February 23, 2017 / 6:41 AM / 10 months ago

UPDATE 1-Peugeot lifts profitability goal on record year

(Adds executive comments, details, background)

By Laurence Frost and Gilles Guillaume

PARIS, Feb 23 (Reuters) - PSA Group, the French carmaker in talks to buy Opel from General Motors, announced its first dividend in six years and raised its medium-term profitability goal on Thursday after full-year profit almost doubled.

The Paris-based maker of Peugeot and Citroen cars said stronger pricing, sales of higher-specification models and cost cuts lifted the automotive operating margin to a record 6 percent last year from 5 percent in 2015.

The group raised its automotive margin goal to an average 4.5 percent for the 2016-18 period while declining to comment in detail on its continuing Opel takeover talks with GM.

PSA’s 6.8 billion euro ($7.2 billion) in net cash equips the company to make “profitable investments in the interest of our shareholders”, Chief Financial Officer Jean-Baptiste de Chatillon told reporters on a call.

But he added: “At this stage there can be no certainty as to the outcome of these talks.”

The French group and Detroit-based GM confirmed on Feb. 14 they were in talks over a PSA-Opel tie-up to create Europe’s second-largest carmaker by sales after Volkswagen.

PSA expects the deal to lead to combined sales of 5 million vehicles in 2020-22 and savings between 1.5 billion and 2 billion euros, sources told Reuters on Wednesday.

Net income rose 92 percent to 1.73 billion euros last year, PSA said. Recurring operating income rose 18 percent to 3.235 billion euros on 54 billion euros in revenue, down 1.1 percent.

That beat expectations of 3.14 billion euros in recurring operating income and 53.7 billion in revenue, based on the median estimates in an Inquiry Financial poll of 13 analysts.

Under Chief Executive Carlos Tavares, PSA has rebounded from a 2014 brush with bankruptcy and state-backed bailout to record levels of profitability, thanks in part to a programme of cutbacks instituted by his predecessor Philippe Varin.

Emergency development budget cuts left a hole in the pipeline of new models that is only now beginning to be filled.

With a new product offensive in its early stages, PSA said pricing improvements contributed 365 million euros to 2016 earnings. Cost cuts in purchasing, production and overheads delivered a further 863 million euros.

“The effect will be amplified this year,” Chatillon said, as the pace of the launch of new models increases.

PSA proposed a dividend of 0.48 euros per share on the 2016 earnings, its first such payout since 2011.

The company said it expected “stable” demand in the European, Latin American and Russian markets this year, with China growing another 5 percent.

$1 = 0.9463 euros Reporting by Laurence Frost and Gilles Guillaume; Editing by Sudip Kar-Gupta

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