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Edited Transcript of UG.PA earnings conference call or presentation 26-Feb-20 7:30am GMT

Full Year 2019 Peugeot SA Earnings Call

Paris Mar 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Peugeot SA earnings conference call or presentation Wednesday, February 26, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Tavares

Peugeot S.A. - Chairman of the Managing Board

* Philippe de Rovira

Peugeot S.A. - CFO

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Conference Call Participants

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* Gaetan Toulemonde

Deutsche Bank AG, Research Division - Research Analyst

* George Anthony Galliers-Pratt

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Giulio Arualdo Pescatore

HSBC, Research Division - Analyst

* Horst Schneider

BofA Merrill Lynch, Research Division - Research Analyst

* Pierre-Yves Quemener

MainFirst Bank AG, Research Division - Director

* Thomas Besson

Kepler Cheuvreux, Research Division - Head of Automobile Sector

* Thomas Hanke

Handelsblatt GmbH - Correspondent in Paris

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Presentation

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Unidentified Company Representative, [1]

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Good morning, everyone, and thank you for being with us today. Welcome to the PSA Group conference call on the 2019 results presentation. We have 2 key speakers today, Mr. Carlos Tavares, Chairman of the Managing Board; and Philippe de Rovira, Chief Financial Officer. As usual, you can follow the webcast and download the chart from our website.

And I now leave the floor to Mr. Tavares.

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [2]

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Good morning, ladies and gentlemen. Welcome to this 2019 PSA Group financial results announcement session. We know that you are very busy people. Therefore, we value your time. Thank you for your interest in PSA.

2019 was one more chaotic year, a very volatile environment, many headwinds, a lot of geopolitical and trade tensions. None of this is something that surprises you. We were not surprised. We have been predicting that the situation, the external environment of the company is going to get tougher. In this highly challenging environment, PSA teams were able to deliver a record profitability. In 2019, for the sixth year in a row, we were able to improve our financial results with a highly rewarding 8.5% operating profit margin rate for Automotive business. This demonstrates that the company was highly focused, looking for more efficiencies, looking for operational excellence and making sure that we keep our customers happy.

So a sixth year in a row of improvement of our profitability. This is something that, of course, represents a matter of pride for the company. And I can summarize the 2019 results of the PSA Group by telling you that our revenues were up 1%. Our operating income was up 11%. Our net income was up 13%. Our net financial position was very close to EUR 8 billion. And our automotive free cash flow was at EUR 3.2 billion.

But also a very important matter in 2019 was the fact that our Opel and Vauxhall teams successfully delivered all the metrics of the PACE! turnaround plan for Opel Vauxhall. This is a significant achievement as those teams were able to deliver those results in a very short period of time. And of course, that contributed significantly to the results of the PSA Group. The Opel Vauxhall operations could deliver EUR 1.1 billion of profit and no less than 6.5% operating profit margin.

So those are the results with the 8.5% record profitability rate for Automotive business. PSA Group is now one of the most profitable carmakers in the world in terms of efficiency and effectiveness. As you can see, our balance sheet is robust and we are fit to face all the uncertainties and all the headwinds that we can altogether predict. So this is something, of course, that I'm very proud of sharing with you, and I'm privileged to have the possibility to share these numbers with you.

But this is not enough. It is not enough to have a robust balance sheet. It is not enough to be a highly profitable car company. It is also absolutely fundamental that we contribute to the well-being of the societies in which we operate. And I would like to share with you a few accolades related to the responsible way with which we do business in the world.

I would like to share with you the fact that since December 2018, we have significantly reduced the emissions of the vehicles we sell. If we compare December 2019 to December 2018, we were able to reduce by no less than 11 grams, the CO2 emissions of our passenger vehicles. We were also extremely proud to receive a certain number of accolades. And I would like to mention just 3 of them. Last December, the PSA Group was ranked the leader of the WBA's Climate and Energy Benchmark among 25 car manufacturers. We were selected as being the leader of those 25 carmakers. In January, the CDP, the Carbon Disclosure Program, announced that Groupe PSA was in its A List as a climate leader and gave PSA an additional award for involving our suppliers and logistic partners to reduce their emissions.

Last November, our overall carbon footprint reduction targets were scientifically certified by the SBTi as being consistent with the goals of the Paris Climate Agreement, therefore contributing to limiting the global warming to 2 degrees. And we believe that from an ethical standpoint, this is absolutely fundamental to support the performance of the company.

Our people, when they go back home at night, and when they talk to their family, to their kids and to their grandkids, they can tell them that in their car company, they are contributing in CO2 emission reductions to the extent that it limits the global warming at 2 degree max. And I believe this is as important as the profitability of the company because people need to understand the purpose, the purpose of what they are doing. And our raison d'être in PSA Group is very simple. We want to offer a clean, safe and affordable mobility. Clean, safe and affordable mobility. This is what we want to offer. This is our raison d'être.

And of course, if we want to do this in a sustainable way, we need to be highly profitable, we need to be in control of our balance sheet. And we also need to make sure that from an ethical standpoint, people understand the purpose of what they are doing in the company. And they are proud of explaining to their family, to their friends, to their kids that what they are doing in this company is contributing to a fair share to fix the global warming issue in a consistent manner with the Paris Climate Agreement which is to limit the global warming to 2 degrees. This is what PSA is now doing, and I'm very proud to have the privilege to share these accolades with you.

So if we were able to do what we did in 2019, we'll continue to do so. It is because we are acting in a consistent way with our values. And our values are very simple. We only have 3 values. First one is to win together. In the company, people understand that we are working in a cross-functional way. We are not working in silos. Silos exist. Organizational charts exists. But what we are doing is to make the company win. What we are encouraging our people to do is to systematically work in a cross-functional way to make sure that PSA at the end of the day wins, not a specific department, not a specific division, not a specific brand. PSA has to be winning at the end of the day. Therefore, we win together or we fail together. And in some circumstances, we may fail. And we accept the fact that we fail because after we fail, we try again. And we never give up. This is very important. We win together, we fail together, but we do it with a team spirit to win.

The second value is the agility. In the chaotic world where we are now living, we try to be agile and we try to have fun being agile. It is not very natural to be agile for a human being, but if we do it as a team, it may be fun to demonstrate that we can adapt faster than many of our peers. And this is what we are encouraging our people to do is to be agile, to adapt very quickly. I'm often using the word Darwinian way, and we see that the world is becoming Darwinian. We see that in terms of car industry, this is a Darwinian period. Not all the carmakers will resist to the headwinds and to the challenges that we have ahead of us. It is important that we understand that agility is giving us the capability to adapt to a world that is more and more a Darwinian one, and this is what our people are doing every day. And I believe that in some cases, they are having fun with it and I hope that all of them will be able to have fun with it.

The third, last but not least, value is efficiency and effectiveness. It's all about being respectful of the resources. It's all about respecting the fact that resources are scarce, resources are rare. There can be human resources, there can be financial resources, they can be planet resources. But it's all about the efficiency and the effectiveness. It's all about breaking paradigms. It's all about doing more with less and having fun with it. This is exactly where we are.

So winning together, being agile, adapting to a Darwinian world, looking for efficiency and effectiveness, understanding that this is a never-ending process is part of our DNA. And we love to say that we have a raison d'être to offer safe, clean and affordable mobility. We have a clear strategic plan to lead us to the vision destination, which is the Push To Pass strategic plan. We have clear values so that we all behave in a way which is consistent and we all drive in the same direction at the end of the day. This is something that, of course, I'm very proud to explain to you. And I would like to tell you that all of this profitability, all of this money that we are creating, this value that gives us the capability to invest in the future, to invest in new technologies, new markets, new products. All of this is also shared not only with our shareholders but also with our employees.

Over the last 6 years, we have multiplied 5x the amount of performance bonus that we have sent back to our employees. Over the last 6 years, fivefold is the number that we have been multiplying the amount of performance bonus that we are giving our employees. And I could announce this morning the performance bonus for the employees in France. But of course, this is extended to many other countries with a different formula. This is something that we all need to understand. We are trying to work in a meaningful way for all the stakeholders of our company. It's not, of course, easy because not only we have to align everything in the company, but we have also to take care of the external world. We are trying to do that. We are trying to do it in a way which is responsible, we are trying to do it in a way that gives the company sustainability despite the challenges and the headwinds.

And today, this morning, what I would like to do, most important is to express to all the employees and the management teams of the PSA Group my sincere appreciation, my warm thanks, my enthusiastic congratulations for the results in 2019. They have been wonderful. They have done the job. They have done everything that I was expecting from them. Have we done this perfectly? No. We still have a lot of room for improvement, but we did it. And we are here to present it to you today.

I want also to express to you in a way which is certainly not demagogic. My sincere responsibility to thank the unions. My union partners are extremely mature, extremely demanding, but they understand what we are doing. You need to know that all the agreements that we have signed with our unions are representing 80% of our employees. So the unions with which we are signing all the agreements of the company represent more than 80% of our employees. So everything we do is supported by no less than 80% of our employees. This is a significant strength of PSA.

The co-construction mode in which we are, which is focused on the performance, which is focused on a simple idea, only performance protects. Everything else is demagogy. Performance is real. Performance protects the company. Performance protects the sustainability of the company. My unions have understood this. They are working with us. They are extremely demanding. From time to time, we disagree. But we always think about how can we keep moving, how can we keep improving the company to make it a better company. Not a bigger company, a better company, which is not exactly the same thing. And I would like here to express my sincere appreciation to my union leaders. They have been mature, demanding and they are extremely supportive of everything we do.

Of course, I want to express my appreciation, my warm thanks, my personal thanks to my executive team members. The members of the executive committee are not here under the light. They are here with me, but they are doing the job. They are under the pressure of their CEO. They are under the challenge of their CEO, and they accept to be challenged in a company that is one of the most profitable car companies in the world. That's not easy. It's not easy to be challenged on the performance when you know that you are one of the best in the world already, but they accept it. And they don't accept it to be nice people with me. They accept it because they understand that deep inside it makes sense for the company to continue to improve the company, to make it a better company. And the fact that they accept to be challenged in a situation where the company is already in very good shape is a perfect demonstration of how committed they are to a better future for this company. And I would like to thank them all personally for the support that they are giving me as the CEO and the support they are giving to all the employees of this company. And I can assure you that their life as executive committee team members in PSA Group is not an easy one. So thank you for all of their efforts and their results.

Last but not least, I would like to express my appreciation to the Supervisory Board. We have a very clear dual governance mode in our company. We have the Managing Board managing the company, the Supervisory Board supervising the Managing Board. This dual governance works. This dual governance is rigorous and is supporting everything we are doing. Of course, it is a dual government structure that needs to be taken care of, and that's what we are doing every day with Louis Gallois. But I want to tell you that it's also part of the results of this company to have a clear, rigorous, dual governance that supports the operations and supports the Managing Board of this company. So I would like to express my sincere appreciation to the Supervisory Board for their trust, for the autonomy that they are giving us, and for the counterpower that they are expressing in the company because the Managing Board needs also to have this challenge, permanent challenge, from the Supervisory Board. It's part of a healthy company, and this is something I wanted to show with you.

And finally, I would like to express to you all my sincere appreciation for your support. I think that the PSA Group over the last 6 years has been fairly treated, in terms of analyzing what we do and evaluating what we do, the good things and the bad things, I think we have been fairly treated. And I want to express to you all also my sincere appreciation.

This being said, I would like to hand over to our CFO, Philippe de Rovira, who is going to explain you the numbers in detail. Thank you.

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Philippe de Rovira, Peugeot S.A. - CFO [3]

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Thank you, Carlos. Well, good morning, ladies and gentlemen. It's a great pleasure to present to you our financial results.

As you can see in '19, the group achieved EUR 6.3 billion adjusted operating income, up EUR 635 million versus the previous year and reaching a new profitability record with an 8.5% adjusted operating margin. This improvement goes down to the bottom line with a record net income group share at EUR 3.2 billion, up EUR 374 million, which represents an increase by 13% versus previous year.

So let's go down the P&L below the adjusted operating income. Restructuring costs amount to EUR 1.5 billion which includes, on the one hand, nearly EUR 200 million in Faurecia. And on the other hand, approximately EUR 1.3 million for the Automotive division. In Faurecia, the amount is high compared to the previous years due to the acquisition of Clarion.

For the Auto division in '19, we have seen -- we have signed key labor agreements both in PCD and in OV that will allow to improve in performance in all fields of the company, in G&A, in manufacturing, in R&D. And '19 is clearly the peak year for restructuring, and this line will improve significantly as soon as 2020.

Net financial expenses decreased to EUR 344 million, which is EUR 100 million improvement. Income taxes stood at EUR 716 million, and the effective tax rate has been limited to 16.6% as we continue to use our deferred tax asset. The line share net earnings of companies at equity improved slightly compared to '18 by EUR 20 million and stand at minus EUR 24 million. The very strong performance that we had in our joint ventures, the finco joint ventures with Santander and BNP Paribas stood at EUR 356 million. And it was offset by the negative result that we had in China with our 2 JVs for EUR 433 million.

Let's move now on Slide 8 with group revenue reaching EUR 74.7 billion in '19, up 1% versus previous year. Automotive division revenue was up 0.7% at EUR 58.9 million (sic) [EUR 58.9 billion]. On Faurecia, revenue was up also by 1.4%.

On Slide 9 we present the Automotive division revenue bridge. So FX has remained a headwind with a 0.5% negative impact. The most important part coming from the Argentinian peso but compensated, as you can see, in the pricing that was up 1.2%. Volumes had a negative impact for 2.4%. That was mainly due to the runout of some Opel Vauxhall models in the second half of the year that has been planned for long as well as a sales decrease in Latin America. Product mix was again the main contribution in evolution of revenues with a very strong positive 4.3%, and it reflects the success of our recent launches in Europe and the implementation of our strategy to launch at least 1 car per year per brand in each region. Last on sales to partner, as promised during our last call, the negative effect was strongly reduced in Q4 with an annual impact at minus 1.7%. The good news is in 2020, this bucket will be very close to 0.

On Slide 10, the worldwide sales were down 10% compared to '18 mainly to the suspension of our activities in Iran, the low performance of the group in China in a declining market and the strong market downturn in Argentina. China remains the main challenge for the group in terms of volumes. In '19, we have taken the decision to sell our 50% share in our joint venture with Changan. And this will solve the industrial capacity issue on this side and closing of this transaction is expected to be in the first half of 2020. On our joint venture with Dongfeng Motors, we have launched in September the YUAN plan, which is designed to reduce drastically the breakeven point and make it consistent with the current volume of sales.

In Latin America, market has dropped by 43% in Argentina, where we have a 10% market share and has rebounded in Brazil, where we have only 1.8% market share which means the country mix in Latin America has been extremely unfavorable for us. In Middle East and Africa, we have gained market share in almost all countries of the region and especially in Turkey where we reached 12.4% market share compared to 10.3% in '18. Moreover, our new factory in Kenitra, Morocco has started production, which will strongly help the competitiveness in this region.

Last, in Europe, the group sales have been impacted as expected by the runout of some Opel Vauxhall models in preparation of the CO2 regulation starting January 1, 2020. But conversely, PCD market share grew again in '19, in particular, thanks to Citroën.

Let's now have a look at the group adjusted operating income by division. The group adjusted operating income amounts to more than EUR 6.3 billion, up 11% versus the previous year. On the Automotive division, as mentioned by Carlos, reached 8.5% margin, up 0.9 points versus previous year. I will not comment on Faurecia, as Faurecia has already published its results -- these results.

On Slide 12, so about the bridge on the adjusted operating performance. So you can find on the right-hand side the EUR 5 billion previously mentioned. So the result has been delivered with more than EUR 1 billion of performance on the right-hand side of the slide in an adverse operating environment, on the left-hand side of the slide, for EUR 586 million (sic) [EUR 486 million]. The operating environment comes mainly from a negative impact of input costs for EUR 200 million, essentially due to wage inflation; and a negative impact of ForEx, EUR 243 million, as you can see, which includes EUR 265 million on the Argentinian peso so which explains everything.

On the performance side, what is striking is a very strong product mix that generated more than EUR 800 million which is a result of the success of our last launches in all brands on the core model strategy as we are positioning our new models, new vehicles on higher profit pools. Pricing created EUR 100 million favorable impact, which shows our strong price discipline. Market share impacted negatively, as previously commented, for EUR 253 million. Cost saving both on production/procurement and SG&A expenses has been very strong with respectively, EUR 352 million and EUR 188 million and is mainly due to the synergies that are delivered between PCD and OV.

The negative impact on R&D for EUR 159 million stems mainly from the decrease of our capitalization rate that went down from 44% in '18 to 41% in '19. So 3 points reduction of capitalization rate and it also comes from a slight increase in amortization. On the gross R&D plus CapEx side, the total stood at 8.7% which is well in the range of 8% to 9% that we have previously committed and that we have always maintained in the last 4 years.

So let's move to the Banque PSA Finance. The numbers are on a 100% basis. So the adjusted operating income stands at more than EUR 1 billion, which is up nearly 8% versus previous year. The contribution of the bank is at a record high, and both partnership with Santander and BNP Paribas are a clear success, allowing us to be more competitive and more profitable based on the derisked funding business model. The penetration rate was up at 29.7% mainly thanks to the progress made by Opel Bank. But there is still room for improvement and, in particular, on the B2B activity where we are far from the benchmark. On the other hand, the cost of risk remains at a very low level, 0.21%, as you can see on the right-hand side of the slide.

Moving to the cash flow and the net financial position on Slide 14. So the auto net cash position stands at EUR 10.6 billion at the end of '19. That compares to the EUR 8.9 billion at the end of '18, adjusted of the IFRS 16 effect that we had previously anticipated. The auto free cash flow reached EUR 3.3 billion in '19 and it resulted mainly from a EUR 6.5 billion cash flow from operation and an improvement in working capital of EUR 1.1 billion, which has once again more than compensating the restructuring cashout. Working cap variation has been very positive, thanks mainly to the reduction of the OV inventories that is converting to PCD best practice and thanks to an increase in payables.

Banque PSA Finance has resumed distributing a dividend. So you can see on the right-hand side EUR 97 million following its very good financial results. Last, in the bucket other variation, we've got 2 items. The first are the dividends paid to our shareholders in '19, so EUR 697 million, and we've got the commitment to repurchase EUR 30 million (sic) [30 million] PSA shares from Dongfeng. You remember that was announced at the moment in December when we announced the merger, the terms of the merger with FCA. So this commitment to repurchase 30 million shares accounts for EUR 667 million if Dongfeng doesn't choose to sell these shares to a third party. All this brings the auto net cash position to EUR 10.6 billion on the right-hand side of the slide.

On the group cash flow analysis, I will not comment in detail because basically the same as the previous page, plus the impact of the acquisition by Faurecia of Clarion. And for the rest, it's the same numbers.

Last on Page 16, inventories. So as we had announced in July, inventories have been reduced significantly compared to last year, especially as regard Opel Vauxhall, which has continued to convert towards the best practices in terms of inventory management. So inventories have been reduced by 74,000 units at the end of '19 compared to previous year, and let's stress the fact that not only the group inventory has been reduced but also the network inventory has been reduced by 22,000 cars.

Market outlook. So regarding our market outlook, the group forecast a decrease by 3% of the market in Europe in 2020. As all our competitors, we forecast that the Chinese market will continue to decline in 2020, but the current situation with the coronavirus make it very difficult to predict accurately. In Latin America, we forecast a stable market and in Russia, a decline by 2%.

So to conclude this section, I will remind that the auto adjusted operating margin is up by 0.9 points, including a reduction of capitalized R&D by 3 points, a reduction of the inventory of the network and the cleaning of our inventories to enter 2020 in an excellent position in terms of CO2.

I will now pass the floor back to Carlos.

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [4]

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Thank you. Thank you, Philippe, for such a clear presentation. Let me go back to the Push To Pass strategic plan implementation. I would like to share with you a few highlights, of course, always addressing the carmaker side and the mobility service provider side, as you are now used to.

Let's start with the great carmaker with cutting-edge efficiency. This is our goal. And I will start with quality, which is one of our major axis for improvement. As you know, we are targeting to become #1 in terms of quality, not only product quality, but also service quality because it makes our customers happy, so it makes sense. And because, of course, it puts a very positive tension in the company to become a more rigorous company in terms of managing the operations.

It is fair to say that we have made significant improvements in 2019 in terms of customer service, new car sales service or after-sale service. Both metrics have improved significantly. And in '19 against '18, we improved by 4 points the rate of recommendation on sales and by 6 points the rate of recommendation on after-sales. We are now getting close to the top of the industry in terms of sales, customer recommendation in Europe G5 markets. We are within the top 3. And in terms of after-sales recommendation, we are in the top 5. So needless to say that we still have a lot of work to do to reach the top, to reach the top 1 position, but we are moving in the right direction at a good pace. And we have seen that the work that has been done with our dealer network is now delivering results, if we look at the comments from our customers and that's a very good point in 2019.

We also see that in terms of product overall satisfaction, our brands are now coming close to the top and I can share with you that Peugeot is now the #2 brand in terms of product overall satisfaction. DS is the #3 brand with a very strong performance of the DS 7 CROSSBACK. So we are moving on product satisfaction in terms of appeal, competitiveness seen by the customers, and we are moving significantly on customer service satisfaction in terms of rate of recommendation.

We are also moving on product quality in our plants. It is fair to say that the pace of progress needs to be improved. We think we can do better and we have been facing some challenges in terms of ramping up the production when we launch a new vehicle. We think that we need to do a better job in that area, but we are progressing. It is clear in the metrics but not at the pace that we had predicted. So we will focus more on that topic. And 2020 should be a good year for that given all the preparatory work that has been done in 2019.

So that's where we are. We believe that we are moving. I would like also to mention that in Brazil, we are now in the top 3 in customer satisfaction, both for sales and after-sales which means on a worldwide basis, our organization is understanding that our future depends on our ability to make our customers happy, which is of course paramount for a car company.

If we move to the CO2 factor, as I said in the introduction, we are reducing our emissions sharply, no less than 11 grams improvement in December '19 against December '18. We see that the way we are managing the CO2 performance of our sales through the corporate CO2 committee is now extremely efficient, very sophisticated, I believe a competitive edge of our company, mastering the production planning and the order book at the same time and connecting both in an efficient way. This process is now live. It's delivering results. I can tell you that in January, we did what we wanted to do in terms of CO2 emissions. And we are absolutely sure that we will meet the European CO2 objective in 2020 because we have the technology, we have the process, we have the rigor to manage this topic.

So that's -- it's important for us to share this with you. It is more important even to share it with our people because our people are very eager to meet the CO2 objectives that have been assigned to us. It is something that of course is now consistent with the fact that we have 10 electrified models on sale. Right now, we have 4 pure electric vehicles and we have 6 plug-in hybrid vehicles, which means everything that I've been telling you over the last 3 to 4 years in terms the speed at which we are going to ramp up on the electrified models to reach 100% by 2025, it's now happening. And you see the execution capability of this company is here. And we are delivering on everything we have told you. And right now, we have the 10 electrified vehicles that are supporting the achievement of our CO2 objectives as we presented to you a few years ago.

If we move to the e-mobility, we have been working hard trying to understand exactly what are the customer needs in terms of range, in terms of pricing, in terms of product offer. And we are now progressing in terms of understanding those customer needs. And we see, of course, that the reality is not black and white. It's not all about being 100% EV or 100% ICE or a mix between the 2. There are different needs. There are different ways to meet the expectations of our customers, and we respect our customers. Of course, our customers are also acting within a specific regulatory frame and they have also to align, of course, with the regulatory frame, and we try to anticipate all of this. But we are putting a lot of focus in understanding what the customers are expecting from us.

And of course, you have seen the communication from the Peugeot brand, as an example, telling the customer, well, you have the brand-new 208, but you can pick whatever powertrain you want, we take care of everything else. You decide. You decide if you want to have an ICE, you decide if you want to have a BEV, and we will adapt to your needs. We will do whatever we need to do to make you happy. And this is exactly our approach.

We can also mention that our strategy to use multienergy platforms is now fully aligned with the reality of the market. And we see that there is no carmaker right now in the world which is able to predict precisely what is going to be the mix of sales in terms of powertrains. Hence, the fact that having multienergy platform is giving us a lot of flexibility, a lot of agility to adapt to this very volatile world.

I would like also to tell you that, of course, we are preparing to offer our customers a wide array of ranges for our electrified vehicles. We understand that the way you use the car is aligned with different needs in terms of range, and we are preparing for that. And this is, of course, important because we have decided on the next slide, that we want to be in control of an electric future, an electrified future. It is something that we didn't have the opportunity to comment to you, and you have seen only the pieces of the puzzle. But the big picture is here. The big picture is on this slide. We are going to be in control of our electrified powertrains. It's the core of the mobility device. It's the core of the mobility offer in terms of safe, clean and affordable mobility. And this is the reason why we have been patiently behind the scenes preparing for our manufacturing strategy in terms of being in control of the electrified components of an electrified future.

So let me comment a few of them. We have created a joint venture with Nidec that is called emotors to engineer and manufacture electric motors. It's now live. We are preparing the motors of the future in this JV here in France. We are now finalizing another JV to engineer and manufacture automatic electrified transmissions with Punch. It's now being in the final stage of the agreement. We have already decided that we would engineer and manufacture the reduction gear in one of our plants. We have decided that we engineer and manufacture the battery packs of our BEVs. And as you know, with our partner Total, we are going to create a specific entity to engineer, develop, validate and manufacture battery cells.

So our clear manufacturing strategy is to be in control of our electrified powertrains, and of course, to have a vertical integration of those components because we believe it is the core of the mobility devices of the future. And therefore, we should be in control because we understand that the future is not about reducing emissions. Zero emission cars are on sale. You can buy them. The real challenge for the future is 0 emission with affordability. Zero emission with affordability means you need to control all the cost structure of the components of the electrified powertrain. And this is what we have been doing patiently, and I'm very proud with my teammates to present this slide to you because this is a big picture of what we are going to be in control of and that represents, of course, the competitiveness of the future of this company. Most of these components will be in production from 2022, which means that we are on the right track to be able to meet the next gate of CO2 emissions, which, as you know well, will be in 2025. And that's going to be the next gate that will create another opportunity to demonstrate the competitiveness of this company.

In 2021, we will also make a specific test with a fleet of fuel cells on live usage with a compact van test. We'll have a fleet of fuel cell-powered vans that we will compare in terms of TCO, convenience with a fleet of electrified vans. So we'll compare the pure electrified technology with the fuel cell technology on the same kind of compact vans to see the pros and cons of the 2 technologies as there are a lot of opinions, a lot of speculation, but no real, rigorous comparative test. And this is what we are going to do from 2021.

If we move now to the core efficiency of the company. You know that on the first half of the Push To Pass, we wanted to deliver no less than EUR 700 in terms of total manufacturing cost reduction. In fact, we delivered EUR 632, so short of our expectations. But this EUR 632 are an all-in cost reduction. Everything is in. The ForEx, the raw materials, the additional specs for the CO2 emissions, everything is in. So we started the second half of Push To Pass plan by saying, well, yes, we were short of our expectation in the first half, we try again. And we move to the second half of Push to Pass with the same target, again, EUR 700 of cost reduction, all-in. And that's what we are now delivering.

We started with a year which was a very difficult year in 2019 because we delivered EUR 111 of cost reduction, which is short of the trend in which we should be. But we believe that we will have a much more stabilized year in 2020. And that -- with that kind of stabilization, we will be able to have a better result in 2020. And we -- also that 2020 will not be penalized by additional specs for the CO2 emission reductions because it's already in. It's already in the bill of materials of the cars we are now selling. So we believe we have a much better chance this year to improve to the level that we need to improve which is EUR 700 for a time window of 3 years.

We also know that we continue to progress on the total labor cost against revenue rate. We know that we are very close to being the benchmark of the industry, not exactly there yet. But we will continue to work to achieve this benchmark position, which of course is a single-digit rate of total labor cost against revenue. We are at 10.5% right now coming from, as you remember, 15% a few years ago. And we believe that the benchmark position is single digit and we will be there very, very soon.

If we look at the brands now. Everything we have been telling you about the pricing power of our brands has been delivered. It is important to understand that in our way of doing business, the price positioning is not a tool for sales. The price positioning is a tool to position the brand. So we set the pricing to position the brand. Of course, the pricing generates expectations, and then we improve the service, we improve the product to be aligned with the expectations of the customers, which is set by the price positioning of our brands. So we have set these goals very clearly. Peugeot is there within the band of plus or minus 1% against our benchmark. And this has been managed in a way which is absolutely stellar, has contributed significantly to the profitability of the company.

We had to face the run out of the 208 in the 2018-2019, hence, the fact that we have reduced our market share in Europe by 0.1 points. And we are now facing a very strong success with the new 208 and the new 2008, and our order book is stellar, which means with the stellar order book, we expect to improve this market share in 2020 and it is clear that the way the Peugeot brand has been managed is very representative of the qualitative dimension of the business model of this company.

First, we take care of making good business and great business before we take care of volume. So first, we position the brand where it should be in terms of pricing, then we try to do the right products, the right service, the right marketing communications in a rigorous way. And then we enjoy the profits and we enjoy the growth as a result of a well-done job. This is what has been done with Peugeot. Of course, the mix of sales within each model has been also very rewarding. We are selling the upper grades much more than the lower grades. This is contributing to the profitability. We see that the recommendation rate is also improving by 3 points against last year. And we know also that the brand image is now improving mostly in Europe where people recognize that we are improving our products. They recognize that we are improving the appeal of those products and the quality of our service with a very strong positioning in terms of pricing power.

If we move to Citroën, Citroën has been also a great success in 2019 because among the top 12 brands in Europe, it is the brand that grew the most as a result of a well-done job. So the growth of Citroën in Europe in 2019 is the best of the top 12 brands of Europe, and we could grow the market share from 4.5% to 4.7%. You see that the price positioning is stellar, even better than the target that we have set for ourselves, which means that we improved our per unit margins even more than what we were expecting, and that's of course very rewarding for the profitability of the company. We continue with a very consistent implementation of the brand positioning and the portfolio alignment of this brand. And as you know, I'm sure we are now on sale for the C5 Aircross PHEV version. So Citroën is coming to the electrified world also with a significant number of electrified models that will be launched in 2020, no less than 6 electrified models will be launched in 2020 for the Citroën brand.

And you'll see that there is a lot of innovation spirit, I would say, misalignment spirit of Citroën, which we support, which we encourage. We want our Citroën brand to be different. We want our Citroën brand to be misaligned against all the other competitors. And you'll see tomorrow that the brand's CEO, Mr. Cobee, will present a new mobility device for the urban areas, and you will be surprised by the level of innovation of this announcement.

If we move to our premium brand, the DS brand, again, this brand is absolutely where it should be in terms of pricing power against our benchmark. And again, 5 years ago, everybody would have said, this is crazy, this is impossible, this is not going to work while it's there. It's done. And we are also managing this brand not through the volumes. We do not manage a premium brand with volumes, never. We manage the premium brand through the price positioning, the customer satisfaction and the appeal of the products and that everything else is the result of a well done job. So you can see the pricing power is on track, meeting the expectations that we have set for ourselves; that yes, brand sales have -- grew by 16%, 16% improvement, thanks to the DS 7 CROSSBACK success and the DS 3 CROSSBACK success.

DS 7 CROSSBACK is now the second best-selling premium model in France, achieving a great result. And we see that we are blessed with very good per unit margins, which is exactly what we were looking for. We see also that the DS brand is the front-runner of the PSA Group in terms of implementation of electrification and hybrid systems. We are fine with that. And at the end of the day, the mix of electrified versions that we sell is very high, close to 30% right now.

If we move to Opel, Opel is a fantastic success in 2019, thanks to the leadership of our Opel CEO, Opel brand CEO, Michael Lohscheller, and the Executive Committee team of Opel. They were able to deliver on all the metrics of the PACE! turnaround plan. And I would like to express to them a very specific thanks and warm congratulations. Why? Because as human beings they are, they have not been very popular over the last few years. But you see the great leaders like our German team measure their leadership through the fact that they are able to make unpopular decisions for the sake of ensuring the sustainability of their company. And I would like here to express to you all the fact that it has been a very hard period for our Opel CEO and his Executive Committee team. But they have done it. Hats off! They have done it. They have turned around their company. 20 years of red ink, they did it in 2 years. In 2 years they turned around their company after a 20-year of red ink. And that deserves specific recognition, specific warm thanks and congratulations to Michael Lohscheller and to the Opel Vauxhall Executive Committee team. Well done, guys. This is a great job done. I'm very happy for them. I'm happy for PSA. I'm happy for the Opel brand. The unique German brand of our PSA portfolio. We see that.

Of course, we are being challenged in terms of market share, and we have lost some market share in 2019 against 2018. It's a fact. Major reason is because we decided which was very bold to discontinue 6 models in 2019 because we wanted to introduce very fast all the technological bricks of the PSA Group to be efficient in terms of CO2 emissions. And we took the risk, the operational risk, of running out 6 models in one single year to introduce all the technology from PSA Group in terms of reducing the CO2 emissions. We were right to do so because over the last year, we could reduce the CO2 emissions of the Opel cars by 20 grams. Can you imagine that?

If you compare end of 2019 against the end of '18, the CO2 emissions of the Opel models were reduced by 20 grams. This is enormous. And this is the result of these bold decisions that we made to change the product portfolio during the course of 2019. Of course, the execution was very painful, but we did it. It's done. Our emissions are now completely on track, and this is the reason why you see me as confident as I am to meet the 2020 CO2 objectives from the European Union.

We can also see that despite the fact that we are suffering on the market share and that we will come back with the success of the new Corsa and the new models that we have in the pipeline. Those models are gorgeous. I can tell you that what we have in the brand pipeline, the product pipeline of Opel is very, very exciting. So I'm very confident that things will improve. But we see also that they are already improving, mostly on the LCV, because the LCV registrations in 2019 for Opel improved 17%, which is a significant number.

We are also bringing Opel to many overseas markets. I could mention a few, in Latin America. We have now brought Opel to Japan, and we are step-by-step also in the Middle East, bringing Opel to becoming a global brand, the unique German brand of our company.

If we move now to the regions, moving from the brands to the regions. Of course, Europe was the leading region in terms of profitability for our company. They did a stellar job by beating their record in terms of profitability. It was a great, great year. Despite the fact that we lost some tens of points of market share. It's a combination of an improvement on Peugeot, Citroën and DS by 0.1 and the degradation on the Opel Vauxhall side by 0.4. As a result, our market share is at 16.8%. This is not a problem because we beat our record in terms of profitability. And this is exactly the expression of our business model. The market share improvement is also -- always the result of a well-done job, and we know that on the Opel side, we made that bold decision to discontinue many models to shift to a CO2 emission efficient technology. So that was a great year for the European region. Hats off! It is, of course, very, very difficult for this European team because they are bearing the responsibility of the biggest part of the profitability of the company, and they are under high pressure every day.

If we move to the Middle East and Africa. As it was mentioned by Philippe, this is the region in the world where we see very strong improvement in market share. Many countries are improving like Morocco, plus 2 points; Egypt, plus 6 points; Algeria, plus 2 points; Turkey, plus 2 points, leading the French overseas markets. So in this Middle East and African region, great job is being done under the leadership of Samir Cherfan to improve our market share in a profitable way because at the same time, profit is also moving up which is of course the best situation in which we want to be. But we have done more than this. We have anticipated the capacity increase of our Kenitra plant. It was planned to be delivered in 2023. We have decided that we needed to go faster and we have moved the second step of capacity from 2023 to mid-2020. So now it's under construction, and we will deliver by midyear this additional capacity that will bring us to 200,000 cars per year. And that will give us more competitiveness in the small-sized cars that we are selling all over the world.

If we go to China and Southeast Asia, this is, of course, an area where we did not succeed yet. But it is important to recognize that in the second half of 2019, we could see some improvement, some measurable and significant improvement against last year. Of course, we also saw that in January things were getting slightly better until the coronavirus happened. And of course, that is a huge derailer so far. So I think it's not a good thing to give you all the details about this region. Right now, we are trying to make sure that we protect our operations over there in the situation that you all know better than I do. And of course, we will be very soon in a very specific focused mode in terms of cash management for those operations.

So far, everything is under control, and our people are safe. It's important for you to know. All of our employees working in this region are safe and in good health. It's important. This is, of course, the #1 priority that we are facing. We have also planned that we would bring strong electrified offensive to the Chinese market. And this is what we are now preparing for, and we'll see how many weeks do we have to face the current situation. This is in the hands of the Chinese authorities, not in our hands anymore.

If we go to Latin America, it is fair to say that Latin America has been driven by the downturn of Argentina. Argentina is the pain point of this region. The market was down by 43% in Argentina. But on the other hand, Brazil was up [8%]. Outside the Mercosur, Chilean market was down 11%. Mexico, down 8%. In terms of volumes, our volumes in Argentina were down 50%, but in Brazil, up 2% and outside Mercosur, minus 5%.

Our market share was down because of Argentina, but it was stable in Brazil. Chile was up 0.1; Mexico was up 0.1. And we see that we have also -- has a very strong sales improvement in Ecuador and Colombia. So I would say outside of Argentina, many good things are happening in Latin America. And we see that in January, our financial results were showing a strong improvement against last year, where unfortunately we were in the red.

In 2020, we are going to come to the market with the consequences of the strategy that we have decided a few years ago, which was to have one single platform in Latin America, the CMP platform, to support the compact and midsize cars. And we will bring in 2020 the new Peugeot 208 and the new Peugeot 2008 to Latin American markets, and we expect that those cars will face the same success as the one they are facing here in Europe. And this is, of course, a very exciting period for this region. As soon as Argentina will rebound, then the situation will become, of course, much more rewarding.

India Pacific is an interesting case where we are facing a very significant success in Japan. Sales profit, customer satisfaction in Japan have been great. Great job has been done by the national sales company over there. We have also been preparing for the future in terms of sourcing in India. I can tell you that our powertrain plant in India is now up-and-running, exporting gearboxes and very soon exporting engines at a highly competitive transaction price against all the other sourcings in the world. This is going to help the competitiveness of the company. In the near future, it's already helping in terms of transmissions, not yet in terms of engines.

We are going to bring from this year the first model of Citroën brand in India, which is going to be the C5 Aircross. And then the smart car program, the [CQ] program, will be deployed from 2021. And again this will bring us to a new world in terms of competitiveness for the compact and midsize cars of our company. We are very excited about this. We know that in terms of manufacturing, the powertrain plant is up-and-running and delivering on what we were expecting. The vehicle plant is now being prepared for the launch of these new vehicles.

We can also mention in this region that the profitability was up 24%. The revenues were up 10%, and we see that in Japan, sales were up 20%. So something is happening over there even if it's very small right now.

Eurasia was also good news. We brought the operations to the black. As you remember, in 2018, they were slightly in the red. We are now clearly in the black, and we are implementing a very clear strategy. We understand that the Russian authorities have decided to impose very strong import tariffs on CBUs, which means very soon, the Russian market will be closed for importation of CBUs, which means we are now absolutely on the right dynamic to source most of our cars from our Kaluga plant, and we started with a very significant offensive with LCVs.

And the midsize van, LCV, is now hitting a very strong performance in sales. Our segment share with the current midsize van is quite stellar. We are at 57%, yes, 57% of segment share with that product. We will very soon introduce a second LCV, and we will continue to grow our profitable business of LCVs in Russia as the starting point of sourcing of cars over there. And we will continue to localize more activity there, including engines and transmissions in the future as a consequence of the 10-year special investment contract that we have signed with the Russian government to support our strategy in the region.

So we have the agreement with the Russian authorities. We have the plant. We have the localization. We have the products. We are moving in the right direction, and now we are in the black. We have also delivered a very strong performance in Ukraine both in share and profitability, and this is also a rewarding experience.

So if we look at a worldwide perspective now in terms of LCV, we see that LCV continues to be a very strong pillar of our company. Our market share in Europe has improved; it's now above 25%. Profitability has also improved. We have highly competitive vans, compact, midsize and full-size vans, and we are delivering on those strategies.

It's important to know that we are in a very good shape in terms of emissions. We know that we are already compliant on WLTP terms for the emissions of our LCVs. You can see on a segment-by-segment basis that the efficiency in terms of CO2 of our vans in the segments is very high compared to our peers. It is part of the core reasons of our success. We have very fuel-efficient powertrains, and this is contributing to this compliance.

We see that on the Opel Vauxhall side, we made significant improvements; as I said, 17% improvement on the Opel Vauxhall side. The market share in Opel Vauxhall also grew by 0.6 points, up to 4.9% in 2019 from 4.3%.

We are also growing our business with our partner, Toyota, because we are manufacturing for them and supplying Toyota with midsize van and very soon with a compact van. And this is also the recognition of our competencies on this matter.

Last but not least, we are launching right now the 1-ton pickup that we have announced to you a few years ago. Again what we have told you a few years ago is now happening, the Peugeot Landtrek. It is quite clear that the Peugeot heritage in terms of pickup is absolutely obvious. Peugeot is back with a 1-ton pickup called the Peugeot Landtrek. This has been done. The pickup is a great car. We have tested it many, many times. And it is rewarding to know that we are now entering a pickup market that represents 48% of the worldwide total LCV market.

So so far, we were not present in a pickup market that represents almost half of the worldwide LCV market. And it is a big opportunity for our company, a big opportunity for Peugeot, and I know that our brand CEO, Jean-Philippe Imparato, is very excited about this product, and rightly so.

So let's move to the mobility part of our Push To Pass plan and make a few drillings in some of the topics I'm pleased to share with you, starting with our multi-brand aftermarket strategy. You remember that our strategy was simple: You have the OEM parts. You have the Euro Repar and the independent aftermarket parts, and you have the [Mr. Roto] online sales parts.

All of this is mapping the market. All of this is targeting a specific profile of customers. We are embracing the market on a wider scope, and we are selling parts to maintain the cars of our competitors, which is a good business for us, and we have been consistently implementing this.

Some of the specific points I want to share with you is that we have made significant progress in terms of distribution, the way we distribute in a cost-effective way, in a quality effective way, all of our parts. And we have now in Europe set 150 hubs to serve, to support all of the garages that we are selling parts to. And this is important because our service rate is now above 90%, which means we have a service rate above 90% on a 1-day order, which means if you order 1 part on 1 single day, you get that part with 90% of probability on the same day, which is of course very important for the efficiency of the garages we are supporting.

So our service rate is now stellar. Our mapping and networking of this logistic distribution system called Distrigo is now progressing, and we have, of course, significantly reduced our distribution costs with this strategy. We are progressing well with our revenues.

We see also that we are developing overseas significantly in China because sometimes we succeed in China. We have grew our revenue by 91%. Our aftersales business in China in 2019 improved its revenues by 91%. We are also growing with JVs in Brazil and Argentina, and we are now deploying the hub system in Turkey.

So we see that the IAM business growth is quite significant; overall, 35% revenue growth in 2019. Outside of Europe, the growth was even bigger; double, 70% growth. So you see that this strategy is now being implemented and generating some significant rewards.

You see also that our specific Euro Repar service network is progressing. We are now at 5,000 garages in 26 countries. And as you know, we are shooting for 8,000 garages for this specific network. You could call it a fast feature network. This is where we are going to sell parts and maintain the cars of highly diverse portfolio of brands, including the brands of our competitors, and we are making business out of it. So I think it's an interesting strategy that has now been implemented at very rigorous mode. And this rigor in the implementation, the execution capability of the PSA Group is again going to be quite visible.

If we move to the used car, used car business has been also a significant point of satisfaction. We see the volumes are up significantly, 6% up against 2018. It's a record-high for our company. You see that the revenue growth is also up by 6%. But we are also pleased to see that, in some cases, when we take the control of small companies or start-ups that have a very specific way of going to the market, a very specific way of managing their business, we are able to take the control, and we are able to stay away. And that's very important.

It's very important for me to know that, yes, we can support some start-ups; support some small companies who are very specific, innovative and high-value ways of going to market. And we are able to support them without putting our big company processes on their back, which means giving them the breathing space, the innovation capability, protecting that and giving them the possibility to grow using our own assets when it is needed and our own recommendations or expertise when it is needed.

This has happened with Aramisauto. Aramisauto has made significant progress, 27% turnover improvement; and a lot of acquisitions, Cardoen in Belgium and Clicars in Spain. So good profitable growth of Aramisauto under the control of PSA Group without reducing their breathing space and their innovation capability.

We are also growing in Latin America with Auto Avaliar, over 160,000 transactions in B2B. We are also growing in China with the FengChe acquisition made in 2019 for the B2B sales. So overall, this business is growing, profit, volume and capability to support small-sized companies with a high level of innovation.

If we move to the sales finance, the hassle-free mobility offer, thanks to the financial services, it has been mentioned by the CFO that the profitability has never been as high as in 2019, so moving very well; and also the net banking revenue, reaching a record year. It's important to see that as the market is moving from ownership to usage, the sales finance support will become more and more important in the overall economic efficiency of the company. And we are blessed with 2 highly efficient JVs, one with Santander, the other one with BNP Paribas. Both are working very well. Both are supporting our profitable sales in terms of giving us the tools to make competitive offers to our customers. So we have the financing efficiency.

On the other side, we are improving year-by-year our residual values of our products, and we are bringing the electrified technology at the same time. So all of this is converging towards highly capability to allow our customers to rent their cars, to lease their cars in a competitive way. This is what we are now building, and this will, of course, bring more fruits in the future. It is also important to notice that we have achieved a historic high in B2C penetration in 2019 with no less than 50% penetration.

If we move to the mobility and connected services, it's fair to say that our mobility and the mobility brand, the Free2Move brand, that is sitting side by side with the car brands. The Free2Move brand is now ramping up in a very clear way. You see the revenues have increased by 43%, reaching near EUR 180 million. You see that the number of B2C customers of Free2Move have been multiplied by more than twofold. And this means also that the Free2Move brand is now setting a toolbox that is going to support all the business in our company. And I will only mention 3. I can mention the fleet management, the Connect Fleet and the Fleet Sharing tool and also the Free2Move Lease tool. All of those tools, which are developed by Free2Move under the Free2Move brand umbrella, are now being deployed across the company, and they will go more and more in the direction of the mobility services in which we want to go. And of course, you have been looking at this for several years now.

I want also to share with you that we are giving this brand more and more autonomy, giving Brigitte Courtehoux and her team the possibility to group all the resources of this brand and make it a specific entity most probably in the future that will give us many options for growing our business in the future. It is important for you to know that this autonomy to the Free2Move brand activities is now going to grow. Why? Because we want to make sure that they have enough breathing space to innovate, enough breathing space to take different directions that we would not select by ourselves. If we were to control too much of this activity and Brigitte Courtehoux and her team have a lot of breathing space -- and we are giving them more breathing space to demonstrate their innovation capability, and we know it is very high.

So I would like to conclude this presentation with a couple of simple thoughts that I am pleased to share with you. First of all, I think we can recognize it's a fact from our auditors that our company is highly profitable, that our company has a very strong free cash flow generation. It's a fact. We are profitable. We have a very robust balance sheet. Our net financial position is strong. And this is the fact that is shared to you by our auditors.

Point number one, so we are in good shape in a highly volatile and chaotic world. Second point, we are not in a defensive mode in CO2. We believe that mastering the CO2-related technologies is a competitive edge of our company. I explained to you what the strategy was with the different components of the big picture. We are trying to go and control and develop and improve quality and costs on each of those components so that the core of the electrified mobility device is going to move to a highly cost-competitive direction. It's important that we understand that PSA is not in a defensive mode vis-à-vis CO2. PSA believes that CO2 is from now a competitive edge of our company. And we will continue to push in that direction to make sure that we completely align with the expectations of the societies in which we operate. And I explained to you how important it was for us to have an ethical perspective of our contribution to the Paris Climate Agreement, limiting the global warming to 2 degrees.

And third, last but not least, of course, we will continue to work hard in our execution capability. We recognize that we are far from being perfect. We make many mistakes. All of those things are discussed at the executive committee level with my teammates. We try to improve. Sometimes we fail. Sometimes we succeed. But we recognize that we have not yet aligned all the stars in our company. And therefore, the flawless execution capability needs to continue to be improved, and we will continue to protect the way we go to market. The quality of our business model is more important than the size of our business.

At the same time, we all know that we have decided with our FCA partners to merge the 2 companies. Why? Because the 2 companies are in good shape, because the 2 companies are highly mature to understand that we will be better together than in a stand-alone basis to face the future challenges of our industry. And this is the reason why I'm so excited about what is going to happen is because these 2 organizations are highly mature. These 2 organizations are highly efficient because of the results that you can see. And these 2 organizations understand from what they have experienced in the past years that it is much better to face the challenges of the future being together than a stand-alone basis.

This is what I wanted to share with you. Thank you very much for your support to PSA. Thank you for your attention. Let's move to your questions.

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Questions and Answers

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Unidentified Company Representative, [1]

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Thank you very much. Now we will take some questions from the room and also some question alternatively for the people connecting online.

We'll start [over there].

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Thomas Besson, Kepler Cheuvreux, Research Division - Head of Automobile Sector [2]

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Thomas Besson, Kepler Cheuvreux. I have a few questions. I'd like to start this on an update on the merger because you just produced more than EUR 3 billion cash; Fiat just produced EUR 2 billion. You're both going to distribute EUR 1 billion plus of dividend, but your stock prices are crushing. So I think there are probably some doubts on the merger. Can you come back on 3 of the topics on that, specifically on the competition authorities view on your combined share in Southern Europe for LCVs and small cars? What makes you comfortable it will be not a walk in the park but you can go through it?

The second topic, on the Chinese strategy. I mean perversely, maybe the Wuhan situation allows you to wait a bit more to kind of reset a combined strategy. Does it make any sense to you? Or do you want to continue to develop side-by-side strategy for China?

And the third, on the number of low-volume premium brands. So DS has been successful in France and Europe but remains a relatively low-volume brand even if you are launching the first high-volume cars maybe. And FCA has a lot of, let's say, premium low-volume cars. Do you really still want to keep all of them? And are you going to put them all on a specific group like Volkswagen style?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [3]

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Well, thank you, Thomas. Those are great questions, and there we will need a couple of hours to answer them, but let's try to be as short as we can. First of all, in terms of moving from signing to closing, we are in the process of making all the applications. I am told that we have done 14 against a total of 24 right now, which means we are now producing the documents and giving those documents to the different authorities. So so far, there is no feedback. We are just doing the job. And as you can understand, it's a very lengthy process that will last for 12 to 15 months in our best forecast. So so far, there is no feedback. We have no reason to believe that there will be any problem, including on the LCV side. But our stance is very simple.

Whatever we will have to discuss and modify, we will because we understand that what is at stake is so much bigger than what would be the consequence of a specific discussion on specific matters. So our mindset is to be open, humble and flexible and discuss whatever needs to be discussed to get the job done because the stake is much higher than all the things that we would have to modify eventually. So so far, 14 applications have been made on a total of 24. We have no feedback so far but no reason to think that there will be any problem.

It is interesting to listen to your question about the share. I think, indeed, the shares are crushing. I think the automotive shares are crushing and for a reason, which is not related to our results, for a reason which is not related to specifically our business as we know well. But what we can say is in a turmoil, if the situation gets more difficult, what is important to understand, and I'm sure you do, is that we have reduced our breakeven point of our company in proportions, which are much higher than our competitors'. Right now, we know that our breakeven point is roughly 50% of our turnover. And that's very important. It's very important to understand that we are facing this potential turmoil in a much more robust situation than what we were in a few years ago but certainly more robust than some of our peers in terms of having a very low breakeven point.

And you see this is also coming back to the unpopular management that we would be criticized on is that everything we have been doing over the last 6 years to reach a very low breakeven point, which is 50% of our turnover, has not been very popular but has put the company in the robustness that we can all see today. And that's, of course, very reassuring for the future, which means if it is true that right now the shares of the automotive industry are crushing, possibly in the future, if this turmoil was to last, then the position of PSA would be more robust than some of our peers, and that could be a good sign for some of our investors.

China is a great point. Right now, as you know, the Chinese authorities have instructed us to keep our plants shut down. As you know, within the process of the turnaround of our Chinese operations, we decided to sell a certain number of our manufacturing activities to reduce the breakeven point of our Chinese operations. One is already done, which is the CAPSA JV with the Shenzhen plant. It's now moving to the closing milestone we already signed. We are between the signing and the closing, and hopefully, we'll reach the closing in a few months. That is part of the problem that we wanted to solve.

We have other ongoing discussions and ideas on the DPCA side, and we'll see what comes after we finalize those discussions, but it's moving in the right direction. And at the current moment where we are speaking together, we know that we still have a significant inventory of cars. So if the customers want to order the cars, they can get the cars; they are there, and we can deliver those cars. So the sales and marketing operations can go on even if the manufacturing operations are in a standstill mode for the time being.

But again I think that the merger will give us also new opportunities. We will have the possibility to share our experiences or the reasons that we understand are the root causes of our difficulties over there. And of course, I can guesstimate that after the merger, many things will have to be thought in terms of understanding why are we failing in China. It is obvious that something is wrong in the way we are operating there. We have to be humble and recognize that. But as sportswomen and sportsmen in our company, we will try again. We will not give up. But the experience of our friends from FCA will be also part of the solution, I'm sure.

On DS. DS is an interesting case. First of all, let's recognize that the job done by Yves Bonnefont as the Brand CEO of this brand creating a premium brand in Europe, which was considered 5 years ago or 6 years ago as being totally crazy. Let's first recognize that in 2019, we made 60,000 extremely profitable sales, which means that this premium brand is not only a good business as we anticipated, but it is also important to recognize through the accolades of our customers that people understand that it is a premium brand. And it is a premium brand, and we could avoid a few traps, and the traps you know them better than I do. First trap was materials fit and finish. Tick the box. The cars are great. Second risk was technology. Are we technological enough facing the German brands? Tick the box. And this is not my answer. This is the answer from the experts who have tested the cars and have recognized that we have the technology, we have the fit and finish, we have the materials, we have the design, we have the appeal.

So we are very excited because at the end of the day, what we are doing is we are betting on the expertise, the passion and the creative power of our people. And since I've been at the helm of this company, I've never been disappointed by that, never, which means that, yes, it's there, 60,000, highly profitable, French touch, French sophistication, a very different way to express premiumness vis-à-vis the other brands being Asian brands, German brands, whatever you want to name. So yes, we have the intention to continue. And by the way, you see when I look at the -- what would be the brand portfolio of the new co with the 13 or 14 brands depending on how you are counting them, I'm so excited because all of those brands have a very long history, and I appreciate the fact that you are laughing.

Yes, we love brands. We love cars. We love products. We love the history of the brands. And in fact, what we can see is that we are going to have such a fantastic brand portfolio to map and cover the market. This is absolutely exciting. Any question you would like to raise to me in the future in terms of -- you don't have a brand that is addressing this kind of customers or this kind of needs, I will have an answer for you. That's going to be an exciting discussion.

For the time being, I'm just excited to read all the books about the history of those brands, and I can tell you I have tons of books on my desk at home to read the history of those brands, and I'm absolutely excited. So then we'll decide with the people who are leading those brands because they are also passionate about that, what is the best way to go to market, what is the best way to map the market, what is the best way to cover the market, what is the best way to reduce the cannibalization if there is one, of course, because we still have all the competitors facing us. And I think for the time being, I'm much more excited by what we can do more than what we should do less at this stage.

These are my answers. Thank you, Thomas, for asking.

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Pierre-Yves Quemener, MainFirst Bank AG, Research Division - Director [4]

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Pierre Quemener, MainFirst. I would have 3 questions, please. We are 2 months into 2020. Is the mix of your European sales already CO2-compliant? And on the pricing side, do you -- are you able to recover all the added content of your electrified cars? That's the first question.

Second question. If we were to split the group between Europe and the rest of the world, what is currently the situation in terms of profitability of the non-European business? Is it fair to assume that you are globally still losing money outside of Europe?

And last but not least, looking at the different buckets of profit improvement into 2020 for the car co, what are the visible tailwinds and headwinds that you contemplate for this year?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [5]

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Well, thank you for your questions. I will ask Philippe to answer the last one, and I will pick the first 2. First of all, January and February, we are compliant in CO2. And you see the evaluation of the CO2 compliance is done on a yearly basis by the authorities, but we consider that that was not demanding enough. So we have decided with Maxime Picat, the European leader, that we would be compliant on a month-by-month basis because we don't want to reach the end of the year in a way where we have to catch back something. So every month at the corporate CO2 committee that I am chairing, we check that the mix of sales in the month is delivering the number we are supposed to deliver in that month to be naturally compliant at the end of the year. So the answer to that question is yes, we are compliant in January. We were with some room of maneuver, and we will be compliant in February as we are told by the predictions of our people.

By the way, it's absolutely fantastic our engineers are able to predict in the middle of the month the CO2 performance with 0.1 grams of accuracy. 0.1, unbelievable. These are great people, which means we know exactly where we are going and we have the technological tools. This is the reason why I'm very comfortable in telling you that yes, we are compliant on about 5 [investors] not because it is the regulation but because we decided so and because we want to protect the quality of our business. We don't want to make any catch-up in terms of CO2 at the end of the year. So we want to finish the year in a way which is calm, quality-oriented in terms of protecting the business model of the company.

You were asking us, are we recovering from the content of CO2? At this stage, the per-unit margins of electrified cars are not as good as the ones of ICEs, but they are catching up. They are catching up. And of course, this is one of the things on which we are working like hell. And this is the reason why the strategy to integrate vertically is so important, is that we understand that if we were completely cynical, we could say, "Hey, guys, the electric vehicles are on sale. Please buy them. We are finished."

We can't say that. That would not be responsible from an ethical perspective because right now, those cars are not completely affordable. If they are not completely affordable, then you cannot sell them at huge volumes and impact significantly the global warming problem.

That means that now we have to work very hard on the cost competitiveness of electrified vehicles. So the problem is not anymore do you have the technology, do you master the technology. The problem has become, yes, the technology is on sale, how do you make that technology affordable, either to sell high volumes or/and to protect your per-unit margins. That's where we are. And that's why the talent of our engineers, manufacturing engineers, is going to be so important because it's all about mastering the cost structure of electrified vehicles. And that's where we are now. And all the initiatives we have taken with the JVs and with the battery cell JV, et cetera, are moving in that direction, making our electrified models -- zero-emission models cost-competitive.

And of course, there is a very clear gate, which is 2025. Because in 2025, the mix of electrified vehicles will increase sharply and the companies that will not be cost competitive protecting the per-unit margins of electrified vehicles will be in trouble. And we will not be among those because we are working hard and we have time to do so.

So on the overseas, we have 2 cases where we are in the red. One is Latin America because of hyperinflation. It is mostly driven by Argentina. As soon as Argentina moves up, then things will go better, and Patrice Lucas is here with us today. He is doing whatever he can. He's not very popular either, by the way, making tough decisions to make sure that he is improving his cost structure despite the headwinds. But as soon as Argentina puts itself in a better position, everything will go in the black quite quickly. And in January, we were in the black.

And of course, the second case is China where we are in the situation that you know, and it is very difficult to predict what is going to happen. Everything else is profitable, and everything else has been improving in 2019.

The last question, Philippe, please?

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Philippe de Rovira, Peugeot S.A. - CFO [6]

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Yes. Thanks, Carlos. Well, about the headwinds in 2020, I think everybody in the industry is recognizing a headwind in the raw material, especially palladium and rhodium. But at the end, the quantity used per car is low, so it's a headwind but not a very significant one. And the second one I would mention is, well, evolution of the global economy, but finally, on this one, you've got probably more means to make an assumption than I have. So we'll let you choose the right assumption for the global economy. On the tailwinds, I mean the 2 big ones will be product mix again, probably not as high as an EUR 800 million that we've delivered in '19. But let's have in mind that we'll have in 2020 the full year of new Corsa, which in terms of property is much better than the old one. That was a very old one. It was a 10-year old car. The new 208 that is starting extremely well, we've got a fantastic portfolio of orders. And the new 208 -- and we are talking with the cars of really volume makers.

So product mix, definitely the first tailwind, and second one will be savings. At the beginning of the combination between PC and OV, the first driver of the synergies was R&D and CapEx. But now what hits powerfully is purchasing because in 2020, we've got the common platform for 208 and new Corsa, and we are talking about the big volumes.

So synergies are moving from, first, R&D CapEx in to purchasing very strongly. And we've got also the effect of the restructuring that we've launched and the agreements -- labor agreements that I've mentioned in the previous part that will help in manufacturing and R&D. And I think compared to competitors, the fact that restructuring -- the peak was in '19 is a strong fact because I guess, in our competitors, the most of the restructuring is ahead of them. In our case, we say the peak was in '19.

Manufacturing, we can do better because we are not at the benchmark level even if we improve, and R&D, as mentioned, it was a good thing to sign agreements -- labor agreements about that in '19. We've done decisive step, and we consider that the labor agreements signed are now all that we needed in industrial.

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Unidentified Company Representative, [7]

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Okay. Next question. Thomas from the room. Then the additional questions are free. Next one will be online, then we come back to the room.

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Thomas Hanke, Handelsblatt GmbH - Correspondent in Paris [8]

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Thomas Hanke from Handelsblatt, sitting here. Two questions if I may. First, on the merger. Could you give us some visibility what PSA and FCA will be like? And especially on 2 points, one, Philippe de Rovira mentioned the restructuring costs that will go down this year. I guess, in 2021, will it move up again? So will -- you will have, like, a rollercoaster movement? And secondly, as you rightly mentioned, you've got a competitive edge on CO2. You are -- I think you're best-in-class with Toyota. But you will lose that after the merger because the American cars are gas guzzlers and the Fiat cars are not extremely well-prepared to electric mobility. So what would be your strategy on these 2 points?

And if I may add another question. On electric mobility, the Saft PSA factory in the north of France, when do you expect it to come on stream with relevant quantities? And what will be the effect on the margin for electric cars? You said, I guess, you will save some money.

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [9]

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Well, thank you for the 3 great questions. First of all, in a friendly and respectful mode, I do not confirm at all the fact that the restructuring costs will be -- will go up in 2021, as you said. I do not confirm that. Why? Because we are merging 2 companies in good health. My counterpart, Mike Manley, made the presentation of the FCA results a few weeks ago, and you can check that the results of FCA are very good as well as ones of PSA. So our 2 companies are in good shape. So if we have to change things, we will, of course, but we will be driven by the fact that we want to catch opportunities instead of fixing something that is not working well, which is a different mindset. We are not merging the 2 companies in a crisis mode because the 2 companies are in excellent financial situation.

So there is no crisis mode. Hence, there is no need for restructuring. Are we going to transform the company to make it even a better company? Of course, this is our role. Our management stance is we try to make always the company better in a way or another, either to adapt with the external conditions which are changing very rapidly or because we see that the path to operational excellence needs some change. And of course, that is -- it is our role, it is our responsibility.

But right now, the 2 companies are in good financial health. I don't see any need for restructuring. I see the excitement of looking for opportunities and for synergies to make the company even better after the merger and being even stronger to face the headwinds that we will have to face.

You mentioned the CO2 after the merger. It's a fair point. And we could make a kind of comparison with what happened with Opel Vauxhall. As I shared with you, in 2019, we improved the CO2 performance of Opel models by 20 grams. We will continue to improve. And of course, we saw that we -- when we embraced the volumes of Opel Vauxhall brands in the performance of PSA, there was a very temporary degradation that we overcame very quickly. So this is possibly what we will do, and we will have a strong technology plan to support this trend. I don't see in our discussions with our friends from FCA anything that would derail the willingness to continue to improve because we understand that in the markets where we operate, CO2 is not only an ethical matter; it's a competitiveness matter in the segment. It's not only about the CAFE. It's not only about the fact that your global sales are hitting a number. It's also about making sure that in a specific segment, your model in your brand is very competitive because if you are not competitive in CO2 anyway, your pricing will be damaged by bonus or [or madus] either improved or damaged.

So it's not only about having a good CAFE as a car company; it's also about having competitive models in the segment against the other brands, which means being very competitive in terms of CO2-related technology and cost of that technology. So if that was to happen, as you were forecasting, then we will fix it as quickly as we did for Opel. And I don't see that as a significant threat. I see it as an opportunity to improve the competitiveness of the brands that would need an additional boost in terms of competitiveness. And by the way, that may happen for the FCA brands as much as for the PSA brands. It goes on both directions depending on the technology because our friends from FCA are also mastering a certain kind of technology on their side. So it's again the addition of 2 healthy, passionate and robust companies that we are trying to leverage.

In terms of battery cells, if you were to ask me, when is this going to be significant in terms of manufacturing capability, I would answer to you in 2023. That's the moment where I think we will have a significant power in terms of manufacturing supply, which is, let's say, luckily, the right timing to meet the 2025 gate. And you know that all the carmakers who are highly dependent on pure Asian battery supply may one day face a strategic issue on that matter. And with this company that we create with our partner Total/Saft, we intend to protect our new co because at that point in time, hopefully, we'll be in the new co, from any strategic problem in terms of battery supply. And we are happy that we are going to be able to have French plant, German plant to supply not only PSA but eventually the new co. And I think that's a very nice outcome for all of us.

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Thomas Hanke, Handelsblatt GmbH - Correspondent in Paris [10]

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[More]...

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [11]

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Sorry?

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Thomas Hanke, Handelsblatt GmbH - Correspondent in Paris [12]

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The financial effect of the...

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [13]

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It's all about the cost structure competitiveness that we are looking for. You saw the slide with all the components. At the end of the day, if you make a 10% cost-competitiveness gap against our peers on the whole -- that system, this is huge because all of that system represents more than 50% of the total manufacturing cost of an automobile, an electrified automobile. So the car companies that will not master the cost-competitiveness of the electrified powertrains will put themselves in a severe problem, either volume or pricing, one or the other. And that's what we are trying to avoid.

But you see in our industry, what is absolutely obvious is the lead time. All of the decisions that led to this slide I have presented to you have been made over the last 5 years. There is a long, long lead time. All of this is hard work, hard strategic negotiations, hard work in the plants, hard work in the engineering divisions, which means one of the big challenges of our industry is that things are moving outside much faster than the ability to execute. Even the regulations are now changing at a pace that is much shorter lead time than the lead time of implementation of all of this, which means that the management teams need to anticipate many, many things. They also need to follow their intuition to a certain extent, which is not something we are always used to, but in some cases, we need.

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Unidentified Company Representative, [14]

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We take 3 questions online, and then we come back to the question from this room.

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Operator [15]

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We have a question coming from the line of Horst Schneider from Bank of America.

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Horst Schneider, BofA Merrill Lynch, Research Division - Research Analyst [16]

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I think the most important question for me is the strength on free cash flow that you were telling us about. Certainly, what is today strong is your profitability. But when I look back, for example, to 2008, what happened there is that you suffered a lot from your negative working capital, and you burned a loan in H2 2008, I think something like EUR 2.5 billion on cash, on working capital. Today, again, the situation isn't any better. You have got roughly EUR 14 billion of trade payables, EUR 6 billion just of inventories, and the working capital is still very negative. How can you manage this risk and also in the context of the coronavirus, that you are not much negative affected by that? And how can you mitigate the risk? And in that context as well, what is the level of visibility that you have in terms of orders in Europe?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [17]

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Well, I'm going to answer the easy question, and let Philippe answer the difficult one. Well, the easy question is about the order book. Right now, the order book in Europe is stellar just because of the huge success of the last products we have launched. I don't want to give you a number, but I can tell you it's stellar. So we are really comfortable on that side. At the same time, we don't want to brag it because we have understood through the surprises of life that good moment can be the anticipation of a bad moment. But right now, the order book in Europe is stellar. That's the only thing I can tell you. And our plants are running full speed, full, full speed, which means that we are working hard on the supply, as you may imagine. But right now, plants are full speed, order book stellar in Europe. That's the easy answer. On the difficult question, Philippe?

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Philippe de Rovira, Peugeot S.A. - CFO [18]

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Well, thanks.

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Horst Schneider, BofA Merrill Lynch, Research Division - Research Analyst [19]

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Can you define stellar?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [20]

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No, I don't want to define stellar, but it's stellar.

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Philippe de Rovira, Peugeot S.A. - CFO [21]

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Okay. Well, thanks for your question. A few elements. Let's have in mind that the net financial position of the group is extremely strong and some -- well, many times in the past, we've been asked why do you keep such a high net financial position. Well, one part of the answer is working capital, as you rightly mentioned, can reverse. But on the -- let's have a few points in mind that are specific to PSA because for European carmakers to have a favorable working capital is normal. The few points specific to PSA are first the breakeven point, which is 1.8 million cars compared to the 3.6 million that we sell. And the second one is all the restructuring that we've done in the past years has been designed to protect the company in case of a serious downturn.

Let's observe that we've got outsourced services in R&D. Let's observe that we've got a high ratio of contract people in our plants, and we've worked a lot on this flexibility in the past few years, so being convenient of working on this flexibility towards hitting our P&L in terms of restructuring costs. But the benefit of it is we are a much more flexible company compared to what we were 6 years ago. So a breakeven point that is half of the volumes, this is totally different from what we explained 10 years ago, and a level of flexibility that is totally different from what we had 10 years ago. So situations are absolutely not comparable. After that, the last thing, I think it's about mindset and agility, which, at the end, in the crisis, every crisis is new, different from the previous, and we'll need to adapt. So we will need to -- if we face very tough times to go fast and react extremely, not brutally but extremely rapidly to new situations. Hope it's helpful for you.

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Operator [22]

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The next question is coming from the line of Gaetan Toulemonde from Deutsche Bank.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [23]

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I have 2 questions. The first one is -- probably one for Philippe is that when I look at 2019, you have, on one side, cashout of restructuring opportunity, EUR 1 billion, and provision of about EUR 1.3 billion. Can you give us an idea about those 2 numbers for 2020?

And my second question, which is a little bit related to cost-saving program, is that you mentioned, I think, in Page 26 that you achieved EUR 110 or EUR 111 of saving per vehicle in 2019. You expect to achieve EUR 700 by 2021. Can you give us a little bit more example on how you feel comfortable to achieve those numbers? And between 2020 and '21, do you expect 2020 to be bigger or lower than the improvement in 2021?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [24]

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Thank you, Gaetan. I'm going to answer the second question, and Philippe will give you the answer on the restructuring on the first one. First of all, on the second question, we have to recognize 2 things. First is when we talk about the total manufacturing costs in our company, we are talking about what we see when the cars come off-line in the plants, they are validated by the quality division; hence, they are ready to be shipped to the dealerships. At that point in time, when you put the car on the trailer or in the train, you measure the total manufacturing costs. So we are talking about that kind of cost. It is not a gimmick KPI; it's not an internal KPI. It's the total manufacturing cost of the car when you put the car on the trailer, and then we add the outbound logistics.

So on that specific point, we need to recognize that this KPI is an all-in KPI. It embarks everything. All the specs, all the bells and whistles, all the CO2-related technology, the ForEx impact, the raw materials impact is all in. So there is no gimmick KPI. It's a real KPI that impacts directly the P&L. On that matter, what we have seen in 2019 is that we were severely impacted by the cost of technology to face the CO2 emissions, which is, of course, something you can understand.

This will not happen in 2020, which means we expect that we will do in 2020 a much better result than in 2019. Of course, we have a specific dedicated organization. We call it the 4 musketeers. The 4 musketeers are indeed 4, not 3. And you have the Head of Purchasing, Michelle Wen; the Head of Supply Chain Manufacturing, Yann Vincent; the Head of Engineering, Nicolas Morel; and the Head of Planning, Olivier Bourges. Those 4 top executives are managing directly this single KPI, this single KPI. We're not talking about the cost reduction coming from engineering or the cost reduction coming from precision or the cost reduction coming from manufacturing. Of course, those KPIs, which I would qualify as Tier 2 KPIs, they exist, but they are not Tier 1 KPIs.

The Tier 1 KPI is the total manufacturing cost of the car when you are putting the car on the trailer. And those 4 top executives who are executive committee members, they are in charge of delivering this number and all in this number. So this is what they have, of course, to improve in 2020. They know it. I know that they are completely hands-on on this topic, and I trust that they will be able to deliver the right number to put us on track on the EUR 700. As you rightly noticed, EUR 111 is not aligned with EUR 700. And you are right. You are right, Gaetan, which means that in 2020, we need to change gears. But I believe that there is a good reason for the 2019 number, which is the additional cost of CO2-related technologies that does not exist in 2020. So that should be a good lever to improve, but it's not, of course, the only lever that's for the cost in 2020.

Would you like to take, Philippe, the question on restructuring?

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Philippe de Rovira, Peugeot S.A. - CFO [25]

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Yes. On the restructuring, the cashout in 2020 is expected to be the same order of magnitude as in '19. And as to the P&L in 2020, for restructuring costs, we expect a 3-digit number compared to the EUR 1.5 billion of this year. So a significant decrease.

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Operator [26]

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Next question is coming from the line of Giulio Pescatore from HSBC.

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Giulio Arualdo Pescatore, HSBC, Research Division - Analyst [27]

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Just the first one on your electrification strategy. I mean I understand the need for flexibility at the moment, especially given that you need to be able to switch between different powertrains. But as we move towards, in which electrification will take up much higher share of total sales, do you see that you will be at a disadvantage compared to the peers that have developed bespoke EV platforms that allow them to have different design and gear space?

Then the second one on the current run rate of EV sales. Do you expect to be able to be compliant on a full year basis even before December? What I mean is you mentioned that you are compliant or above in the first 2 months. Does that mean that as we come in H2 and all the other peers will introduce their electric vehicles, you would be able to sell perhaps a lower share than you did in H1? And what does that mean for H1 versus H2 profitability?

Then second -- and last one on new platforms. So I mean it's very exciting about the 208 and the 2008 order book. But for me, what's more exciting is that they, of course, the 208 and the 2008, all share the same platform and as Philippe mentioned. I mean I'm just wondering what does that mean for margin resilience and even possibly increasing margin in 2020? I mean what are the savings that you're able to generate thanks to that platform?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [28]

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Well, thank you for your 3 questions. I'll take the first 2, and Philippe will take the most difficult one, which is the third one. On the first 2, it's -- the question you are raising is when is the right time to move from multi-energy platforms to a dedicated EV platform. That's your question. And it is a fair one. But I would like also to try to keep our feet on the ground. What is a dedicated EV platform? It's a platform that embarks bigger battery pack basically. So I see a lot of headlines and nice PowerPoint presentations about dedicated platforms. I'm sorry, an EV dedicated platform is a platform that embarks a big battery pack to be able to store more energy for a wider range. Basically, that's it.

Now you can do more on the front part, the way you package the air-conditioning systems and that kind of thing, that will give you a little bit more room of maneuver in terms of layout in the cabin. That's okay. But this is what we would call in our company conventional engineering. This is not a problem at all. Of course, what we already have in the plan is some products with a very significant autonomy that will embark a bigger battery pack. And that is not a problem. The only consequence of that is that right now, you'll see that the cars, the sedans will be a little bit higher than the previous generation of sedans because you still have to store a significant battery pack below the underfloor of the cabin.

So what we have to recognize is that there is no magic. There is no breakthrough technology on having a dedicated EV platform. It's just a matter of packaging a bigger battery pack with 100 or 120 kilowatt hour of energy for a wider range. So that is something that the PSA engineers feel very comfortable with. This is not an issue.

Now what is the moment from which it is reasonable in terms of efficiency and effectiveness to introduce a dedicated EV platform, which means basically that we stop packaging ICEs in those platforms. This, of course, is something that is still under discussion, but my guesstimate is that that will happen around 2024, 2025. That's the moment where from a pure efficiency standpoint that would make sense because it depends on the mix of sales. When is the moment where your mix of electrified vehicles is going to be above 50%? That's basically the question. Who knows? Who knows? And everybody who pretends to know, well, hats off, I don't know, which means as long as we don't see clearly where is the turning point in the mix of sales of electrified products. Making a dedicated platform may not be the wisest decision. And I think that right now, we are in much better shape with the multi-energy platforms.

Now the key point is what are the customer needs in terms of range, what car -- what are the different kinds of usage of those electrified vehicles by our customers. And you will see that we will have multiple offers, low range for urban customers, bigger range for family cars. Many things will pop up before that question becomes a very important question. But to answer properly to your request, I would say that that question is in our plans. More than the question, the answer is in the plans. And I think that that will happen most probably around 2024, 2025. That's the turning point where from our point of view, in terms of effectiveness and efficiency, it would make sense to have a pure dedicated EV platform. In terms of CO2 compliance, what I wanted to share with you is very simple, and that may shock some of you who are very financial-driven. For us, ethics come before financials. Why? For a very simple reason. If you don't take care of ethics, you will not embark your people. If you don't embark your people, you will not achieve the best performance in the market. That's the basic reason.

If you don't make sure that your people are feeling good in their hard work in a carmaker to contribute to a safe, affordable and clean mobility, you will not get the best of their hearts. You will not get the best of their minds. That means that if you want to achieve great financial results, you need to take care of ethics first for your people to understand the purpose of their hard work. And that's where we are. We take care of ethics before we take care of the financials, which means the positive outcome is that if we are hitting the numbers month by month on CO2, it means that CO2 is not going to be a significant constraint on the business. And that's where you get the financial reward because you have moved out all the CO2-related constraints and people can go and do the business in the most profitable way.

Let's take an example. The guys were not able to deliver the CO2 numbers, and they reached the end of the year without being on track to meet the CO2 objective. And they say, "Well, now we have to sell tons of EVs." And they push those EVs in the market. Do you think that they are going to push those cars in a profitable way to the market or in a red ink manner? So what is meaningful for us is that we create an environment where using the best skills of our engineers, mastering the electrified technology, we are going to create a frame of CO2 compliance, which means ethics, that is not going to distort the business model because it is addressed before we enter the real business activities on a daily basis.

This is exactly what we are doing. Not only we remove the CO2 out of the constraints of the business at least to a certain extent, but we are giving our people the purpose of their efforts. And they feel good about being ethically contributing to the global warming fix, and therefore, you will get the best of their minds and the best of their hearts. And that is paramount for achieving the financial results of your company, and that's where we are.

Philippe, the last one, please?

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Philippe de Rovira, Peugeot S.A. - CFO [29]

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Yes. Thanks, Carlos. Well, finally, your third question was coming back to the production cost savings in Europe indicator of the Page 25. If we -- to reach EUR 700 after doing EUR 110, we need, well, EUR 590 this year and this year and next year. And as we were commenting before, the CO2 impact additive content will decrease a lot in 2020 compared to '19. So basically, the synergies that we were seeing in '19 on the purchasing that I've mentioned before with the common platform on high-volume cars were starting in '19, will develop a lot in '20. In '19, it was hidden by the fact that we're adding content. So basically, the answer is in this KPI, and we need to do much more in 2020 compared to '19 but with less CO2 content.

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Unidentified Company Representative, [30]

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We are over the time now. Maybe we take a last, last question but a short one with a short answer.

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Philippe de Rovira, Peugeot S.A. - CFO [31]

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The problem is the answer.

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George Anthony Galliers-Pratt, Goldman Sachs Group Inc., Research Division - Equity Analyst [32]

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George Galliers, Goldman Sachs. I just want to go back to the vertical integration of the e-components. I think earlier, you mentioned 10%. Can you just confirm that if we're going through vertical integration, is that -- was that just an example? Or is that what you view as the approximate saving from having a vertically integrated e-components. And along the same lines, just when we think about the first-generation e-product, the e-208, what level of vertigration do you have in that versus the products, 2022, 2023, where presumably, you'll be closer to 100%?

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Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [33]

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You are right to mention that right now, the vertical integration is much lower. For instance, we are buying our electric motors right now. And we are, of course, buying our battery cells and our modules right now. And at this stage, we did not yet manufacture the eDCT transmission. So this is going to ramp up in the next 3 years significantly to the level that I explained to you in the presentation.

The cost-competitiveness gap that would be the consequence of mastering this is very difficult to appreciate, of course, because we don't have the possibility to compare 2 clean scenarios with the integration or without integration. But if I look at what we have achieved over the last 6 years in terms of manufacturing efficiencies, it has been absolutely significant.

I would say that the profitability that we have been able to build over the last 6 years, moving from minus 2.8% operating profit margin in 2013 to 8.5% in '19, it's half-half cost-competitiveness and pricing power. It's half-half.

But I have no clue about how do I compare against my competitors. My only meeting point is the operating profit margin of the Automotive business. And on that KPI, we are -- I can guesstimate top 3, if not better. So on that matter, we can say that moving from minus 2.8% to plus 8.5%, 50-50 revenue side, pricing power, 50% cost-competitiveness side. And then where are the other ones, I know you just have to compare the operating profit margin, but then that's an exercise we have not done. It's difficult.

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Unidentified Company Representative, [34]

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So thank you to all of you for having attended this full year results of PSA, and have a nice day. Thank you very much.