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Announcement:

Moody's changes Peugeot's outlook to stable; Baa3 ratings affirmed.

11 Feb 2011

Approximately EUR4.6 billion of debt affected

Frankfurt am Main, February 11, 2011 -- Moody's has today affirmed the Baa3 long term issuer ratings of Peugeot S.A.("PSA") and changed the outlook to stable from negative.

The stabilization of the rating outlook acknowledges the stronger than anticipated recovery in PSA's operating performance and cash flow generation in 2010. Free cash flow generation (FCF) continued to benefit from a tight control of capital expenditures (capex), working capital and the omittance of the dividend payment. Moody's gained further confidence that PSA should be able to improve its operating performance and sustain the positive trajectory in its credit metrics and leverage in the next two years despite the weak prospects for light vehicle demand in Western Europe and in particular in France. This should over time therefore comfort the company in its Baa3 rating category.

In 2010, the group's operating performance and credit metrics demonstrated material improvements from the very weak levels achieved in 2009 and 2008 thanks to strengthening industry volumes and realized cost savings of EUR1.5 billion. The reported operating income margin of its industrial activities recovered to 2.2% compared to -4.1% in 2009 and -1.8% in 2008.

Hence, the positive momentum in its automobile division weakened in H2 2010 (operating income margin 0.5%) compared to H1 2010 (2.2%) mainly in light of a deteriorating country and price mix as well as higher input costs. The group's lower cost base and its ambition to realize further costs savings of EUR1.1 billion in 2011 and 2012 respectively should support PSA in improving profitability further in the next few years. However, the risk remains that intense price competition in Europe and pressure from increased raw material costs could offset these benefits.

The stable outlook reflects Moody's expectation of (i) a continued improvement in PSA's financial metrics, including operating profitability and cash flow generation; (ii) further reduction in reported Industrial net financial debt position, turning into a reported industrial net cash position by fiscal year end 2012 driven by the expected solid positive free cash flows generated in each of the next two years. In addition, the stable outlook considers (iii) PSA's ability to keep market shares in Europe at least stable for the period 2011-2012 and (iv) preserve its solid liquidity profile going forward.

The Baa3 rating continues to be supported by the group's sound competitive position, evidenced by its leading position in the European light vehicle market ranking behind market leader Volkswagen (A3/stable); a balanced model renewal rate, and various successful cooperation agreements with a number of different OEMs. A successful implementation of Citroen's premium DS line could improve the brand's positioning and could mitigate the intense pricing pressure being characteristic for the volume segments in the future.

In addition, the rating considers the group's conservative financial policy with a healthy liquidity profile and balance debt maturity profile.

However, the rating remains constrained by the group's limited geographic diversification with the majority of its revenues and profits being generated in Western Europe. This makes the group vulnerable to declining passenger car demand in France and a slow recovery in Western Europe in 2011. In addition, the rating considers PSA's weak historic credit metrics over the last two years. Moody's cautions about the risk that pressure from rising R&D needs, intense price competition in Europe, and increased raw material costs might partially offset improvements in profitability and FCF generation in the near term.

Downward pressure would arise in case of (i) evidence that the market environment would turn worse than anticipated in terms of volumes or prices (ii) inability to sustain the recent improvements in profitability and financial metrics as well as in case of (iii) a sizeable cash absorption.

An upgrade seems unlikely for the short to medium term. Positive rating pressure could arise in case of (i) the group's ability to improve or at least stabilise its market shares in the Western European market and to successfully strengthen its market presence outside Europe; (ii) sustained improvements in profitability, evidenced by EBIT margins of at least 4% with closing the profitability gap with its mass market peers; (iii) Debt/EBITDA of between 2.0-2.5x.

At 31 December 2010, PSA's principal liquidity sources consisted of cash on balance sheet in the amount of EUR9.3 billion, availability under undrawn committed credit lines of EUR2.4 billion maturing July 2013, as well as potential cash flow generation from operations over the next 12 months. These cash sources provide adequate coverage for the major liquidity requirements that could arise during the next 12 months. These consist of short-term debt maturities of approximately EUR 3.2 billion, capital expenditures, working capital funding, day-to-day needs as well as expected dividend payments.

Outlook Actions:

..Issuer: GIE PSA Tresorerie

....Outlook, Changed To Stable From Negative

..Issuer: Peugeot S.A.

....Outlook, Changed To Stable From Negative

The last rating action on PSA was a downgrade to Baa3/P-3 with a negative outlook from a Baa2/P-2 review for possible downgrade on February 19, 2009.

The principal methodology used in this rating was Global Automobile Manufacture Industry published in December 2007.

Peugeot S.A., headquartered in Paris, is Europe's second largest maker of light vehicles with its two main brands Peugeot and Citroën. Other industrial operations include Faurecia, one of Europe's leading automotive suppliers in which PSA held a 57.43% interest at year-end 2010; and Gefco, France's second largest transportation and logistics service provider. The group also provides financing to dealers and end-customers through its wholly owned finance subsidiary, Banque PSA Finance. In 2010, the group generated revenues of EUR56.1 billion and operating income of EUR1.7 billion.

Frankfurt am Main
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes Peugeot's outlook to stable; Baa3 ratings affirmed.
No Related Data.
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