PARIS -- Carmaker PSA Peugeot Citroen stuck to its 2005 targets on Tuesday, hoping the launch of new models would help to offset a steep rise in raw material prices that is hurting profits.
Europe's second-biggest carmaker said net attributable profit for the six months to June 30 fell by a fifth to 681 million euros ($821.8 million), well below an average forecast by 11 analysts polled by Reuters of 781 million euros.
Chief Executive Jean-Martin Folz said PSA was not granting big discounts in markets such as Britain, Germany and Italy, giving up some market share but defending the bottom line.
PSA's first-half operating margin slipped to 4.1 percent from 4.5 percent last year, but remained within its full-year 2005 target range of 4.0 percent to 4.5 percent.
Folz told a news conference he maintained his forecast that higher raw material costs, especially steel, would have a negative impact of 250 million euros to 300 million euros in the full year and take an unspecified toll again in 2006.
PSA Peugeot Citroen has multi-year contracts with its main steel suppliers, such as Corus, Arcelor and Mittal, that run until the end of this year and the company needs to renegotiate the supply deals.
"It is obviously too early to make any forecast about the impact but for sure there will some further impact from raw materials next year because we don't expect to have the same sort of prices as what went on before," Folz told a conference call.
Analysts were relieved PSA kept its targets. They forecast sales would pick up in the second half and saw some upside in the company's shares.
Folz said the full effect of cost reductions was now increasing "significantly beyond the annual 600 million euros achieved in recent years".
PSA said sales picked up in the second quarter and the impact of new models would accelerate in the second half, thanks to the new Peugeot 407 coupe and the Citroen C6. Unit sales edged up 0.6 percent in the first half despite a weak showing in western Europe.
"However, lackluster growth in European economies means that the region's automobile markets are not likely to see a significant upturn," PSA said, adding group sales growth would depend on expanding markets outside Europe.
Peugeot is putting much store on expansion in China and Latin America, where local sourcing should keep selling prices low and margins up.
Folz noted the losses at a start-up joint venture in China were narrowing rapidly as the factory came on stream.
Morgan Stanley analysts said in a note that "the key thing is that the company did not warn on full year numbers."
And CSFB analysts suggested PSA sales would pick up in the second half, ahead of the launch of its key Peugeot 207 model early in 2006. "We look for second-half buying opportunity around 47/48 euros," their note said.
Thierry Huon, analyst at Exane BNP Paribas, said the figures "do not change our view of the company -- PSA remains a very well-managed company, but suffers from a lack of catalysts".