By Helen Massy-Beresford and Matthias Blamont
PARIS (Reuters) - PSA PEUGEOT (UG.PA)Citroenexpects to remain in the red until 2010 after outlays of nearly 1 billion euros to slash stocks of unsold cars caused an unexpected loss for 2008.
Europe's second-biggest carmaker posted a 343 million euro ($444.5 million) net loss and will cut inventories and limit cash burn in 2009 as a global economic crisis ravages car sales.
"It was a pretty big miss on the net - a technical issue related to working capital," said Nomura International analyst Michael Tyndall.
Financial analysts expected a net profit of some 180 million euros for last year, compared with 885 million euros net profit in 2007.
The firm in which the Peugeot family still has a large minority stake is, along with its peers, struggling to cut inventories of unsold vehicles as the credit crunch stifles consumer confidence and cuts sales to a trickle.
"The results are worse than expected where it counts; cash is king. We expect the stock and the sector to be under significant pressure today," Morgan Stanley analysts said.
The year 2010 would originally have been the end of a profit recovery program, and before the sector crisis took hold, the group was targeting a 6 percent operating margin for that year.
The CGT labor union had predicted on Tuesday that PSA would report a 2008 loss on charges, but gave no figures.
Peugeot Citroen shares were down 2.36 percent at 1137 GMT, having earlier fallen more than 7 percent, against a CAC-40 index down 0.03 percent, while France's number two carmaker Renault shed 2.5 percent.
Renault reports its full year results on Thursday.
TIE-UPS?
Speculation mounted in recent weeks that PSA would seek a tie-up with one of its peers to weather the crisis. Asked at a news conference whether the group was considering new alliances, chief executive Christian Streiff declined to comment, but said the group's existing alliances were "extremely solid."
He said the alliances were particularly important in a situation where carmakers were looking for cost reductions.
"In the longer-term I would suggest that to deal with the rising costs associated with vehicle manufacture, having someone to share them with would certainly help them," said Nomura's Tyndall.
On Tuesday, Streiff said the car industry downturn had turned into a global catastrophe and he expected 2009 sales to fall by at least 20 percent.
The group booked non-recurring charges totaling 917 million euros in 2008 as it cut headcount and adjusted for lower expected volumes ahead, finance director Isabel Marey-Semper said on a conference call earlier in the day.
The automotive division accounted for 473 million of the charges, while there was 431 million for parts supplier Faurecia , in which it owns a 71 percent stake.
The company's 2008 capital expenditure amounted to 3.8 billion euros, leaving it with negative free cash flow of 3.764 billion at the end of the year.
On Wednesday, he said the group aimed to return to profit in 2010 but expected a particularly difficult first half of 2009 and a loss-making full year with negative free cash flow.
The group's European stocks of unsold vehicles were near December 2007 levels at the year-end 2008, thanks to production cuts in the fourth quarter, the company said.
On Monday, French President Nicolas Sarkozy unveiled a controversial 3 billion euro ($3.89 billion) loan for PSA Peugeot Citroen, and a similar sum for fellow French automaker Renault to help them weather the storm.
Peugeot said the loan and other financing sources would cover its funding requirements of around 4 billion euros for 2009 for its sales and manufacturing activities. Marey-Semper said she saw no reason that the EU would block the loan.
The group intends to continue investment and expenditure on automotive R&D at around 3.5 billion euros, Streiff said.
The dividend for the full year to be proposed at the group's shareholders' meeting would reflect the sharp fall in the group's results and the economic environment, the company said.
Earlier this year, the group posted an 8.7 percent fall in full-year sales of completed vehicles.
(Editing by Marcel Michelson and David Cowell)
