annual report / the year in pictures
Transcription
annual report / the year in pictures
2005 ANNUAL REPORT / THE YEAR IN PICTURES Contents 4 KEY FIGURES 6 CORPORATE GOVERNANCE 6 / Message from the Chairmen 8 / Corporate Governance Structures 10 / The Managing Board and Executive Committee 12 / Stockholder Relations 14 2005 IN PICTURES 54 STRATEGY 56 / A Long -Term Vision 58 / Platforms and Cooperation Agreements 59 / A Commitment to People 60 / The Technologies of Tomorrow 62 BUSINESS REVIEW 64 / A Year of Growth and International Expansion 66 / Peugeot 68 / Citroën 70 / R&D 72 / Manufacturing Efficiency 74 / Cooperation Agreements 76 / Other Businesses 78 SOCIAL RESPONSIBILITY 80 / A Year of Innovation in Employee Relations Practices 82 / The Four Pillars of Our Commitment to Social Responsibility 84 SUSTAINABLE MOBILITY 86 / Cars and the Environment 88 / Maximum Safety Across the Entire Model Lineup 89 / Enhancing the Quality of Mobile Life 90 / Managing the Environmental Impact of our Production Facilities 91 / Supporting Local Development 92 FINANCIAL STATEMENTS AND STATISTICS 94 / Consolidated Balance Sheets 96 / Consolidated Statements of Income 97/ Consolidated Statements of Cash Flows 98 / Production by Model 99 / Worldwide Sales 100 / Production Facilities 101 / Mechanical Components Plants and Foundries - Workforce 102 / Sustainable Development Indicators PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 2 3 The second-largest carmaker in Europe with a market share of 14.3%, PSA Peugeot Citroën draws its competitive strength from two broadline marques, Peugeot and Citroën, the skills of its 208,500 employees and a stable shareholder base. We sold 3,390,000 vehicles in 150 countries worldwide in 2005, reporting sales and revenue of €56.3 billion for the year. We enjoyed a very good performance outside Western Europe, where unit sales exceeded one million vehicles. Our growth is also being supported by Banque PSA Finance, a car finance company, Faurecia, an automotive equipment manufacturer, and Gefco, a transportation and supply chain management company. A responsible global corporate citizen, PSA Peugeot Citroën will pursue its development, led by the in-depth renewal of its model line-up. Every day, we will continue to innovate in the fields of environmental protection and safety while designing Peugeot and Citroën cars that meet customers’ expectations around the world. Key figures PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Worldwide sales Sales & revenue Operating margin (in units) (in € millions) (in € millions) Automobile Division Other businesses 3,375,300 3,390,000 56,105 Automobile Division Other businesses 56,267 2,481 11,196 10,866 978 45,239 1,940 1,024 1,503 45,071 916 04 04 05 Balance sheet structure (in € millions) Stockholders’ equity, including minority interests Net financial position of the manufacturing and sales companies 13,703 14,406 05 Profit attributable to equity holders of the parent 04 05 Capital employed (in € millions) (in € millions) Automobile Division Other businesses 1,646 14,123 12,403 6,271 1,029 5,912 6,491 7,852 1,347 381 04 05 04 05 04 05 4 5 Working capital provided by operations and capital expenditure Earnings per share Dividend per share (in €) (Manufacturing and sales companies) (in € millions) Working capital provided by operations Capital expenditure 14.3% market share in Europe, where the Group is the region’s second-largest carmaker. Earnings per share Dividend per share 6.97 4,171 3,689 4.47 2,862 2,793 1.35 04 04 05 1.35 3,390,000 vehicles sold worldwide. 05 Workforce (at December 31, 2005) 30.4% Automobile Division Other businesses 208,500 207,600 69,000 68,200 139,500 139,400 04 05 The share of vehicle sales outside Western Europe has exceeded 30% for the first time. CORPORATE GOVERNANCE PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 6 Message from the Chairmen Thierry Peugeot Jean-Martin Folz With 3,390,000 vehicles sold worldwide, PSA Peugeot Citroën’s performance in 2005 was shaped by stable unit sales (up 0.4%) and lower financial results. This was due to the combination of several factors, including flat European demand, more aggressive competition, sharply higher raw materials prices and the cost of compliance with the new Euro IV environmental standards. However, the year also saw a number of major successes, with increased sales and improved margins outside Western Europe, a further reduction in production costs and the development of the Peugeot and Citroën model lineups. This uneven performance led us to review our strategic choices and our answer was clear: our strategy is the right one and the best way to return to profitable growth is to rigorously apply our policies and deploy them more quickly. PSA Peugeot Citroën’s organization, as expressed in our signature, “One Group, Two Marques”, has been strengthened by the latest developments in 2005. The difference in Peugeot and Citroën’s growth during the year illustrates the benefits of having two broadline marques that complement each other, whose coexistence within the Group enables us to optimize model lifecycle management. The platform strategy, a core component of our strategic vision, also made further prog- ress in 2005. Following the introduction of the Peugeot 407 Coupé and the Citroën C6, the Rennes plant now produces six different body styles on the same platform. Today, the number of cars built on our three basic platforms is ramping up very quickly as a percentage of total output, attesting to the strategy’s success. The cooperation strategy was also actively pursued in 2005, which saw the introduction of the Peugeot 107 and Citroën C1 as part of our cooperation with Toyota, and the signature of two new agreements – one with Fiat and Tofas to jointly develop and produce small entry-level commercial vehicles and the other with Mitsubishi to manufacture new Peugeot and Citroën SUVs. We also presented the manufacturing details of our cooperation with BMW to produce small, high-tech gasoline engines and unveiled the new diesel engine lineups developed with Ford. These cooperative agreements are having an increasingly favorable impact, and ramp-up is proceeding as scheduled. By 2008, we expect to be producing more than 500,000 vehicles and around 2,700,000 engines in cooperation with other manufacturers. In 2005, we also reached an important milestone in our expansion outside Western Europe, where, for the first time, sales topped one million units, accounting for more than 30% of total sales and revenue. Unit sales rose 7 sharply in South America and China, driving a clear improvement in financial performance. This growth dynamic is set to continue, led by the introduction of a large number of new models tailored to local demand. The demonstrated effectiveness and expected future benefits of our strategic vision mean that we can confirm our two main objectives: to increase unit sales to four million cars and achieve a consolidated operating margin of 6% of sales and revenue. Although business conditions have prevented us from reaching our objectives for the time being, we are still committed to meeting these objectives as quickly as possible, in particular by implementing assertive action plans in several key areas of our automobile business. The first pathway to improvement is to meet stringent quality standards. Significant progress has already been made following the deployment of a broad-based improvement plan across the organization, from project development and purchasing to manufacturing and customer service. We are committed to being one of the top European carmakers in terms of quality. The second priority is to improve our competitiveness by substantially reducing our production costs, by around €600 million a year. We expect to maintain this pace of annual cost savings in the future, thanks to the full impact of our platform and cooperation strategies, the ramp-up of the internal improvement plans designed to create a unified production system and the wider application of new purchasing policies. The third pathway is our innovation strategy, an invaluable source of competitive advantage. It is guided by our commitment to developing useful technologies that improve safety and environmental performance, and can be deployed for the largest number of customers. That’s why, after introducing cars equipped with Stop & Start, a first-stage hybrid system, we are now preparing a development program aimed at bringing a lineup of hybrid diesels to market by 2010. The first two demonstrators of that technology – the Peugeot 307 and Citroën C4 Hybrid HDi – illustrate our vision of the car of the future and our dedication to developing clean, fuel-efficient powertrains. Our innovation strategy is also designed to provide customers with the very best safety technology that protects all road users. Eight of our new models, for example, have earned fivestar ratings in EuroNCAP tests. Lastly, the model renewal process is well under way, providing the primary driver of our future growth. After peaking at 4.5 years in 2005, the average age of Peugeot and Citroën model lineups is now steadily declining, to a projected 3.3 years in 2008. In this renewal process, the first-half introductions of the Peugeot 207 and Citroën C6 are the big news for now, but they will be followed by other major launches during the year both in and outside Western Europe. Together, they will again demonstrate our ability to innovate and diversify our model portfolio, which will include 38 body styles in 2006 versus 28 in 2001. These new model launches will have a positive impact in 2006, but the business environment is expected to remain unfavorable, with persistently aggressive competition and flat demand in Europe. In this environment, we estimate that operating margin should be in the neighborhood of the second-half 2005 figure in first-half 2006, before showing an improvement in the second six months of the year. Thierry Peugeot Jean-Martin Folz CORPORATE GOVERNANCE PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Corporate Governance Structures Since 1972, Peugeot S.A. has had a two-tier management structure, comprising a Managing Board, responsible for strategic and operational management, and a Supervisory Board, responsible for oversight and control. The Supervisory Board The Supervisory Board appoints the members of the Managing Board and oversees the Managing Board’s management of the company. Thierry Peugeot, Chairman Jean Boillot, Vice Chairman Jean-Philippe Peugeot, Vice Chairman Pierre Banzet Jean-Louis Dumas Marc Friedel Jean-Louis Masurel François Michelin Jean-Paul Parayre Marie-Hélène Roncoroni Ernest-Antoine Seillière Joseph F. Toot Jr. Roland Peugeot, Advisor Bertrand Peugeot, Advisor The Strategy Committee Missions: The Strategy Committee is responsible for considering the Group’s long-term growth trajectory and strategic direction. It reviews the Managing Board’s long-term strategic plan and is consulted about proposed major transactions. It also prepares Supervisory Board decisions on strategic projects submitted for the Board’s approval in accordance with Article 9 of the bylaws. Jean-Philippe Peugeot, Chairman Jean Boillot Jean-Louis Dumas François Michelin Jean-Paul Parayre Thierry Peugeot Ernest-Antoine Seillière The Compensation and Appointments Committee Missions: The Compensation and Appointments Committee is responsible for preparing Supervisory Board decisions regarding compensation for members of the Managing Board, the Supervisory Board and the Board committees, as well as stock option grants to members of the Managing Board. It also prepares Supervisory Board decisions concerning the appointment of new members of the Supervisory Board and Managing Board, by proposing selection criteria, organizing the selection process and recommending candidates for appointment or re-appointment. Thierry Peugeot, Chairman François Michelin Ernest-Antoine Seillière The Finance Committee Missions: The Finance Committee is responsible for informing the Board of its opinion on the interim and annual financial statements of the company and the Group, and it may also be asked to review any corporate actions and other projects requiring prior approval by the Board. To this end, the Committee reviews in detail the interim and annual financial statements, the most significant financial transactions and the management reporting schedules. It also monitors off-balance sheet commitments and data to assess the Group’s risk exposure. Marc Friedel, Chairman Jean-Louis Masurel Marie-Hélène Roncoroni 8 9 From left to right Thierry Peugeot, Jean Boillot, Jean-Philippe Peugeot, Pierre Banzet, Jean-Louis Dumas. From left to right Marc Friedel, Jean-Louis Masurel, François Michelin, Jean-Paul Parayre, Marie-Hélène Roncoroni. From left to right Ernest-Antoine Seillière, Joseph F. Toot Jr, Roland Peugeot, Bertrand Peugeot. As of January 1, 2006 CORPORATE GOVERNANCE PSA PEUGEOT CITROËN 2005 ANNUAL REPORT The Managing Board and Executive Committee The Managing Board Jean-Martin Folz, Chairman Frédéric Saint-Geours Claude Satinet The Executive Committee Jean-Martin Folz, Chief Executive Officer Frédéric Saint-Geours, Executive Vice President, Peugeot Claude Satinet, Executive Vice President, Citroën Yann Delabrière, Finance, Control and Performance Gilles Michel, Platforms, Technical Affairs, Purchasing Jean-Marc Nicolle, Group Strategy and Products Robert Peugeot, Innovation and Quality Roland Vardanega, Manufacturing and Components Jean-Luc Vergne, Employee Relations and Human Resources Senior Management Xavier Fels, External Relations Jean-Louis Grégoire, Executive Development Jean-Claude Hanus, Legal Affairs Liliane Lacourt, Communications The Executive Committee and the Senior Management Team meet on a weekly basis to discuss issues concerning the day-to-day management of the Group and the Automobile Division. Specific committees have been set up for each of the other businesses, which meet once a month to discuss issues related to the management of the business concerned. The day-to-day management of the Group is the responsibility of the Vice Presidents Committee made up of senior line executives. At March 1, 2006, the Committee comprised 51 senior executives, as well as the members of the Executive Committee and the Senior Management Team. It meets on a monthly basis. 10 11 From left to right Jean-Martin Folz, Frédéric Saint-Geours, Claude Satinet, Yann Delabrière, Gilles Michel. From left to right Jean-Marc Nicolle, Robert Peugeot, Roland Vardanega, Jean-Luc Vergne. From left to right Xavier Fels, Jean-Louis Grégoire, Liliane Lacourt, Jean-Claude Hanus. As of January 1, 2006 CORPORATE GOVERNANCE PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 12 Stockholder Relations PSA Peugeot Citroën is committed to providing clear, regular information to all individual and institutional stockholders, in France and abroad. The Group is constantly improving the effectiveness of the investor relations process, including the various sources of stockholder information and direct investor contacts at meetings and special events, in compliance with best practices and the recommendations issued by stock market authorities. The Stockholders’ Newsletter, published to coincide with the release of annual results, the Annual Meeting and the release of interim results, is sent to registered stockholders, holders of more than 10 bearer shares registered with a French financial institution at December 31 and employee stockholders. It is also available upon request. The Stockholders’ Guide answers the most frequently asked questions regarding stockholder rights and the management of Peugeot S.A. shares. active in the capital markets. Moreover, the Group is committed to meeting regularly with individual stockholders in France through presentations in cities outside Paris, plant visits and a booth at the Actionaria investor fair. Contact Information All stockholders have access to the following sources of information: The Annual Report, available in French and English, provides essential information about PSA Peugeot Citroën and its operations, including financial highlights and key data. The Registration Document, prepared in French and English and filed with the Autorité des Marchés Financiers, provides a detailed presentation and analysis of the consolidated financial statements, the operations of the different divisions, the resolutions approved by stockholders in Annual Meeting and legal information about the Company. The Interim Report, also published in French and English, is available as soon as interim results are released in late July. Press releases and financial notices are posted on the Company website. All these publications are available online at www.psa-peugeot-citroen.com, which also displays the Peugeot S.A. stock price in real time. To nurture effective relations with investors, PSA Peugeot Citroën organizes a growing number of events for its stockholders and the entire financial community. Three major meetings are held for the presentation of interim earnings, the presentation of annual earnings and the Annual Meeting. In addition, the Group regularly interacts with investors by inviting them to meetings or plant visits in Europe, the United States and Asia, and invites financial analysts to theme meetings to help improve their understanding of the Group's business operations. The Group also participates in industry presentations by financial institutions Individual stockholders may request information from the Investor Relations team via e-mail, at: [email protected] or by phone, at 33 (1) 40 66 36 71. Stockholders wishing to receive financial information on a regular basis may register at Company headquarters: Peugeot S.A. - Investor Relations 75, avenue de la Grande-Armée - 75116 Paris E-mail: [email protected] Investor Calendar April 27: First-quarter 2006 sales May 24: Annual Stockholders' Meeting May 31: Payment of 2005 dividend July 26: First-half 2006 results October 26: Third-quarter 2006 sales February 7, 2007: 2006 annual results Stock data ISIN: FR0000121501 Markets Eurolist continuous trading – Euronext Paris SA, Compartment A Other markets: Europe: Euronext Brussels and SEAQ International – London. United States: Traded as American Depositary Receipts (ADRs), with one ADR representing one share of common stock. Listed in the major indexes CAC 40, SBF 120, SBF 250, Euronext 100, DJ Euro Stoxx Auto, Advanced Sustainable Performance Indices (ASPI) and FTSE4Good. Eligible for: Deferred settlement under the SDR system and inclusion in French PEA stock savings plans. Par value €1.00 Shares outstanding at December 31, 2005 €234,618,266 Closing price on December 31, 2005 €48.70 Market value at December 31, 2005 €11.43 billion Weighting in the CAC 40 index at December 31, 2005 0.97 % 13 Five-Year Performance of the Peugeot S.A. Share Versus the CAC 40 Index and the DJ Euro Stoxx Ownership structure at December 31, 2005 (in %) 160 1 140 2 34 56 7 120 1_Peugeot family: 30.22 100 2_Employee mutual fund: 2.53 3_Caisse des Dépôts: 2.64 80 4_Michelin: 1.20 5_Société Générale: 1.41 60 40 01/01 8 6_BNP Paribas: 1.13 04/01 08/01 12/01 04/02 Peugeot S.A. Share 08/02 12/02 04/03 CAC 40 08/03 12/03 04/04 08/04 12/04 DJ Euro Stoxx Automobile 04/05 08/05 12/05 Source: Euronext 7_Treasury stock: 2.39 8_Other: 58.48 Voting rights structure at December 31, 2005 Five-year Summary of Stock Price Performance 2001 2002 2003 2004 2005 58.27 35.40 47.75 60.80 32.20 38.86 43.85 33.53 40.40 52.70 36.93 46.70 57.95 45.20 48.70 (in %) (in euros) High Low At December 31 1 2 345 6 7 1_Peugeot family: 45.06 2_Employee mutual fund: 1.98 3_Caisse des Dépôts: 2.07 4_Michelin: 1.89 Dividends 2001 Dividend per share (in euros) Before tax credit Tax credit Total revenue Payout (in %) 2002 2003 2004 2005 5_Société Générale: 1.31 6_BNP Paribas: 1.76 1.15 0.58 1.73 17.6 1.35 0.675 2.025 20.7 1.35 0.675 2.025 21.9 1.35 24.2 * Subject to stockholder approval at the May 24, 2006 Annual Meeting. ** Beginning with dividends received in 2005, the tax credit has been replaced, under certain conditions, with tax relief. 1.35* -.** -.** 30.8 7_Other: 45.93 The 2005 Registration Document, filed with the Autorité des Marchés Financiers on April 24, 2006, is available upon request from: Investor Relations –75, avenue de la Grande-Armée – 75116 Paris, France or by phone at 33 (1) 40 66 36 71. It can also be found on the Company website: www.psa-peugeot-citroen.com PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 14 15 2005 IN PICTURES THE PEUGEOT 1007 Redefining the City Car Inspired by the Sésame concept car, whose bold, creative design delighted the public at the 2002 Paris Motor Show, the Peugeot 1007 really stands out from the crowd, with compact lines that make it ideal for driving, and parking, in the city. Styled as a roomy mini-MPV 3.37 meters long and 1.62 meters high, the 1007 has a high driving position that offers exceptional all-round visibility and safety. The innovative, remote-controlled sliding doors glide flush to the rear panel, providing unprecedented, totally safe ingress/egress as well as the ability to park in very narrow spaces while leaving enough room for people to get in and out. EMPLOYEE RELATIONS The First Company to Receive France’s “Professional Equality” Label PSA Peugeot Citroën was the first French company to be awarded the “Professional Equality” label for its commitment to gender parity. A number of women were recently hired using the method applied by France’s state-run employment agency to identify the suitability of jobseekers regardless of gender and education. The proportion of women among new hires in 2005 was 22.4% for engineers and managers, 32% for supervisors and 22.1% for operators. PSA Peugeot Citroën employees working on a virtual engine test bed. CITROËN The C-AirPlay, a New World of Driving Pleasure Unveiled at the Bologna Motor Show, Citroën’s new C-AirPlay concept car has an original design that combines a curved body with clean interior lines to maximize driving sensations. Powered by a 110-hp gasoline engine fitted to an automated SensoDrive gearbox, the C-AirPlay is also equipped with the environmentally friendly Stop & Start technology that dramatically reduces fuel consumption and emission levels. INTERNATIONAL OPERATIONS A Solid Position in Brazil After just five years in business, Peugeot Citroën do Brasil has firmly established its identity as a Brazilian carmaker. Inaugurated in 2001, the Porto Real plant now produces four models: the Peugeot 206 Sedan, the Peugeot 206 SW, the Citroën Xsara Picasso and the Citroën C3. It has also been making 1.6-liter and 1.4-liter gasoline engines since 2002. This year, the plant began production of flex-fuel engines for the Peugeot 206 and Citroën C3, whose ability to run on any mixture of ethanol and gasoline makes them highly suitable for the Brazilian market. THE CITROËN C1 The Fun, Reliable Compact Introduced in June 2005, the C1 is Citroën’s entry-level model. Just 3.43 meters long, the compact four-seater combines a stylish, fun design with the highest standards in quality, handling and safety. Both the 3-door and 5-door versions feature minimum overhang and a curvy front-end with a wraparound bumper that give the car a friendly look, while alluding to its sturdiness and safety. The C1 also stands out for its transparent tailgate and rear lights, as well as for the innovative design of the rear doors, which extend right back to the lamp clusters on the 5-door model. The suspension delivers excellent handling, making an effective contribution to primary safety. ENVIRONMENT Particulate Filters Increasingly Popular The 1,400,000th vehicle equipped with a particulate filter rolled off the production line in 2005. The technology was invented by PSA Peugeot Citroën, which is today the only carmaker in the world to mass-market a particulate filter, offering it on ten vehicle families: the Peugeot 206, 307, 407, 607 and 807 and the Citroën C3, C4, C5, C8 and Xsara Picasso. By sharply curbing pollutant emissions, particulate filter-equipped HDi diesels are the world’s cleanest internal combustion engines. At the same time, their common-rail direct injection technology delivers exceptional performance in reducing CO2 emissions. QUALITY Committed to Quality in Everything We Do Throughout the production process, vehicles are systematically checked one by one to ensure that they meet the highest standards in terms of appearance, handling, comfort and noise level. In all, ten hours are spent controlling quality on every executive vehicle. Fulfilling customer expectations is one of the focal points of our strategy. Substantial progress has been made following the deployment of a broad-based improvement plan across the organization, from project development and manufacturing to customer service. The results after three years are very encouraging and include a 34% decrease in customer-reported breakdowns and a 20% decline in incidents reported after the first year of use. COOPERATION An Efficient Plant for PSA Peugeot Citroën and Toyota Cars As part of the cooperation with Toyota, the Peugeot 107, Citroën C1 and Toyota Aygo are now being built at the TPCA plant in Kolín, Czech Republic, which was inaugurated in May 2005. The plant has an annual production capacity of 300,000 vehicles and employs 3,000 people. THE PEUGEOT 407 COUPÉ Combining Elegance with Power A harmonious balance of performance and refinement, the new 407 Coupé builds on the stylistic codes introduced on the 407 lineup. With its multi-functional capabilities and outstanding driving experience, the 407 Coupé is a contemporary expression of the traditional touring car. Its powerful, state-of-the-art engines and carefully chosen suspension technology deliver primary safety of the highest order, as well as convenience, comfort and driving pleasure at all times. The 407 Coupé is the first model in the 407 range to be equipped with the new 2.7-liter V6 HDi engine with a particulate filter. ROAD SAFETY Five Stars for Maximum Safety The European New Car Assessment Programme (EuroNCAP) conducts impact tests to assess motor vehicle passive safety performance and publishes the results, with ratings expressed in stars. The Citroën C6 and the Peugeot 407 Coupé, our new executive models, each received a five-star rating that ranks them among the best vehicles on the market in terms of passive safety. In the area of pedestrian protection, the C6 is the first vehicle to earn four stars, the maximum awarded by EuroNCAP. ENVIRONMENT The Citroën C3: Moving Forward on CNG PSA Peugeot Citroën is convinced that there is a growing market for vehicles powered by compressed natural gas (CNG), whose abundant reserves and environmental qualities make it a highly promising fuel solution. Anticipating demand, Citroën worked with Gaz de France to develop a dual-fuel version of the C3 that runs on a mixture of gasoline and CNG. The C3 1.4i CNG is currently being tested in a pilot program at ten different locations in France, including Toulouse, where the model was launched during the city’s clean energy campaign. COOPERATION An Efficient Industrial Organization for the Cooperation with BMW In 2005, PSA Peugeot Citroën and BMW presented the manufacturing details of their cooperation for the production of a new family of gasoline engines. The major components will be machined for both partners at the Française de Mécanique plant in Douvrin, where the first production module, covering a surface area of 60,000 square meters, was completed at year-end. Assembly operations will be carried out by PSA Peugeot Citroën at Douvrin and by BMW at Hams Hall in England, with output eventually rising to one million units a year. Entry-level and mid-range Peugeot and Citroën cars will be equipped with the new engines as early as 2006. An engine crankshaft being stamped. THE PEUGEOT 206 Record Production Introduced in September 1998, the Peugeot 206 celebrated the production of its five millionth unit – a 1.6-liter HDi Coupé Cabriolet with a particulate filter – at the Mulhouse plant in France. With 1.1 million registrations since launch, France is the car’s leading market, followed by the United Kingdom (540,000), Italy (465,000), Spain (400,000) and Germany (331,000). THE GREENHOUSE EFFECT Carbon Sink Trees Now Five Years Old The Peugeot carbon sink project in the Amazon began in 1998 in partnership with France’s national forest service ONF and Pro-Natura, a FrancoBrazilian NGO. Its aim is to study the relationship between reforestation and the absorption of carbon dioxide, the leading greenhouse gas. Carried out in close cooperation with the international scientific community, reforestation is promoting the biodiversity of plant species and protecting animal habitats, while getting local communities involved through native species planting programs. THE CITROËN C6 The Prestige of a Grand Tourer Equipped with LeadingEdge Technology Unveiled in a world premiere at the 2005 Geneva Motor Show, the Citroën C6 has been available since late 2005. This car is offered in three versions – the C6, C6 Lignage and C6 Exclusive – and with two V6 engine options – a 3-liter gasoline engine or a 208-hp HDi with a particulate filter. All of the models offer an unprecedented level of comfort and safety as standard, with directional Xenon headlights, a soft-diffusion dual-zone air conditioning system, head-up display, nine airbags and a particulate filter on the V6 diesel. EMPLOYEE RELATIONS Career-Long Learning An agreement has been signed with unions in France concerning career-long training, which redefines Group guidelines and objectives to anticipate future skill needs and fulfill employee expectations. Key measures include applying France’s new employee training law and developing apprenticeship programs and trade certification contracts for young recruits and jobseekers. The introduction of such new programs as Passeport Formation (Training Passport) and skills validation will allow employees to formalize their skills and know-ledge and obtain a diploma or professional certification. INTERNATIONAL OPERATIONS China Celebrates the Sale of its 50,000th Peugeot 307 Sedan In China, the introduction of the Peugeot 307 Sedan and a solid sales performance from Citroën drove a 57% increase in Dongfeng Peugeot Citroën Automobile’s sales. Illustrating our broader marketing presence in the country, the Peugeot 307 Sedan has sold over 50,000 units and is already setting the standard in its segment. DPCA’s Chief Operating Officer celebrated the success by handing the keys to the 50,000th car to the lucky customer at the Guangzhou Motor Show. Citroën unit sales rose 34% to 103,000 vehicles, as the Chinese market returned to strong growth after slowing in second-half 2004. SUSTAINABLE DEVELOPMENT A Bicycle Tour of the Sochaux Plant The Sochaux, France plant opened its doors to visitors on bicycles during European Mobility Week, which was organized by the French Ministry of Ecology and Sustainable Development. An eight-kilometer bicycle circuit offered visitors a chance to discover the plant, which produces 1,915 vehicles a day. Begun in 2004, the plant’s travel plan is beginning to produce results, with 300 employees now coming to work by bicycle and making the most of the site’s numerous bike paths. CITROËN Citroën and Sébastien Loeb: A Winning Team At the 2005 World Rally Championship, Citroën secured the Manufacturers’ title for the third year in a row, with Sébastien Loeb winning the driver’s title for the second time. He also received accolades from the international motoring media for his fine performance, including a “Caschi d’Oro” trophy from the Italian magazine Autosprint and an “International Rally Driver of the Year” award from the British magazine Autosport, as well as being named “Man of the Year” by Top Gear and CAR. PSA PEUGEOT CITROËN 2005 ANNUAL REPORT PSA Peugeot Citroën is committed to achieving unit sales of four million vehicles a year and a consolidated operating margin of 6 %. 54 55 Strategy A Long -Term Vision Platforms and Cooperation Agreements A Commitment to People The Technologies of Tomorrow STRATEGY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 56 A Long -Term Vision PSA Peugeot Citroën is building its development on the strength of two marques, Peugeot and Citroën, which coexist harmoniously within the Group but compete with each other in the marketplace. This dual identity enables us to offer customers broad, diverse model line-ups, while supporting sustainable growth in sales and earnings. PSA Peugeot Citroën owes its growth to an organization based on two broadline marques: Peugeot and Citroën. By designing vehicles to suit each market and carefully coordinating new model launches, each marque is able to offer a comprehensive line-up of cars and light commercial vehicles that express both unique stylistic identities and shared, strategically related concepts. Although the two marques enjoy the independence needed to lead separate and often competing marketing and sales strategies, their technological, manufacturing, administrative and financial processes have been combined to enhance efficiency and create economies of scale. In addition to its core competency of making automobiles, PSA Peugeot Citroën is also involved in three other businesses that are critical to driving growth: Banque PSA Finance provides new vehicle and replacement part financing for dealers and offers a comprehensive array of financing and related services to Peugeot and Citroën carbuyers; Faurecia, a majority-owned automotive equipment manufacturer that produces such major component modules as seats, dashboards, door panels, exhaust systems and front-ends. Based on revenues generated with the Group and other carmakers, Faurecia is the leading original equipment manufacturer in France, number two in Europe and ninth in the world; Gefco, a transportation and logistics specialist whose businesses include vehicle preparation and transportation, groupage and full/partload road transportation, logistics and air/sea freight. Building long-term growth by focusing on customers, offering a comprehensive range of products and services, demanding the highest standards of quality, continuously innovating and delivering next-generation technologies, enhancing employee skills and dedication, and efficiently managing costs. PSA Peugeot Citroën is firmly engaged in a profitable growth dynamic, whose goal is to sell four million vehicles a year and achieve a consolidated operating margin of 6%. There are significant opportunities for improvement. For one thing, as we meet the challenges of a still difficult business environment, we are creating powerful competitive advantage by maintaining our medium-term objectives – based on developing our model line-ups, expanding outside Western Europe and reducing our operating costs, in particular by deploying the platform strategy and increasing productivity. We have also implemented an aggressive model development program that is shortening time-to-market for innovative new concepts that deliver the styling, performance, comfort, originality and technologies customers expect. These customers are aware of the impact cars have on today‘s society, and want to make responsible choices in addressing such critical issues as safety, the environment, recycling and urban mobility. Informing every aspect of our strategy is a commitment to sustainable development. In addition to diligently fulfilling the economic, social and environmental responsibilities associated with our operations, our sustainable development commitment is focused on three key issues: greenhouse gases, road safety and urban mobility. Today, a wide array of practical, innovative technological solutions, deployable to the largest number of customers, are being implemented to produce cars that comply with the highest environmental and safety standards. Our growth has been built on the code of conduct defined in our Ethics Charter, while relations with stakeholders are based on trust and respect for ethical practices. 57 Our quality strategy is supported by the proficient management of our business processes across the product and service lifecycle. We‘re dedicated to doing it right the first time, from design and production to sales and customer service. | Growth in sales Unit sales outside Western Europe exceeded one million for the first time in 2005. 1,029,500 950,600 817,200 710,500 587,300 01 02 03 04 05 31 new body styles are scheduled for launch between now and 2008. STRATEGY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Platforms and Cooperation Agreements To fulfill market expectations, PSA Peugeot Citroën‘s model line-ups offer a wide choice of body styles, powertrains and equipment, as well as advanced, premium quality comfort and safety features. At the same time, we are committed to controlling capital expenditure and reducing production costs. These challenges are being met in two ways. First, vehicle design and process engineering are guided by the platform strategy, which consists of sharing vehicle base components, such as engines, underbodies, axles and gearboxes, among several different models. This enables us to develop, at less cost, a greater number of new models with highly distinctive personalities, but sharing the same basic technical components. Common parts account for at least 60% of the production cost of vehicles built on the same platform. By significantly shortening development cycles, reducing development, process engineering and production costs, and lowering the price of sourced equipment and parts, the platform strategy is also helping to diversify the model portfolio. The resulting savings are passed on to customers in the form of competitive prices, more extensive, higher quality standard equipment and a richer product offering. Second, PSA Peugeot Citroën is pursuing an innovative – and growth driving – strategy of cooperation with other carmakers for the joint development and manufacture of vehicle bases or components. Providing similar advantages to the platform strategy, cooperation agreements enable the partners to share costs, increase production runs and expand their model ranges. This type of agreement, which respects each partner‘s independence, represents the best response to the challenges of globalization and fast changing markets. Stepping up this cooperation strategy will provide critical leverage for our future development. 3.2 million vehicles will be built on the Group‘s three platforms in 2008, doubling the 2005 figure. 7 agreements PSA Peugeot Citroën is cooperating with the world‘s leading carmakers to jointly produce engines or vehicle bases. A 1.6-liter gasoline engine developed in cooperation with BMW Group. 58 59 A Commitment to People More than anything else, PSA Peugeot Citroën is a community of men and women motivated by a shared commitment to meeting our growth and profitability objectives. That‘s why human resources policies are an integral part of our strategic vision as we expand across the global marketplace. To support this expansion and prepare to meet future challenges, programs are being actively implemented to internationalize and diversify our teams and to offer fair, performance-based compensation in a competitiveness-driven workplace organization focused on safety and continuous dialogue with employee representatives. People are being recruited from a variety of backgrounds, in terms of professional experience, education, culture and nationality, with an emphasis on creating a diversity of jobs, skills and capabilities. Hiring policies are designed to avoid any form of discrimination and to encourage diversity, which enriches the team experience and nurtures a spirit of emulation. Reflecting our steadfast commitment to social dialogue, PSA Peugeot Citroën has signed important, often innovative agreements in every host country to bring labor and management together to discuss major corporate and community issues. All of these human resources policies and commitments are making a strong contribution to the Group‘s momentum. 208,500 people work for PSA Peugeot Citroën worldwide. 41,000 employees are women in 2005, representing nearly 20% of the workforce. 42.6 % of employees are non-French nationals. STRATEGY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 60 Technologies of the Future By enabling us to develop, manufacture and market innovative concepts using efficient technologies that meet the needs of the largest number of customers, our research and development capabilities are playing a critical role in addressing the challenges of an increasingly competitive marketplace while delivering important new benefits to customers. R&D programs are focusing on such major priorities as enhancing road safety, reducing CO2 and other emissions, and improving fuel efficiency. We are aware that our cars will be successful only if customers like them and we want to retain our leadership positions in critical automotive technologies. That‘s why we are developing cars with strong brand identities. First priority: design clean, fuel-efficient vehicles PSA Peugeot Citroën is actively responding to two major concerns: abating the greenhouse effect and meeting the expectations of customers sensitive to energy efficiency and fuel prices. Attentive to the desire of carbuyers to be responsible citizens, we believe our role is to deliver new technologies that not only help to improve fuel economy, but also reduce emissions and harmful exhaust gases to limit the environmental impact of our cars. A good exam- ple of this commitment is the clean, fuel-efficient HDi diesel engine with a particulate filter. Second priority: enhancing the safety of drivers and other road users More than 10% of the annual R&D budget is spent on assertively developing technical solutions that help to prevent accidents and reduce their impact when they do occur. We also play an active role in other aspects of road safety, such as improving driver behavior and the roadway environment. The Peugeot and Citroën vehicle design process is structured to meet the highest standards in three types of safety: Primary safety involves preventing accidents, by improving roadholding, braking performance and visibility, and by ensuring that the driver receives adequate information to correctly perceive and interpret road conditions; Secondary safety systems protect occupants and pedestrians in the event of an accident. They include both structural features and restraint systems, such as seat belts, seat design and air bags; Tertiary safety refers to the emergency response of rescue crews and medical teams after an accident. We are a leader in this area, thanks to our emergency call system, which has been deployed across the model line-up in France and six other European countries. To deliver exceptional comfort to customers, research is also being conducted in such diverse areas as sensory analysis and ergonomics. By analyzing and improving the sensory perception of sound, appearance, smell and touch in a vehicle interior, these studies demand a constant dialogue between the social and engineering sciences. On every new project, we are committed to meeting these challenges and to demonstrating the quality of our research by developing useful, innovative technologies. We are committed to developing next-generation innovations in the areas of safety, the environment, sensory analysis and ergonomics. 61 GENEPAC, a next-generation fuel cell stack developed by PSA Peugeot Citroën in cooperation with the French Atomic Energy Commission (CEA), represents a solution for the future. PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 3.39 million Peugeot and Citroën vehicles were sold in 2005, including one million outside Western Europe. 62 63 Business Review A Year of Growth and International Expansion Peugeot Citroën R&D Manufacturing Efficiency Cooperation Agreements Other Businesses BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 64 A Year of Growth and International Expansion With 3.39 million vehicles sold worldwide in 2005, PSA Peugeot Citroën recorded a slight 0.4% increase in sales in a market that remained extremely competitive. light commercial vehicles, with 370,400 registrations and an 18.5% share. Market leadership was consolidated in France, Spain, Belgium and Portugal, with share exceeding 10% in ten Western European countries. Despite a good performance elsewhere in the world, sales in Western Europe contracted 2.7% in a stable market driven by fierce competition among global carmakers. Sales declined even more steeply in the final quarter of the year, when European demand slowed more sharply than expected, causing the competitive environment to worsen. In response, further adjustments were made to production programs in the autumn, but vehicle inventory nonetheless remained above target levels. In France, where we ranked number one, Peugeot and Citroën registrations rose by 1.7% to 785,000, for a 31.6% share of the market. The second-largest European carmaker PSA Peugeot Citroën was the secondlargest carmaker in Western Europe, with 2,355,000 cars and light commercial vehicles registered in the region during the year. Market share in the 18-country region eased to 14.3% from 14.6% in 2004, reflecting a commitment to favoring margins over volumes in an aggressive marketplace. We strengthened our position as Europe’s number two in the car segment, with 1,984,600 registrations and 13.7% of the market, while maintaining our leadership in In Spain, we confirmed our market leadership, with 394,400 registrations and a 20.6% share. Over one million cars sold outside Western Europe At 1,029,500 units (738,000 Peugeots and 291,500 Citroëns), sales outside Western Europe exceeded the one million mark for the first time in 2005, attesting to our broader and deeper presence in the global marketplace. Up 8.3% on last year, these sales now account for nearly one third of the worldwide total. Strong growth in Argentina and Brazil In Latin America, resurgent demand, particularly in Argentina and Brazil, the recent launch of the Peugeot 307 and 206 SW and the introduction of new flex-fuel engine options helped drive a 28.3% increase in sales to 182,900 units. In Brazil, where the market expanded by 9.5%, sales were up 27% to 81,900 units, resulting in a market share of 4.9%, versus 4.3% a year earlier. In Argentina, where the market grew by 35.2%, sales rose 47.5% to 52,800 units and market share stood at 13.8%. While the Italian market contracted by 1.7%, rampant competition in the small and midrange segments drove Group registrations down 11.1% to 240,500, for a 9.9% market share. Market share close to 10% in the six main Central European countries Sales totaled 209,700 units in Central and Eastern Europe, where demand contracted sharply during the year after reaching a record high in early 2004. In the six main Central European countries (Poland, Hungary, the Czech In the United Kingdom, registrations totaled 283,300 for a 10.2% share of the market. As in 2003 and 2004, we continued to pursue a more restrictive marketing strategy in the least-profitable segments, especially fleets, which account for more than 55% of local sales. As a result, registrations declined by 9.4% in 2005. In Germany, an upturn in sales drove a 4.7% increase in registrations, which stood at 202,100 for a market share of 5.7%. Republic, Slovenia, Croatia and Slovakia) plus Turkey, market share stood at 9.5% with 150,700 vehicles sold. Sales in Russia rose 12.7% to 16,500 units. Stepped-up sales in China Peugeot made its Chinese debut in 2004 with the market introduction of the 307 Sedan. This major launch, combined with firm demand for Citroën cars, helped to drive Dongfeng Peugeot Citroën Automobile sales up 57.2% to 141,000 units in a market estimated to have grown 25.8% to nearly 3,200,000 vehicles. This momentum should be sustained in 2006 by the introduction of the Peugeot 206 and two new Citroën models. 65 Outlook for 2006 In an increasingly competitive marketplace, demand in Europe is expected to remain at around 2005 levels. During the year, PSA Peugeot Citroën expects to reap substantial benefits from a new phase in the model renewal process, led by the arrival of the Peugeot 207. When combined with the impact of the first full year of sales of models introduced in 2005 (the Peugeot 107, 1007 and 407 Coupé and the Citroën C1 and C6), the Peugeot 207 should enable the Group to go back on the marketing offensive and return to unit sales growth in Western Europe. Sales outside Western Europe are expected to continue to increase at the same fast pace as in the past two years, led by the launch of new Peugeot and Citroën models, in Latin America and China, such as the Citroën C-Triomphe. BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 66 Peugeot: International Recognition Founded in 1810 as a family-owned steel mill, Peugeot has played a major role in automobile history. From the first motorized tricycles to the latest high-tech models, the marque rapidly became one of France’s leading carmakers before expanding across the global marketplace. A strong identity based on four core values Embodied in the marque’s sleek, sporty models, Peugeot’s unique personality sets it apart from other car brands. It expresses the four core values of reliability, dynamism, style and innovation, which inspire the marque’s product and services strategy and guide employees in their workplace practices and commitment. As the basis of its corporate culture, these values enable Peugeot to move with the times while preserving its heritage. The marque is present in a wide range of market segments, from passenger cars to light commercial vehicles, and is constantly renewing its lineup with models whose strong personalities and robust, reliable performance set the standard in each segment. Outstanding cars, an ongoing innovation process informed by a commitment to environmental stewardship, constant attention to customer concerns and strong ties to the world of motorsports are just some of the qualities that define the marque. Today, more than ever, these values are expressed in the marque’s global signature “Peugeot. The Drive of Your Life”. A worldwide sales network Peugeot’s global network of nearly 10,000 dealerships and service centers in more than 150 countries is supported by fifteen importer subsidiaries in Western Europe, five in the Mediterranean basin, four in Latin America, three in Africa and one in Japan, as well as a joint venture in China and some 130 importers worldwide. In all, 2005 was a good year for Peugeot for several reasons. Unit sales of the 206 reached 5.4 million, making it the best-selling Peugeot model ever. For the sixth year in a row, the model was the most popular car in its segment in 2005, selling a total of 676,500 units worldwide. Already available in sedan and SW versions, the Peugeot 407 line was expanded by the year-end launch of the Coupé, which now ranks third in its segment in Europe. Sales of the Peugeot 607 rose sharply thanks to the new V6 HDi engine with particulate filter. Increasing international expansion With 37% of total sales now derived outside Western Europe, Peugeot has consolidated its strong position in the global marketplace. In Western Europe, where the market was shaped by flat demand and fierce competition, Peugeot registrations declined by 4.8% to 1,254,100 units. 2005 also saw the introduction of four new models: the Peugeot 1007 in April, the 107 and then the “new 307” in June and the 407 Coupé in November. Lastly, sales of vehicles equipped with a particulate filter reached one million by end2005, consolidating Peugeot’s leadership in the technology. Faced with sluggish demand across Western Europe, the marque favored margins over volumes and tended to avoid the heavy promotional campaigns undertaken by most other carmakers. Outside Western Europe, on the other hand, sales rose a further 5.7% to 738,000 cars and CKD units invoiced over the year. Peugeot in Central Europe In the six Central European countries in which the marque is present (Poland, Hungary, the Czech Republic, Slovenia, Croatia and Slovakia), Peugeot’s market share stood at 6.1% with 53,000 registrations. Peugeot in Latin America In Argentina, demand rose 35.2% to 361,500 registrations, while Peugeot sales climbed 48.7% to 40,600 units for a market share of 10.65%. In Brazil, Peugeot sales rose 25.4% to 54,000 units for a market share of 3.3%, versus 2.9% in 2004. Peugeot in China The DPCA joint venture successfully launched the 307, now a benchmark in its segment with nearly 40,600 units sold. Backed by a network of 130 Blue Box dealerships, Peugeot is recognized for the quality of its products and services. 67 2005 was a year of consolidation for Peugeot, with 1,995,500 cars and light commercial vehicles sold worldwide. For more information about the marque visit www.peugeot.com The Peugeot 1007. BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 68 Citroën: Expanding in Every Region of the World Even today, after more than 85 years, Citroën vehicles still embody the pioneering spirit of the marque’s founder, André Citroën. A strong identity Citroëns are truly works of art, unique and meaningful. They are inspired cars that look like no other, a blend of class, styling and quality. And because the quality of its cars and services underpins the image of confidence that keeps customers coming back to the marque and its dealers, Citroën has implemented a quality certification process that is driving more intimate understanding of customer expectations and a deeper commitment to meeting them. Every day, Citroën employees are dedicated to pursuing growth and efficiency through a culture of continuous improvement. Making the environment one of its primary concerns, Citroën has deployed across its network a range of resources and services designed to address environmental issues with real-world solutions and, ultimately, to improve the efficiency of the industry as a whole. The Citroën network In France, Citroën’s network includes 346 new car dealers, 2,310 authorized repair shops, 321 official spare parts distributors and 789 licensed Eurocasion used car dealers. In the rest of Europe, the company is represented by 18 subsidiaries and 8 importers operating 1,761 dealerships, around 4,269 authorized repair shops and 1,159 official spare parts distributors. In the rest of the world, the network comprises 67 importers, 3 subsidiaries, a joint-venture in China and 1,150 dealerships. Sales up in Western Europe In Western Europe, registrations of Citroën cars and light commercial vehicles rose 1.3% to 1,100,900 units in 2005, for a 6.7% share of a market shaped by flat demand and aggressive competition. Steady growth in Central Europe Despite lackluster demand in most Central European countries, Citroën sales rose 11% in the region. Robust expansion in the rest of the world Citroën enjoyed strong growth in Latin America in 2005. In Argentina, sales rose 43%, outpacing the market and lifting Citroën’s share to 3.2%, while the September introduction of a 1.6-liter version drove a 30% A commitment to people In all, 13,900 employees, including 6,045 outside France, are helping to drive Citroën’s financial performance. surge in Xsara Picasso sales. In Brazil, sales gained 30% in a market up 9%, increasing Citroën’s market share to 1.7%. Growth was led by the introduction of a new version of the 1.4-liter C3 and the launch of the flex-fuel C3, which can run on any mixture of gasoline and alcohol. In China, unit sales rose 29% to 100,400 vehicles, for a market share of 3.1%, as demand returned to very strong growth after slowing in second-half 2004. The most comprehensive and diverse model lineup in Citroën’s history One of the highlights of 2005 was the world premiere of the C6, Citroën’s new executive model that combines elegance and refinement with leading-edge technology. The model also achieved outstanding results in the EuroNCAP impact tests, with a five-star rating for adult occupant protection making it one of the leading models in the executive segment. It was also the first car to earn the maximum four stars for pedestrian protection. Unveiled at the 2005 Geneva Motor Show and on the market since June, the C1 is Citroën’s entry-level model and the smallest of the marque’s compact cars. It combines a fun, stylish design with the highest standards in quality, handling and safety. Since its launch in 2004, the C4 has enjoyed growing popularity in most countries, with sales in Western Europe exceeding 200,000 units for a market share of 1.3%. Encouraged by the success of its compacts, Citroën now offers the C3 with a 1.6-liter, 110-hp HDi engine with particulate filter. The model’s interior has also been revamped with a new dashboard, the same as on the C2 and C3 Pluriel, as well as new door panels and trim. Citroën also had a very successful year at the World Rally Championship (WRC), winning the Manufacturer’s title for the third year in a row and the Driver’s title for the second year in a row thanks to Sébastien Loeb and his co-driver Daniel Elena. 69 Fielding its most comprehensive lineup ever, Citroën sold 1,394,500 vehicles around the world in 2005. For more information about the marque visit www.citroen.com The Citroën C1. BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 70 An Active R&D Commitment With groundbreaking concepts and compelling technologies, PSA Peugeot Citroën is leveraging its research and innovation commitment to proactively respond to changes in automotive markets and emerging customer needs. Innovative designs that stand out on the street When they combine an original concept with a personalized style and innovative technologies, cars have the power to enchant and delight. Creating this appeal is what our stylists do at the Automotive Design Network (ADN), as they imagine the silhouettes of future Peugeot and Citroën models. Cars have to resonate with all sorts of customer expectations, but as attested by the recently launched Peugeot 107 and 1007 and the Citroën C1 and C6, bold new designs can articulate needs that are only just beginning to emerge. A research dynamic to develop solutions for tomorrow Reducing CO2 emissions is by far the Group’s largest environmental challenge, but rising oil and fuel prices are also motivating us to look for alternatives to fossil fuels. These issues are a focal point of our model development strategy. Hybrid technology The Stop & Start system By automatically shutting down the engine when a car is stopped or idling and starting it up again when the driver presses on the accelerator, Stop & Start technology reduces fuel consumption, and therefore CO2 emissions, by 6 to 15% depending on traffic conditions. It also helps to significantly reduce traffic-related noise. The system is now offered on the Citroën C2 and C3, in combination with another leadingedge technology, the SensoDrive electronically controlled manual gearbox. Diesel hybrids Diesel-hybrid technology is currently one of the most effective ways to improve fuel efficiency and reduce CO2 emissions. Unlike gas-hybrid technology, which offers little gain compared with HDi diesels, the combination of an electric-diesel powertrain with a HDi engine delivers truly breakthrough performance, enhancing fuel efficiency and cutting CO2 emissions to just 90 grams per kilometer on the European cycle. Anticipating the introduction of this new technology, in January 2006 we presented two hybrid HDi demonstrators – a Peugeot 307 and a Citroën C4 – with diesel-electric powertrains and particulate filters. Our Hybrid HDi technology combines the Stop & Start system with a 1.6-liter HDi diesel with particulate filter. However, this technology will only be economically viable if its cost can be brought down to a level that is affordable for midrange carbuyers. We are now focusing our efforts on achieving this objective by 2010. Fuel cells Hydrogen fuel cells represent a promising alternative to fossil-fuel internal combustion engines. They are destined to play an important role in the future of the automobile industry and have therefore become an integral part of our environmental strategy. To conduct our own research into this technology, a dedicated fuel cell unit has been created at our research center in Carrièressous-Poissy, west of Paris. It is focused exclusively on studying fuel cells, related technologies like hydrogen storage and ways of integrating the technology into vehicles. Framework agreements have already been signed for the development and trial of fuel cells. One example is the GENEPAC project undertaken in partnership with the French Atomic Energy Commission (CEA), which has designed and developed a compact, efficient 80kW hydrogen fuel cell perfectly suited to automotive applications. Innovative technologies for maximum comfort and safety PSA Peugeot Citroën is constantly developing useful, innovative technologies that improve driver comfort and enhance safety. The head-up display offered on the Citroën C6, for example, projects key driving information, such as speed and navigation system prompts, onto the windshield at eye-level. This eliminates the need to look down at the instrument panel, enhancing safety and shortening reaction times. A set of dedicated controls located on the dashboard next to the steering wheel enables the driver to turn the display on and off, adjust the height and brightness of the image, and select the desired information (except for speed, which is always shown when the system is active). The Citroën C6 also features an active hood, developed by PSA Peugeot Citroën, which automatically lifts up in the event of a collision involving a pedestrian. Thanks to an impact sensor and a pyrotechnic mechanism, the hood rises 65 millimeters in just a fraction of a second to cushion the impact and protect the pedestrian. A second mechanism keeps the hood raised despite the force of the impact. Technological innovation plans Prepared as part of a proactive approach to our technological partnerships with certain 71 Bottom: the C3 Citypark parking demonstrator. suppliers, technological innovation plans have proven highly effective by enabling teams to work together far upstream in the development process and by simplifying, clarifying and optimizing relationships between the partners. We pursued this approach in 2005 by signing a partnership agreement with equipment supplier Siemens VDO Automotive to set up our ninth technological innovation plan. 4 % of Automobile Division sales and revenue is dedicated to R&D, representing a carefully managed budget of €1,816 million in 2005. BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 72 Manufacturing Efficiency A global manufacturing organization PSA Peugeot Citroën’s manufacturing organization employs nearly 90,000 people in 19 countries around the world. Our 32 production sites include 16 assembly plants and 15 mechanical component plants, as well as one site that manufactures and ships CKD units. Production methods and processes comply with strict, state-of-the-art standards, applied by empowered operators committed to continuously improving the reliability of the vehicles they make. They know that customers expect Peugeot and Citroën cars to fulfill the highest standards of quality and that, across the Group, we have embraced quality as a critical driver of profitable growth. Convergence: sharing best practices Since 2001, PSA Peugeot Citroën has been implementing the Convergence Plan, a major process undertaken as part of our industrial strategy to enhance manufacturing efficiency by instilling best practices across the production base. The resulting efficiency gains have enabled us to meet our target of reducing production costs by €600 million a year and to halve the capital cost of maintaining and upgrading our manufacturing facilities. Once a best practice has been adopted, it is deployed and implemented across the entire production base, so that all of the plants eventually converge towards a single, aligned organization and shared operating procedures. Significant progress has already been made. Today, new vehicles are easier to assemble and workstations are organized more efficiently, with the result that assembly time declined by 24% between 2001 and 2005. Launched in 2005, the second phase of the plan will step up deployment of the unified manufacturing system with the goal of achieving optimal production efficiency. Keeping capital expenditure under control PSA Peugeot Citroën takes a measured approach to capital expenditure and is beginning to reap the benefits of rationalization programs undertaken in recent years. In 2005, a certain portion of capital expenditure was dedicated to pursuing actions to develop, renovate and upgrade the production base. Although the Group will continue to undertake ambitious industrial projects, capital expenditure is expected to be contained at under €3 billion a year. Expanding and optimizing the manufacturing base Two new sites in the heart of Europe Built in partnership with Toyota and inaugurated in May 2005, the Toyota Peugeot Citroën Automobile (TPCA) production cen- ter in Kolín, Czech Republic, has the capacity to produce 300,000 vehicles a year. It is currently manufacturing the Peugeot 107 and Citroën C1 on a new compact car platform. The plant in Trnava, Slovakia, which will start producing the Peugeot 207 in 2006, has annual capacity of 300,000 vehicles, in three shifts. It has also been selected for a new, 150,000-unit production facility that will manufacture a car based on a completely new concept. Built on the small-car platform, the vehicle will be added to the line-up in around 2010. Sustained upgrading of the production base Renovation work on the Poissy assembly line has been completed and the new cutting and stamping lines in Mulhouse and Poissy are now on stream. Production stepped up on the three Group platforms The platform strategy continued to be implemented in 2005, driving further organizational improvements and cost reductions. It is streamlining process engineering by supporting a high percentage of shared parts and subassemblies and the reuse of proven technological solutions. Standardization of shared components forms the basis of a more rational manufacturing organization that is having an impact on purchasing, the supply chain, main- tenance and assembly line capacity utilization. In this way, the platform strategy is helping to reduce production costs, assembly times and capital expenditure, while improving manufacturing flexibility in response to demand for the models concerned. The number of vehicles produced on the three main platforms is ramping up quickly with every passing year, helping to considerably broaden the model portfolio. Vehicle, engine and gearbox production start-ups Capital outlays in 2005 were primarily committed to preparing production start-ups of new models scheduled for launch in 2006 and 2007, such as the Peugeot 207 to be assembled in Poissy, Madrid and Trnava as of spring 2006. Funds were also allocated to the launch of the Peugeot 307 Sedan in the Mercosur region and the Peugeot 206, Citroën C-Triomphe and a new Citroën compact in China. Thanks to the programs undertaken to develop and upgrade mechanical subassembly production, we are now equipped with modern, efficient manufacturing facilities for both diesel and gasoline engines. Some of these funds were also used to adapt our engines to comply with the new Euro IV environmental standards, applicable in 2006. We continued to invest in a new production 73 unit at the Douvrin plant as part of our cooperation agreement with BMW. We also invested in process engineering programs for the DW12 HDi engine, whose output has been raised to 170hp from 136hp, and completed a first phase of investment for the new electronically controlled mechanical gearbox at the Valenciennes plant. On average, 14,000 vehicles, 16,000 gearboxes and 17,000 engines come off the Group’s production lines every day. Quality assurance: a total priority PSA Peugeot Citroën’s quality policies are applied not only at every stage of the production process, but also to all of the related services. Manufacturing processes are engineered to produce components and subassemblies that fully comply with specifications, and vehicles that offer customers all the features aligned with our objectives. In addition, technical and functional specifications are defined so that our vehicles and their components deliver the driving experience we promise. Because vehicle quality is directly related to the quality of our inputs, which represent more than 70% of a vehicle’s production cost, we are committed to helping our suppliers effectively manage the development and manufacture of automotive equipment, while improving their deliverables and responsiveness. That’s why we have introduced a system for managing the quality of supplier inputs based on three principles: Selective management: In awarding contracts, a supplier’s quality performance throughout the product lifecycle is accorded the same importance as the price. Collaborative management: Suppliers are involved well upstream in the design and production process to ensure optimum quality control. Incentive management: The best suppliers are rewarded with new contracts. BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 74 Seven Cooperation Agreements To drive faster growth and reduce costs, PSA Peugeot Citroën is implementing an innovative cooperation strategy based on the joint development and manufacture of vehicle bases or components with other independent carmakers. This strategy was actively pursued in 2005. A pioneer in cooperation For more than 30 years, the Group has demonstrated the unique ability to forge strategic cooperative agreements that respect each partner’s personality and independence. We have worked with Renault on V6 gasoline engines and mid-range automatic transmissions since 1971, with Fiat on MPVs and light commercial vehicles and, since 1998, with the Ford Motor Company on a line of diesel engines. In 2001, we announced an agreement with Toyota for the development and production of entry-level cars at a new plant in Kolín, Czech Republic, and in 2002 an agreement with BMW for a new generation of gasoline engines to be used by both partners. Two new cooperation agreements were undertaken in 2005 –the first with Mitsubishi for SUVs manufactured in Japan and scheduled for launch by Peugeot and Citroën in 2007 and the second with Fiat and the Turkish group Tofas to jointly develop and produce small entry-level commercial vehicles, which will be rolled out starting in 2008. Other partnerships designed to drive technological innovation have been formed with certain equipment manufacturers. Important achievements in 2005 A state-of-the-art plant for a new market segment Inaugurated in 2005, the equally-owned Toyota Peugeot Citroën Automobile (TPCA) plant in Kolín resulted from the successful cooperation that enabled the partners to combine their strategically-related skills and capabilities. It is now producing the Citroën C1, Peugeot 107 and Toyota Aygo on a shared platform. The cooperation has united our intimate understanding of the European small car and automotive component markets and Toyota’s expertise in the development, process engineering and production phases. Impelled by a strong team spirit, TPCA has successfully implemented each stage of the cooperation, on-time and on-target. In 2006, the plant will produce 200,000 vehicles for the Group and 100,000 for Toyota. PSA Peugeot Citroën and BMW: an efficient manufacturing organization In 2002, PSA Peugeot Citroën and BMW announced that they were combining their technological know-how and experience in the mass production of automotive components to jointly develop and manufacture a new fam- ily of high-tech, 1.4 and 1.6-liter gasoline engines, which will equip both partners’ vehicles beginning in 2006. Production is expected to reach around one million units a year. The main components will be machined for both partners at the Douvrin plant in northern France, while engine assembly will be divided among each partner’s facilities –Douvrin for PSA Peugeot Citroën and Hams Hall in the UK for BMW Group– to facilitate the logistics of supplying each manufacturer’s car plants. The cooperation required the deployment of a flexible, efficient organization tailored to two different and geographically distinct engine assembly processes. A highly integrated, independent production module was brought on line in late 2005 at the Française de Mécanique plant in Douvrin, and will eventually produce 2,500 engines a day. Our Charleville and Mulhouse Metallurgy Division plants will also be integrated into the industrial plan as suppliers of raw castings. The quality of both machined and purchased parts is managed using criteria common to BMW and PSA Peugeot Citroën, while a coordinated procedure has been introduced to support full, real-time transparency between the two engine plants. PSA Peugeot Citroën and Ford: the world’s leading diesel engine manufacturers The highly successful cooperation between Ford and PSA Peugeot Citroën has already resulted in the production of several generations of high-tech diesel engines that are now being deployed across the model range, from small compacts to large sedans and light commercial vehicles. Thanks in particular to their environmental benefits, these engines rank among the most popular in Europe. In 2005, we manufactured close to 1.53 million cars equipped with common-rail HDi diesels, bringing total output to nearly eight million units since 1998. During the year, the fourth phase of our cooperation with Ford was initiated with the presentation of two new light, clean, energyefficient diesels to be offered on both partners’ light commercial vehicles and executive cars. The first, a highly reliable and robust 2.2-liter truck engine, will be produced by Ford at its plant in Dagenham, UK, at an annual rate of 200,000 units. Among other models, it will equip our new Peugeot and Citroën light commercial vehicles. The second, a premium, energyefficient four-cylinder, 2.2-liter car engine, will be manufactured at our facility in Trémery, eastern France, which is the world’s largest diesel engine plant. Intended for both partners’ upper mid-range and executive vehicles, it will be produced at the rate of 200,000 units a year. 75 Top: The paint line at the TPCA plant in Kolín, Czech Republic. Bottom: The engine assembly line at the Trémery plant in eastern France. Vehicles and engines produced under cooperation agreements will eventually represent 20% of consolidated sales and revenue. BUSINESS REVIEW PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 76 Other Businesses Critical to Growth Banque PSA Finance, further growth in new lending Operating in 18 countries around the world, Banque PSA Finance supports the sale of Peugeot and Citroën vehicles by financing new vehicle and replacement parts inventory for dealers and offering a comprehensive array of financing and related services to carbuyers. 2005 was another year of growth for the Bank, with outstanding loans and new retail lending both increasing by around 6%, lifting the penetration rate on Peugeot and Citroën sales to 27.1%. The year also saw further strong development of financing-related services, with the number of contracts increasing 16.3% to 1,113,936 from 975,016 in 2004. As part of its close relationship with Peugeot and Citroën dealers, Banque PSA Finance continued to support their business expansion in 2005. Outstanding wholesale financing amounted to €5,564 million at December 31, 2005, up 2.6% on the previous year. The strongest gains were recorded in replacements parts financing, where outstandings rose 13% after climbing 26.1% in 2004. In all, outstanding loans totaled €22.4 billion in 2005. This growth reflected the fact that the Bank held onto the strong positions acquired in its various host countries, while significantly improving its performance in the European countries where its position had eroded somewhat in 2004, as well as in Central Europe and Latin America. It was also achieved without sacrificing high margins, thanks to a favorable refinancing environment and to the effectiveness of the Bank’s marketing strategy and more particularly the continued success of its financing and services packages. Operating margin amounted to €607 million compared with €518 million in 2004, representing an increase of 17.2%. In addition to highly satisfactory business growth and financial results, 2005 also saw ongoing international expansion. Operations in Mexico were extended to wholesale financing for Peugeot dealers, while in China, the partnership with Bank of China to finance local Peugeot and Citroën sales was finalized. Wholesale and retail financing operations will start-up in China in 2006, when an initial commercial presence will be established in Turkey. Lastly, the Bank also spent much of 2005 preparing for implementation of the Basel II revised international capital framework, which will highlight even more than in the past the quality of its loan book and its system of internal control. These positive trends indicate further business growth in 2006, both in the Bank’s traditional marketplace, Western Europe, and in regions where its presence is more recent, such as Latin America, Central Europe and now China. Throughout the year, the Bank will continue to focus on supporting Peugeot and Citroën marketing strategies. Faurecia, a world leader in automotive equipment With 60,000 employees working at 160 sites in 28 countries, Faurecia is now a major player in the global automotive industry and, based on revenues generated with the Group and other carmakers, the number two original equipment manufacturer in Europe and ninth in the world. The company specializes in the design, development, manufacture and delivery of six major vehicle modules – seats, cockpits, acoustic units, doors, front ends and exhaust systems. Three years ago, as part of its continuous improvement approach, it introduced the Faurecia Excellence System, a common working method based on company and industry best practices, which creates value for customers, employees and shareholders. In line with its international expansion strategy, Faurecia enjoyed sustained growth outside Europe in 2005, including 19% in North America, 18% in South America and 38% in Asia. This solid performance outside Europe helped offset a decline in revenue in European markets, caused by a sharp drop in sales to French carmakers. During the year, the company made further performance gains in delivered product quality assurance and met its purchasing objectives, particularly in best-cost countries. The industrial redeployment plan continued on schedule, with the opening of nine new plants – one in Germany, four in Central Europe, one in the United States and three in China. With sluggish demand expected in Europe and sustained growth elsewhere, Faurecia will pursue its expansion in 2006 by opening fourteen new plants, including six in the United States, four in Central Europe and one in China. Gefco, a benchmark provider of integrated supply chain services In recent years, Gefco has been pursuing a growth strategy based on industrial supply chain integration and international development. Present on every continent, in 80 countries representing 85% of world trade, Gefco provides end-to-end logistics solutions in three areas: vehicle preparation and distribution (Automotive), groupage and full/part-load road transportation (Network) and logistics and air/sea freight (Supply). In 2005, the company recorded a 3.7% increase in sales and revenue and pursued its global expansion with new logistics platforms in Poland, Slovakia, and the United Kingdom, new automotive centers in Spain (Ciempozuelos) and Russia (Bykovo) and new group-age agencies in China (Shanghai, Wuhan), Brazil (Vitoria), Romania 77 (Bucharest), Poland (Lodz) and Austria (Linz). As well, it continued to develop alternatives to road transport, which now represent 25% of total business. For example, it was the first customer to use the new Toulon-Rome sea highway, opened in spring 2005, and of the 3.4 million vehicles it carried in 2005, 35% were shipped by short-sea lines around Europe. To support the organization by core business, a customer-focused cross-business structure was introduced in 2005, leading to the creation of new units for Outbound Automotive Logistics Replacement Parts Logistics and Industrial Customer Logistics. Peugeot Motocycles Present in nearly 50 countries and with sales and revenue of €106 million, Peugeot Motocycles ranked as Europe’s third-largest scooter manufacturer in 2005 and number one in the 50cc market in France and the Netherlands. Two new scooter lines, Satelis and Geopolis, will be launched in 2006. Peugeot Citroën Moteurs (PCM) PCM adapts PSA Peugeot Citroën engines and components for sale to other carmakers and manufacturers. Process Conception Ingénierie (PCI) PCI is involved in the design, manufacture and installation of industrial equipment. €22,417 million: Banque PSA Finance’s loan book at December 31, 2005. €10,978 million: Faurecia’s sales and revenue in 2005. €3,000 million: Gefco’s sales and revenue in 2005. PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Employee relations policies play a critical role in driving PSA Peugeot Citroën’s growth and business performance. 78 79 Social Responsibility A Year of Innovation in Employee Relations Practices The Four Pillars of Our Commitment to Social Responsibility SOCIAL RESPONSIBILITY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 80 A Year of Innovation in Employee Relations Practices PSA Peugeot Citroën is committed to growth founded on socially-responsible principles and practices, consistently applied in every host country and business around the world. In recent years, this commitment has been the source of innovative employee relations in all our host countries, particularly in the areas of fundamental human rights, equal opportunity, diversity, gender parity and the integration of disabled people. On April 9, 2003, the Group pledged to uphold and promote the ten principles of the United Nations Global Compact, an agreement inspired by the Universal Declaration of Human Rights, the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development and the United Nations Convention Against Corruption. These commitments are also inscribed in our Ethics Charter, which was drafted and distributed to all employees in March 2003. The charter provides a set of fundamental reference points that every executive, manager and employee must refer to and comply with in all circumstances. In 2005, further progress was made when negotiations were opened with unions, the International Metalworkers’ Federation (IMF) and the European Metalworkers’ Fede- ration (EMF) in order to formalize and internationalize the Group’s commitments to fundamental human rights. Upholding fundamental human rights PSA Peugeot Citroën respects host country laws and regulations in every aspect of its business. We also uphold every individual’s right to choose a trade, occupation or profession, condemn forced labor and prohibit child labor. Fostering diversity and embracing difference At PSA Peugeot Citroën, diversity is defined as getting people to pool their talents and work together, regardless of their culture, origin, gender, religion, political convictions, personal experience, physical characteristics and career path. We promote this vision of diversity and equal opportunity worldwide. In 2004, for example, agreements to foster diversity were signed in France, Spain and Argentina, with a focus on three basic principles. First, companies must never exclude particular categories of people from the job market. Second, a world-class organization should hire people from a variety of backgrounds, which reflect its host communities and environments, since this is clearly the best way to understand and satisfy its customers. Third, companies must plan for the retirement of employees of the post-war generation, which will lead them to attract and hire people from a broader range of backgrounds. More than a year after signing the agreements, significant progress has been made, particularly in our hiring practices. Of the 1,426 engineers, managers, technicians and supervisors hired in France in 2005, 336 were women, 65 were non-French nationals, 136 were visible minorities and 48 came from underprivileged urban areas. Managing skills and resources responsibly Career development at PSA Peugeot Citroën is based on skills and performance. In 2005, the emphasis was on developing individual career and skills management applications. A new approach to managing skills and expertise A career management process based on job tracks has been introduced in order to identify, by job track or skills cluster, the required capabilities and to meet employee expectations for more personalized career management. On March 8, 2005, an agreement was signed in France with five trade unions concerning the personal growth and career development of production line operators. It comprises a variety of career development processes for production workers that will increase their opportunities for job enrichment and personal advancement. By improving the objectivity and transparency of promotion decisions, the agreement has enhanced equal opportunity across the Group. Moreover, it paves the way for negotiations on career development for other categories of skilled professionals, technicians and supervisors. Preparing and developing tomorrow’s capabilities through career-long training In the spring of 2005, management also signed an agreement with all the unions concerning career-long training opportunities. The agreement redefined training guidelines and objectives with the aim of proactively planning for required skills and team capabilities, while responding more effectively to employee aspirations by enhancing their employability. In particular, the agreement redefines the individual’s right to training with a view to enabling employees to directly shape their career itineraries. Work safety: A sharp improvement in results and ambitious targets At PSA Peugeot Citroën, the only acceptable target is an accident-free work environment in every country. That’s why we ensure that efficient, prevention-based workplace health and safety policies are applied in all our oper- 81 ations. Diligent programs undertaken in recent years have led to a significant reduction in the number of accidents. In the past three years, for example, the number of losttime incidents has been reduced by half in all our host countries. Some 15,700 people were hired in 2005, including 10,200 outside France. SOCIAL RESPONSIBILITY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 82 The Four Pillars of our Commitment to Social Responsibility Open social dialogue for lasting innovation Our social dialogue policy is based on relations with independent labor organizations. In every country, employees who work in production facilities, service units and major dealerships are represented by unions or by employeeelected representatives. Agreements on the exercise of union rights define specific measures to guarantee the absence of anti-union discrimination and to provide trade unions with the means to carry out their activities independently. The emphasis on collective bargaining and the involvement of labor organizations in defining and applying fundamental social principles – particularly concerning equal opportunity – has helped our corporate culture to evolve. In 2005, 12 agreements in France and more than 50 outside of France were signed with employee representatives. Social dialogue between employee representatives and management is maintained on a daily basis. A priority focus on safety and working conditions The decrease in workplace accidents in 2005 was a landmark achievement, attributable to the active involvement of all the stakeholders and the use of more preventive than corrective measures. Workplace safety is a top priority across the organization, which demands the extensive, personal involvement of every manager. Policies emphasize that the foundations of a common safety culture are built on each employee’s behavior and practices. Our safety commitment is also shared with the temporary employment agencies and subcontractors that work with the Group. The safety of contractor employees continued to improve in 2005, when the number of their lost-time incidents during the summer maintenance turnaround declined by 20% compared with the year-earlier period. Dynamic hiring policies to internationalize teams and diversify employee skill sets With business operations in nearly 150 countries, PSA Peugeot Citroën currently has 208,500 employees worldwide. Nearly 15,700 employees were hired in 2005, while over the past five years, almost 84,000 people have been hired under permanent contracts. The workforce is becoming increasingly international, with 82,400 people working outside France in 2005, up nearly 64% from 50,300 in 1999. 42.6% of employees are non-French, representing some 100 nationalities. By the end of 2005, more than half of the workforce had been hired within the last six years. A total compensation policy based on performance and fairness For several years now, the Group’s wage policy has ensured that employee purchasing power is maintained or, in most cases, increased depending on our growth and earnings performance. The policy is designed to: Offer compensation that is competitive with market practices and consistent with corporate earnings. Acknowledge individual achievement and reward performance. Redistribute the gains from growth to employees. Foster employee savings. Strengthen health care and benefit coverage and meet employee retirement expectations. The Group is committed to guaranteeing all employees equal pay for equal work, as well as equal access to promotions and individual raises. Aligning employees with Group objectives and earnings All employees around the world are paid an incentive bonus based on operating margin. Out of 2005 earnings, some €144 million was distributed to employees worldwide in the form of incentive-based bonuses and profit-shares. Diversified employee savings plans To provide more effective support for employees in pursuing their personal projects, a broad range of new employee savings plans has been developed over the past five years. The Group matches employee funds invested voluntarily in company shares and in the longterm retirement saving plan, as well as incentive bonuses reinvested in company shares. In 2005, these matching payments totaled €14 million. A growing percentage of employee shareholders Employee share ownership has risen steadily over the last five years, with the percentage of issued capital held by employees increasing from 0.75% in 2000 to 2.53% at December 31, 2005. In all, more than 51,000 employees are shareholders of Peugeot S.A., including 4,700 in non-French companies. Preparing satisfactory retirement benefits Retirement plans are gradually being introduced to supplement state retirement systems. Providing a strong social safety net Personal protection insurance plans have been set up for all employees in every host country to provide at least death and disability cover, guided by an in-depth risk analysis. 83 | Total lost-time incident frequency rate The lost-time incident frequency rate stood at 3.11 in 2005. This rate covers manufacturing, service and R&D operations worldwide, as well as marketing units in France. The objective in 2006 is a rate of 3.70, covering all of the above operations plus marketing units outside France. 100,000 new hires worldwide, of which more than 50,000 in France between 2000 and 2005. 6.48 4.40 Group objective 3.70 05 06 3.11 02 05 Consolidated Group including French marketing units Consolidated Group including international marketing units The 2005 corporate social report is available on request and can be viewed online at: www.psa-peugeot-citroen.com PSA PEUGEOT CITROËN 2005 ANNUAL REPORT The three major challenges of sustainable mobility in using cars are greenhouse gases, road safety and urban mobility. 84 85 Sustainable Mobility Cars and the Environment Maximum Safety Across the Entire Model Lineup Enhancing the Quality of Mobile Life Managing the Environmental Impact of Our Production Facilities Supporting Local Development SUSTAINABLE MOBILITY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 86 Cars and the Environment The first challenge to achieving sustainable mobility is to deal effectively with greenhouse gases. PSA Peugeot Citroën believes that automobiles should be harmoniously integrated into their environment, which is why we are committed to developing new technologies that reduce greenhouse gas emissions at an affordable price for carbuyers. Reducing fuel consumption and CO2 emissions Reducing the amount of CO2 emitted by Peugeot and Citroën vehicles is a priority objective and we are actively engaged in developing technological solutions to meet it. Today, we are the leader in the market for fuel-efficient cars, which release less than 120 grams of CO2 per kilometer. Effective solutions with real-world relevance HDi diesel technology: PSA Peugeot Citroën has consolidated its technological leadership in diesel powertrains, which consume much less fuel to deliver the same performance as gasoline engines. The second generation of our common-rail, direct-injection HDi diesel engines reduces CO2 emissions by 20% compared with a conventional injection diesel, and by 30% compared with an equivalent gasoline powerplant. We are also pursuing our commitment to downsizing, to develop smaller, more fuel–efficient engines that deliver equivalent performance as the preceding larger models. This policy has enabled a 10% improvement in fuel efficiency while maintaining equivalent torque and power. The particulate filter: The environmental performance of diesel engines has been further enhanced by the particulate filter, an after-treatment system that eliminates emissions of particulate matter. Invented by PSA Peugeot Citroën, particulate filter technology is a clear demonstration of our commitment to improving the quality of air in urban environments. As a vital link in the emissions-control chain, the system will be fitted on all our diesel models over the medium term. We are already marketing the third generation filter, which had been deployed across almost the entire model range by the end of 2005. The Stop & Start system: Offered on the Citroën C3 and C2, the Stop & Start system uses a low-power electrical device to shut the engine down automatically when the vehicle is standing still and to start it up again instantly and noiselessly when reactivated by the driver. It can reduce fuel consumption and, consequently, CO2 emissions by up to 15% in heavy traffic. Viable solutions for tomorrow Hybrid diesel technology: The recent presentation of the Citroën C4 and Peugeot 307 Hybrid HDi demonstrators illustrates our expertise in hybrid technology, as well as our foresight in combining the HDi diesel engine with a diesel-electric powertrain to deliver truly breakthrough performance in terms of fuel efficiency and CO2 emissions. Nevertheless, hybrids remain intrinsically more expensive than any internal combustion solution, due to the addition of costly components. We are actively trying to reduce this extra cost so as to narrow the price gap between a hybrid and a conventional diesel to a more affordable level, with the aim of launching our first commercial hybrids by 2010. Fuel cells: A very long-term solution, hydrogen fuel cells offer many benefits, including a reduction in CO2 emissions, which helps attenuate the greenhouse effect, and the elimination of local emissions. To make the development of automotive fuel cell technology both technically and financially feasible, we are working on different cells and prototypes in partnership with other researchers. However, given the challenges involved in bringing the technology to market, we do not intend to integrate fuel cells into our vehicles before 2020. Promoting biofuels and natural gas Another way to reduce vehicle CO2 emissions is to develop the use of alternative energies and new propulsion technologies. Biofuels: Derived from sugar beets and cereals (ethanol) or from oilseeds (vegetable oil methylesters), biofuels represent a renewable source of energy with real environmental benefits. PSA Peugeot Citroën strongly encourages the use of biofuels, whose full potential is yet to be exploited. Compressed Natural Gas (CNG): As another alternative fuel solution, we are also exploring the possibilities offered by CNG, which, in comparison to conventional fuels, is high calorific, reduces greenhouse gas and other emissions, and burns very quietly. To demonstrate our commitment to stepping up the development of CNG vehicles, we have signed the third CNG protocol aimed at securing their viability in France by 2010. We are also marketing a range of CNG-fuelled light commercial vehicles and recently unveiled the new CNG Citroën C3. Today, our research is focusing on a multipurpose CNG engine particularly adapted to the requirements of major gas exporting countries where natural gas is already a viable alternative to oil. 87 Eco-designing for disassembly and reuse Peugeot and Citroën cars are all designed for recycling, using eco-design to improve the processing and recycling of end-of-life vehicles by limiting the transfer of waste and supporting the development of recovery and recycling facilities. Other recyclability techniques include marking plastic parts and elastomers for traceability, using easily recyclable materials, reducing the variety of materials to facilitate sorting after shredding and using recycled materials in new vehicles. Without any technical modifications, today’s engines can run on biofuel blends of up to 10% ethanol/gasoline and up to 30% vegetable oil methylester/diesel fuel. SUSTAINABLE MOBILITY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 88 Maximum Safety Across the Entire Model Lineup The second challenge in achieving sustainable mobility is designing vehicles that are as safe as possible. To meet it, PSA Peugeot Citroën is constantly developing solutions to prevent accidents (primary safety), attenuate their consequences (secondary safety) and improve the response of rescue teams (tertiary safety). We actively participate in studies undertaken by France’s Laboratory of Accidentology, Biomechanics and the Study of Human Behavior (LAB) and conduct research on the critical factors that lead to accidents. We also maintain open and constructive dialogue with road safety stakeholders, particularly in Europe, but also in China, Brazil and Argentina. Primary safety: Leveraging our extensive experience Accident avoidance Capitalizing on our expertise in chassis systems, we design cars that deliver maximum handling, safety and reliability. To attenuate the consequences of certain emergency situations, we offer such driver assistance technologies as anti–blocking systems (ABS), emergency braking assist (EBA), and electronic stability programs (ESP), which help drivers maintain control even in a skid. On certain models, we also offer innovative technologies like dual-function directional Xenon headlights and lane departure warning systems. Track tests Our two test centers are equipped with facilities capable of reproducing every imaginable set of driving conditions and subjecting cars to extreme stress. Secondary safety: Setting the standard worldwide Platforms and structures designed for protection When an accident cannot be avoided, Peugeot and Citroën cars afford protection that is best-in-class worldwide. Their structural components resist impact and absorb energy to provide a high degree of protection for occupants, while the passenger compartment acts as a survival cell, fitted with sophisticated restraint devices. Restraint systems for effective occupant protection From Isofix attachment points, which allow easy and efficient installation of child seats, to seatbelt load limiting retractors and airbags, everything is calculated to maximize protection for everyone in the vehicle. Recent statistics indicate that nearly 20% of the victims of fatal accidents were not wear- ing a seatbelt at the time. An increasing number of Peugeot and Citroën models are now fitted with a warning system in which a visual indicator and alarm inform the driver that someone has not buckled their belt. Pedestrian protection While primary safety systems – which help to avoid hitting a pedestrian – are obviously the most effective, each car’s architecture and styling are carefully designed to attenuate the effects of such an impact. Thanks to its new active hood, which lifts up upon collision to cushion the impact of the pedestrian’s head, the Citroën C6 was the first car in Europe to earn a record four stars in pedestrian protection tests conducted by EuroNCAP. Five stars from EuroNCAP In other crash tests, EuroNCAP has awarded the maximum five stars to eight Peugeot and Citroën models, placing the Group among the world’s best in secondary safety. In 2005, the Peugeot 1007 earned the highest points score in occupant protection of any car in any segment. In line with our strategy of making innovations widely available, our entry-level range also offers excellent occupant protection, with the Citroën C1 and Peugeot 107 both rating four stars in EuroNCAP crash tests. Tertiary Safety: Leading the way in Europe The emergency call system Deployment of the emergency call system has been stepped up across almost the entire model lineup. In the event of a medical emergency or other threatening incident, occupants can alert a dedicated assistance center at the touch of a button. In the case of a collision, the same alert is sent automatically. An operator then establishes voice contact with the car and, if necessary, alerts emergency services. Thanks to the car’s onboard GPS system and GSM mobile phone, assistance personnel can pinpoint its exact location, shortening response time and considerably improving the effectiveness of rescue operations. By the end of 2005, there were more than 140,000 Peugeots and Citroëns equipped with this system in six European countries. 89 Enhancing the Quality of Mobile Life As a fundamental driver of economic and social development and a prerequisite for access to jobs, healthcare and culture, the mobility of people and goods is another important challenge in achieving sustainable mobility. PSA Peugeot Citroën contributes to the development of sustainable mobility by taking into account such important issues as the inalienable right to mobility, the free flow of automobile traffic and the right balance between different modes of transport. Facilitating traffic flows and improving the quality of life in cities We regularly provide technical support and equipment to encourage the implementation of innovative ways of using cars. CNG shuttles between Group sites: To limit the number of vehicles on the road and consequently their environmental impact, a shuttle system using vans powered by compressed natural gas (CNG) has been introduced for employees traveling between our offices in Vélizy and La Garenne, in the greater Paris region. Employee car-pooling: Car-pooling among employees is encouraged at a number of our sites. A company travel plan for the Sochaux plant in France: In addition to the creation of offsite parking lots, pedestrian and vehicular traffic flows at the Sochaux plant were reorganized, as part of the company travel plan, to improve safety and reduce disamenities from truck traffic. The plan also included the creation of on-site bike lanes, the introduction of shuttle services, wider use of car-pooling, the development of local convenience services, and the possibility of attending eco-driving courses on how to save energy. In 2006, the number of cars entering the site will be divided by 20. The City on the Move Institute (IVM): An Innovation Laboratory IVM is committed to testing real-world solutions that help to provide innovative answers to urban mobility issues, by bringing together business people, researchers and academics, as well as people involved in society and the arts, and members of associations. In 2005, the international “Architecture On The Move!” exhibition traveled to Guangzhou, Stuttgart, São Paulo, Brussels and Grenoble. Relief maps of the Paris metro and a Braille atlas of the Greater Paris public transit system were also unveiled during the year, as part of the program to support the mobility of the blind and visually impaired. Road Safety Symposia In 2005, PSA Peugeot Citroën organized three symposia on road safety in China, Brazil and Argentina, as part of our sustainable development policy. Attended by several hundred people from a variety of backgrounds, the symposia resulted in the signature of several agreements. Organized in partnership with the Beijing Traffic Engineering Association and the Chinese Center for Disease Control, the Chinese symposium led to the signing of two agreements, one with the Tongji Medical College in Wuhan concerning seatbelt usage and the other with the University of Tsinghua for the computer modeling of crash tests. In Brazil, an agreement was signed with DENATRAN, Brazil’s national traffic department, to sponsor a nationwide communication campaign to raise parental awareness of child passenger safety. In Argentina, an agreement was signed with the La Plata faculty of the National Technological University to investigate and improve high accident locations in the Buenos Aires conurbation. Another agreement with the Argentine Automobile Club (ACA) will lead to the deployment of a traffic safety education program for the primary school children of Tres de Febrero, the municipality where our Buenos Aires plant is located. As part of the program, dedicated resources will be used to recreate real traffic conditions on a test track. SUSTAINABLE MOBILITY PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 90 Managing the Environmental Impact of our Production Facilities Our industrial strategy integrates environmental protection as part of a continuous improvement process, based on a disciplined organization, the allocation of significant funding and an effective reporting system. Nearly 500 people are involved in managing our industrial environment, both at corporate level and in our plants. An active certification policy All our production facilities around the world have introduced an environmental management system based on ISO 14001 certification, the internationally recognized standard for environmental management and organization. Sites are also communicating transparently with their host communities, self-monitoring data are transmitted to the public authorities, and requests for information from neighbors are systematically answered and, when necessary, result in corrective actions. Limiting gaseous releases Reducing VOC emissions In France, automobile plants account for less than 1% of total volatile organic compound (VOC) emissions produced by human activity. Nevertheless, we are leading a proactive, three-pronged strategy in this area to optimize existing paint shops, deploy clean technologies in new facilities and install air treatment equipment that incinerates VOCs. These measures have already driven significant progress, with VOC emissions from Group plants worldwide currently totaling 4.93 kilograms per vehicle, compared with a long-term target of 4.0 kilograms. A decline in other regulated emissions By gradually substituting low-sulfur fuels for conventional high-sulfur fuel oil, worldwide sulfur dioxide (SO2) emissions from our power plants have been reduced by more than 80% since 1995, while nitrogen oxide (NOx) emissions have declined by more than 20% over the same period. Controlling CO2 emissions Since 2005, seven plants in France and one in England, that produce CO2 from combustion installations, rated over 20 MW, have been covered by the European Union’s greenhouse gas emissions trading system. Two plants in Spain will join the scheme in 2006. Despite a sharp increase in the number of vehicles produced at the plants concerned, we have succeeded in effectively containing total CO2 emissions since 1996. For example, boiler emissions at French plants have been reduced by around 40% over the period. Managing energy and reducing water consumption and releases All carmaking processes are energy inten- sive. That’s why we are committed to developing action plans to manage energy consumption at all our sites. Conserving water is a key objective in the production facilities, in particular through the use of metering systems, the display of the least water-intensive operating parameters for each workstation and the deployment of recycling systems. These measures have helped to reduce water consumption per vehicle produced by 50% over the past ten years. Every plant is connected to the public wastewater treatment network or equipped with their own integrated treatment plant, with releases systematically tracked using appropriate indicators. Reducing and efficiently recovering waste from automobile plants For more than ten years, programs have been in place to reduce the amount of automotive process waste per vehicle produced, and to promote the recovery, recycle or reuse of any waste that remains. ` Between 1995 and 2005, these programs have resulted in: A 28% decline in the amount of waste per vehicle produced. A reduction in the proportion of landfilled waste from 31% to 12%. An 83% increase in the resource recovery rate. Understanding soils to improve protection Soil contamination is systematically selfmonitored at all the production plants, where strict procedures are in place to prevent pollution, in particular through the use of retention basins around liquid storage facilities. 91 Supporting Local Development As part of its commitment to society, PSA Peugeot Citroën actively supports the host communities where its plants and marketing operations are based. Local Sponsorship and Social Responsibility Action Plans Local Sponsorship and Social Responsibility Action Plans provide a precise framework for our participation in local communities, which centers around four main focus areas: the environment, road safety, urban mobility and local development. In France, we support regional associations that provide consulting services to help small and medium-sized manufacturers improve their production processes, as well as the Fondation de la 2e Chance, a foundation that helps people overcome serious difficulties. We also support local initiatives in each of our host countries. The Solidarity Awards The Solidarity Awards are a competition that enables employees to carry out a personal or group project to support local or international solidarity. In 2005, 27 awards were given by eight sites, enabling the winners to finance their projects. Supporting responsible driving initiatives As well as dedicating a significant part of our technological research efforts to road safety, we also support a variety of initiatives that encourage more responsible driving. 3,000 people to improve their awareness of road safety issues. Through our plants and the marques’ regional offices in France, we are involved in a road safety awareness program in partnership with the national Ministry of Education, while in Brazil and Argentina, we are partnering road safety programs for young people. Supporting education in France and internationally PSA Peugeot Citroën has long fostered a close partnership with France’s Ministry of Education that enables students to discover the world of work and broaden their knowledge of the automobile industry through a variety of national and international programs. We are also committed to helping young people understand the dangers of driving under the influence. In association with France’s National Road Safety Council, Citroën is supporting a designated driver program aimed at getting young adults going out for an evening to choose one of their party who agrees not to drink alcoholic beverages and can therefore drive them home safely. Similarly, the Group sponsors Voiture & Co., a French association that organizes a carpooling service for young people using drivers who have passed a blood alcohol test. To help reduce the number of road accidents involving employees, particularly when commuting, safe driving classes are offered to improve driving skills. They have been attended by more than 1,700 employees in France and other European countries. At the plant in Vigo, Spain, the Group sponsored a training program that has enabled nearly Supporting associations that combat exclusion In many countries, we donate vehicles to associations that use mobility to alleviate social and economic exclusion or to improve the quality of life for the disabled, while in France, we support the Paris emergency social services agency by donating and maintaining the organization’s vehicle fleet. As part of a road safety program for young people, visitors test the lane departure warning system at the French Firefighters Conference. For more information about our sustainable development commitment: www.sustainability.psa-peugeot-citroen.com PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 92 93 Financial statements and statistics Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Cash Flows Production by Model Worldwide Sales Production Facilities Workforce Sustainable Development Indicators PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 94 Consolidated Balance Sheets - Assets (in millions of euros) December 31, 2005 Goodwill Intangible assets Property, plant and equipment Investments in companies at equity Investments in non-consolidated companies Other non-current financial assets Other non-current assets Deferred tax assets Total non-current assets Operating assets Loans and receivables - finance companies Short-term investments - finance companies Inventories Trade receivables - manufacturing and sales companies Current taxes Other receivables Current financial assets Cash and cash equivalents Total current assets TOTAL ASSETS Manufacturing and sales companies Finance companies Eliminations 1,677 3,886 14,909 596 45 1,940 95 579 23,727 75 78 48 1 46 31 279 - 6,889 3,097 180 1,694 11,860 22,400 2,709 18 642 25,769 1,214 6,351 19,425 43,152 635 26,404 26,683 December 31, 2004 Total Manufacturing and sales companies Finance companies Eliminations 1,752 3,964 14,957 596 46 1,986 95 610 24,006 1,798 3,602 14,168 614 65 2,329 96 502 23,174 75 62 50 1 49 2 30 269 - (162) (166) (42) (60) (430) 22,238 2,709 6,889 2,931 156 2,276 37,199 6,546 3,296 110 1,756 11,708 21,243 2,717 35 655 24,650 (230) (660) (660) 1,214 6,756 45,169 69,175 712 5,158 17,578 40,752 610 25,260 25,529 January 1, 2004 Total Manufacturing and sales companies Finance companies Eliminations Total 1,873 3,664 14,218 614 66 2,378 98 532 23,443 1,743 3,301 13,619 548 63 881 90 539 20,784 75 42 51 13 53 1 34 269 - 1,818 3,343 13,670 548 76 934 91 573 21,053 (199) (242) (17) (49) (507) 21,044 2,717 6,546 3,054 128 2,362 35,851 6,211 3,659 138 2,140 12,148 19,719 2,494 47 699 22,959 (138) (205) (24) (61) (428) 19,581 2,494 6,211 3,454 161 2,778 34,679 (205) (712) (712) 712 5,563 42,126 65,569 1,310 5,082 18,540 39,324 804 23,763 24,032 (205) (633) (633) 1,310 5,681 41,670 62,723 95 Consolidated Balance Sheets - Equity and Liabilities (in millions of euros) December 31, 2005 Manufacturing and sales companies Finance companies Eliminations Equity Share capital Treasury stock Retained earnings and other accumulated equity, excluding minority interests Minority interests Total equity Non-current financial liabilities Other non-current liabilities Non-current provisions Deferred tax liabilities Total non-current liabilities Operating liabilities - finance companies Financing liabilities Current provisions Trade payables Current tax payable Other payables Current financial liabilities Total current liabilities TOTAL EQUITY AND LIABILITIES 3,826 2,352 1,417 2,086 9,681 2 17 281 300 1,692 10,240 100 4,155 16,187 22,987 53 79 844 23,963 5,298 21,485 23,963 - Total December 31, 2004 Manufacturing and sales companies Finance companies Eliminations Total January 1, 2004 Manufacturing and sales companies Finance companies Eliminations Total 235 (220) 243 (431) 243 (149) 13,849 542 14,406 13,306 585 13,703 12,133 599 12,826 3,826 2,354 1,434 2,367 9,981 3,791 2,279 1,639 1,968 9,677 7 19 250 276 (230) (30) (42) (226) (528) 22,757 1,745 10,210 137 4,773 39,622 1,454 10,773 114 4,068 16,409 22,070 54 39 992 23,155 (132) (660) 5,166 44,788 69,175 3,061 19,470 23,155 - 3,791 2,286 1,658 2,218 9,953 3,891 2,236 1,909 1,785 9,821 64 19 200 283 - 3,891 2,300 1,928 1,985 10,104 (205) (41) (17) (291) (554) 21,865 1,508 10,732 136 4,769 39,010 1,434 10,036 112 4,114 15,696 20,743 44 28 1,131 21,946 (205) (16) (24) (266) (511) 20,538 1,478 10,020 116 4,979 37,131 (158) (712) 2,903 41,913 65,569 2,784 18,480 21,946 (122) (633) 2,662 39,793 62,723 PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 96 Consolidated Statements of Income (in millions of euros) Year ended December 31, 2005 Manufacturing and sales companies Finance companies 54,887 (43,803) (7,862) (1,889) 1,333 1,656 (739) (310) 607 Other income and (expenses), net Interest income, net Finance costs Income before tax of fully consolidated companies (352) 355 (414) 922 1 608 Current taxes Deferred taxes Income tax expense (189) (89) (278) (55) 589 631 ( 42) Sales and revenue Cost of goods and services sold Selling, general and administrative expenses Research and development costs Operating margin Share in net earnings of companies at equity CONSOLIDATED PROFIT FOR THE YEAR Attributable to equity holders of the parent Attributable to minority interests (in euros) Basic earnings per €1 par value share Diluted earnings per €1 par value share Year ended December 31, 2004 Total Manufacturing and sales companies Finance companies 56,267 (44,266) (8,172) (1,889) 1,940 54,745 (43,374) (7,606) (1,802) 1,963 1,601 (784) (299) 518 - (351) 355 (414) 1,530 32 319 (389) 1,925 (4) 514 - 28 319 (389) 2,439 (178) (29) ( 207) - (367) (118) (485) (347) (241) (588) (120) (64) (184) - (467) (305) (772) 401 398 3 - (55) 990 1,029 (39) 330 326 4 - Eliminations (276) 276 - 4.47 4.46 13 1,350 1,320 30 Eliminations (241) 241 - Total 56,105 (43,917) (7,905) (1,802) 2,481 13 1,680 1,646 34 6.97 6.96 97 Consolidated Statements of Cash Flows (in millions of euros) 2005 Total Manufacturing and sales companies Finance companies Eliminations Total - 990 1,350 330 - 1,680 12 2 30 (1) - 3,199 (244) 126 5 3,056 (263) 251 (182) 12 50 (2) - 3,068 (263) 301 (184) 59 - - 59 (7) - - (7) (2) 3,689 (411) 3,278 444 (148) 296 (2) 4,133 (607) 3,526 (34) 4,171 1,139 5,310 390 (465) (75) 36 36 (34) 4,561 710 5,271 Proceeds from disposals of shares in consolidated companies 23 Proceeds from disposals of investments in non-consolidated companies 2 Acquisitions of shares in consolidated companies (8) Investments in non-consolidated companies (2) Proceeds from disposals of property, plant and equipment 54 Proceeds from disposals of intangible assets 5 Purchases of property, plant and equipment (2,862) Purchases of intangible assets (939) Other (35) Net cash used in investing activities (3,762) (1) 9 (11) (20) (23) - 23 2 (8) (3) 63 5 (2,873) (959) (35) (3,785) 28 2 (166) (11) 37 3 (2,793) (977) (41) (3,918) (1) 6 (11) (25) 6 (25) - 28 2 (166) (12) 43 3 (2,804) (1,002) (35) (3,943) (321) 8 (10) (282) (714) (1,319) (8) (29) (53) (5) (95) Consolidated profit for the year Adjustments for: - Depreciation and amortization - Non-current provisions - Change in deferred tax - (Gains) losses on disposals and other Share in net earnings of companies at equity, net of dividends received Revaluation adjustments taken to equity and hedges of debt Working capital provided by operations Changes in operating assets and liabilities Net cash from (used in) operating activities Manufacturing and sales companies Finance companies Eliminations 589 401 3,187 (246) 96 6 2004 (48) (48) Dividends paid: - To Peugeot S.A. stockholders - Intragroup - To minority stockholders of subsidiaries Purchases of treasury stock Changes in other financial assets and liabilities Other Net cash from (used in) financing activities (310) 96 (19) (198) 2,074 1,643 (96) (5) (150) (251) 25 25 (310) (24) (198) 1,949 1,417 Effect of changes in exchange rates Net increase (decrease) in cash and cash equivalents 34 1,193 3 25 (2) (25) 35 1,193 3 76 Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD 5,158 6,351 610 635 (205) (230) 5,563 6,756 5,082 5,158 1 (194) 804 610 (36) (36) (205) (205) (321) (39) (282) (803) (5) (1,450) 4 (118) 5,681 5,563 PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Production by Model (passenger cars and light commercial vehicles) 98 2005 2004 2003 34,600 73,800 669,900 515,400 169,700 2,600 259,000 18,800 28,100 33,200 144,800 1,500 44,100 900 1,100 795,100 583,700 209,200 25,900 165,000 1,800 18,100 31,200 32,600 143,000 4,200 45,200 100 35,900 816,500 573,300 126,100 101,000 3,200 21,500 35,100 28,500 135,700 3,200 40,600 2,000 1,996,400 985,200 1,809,000 187,400 2,056,200 965,700 1,859,100 197,100 1,922,600 911,600 1,744,100 178,500 34,600 124,800 289,300 97,600 244,300 191,900 80,900 14,000 23,000 32,100 26,600 170,100 49,100 800 149,300 375,600 64,800 51,700 293,900 100,600 11,900 24,000 29,700 24,700 176,200 46,500 - 59 ,900 71,000 383,100 96,000 354,100 110,700 3,800 27,700 29,800 29,200 179,500 42,100 - TOTAL of which diesel-powered versions of which passenger cars of which light commercial vehicles 1,379,100 743,200 1,173,700 205,400 1,348,900 778,400 1,145,400 203,500 1,386,900 740,900 1,189,000 197,900 TOTAL PSA Peugeot Citroën of which diesel-powered versions of which passenger cars of which light commercial vehicles 3,375,500 1,728,400 2,982,700 392,800 3,405,100 1,744,100 3,004,500 400,600 3,309,500 1,652,500 2,933,100 376,400 PEUGEOT 106 107 1007 206 307 405 406 407 504 / Paykan 607 807 Expert Partner J9 Boxer Others TOTAL of which diesel-powered versions of which passenger cars of which light commercial vehicles CITROËN Saxo C1 C2 C3 ZX C4 Xsara C5 Xantia C8 Dispatch C15 Berlingo Relay Others 99 Worldwide Sales (passenger cars and light commercial vehicles) 2005 2004 2003 435,000 342,100 777,100 440,000 332,500 772,500 445,100 343,300 788,400 822,500 760,900 1,583,400 888,700 763,500 1,652,200 907,000 773,400 1,680,400 1,257,500 1,103,000 2,360,500 1,328,700 1,096,000 2,424,700 1,352,100 1,116,700 2,468,800 130,300 79,400 209,700 147,100 73,300 220,400 142,100 74,800 216,900 60,100 23,500 83,600 62,900 27,100 90,000 56,700 19,000 75,700 143,100 51,400 194,500 114,000 40,000 154,000 89,100 29,800 118,900 378,500 133,400 511,900 347,500 107,700 455,200 246,100 128,900 375,000 26,000 3,800 29,800 27,000 4,000 31,000 27,500 3,300 30,800 TOTAL SALES, REST OF THE WORLD Peugeot Citroën PSA Peugeot Citroën 738,000 291,500 1,029,500 698,500 252,100 950,600 561,500 255,800 817,300 TOTAL WORLDWIDE SALES Peugeot Citroën PSA Peugeot Citroën 1,995,500 1,394,500 3,390,000 2,027,200 1,348,100 3,375,300 1,913,600 1,372,500 3,286,100 WESTERN EUROPE France Peugeot Citroën PSA Peugeot Citroën Other Western European countries Peugeot Citroën PSA Peugeot Citroën TOTAL WESTERN EUROPE Peugeot Citroën PSA Peugeot Citroën REST OF THE WORLD Central and Eastern Europe and Turkey Peugeot Citroën PSA Peugeot Citroën Africa Peugeot Citroën PSA Peugeot Citroën The Americas Peugeot Citroën PSA Peugeot Citroën Asia-Pacific Peugeot Citroën PSA Peugeot Citroën Others Peugeot Citroën PSA Peugeot Citroën PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Production Facilities Worldwide WUHAN with Dongfeng Motor Group Fukang 988, Fukang, Élysée, Xsara Picasso, Xsara, 206, 307 Sedan, C-Triomphe 141,500 units PORTO REAL 206, 206 SW, C3, Xsara Picasso 93,500 units BUENOS AIRES 206, 307, Partner, Berlingo 66,000 units SEVELNORD (Hordain) with Fiat 807, C8, Expert, Relay 116,400 units KOLÍN with Toyota 107, C1 69,200 units TRNAVA 207 SOCHAUX 307, 307 CC, 307 SW, 607 413,300 units POISSY 206, 207, 1007 329,200 units AULNAY C2, C3 283,100 units VIGO Xsara Picasso, Berlingo, Partner 441,400 units Output figures are for 2005. MULHOUSE C4, C4 Coupé, 206, 206 CC, 307 405,000 units RENNES C5, C5 Estate 407, 407 SW, 407 Coupé, C6 340,700 units MANGUALDE Partner, Berlingo 53,400 units Automobile production centers Joint-ventures/cooperative agreements RYTON 206, 206 SW, 206 RC 130,200 units MADRID C3, C3 Pluriel, Xsara Estate, 207 116,900 units SEVEL (Val di Sangro) with Fiat Boxer, Dispatch 90,500 units 100 101 Mechanical Components Plants and Foundries Asnières (France) Caen (France) Charleville (France) Melun-Sénart (France) Metz (France) Mulhouse (France) Saint-Ouen (France) Sept-Fons (France) Sochaux (France) Trémery (France) Valenciennes (France) Vesoul (France) Free-cutting, hydraulic systems Axles suspension systems, transmissions Aluminium and iron castings Replacements parts Gearboxes Aluminium castings, steel forgings, tooling Stamping Iron castings Shock absorbers, rear axles, crossrails EW gasoline engines and DV, DW diesel engines Gearboxes CKD shipments, replacement parts Douvrin (France) Hérimoncourt (France) Porto Real (Brazil) Jeppener (Argentina) Xiang Fan (China) Engines Engines, gearboxes Engines Engines, axles suspension systems, front wheel hubs, crossrails Engines, gearboxes, axles suspension systems Workforce 2005 2004 2003 AUTOMOBILE DIVISION France Other countries BANQUE PSA FINANCE GEFCO FAURECIA OTHER BUSINESSES AND HOLDING COMPANY 139,500 99,000 40,500 2,400 9,400 55,000 2,200 139,400 100,400 38,900 2,400 8,800 54,400 2,600 134,700 98,000 36,700 2,200 8,400 51,900 2,700 TOTAL PSA Peugeot Citroën France Other countries 208,500 126,100 82,400 207,600 128,300 79,300 199,900 124,700 75,200 PSA PEUGEOT CITROËN 2005 ANNUAL REPORT Sustainable Development Indicators 102 2005 2004 2003 208,500 19.5% 15,670 25.6% 8,975 28.7 3.11 207,600 19.8% 18,490 25.8% 10,880 25.4 4.09 199,900 18.2% 15,230 22.5% 12,450 26.1 4.97 20 4 19 4 18 4 Water consumption (city water, surface water, underground water) Water consumption (in cu.m) Water used per vehicle manufactured (in cu.m) 20,024,371 7.6 21,319,682 7.7 23,761,006 8.6 Consumption of energy (fuel oil, natural gas, coal, coke, electricity, steam) Consumption of energy (in MWh) Energy used per vehicle manufactured (in MWh ncv) 6,153,466 2.3 6,490,056 2.4 6,347,808 2.3 656,237 423.5 706.3 684,083 545.6 757.8 695,834 1,041.1 784.4 12,998 4.93 14,782 5.34 15,521 5.62 401,261 152.2 426,705 154.3 429,186 157.8 30.19 60.53 1,317,964 20 141,779 30.62 56.61 969,982 13 60,553 30.82 51.19 602,183 11 16,879 2,151 550 2,183 435 2,098 349 EMPLOYEE RELATIONS INDICATORS Number of employees Percentage of women employees Number of people hired under permanent contracts Percentage of women among new hires in the Automobile Division Average annual number of temporary employees (excluding Faurecia) Average hours of training per employee (excluding Faurecia) Lost-time incident frequency rate INDUSTRIAL INDICATORS* ISO 14001 certification Number of ISO-14001 certified PSA Peugeot Citroën sites Number of ISO-14001 certified cooperative sites Air emissions from combustion plants Greenhouse gas emissions (in tonnes) SO2 emissions (in tonnes) NO2 emissions (in tonnes) Paintshop VOC releases VOC releases (in tonnes) VOC releases per vehicle manufactured (in kg) Volumes of waste (excluding metallic waste, nearly 100% of which is recycled) Volumes of waste (in tonnes) Waste produced per vehicle manufactured (in kg) *Automobile Division only SO2 = sulfur dioxide; NO2 = nitrogen dioxide; VOC = volatile organic compounds. PRODUCT INDICATORS Cars emitting less than 120g CO2 /km (in % of European market) Cars emitting less than 110g CO2 /km (in % of European market) Cars equipped with a particulate filter (total at year-end) Number of models earning 4 or 5 stars in EuroNCAP safety tests Vehicles equipped with the emergency call system (total at year-end) TECHNOLOGICAL INNOVATIONS R&D expenditure (in € millions) Number of patents filed in France All of the Group’s performance indicators, methodology and targets may be found in the Sustainable Development Report, at www.sustainability.psa-peugeot-citroen.com The 2005 Registration Document, filed with the Autorité des Marchés Financiers on April 24, 2006, is available upon request from: Investor Relations –75, avenue de la Grande-Armée – 75116 Paris, France e-mail: [email protected] - Phone: 33 (0) 1 40 66 37 60 or online: www.psa-peugeot-citroen.com Corporate Communications Dept., PSA Peugeot Citroën Photo credits: PSA Peugeot Citroën, Peugeot Direction de la Communication, Citroën Communication - P. 6/7: Moore - P. 8/9: Moore, Frankenberg - P. 10/11: Dolémieux - The year in pictures: (1) Panconi - (2) Meyer - (3) Dingo - (4) X - (5) Dingo (6) Muratet, Bouffay - (7) Legros - (8) Vlachovsky - (9) Sautelet - (10) Legros, X - (11) Zwickel - (12) Meyer - (13) Zwickel, Muratet - (14) X - (15) Foulon, X - (16) Meyer - (17) X - (18) Reinoso - (19) DPPI - P. 56/57: Legros, Sautelet, Foulon, Muratet - P. 58/59: BMW, Garcin Gasser P. 64/65: Sautelet, Zwickel - P. 66/67: Muratet - P. 68/69: Dingo - P. 70/71: Muratet, Curtet - P. 72/73: Zwickel, Muratet - P. 74/75: Spilka, Meyer - P. 80/81: Pizzalla - P. 82/83: Legros - P. 86/87: Legros, Stehlin - P. 88/89: X - P. 90/91: Moore Design, production: - Publishing: Altavia Prodity. 10,000 copies of this report were printed. PEUGEOT S.A. Incorporated in France with issued capital of €234,618,266 Governed by a Managing Board and Supervisory Board Registered office 75, avenue de la Grande-Armée 75116 Paris, France R.C.S. Paris B 552 100 554 Siret 552 100 554 00021 Tel.: 33 (1) 40 66 55 11 Fax: 33 (1) 40 66 54 11 www.psa-peugeot-citroen.com