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Edited Transcript of UG.PA earnings conference call or presentation 24-Jul-19 6:30am GMT

Half Year 2019 Peugeot SA Earnings Presentation

Paris Jul 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Peugeot SA earnings conference call or presentation Wednesday, July 24, 2019 at 6:30:00am GMT

TEXT version of Transcript


Corporate Participants


* Carlos Tavares

Peugeot S.A. - Chairman of the Managing Board

* Philippe de Rovira

Peugeot S.A. - CFO


Conference Call Participants


* Gaetan Toulemonde

Deutsche Bank AG, Research Division - Research Analyst

* José Maria Asumendi

JP Morgan Chase & Co, Research Division - Head of the European Automotive Team

* Philippe Jean Houchois

Jefferies LLC, Research Division - Equity Analyst

* Raghav Gupta-Chaudhary

Citigroup Inc, Research Division - Analyst

* Stephen Michael Reitman

Societe Generale Cross Asset Research - Equity Analyst

* Thomas Besson

Kepler Cheuvreux, Research Division - Head of Automobile Sector

* Lawrence Allan;Autocar Magazine;News Editor

* Thomas Hanke;Handelsblatt;Correspondent




Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [1]


Good morning, ladies and gentlemen. Welcome to this 2019 H1 Group PSA Financial Results Announcement Session. Thank you for attending the session. We know that you are highly busy people, and therefore, we value your time. Thank you for your interest in PSA Group. Let's get started.

2019, H1 was, again, a very challenging period for the industry. In a market downturn, and with a stable revenue, PSA Group delivered in 2019, H1, a record profitability with an automotive operating profit margin at 8.7%, up 1 point against last year. Automotive recurring operating income was up 13%. Net profit was up 24%, and automotive free cash flow was up and at EUR 2.3 billion.

So this was, indeed, a challenging period with the geopolitical tensions, with Brexit uncertainty, with regulatory chaos. But again, the focus of our teams, the focus of our management teams, the focus of every and each group PSA employees delivered this result, and I'm very proud to show these numbers to you today. I would like also to highlight that beyond the 8.7% operating profit margin for the automotive business of the enlarged PSA Group, we could enjoy a very good results for Opel Vauxhall with around EUR 700 million of profitability in H1 2019 to be compared with EUR 500 million last year, which demonstrates that the base turnaround plan has now delivered its full results and that the leadership team in Opel is steering the company in the right direction. I would like here to express to them all, to each and every PSA Group employee and manager, my sincere appreciation, my deep thanks. I think this was one more demonstration of our ability to deliver recurrent profitability and solid results.

As we know, all of this is about people. We know that the numbers are just the result of the rigorous implementation of our strategic plan, Push to Pass. It is the result of the rigorous implementation of the turnaround plan for Opel, the PACE! plan. It is all about getting things done. And things are done when people understand the purpose, when people share the same vision, and when people have the same values.

At PSA, we have decided that we have 3 values. We win together, sometimes we lose together, but most of the time we like to win together, and we like to win because we are competitive people. We like competition. And we understand that, on a stand-alone basis, any individual in the company cannot win by him or by herself, so everything in our company is cross-functional. Everything in our company is teamwork. And this is why we recognize that we are competitive, but at the same time, we only work as a team. So that's the first value.

The second value is about agility. We recognize that we are in a chaotic world. We recognize that agility is a more important value than size. And we recognize that we continuously lead the change in the company, we drive the change. We make sure that we adapt our company, our behaviors, our thinking to a fast-changing world. And without agility, without mental flexibility, without Darwinism, we will not be able to make our company win. Hence, the fact that we consider agility is one of our major, if not the most important value.

Last but not least, efficiency and effectiveness. Again, efficiency and effectiveness in this chaotic world demonstrates that we can make the difference. If we look at the results of the PSA Group over the last 6 years, for the last 6 years, we have been improving our operating profit margin every year. Every year, we have done better than the previous year. And every year, we continue to look for improvements. Every year, we recognize that we have not done everything right. But every year, we are able to achieve a better result. And this is the consequence of our continuously search for efficiency and effectiveness in our operations. We need to recognize that we didn't achieve so far, operational excellence. We need to recognize that much more things need to be done. But we also need to recognize the numbers, and we need to recognize that 8.7% of operating profit margin for the Automotive business is one new record for the PSA Group, and I'm very proud to share these numbers with you today.

So at this stage, as I said, I would like to express to each and every employee of the enlarged PSA Group, my sincere appreciation and my warm thanks. I'm very proud of each of them. I want to express to our union partners, also my warm appreciation for their level of demand. They are not easy partners, but they ask the right questions, and they put the right pressure on the right topics. And I would like to express to them all my appreciation because they are helping us to progress faster, and they understand what co-construction means. Co-construction means continuously seeking a better performance as the best way to protect our people. And this is something that, of course, we share with our unions, and we have a strong support from them. And that strong support, gives a lot of efficiency in the execution capability of our plants.

I want to express, of course, my most sincere appreciation to my executive committee team members. They are here with me today. Their life is certainly not easy. And it is very difficult for all of us to keep a high level of challenging the team, while delivering 8.7% operating profit margin. Can you imagine that with this number, we still continue to argue and to express the fact that we are not happy with everything we do. And they accept that I continuously challenge them. They accept that I continue to push and they accept that I continue to try to steer the company to a higher level of performance. This means that their life is difficult, but this means that their commitments, their focus and their understanding of the purpose of their leadership is absolutely outstanding. And I would like to express to them all today my sincere appreciation, my deep thanks also.

Of course, I don't want to forget to express also my appreciation to the Supervisory Board, and specifically, to the Supervisory Board Chairman, Mr. Louis Gallois. Together, Mr. Gallois and myself, we have been ensuring a very rigorous implementation of the dual governance principles. And this is also a strong foundation for these results. Dual governance principles protect the management in its ability to get things done. At the same time, they give the Supervisory Board a capability to supervise what we are doing and to keep a balanced governance in the company where each person knows what is his responsibility and his duties. And I think this has been also working very well. And I think that the work we have been doing with Mr. Gallois, chairing the Supervisory Board, is also somewhere the foundation for those results. So I would like to express to them also my sincere appreciation for their trust and for the autonomy that they are giving us.

Last but not least, I would like to express my appreciation to all the other stakeholders, investors, the analysts, the media for their fair evaluation of our successes, but also their fair evaluation of our failures. I think we have been treated with fairness, with trust so far, with respect, and I would like to thank them all also for their support.

From here, I would like to hand over to Philippe de Rovira, our CFO, who will give you more details about the numbers. Thank you, Philippe.


Philippe de Rovira, Peugeot S.A. - CFO [2]


Okay. Thank you, Carlos. Good morning, ladies and gentlemen. It's a great pleasure to present today to you our financial results for the first half of '19. In H1, the recurring operating income increased by EUR 321 million, as you can see on Page #6. And this improvement goes down to the bottom line with a net income group share at EUR 1,832 million, up EUR 351 million versus last year, which represents an increase of more than 23% versus last year.

So let's go down the P&L below the recurring operating income. Nonrecurring operating expenses amount to EUR 847 million, which include EUR 656 million restructuring expenses, out of which EUR 579 million for the Automotive division and EUR 71 million for Faurecia. The nonrecurring operating expenses also include the impairment of the group assets in China for EUR 139 million, following the drop in sales volumes. Net financial expenses stood at EUR 166 million, which is a EUR 52 million improvement versus previous year. Income taxes stand at EUR 325 million, down EUR 84 million versus H1 2008 (sic) [2018]. The effective tax rate has been limited to only 14% as we are reusing our deferred tax assets.

Last share in net earnings of company at equity. It contributes for EUR 48 million, down EUR 25 million versus last year and the performance of our Finco in partnerships with Santander on one side and BNP Paribas the other one, stood at EUR 175 million in H1 2019, which compensated for the negative result of our Chinese joint venture for EUR 163 million.

If we move to Slide 7. You can see that group revenue reached EUR 38.3 billion in the first half of 2019, slightly down versus last year. The Automotive division revenue was down 1.1% year-on-year at EUR 30.3 billion. And Faurecia revenue was stable, close to EUR 9 billion.

On Slide 8, we present the Automotive division revenue bridge. So in the first half, FX has remained a significant headwind with 0.8% negative impact, the most important part of it coming from the Argentinian peso but also the Turkish lira and largely compensated in the pricing. Volumes had a negative impact for 1.4%, mainly due to sales decrease in Latin America and Middle East Africa, specifically Turkey. The pricing effect has been positive, 1.3%, including the compensation of ForEx previously mentioned in emerging markets. Product mix is the main contribution in H1 evolution of revenues with a positive 2.9%, and it reflects the success of our recent launches in Europe and the implementation of our strategy to launch at least one car per year and per brand in each region.

As planned, sales to partner decreased by 2.2% year-on-year, for 2 reasons. First, OV had decreased the sales of some of its models to General Motors, and second, because of the impact of the suspension of the sales in year-end at the end of the first half of last year, so these 2 effects will fade away in H2. Last, the decrease in the last bucket, the bucket orders, 0.9% is mainly due to the increase of sales with buyback. As we want to master our reserve values, specifically on the short-term rentals, we are progressively applying to Opel Vauxhall the same policy as in Peugeot Citroën DS, which means that we want progressively to switch to a 100% policy of buyback in short-term rentals.

On Slide 9, the H1 worldwide sales were down 12.8%, as previously published compared to H1 2018. This is mainly due to the suspension of our activities in Iran last year, the low performance of the group in China in a declining market and the strong market downturn in Argentina and Turkey. So China definitely remains the main challenge for the group. In Argentina and Turkey, markets have decreased, respectively, by 50% and 45%, and we have decided to stick to a policy, which consists to protect our margins rather than our volumes.

Nevertheless, let's remind that the group has taken significant decisions that will contribute to rebound outside Europe. First, in Middle East and Africa, our new factory in Kenitra has now started production, and it will be a game changer in terms of competitiveness of our products in the region. In India, the group has set 2 joint ventures, one for powertrains and one for vehicles. Powertrain production has already started in Q1 2019. And starting from 2021, 3 cars locally produced will be launched in India.

On the other hand, in Europe, the group managed to slightly increase its volume in a declining market. So we increased our market share by 0.3 points, and we reached 17.4% in H1 2019. So the group -- the market -- sorry, the group grew its market share in France, in Germany, in the U.K., in Spain, in Italy, which means all the major markets in Europe. And that was driven by the launch of the new Citroën C5 Aircross, but also by the success of the Peugeot 508 and the 508 station wagon. Citroën has gained 0.3% of market share. Peugeot and Opel are remaining stable, Peugeot at 6.8% and Opel at 5.5%. For DS, the DS 7 CROSSBACK is contributing as well. And the DS 3 CROSSBACK is seeing an excellent start in terms of orders.

If we move on Slide 10, so we can have a look on the group recurring operating profit by division. So you can see that the group recurring operating income amounts to more than EUR 3.3 billion, up 10.6% versus H1 2018, with the record 8.7% mentioned by Carlos previously. The Automotive division reached the same 8.7%, which is up versus the 7.7% of last year, and the recurring operating income grew by more than 12%. Faurecia reached a 7.1% margin, stable versus last year.

So let's now go deeper into the analysis of the auto recurring operating income, so in Page 11. As we said before, the automotive ROI stands at EUR 2,657 million. So this result has been delivered, thanks to performance as you can see in blue, EUR 819 million in an adverse operating environment, on the left-hand side, which represented a negative impact of EUR 521 million. The negative operating environment comes mainly from the slowing market demand, with an impact of EUR 255 million; the negative impact of input costs for EUR 72 million, I would say, only compared to what we had in previous years and is coming mainly from wage inflation; and a low impact of raw material. Last, in the operating environment, a negative impact of ForEx for EUR 194 million, which includes a significant hit in the Argentine peso and the Turkish lira.

On the right-hand side of the slide, on the performance side, the improvement comes from a combination of a very strong product mix, as you can see, EUR 330 million, which is a result of the success of recent launches that I previously mentioned. We've got also the impact of market share gains, especially in Europe, so that accounts for EUR 71 million. Still important, cost savings on production and procurement, EUR 264 million. The main driver being the synergies between the different brands of the group, PCD and OV. And the last, but not least, pricing effects created EUR 133 million impact, showing our strong price discipline that we will continue to maintain in the coming months and quarters.

On Slide 12, we move to the contribution of Banque PSA, so the recurring operating income is up EUR 3 million and stands at EUR 513 million. Both partnerships with Santander and BNP Paribas have success, which allow the group to be more competitive and more profitable and to benefit from a de-risk funding business model.

On the chart on the middle of the slide, you can see that the penetration rate of the captive was at 27.5%, mainly thanks to the progress made by the Opel Bank, as it was announced last year, and there is still room for improvement on this KPI. On the right-hand side of the slide, on the cost of risk, it remains at a very low level with 0.14%.

On Slide 13, regarding Faurecia, so revenue was stable at EUR 9 billion, including the consolidation of 2 months of the acquisition of Clarion, and the recurring operating income as a -- sorry, the recurring operating margin remained stable at 7.1%, with a recurring operating income that is slightly down at EUR 634 million. But these results have been already released and commented on yesterday, so I will not comment on any further.

So moving on Page 14 to the cash flow and net position, so we present on this slide, the net financial position of the Auto division, which means excluding Faurecia. On the next slide, you will see the group net financial position, including Faurecia.

So the net Auto cash position stands at EUR 10.457 billion at the end of June 2019, which compares to EUR 800,869,000,000 at the end of 2018 after adjustment of the IFRS 16 effect. The auto free cash flow reached EUR 200,287,000,000. And this positive free cash flow resulted mainly from the cash flows. You can see EUR 3.8 billion and a new improvement of the working capital, EUR 574 million, which once again has more than compensated the cash out for restructuring and EUR 1.7 billion of investments. You can see there is no exceptional CapEx on the auto side.

And last, but not least, Banque PSA Finance has resumed distributing dividends to the group, which amounted to EUR 97 million, following its very good financial results. Finally, on the bucket Other, you find the dividends paid to our shareholders and that bring the Auto net cash position to nearly the EUR 10.5 billion that you can see on the right-hand side of the slide.

So moving next page to Slide 15 to the cash flow analysis for the group, same logic. Our next -- our net cash position stood at EUR 7.9 billion at the end of June '19. It compares to 7.6 billion at the end of '18, adjusted by the IFRS 16 effect. The free cash flow of the group reached EUR 1.6 billion, including the acquisition of Clarion by Faurecia. So EUR 4.8 billion of cash flow, improvement of working capital that covers restructuring cash out. Investments reaching EUR 3.4 billion of investments, split it between CapEx and capitalized annually EUR 2.3 billion and exceptional CapEx, which is the acquisition of Clarion by Faurecia. On the right-hand side, you find, again, the dividends previously mentioned on the other buckets, the impact of dividends and other effects that I mentioned in the footnote 3 of this slide, as you can see.

Let's have a look now at the stock situation on Slide 16. Well, the message is, inventories at the end of June are stable versus end of June last year. You may remember that at the end of March 2019, inventories had decreased by 32,000 cars compared to March 2018. And we mentioned in April during the revenue call that this topic has to be tackled in Q2, and that's definitely what we have done. So now, the level of inventories is totally in line with expected sales for the coming months.

Let's move to Slide 17. Regarding the market outlook, we have revised our forecast. In Europe, we now forecast a 1% annual decrease of the market. A rebound is expected in H2 compared to H2 2018, as we compare to a low basis. We have revised our market outlook for Latin America to take into account the evolution in Argentina. So now we -- the market we stand at minus 4%. And we've taken into account the downturn in China, from minus 3% to minus 7%, and the Russia from plus 5 to plus 3.

Our financial guidance remains unchanged. And I now give back the floor to Carlos for the presentation of the follow-up of the Push to Pass plan.


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


Thank you. Thank you, Philippe. Let's move on to the highlights of the Push to Pass plan implementation. As you know well, this plan has 2 legs: One related to the carmaker, where we want to be a great carmaker, not the biggest one, but a great carmaker with cutting-edge efficiency, which means the most efficient carmaker in the world from one side. On the other side, we want to be a mobility provider for a lifetime customer relationship and increase our customer base.

As you know, we have been working on many different pillars. I will only comment a few of them today. Let me start with quality, which is one of the most important, if not the most important target of the plan, which is to improve our customer satisfaction. You can see on this slide that we have been improving significantly in terms of sales customer satisfaction and aftersales customer satisfaction. You have seen -- you can see here that we have significantly reduced the gap against the benchmark. We have progressed significantly against 2018. All of this is moving in the right direction. In Europe, we are on the top 4 for sales customer satisfaction and top 3 in aftersales satisfaction. We have seen some great results in Brazil. We went from the bottom of the ranking to the podium in 3 years of hard work, both in sales and aftersales. We see that Opel Insignia is #1 in Germany and the Peugeot is ranked as U.K.'s most reliable brand. We see that our product overall satisfaction is #1 in that segment for DS CROSSBACK and Peugeot 3008.

We see that our progress in product manufacturing is more limited in terms of direct run ratio. We believe that direct run ratio in our manufacturing system is an excellent KPI to measure our ability to do things right in the right way on the assembly line, and therefore, avoid rework, which is always a quality risk and an additional cost. You see that we have been progressing, but the pace of progress needs to be enhanced. We have a few plants in Europe that need more support to progress faster and this is where we now put the focus moving forward.

I would like to tell you that if we compare our results against 2013, it is fair to recognize that we have closed the gap against the benchmark by half. This is what we have been doing, and this is a significant improvement. I want to recognize the work and the results of our teams. At the same time, we consider at the Executive Committee level that we need to move faster. And we are going to make -- to take some significant initiatives in the near future, very near future, to accelerate the pace of progress towards the #1 position in terms of customer satisfaction. We recognize that is fundamental for the future.

If we look at the core model strategy, which is very much related to the efficiency of R&D and CapEx spending, we are moving from 62 models in 2018 at the moment where we made the acquisition of Opel Vauxhall, down to 49 models and in 2025 to 41 models. In fact, what we have allocated to our brands is 40. There is one model in the CEO's pocket for any specific brand [Halo] dedicated product. We'll see that later on, but we want to reduce the number of models, as we understand and we consider that diversity complexity destroys the efficiency and the effectiveness of a car company. So we'll continue to reduce the models, as we have been doing over the last 6 years. And as you have seen, and specifically in Europe, we continue to grow our share, we continue to grow our profits, and we continue to grow the capacity utilization rate of our plants. So we see this is a very obvious paradigm that has been broken over the last years. So 2021, we'll go down to 49 models coming from 62 in 2018.

On the right-hand side, you see that we have also a very ambitious objective in terms of reducing diversity, complexity by the number of different references per car. And we want against 2015 reference to reduce by 50% the diversity complexity of our products by reducing the number of references that we accept for each car line. This is going to be a significant challenge for our product planners, for our engineers. They will have to unleash their full potential, their full power of creativity. We have been approving programs, which are completely in line with this complexity reduction. We believe that this is going to be a strong foundation for the efficiency and effectiveness of our car company moving forward. And of course, all of this is, at the end of the day, pencil in the efficiency of the R&D and CapEx expenses at the end of the day. Because that's where you see the improvement in terms of efficiency, coming from this significant savings when we reduced by 50% the diversity and complexity of our products measured through the number of references of each car line.

If I move now to the core technology strategy, we are implementing rigorously the plan in terms of electrification. As you have seen, we are now launching many electrified cars, all the e-CMP based cars, DS 3 CROSSBACK E-Tense, the Peugeot 208, it will have the same thing with the PHEVs during this year. And in 2019 and 2020, we will launch 7 BEVs and 7 PHEVs, so we are on track to deliver our electrification plan. And in 2020, 29% of our range will be electrified, 50% in 2021 and 100% in 2025, so we step-up in a very methodic way in a very, very focused way with a high level of rigor from our teams, fully leveraging the 2 multienergy platforms that we have created in order to adapt to a very uncertain future in terms of mix of sales. I can confirm that everything we are doing at the corporate CO2 Committee with the team shows clearly that we are going to be fully compliant in 2020 and 2021. We have the right technology, the right platforms, the right components, the right processes to get things done in a highly disciplined way. And I'm very convinced that what we have been doing in terms of process is a competitive asset of the PSA Group.

If we move forward, we can look at the core efficiency now. We are on track to deliver the EUR 700 of variable cost reduction by 2021. This is an all-in target, as it was in the first half of the Push to Pass plan. And as you remember, we delivered EUR 632 of variable cost reduction in the first half of the plan, and that number was an all-in number with the air freight, with all the additional costs for emission reduction, with everything we could imagine in raw material cost increase. It was an all-in cost reduction number of EUR 632 and now we are shooting for EUR 700 in the second half of the plan. So far, we are on track.

You can see also that in terms of wage to revenue ratio. We want to be the benchmark of the industry. With the acquisition of OV, we were at 11.1% in 2018. We forecast this year to be below 11%. We want to be in 2021 at 10%. We believe that around that number will be the benchmark of the industry, and that is a significant KPI for the agility of the company and for the efficiency of our company. Meanwhile, with a higher level of efficiency coming from the complexity reduction, we will keep our R&D and CapEx expenses around 8% to 9% of auto revenues. I also want here to highlight the fact that we have been working very hard and efficiently with our union partners in Germany, and that we are progressing fast and strong in terms of improving our overall efficiency at Opel Vauxhall, thanks to the leadership of Michael Lohscheller, our OV CEO, and to the executive team of Opel Vauxhall.

Moving from here, we see that on the brand side, Peugeot is now absolutely on track in terms of pricing power within the plus or minus 1% band against the benchmark. In H1 2019, we were at minus 0.8%. We are in the band that we have targeted. And this is, of course, absolutely paramount because the brands who do not have pricing power for the future will not be able to absorb the additional costs coming from electrification, therefore, will be in trouble. We will be extremely disciplined in terms of respecting the price band that we have set for ourselves. We also see that Peugeot has demonstrated a very strong profitability in the company. We also see that we have a strong BEV and PHEV plan for 2019, 2020, and the Peugeot 508 Sedan Station Wagon is a success already leading the French market and progressing in European markets among this segment share.

Moving from here, Citroën is celebrating this year, the 100th year anniversary, a very strong pricing power. As you see, better than the price band at plus 6.5% against the benchmark. What is absolutely outstanding with Citroën is the consistency of what has been done, consistency in keeping a great pricing power, consistency in the design and the competitiveness and the appeal of the models. We see that with this pricing power, we have an increase in market share from 4.5% to 4.8% in Europe, which is the strongest growth in the top 12 brands in Europe. That demonstrates that we can have a very strong pricing power, at the same time, increase the market share and the overall profit of this brand. The new C5 Aircross SUV is the best of the Citroën advanced comfort. A significant success with the 2 SUVs. We have 25% of European sales, the C3 and C5 Aircross, and we are on track to deliver the C-Cubed program from 2021 in India. And this is going to be a very important program for the overseas expansion of the Citroën brand.

Moving to DS. Again, a very strong pricing power, slightly above the price band at plus 2.1% against the benchmark. All models are electrified from now on. We will have the DS 7 CROSSBACK PHEV this year. We have the DS 3 CROSSBACK E-Tense, pure EV car, this year. Everything is moving forward. The profitability per unit is extremely rewarding. We have reached a network density of 400 dealers in 35 countries, and we are on our way.

I would like to remind everybody that this is a 30-year story. So far, we have spent 5 years. We still have 25 to go, and we will have to keep the direction, be persistent, be resilient and avoid any brutal change of direction because building a premium brand, a unique French premium brand is a once-in-a-lifetime opportunity, and we don't intend to miss this one. I also would like to highlight the fact that for premium customers, service is paramount, and that the Only You service, the DS experience, is now deployed in 25 countries.

Moving to Opel. You see that this is a significant opportunity in terms of pricing power against the benchmark. In 2017 when we made the acquisition, we were at minus 8.2%. We are now at minus 4.6%, so significant progress with a stable European market share at 5.5 points. Within this stable market share with improved pricing power, we have been able to improve the profitability, around EUR 700 million in H1 2019, to be compared with EUR 500 million in H1 2018. This is to the credit of the Opel Vauxhall teams. You see that we are not yet in the price band because this is the price band for 2021, and we will continue to work and to be extremely disciplined in pricing. We understand that pricing is a way to position a brand. Pricing is not a sales tool.

So that's where we are, and the LCV sales represent a strong opportunity for Opel. Sales are up 15%, market share moved from 4.1% to 4.6%, even before we introduced the new Vivaro that will be launched in H2. We see that we have now started the export offensive for Middle East and Africa and for Latin America, and we will follow with Russia. That will be relaunched in the Russian market by the end of this year. And the new Corsa E has been already announced, including the pricing, which means we are on our way to deliver and to execute the plans, which means by the end of this year, Peugeot E 208, DS 3 CROSSBACK E-Tense and Opel Corsa E, the electrification of the V segment of the PSA Group is now going on.

If I move to the regions now, Europe is, of course, the profit engine of our company. We could move our market share up from 17.1%, up to 17.4%, which means market share is up, profit is up, profitability of all brands are up. And we see that we have a strong increase in market share for Citroën, and we are, of course, leading the LCV market, as we have been for many years now.

We will also have a very focused implementation of our CO2 plants. We have, as you know, a corporate CO2 Committee that I am chairing with all the global executive committee team members and we are making all the necessary decisions. We are now -- we now have a very sophisticated process to monitor and to control production, order book, consistency between production plan, order book and the marketing plans. All of this is now completely in line. All of this is completely managed in a very business-oriented way.

And I would like to tell you that it is also our ethical position to be totally compliant on CO2, not only because it makes sense to avoid fines, but because we believe that this is our contribution to fixing the global warming issue, and we are proud of doing that. So we will strictly respect the objectives that have been set by the European Union, as a way to contribute to the society and to the stakeholders on this matter and as a way, of course, to protecting the financials of our company.

Middle East and Africa, we are now ready to go live with our Kenitra plant. The plant has been built on time, within the budget that has been set, which is to say, a quite challenging one. And we are now preparing to launch the first CMP-based product by the end of this year, by the end of this year, 2019.

We have been doing some great things in terms of market share in this region. Algeria market share is up by 2.7 points, Morocco by 4.6 points, Egypt by 3.5 points, so some very good sales and marketing achievements. Unfortunately, we have been penalized in Turkey because of the market collapse, but our market share is still up in Turkey by 0.5 point. This demonstrates that the sales and marketing operations in Africa and Middle East are efficient. This also demonstrates that we are ready to increase our low-cost country-based footprint with the Kenitra plant, and this is good news for the future.

If I move to China and Southeast Asia, China and Southeast Asia demonstrates that we are not magicians, that we are human beings. We cannot always win, and we do not always win. We are implementing, I think, the right things. We are, by far, not fast, not fast enough, but I believe that the teams are doing their very best. They are extremely committed to turn around the operations with their Chinese partners. Things are moving, not as fast as we would wish, but they are moving in the right direction. The market is very bad for everybody. As a matter of being lucky, we are a marginal player in this market, so we are marginally impacted by the Chinese market downturn, but it is still, for us, a challenge to improve the efficiency of our operations.

We have an electric offensive, which is now being prepared with the Peugeot 4008 PHEV in H2, 2019. The Peugeot 508 PHEV, the C5 Aircross PHEV, the new BEV from Peugeot 2008 and the DS 3 CROSSBACK possibly in 2020. All of this product, electrified product offensive is now going to be implemented. It will bring us to a more electrified position in this Chinese market. We are also ramping up in our Malaysian operations with our manufacturing footprint over there. And we believe that at one point in time, this will bring some results, even though I share with all of you some impatience in terms of the speed at which we are moving in the right direction.

If we move now to Latin America. Latin America is demonstrating some good results but is heavily penalized by the Argentinian situation. The volumes are down by 61% in Argentina. They are up by 11% in Brazil and outside of the Mercosur. Market share is up in the very demanding Mexican market. We understand that our market share in Brazil is now stabilized. We still have many challenges in Argentina, but we are doing all the restructuring work that we need to do in order to benefit from the rebound, if at any point in time, the situation in Argentina is going to improve. And I believe it will, even though, for the time being, we are trying to protect our financials as much as we can. And I think we are succeeding in doing so.

Moving to Eurasia. Eurasia is a good story about Ukraine, where our market share is reasonably okay and stable. We see that we are suffering in the Russian market. We are now ramping up our LCV sales for our Peugeot export in Citroën Jumpy. We will reinforce in the near future our LCV positions in these markets, and we are preparing for the relaunch of the Opel brand in Russia, which is a big opportunity for PSA. That will be the case from Q4 this year, and we'll start with the Purolite and the Grandland X. These will be the first models to be available in a few months. We will also enjoy the starting of sales of DS in Ukraine, which are now live, and we prepare other launches in terms of CBUs, like the C3 -- the C5 Aircross that will be launched in Ukraine and Russia. The new 508 will be launched in Ukraine, the new Berlingo and Partner launched in Ukraine also and at one point in time, DS 7 will be launched also in Ukraine. So more product to come and successful product in 2019, and we will continue to enhance our LCV position in the Russian market.

Moving to India Pacific. We are now implementing rigorously our manufacturing footprint in India. As it was mentioned, the powertrain JV is now live and manufacturing gearboxes at a highly competitive price. And we are now exporting those gearboxes around the world, so it's a self-sustained investment that is delivering the expected cost reduction. From that purpose, I think it's a success. We are now preparing for the manufacturing of the C-Cubed program in our Tiruvallur plant in Chennai. This is now ongoing. The first cars to be produced will be in 2021. It has been already announced that we would introduce the Citroën brand in India, and we are preparing the network and the density of network to start our sales significantly from 2021.

Meanwhile, we are facing some very good successes in Japan. Sales are up 16% against 2018 H1, and we see some great sales on the Citroën C3, on the Peugeot 3008, and we are also facing good performance for the DS in Japan. And that demonstrates in a highly demanding market in terms of customer satisfaction and customer care. It demonstrates that our teams are able to adapt to that level of demand in this very specific market. I don't want to forget to mention that the ROI in this region is increasing strongly, with a 27% improvement over 2019, H1.

And our plans at the LCV now. We see that our sales are up to reach 362,000 sales in 2019, H1. We see that we had some erosion in market share for the LCV, coming from the ramp-up of the new compact van offers. We are, by far, the #1 in European market with no less than 7.9 points of market share gap against the second in the ranking. And we see that this strong leadership is, of course, highly profitable, and we are now continuing to develop ourselves overseas with the doubling of our market share in Brazil, which is a testimony to the fact that we are bringing our competitiveness in LCVs to other parts of the world, not only in Brazil, but also as I mentioned already in Russia.

From 2020, we will start the electrification of our LCV portfolio, as we understand that very soon, it will be difficult to use LCVs in the urban areas, if they are not fully electrified. We are ready for that, and we are now preparing to launch those products from next year.

Let's move now to the second leg, and give you a few examples of what we have been doing beyond enlarging our customer base. Let's have a look at the multibrand aftermarket business. You know that we have been developing the independent aftermarket offer. This has been so far working well. Our parts revenue growth is 33% against last year. And we see that outside of Europe, this growth is even stronger, 91% of revenue growth. That demonstrates that our strategy, which is to combine OEM parts, independent aftermarket parts and selling online Mister Auto based parts, this market coverage strategy is now delivering results. We have a strong increase in our ROI. We see that the growth outside of Europe is obvious. We see that this growth is also very visible in China with the recent acquisitions that we have been doing. Our Euro Repar Car Service network, a fast fitter network, is now growing as we planned. We have achieved 4,400 garages, and this is now visible in 24 countries, moving up by 26%. So our strategy, our 3-layer strategy is now being implemented and delivering great results in terms of profitability.

Last but not least, the used car business. Again, the used car business is growing in revenue by 11%. Sales growing quite steadily, reaching near 400,000 sales in the first half. The RME group turnover growth has achieved 47%, not only by organic growth, but also by M&A, as we made some acquisitions of Cardoen in Belgium and Clicars in Spain. So this used car business, which is a quite specific business with specific refurbishment processes and specific online selling processes is moving forward. And this, of course, may be useful in other areas of our activity at one point in time, so this impressive growth is now moving forward. And we are happy with the acquisitions that we have done in the past.

So as a conclusion, before we move to your questions, just would like to wrap up with a very simple slide. First, as you have seen, through the 8.7% automotive operating profit margin, you see that our profitability is strong. We have delivered a record profitability on the first half. You have seen from our CFO's presentation that our balance sheet, our net financial position is robust. So financially speaking, we are in a good position. You have seen through the launch of our new products and from the tests that have been made by the experts of the market that our electrified technologies are highly competitive and that we go live right now. So we are bringing the products to the marketplace at the right moment with the right performance. And this is a good news for our customers and, of course, for ourselves. So we have the technology and we have the electrified technologies. You see that because we are implementing our plans with some results. The foundation of this is the fact that we have a highly aligned and focused team, management team, focused on execution.

Execution is the key. Everybody can have great ideas and make headlines, but we focus on execution of our strategic plans. We are now in the second half of the Push to Pass strategic plan. We know where we are on track. We know where we are not on track, and we are trying to react to that. And that is only possible because we have a very aligned, very focused executive team that only exists because we deliver results.

So last but not least, of course, with this situation, strong profitability, electrified technologies and the focused team, we are open to grasp any opportunity that will create not only value for the shareholders, but for all the stakeholders. And that's something that we feel good about. We keep a strong focus on the execution of our plans because we understand that we are in a chaotic period for the industry and the execution is going to be a competitive asset of our company. That's what I wanted to share with you, and thank you for listening to us. Let's now move to your questions.


Questions and Answers


Operator [1]


(Operator Instructions). First question from Thomas Besson, Kepler Cheuvreux.


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


I have 2 questions, please, firstly on China, I understand what you said about the [turn-on]. When can we expect to have a precise update on what you're going to do, given the big gap between your current volumes and existing capacities? You've talked a lot about potentially changing partners et cetera. Would that be eventually an area where you could spend part of your net cash?

And the second question would be on the seasonality we should expect for Peugeot in 2019. We've normally seen because of your European exposure, that there's a reasonable gap between H1 and H2. Should we anticipate in 2019, a slightly bigger seasonality because of your preparation for CO2, let's say, adjusted product? Or should we expect the normal seasonality for 2019?


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


Thank you, Thomas, for your 2 great questions. If you ask me, is China a place where we could grasp opportunities to use our net cash. I would answer to you that we do not exclude that, but we need to act with a lot of humility because whatever we do in China, we need to be efficient in the way we run the operations. So far, we did not demonstrate our ability to run our operations in China in an efficient manner.

This is not to say that we are giving up, and this is not to say that we are not convinced that we can. Yes, we can. But as long as we did not demonstrate that, I think it would not be very thoughtful to spend a significant amount of cash in China if we are not able to demonstrate that we need -- we are able to run the operations.

I think we will get there. Of course, it's much longer than what we expected, and it's quite frustrating, but it's also somewhere a test for the resilience of our teams and the resilience of our executive team to get things done. I think we will achieve that. As soon as we start to see some light at the end of the tunnel and as soon as we understand that the way we operate when we get rid of all the bureaucracies and all the headwinds is delivering results. We would not exclude China as a place where we could invest part of our net cash. That's a possibility that we do not push back on, but it's a possibility that we consider with a lot of humility as long as we did not demonstrate that we can operate efficiently.

On the second question, I will just introduce the answer, and then let it to Philippe to answer to you for H2. It is clear that the companies that did not prepare properly for the CO2 management of the European business will be in trouble. It is clear that we have been preparing for this for the last 18 months. And I can tell you that the monthly corporate Q2 committee, it's not an easy meeting. And my teammates here, they could testify that it's not an easy meeting. And we have been working very hard to get the right tools, the right KPIs to align everybody in the company, make sure that there is no silo in the company, that everything is fluid, consistent and highly disciplined in terms of execution.

So what I believe and hope I'm not arrogant by telling you this, Thomas. What I believe is that we have set with the team, a very competitive working pattern, a very competitive process, a very competitive set of KPIs to control the business and maximize the profitability after we ensure compliance. So the compliance is the entry point. The compliance is a must. The compliance is an ethical position for our company, so we are compliant by construction, but we try to be compliant by construction in a way that does not prevent our people from doing business and from maximizing the profitability of their business.

And I think this has been quite successful so far. But again, I want to be humble because we didn't go live yet. But I also can tell you that we will go live very soon to make sure that we test the system, to make sure that we have the capability to operate in a fluid dynamic way, to make sure that our people will be able to maximize the profitability of the company and that we ensure compliance as an input to the system which is not going to hurt them, but is going to support their own business acumen.

This is what I think. I think our company has been preparing for the last 18 months to have a competitive asset in terms of CO2 management process. Now I may be wrong, perhaps the other companies have been doing the same thing. Perhaps they are already on this pattern, but one thing you can do to us, have a walk around and go and ask the dealers from different brands where they are. And you may see some differences across the brands. This is one way you can check the level of preparation of each car company vis-a-vis this topic.

I would like to hand over to Philippe for the H2 seasonality.


Philippe de Rovira, Peugeot S.A. - CFO [4]


Thanks, Carlos. Well, Thomas, on the seasonality. By experience, we know, if we take the last 20 years, that the normal seasonality is around a 1-point difference between the operating margin of the first half and the second half due to the market seasonality and due to the fact that plants are stopped in August and half of December. So that's the traditional seasonality.

After that, there are mixed feelings, I would say. On the one side, there could be some risk on the pricing environment, not on a PSA policy but the PSA pricing environment, as Carlos was explaining. On our side, we are well prepared for the new WLTP Date, 1st of September. We are well prepared in terms of CO2 thanks to the leadership in the CO2 committee.

And on the market side, the H1 was unfavorable compared to H1 '18, but in H2, we expect a rebound as it comps were really low. So it's fair to say that the context is a bit uncertain and you can add up Brexit to that, but we never count on context.

Basically, we count on our own strengths. We count on the cost reductions, and you've seen in the first half that we've improved significantly and will definitely continue to improve. We count on a strict pricing policy. We count on product mix with new significant launches. And at that, we are not the master of the operating environment, but what is in your hands, we want to improve on this. And there's still room for significant improvement.


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


Thank you, Philippe. Next question.


Operator [6]


Next question from Stephen Reitman from Societe Generale.


Stephen Michael Reitman, Societe Generale Cross Asset Research - Equity Analyst [7]


My question is about the automotive result. Obviously, a very impressive 8.7% margin achieved with PCD and OV, and I know you don't give a breakdown anymore between the operations. But looking at the pricing gap from OV towards a benchmark, which is still quite considerable. I think it would be fair to make -- to guess that the OV is still, profitability-wise, below that of PCD, which kind of suggests that PCD may have gone through the 10% margin benchmark level -- or 10% level. Would that be a fair assumption?

And secondly, could you remind us who you're benchmarking OV against when you do the pricing comparison?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [8]


Well, thank you for your great questions. I saw some of my teammates smiling at your 10% question. You see the way we see things is that we are in a competitive game. And frankly, we don't know where the sky is, but we see the things we fail on. So the way the team is working is everything we miss is something that we work on and then we'll see what the result is.

Is there more potential on the OV side? Yes. The answer is yes, you have seen it through the pricing power gap. You can imagine that our benchmark is the German one because Opel is a German brand. So Opel is comparing to a German benchmark. I will let you guess which one it is and of course, there is potential. It is also fair to say that it has to be a progressive move because you cannot move to the market in a brutal way. The market would react, so we creep up progressively. We do it in a wise and smart way, using the equipment, the options, et cetera, which means that, yes, there is much potential on the pricing power. We believe that that's the thing that we have already demonstrated that we know how to implement, with other brands, and we'll do it again with OV. So that's an area where we can progress.

Now if we look at the other matters, which may be more on the cost structure side. It is fair to say, and I don't want to create expectations, neither excessive nor lacking ambition. We are far from being perfect, far, far, far. There are many things that we fail on. But at the same thing, it is also fair to recognize that most of the things we get wrong once, we do not repeat them twice.

And we have a few topics that we had to do last year, like using air freight, like moving engines across the world, paying custom duties and logistics, et cetera. We have done a couple of things that we were not happy with last year. It made sense because those additional costs were creating much more additional profit, so we did it. But we understand that, that's not the optimal point of efficiency and effectiveness, and we have corrected that on those specific matters.

Now we see that in our plants, we still have a few things that we are not happy in terms of structure, in terms of the direct run ratio for making our cars. We focus on that. We fix it. And we want then to lock it at an operational excellence level that we believe may be, at one point in time, the mark should, and move to something else.

So this is where we are. We don't know where the limit is, but we know all the things we fail on. And that's, when we talk about winning together and competitive spirit, this is what it means on a day-by-day basis. So that's what I wanted to share with you.

Yes, 8.7% OP margin is a nice number. OV moved from EUR 500 million to EUR 700 million of profit. That's a 40% improvement. That's not marginal. Can we do more, based on the things we fail? Yes, of course. How much? I don't know. But what you know from looking at this team over the last few years is that they never give up and they are a competitive team and they look always to improve whatever the numbers they have. And that's perhaps the best commitment we can give to the market is that this team doesn't like to fall. This team likes to improve, and this team wants to demonstrate that we are competitive. That's what we can share with you today. Next question.


Operator [9]


The next question is in French and will be translated into English. The question is Thomas Hanke, Handelsblatt.


Thomas Hanke;Handelsblatt;Correspondent, [10]


[Interpreted] Some weeks ago, the French and the German Minister of Finance announced that PSA will be partner in the European Battery Consortium and that concretely, Germany, in Germany, Opel would be the industrial partner. Could you confirm that and perhaps elaborate a bit on which will be the work share of Opel in this consortium?

And secondly, as M. de Rovira just mentioned, the possibility of a no-deal Brexit is approaching. How do we prepare for that eventuality?


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


Thank you, Mr. Hanke, for your questions. On the first one, we are talking about business here. And as you may understand, in terms of electrification, we have secured the supply of batteries that we need for the midterm. This is something that we have already done in a highly collaborative mode with our Asian suppliers.

We are a European company. We want to be a European champion. So we would welcome, of course, a European supply for the batteries. I think it makes sense for a 17 million car market to have European supply for batteries, specifically in the region of the world where there is such a high level of expectations for electrified mobility. So it is quite natural that the German government and the French government take the lead to support this kind of initiative.

Now I would like to remind you that we have in Europe, specific rules at the European level, which limit the level of strategic investment that could be made by the member states on this kind of initiative. So even though I appreciate and we support the initiative of Minister Altmaier and Minister Le Maire, which we think is a great initiative. We need to double-check that Brussels is going to support it in the same way.

So far, this commitment from Brussels has not been given to any of our companies. That means that we support what has been done by France and Germany. I think it's the right direction. We are, of course, conscious of the fact that if we don't get the commitment from the European Union on the fact that this support from these 2 biggest member states of the European Union is approved, then nothing can happen and we will wait for that. If that was to happen, then we'll see what would be our Board's decision, based on the enormous amount of investment and risk that this represents.

Let's not forget that introducing the session today, I talked to you about regulatory chaos. And I mean it, we are in a regulatory chaos. We are in a situation where there is no pre-notice for new regulations. And when we try to certify our cars, in some cases in Europe, there are bottlenecks with the administrations, which are supposed to certify our cars. So when I'm talking about regulatory chaos, I mean it, which means that our Board will have to decide if it makes sense for the company to be involved in the project, which is such a high level of investment that can only be presented to the Board if we get the support from Brussels, which so far has not been given. And of course, if we have some visibility on the fact that regulations will be stable for a while, and we have some visibility on the fact that there will be no other change in a region of the world where it is fair to say that we are not technology-neutral in the way we bring new regulations.

So if we are not technology-neutral in the way we bring new regulations to the market, then somebody at the Board level, may ask, well, how do you know that in a couple of years, somebody will not impose on us another technology? Because we're talking about investments that need to be made for decades, 10, 20 years. That's what we are talking about.

So are we going to have neutrality in terms of new future regulations for the time being? The answer is no. For the time being, we have been imposed a certain kind of technology, which needs huge investments with a significant eventual risk if they are not supported by grants. So this is a complex issue, Mr. Hanke and I completely understand your question. And I just would like to summarize my answer. Point number one, we support. Great initiative from Germany, a great initiative from France. Point number two, if we don't have the commitment from the European Union, this is not valid. Point number three, if we have the support from the European Union, we will consider the opportunity to be involved in this venture. The Board will assess the risks and the opportunities.

On the risk side, there will be the fact that in Europe, we don't have a neutral approach to the new regulations in terms of technology. Technologies are imposed on us. They are selected by the administrations. And in that case, the stability of this regulation may be questioned, and hence, the fact that these investments are being made for a significant amount of time and what kind of visibility do we have on the fact that regulations and the imposed technology on the carmakers will not change? That's where we are. And you see that we have an exciting job to predict the future in this kind of context. And that's exactly what we are doing.

On the Brexit side, what we need now is clarity. It is quite clear that we have been doing a great work with our U.K. teammates. By the way, I'm very, very proud of what they have been doing at PSA, Vauxhall and Peugeot Citroën DS in the U.K. They are making profit. They have a good market share. Customer satisfaction in the U.K. is up for our brands. So our teams are doing great in the U.K., and we love the U.K. We have been working with our union partners in the U.K. We have been improving the efficiency of our plants, both Luton and Ellesmere Port, but we are business people. We are responsible people. We need clarity.

A deal or no-deal, soft, hard, whatever, we need clarity. And we will adapt, because we are agile, because we have demonstrated that we can adapt to a changing world. We'll adapt, but we need clarity. So the only thing we have to say on Brexit is please, hurry up. Decisions are suspended and if we suspend decisions forever, at one point in time, something bad will happen. So our message is hurry up. Second message is a no-deal cannot be considered. This would be, of course, very bad for the U.K., very bad for Europe, very bad for all of us. So a no-deal cannot be considered and please hurry up. That's our message. Thank you, Mr. Hanke. Next question.


Operator [12]


Next question from Philippe Houchois from Jefferies.


Philippe Jean Houchois, Jefferies LLC, Research Division - Equity Analyst [13]


I'm glad you love the U.K. Hopefully, you will be heard. I have 2 questions. The first one, of course, you will probably not answer me, but you now have a very, very inefficient balance sheet. And can you remind us what your priorities are in terms of using that balance sheet better, including, when I look at your balance sheet inefficiency is also the capital that is tied up in Faurecia. So any update in your thinking there would be welcome.

And the other question, maybe more for Philippe de Rovira, is more I'm trying to understand, I'm assuming that your performance in used cars and spare parts is a significant contributor to your margin performance. And I'm just trying to understand where we could find those drivers in your EBIT bridge. It's clearly not in the others. It's too small. So if you can kind of point us in where to understand how you book that the contribution to -- from those businesses which are significantly higher than what I think some of your peers are achieving?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [14]


Well, first of all, thank you very much for your provocative balance sheet question. We love that. Yes. Indeed, we love the U.K. because in our Executive committee team, we have Linda Jackson. So please do not forget that. It's important for us to understand that we are in a chaotic world. And it is something that you always will have to consider. And I know you do. So first of all, we want to protect the company from any bad event that could happen, and you will, of course, remind us that we are very much European-dependent, and that's a fair criticism. It will be fair also to say, yes, we are very European-dependent and we are highly profitable in Europe because we know how to operate in Europe.

But first of all, we have the responsibility to protect the company vis-a-vis any downturn event. And that's something that we, of course, have fresh in our mind. We all remember what happened in 2012. We all remember that we were in a near-bankruptcy situation. And we all know what we had to do to bring back a little bit more cash in the company, so that's clear.

It is also clear that our Push to Pass plan does not lack ambition. Introducing the Peugeot brand in North America, Citroën brand in India and Opel brand in Russia is not a free lunch. It needs money, and we are doing that. It's also fair to say that preparing for the future in the autonomous vehicle technology, connectivity and electrification, it's not a free lunch either. So we need the R&D and CapEx. And it's not because we are extremely rigorous and demanding in the way we spend our money that we don't need any, so we need to recognize that this is something that needs to be anticipated.

We don't know to which extent the global warming issue is going to impose on car companies, brutal moves, accelerations, more technology investment. This is something that we need also to anticipate. And of course, as you know well, if there was another opportunity, we would be in a position to use our balance sheet to grasp any opportunity that some of you will consider at first glance as a bet or very risky and eventually on a second time as a good operation.

So that's where we are. And hopefully, I'm not answering to you in an arrogant manner. Yes. It may be inefficient because we are in a good situation. Perhaps tomorrow, you will consider it was wise to keep this level of safety net, just in case something bad happens. That's the best answer I can give you today, but thank you for your provocative question.

I'm going to hand over to Philippe for the used car question.


Philippe de Rovira, Peugeot S.A. - CFO [15]


Yes, on the used car and the after sale question, basically, you find the effects in 3 buckets: price and product ambition, product market share and country mix, and production and procurement.

So if you take a few examples on the used car business, we are paying a lot of attention to increase the regional value and transaction price. I would say that to remain in a kind of provocative assumption, that the best acquisition the group has done is the [AUTOBEST] acquisition, a very small acquisition. But that helped us a lot to know the transaction price in the market and to challenge on all guys about how to price correctly the used car. That has been a huge change internally to improve our business. So the impact would be for this one on price and product enrichment bucket.

Market share and country mix, was, of course, linked to the evolution of volumes of used cars and production and procurement for the savings in terms of logistics, for example, hard work began to reduce the number of compounds to merge the compounds between PCD and OV. And that's another place where synergies, of course, are extremely clear.


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [16]


Thank you, Philippe. Next question, please?


Operator [17]


Next question from Raghav Gupta from Citi.


Raghav Gupta-Chaudhary, Citigroup Inc, Research Division - Analyst [18]


I've got 2. Firstly, on CO2, you've expressed confidence that you will be compliant in 2020 and 2021. My understanding is that your target is based on 7% EV penetration, and that assumes only 10% diesel penetration. Is it fair to say, if diesel volumes are higher, you will kind of sell fewer EVs? Because, I guess, because that will make the target less stretched.

And secondly, product mix, that was the strongest contributor to the EBIT bridge in the first half. Would it be fair to say that a contribution of this magnitude is unlikely to continue, given the upcoming model launches will be less supportive? And if you're able to provide any kind of sense of the magnitude you expect in the second half, that would be very helpful.


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [19]


Thank you for your questions. I'll take the first one and ask Philippe to answer the second one about the model mix. Yes. Compliance for us is a must. We consider that it's an ethical position. And of course, we believe that any carmaker that has a long-term view on this contribution to the stakeholders and the societies in which we operate, needs to have a fully compliant stance and a fully compliant, performance on this global warming issue problem. So yes, we will be complying 2020, 2021.

We have been building our strategy understanding that the diesel mix has been dropping fast. And we all know that diesel is a very good technology to reduce the CO2 emissions, at least against petrol cars. And therefore, we have seen that all the bad buzz about diesel has created an increase in CO2 emissions in Europe, which is the consequence of the fact that some people consider that the new diesel technology is not the right one. In fact, from a CO2 perspective, the new diesel technology is very efficient because it's cost competitive, so it can be spread on big volumes quite quickly. And it's quite efficient in terms of CO2. But this is not the opinion of our leaders and the public opinion is not supportive of this. And this is the reason why the collapse of the diesel mix in sales has created an increase of the CO2 emissions, which I don't believe was the intention of the people that were criticizing the diesel.

So yes, the CO2 emissions are increasing as a consequence of the diesel mix collapse. We have seen over the last few months that, in fact, it has been decreasing a little bit slower than in the previous months. So the diesel mix in Europe is still around 30-something percent of the overall sales. But we were, as always, building different scenarios to understand how we could ensure the compliance of our company in the case of strong diesel mix collapse. And for the sake of having a clear framing for the countermeasures that we were asking our people, we said, well, you need to protect the company up to a point where the diesel mix could collapse down to 10%, which obviously is not happening so far. And we told them, because we know that the margins, the [polluted] margins of EVs are not so great, it will be better for the financials of the company that we ensure compliance, while not using more than 7% of electrified vehicles.

So these 2 numbers, they represent the framing of a situation where we are able to manage the company properly, which is: if the diesel mix was to drop down to 10% and if we were to put a cap at the electrified sales at 7%, we would be still compliant and we will still be able to generate the appropriate amount of profit we are looking for ourselves. So that's a strategy that we have implemented. That gives us confidence in the fact that we can ensure full compliance on the CO2 objectives that are set by the European Union while we put ourselves in a framing where we protect the profitability of the company. That's what we want to do, and so far, the numbers -- diesel mix is around 30%. We are ready on EVs because we are launching them, and I can tell you after making all the tests with my executive committee team members, the cars are absolutely outstanding. In terms of acceleration, take-off acceleration feeling, in terms of NVH, in terms of handling. The cars are really fun, and they are really enjoyable. So I'm very confident, as always, with the engineering of our brands. I think we are going to, again, demonstrate that we can have a great product from the PSA Group, regardless of the brand.

And we have the technology. We have the multienergy platforms. We have the EV technology that we have integrated vertically. We have the PHEV technology. We are now doing the job. Is that an easy task? No, it's not an easy task because we see that many car companies talk, they make announcements, but then you don't see the cars. We want to talk less and we want you to see the cars. That's what we are trying to do right now.

For the model mix, Philippe.


Philippe de Rovira, Peugeot S.A. - CFO [20]


Yes. On the product mix, definitely, it will be a green bar in H2; maybe not as high in H1, but definitely not far. Let's observe that we've got DS 3 CROSSBACK compared to last year, DS 3 CROSSBACK we had only a few invoices in the first half, and it will positively impact H2. 508 -- station wagon 508 compared to last year to new 208 C5 Aircross combo that was launched only in the middle of the second half last year, and new Vivaro. So that's definitely a number of car that will sustain product mix. So I would bet for something close to which one may be a bit lower.


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [21]


Thank you, Philippe. We still have 30 minutes to discuss. Next question, please.


Operator [22]


Next question from José Asumendi from JPMorgan.


José Maria Asumendi, JP Morgan Chase & Co, Research Division - Head of the European Automotive Team [23]


José Asumendi, JPMorgan. I've got 3 questions, please. They are slightly direct, so I understand if you cannot give all the details behind it. Carlos, on China, can you be a bit more specific as to what you're doing there to neutralize cash. How many workers are you laying off? How many plants are shutting down, please? And how do you think about cash in that region?

Second question, Philippe, market share Opel, light commercial vehicle, can you double market share 2 years out? And Carlos, can you talk a bit about the product, LCV Opel offering in the next 2 years?

And third question and, again, I understand if you cannot provide all the details. But the level workforce -- level cost to sales ratio on Opel, I'm trying to understand where we stand in the first half. Can you provide maybe the number of workers you have on the -- in the Opel division for the group in the first half of 2019? And any comments on potentially Opel workers that could come off the lines in the next 6 months.


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


Thank you, José, for the 3 questions. Let me try to answer, step by step. First, on China. What we are trying to do is to implement, I would say, something that looks like the Back in the Race plan, which is accelerate variable cost reduction, reduce fixed cost and try to support as much as we can, the pricing, the per unit pricing of our cars. We are now in the process of stopping sales of unprofitable cars and refocusing the teams on the cars that represent the profit and the modernity, which basically are the SUVs and the big sedans of our range. This is what we are doing, nothing that you don't already know in terms of Back in the Race mindset and Back in the Race spirit. It is working. We see some of the things moving in the right direction. But so far, it's more about Tier 2, Tier 3 KPIs than purely related P&L KPIs. That's why we have, I think, the ambition to accelerate the pace at which we implement those things.

Looking at the manufacturing capacity, we don't exclude the fact that we would, at one point in time, sell one plant if we see that we are too far away from the existing capacity. If that becomes a problem for the turnaround of the company, we don't exclude that possibility. It's not the major focus, but we don't exclude it and basically, what we are now doing is implementing a Chinese Back in the Race plan. But we do it at a speed that is not meeting our expectations, and we are trying to accelerate that. And by the way, our partner is in the same mindset. They also want to accelerate.

If I look at the LCV business and the OV question. OV will benefit from potentially the same range as other PSA brands, which means a compact van, a medium van and a big van, eventually at one point in time. This is not decided at all, but they also have the possibility to access a pickup if they need for overseas markets. So Opel will have the opportunity to use all the assets of PSA in terms of LCV products. And it's, as you under -- state, it's a big opportunity. Because the performance of Opel Vauxhall right now in terms of LCVs, is very, very low because of the history, of the way the business was break down at the dealer level and we have been changing that. And we have been giving the Opel Vauxhall dealers the possibility to sell LCVs as much as they sell PCs, and I think that's good news. That's good news for OV, and that's good news for PSA. They will have potentially the same range and the same market coverage as all the other brands.

In terms of labor costs, what I can tell you is that we will, in 2021, we will achieve the 10% target that I have shown to you. We have a forecast for this year to be below 11%. I think we will deliver on that forecast. We have been doing things in a way which I would qualify as being highly efficient and humanistic. Indeed, there has been a number of people that have left the company. And this is, I think, something that is now common to all the industry. It's a question for the change -- level of change, the speed of change that has been now imposed on the automotive industry. And I think our company has been doing things in an efficient way and a highly humanistic way. And always, always in full support with our unions, and this is something we have been doing successfully over the last 6 years. We only work with our unions. We always prepare the plants with them. We discuss, we agree, we negotiate. At the end of the day, we get the job done, like everything else, but we do it in a humanistic way. And I think that's also something which is part of the DNA of our company.

We continuously look for performance, but we try to avoid stop-and-gos. We try to be complacent for one period and then wake up in the morning, say, oh, I have been complacent for the last couple of years, I need to speed up and then something brutal happens. No, that's not how we operate.

The more we are profitable, the more we think we are in a good shape, the more we accelerate the cost reduction because we know that's the most dangerous period for our company. So that's what we are doing, and I can assure you that the 10% KPI will be achieved, and that most probably will be below 11% this year.

Next question, please.


Operator [25]


The next question from Simon [Morgenson] from [DeSoto].


Unidentified Analyst, [26]


Just following up on your union comments. You mentioned earlier that relations with the unions were challenging. Are you convinced the latest agreements will hold?

And secondly, with all the tensions currently surrounding Iran, can PSA envisage resuming operations in joint ventures there at some point?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [27]


Well, thank you very much. Those are 2 very different questions. On the first one, when I said it was challenging, what I meant was that we have unions which are very demanding. And I think this is very good. It's very good that the unions are very demanding on us because it is important that they keep us focused on what we need to do to protect our people. And of course, we share the same vision, which is the only thing that protects our people is the performance of the company. So we work together in a co-construction spirit to find out together what we need to do to enhance the performance and as a consequence, protect our people. That's why it is challenging. It is challenging because finding the right things to do is not always an easy task. But through their level of demand, through their ideas, we are also able to fuel our own thinking on that matter. And it has been, I think, a very rewarding, a very rewarding experience.

You see a few months ago, I was asking most of my unions if it was a good thing to consider that we would ease a little bit the pressure on the accelerator pedal. Because, of course, this has been a strong journey over the last 6 years, we have been pushing like hell, as you know, on the efficiency of the company. And I was really pleased, pleased, even from time to time, moved by the fact that they were telling me, please, please don't ease it. Keep it flat out. My unions are asking me to keep it flat out. Why? Because they understand that if we start being too sophisticated on the pressure we put on the accelerator pedal, we take the risk of losing a few ranks in the profitability ranking of the company. And if we go backwards in the ranking, that will create a higher risk for our employees. And I think this is very mature. It's very mature of them to say that. It's very mature of them say, no, no, no.

The safest place for our car company in the automotive industry is to be #1. We are not #1 by far. But if we aim at being #1, then we will bring our people together with us to a point where they will be protected by the simple fact that if we are the most profitable with the best balance sheet, with the best plants and the best customer satisfaction, then we are less vulnerable, less exposed than the many other of our competitors. That's why I was saying it was challenging because the way we are interacting is bringing us to a position where we need to find better ideas, more ideas to improve the efficiency and effectiveness of the company.

Well, Iran is quite simple. You see there are sanctions. There are rules that impact the company and the executives. None of us wants to take any risk on that matter, so we completely wind down our operations in Iran. It's not part of our business right now. We'll see what happens in the future. We are not here to take risks on our executives, so we completely wind down our operations in Iran, and there is no business for us there. Next question, please.


Operator [28]


Next question from Mr. Gaetan Toulemonde from Deutsche Bank.


Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [29]


Gaetan, speaking. I'll try to be brief in my question. In one of the slides, you mentioned that you target EUR 700 of cost savings by 2021. At the same time, you tell us that EV will be more costly than traditional IC, so does that include that? Or it's excluding the additional cost supported by the EV lineup in that EUR 700?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [30]


Well, it's an all-in. This is an all-in, and therefore, it is important for you to understand that we try not to have KPIs that distort the reality of the business management of our company. You want to say something, Philippe?


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




Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [32]


He's nervous, so I need to hand over to Philippe.


Philippe de Rovira, Peugeot S.A. - CFO [33]


Yes, what you say is perfectly fair, I think. And the question of Gaetan is the KPIs is it is a mix. So we decrease by EUR 700 with the -- is a mix. Of course, the average cost once you put an EV increases. So it's all-in, but you consider it as a mix.


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [34]


Thank you. Are you clear now?


Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [35]


[Can I have the absolute] number?


Philippe de Rovira, Peugeot S.A. - CFO [36]


Sorry, we have not heard your comment.


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [37]


Could you repeat your comment, Gaetan, please?


Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [38]


Okay. I think I understood. Two other quick questions. When I look at the group, almost every single semester, you provision EUR 500 million for restructuring, and you cash out EUR 500 million for restructuring. So if I project myself in the next couple of years, are we still going to have EUR 1 billion of cash-out of restructuring and EUR 1 billion of restructuring charge? At one point, in theory, those -- both numbers should decline significantly. Can you help us a little bit to get an idea for 2021 and '20?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [39]


Well, Gaetan, I wish you could help us more than the reverse. You see the point here is very simple. This is very simple. You can expect from us an acceleration of the cost reduction activities, being fixed cost or variable cost. Why?

Because if we have imposed electrification sales mix as you know well, we will have to face, in some cases, per unit profitability that will go down. And we will try to compensate that by accelerating the cost reduction activities. And by the way, we will try to do it ahead of the wave. So as it is quite easy to anticipate that the profitability of electrified vehicles will be under pressure and it is quite clear that the governments impose on us a certain mix of EV sales, electrified sales for 2025 and 2030, we already know that we need to speed up and enhance the cost reduction activities to protect the per unit margins that will come from that EV mix increase as a consequence of the new regulations that are imposed on us.

Which means back to your restructuring costs that I would be surprised if you were not to see as an automotive expert you are in the near future in the industry, a significant increase of restructuring costs across the board of the European automotive industry as a consequence of the mechanism I'm just expressing to you. And this is quite obvious. You have a European parliament imposing on us 40% CO2 emission reduction by 2030 against 2021. Anybody can make simple calculations, you'll come up with -- you'll need reasonably 30% of EV and PHEV sales to ensure that compliance. If you make an assumption on how much per unit profit you would lose against an ICE, you know what is the amount you need to compensate in terms of profitability. If you know how much you need to compensate in terms of profitability, you just have to make the breakdown between what you want to get from fixed costs and what you want to get from variable cost. And at the end of the day, you have the opportunity to anticipate that, and this is what we are doing.

Now, are we going to be able to implement that? Future will say, but your comment about a significant high level of restructuring costs for our company over the next -- over the last few years is fair. It's a fact because we turn around PSA because we turned around Opel Vauxhall because of all of this. Now moving forward, it will be naive not to think that the minus 40% CO2 emission reduction in Europe by 2030 will not have an impact on the restructuring costs of the European car companies. And when I'm talking about 360 degrees of sustainable mobility management, I'm talking about all those factors, including the one you mentioned, Gaetan. So your point is very valid, and I would be happy to discuss more on this matter. But I think it's going to happen. Yes. It's going to happen.

The good thing is we are starting from a higher point. The good thing is that our profitability is higher. Our balance sheet is higher. So eventually, the magnitude of what we will have to do against our peers will be lower, which means we are back in the competitive game. How much have we done so far? Are we anticipating on what may happen next? That's, of course, an open question, but I would dare to think that so far, we are in good shape if I look at the competitive framework of our industry. But of course, there is a relationship between the CO2 reduction and at one point in time, the restructuring cost of the automotive industry. I think you can see it through the results that have been announced so far through the profit warnings of a certain number of our peers. Eventually, you will see it on the announcements that will be made over the next few days. I think that's just the reality of our industry and as we know well, we are not magicians. The only thing we can do is anticipate and implement our plans in a rigorous manner.


Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [40]


Last very quick question. On capacity in China with Dongfeng, in theory, you have 1 million unit. You have written off approximately EUR 400 million. What is the vertical capacity in your book today compared to that 1 million units?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [41]


I will let Philippe answer to that question. But before I give the floor to him, I just want to tell you that if we were to reduce our capacity, first, it has to be a common decision between our Chinese partner and ourselves. So the question you raise needs to be asked also to our partners.

And secondly, we can, of course, consider we didn't make any decision so far on that matter. But it is a fact that against our current sales, we have a significant overcapacity. Philippe, on the books?


Philippe de Rovira, Peugeot S.A. - CFO [42]


Well, the joint venture in the group, the value is EUR 500 million at the end of June '18 -- '19, sorry.


Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [43]


What is the capacity in theory because if you're still running at that level of production, we can expect an additional write-off impairment every single semester in the coming years?


Philippe de Rovira, Peugeot S.A. - CFO [44]


No, but you may remember that last year, we made a write-off of 1 of the 2 plants already. That it's no more in the books. And with the write-off that we've done in the H1 '19, it takes into account the level of production that we currently have with a hypothesis of a slight increase in 2020 and 2021. We've been very conservative on that.


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [45]


Thank you, Gaetan. We still have a few minutes, 15 minutes for other questions.


Operator [46]


We have one more question from Lawrence Allan from Autocar Magazine.


Lawrence Allan;Autocar Magazine;News Editor, [47]


Carlos, a couple of questions from me that are both related. Are you considering and do you need further collaborations, mergers or takeovers with any other global carmakers? And do you see that happening in the near future? And can you, at any point, confirm or deny the rumored discussions with Jaguar-Land Rover on a possible takeover bid and update us on any progress with this?


Carlos Tavares, Peugeot S.A. - Chairman of the Managing Board [48]


Well, thank you for your question. As a matter of protection for the top executives of our company, I hope you understand that we do not comment on speculations. In terms of M&A, we, of course, are open for any M&A. Do we need one? I think the numbers demonstrate that we don't.

We still have in mind, I'm sure you have in mind like me, 5 years ago, when we were talking about the Back in the Race plan. Some of our friends were saying, yes, okay, perhaps Back in the Race is going to work, but you are still too small. So anyway, I -- even if you turn around your 3 million car company, you will disappear. Well, here we are 6 years later, talking about the record profitability of PSA.

So yes, M&A is always a possibility, but we don't do M&A for the sake of doing M&A. We are not doing deals for the egos of the executives. We will eventually do a deal if it makes sense, makes sense for our shareholders, for all the stakeholders, if my executive committee team thinks it's a good idea. If we feel ready and able to implement synergies that create value, if those conditions are aligned, of course, we'll consider and eventually we'll do.

But we are not in a position where we want a deal. We are not in a position where we need a deal. We aren't in a position where we must have a deal. We are in a position where we focus on the pricing power of ourselves. We focus on speeding up the cost reduction. We focus on all the strategic matters, which are related to the core technology that we need to develop for the future. We are there.

And you see the market is moving so fast, and things are changing so fast that, who knows? Who can bet today that you need to be a big carmaker to survive in this chaotic world. I don't think that's a given. I think that's something that some of us may carry from past experiences, but we don't know. Things will change a lot. Change will be highly volatile, highly dynamic. And again, I think that the agility is a more important value than size moving in this chaotic future.

So M&A is a matter of speculation. I know that, and I understand you asked the question, but this is not where we are in terms of focus. This is just a possibility. And for the time being, what we want is to deliver on our numbers and prepare for the future.

One of the great things we are proud of is that we have been answering questions over the last 5 years about, oh, you are not spending enough on R&D and CapEx. I'm sure you have heard this. You are not spending enough. And your peers are spending more and more. I say, well, we are spending what we think we need to spend in an efficient way and for a certain number of technologies that we believe will be the must technologies for the future. That's what we are doing. We are not making headlines. This is not the profile and the DNA of this team. This team focus on doing the right things right, not everything, not always in a very efficient way in terms of what we would call [both a] first an equity story, but we deliver.

This is our DNA. We deliver. We don't talk. And this is where we are.

Well, I deeply appreciate all of your questions. It was a pleasure for me and for Philippe to spend one hour answering your questions. Hopefully, we could clarify some of the topics, if not all. I would like to thank you again for your support and for your thoughtful questions. We'll keep on moving and keeping our focus. Thank you very much and see you next time. Bye-bye. Take care.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]