumes by 28% overall.

If we move to India Pacific. In this region we have the highest growth rates for all the regions of PSA thanks to the leadership of Emmanuel Delay. We have sales up by 25%, revenues up by 25%. Our market share is stable. And we are now progressing in the construction of our power train plant in India. You can see here a photo, very frugal, very efficient to build power trains for India and the region.

And we are on track to prepare our family program to be sourced from India in the near future. This will be an announcement by our brand CEO, Linda Jackson, and Emmanuel Delay very soon.

If we continue. Now have a look at the LCV business, worldwide LCV business. It is important to see that in Europe we are now the leaders of the LCV business with 25.3% market share for the enlarged PSA. Profit is up, share is significantly up, volume is significantly up also.

We increased the gap against the second in the ranking, and we increased this gap by nine points. And the second in the rank is of course another company, which I will not mention. But our leadership is now reinforced by the presence of OV, but even without OV we were getting share, as I said, by one point with the PCD brands.

So this is a strong position for our group, and we intend to continue to fuel our product competitiveness with the launch of the new Citroen Berlingo and the new Peugeot Rifter, the new Peugeot Partner, and the new Opel Combo. This is upcoming in this year.

So this is one profitable growth opportunity. We will continue to push overseas and to leverage our LCV competitiveness in Europe. And of course one of the next opportunities will be Vietnam where we are going to assemble a medium van.

Let's move now to Opel Vauxhall. Of course the best way to talk about Opel Vauxhall is to talk about the results of the PACE! turnaround plan. Again, I would like here to highlight the leadership of Michael Lohscheller, the Opel CEO. Of course he has been under high pressure.

I told you that when we presented the PACE! plan in November the 9 he would move from being under pressure to being a hero. And the results that we are now seeing are demonstrating that the leadership of Michael Lohscheller and the Opel executive team and the work of each Opel employee has been outstanding.

And I would like to ask to all the stakeholders to respect Opel as a human community for the work they are doing and for the results that they are delivering. They deserve the respect of all the stakeholders, they have my respect, they have my appreciation for the work they have been doing. And this slide is just showing in a very focused way that we have been rightsizing the costs, investing much more efficiently than in the past and preparing for the rebound, preparing for growth.

I would like here to again express my appreciation to all the Opel employees. I knew from day one that they were great people. They are now demonstrating that indeed they are great people because they are delivering results.

On the next slide you can see that in terms of fixed cost reduction we have reduced those fixed costs by 28%. We have started to reduce our viable costs ahead of the plan that was presented in November the 9. And we are also ahead of the plan in terms of pricing power.

This is at the core of the 5% operating profit margin, this is at the core of the €925 million of positive free cash flow and north of €1.1 billion of operational positive free cash flow. And of course I would like also to express my sincere appreciation to the CFO of Opel Vauxhall, Philippe de Rovira, who you know is going to be the successor of Jean-Baptiste very soon.

If we move now to the second leg of our strategic plan, about being a mobility provider for our lifetime customer relationship, and I would like to comment some of the results of this plan.

First I would like to start with the multi-brand aftermarket business. This is a growing business across the world. It has now significantly progressed in Europe with more than 130 operational hubs to distribute in a highly cost-effective way the parts of our multi-brand aftermarket business.

We also started a very important business in China with a specific acquisition of the Jian Xin distributor that we have acquired in 2018 to grow and develop our business in China. We have now more than 100,000 multi-brand references active all over the world, which of course gives us the opportunity to make business out of the units in operation regardless of the brands.

And we are growing our independent repairers' network, the Euro Repar Car Service network. We are now north of 4,000 garages and we are preparing to deploy by 30 countries by the end of 2018. And of course we are progressing in our e-commerce network with Mister Auto. And we will be at 15 countries deployment by the end of this year.

So this is a significant opportunity, a business opportunity where we are growing of course our turnover. And Opel is of course an additional opportunity moving forward. And we still of course target 25% sales increase by 2021 against 2015.

Let's now move to the used car business where we are gaining new customers. In 2017 we were north of 5,000 units sold for the enlarged PSA. We see that on the B2C multi-brand international expansion things are moving. Aramisauto increased its turnover by 20% in '17 against '16.

We made the acquisition of Clicars in Spain. We made the acquisition of Cardoen in Belgium in 2018. And we are moving forward, fast forward, on the B2C multi-brand used car business. We also want to progress in the international growth in B2B multi-brand with the acquisition of AutoAvaliar in 2017. And we have doubled the revenue in '17 against '16.

We confirm our target, our Push to Pass target, to deliver 800,000 sales by 2021 and to multiply the profitability by four in 2021 against 2015, combining B2B, B2C and C2C operations on the used car business.

If we move to the mobility and connected service businesses. First of all I want to tell you that this division is profitable. Of course the level of profitability is not sky high as we are putting all of the energy on the growth under the leadership of Brigitte Courtehoux. And we see that this profitable business is growing. The worldwide profitable growth multiplied by two is on track to be delivered, and this is great news.

We see that on the B2C car sharing we are north of 1 million users of the Free2Move application. Emov in Portugal and Spain, has more than 180,000 customers and the Emov in Spain is a profitable business. And our renting business for Peugeot Citroën DS has now more than 200,000 customers.

In terms of B2B car sharing and fleet management services, first what we need to highlight is that these services are a significant lever to improve the B2B sales and it has been used as such. And we see that we are now north of 130,000 subscriptions, which is of course an excellent result.

In terms of smart services, we see that connected after-sales have now more than 270,000 subscriptions, and that the connected navigation has more than 1 million contracts. So this business is profitable, this business is going, this business is moving forward. And I would like here to highlight that we have accumulated revenue growth that has been multiplied by two between H1 2018 and H1 2015.

I would like also to mention that we are now launching the Free2Move car sharing service in Paris in the second half of 2018. And we intend to make this service high quality and profitable.

Last but not least, I would like to share with you that our mindset, our competitive mindset as in large PSA group has not changed. We remain focused on the execution of our plans. I believe that we have very strong strategic plans, the Push to Pass six-year plan.

We are now near the midterm of this strategic organic growth plan for the enlarged PSA. You see that the focus on the execution of the Opel Vauxhall PACE! turnaround plan is moving forward thanks to the leadership of Michael Lohscheller.

You see that we are doing this in a very chaotic world, but nevertheless in this chaotic world the agility, the focus, the cross-functional approach of our employees is delivering results. And again I would like to thank them warmly and thank you all for your support. I think we can now move to the Q&A part of this session. Thank you very much for your attention.

Question-and-Answer Session


[Operator Instructions]. And we have our first question from José Asumendi from JPMorgan.

José Asumendi

Carlos, maybe the first question for you. Can you just comment where do we stand on WLTP transmission. How many cars have you got at the moment certified across the Peugeot, Citroën and Opel? And if you could also comment on meeting the emission standard by 2020. And second for Jean-Baptiste. Can you talk a little bit about Opel, the fixed cost reduction drivers you have seen in the first half and what are going to be the drivers going forward?

Carlos Tavares

Well, good morning, José. Thank you for your question. On the WLTP, it is fair to say that we are ready. We are ready. More than 80% of our models are certified by the end of July. And we are ready to offer our customers the wide diversity of our product portfolios on the different brands. So we feel comfortable. Of course I have to be honest with you, our company -- our teams have been working under a huge pressure starting of course with our engineering teams and I would like to express to them my sincere appreciation. But the fact is thus as we are acting in a very agile and team-spirited way we are delivering the results. And by the end of July more than 80% are already homologated which means that we are fine for the second half of this year. On this specific topic we don't face the same difficulties that we can see in some of our other competitors. On the second question, could you please repeat? Jean-Baptiste, you want to answer?

Jean-Baptiste de Chatillon

Yes, maybe I can answer José on the driver of performance in Opel. Maybe I could give you a small bridge between the results of 2017 of the last five months of the year in percentage point of operating margin. You remember we delivered minus 2.5% margin in Opel Vauxhall last year versus 5% on this first half. The pricing power represent 1.7 point of this improvement. On the cost reduction drivers, 4.6, 4.6 which is R&D, G&A, cost of cars, variable cost, fixed cost. So a very strong contribution of cost control. So purchase price accounting, your member that with the opening balance sheet we had a reduction of our DNA. Well this contributes to 2.1. On the other elements, ForEx on market share are negative of minus 0.9. So you see that really like in the -- back in the race when we did it in PCD the major contributors are the pricing power which is already kicking in on massively the cost control actions. This is just starting on the base of the benchmark, which is variable inside PCD and is strongly driven by the Opel team which is deploying it. So of course this will go on in the second half of the year.

Carlos Tavares

Thank you, Jean-Baptiste, for such a transparent answer.


We have another question from Mr. Thomas Besson from Kepler Cheuvreux.

Thomas Besson

It's Thomas Besson from Kepler Cheuvreux. I have two questions, please. To follow-up on Opel, can you give us some indication from the seasonality of Opel, let's see, if it becomes a bit more stable than it used to be and impressively higher than we thought? Would you on a normalized business assume that like PCD you have a 100, 250 bps higher margin due to business in H1 but in H2 are you still on an improving trend and could we see a sort of sequential improvement in H2? That's the first question. The second, could you come back to China, you've managed to stabilize your operations. I think you said that there are still some work to do. Can you give us some idea on the potential improvements in China over the next 12, 24 months, whether it's going to be product-driven, cost-driven and what we should expect there?

Carlos Tavares

Thank you very much, Thomas. Let me ask Jean-Baptiste to answer the first question on the seasonality for Opel and I will take the Chinese question.

Jean-Baptiste de Chatillon

Yes, Thomas, [indiscernible] we certainly have a similar seasonality between H1 and H2 with better H1 than H2. But of course we are just ramping up as the action plans of improvement. So we'll see in the second half what is the result between those two different forces. But there is a seasonality in Opel as there is in PCD. On the net profit it's a bit different because on the first half of course we booked the Iran impact and we booked -- the whole of plan agreed with the work on sales in Germany, so we should have a significant less impact in the second part of the year on the net profit.

Carlos Tavares

And on the Chinese situation, it is fair to say that most of our challenges are on the sales and marketing part and on the way we manage our dealers. We believe that in terms of improving the brand image many things need to be done as what we call in the automotive industry the storytelling part of the brand is not rich enough in terms of creating value for the Chinese customer. And this is an area where we need to improve our marketing and our brand storytelling. In China we believe also that in terms of network management making sure that we focus on the deliveries much more than on invoices is something that relates to the way we implement our sales and marketing plans. And everything related to the remuneration of the dealers is still something to be improved.

Of course there is a significant shift in the Chinese market towards electrification. So at the same time where we are doing this on the sales and marketing side we need to take care of the sourcing part of the business, improving the sourcing of the business in order to improve the cost competitiveness and improve the operating profit margin of our divisions. This being said, and I want to be very humble because it is fair to say that we were pleased with the Citroën improvement over H1. But there is also a significant distortion between invoices and deliveries. So we need to be quite prudent. We need still to work a lot with our partners. I think that our partners are now understanding that many things need to be improved in terms of operational management of the JVs. We have an ongoing productive discussion with them and it will continue in the second half of this year. So I see a growing recognition that the operational issues are penalizing our performance. And that's a positive sign that we are creating an overall mindset which is much more related to performance than just supporting growth. And I think this is going to deliver results but I want to be very, very transparent with you, Thomas, for us China remains an opportunity and at this stage I don't think we are there.

At this stage I think we are blessed with some positive results at the end of the tunnel but I don't think we have yet mastered everything we need to master in China to move forward. But I can tell you, we will not give up, we will not give up. We understand better and better what's going. Our brand CEOs are spending a lot of time over there. The DS, Peugeot, Citroën CEOs they spend no less than 10 days per month in China, so they are understanding more things. The quality of the dialogue with our partners is improving, so they recognize the operational issues. We are bringing the electrification, we are bringing the SUVs. So there is a point in time where this is going to fire, it's going to work at one point in time. But I don't want to create any expectation that we would not be able to meet, so far we are not there, but it remains an upside for the company.


So we have another question from Mr. Gaetan Toulemonde from Deutsche Bank.

Gaetan Toulemonde

It's Gaetan speaking from Deutsche Bank. Two quick questions, the first one is that when I look at the cash flow statement of H1 there is half billion of restructuring charge. Can you give us an idea about how it's going to look like in H2 and in the coming years? Should we keep this kind of magnitude, which is pretty high to me? And the second question is regarding the workforce at Opel. When you took it over there were approximately 38,000 people. Can you give us an idea where do we stand now? And with all the agreements signed up what the workforce will decline to in the coming semesters? I'm sorry, there is pretty bad echoes and I hear myself and I don't know if you can hear me.

Carlos Tavares

Thank you very much, Gaetan, we hear you perfectly. Sorry for the echoes and -- but we understand perfectly the question. Let me give you first a general direction, then Jean-Baptiste will comment more on the restructuring numbers. First of all with Opel Vauxhall we stick to the principle of no forced redundancies. This is the key point. The key point is no forced redundancies as much as we have done for PCD. We understand what being responsible means in terms of dealing with our workforce, so the principle will remain no forced redundancies. We have a very clear agreement with our unions across Europe and specifically in Germany. For Germany we know that we have agreed on the 3,700 headcount reduction with different, different plans that our head of HR could comment. We are implementing these plans, and of course we will continue -- we'll continue to work within the core determination framework which by the way is not very different from the core construction approach to make sure that we agree on all the actions that need to be implemented to improve the performance of the company. So moving forward what counts is the performance, how we can enhance the performance of Opel Vauxhall to protect Opel Vauxhall as a whole and the vast majority of its employees -- of its employees. This is what we want to do. And I will let Jean-Baptiste comment on the restructuring numbers.

Jean-Baptiste de Chatillon

Yes, Gaetan. On the cash outflow and restructuring, effectively we are still in this period of addressing the restructuring, but you will see in our account that we are -- we have €1,335,000,000 in our book at the end of June 2018, which means that you will see the outflow going down 2019 around 400, on 2020 going down to 300 and 150 in 2021. So you will see on the following year this amount going down progressively.

Gaetan Toulemonde

The outflow concern exclusively PCD or it concern Opel too?

Jean-Baptiste de Chatillon

So we have €1,335,000,000 it is for the whole of the auto business. The whole of the group.

Carlos Tavares

Thank you, Gaetan.


So we have another question from Horst Schneider from HSBC.

Horst Schneider

So the first question that I have relate a little bit to PCD. Can you maybe tell us what is the level of seasonality that you expect in H2 now? So you expect the sales growth to slow down and with that also some more seasonality in terms of working capital or is there a chance that basically [indiscernible] that PCD remains as strong as in H1? And then I asked myself basically what is the margin peak of PCD? I mean you make now margins close to a level of Audi and Mercedes-Benz. So is it now the time that you focus more on market share compared to operating margin? Is that the way we should think about PCD? And the second question that I have relates to factoring. I'm seeing that you increased again the level of factoring in H1. And looking now at the level of net cash that you have I ask myself why you do that. So what do you want to do with this high level of net liquidity going forward? Thank you.

Carlos Tavares

Well, those are two million dollar questions, Horst. Let me try to answer in a most focused possible way. Well, I think that since we started working together it is fair now to say that we present ourselves as being competitors. We always compete. The mindset of the executive committee team of enlarged PSA is a bunch of competitors. We push as much as we can, of course within the limits of everything we need to respect. But we push, we push and we push. We like competition. And Europe is the place where we compete in the most successful way currently. So you can see that our product blitz is going to be visible on the second half with of course Peugeot, with Citroën also. So our product blitz will continue and with Opel also in the second half of 2018.

Of course you need to take into consideration that there is manufacturing ramp ups in terms of launching new products. But it is not in our intention to stop pushing and it is not in our intention to disrupt the very successful levelization of our strategic product plan which of course has been prepared under a very simple rule, one brand new model per brand per year in each major market, which is what we are delivering thanks to the skills of our engineering and manufacturing and purchasing divisions. So as regards Europe and PCD, we'll continue to push. That's clear. Now to which extent is the market going to be polluted by all the sales and marketing actions related to the new emission regulations, this is something that we do not know. It depends on the decisions of our competitors. But what we can tell you is in terms of WLTP homologation, in terms of product blitz, in terms of manufacturing and supply system, we are ready for the fight. And of course we'll continue to compete, that's quite clear.

And I remember that four years ago we were discussing, both of us, about the market share. If you remember well, four years ago I was telling you, yes, we are going to fix the profitability. And after we fix the profitability you'll see with the focus on the core model strategy there will be a market share rebound. And this is exactly what has been done by the European team under Maxime Picat's leadership. I can anticipate that we will have the same kind of situation for Opel at one point in time and that we have a new sales and marketing top executive taking care of Opel, Xavier Duchemin, who is a very skilled and experienced executive on this matter, and I expect the same thing to happen in the future. So I would say so far so good, but let's continue and work hard and see what are the results at the end of the day. Jean-Baptiste, would you like to comment on the cash?

Jean-Baptiste de Chatillon

Yes. So, Horst, seasonality is not volatility and performance will be there. Carlos just explained. So we have this 300 million PCD seasonality, H1 versus H2, but this is structural with the production output. The pricing environment is very positive in Europe, so we don't see any headwind on that aspect. On factoring, well, we do it because it's long-term money at the cost of short-term money, is very resilient. Over time this factoring, it's below the cost of any bond, so it's quite efficient. As we are developing as a Push to Pass plan, six-year plan we are happy to have effectively very sound on cheap refinancing. Just take notice that nothing has been done on the Opel side on factoring, as on the combination of factoring plus the fact that the inventories are just starting to be going towards a benchmark of PCD, there is still a very significant potential of improvement of the working cap on the Opel side.

Carlos Tavares

Thank you, Jean-Baptiste, that's very clear.


So we have another question from Mr. Philippe Houchois from Jefferies.

Philippe Houchois

I have more long-term strategic questions. One of your competitors, Fiat Chrysler just returning to net cash and they're rushing into rebuilding a captive-finance organization. From your perspective are you missing out in terms of commercial performance or being able to satisfy your customer requirements by not having [indiscernible] or do you think your setup is sufficient? Can you give us some -- more interested in this, would you have actually a better financial and commercial performance if you owned LatinCo [ph]?

Carlos Tavares

Well let me first tell you that in term funding and sales finance, we believe that we are delivering a very significant pace of results improvements since we made our two JVs with our two banking partners. We see that the competitiveness of ourselves funding is at the appropriate level in the market, so we feel very good about it. And at this stage I don't see why we should change this approach, the strategic approach. And as long as our sales people are telling me that we are competitive on the market, as soon as -- as long as they are telling me that this is supporting their market share, profitable market share growth and at the same time we see that the sales finance profitability is improving, I think it is fair to say that we are where we should be. But I would like Jean-Baptiste to give one more evidence on this matter.

Jean-Baptiste de Chatillon

Yes, maybe the comparison with Fiat in the U.S. speaking of clawing back some capacity of [indiscernible] is not relevant because we have Opel [indiscernible] and we have on PCD a full captive business. So we enjoy all the benefits of a captive combined with the excellent cost of fund of two European major banks. So the comparison doesn't work. We are very operationally efficient to support our sales force on the new car sales.

Carlos Tavares

I am told that there are no more questions, so I would like to conclude this session. First of all, in front of our stakeholders and our investors I would like to express to Jean-Baptiste de Chatillon my personal sincere appreciation. As you know, this is the last announcement that he is doing with me here in PSA. I would like to tell him personally that we are blessed by the fact that he was part of the team for all of these years, that he supported the company during very difficult periods, and he supported me for the last almost five years. I would like to express to him my sincere appreciation on my personal behalf but also on behalf of the Executive Committee members and on your behalf I'm sure. And of course I would like to wish him well, wish him the best of best for the future of his career in a much less exciting environment as you know well. But, anyway, that's his personal decision which of course I do respect, and I would like to welcome Philippe de Rovira, the new CFO of the enlarged PSA Group, who has demonstrated through the turnaround of the PACE! plan supporting Michael Lohscheller, his skills, his energy, and his passion for our industry. And I'm sure that being one of the people, top executives trained by Jean-Baptiste, Phillip will be bringing the appropriate value to our Executive Committee team. So thank you, Jean-Baptiste, [indiscernible].

Jean-Baptiste de Chatillon

Thank you very much. Thank you very much, Carlos. And I was very proud to be part of this team under your leadership. Thank you very much.

Carlos Tavares

Thank you. Thank you.