PEUGEOT S.A. 2003 Business Review Incorporated in France with issued capital of €243,109,146 Governed by a Managing Board and a Supervisory Board Registered office: 75, avenue de la Grande-Armée - 75116 Paris, France RCS Paris B 552 100 554 - Siret 552 100 554 00021

Tel: 33 (1) 40 66 55 11 - Fax: 33 (1) 40 66 54 14 A PEUGEOT CITROËN 2003 - GB

www.psa-peugeot-citroen.com PS CONTENTS

Key figures ...... 2 Corporate governance and Management ...... 4 Message from the Chairmen ...... 6 Supervisory Board Report ...... 8

MANAGING BOARD REPORT ...... 10

Growth Strategy ...... 12 One Group, two marques ...... 14 A long-term vision of the future ...... 14 Human resources ...... 15 Sustainable development ...... 16 Costs, platforms and cooperative ventures ...... 17 A focus on profitability ...... 17 Outlook for 2004...... 18

Corporate Governance ...... 20 The Supervisory Board ...... 22 Executive Management...... 25 Internal and external controls ...... 26 Investor Relations...... 30 Annual Stockholders’ Meeting of May 26, 2004...... 33

PSA PEUGEOT CITROËN 2003 Annual Report PSA Peugeot Citroën is a world-class automobile manufacturer, supported by two broadline marques and the expertise of its 200,000 employees around the globe.

It is the second largest carmaker in Europe, with 15.4% of the market in 2003. During the year, the Group sold 3.29 million vehicles in more than 140 countries worldwide, generating net sales of €54.2 billion. It is committed to selling four million vehicles a year by 2006.

PSA Peugeot Citroën also encompasses the Banque PSA Finance group of automotive finance companies, Gefco, a transportation and logistics company, and Faurecia, an automotive equipment manufacturer.

Business Review...... 34 Operating highlights ...... 36 Automobile ...... 42 Banque PSA Finance ...... 54 Gefco ...... 58 Faurecia...... 62 Other businesses ...... 66

Corporate Policies ...... 70 Human Resources ...... 72 Environmental Stewardship ...... 88 Corporate Citizenship ...... 100 Research and Development ...... 112

Management’s Discussion and Analysis...... 118 Results ...... 120 Group financing ...... 130 Return on capital employed ...... 138 Management of financial and operational risks ...... 140 Adoption of IAS/IFRS accounting standards ...... 144

Statistics ...... 146

PSA PEUGEOT CITROËN 2003 Annual Report 1 KEY FIGURES

Worldwide sales Net sales (in units) (in € millions) Automobile Division Other businesses

3,267,500 3,286,100 3,132,800 54,436 54,238 51,663 10,485 10,554 10,139

41,524 43,951 43,684

2001 2002 2003 2001 2002 2003

Return on capital employed Balance sheet structure (after tax) (in € millions) (in %) Stockholders’ equity Net financial position of the manufacturing and sales companies

12.4 11,864 10,984 11.0 10,282 9.3

594 563 - 511 2001 2002 2003 2001 2002 2003

PSA PEUGEOT CITROËN 2 2003 Annual Report Operating margin Net income Working capital provided from (in € millions) (in € millions) operations and capital expenditure Automobile Division (manufacturing and sales companies) Other businesses (in € millions) Working capital provided from operations Capital expenditure

2,913 2,652 1,691 1,690 730 4,059 2,195 1,497 660 3,440 3,547 3,007 2,938 2,790 914

2,183 1,992

1,281

2001 2002 2003 2001 2002 2003 2001 2002 2003

Capital employed Earnings per share Workforce at December 31 (in € millions) Dividend (in units) Automobile Division (in €) Automobile Division Other businesses Earnings per share Other businesses Dividend

199,900 192,500 198,600 6.65 15,654 16,040 6.42 64,700 15,407 6.14 62,800 64,700

5,826 5,720 5,817

135,200 133 900 10,223 129,700 9,828 9,687 1.15 1.35 1.35

2001 2002 2003 2001 2002 2003 2001 2002 2003

PSA PEUGEOT CITROËN 2003 Annual Report 3 CORPORATE GOVERNANCE AND MANAGEMENT

SUPERVISORY Pierre Banzet MANAGING BOARD BOARD Jean-Louis Dumas Marc Friedel Jean-Martin Folz Thierry Peugeot Chairman of the Managing Board Jean-Louis Masurel Chairman François Michelin Frédéric Saint-Geours Jean Boillot Jean-Paul Parayre Peugeot Marque Jean-Philippe Peugeot Marie-Hélène Roncoroni Claude Satinet Vice-Chairmen Ernest-Antoine Seillière de Laborde Citroën Marque Joseph F. Toot, Jr.

Roland Peugeot Bertrand Peugeot Advisors to the Supervisory Board

STATUTORY AUDITORS AUXILIARY AUDITORS

PricewaterhouseCoopers Audit Yves Nicolas Constantin Associés François-Xavier Ameye As of March 1, 2004

PSA PEUGEOT CITROËN 4 2003 Annual Report EXECUTIVE COMMITTEE AND SENIOR MANAGEMENT

Yann Xavier Jean-Martin Jean-Louis Jean-Claude Liliane Delabrière Fels Folz Grégoire Hanus Lacourt

Gilles Jean-Marc Robert Frédéric Claude Roland Jean-Luc Michel Nicolle Peugeot Saint-Geours Satinet Vardanega Vergne

EXECUTIVE COMMITTEE Robert Peugeot SENIOR MANAGEMENT Innovation and Quality Jean-Martin Folz Xavier Fels Frédéric Saint-Geours Chairman of the External Relations Peugeot Marque Managing Board Jean-Louis Grégoire Claude Satinet Yann Delabrière Executive Development Citroën Marque Finance, Control and Performance Jean-Claude Hanus Roland Vardanega Gilles Michel Legal Affairs Manufacturing and Platforms, Engineering, Components Liliane Lacourt Purchasing Corporate Communications Jean-Luc Vergne Jean-Marc Nicolle Employee Relations Group Strategy and Products and Human Resources

PSA PEUGEOT CITROËN 2003 Annual Report 5 MESSAGE FROM THE CHAIRMEN

in the euro, with the other with the new car introductions in 2004, negative factors offset by will enable us to make major strides in sustained productivity gains increasing scale economies in compo- and a healthy marketing nents and in improving our industrial strategy. organization. The same is true of the cooperation strategy, which will reach Our resistance was also maturity in 2004 for the diesel engines supported by the results developed and manufactured with Ford. It of Banque PSA Finance, will also see the future introduction of a Gefco and Faurecia, which new platform with Toyota and the family of all reported significant new gasoline engines with BMW. Then improvements in revenues there’s the manufacturing efficiency Thierry Peugeot Jean-Martin Folz and, to an even greater extent, program, which will enable us to deliver In 2003, PSA Peugeot Citroën faced the their earnings. Their performance has best-in-class performance by 2006. And triple challenge of slowing demand in validated our strategic vision, which is lastly, our international development will Europe, especially in France, a stronger sharply focused on automobiles, yet enter a major new phase with the doubling euro and the preparation of new 2004 attentive to leveraging the full potential of our production capacity in China in 2006 models that inevitably impacted sales of of this business by lodging its different and the start-up of production of several the cars they will replace. Nevertheless, segments in efficient organizations. new models in Latin America. your company demonstrated firm resi- lience during the year. In sales, first of all, Nevertheless, 2003 marked a break with But beyond the sustained implementation because we maintained our growth the previous four years, during which our of these actions, our primary growth driver momentum, which, while limited, was automobile sales rose 43% and our will still be our ambitious new car significant at a time of market weakness. consolidated operating margin gained program. More than ever, the auto Sales outside Europe continued their 167%. We therefore need to rededicate all industry remains dominated by the sharp upward trend and, despite our our energies to restoring this growth passion of customers for cars that meet a unfavorable position in the product dynamic. The main priority is obviously to wide array of needs for mobility, drivability, replacement cycle, we more or less continue implementing the strategies safety, the pleasure of travel and respect maintained our market share in Europe. that have driven our development and for such citizenship values as environ- Our financial results also showed performance, and which will have an even mental protection. It is on our ability resilience, since most of the decline in greater impact in 2004. This is especially to respond to these expectations with operating margin resulted from the surge the case of the platform strategy that, along equal enthusiasm that our future growth

PSA PEUGEOT CITROËN 6 2003 Annual Report depends. We are therefore determined to for success. In 2004, we’re going to However, the second half of the year speed up our new car launch schedule, combine them even more effectively to should see the first effects of the with a commitment to introducing twenty- regain our momentum and improve our programs underway, with the Peugeot six new body styles between 2003 and profitability. 407 ushering in a large number of new 2006. model introductions. 2004 will therefore The success of these action plans naturally be a year of transition, paving the way Technologically, we plan to pursue a depends on the ability of our employees for a return to more resounding growth strategy based on ambitious objectives to implement them. To revitalize the skills in 2005. and the rapid extension of the latest base and support the development and technical advances across all our model production programs now underway, lineups. This is the spirit in which we’ve PSA Peugeot Citroën will pursue its active developed hybrid cars combining an hiring policies. In particular, we plan to internal combustion engine and an electric recruit more than 7,000 new Automobile motor. In 2004, we’ll be offering a stop- Division employees in France in 2004, and-start system as standard equipment thereby demonstrating our ability to create Thierry Peugeot Jean-Martin Folz on certain models, as a first generation jobs in our operations. Training will play an of hybrids capable of significantly important role in enabling these new improving fuel economy and reducing recruits, like our other employees, to give noise in urban driving. their best in helping us to meet our ambitious goals. In the same way, We are also engaged in a broad-based a sustained commitment to meaningful program not only to meet but to exceed social dialogue will ensure that all of the demanding quality standards of our our energies are aligned and focused on customers. The upcoming models will those goals. respond fully to their expectations. Based on the above, PSA Peugeot Citroën Safe, reliable, comfortable cars, dra- is cautiously optimistic as it starts 2004. matic styling, continuous technological The automobile market and currency innovation, flawless quality successful environment remain difficult and the model launches and production costs Group’s performance in the first half will enabling us to offer everyone an not be significantly different from that of affordable car—these are the conditions the second half of 2003.

PSA PEUGEOT CITROËN 2003 Annual Report 7 SUPERVISORY BOARD REPORT

In a difficult environment, worldwide sales by Peugeot and Citroën were slightly higher than the previous year, despite the sharp drop in the French market, and the Group’s position in Europe remained largely unchanged.

Earnings were down on the previous year, essentially due to the strength of the euro against the Group’s other currencies. However, the downturn was limited, with net income amounting to €1,497 million versus €1,690 million the previous year, while cash flow provided from operations more than covered capital expenditure for the year. The Group also remained in a net cash position and made further share buybacks, although the volume was smaller than in previous years.

The trend observed at the end of 2003 continued in the first part of 2004, but volumes should improve in the second half, helped by the launch of new models in the market segments where the Group’s position has traditionally been strong.

During the year, we continued to fulfill our oversight role, assisted by the three committees of the Board. The Finance Committee met four times in this, its first full year of activity, the Strategy Committee also met four times and the Compensation and Appointments Committee met three times. Details of the committees’ activities are provided in the Corporate Governance section of this report.

At our meeting on April 13, 2004, we re-appointed all the members of the Managing Board for another four-year period, as provided for in the bylaws. We congratulated the Managing Board on the Group’s achievements and performance over the past four years and stressed

PSA PEUGEOT CITROËN 8 Supervisory Board Report the critical importance of the forthcoming model launches. We also expressed our confidence in the Managing Board’s ability to successfully pursue the Group’s long-term development strategy.

We support the resolutions presented by the Managing Board to the Annual Stockholders’ Meeting.

We believe that the proposal to maintain the dividend at the prior year level, in a difficult environment, is consistent with the twin goals of offering stockholders an acceptable return and keeping adequate financial resources to prepare the future.

We invite stockholders to re-elect Thierry Peugeot, whose term as member of the Supervisory Board expires at the Annual Stockholders’ Meeting. We also propose adjusting the total amount of directors’ fees, which has remained virtually unchanged for the past fourteen years. The new proposed amount reflects the additional tasks performed by the Supervisory Board and also includes the specific fee paid to members of the Committees of the Board, which was previously the subject of a regulated agreement between the Company, and the members concerned.

The other resolutions concern the renewal of authorizations that have expired, related to share buybacks, the issuance of shares and share equivalents while a takeover bid for the Company is in progress, and the granting of options to purchase existing Peugeot S.A. shares to the employees, management and executive directors of Group companies. The terms of these authorizations are unchanged compared with the previous ones and we invite stockholders to approve them.

PSA PEUGEOT CITROËN Supervisory Board Report 9 MANAGING BOARD REPORT

PSA PEUGEOT CITROËN 10 Managing Board Report Growth Strategy ...... 12

Corporate Governance ...... 20

Business Review...... 34

Corporate Policies ...... 70

Management’s Discussion and Analysis...... 118

Statistics ...... 146

PSA PEUGEOT CITROËN Managing Board Report 11 PSA PEUGEOT CITROËN 12 Managing Board Report Growth Strategy

One Group, two marques ...... 14 A long-term vision of the future ...... 14 Human resources ...... 15 Sustainable development ...... 16 Costs, platforms and cooperative ventures ...... 17 A focus on profitability ...... 17 Outlook for 2004 ...... 18

PSA PEUGEOT CITROËN Managing Board Report 13 ONE GROUP, TWO MARQUES the design and manufacture of automotive A LONG-TERM VISION components and systems. OF THE FUTURE PSA Peugeot Citroën is building its development on two strong broadline Banque PSA Finance finances new vehicle PSA Peugeot Citroën is strategically focused marques, each with a global presence and and replacement part inventory for dealers on driving sustained, long-term growth in a clearly defined personality, as part of and offers a comprehensive array of Europe and around the world, based on coordinated international strategies and an financing and related services for Peugeot satisfying customers, expanding the model aligned product plan. The plan organizes a and Citroën carbuyers. It operates in 17 lines, innovating and achieving excellence comprehensive model lineup for each countries, corresponding to the two in core automotive technologies, marque and supports the consistency of marques’ leading markets, and plays a key enhancing employee capabilities, each one’s conceptual and stylistic identity. role in the Group’s strategic vision. demonstrating flexibility, and carefully It also defines a product launch schedule managing costs. that ensures the steady renewal of the Gefco is France’s second largest trans- Group’s offer in each market segment. portation and logistics company and ranks The Group is firmly engaged in a sustain- among the top ten in Europe. Supported able sales dynamic, with the goal of Both marques enjoy the independence by its traditional activities of supplying selling four million vehicles and CKD units needed to lead separate and often Group plants and distributing Peugeot and a year by 2006. Sales are expected to competitive strategies in the area of Citroën cars and replacement parts, Gefco expand both in Western Europe, where the marketing, sales and, more generally, represents a long-term growth business Group enjoys a considerable margin for customer relations. On the other hand, the for the Group and is actively expanding improvement, particularly in countries Automobile Division’s technological, manu- its base of other customers. where its market share is still below facturing, administrative and financial potential, and in the rest of the world, structures have been combined into a PSA Peugeot Citroën is also the majority notably in Central and Eastern Europe, single unit to create greater efficiency and stockholder of Faurecia, Europe’s second Latin America and China. economies of scale. largest original automotive equipment manufacturer and a world leader in each of PSA Peugeot Citroën’s strategy is shaped In addition to its core business of making its businesses: vehicle interiors, exhaust by the conviction that in an increasingly automobiles, PSA Peugeot Citroën is systems and front-end modules. An segmented and diversified market, a world- involved in three other major activities: independently managed company, class automobile manufacturer’s future financing for the two marques’ dealers and Faurecia supplies not only the Group but success depends on the ability to rapidly customers, transportation and logistics, and also most of the world’s leading carmakers. design and introduce a wide range of

PSA PEUGEOT CITROËN 14 Managing Board Report vehicles to satisfy an increasingly demanding and diverse customer base. Today’s customers want cars that are attractive, efficient, stylish, comfortable, innovative, fun to drive, and equipped with the technologies most of them want. Yet they also want cars that allow them to respond as responsible citizens to the challenges of road safety, air pollution, recycling and the quality of urban life.

The Group is continuously developing innovative products that significantly enhance brand image and customer appeal, while sustaining its leadership positions in critical automotive technologies Stylists working at the Design Center in Vélizy (France) in the areas of environmental protection, safety and the driving experience. Diesel technology is now recognized as environmentally friendly, thanks in that first-generation hybrid vehicles will be based on an active commitment to particular to the Group’s development of introduced in Europe in 2004. contractual negotiations and the reco- high-pressure, direct-injection engines—for gnition of unions in every host country. The which the HDI engine sets the market HUMAN RESOURCES goal is for all employees worldwide to standard—and its launch of the world’s first have the opportunity of participating in particle filter. The range of diesel engines In every host country and at every level of the Group’s strategy and financial results, using these technologies is being the organization, the Group’s strategic in particular through profit-sharing expanded, and recent developments have vision demands skilled, motivated teams systems and defined contribution confirmed the Group’s leadership in this capable of generating and supporting retirement plans. Another priority area. Based on its unique experience in sustained growth and international concerns training to prepare employees electric vehicles, the Group is developing development. This is why the Group in all countries for the fast changes in hybrid vehicle technologies and confirms encourages continuous social dialogue, the Group’s business and markets.

PSA PEUGEOT CITROËN Managing Board Report 15 SUSTAINABLE DEVELOPMENT The Citroën C5 and Peugeot 407 assembly line at the Rennes plant (France) PSA Peugeot Citroën’s objective is to manufacture vehicles whose features and performance help to safeguard the environment while delivering the styling, safety, drivability and usage satisfaction customers want. Group research primarily

focuses on reducing automotive CO2 emissions. Its findings and their application in series production are helping to efficiently attenuate the greenhouse effect.

So that cars are safe for everyone, major programs are underway to promote responsible vehicle use and to guarantee

the active and passive safety performance The Sochaux plant (France) that customers deserve from the Peugeot and Citroën marques.

PSA Peugeot Citroën is wholeheart- edly committed to enabling cars to The Group has also embraced the United environmental practices. A priority action harmoniously interact with the urban Nations’ Global Compact, demonstrating plan has been implemented to promote environment. As a carmaker, the Group its dedication to ensuring that its present these principles across the organization wants to contribute to the sustainable and future actions, in every country and among suppliers. In addition, development of urban mobility without where it operates around the world, guidelines in the Global Reporting compromising either the quality of air or contribute to sustainable development, in Initiative are being used to report labor, the quality of life. line with good ethical, social and environmental and social data.

PSA PEUGEOT CITROËN 16 Managing Board Report COSTS, PLATFORMS AND To speed growth and reduce costs vehicles in a jointly-owned plant in the COOPERATIVE VENTURES beyond what is being done internally with Czech Republic, a new cooperative the platforms, the Group implements venture was formed with BMW in 2002 to To help control costs, PSA Peugeot Citroën strategic cooperation agreements jointly develop and produce a new family has deployed an ambitious platform involving specific, ongoing programs of small diesel engines, which will equip strategy. Three new platforms to share, with other independent cars made by both partners. introduced at the end of 2001 serve as carmakers, the development and the floorplans for all new vehicles, and production of components for which These agreements let the partners share common parts account for 60% of the scale economies make sense. In this area, development costs and pool skills and production cost of vehicles made on the PSA Peugeot Citroën has for decades resources, thereby generating the scale same platform. Gradually, each demonstrated an ability to forge economies a carmaker needs to be assembly plant in Europe is being technological and manufacturing competitive. For PSA Peugeot Citroën, organized around a single platform, with agreements that respect each partner’s this type of alliance, in which each the exception of the facility in Vigo, personality and independence. It has partner remains independent, is the best Spain, which is dedicated to high worked with Renault on V6 engines and way to respond to the challenges and vehicles. As it helps diversify the model mid-range automatic transmissions for opportunities offered by market portfolio, this strategy is also roughly 30 years, with Fiat on MPVs and globalization and changing customer substantially reducing development light commercial vehicles for some 20 expectations. costs, shortening time-to-market cycles years and with the Ford Motor Company and cutting process engineering outlays, on diesel engines since 1998. The Ford A FOCUS ON PROFITABILITY production costs, and purchasing prices alliance will enable PSA Peugeot Citroën for parts and systems. In particular, it is to become the world’s leading Return on capital employed has been now allowing the Group to control manufacturer of diesel engines by 2004 selected as the relevant indicator for R&D budgets and stabilize capital and to benefit from related economies measuring the efficiency of manufacturing expenditure, while shortening new of scale. and marketing operations. Regardless of model development cycles. In 2006, business conditions, the Group is 90% of all models will be produced on After the 2001 agreement with Toyota to committed to achieving an after-tax return these three platforms. develop and manufacture entry-level on capital employed of at least 8.5%. This

PSA PEUGEOT CITROËN Managing Board Report 17 covers the cost of capital employed and the first half of 2004 either for automobile performance, with the new model corresponds to a 3% operating margin in demand in France and the rest of Europe launches having a significant impact on the Automobile Division. However, the or for the euro. During the period, market share and margins. Continued Group’s goal is to report an after-tax return PSA Peugeot Citroën will focus on improvement is also expected in the results of at least 13.5%, corresponding to a 6% managing the major launch of the of the other divisions, especially Faurecia operating margin. Peugeot 407 and preparing the and Banque PSA Finance. introduction of a large number of new OUTLOOK FOR 2004 models and engines in the second half of Forecasts for the year as a whole point to the year. In the first months of 2004, the moderate sales growth and operating 2003 was shaped by the negative impact Group therefore expects sales margin about the same as in 2003. All in of the fall in the French market and the performance in Europe and overall all, 2004 will be a year of transition, paving appreciation of the euro against all of the business results to remain at a level close the way for a return to more resounding Group’s other operating currencies. to that of second-half 2003. growth in 2005.

According to Group projections, the The second half of 2004 should see environment is unlikely to improve during an upturn in Automobile Division

PSA PEUGEOT CITROËN 18 Managing Board Report Supporting sales with financing and services solutions

Inauguration of the administration building at the TPCA plant in Kolín (Czech Republic)

An engineering office at Faurecia

The Peugeot 407

PSA PEUGEOT CITROËN Managing Board Report 19 Corporate Governance

The Supervisory Board ...... 22 Executive Management ...... 25 Internal and external controls . . . . .26 Investor Relations ...... 30 Annual Stockholders’ Meeting of May 26, 2004 ...... 33

PSA PEUGEOT CITROËN 20 Managing Board Report PSA PEUGEOT CITROËN Managing Board Report 21 PEUGEOT S.A., a joint-stock corporation with a Managing Board and a Supervisory Board Since 1972, Peugeot S.A. has been governed by a two-tier management structure, comprising a Managing Board, responsible for strategic and operational management, and a Supervisory Board, responsible for oversight and control. This separation is especially effective in addressing the concern for a balance of power between the executive and oversight functions, as reflected in the principles of good corporate governance. In accordance with the new corporate governance and internal control requirements introduced in the Financial Security Act of August 1, 2003, the Chairman of the Supervisory Board has produced a report on the organization and preparation of Supervisory Board meetings, and the internal control procedures put in place by PSA Peugeot Citroën.

THE SUPERVISORY BOARD in automotive manufacturing and senior executive responsibilities or is a marketing. salaried employee of a Group company. The Supervisory Board has twelve members plus two non-voting advisors, François Michelin, former legal manager When new Supervisory Board members all of whom are elected by stockholders of Compagnie Générale des Etablissem- are proposed for election at the for six-year terms. The other functions ents Michelin, contributes his experience Stockholders’ Meeting, the Supervisory exercised by Supervisory Board in international development. Board will select candidates based members and advisors are listed in the on the recommendations of the Appendices to the Managing Board Ernest-Antoine Seillière de Laborde, Compensation and Appointments Report, as well as the dates when they chairman of Wendel Investissements, Committee and the independence were elected and when their terms end. contributes his in-depth knowledge criteria referred to above. of manufacturing. Wendel is a major The Supervisory Board believes that stockholder of Valéo, an automotive Board deliberations in 2003 its membership appropriately reflects equipment manufacturer. The Supervisory Board met four times in the percentage of capital held by 2003, with an average attendance rate the Company’s main stockholder, the Jean-Paul Parayre, former chairman of 87.5%. The meetings were devoted Peugeot family. The Board comprises of the Peugeot S.A. Managing Board mainly to reviewing the Managing Board’s three family members, Thierry Peugeot, and Chairman of the Supervisory Board periodic reports on the operations and Jean-Philippe Peugeot and Marie- of Vallourec, contributes his knowledge results of the Group’s businesses, Hélène Roncoroni, and two relatives, of the automobile industry and the reviewing the financial statements of the Pierre Banzet and Marc Friedel. Group’s operations. Company and the Group, and authorizing commitments. The Supervisory Board Jean-Louis Dumas, Jean-Louis Masurel In accordance with the recommendation also approved its internal rules and those and Joseph F. Toot, Jr. have no ties of the French securities regulator (COB) of the three Committees of the Board. In with the Company, its Group or its dated January 17, 2003, the Board of future, periodic qualitative assessments management and contribute their Directors has reviewed its membership will be made of the Board’s procedures, international financial experience to and considers that Jean Boillot, Jean- the information made available to its the Board’s deliberations. Louis Dumas, Jean-Louis Masurel and members, the preparation of decisions Joseph F. Toot, Jr. can be qualified as and deliberations and the contribution of Jean Boillot was chairman of Automobiles independent directors. each Board member to the activities of Peugeot until 1990 and has since the Board and the Committees of the contributed to the Board his experience No member of the Board exercises any Board.

PSA PEUGEOT CITROËN 22 Managing Board Report Board procedures major transaction which substantially each Board committee as well as The Supervisory Board’s internal rules alters the business or financial structure the obligations of Supervisory Board set out its stewardship and control of the Company or the Group. members, especially those arising responsibilities. In particular, the from their constant access to insider Supervisory Board is responsible for Certain other actions exceeding information. periodically reviewing the Managing financial limits set by the Supervisory Board’s reports, as well as the Board may be carried out only with Supervisory Board annual financial statements of the the unanimous backing of all the committees Company and the Group and the members of the Managing Board or, The Supervisory Board has created three Managing Board’s report to the failing that, with the prior authorization specialized committees: the Strategy Annual Stockholders’ Meeting. The of the Supervisory Board. These include Committee, the Compensation and internal rules also stipulate that the the purchase or sale for cash or for Appointments Committee and the Supervisory Board is required to shares of any building and business Finance Committee. authorize, in advance, the following rights used by Peugeot S.A., involving actions by the Managing Board as an amount in excess of €50 million, Created in 1998, the Strategy provided for in Article 9 of the bylaws: the purchase or sale of any equity Committee had seven members at - Stockholder-approved share issues interest in any other company directly year-end 2003: Jean-Philippe Peugeot (whether paid up in cash or by or indirectly representing an immediate (Chairman), Jean Boillot, Jean-Louis capitalizing retained earnings) and or deferred investment, expense, credit Dumas, François Michelin, Jean-Paul capital reductions. guarantee or seller’s warranty involving Parayre, Thierry Peugeot and Ernest- - Stockholder-approved issues of ordi- an amount in excess of €50 million, Antoine Seillière de Laborde. It deals nary or convertible bonds. and any borrowings by Peugeot S.A. with issues relating to the Group’s - The drafting of any merger agree- other than in the form of bonds, long-term future and its major strategic ments or agreements for the sale of involving an amount in excess of orientations. It issues opinions and a business. €100 million. makes proposals and recommendations - The signature or termination of any to the Supervisory Board to prepare manufacturing and sales agreements The internal rules describe the infor- for the review of strategic projects, representing a future commitment mation to be made available to the while tracking significant transactions for Peugeot S.A., with companies Supervisory Board, the process to already underway. In particular, the whose corporate purpose is similar be followed to determine the issues Strategy Committee meets whenever or related to that of Peugeot S.A., to be discussed at Supervisory Board a project likely to engage the Company’s and generally the execution of any meetings, the terms of reference of future or to substantially modify

PSA PEUGEOT CITROËN Managing Board Report 23 the scope of business or financial the criteria to be used and recom- the Group’s interim and annual structure of the Company or the Group mending people for appointment or accounts, as well as the most significant is submitted to the Board’s prior renewal. The Committee met twice financial transactions. It also performed approval. in 2003 and again in February 2004 an initial review of internal control to prepare Supervisory Board decisions procedures and the procedures put The Strategy Committee met four times concerning the determination of fixed in place to comply with the new in 2003, to review the main lines of the salaries and bonuses for members Financial Security Act. On February 5, Group’s long-term strategy, its inter- of the Managing Board and the number 2004, the Committee met with the national development projects and of stock options to be granted to them. Statutory Auditors to review the certain cooperation agreements. It also met in September 2003 to make procedures for closing the Group’s 2003 recommendations to the Supervisory accounts, prior to their presentation The Compensation and Appointments Board concerning the compensation to the Supervisory Board on February Committee. Created in 1998, the of the Supervisory Board’s Chairman. 10, 2004. Committee’s duties were broadened Lastly, it met in April 2004 to review in 2003 to include preparing the the directors’ fees paid to members Compensation Board’s decisions concerning the of the Supervisory Board and the of Supervisory Board appointment of new members of the Committees of the Board. members Supervisory Board and Managing Pursuant to the decision of the Board. At year-end, it comprised Thierry The Finance Committee, set up in Stockholders’ Meeting of May 15, 2002, Peugeot (Chairman), François Michelin 2002, has three members: Marc Friedel Supervisory Board members and and Ernest-Antoine Seillière de Laborde. (Chairman), Jean-Louis Masurel and advisors are paid annual attendance Marie-Hélène Roncoroni. fees in an aggregate amount of The committee makes recommen- €192,500 a year, distributed equally. dations to the Board concerning It is responsible for informing the Board The Chairman and Vice-Chairmen of compensation for members of the of its opinion on the interim and annual the Supervisory Board and the members Managing Board, the Supervisory Board financial statements of the Company of the Committees of the Board also and the Board committees, as well and the Group. It may be requested to receive additional compensation voted as the grant of any stock options to review any corporate actions and other by the Board under regulated agree- members of the Managing Board. projects requiring prior approval by the ments with directors. The amount paid It also prepares the procedure for Board. The Finance Committee met four to individual Board members and selecting members of the Supervisory times in 2003. During these meetings, advisors is disclosed in the Appendices Board and Managing Board, determining it reviewed the procedures for closing to the Managing Board Report.

PSA PEUGEOT CITROËN 24 Managing Board Report EXECUTIVE MANAGEMENT (Executive Development), Jean-Claude and a variable bonus, based on the Hanus (Legal Affairs) and Liliane Lacourt achievement of personal objectives and ThePeugeot S.A. Managing Board (Corporate Communications). the Group’s operating margin and quality has three members: Jean-Martin Folz, targets for the year. The operating margin Chairman; Frédéric Saint-Geours, The Executive Committee and the target corresponds to the figure publicly Chief Executive Officer of Automobiles Senior Management team meet on announced at the beginning of each Peugeot; and Claude Satinet, Chief a weekly basis to discuss issues year. The target has been set at €2,195 Executive Officer of Automobiles Citroën. concerning the general management of million for 2004. T hey were re-appointed by the the Group and the Automobile Division. Supervisory Board for another four-year Specific committees have been set up In 2003, the members of the Managing term on April 13, 2004. for each of the other businesses, which Board were paid the following meet once a month to discuss issues compensation: The nine-member Executive Committee related to the management of the - Jean-Martin Folz: €1,629,000, including is responsible for the executive mana- business concerned. a bonus of €714,220 (43.84%). gement of the PSA Peugeot Citroën - Frédéric Saint-Geours: €735,000, Group. At January 1, 2004, the Executive The day-to-day management of the including a bonus of € 2 60,849 Committee was made up of the three Group is the responsibility of the (35.49%). members of the Managing Board, Vice Presidents Committee, made up - Claude Satinet: €735,000, including plus Yann Delabrière (Finance, Control of senior line executives. As of March 1, a bonus of €260,849 (35.49%). and Performance), Gilles Michel 2004, the Vice Presidents Committee (Platforms, Engineering, Purchasing), comprised 51 senior executives, as well Jean-Martin Folz also received €21,000 Jean-Marc Nicolle (Group Strategy as the members of the Executive in fees as director of Faurecia. and Products), Robert Peugeot Committee and the Senior Management (Innovation and Quality), Roland team. It meets on a monthly basis. Aggregate compensation awarded to the V ardanega (Manufacturing and members of the Executive Committee Components) and Jean-Luc Vergne Executive compensation and the Senior Management team for (Employee Relations and Human The compensation paid to members of 2003 amounted to €7.3 million, of which Resources). It is supported by a Senior the Executive Committee, the Senior the variable bonus accounted for 31.52%. Management team, whose four members Management team and the Vice The variable compensation awarded to report directly to the Chairman of the Presidents Committee is determined members of the Vice Presidents Managing Board. They are Xavier Fels on a similar basis to that of all Group Committee serving as of December 31, (External Relations), Jean-Louis Grégoire managers. It includes both a fixed salary 2003 amounted to 19.80% of the total.

PSA PEUGEOT CITROËN Managing Board Report 25 Stock options Board granted 126,000 stock options INTERNAL AND EXTERNAL CONTROLS Since 1999, the members of the to members of the Managing Board, Managing Board, the Executive as follows: Jean-Martin Folz 60,000 Controls are performed both internally, Committee, the Senior Management options, Frédéric Saint-Geours 33,000 by the Supervisory Board and the team and the Vice Presidents options and Claude Satinet 33,000 internal auditors, and externally, by the Committee have been granted options options. Statutory Auditors and, in the case of each year to purchase existing shares Banque PSA Finance, the Banque de of Peugeot S.A. stock, in accordance As of December 31, 2003, members of France Banking Commission. with the general principles underlying the Managing Board, the Executive the existing plans. Committee and the Senior Management Internal control covers all the processes team held 1,373,600 of the 3,827,300 and procedures implemented by The Managing Board, in full agreement options outstanding at that date. employees to provide reasonable with the Supervisory Board and in assurance that the following three compliance with stockholder-approved Details of stock option plans in effect objectives are met: optimization and limits, decided that starting in 2002, at December 31, 2003, the aggregate execution of operations; reliability of the benchmark price for options to number of options granted to the financial transactions; compliance with purchase existing shares granted in a eleven employees other than corporate applicable laws and regulations. Internal given year to executives or employees officers receiving the largest number of control contributes to the fulfillment of the Company or related companies stock options under the 2003 plan, and of performance and profitability targets, would be equal to the average of the the number of options exercised in but cannot provide absolute protection opening share price during the 20 2003 are presented in the Appendices against the risk of human error. trading days following the publication to the Managing Board Report. of the Group’s first-half consolidated Based on the Group’s operating earnings, without any discount. Faurecia has its own stock option plans. structure, the overall organization of No options were granted in 2003. internal control mirrors the chains On August 21, 2003, the Managing During the year, the Board of Directors of command in the divisions and the Board used the authorization granted agreed on the principle of eventually cross-functional responsibilities of the by the Annual Stockholders’ Meeting deciding to grant options to purchase corporate technology, manufacturing of May 15, 2002 to issue 996,500 new or existing shares of company and finance departments. options to purchase existing shares stock without any discount to the of Peugeot S.A. stock for €39.09 per average share price used to determine The general structure of delegations and share. Under this plan, the Supervisory option prices. sub-delegations of authority reflects the

PSA PEUGEOT CITROËN 26 Managing Board Report A Code of Ethics defining standards of conduct and behavior are covered in an efficient manner, to monitor the quality of internal audits - Compliance with the law - Professional commitment and to track implementation of the action plans recommended by the - Honesty and transparency - Protection of company property – internal auditors. Confidentiality - Compliance with occupational The Internal Audit department is health and safety rules - Conflicts of interests responsible for: - Guaranteeing the implementation of - Respect for workers’ rights - Relations with customers and suppliers internal controls; - Verifying compliance with mission- - Environmental stewardship - Political activities critical processes and methods and assessing their effectiveness; - Recommending improvements to enhance the performance of corporate departments and subsidiaries. Group’s organization structure. Based employees who have questions con- on a clear definition of each individual’s cerning the interpretation or practical The annual internal audit program role and responsibilities, they stipulate application of the Code. is submitted to the Executive Committee the areas in which the delegated for approval and the Vice President, authority may be exercised, the related The Internal Audit department reports Internal Audit reports to the Executive tasks, any regulations to be taken into directly to the Chairman of the Committee twice a year on the account and any specific practices to Managing Board. The Vice President, department’s activities and findings. be followed. Internal Audit has direct authority over the corporate-level internal auditors and Internal control is based first and In 2003, the Group issued a Code of has a dotted-line reporting relationship foremost on a series of financial and Ethics setting out the standards of with the internal auditors working in accounting procedures. conduct and behavior to be met by all various departments of the Automobile employees. The charter is available for Division and the other corporate The consolidated financial statements consultation on the Group intranet by all departments. This organization enables are prepared by the consolidation employees and the Managing Board has the Vice President, Internal Audit to department, which is also responsible appointed an Ethics Delegate to advise ensure that all of the Group’s activities for updating Group accounting policies.

PSA PEUGEOT CITROËN Managing Board Report 27 Controls over management information administration in connection with tax of cost, quality and delivery times. are performed at the level of the Group, audits, and analyzes the tax implications The Purchasing department’s internal the Divisions and the operating units. of major projects such as acquisitions, auditors are responsible for assessing disposals and reorganizations, as well the overall level of internal control, as Published financial information is based as of cross-border transactions. It well as the theoretical and practical on the consolidated financial statements also supervises operations carried out effectiveness of control procedures, and approved by the Managing Board and locally. proposing improvements. presented to the Supervisory Board, as well as on analyses of consolidated The procedures put in place by the The Manufacturing and Components data. The information is audited or operating units, and the related department oversees manufacturing reviewed by the Statutory Auditors prior controls are designed to guarantee operations at all production sites to being published. proper internal control of all Automobile throughout the world. Its core objective Division functions. is to ensure that products are manu- Financing decisions and banking factured in the required quantities, in relations are managed at Group level, In the area of research and development, accordance with the applicable technical together with cash management a project-based management approach and quality standards, at the lowest operations for euro zone subsidiaries, is used for the development of new cost and with an acceptable lead foreign currency cash flows and related vehicles and components, so as to time. Internal control is based on a transactions on the currency markets, clearly define the related return on comprehensive set of specific operating and financial market transactions related investment and cost targets. Each project procedures. It is organized around to interest rates. For entities outside is tracked from start to finish by a operational management systems, real- the euro zone, locally managed cash specific team. time centralized reporting of physical flows and cash balances are closely indicators and a process that drives tracked at Group level. The Purchasing department is respons- continuous improvement, as measured ible for defining and implementing global by a series of indicators calculated for The Tax department is responsible for purchasing policies applicable to all all production sites. managing the Group’s overall tax automobile businesses. It is organized position, monitoring compliance with to encourage supplier participation in the The Peugeot and Citroën marques tax laws and regulations and identifying design of products and processes, are responsible for defining and tax planning opportunities. To this end, as well as to ensure that bought-in marketing their products and services it manages the tax position of all of components, machinery and services throughout the world, enhancing their the French entities, deals with the tax comply with Group standards in terms image and building market share. Each

PSA PEUGEOT CITROËN 28 Managing Board Report marque’s system of internal control Leveraging the high level commitment tual auditors of all the Group’s fully is based on a description of operat- of all of its managers, the Group intends consolidated subsidiaries, with the ing processes and procedures in effect to continue taking a pro-active approach exception of the companies in the in the corporate departments, the to internal control with the aim Faurecia sub-group. They therefore have importer subsidiaries and the of achieving continuous improvement. access to the information required to audit dealerships. It is organized around the consolidated financial statements the management of operations by each External Auditors of the PSA Peugeot Citroën Group. marque’s senior management, relayed In accordance with French company law, Effective from 2003, they perform to each corporate department, subsidiary the financial statements of Peugeot S.A. continuous audits of the main and dealership, and a system of control and the consolidated financial Automobile Division companies and and continuous improvement. statements are audited by two firms of finance companies in France, therefore auditors. The two firms jointly audit improving the overall quality of their The other divisions apply the same all of the accounts and examine audit. standards and principles as the the processes used to prepare the Automobile Division, tailored to their financial statements, as well as the The auditors of Faurecia, which is listed specific organization structure. Group’s internal control processes on the Euronext Paris market, are and procedures. The two statutory appointed by the Annual Meeting Banque PSA Finance is also subject to auditors, PricewaterhouseCoopers Audit of Faurecia stockholders. The two firms banking regulations, with which it strictly and Constantin Associés, were of auditors, PricewaterhouseCoopers complies. appointed by stockholders at the Annual Audit and Ernst & Young Audit, were Meeting on June 2,1999, based on the appointed by stockholders at the Annual As an independent company, Faurecia recommendation of the Managing Meeting on June 1, 2001, for a period has its own system of internal control, Board. The choice of auditors was made expiring at the Annual Meeting to be described in the company’s annual report. after an open bidding process. Their called to approve the 2006 accounts. appointment expires at the Annual The procedures and controls performed Stockholders’ Meeting to be called to The auditors of joint ventures set up by the human resources, quality, approve the 2004 financial statements. with other automakers, which are risk prevention and management, accounted for by the equity method, are and information systems functions, Through the members of their networks appointed by the joint venture partners. provide background support for Group in all the countries where the Group operations in the drive for business operates, PricewaterhouseCoopers Audit The total fees paid to the auditors growth and improved profitability. and Constantin Associés act as contrac- in respect of 2003 amounted to

PSA PEUGEOT CITROËN Managing Board Report 29 Investor Calendar €11.4 million, including €9.3 million for PricewaterhouseCoopers, €0.9 April 29, 2004: July 27, 2004: million for Ernst & Young and €1.1 First quarter 2004 sales release First-half 2004 results release million for Constantin. In addition, members of the PricewaterhouseCoopers May 26, 2004: October 28, 2004: network and the Ernst & Young network Annual Stockholders’ Meeting Third quarter 2004 sales release were paid €1.8 million and €0.4 million respectively for non-audit services, June 2, 2004: February 23, 2005: consisting mainly of legal and tax advice Payment of the 2003 dividend 2004 annual results release outside France.

New stricter rules have been established - The Annual Report, available in French addition, the Group regularly interacts with concerning non-audit work performed and English. investors by inviting them to plant visits, by the auditors, in accordance with the - The Interim Report, also available in meetings in Europe, the United States and Financial Security Act. French and English. Asia, and invites financial analysts to - Press releases and financial notices. theme meetings to help improve their PSA PEUGEOT CITROËN - The Stockholders’ Newsletter. understanding of its business operations. INVESTOR RELATIONS - The Stockholders’ Guide. The Group also participates in industry presentations by financial institutions active Stockholder Information All of these publications are available in the capital markets. PSA Peugeot Citroën is committed to online at www.psa-peugeot-citroen.com, providing clear, regular information to all which also displays the Peugeot S.A. Stockholders wishing to receive financial individual and institutional stockholders, share price in real time. information on a regular basis may in France and abroad. It is constantly register at Company headquarters: improving the effectiveness of all aspects To forge and maintain effective relations of the investor relations process, with investors, PSA PEUGEOT CITROËN Peugeot S.A. including stockholder publications, other organizes a growing number of events for Investor Relations sources of investor information, and its stockholders and the entire financial 75 avenue de la Grande-Armée investor meetings and special events. community. Three major meetings are held 75116 Paris for the presentation of interim earnings, Phone: +33 (0) 1 40 66 37 60 All stockholders have access to the the presentation of annual earnings and Fax: +33 (0) 1 40 66 51 99 following sources of information: the Annual Stockholders’ Meeting. In E-mail: [email protected]

PSA PEUGEOT CITROËN 30 Managing Board Report 2003 price performance of the Peugeot S.A. share The Peugeot S.A. share versus the CAC 40 index and the DJ Euro Stoxx Auto index (base 100) The Peugeot S.A. share gained 3.96% in 2003, ending the year at €40.40 135 versus €38.86 on December 31, 2002. This compared with a 16.12% rise 120 in the benchmark CAC 40 index and 105 a 22.89% increase in the Dow Jones Euro Stoxx Auto index over the same 90 period. 75

60 JFMAMJJASOND JFM 2003 2004 Share buyback program Peugeot S.A. share CAC 40 DJ Euro Stoxx Auto PSA Peugeot Citroën believes buying back Source: Euronext its own shares represents an attractive investment opportunity for both itself and its stockholders until such time as its strategic objectives are fully reflected in Monthly high and low prices of the Peugeot S.A. share over five years the share price. In addition, the Group (in euros) has enough recurring cash flow from operations and cash holdings to carry out 70 the buybacks while maintaining its capital 60 expenditure commitment at €3 billion a year, in order to rapidly renew and extend 50 its model lineups and support expansion 40 in the global marketplace. 30

As a result, the share buyback program 20 launched in 1999 was pursued in 2003, JFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJF when a net total of 4,894,675 Peugeot 1999 2000 2001 2002 2003 2004 S.A. shares were bought back, at an Higher Lower Source: Euronext average price of €38.08, under autho- rizations granted at the Annual Stock- holders’ Meetings on May 15, 2002 (seventh resolution) and May 28, 2003 authorization granted at the Annual At December 31, 2003, Peugeot S.A. (eighth resolution). Stockholders’ Meeting on May 28, 2003 held 4,086,884 shares of its own stock (thirteenth resolution). Previously, in treasury, of which 3,763,200 were On November 24, 2003, 16,000,000 capital stock had been reduced by allocated to stock option plans. shares, representing 6.18% of total 9.3% in November 1999 and 8.3% capital stock, were canceled under the in November 2001.

PSA PEUGEOT CITROËN Managing Board Report 31 Stockholder structure at December 31, 2003 Capital Structure Peugeot family 29.17% and Ownership Caisse des Dépôts Group 3.49% Following the November 2003 share Employee mutual fund 1.94% cancellations, the Company’s capital Treasury stock 1.68% stock amounted to €243,109,146 at Société Générale Group 1.34% December 31, 2003, represented by Michelin Group 1.16% 243,109,146 shares with a par value of Groupe BNP Paribas 1.09% € 1.00 each. Other 60.13%

The interests held by the main stockholders identified by the Company Voting rights structure at December 31, 2003 are presented in the “Ownership Structure” table in the section entitled Peugeot family 43.14% “Information About the Company’s Caisse des Dépôts Group 2.74% Capital” in the Appendices to the Michelin Group 1.83% Managing Board Report. BNP Paribas Group 1.74% Employee mutual fund 1.52% Apart from the impact of the share Société Générale Group 1.38% cancellations on the percentage interest Other 47.65% held by each stockholder, and the Main shareholders identified on the basis of registered shares and notifications to the Company impact of purchases of treasury stock that disclosure thresholds had been crossed. on voting rights, changes in ownership structure during 2003 were not material. at the request of one or several Voting rights stockholders together holding at least at Annual Meetings The bylaws of Peugeot S.A. stipulate that 5% of the capital, the undisclosed Each share carries one vote that may any stockholder that acquires or raises shares will be stripped of voting rights be cast at the Annual Stockholders’ its interest to 2% of the Company’s for a period of two years from the date Meeting. However, fully paid-up shares capital or raises or reduces its interest on which the omission is remedied. registered in the name of the same by any multiple of 1% in excess of the stockholder for at least four years carry 2% threshold is required to notify the There are no other bylaw clauses double voting rights. The double voting Company. In the case of non-disclosure, limiting voting rights. rights system was maintained following

PSA PEUGEOT CITROËN 32 Managing Board Report the 1972 change in Peugeot S.A.’s represented a total of 308,888,782 voting €2.025 for stockholders entitled to the governance structure, with double rights rights. Peugeot S.A. shares held in maximum tax credit. attached to shares held for at least two treasury do not carry double voting rights. years. This period was increased to four Based on the number of shares years at an Extraordinary Stockholders’ ANNUAL STOCKHOLDERS’ outstanding at December 31, the 2003 Meeting on June 29, 1987. The Group MEETING OF MAY 26, 2004 dividend will total €328 million, for a invests for the long term and recognizes payout ratio of 21.9% of consolidated the importance of stockholder loyalty, Income appropriation net income. which it rewards through the system of In light of the consolidated results for double voting rights. 2003 and the targets set for 2004, the In compliance with article 47 of Managing Board has recommended the Law of July 12, 1965, dividends As of December 31, 2003, the 243,109,146 maintaining the net dividend at €1.35 paid in the last three years were outstanding Peugeot S.A. shares per share, representing total revenue of as follows:

2000 2001 2002 Number of shares carrying dividend rights 260,937,984 255,409,004 240,820,430 Dividend before tax credit €0.83 €1.15 €1.350 Tax credit €0.42 €0.58 €0.675 Total revenue per share €1.25 €1.73 €2.025

Financial authorizations opportunities to buy back shares, within The third, granted in the ninth At the Annual Stockholders’ Meeting, the specified limits and while maintaining resolution for a period expiring on the Managing Board will seek three control over its net financial position. August 31, 2005, authorizes the financial authorizations. Managing Board to grant to employees, The second, granted in the eighth management or executive directors of The first, granted in the seventh resolution, resolution, concerns the renewal, for a the Company and its subsidiaries, concerns an authorization to buy back up period of one year, of the authorization options to purchase Peugeot S.A. shares to 24 million Peugeot S.A. shares, or nearly to issue new shares and securities held by the Company for this purpose. 10% of total Peugeot S.A. shares conferring a right to acquire equity while No more than 2,000,000 options may outstanding. The Group intends to use the a public offer to acquire or exchange be granted and the life of the options authorization to take advantage of price the Company’s shares is in progress. will not exceed eight years.

PSA PEUGEOT CITROËN Managing Board Report 33 Business Review

Operating highlights ...... 36 Automobile ...... 42 Banque PSA Finance ...... 54 Gefco ...... 58 Faurecia ...... 62 Other Businesses ...... 66

PSA PEUGEOT CITROËN 34 Managing Board Report PSA PEUGEOT CITROËN Managing Board Report 35 OPERATING HIGHLIGHTS

JANUARY FEBRUARY New family of small PSA Peugeot Citroën and Ford Motor gasoline engines to be Company unveil new common rail produced in Douvrin diesels developed in second phase A production facility will of cooperation be built at the Française Representing an aggregate investment de Mécanique plant in of nearly €1 billion, the 1.6-liter and northern France to 2-liter engines will be built at the manufacture the new Trémery plant in eastern France. family of small gasoline Output will eventually exceed engines, developed in 1,600,000 units a year. cooperation with BMW. Production is scheduled to begin in late 2005.

JANUARY FEBRUARY Peugeot production tops 40 million vehicles Peugeot 307 to be built in Argentina in 2004 One of the great marques in the history of the global automobile The new mid-range platform will enter production industry, Peugeot celebrates the production of its 40 millionth at the Buenos Aires plant in 2004. vehicle, after more than a century in business.

PSA PEUGEOT CITROËN 36 Managing Board Report APRIL MARCH Peugeot 807 and Citroën C8 earn 5 stars in EuroNCAP safety tests The vehicles were the first executive MPVs to achieve this level of passenger protection, confirming PSA Peugeot Citroën’s superior worldwide passive safety performance.

Banque PSA Finance begins APRIL operations in the Czech Republic Cornerstone laid on new and Slovakia transmission production unit PSA Finance Ceska Republika S.r.o. in Valenciennes and PSA Slovaquia S.r.o. now offer In 2005, the €430-million facility financing solutions and services will begin manufacturing the new tailored to the Czech and Slovak dealer MCP compact electronic transmission, networks and their customers. With the which will gradually be offered on new companies, Banque PSA Finance mid-range Peugeots and Citroëns. is present in 17 countries in Europe, Latin America, and more recently, China.

PSA PEUGEOT CITROËN Managing Board Report 37 OPERATING HIGHLIGHTS

APRIL MAY PSA Peugeot Citroën joins Gefco opens new international logistics Global Compact platform in Le Havre PSA Peugeot Citroën has pledged to The new facility will supply parts to support the Global Compact, which PSA Peugeot Citroën sites outside Europe, brings companies together with United shortening cycle times between order Nations agencies, international labor execution and delivery. organizations, NGOs and other parties in order to promote nine universal principles in the areas of human rights, labor standards and the environment.

MAY Market launch of the Citroën C3 Pluriel APRIL The unique multi-configuration supermini Porto Real plant in Brazil starts Citroën C3 production demonstrates Citroën’s inventive talent The start-up adds a third model to the Group’s Brazilian output, alongside the by creating a new motoring experience. Citroën Xsara Picasso and the Peugeot 206. All of the models are marketed in Latin America, one of PSA Peugeot Citroën’s strategic growth regions.

PSA PEUGEOT CITROËN 38 Managing Board Report JUNE JUNE Cornerstone laid for PSA Peugeot Citroën More than 500,000 particulate plant in Trnava, Slovakia filter-equipped Peugeots Located 45 kilometers from Bratislava, and Citroëns sold the new assembly plant will extend the Unveiled in April 1999 and introduced Group’s production base in Europe. in a world first in May 2000, the particulate It will begin manufacturing small Platform 1 filter system reduces diesel engine emissions vehicles in 2006, with annual production to nearly zero. Its gradual extension capacity of 300,000 units. across the model lines confirms PSA Peugeot Citroën’s commitment to an ambitious environmental policy.

JUNE Market launch of the Peugeot 206 RC The latest member of the 206 family offers sports-car thrills without sacrificing safety.

JULY Faurecia selected by Chrysler As part of its expansion in North America, Faurecia will supply complete seats, standard seat frames, instrument panels, center consoles, door panels and exhaust systems for a variety of upcoming Chrysler models.

PSA PEUGEOT CITROËN Managing Board Report 39 OPERATING HIGHLIGHTS

SEPTEMBER SEPTEMBER Market launch New paint shop of the Peugeot 307 CC inaugurated at the The market’s first four-seat Mulhouse plant coupe-cabriolet, the elegant The new facility introduces 307 CC will appeal to anyone major innovations at every who loves convertibles, phase of the painting sports coupes or sporty process, while responding sedans. to high quality standards, environmental concerns, workstation practices and manufacturing flexibility.

SEPTEMBER Market launch of the Citroën C2 Produced at the Aulnay plant, the Citroën C2 three-door sedan extends Citroën’s compact line-up. It offers an innovative, modular interior.

SEPTEMBER PSA Peugeot Citroën issues 30-year bonds SEPTEMBER PSA Peugeot Citroën issues €600 million in 30-year bonds, enabling the Group to increase its long-term capital and thereby A new R&D center for Faurecia strengthen its balance sheet, at favorable interest rates. Faurecia inaugurates a new Research and Development facility in Hagenbach, Germany, dedicated to the design and development of instrument panels and cockpits.

PSA PEUGEOT CITROËN 40 Managing Board Report OCTOBER DECEMBER Group Purchasing Presentation of the new Department opens 2-liter, 136bhp HDI engine a representative office fitted with a particulate filter in China The Peugeot 307 is the first car The new purchasing office equipped with the new HDI in Shanghai will leverage diesel, developed in the Group’s fast growth in China cooperation with the Ford to broaden automobile Motor Company. The components sourcing for environmentally friendly, high the manufacturing operations performance engine is quiet worldwide. running and consumes less fuel. It will be gradually offered on other Group models.

NOVEMBER Citroën wins World Rally Championship In the first full year of the Xsara WRC, Citroën won the manufacturer’s title of the World Rally Championship, succeeding Peugeot, which won in 2000, 2001 and 2002.

DECEMBER More than 100,000 vehicles sold in China in 2003 For the first time, DPCA, the Group’s joint venture with Dongfeng Motor Corp., produced and sold more than 100,000 Citroëns during the year.

PSA PEUGEOT CITROËN Managing Board Report 41 AUTOMOBILE

PSA PEUGEOT CITROËN 42 Managing Board Report A Peugeot dealership in Turkey

A Citroën Xsara Picasso in China

SLIGHTLY HIGHER GLOBAL DEMAND

In 2003, the world automobile market grew by 2.0% to 57.2 million passenger cars and light commercial vehicles. The Western European market contracted 1.5% to 15,977,600 new vehicle registrations, while demand in North America eased 1.4% to 18,287,000 new vehicle registrations. A Citroën dealership in Latvia

Markets in Asia recorded an aggregate gain of 11.3%. In particular, demand in China continued its steep upward trend, as 3,286,100 VEHICLES SOLD compact and the phase-out of the Peugeot passenger car registrations surged more WORLDWIDE IN 2003 406 sedan, to be replaced in second-half than 80% during the year to some 2004 by the Peugeot 407. 2,000,000 units. In Japan, the market PSA Peugeot Citroën’s worldwide sales edged up 0.8% to 5,750,000 registrations rose 0.6% to 3,286,100 units from These unit sales gave the Group a 5.8% after two years of decline. 3,267,500 units in 2002. share of the global market.

Demand in South America declined by an In a difficult environment shaped by lower STABLE MARKET SHARE overall 4.5%, with the Argentine market demand in Europe, particularly in France, IN WESTERN EUROPE rebounding 42% and the Brazilian market the Group demonstrated firm resilience, retreating by another 8%. maintaining almost unchanged its positions Registrations of PSA Peugeot Citroën cars in Western Europe and continuing to and light commercial vehicles declined After several years of weakness, auto increase sales in the rest of the world. 2.1% to 2,460,000 units, tracking the markets in Central Europe returned to Citroën sales rose 4.6% to 1,372,500 market decrease of 1.5%. As a result, growth, gaining an aggregate 6.2%, while vehicles, while Peugeot sales retreated market share eased to 15.4% from 15.5%, in Turkey, demand turned sharply upwards, 2.1% to 1,913,600 units, due entirely to primarily due to the sharp fall in French climbing 127% during the year. the termination of the Peugeot 106 demand during the year.

PSA PEUGEOT CITROËN Managing Board Report 43 The Citroën In the 17-country Europe, market share now Berlingo exceeds 10% in 14 countries and stands between 9 and 10% in Austria and Ireland. The Peugeot 206 CC The Group is therefore nearing the target of holding at least 10% of each European market by 2004. The only exception is Germany, where market share rose to 5.9%, approaching the goal of 6.5%.

Europe’s top producer of light commercial vehicles, with 354,500 registrations, the Group consolidated its leadership by increasing market share by nearly a point to 20%. It was also once again Europe’s second largest manufacturer of passenger The Citroën C3 Pluriel cars, with 2,105,500 registrations, down 2.7%, and 14.8% of the market, versus 15% in 2002. 793,700 units from 864,600 the year against the euro, which considerably before, although the Group remained eroded sales margins. They focused on In all, PSA Peugeot Citroën strengthened its market leader with a 33.2% share, the most profitable markets, withdrawing position as Europe’s second largest versus 33.9% in 2002. from segments where margins were carmaker, ranking number one in France, unacceptable, such as large corporate and Spain, Belgium, Portugal, the Netherlands In the United Kingdom, Peugeot and car rental fleets. Market share among UK and Denmark, and second in Italy, Austria, Citroën registrations retreated 9.1% fleets and car rental companies amounted Greece and Switzerland. to 343,400 units in a market up 1.9%, to 10.4%, compared with 13.8% in the making the UK the only European country retail segment. Three-quarters of the decline in Group where the Group’s market share registrations in 2003 was attributable to significantly declined during the PSA Peugeot Citroën enjoyed another the weaker French market, whose 6.2% year, to 11.9% from 13.3% in 2002. year of strong growth in Italy, led by drop was much steeper than in the rest Both marques adjusted their marketing the 77,300 registrations of the highly of Europe. Registrations fell 8.2% to strategies to reflect the fall in the pound popular Citroën C3. Group registrations

PSA PEUGEOT CITROËN 44 Managing Board Report totaled 265,400 units, up 8.4% in a The Group’s pricing policy In Latin America, where economic market down 4.2%. Market share topped conditions remained difficult, sales eased the 10% target, gaining more than a point The Group maintained a healthy pric- by 1% to 108,300 cars. to 10.9% for the year. ing policy in 2003 despite prevailing market trends. Even in the face of Sales in Brazil fell 12% in a market down The Group continued its steady expansion aggressive competition, real transaction 8%, causing market share to ease to 4.3% in Germany, widening market share prices continued to rise, reflecting an from 4.5% the year before. The decline to 5.9% from 5.4% in 2002, on track assertive commitment to: reflected the decision by the Peugeot and to meet the targeted 6.5% in 2004. - Focusing on retail sales, a segment in Citroën marques to sharpen the focus of Both marques offer models meeting which the Group’s market share is their marketing strategies in response to a the market’s demanding safety and higher than its overall position. decline in operating margin as the real environmental standards, with the - Limiting sales in the United Kingdom weakened against the euro. Greater sales particulate filter an important selling and Brazil, where exposure to the selectivity was supported by a major point. Sales are also being driven by currency effect is highest. commitment, undertaken in early 2003, to an extensively restructured dealership - Driving convergence of car prices in increasing the proportion of production network and innovative versions the European markets, where prices costs denominated in reals. like the Citroën C3 Pluriel and the show the greatest divergence under Peugeot 206 CC and 307 SW, which new block exemption rules. After collapsing the previous year, the enhance the image of both marques. Argentine auto market rebounded a sharp STRONG GROWTH IN SALES 42% in 2003, but volumes remained low. The Group maintained its position as OUTSIDE WESTERN EUROPE Group sales totaled 17,300 units, with Spain’s leading carmaker, with a 22.4% market share declining to 12.3%. of the market compared with 22.6% Sales outside Western Europe rose 15% to the year before. Citroën, the local 817,300 vehicles in 2003, exceeding the Sales rose 17% to 133,200 units in Central number two in passenger cars and Group’s target of selling 800,000 units Europe, where markets were generally number one in light commercial vehicles, outside Western Europe a year ahead of on the mend. increased registrations by 5.2%, while schedule. The performance confirmed the Group’s Peugeot sales rose 2.6%. Comprising 561,500 Peugeots and position as the region’s second largest 255,800 Citroëns, they accounted for an carmaker, with market share rising In the other European markets, aggregate aggregate 24.9% of consolidated unit to 12.7% from 12.6% in 2002. In particular, market share improved substantially, to sales, versus 21.7% in 2002 and 18.8% share stood at 12.4% in Poland and 11.3% 15.3% from 14.8% in 2002. in 2001. in Turkey.

PSA PEUGEOT CITROËN Managing Board Report 45 PSA Peugeot Citroën in China popular in China. Marketing of the four- door trunked sedan, to be produced at Present in China since 1992 through the Wuhan plant, is scheduled to begin in Dongfeng Peugeot Citroën Automobile the summer, with sales targeted at (DPCA), the Group currently serves 5.1% 15,000 units in 2004 and 50,000 in of the local passenger car market, esti- 2005. This means that Wuhan will be mated at around two million vehicles. producing five Citroën models and one Peugeot model, in line with the objective announced during the signing of the Peugeot 2002 agreement. In addition, production 307 Sedan of the Peugeot 206, Europe’s best selling car in 2001 and 2002, will also begin in 2005, with other launches following close behind.

Start-up of local Peugeot production is being supported by the creation of a dedicated marketing organization and the gradual deployment of a network of 80 exclusive DongFeng Peugeot dealers in It operates two production facilities To maintain its share of an extremely fast 52 of the country’s latest cities, in time in Hubei province: an assembly plant growing market, which surged 83% in for the mid-2004 launch of the new 307. at Wuhan with rated capacity of 150,000 2003 after increasing 53% in 2002, Demand for the broader Group offering vehicles a year, and a mechanical PSA Peugeot Citroën and DongFeng will be met by increasing capacity at components plant at Xiang Fan. Motor, the two equal partners in DPCA, the Wuhan plant to 300,000 vehicles a On the marketing side, a dense sales announced the continued implemen- year as from the second half of 2006. network markets Citroën vehicles and tation of an ambitious product plan. The provides customer service through more first phase involves the first-half 2004 The sales target for the joint venture has than 350 contact points in over 250 cities introduction of the Peugeot 307 been set at an aggregate 140,000 cars nationwide. hatchback, a body style that is especially in 2004.

PSA PEUGEOT CITROËN 46 Managing Board Report The Citroën C5

The Citroën Elysée

version launched in 2002 and the image capital generated from the early 2003 introduction of the 206 RC version. The 206 was again the year’s best-selling car in its category in Western Europe, with 3.8% of the market.

Citroën C3, C3 Pluriel and C2 For Citroën, the highlight of 2003 was the sustained market success of the C3. Launched in April 2002, the C3 exceeded Nascuntur fiunt orator its sales targets for 2003 and made a Lorem ipsum iunt montes strong contribution to Citroën’s sales The Peugeot 206 RC nascetur ridiculus growth. It also won a number of awards during the year, notably the car of the year In Russia, sales climbed 33.9% to 12,200 In Iran, CKD billings increased 27.3% to prize in Spain. Launched in May, the Pluriel units or 7% of the import market. Peugeot 199,200 units from 156,500 in 2002, with version enhanced the image of the entire enjoyed steady growth, to 8,900 vehicles, Peugeot accounting for 192,300. C3 line with the unrivalled ability to be and announced the creation of a new configured in five body styles: hatchback, import subsidiary to manage the marque’s GROWTH LED BY SUCCESSFUL panoramic, open top, four-seater cabriolet importing, marketing and development in MODELS and cabriolet pick-up. In all, 372,600 C3s Russia starting in 2004. and C3 Pluriels were sold during the year. The slight increase in worldwide unit sales In China, Citroën sold 104,000 cars, an confirmed the recognized appeal of the In the final quarter of 2003, Citroën increase of 21.7%. Sales have practically Group’s recent models and newly expanded its line of superminis with the doubled in two years, led by the successive introduced technologies. C2, a new three-door sedan. Stunningly introductions of the Xsara Picasso (2001), styled, the C2 also breaks new ground with the Elysée (2002) and the Xsara (2003). Peugeot 206 an innovative modular interior and trunk Sales of the Peugeot 206 remained firm access concept that can be configured for In Japan, where demand for imported cars throughout 2003, easing by just 1.5% to any situation. Highly popular with fell by nearly 5% in 2003, sales amounted 819,700 units. They were supported by customers, the C2 and its sister compacts, to 16,400 vehicles, versus 16,900 in 2002. the full-year performance of the SW the C3 and C3 Pluriel, offer the promise of

PSA PEUGEOT CITROËN Managing Board Report 47 The Peugeot Partner Beginning in 2004, the 307 will be produced in Argentina and China. The Citroën Xsara Picasso Citroën Berlingo/Peugeot Partner Sales of the Citroën Berlingo and Peugeot Partner returned to growth in 2003, led by the restyled versions introduced in October 2002. Berlingo sales rose 8.7% to 180,400 units, while Partner sales gained 15% to 135,100 units.

Peugeot 807/Citroën C8 Sales of executive MPVs more than doubled to an aggregate 62,200 units in 2003, the first full year of the Peugeot The Peugeot 307 SW 807 and Citroën C8 on the market. In April, they were awarded five stars in EuroNCAP safety tests.

Diesel engines further gains as part of Citroën’s recent further broadened by the February 2004 and the particulate filter growth dynamic. More than 56,000 C2s market launch of the new 1.6-liter, 110bhp European demand for diesel-powered were sold by the end of 2003. HDI engine. vehicles continued its strong upward trend in 2003. Further enhanced during Citroën Xsara Picasso Peugeot 307 the year with a new 2-liter version, 218,000 Citroën Xsara Picassos were sold Peugeot 307 sales rose 3% in 2003 to PSA Peugeot Citroën’s line of high- in 2003. The model’s appeal was enhanced 559,400 units, with the SW version, pressure, direct injection (HDI) diesel during the year with the introduction of a launched in March 2002, accounting for engines is now available on almost every new 16-valve, 137bhp 2.0i engine coupled 25% of the total. The lineup was expanded model, positioning the Group as the to an Autoactive automatic transmission in September with a coupe-cabriolet benchmark in diesel powerplants, in with sequential gear change control. It was version inspired by the 206 CC concept. terms of not only fuel economy and

PSA PEUGEOT CITROËN 48 Managing Board Report emissions control, but also performance The new plant being built in Kolín and driving pleasure. Nearly 1.4 million HDI-powered vehicles were sold in 2003, In April 2003, one year after ground- an 8% increase over the prior year. In all, breaking, PSA Peugeot Citroën and diesels accounted for 49.7% of Toyota Motor Corp. held a topping consolidated sales, while Peugeot and ceremony for the new plant being built Citroën held a combined 18% of the in Kolín, Czech Republic by their European market for diesel-powered joint venture, Toyota Peugeot Citroën passenger cars. Automobile (TPCA). During the cere- mony, the two partners emphasized the PSA Peugeot Citroën remains the un- smooth progress of the joint venture. Outside view of the TPCA facilities contested world leader in particulate Work on the plant is expected to be in Kolin (Czech Republic) filters, an especially environmentally completed by the spring of 2004, in line friendly technology that was introduced as with the initial construction plan. a world’s first in May 2000. By year-end Manufacturing tools will then be 2003, nearly 600,000 Peugeot and Citroën installed and, as forecast, the vehicles It will employ around 3,000 people and vehicles had been fitted with the filter, based on the TPCA joint platform will be able to produce 300,000 cars a year, which is now offered on six model families. start rolling off the assembly lines i.e. 100,000 units for each marque, or In November 2002, a second generation in 2005. 200,000 for PSA Peugeot Citroën. The was introduced that, depending on the total budget is estimated at €1.15 version, can go without servicing for up to The TPCA plant will manufacture small billion, of which €510 million to build 120,000 kilometers, instead of 80,000 cars, primarily for European markets. the plant. kilometers for the previous version. A third generation eliminating servicing alto- gether will be introduced in 2004. committed to producing at least four America and China, and plants operated in PRODUCTION CAPACITY AND million vehicles in 2006. This growth has cooperation with other carmakers. FLEXIBILITY resulted in high capacity utilization across According to the Harbour index, which the Group’s manufacturing base, which measures a plant’s utilization based on Assertively engaged in a long-term growth comprises nine assembly plants in hourly capacity, an average 16-hour dynamic, PSA Peugeot Citroën remains Western Europe, other facilities in South workday, and 235 workdays a year,

PSA PEUGEOT CITROËN Managing Board Report 49 assembly capacity utilization in Western be extended by a new assembly plant in the platform strategy can be realized. Europe remained a high 114% in 2003, Trnava, Slovakia. Dedicated to small This is expected to reduce annual versus 117% in 2002. platform-1 Peugeot and Citroën vehicles production costs by some €800 million and scheduled to come on stream in from 2002 to 2006. The new work schedules implemented 2006, the new unit will also be able to since 1999 proved effective in meeting build 300,000 cars a year. Lastly, the Improving manufacturing the need for flexibility and competi- Group’s joint venture with DongFeng efficiency tiveness in responding to changing Motor is planning to expand its PSA Peugeot Citroën is implementing a market demand during the year. In the production capacity in China. program to enhance the efficiency of its first half, for example, output was manufacturing facilities with two action increased by around 7% year-on-year REDUCING AND POOLING COSTS plans. The first, already underway, is ex- through the use of temporary employees tending global best practices across the and additional shifts, while in the second To improve efficiency, PSA Peugeot Citroën organization and improving general plant six months, production was cut 4% year- is aggressively pursuing its commitment organization. The second is driving significant on-year by eliminating certain shifts to reducing costs. progress in the assemblability of new or through voluntary reductions in models and in working conditions to shorten working hours. The platform strategy assembly time and improve manufacturing The Group pursued its platform strategy performance. Average vehicle assembly To meet its growth targets while secur- in 2003, with the objective of having time has already been reduced by 17% ing an optimum balance between high common parts account for at least 60% from 2001 to 2003. Together, these two capacity utilization and the resulting of the cost of vehicles made on the same action plans are expected to generate ad- technical, financial and labor-related platform. The strategy is helping to lower ditional savings of around €350 million constraints, the Group is building new production costs, reduce unit research from 2002 to 2006. production capacity. The Kolín plant and development expenses, keep capital being built with Toyota in the Czech expenditure under control and shorten An assertive cooperation strategy Republic will have capacity to manu- time-to-market cycles. The three new During the year, PSA Peugeot Citroën facture 300,000 vehicles, including platforms have been available since pursued its strategy of forming cooperative 200,000 Peugeots and Citroëns. It will 2002. Once the old platforms have been ventures with other manufacturers, start producing small, entry-level cars in phased out and each plant is specialized preparing for full ramp-up of the ventures 2005. The manufacturing base will also by platform, then the full savings from with Ford, Toyota and BMW. The Ford

PSA PEUGEOT CITROËN 50 Managing Board Report Production of the Citroën C3 Pluriel at the Madrid plant venture will have a full-year impact in 2004 (Spain) with the production and marketing of three Start-up of Peugeot 307 families of direct injection diesel engines, production in Argentina from the 1.4-liter HDI to the 2.7-liter V6. The Toyota venture will reach maturity in first-half 2005, when it will launch a line of small, entry-level cars primarily intended for the European market. Production of the new family of small gasoline engines developed in cooperation with BMW is scheduled to begin in 2006.

Reducing costs more quickly The Group has decided to accelerate programs to reduce purchasing costs and capital expenditure. Construction of the Trnava plant (Slovakia)

As part of this process, global sourcing is being implemented to increase the remains in effect for 2004 and 2005. Peugeot 407 at the Rennes plant and volume of automotive parts and Continuing the program beyond 2005 will the Peugeot 307 in Argentina, as well as components purchased from low-cost hold consolidated capital expenditure the production of new models at the suppliers. In 2003, for example, a pur- below €3 billion. Mulhouse and Poissy plants. chasing office was opened in Shanghai (China). Capital expenditure committed by the Programs to renovate and update the Automobile Division totalled €2,547 manufacturing base were also pursued Unit cost per car sold is also being reduced million in 2003, versus €2,357 million during the year, with the construction of a through a dedicated program to tighten in 2002. Outlays corresponded primarily new paint shop at the Mulhouse plant capital expenditure. The target of capping to the start-up of production of the and the modernization of the Poissy car capital outlays at €3 billion a year, Citroën C3 Pluriel at the Madrid plant, assembly line. Other capital programs including construction of the Trnava plant, the Citroën C2 at the Aulnay plant, the concerned the start-up of production of

PSA PEUGEOT CITROËN Managing Board Report 51 Introducing the Peugeot 407 the six-speed manual transmission at the Metz plant, while at the Trémery plant, In December 2003, Peugeot unveiled work was completed on the second the replacement of the 406, intended for manufacturing module for the small a market segment representing a critical diesel engines to be produced by the strategic challenge for any broadline cooperative venture with the Ford Motor carmaker. Scheduled for market launch Company. in spring 2004, the Peugeot 407 will mark a bold turning point in the upper MODERATE SALES GROWTH midsize sedan market, with stylistic IN 2004 innovation, handling and exceptional active and passive safety features that The pace of new model introductions will all set new standards in the segment. slowed somewhat in the second half of 2003, but will pick up sharply in 2004, In the summer, the 407 range will be 2005 and 2006, as the Group maintains extended with the SW version. In a 2.2 liters and 3 liters) and two new- its objective of launching 26 new models radical break with the stylistic codes of generation HDI diesel engines (1.6 liters from 2003 to 2006. For example, six new the traditional station wagon, the and 2 liters). With a lineup that will be body styles and two new powertrains will Peugeot 407 SW projects an exciting, further enhanced with a third body style be introduced in 2004. elegant styling identity all its own. in 2005, the Peugeot 407 will enable the marque to strengthen its position in The full-year impact of the models Produced at the Rennes plant, the Europe, gaining new market share and launched in 2003—the Citroën C3 Pluriel, Peugeot 407 will be introduced with enhancing its image. The full-year sales Peugeot 307CC and Citroën C2, plus the four gasoline engines (1.8 liters, 2 liters, target is 300,000 units. two new HDI diesel engines developed in cooperation with Ford that will be rolled out in 2004—should enable the rules in the upper midsize segment and Citroën model, whose unit sales will enable Group to hold first-half 2004 sales in exert a substantial positive impact on both the marque to restore its predominant line with second-half 2003 levels. market share and consolidated margins. position in the midsize segment.

Beginning in the spring, the sedan and SW Other product news will concern the late- As a result, the Group is expecting versions of the Peugeot 407 will rewrite the year introduction of two versions of a new moderate growth in sales in 2004.

PSA PEUGEOT CITROËN 52 Managing Board Report The ES9 V6 gasoline engine

A Peugeot showroom in Rome (Italy)

The Citroën C8 interior

The Citroën C3 Pluriel

PSA PEUGEOT CITROËN Managing Board Report 53 BANQUE PSA FINANCE

PSA PEUGEOT CITROËN 54 Managing Board Report Concession Peugeot en Australie

A Peugeot dealership in Australia

In 2003, Banque PSA Finance continued to expand in the global marketplace, upgrade its operating systems and deploy its products and services. These develop- ments drove strong growth in business and a sharp improvement in margins.

Nascuntur fiunt orator During the year, the Bank completed Lorem ipsum iunt montes nascetur ridiculus several major steps in its international expansion, as it supported the fast growth of the Peugeot and Citroën marques with an offer of financing solutions and related services similar to those marketed in Western Europe. In Central Europe, it started up operations in the Czech Republic and Slovakia and created a new A Citroën dealership in Belgium subsidiary in Hungary, which began operating in early 2004. In China, where banking authorities began at year-end to prepare regulations to govern to merge with these systems the French Europe of the portfolio of financing and support the development of auto- operating system. Deployment will services (loan insurance, financial loss mobile financing, the Bank opened a continue across Western Europe through insurance) and vehicle-related services representative office, the first step in a bold- 2005. While improving cost control, these (extended warranties, car insurance). er presence in this fast growing market. extensive investments will enable Banque These services are generally marketed PSA Finance to substantially enhance its as comprehensive solutions, comprising Banque PSA Finance continued to actively market responsiveness with a more flexible both financing and all or part of the relat- revamp its information and management product and service portfolio and improved ed services to enhance the customer systems in 2003, with the installation in customer service. experience. These composite products Germany and Austria of the system used now represent 40% of the Bank’s total since January 2002 by the UK branch. Development of the product range was originations, a percentage that is likely to As well, major projects were undertaken stepped up with the deployment in increase significantly in coming years.

PSA PEUGEOT CITROËN Managing Board Report 55 Banque PSA Finance provided new retail customer base, but also by improved loan In the wholesale segment, Banque PSA financing for 845,961 new and used sales support software, deployed as part of Finance financed 2,070,975 new vehicles, Peugeot and Citroën vehicles in 2003, the operating systems upgrade, and by the for a total of €34,681 million. There up 5.5% from the previous year. increasing number of programs to train was sustained growth in financing for dealers in selling car loans. replacement parts inventory. New vehicle loans rose by 5.5% to 656,779 units, increasing to 26.4% from The number of financing contracts The strong steady increase in the number 25.1% the Bank’s penetration rate—i.e. the for previously owned vehicles rose 5.6% of loans has driven robust growth in number of vehicles financed by the Bank as to 189,182, due to the growing invol- outstandings. Including securitized loans, a percentage of total Peugeot and Citroën vement of the dealer networks in selling outstandings ended 2003 up 4.8% vehicle registrations in the Bank’s country used vehicles. at €19,580 million, after gaining 8.6% markets. This performance was led not only in 2002 and 17.3% in 2001. by the development of composite products, In all, new retail loans rose by 6.6% which enabled the Bank to broaden its to €8.6 billion at December 31, 2003.

PSA PEUGEOT CITROËN 56 Managing Board Report Citroën C2s awaiting shipment at the Aulnay plant (France)

Building a customer relationship in a Citroën dealership in Paris (France)

A Peugeot showroom in Latvia

PSA PEUGEOT CITROËN Managing Board Report 57 GEFCO

PSA PEUGEOT CITROËN 58 Managing Board Report Preparing a car for delivery to a dealer 2003 was a difficult year in the transportation and logistics market, shaped by sluggish economies in most Western European countries, the sharp appreciation in the euro, strikes across the transportation sector and an increas- ingly constrictive regulatory framework. Despite this unfavorable environment, Gefco pursued its growth strategy in the industrial segment by leveraging three core drivers: globalization, logistics integration and innovation.

In 2003, Gefco generated 50% of sales outside France and extended its presence to more than 80 countries worldwide. Three new subsidiaries were opened in Tunisia, the Czech Republic and Russia, bringing to 16 the number of countries where Gefco has a company active in all In December, Gefco entered the Chinese Germany, Russia, Austria, Italy, Turkey and of its core businesses. market with the signing of a memo- the Czech Republic. Today, the European randum of understanding with DTW, a network comprises some 400 cross- The late-2003 creation of the Russian local logistics and transport group, border connections, providing an subsidiary was in line with Gefco’s concerning the creation of a 50/50 joint important source of future growth. commitment to extending its overland venture. The new company is committed network across the European continent. to becoming a major provider of logistics The international network was expanded The sustained development of trade with services in China’s fast growing auto- with new agencies and cross-border lines. Eastern Europe and the need to support mobile market. It will begin operations The new agencies are involved in overland PSA Peugeot Citroën’s expansion in the by working with Dongfeng Peugeot freight (seven new agencies in Europe), region represents an opportunity for the Citroën Automobile. sea and air freight (five agencies in Europe, company to increase its business and the Mercosur region and China), logistics maintain its position as Europe’s third In Europe, Gefco opened 40 cross-border (six platforms in Europe) and automobile largest logistics integrator. lines, linking most European countries to distribution (a center in Poland). The lines

PSA PEUGEOT CITROËN Managing Board Report 59 A first in Europe: electric trucks making deliveries in Paris were extended following agreements signed during the year with EmoTrans In October 2003, Gefco and partners The ten-ton, zero emission vehicles (North America), GAC (Middle East and L’Oréal and Electricité de France deliver L’Oréal products, quietly and Southeast Asia) and DTW (China). responded to the challenge of reduc- pollution-free, to stores in the center of ing urban air pollution by launching Paris. Should the trials prove success- During the year, Gefco enhanced its Europe’s first program to test down- ful, they could be extended to other capabilities as a logistics integrator in town deliveries using electric trucks. European capitals in the future. response to the growing globalization of trade and the need for companies to shorten cycle times by improving their supply chain management. eight industrial and supply chain service Innovation in 2003 focused on informa- centers in Europe, including two opened tion systems, competitiveness and The logistics business reported strong in 2003. sustainable development. 20% growth in sales, even as the company continued to develop its multi- The supply chain integration unit The deployment of new information modal transport services (overland, sea, expanded operations to 60 platforms, systems led to the well-managed start-up rail and air), its global network and its dedicated either to upstream logistics of several technologies: integrated information system. (forward inventory management, just-in- sequence deliveries, secure supply chain - Supply Chain Event Management makes Sales in the vehicle preparation and processes, organization of flows, etc.) or it possible to use the Gefco.net portal to renovation business rose 22%, led by to downstream logistics (organization of track, foresee and, in case of an incident, expansion in France, Germany, Italy and flows and inventory, active and passive reschedule supply chain events. The Portugal, with operations outside France security, distribution, etc.). Sales rose 18% function is now operational for sea freight now accounting for 30% of the total. in 2003, led by the commissioning of a via the Le Havre and Vigo platforms. new generation of logistics platforms, The container and box management unit, particularly the international platform in - Onboard telematics enables the real- which renovated its leasing and pooled Le Havre and the Eastern France platform. time tracking of package deliveries and management solutions during the year, Projects now underway will increase confirmation of customer reception. increased sales by 18%. It now manages capacity from 600,000 to 800,000 square To perfect the system, the beta is being three million reusable containers and meters by 2006. tested by the German subsidiary,

PSA PEUGEOT CITROËN 60 Managing Board Report which used it successfully throughout 2003.

- Wi-Fi-enabled workstations are being installed in the smaller agencies to enable wireless connections with the Gefco operations center. Now up and running, the system eliminates costly wiring.

In 2003, Gefco stepped up its program to share competitiveness gains with customers. The partnerships concerned the optimization of supply chain processes with the design of new transportation networks, the develop- ment of efficient new modal mixes (shifting between overland, sea, rail and air), and the optimization of loading and unloading times.

In sustainable development, programs Prevention of transportation risks was focused on optimizing transportation improved by the introduction of a “Best processes, by using the best mode to help Driver Challenge” which helped to reduce reduce CO2 and other greenhouse gas the number of incidents by 20% and to emissions. The proportion of rail transport, prevent accidents with bodily injury. which accounted for 9% of Gefco freight, In association with L’Oréal and Electricité versus 3% in Europe as a whole, was de France, an innovative program was increased by the purchase of 245 car initiated to test Europe’s first city-center carriers for merchandise shipped to the deliveries using electric trucks. Kolín plant in the Czech Republic.

PSA PEUGEOT CITROËN Managing Board Report 61 FAURECIA

PSA PEUGEOT CITROËN 62 Managing Board Report Faurecia had identified two key objectives The company has also been approved as a Designed to serve as a major source of for 2003. The first was to increase sales Chrysler supplier, following a major order innovation in interior modules, the 500- faster than growth in European auto- that consolidated its number three ranking person center offers Faurecia customers mobile production and the second was in North America. In China, Faurecia is state-of-the-art technical skills and to drive a significant improvement in supplying seats to the local big three, resources. margins by leveraging four key value driv- DongFeng Motor, FAW and SAIC. ers: improving manufacturing practices Development is also being supported by and redeploying production facilities, the Five new production units were SAS, a joint venture with Siemens VDO, purchasing plan, the Program Management commissioned in 2003—two for com- whose positions were strengthened in System and effective research and ponents in Poland and Mexico and June 2003 when the two partners merged development. Both these objectives were three for just-in-time seat assembly in into the venture four additional production met through the sustained implementation the United States, Japan and the units: Faurecia’s Ghent, Belgium plant and of the company’s strategic vision, focused Netherlands—enabling the company to three Siemens VDO facilities in Germany, on six critical automotive modules—seats, equip 4.8 million vehicles with complete the Czech Republic and Spain. The cockpits, door panels, acoustic systems, seats during the year. transfer has made SAS Europe’s leading front-ends and exhaust systems—and the source of cockpit modules assembled strengthening of the positions of each of In other vehicle interior modules, Faurecia just-in-time from components primarily these businesses among the global strengthened its position as European supplied by the two partners. It will leaders. leader and second largest producer leverage this base to accelerate growth worldwide in instrument panels and con- in Europe and North America. In car seats, Faurecia consolidated its solidated its global market leadership in European leadership with 25% of the door panels. In the United States, Chrysler A new production facility also came on complete seat market and 50% of the has selected the company to develop and stream in Gorzow, Poland. It will be follow- seat frame segment. The business also produce the instrument panel, door panel ed by two additional plants in Slovakia deepened its presence in the global and center console module for models in 2004 and 2005 to support expanding marketplace by developing complete seat scheduled for introduction in 2006. automobile production in the region. assembly operations in North America, China and Japan. In the United States, These developments are being supported The acoustic systems division continued to since July 2003, Faurecia has been by enhanced innovation capabilities, gain market share, led by its exceptional assembling complete seats for the particularly the new research and expertise in new materials like Sommold, Chevrolet Malibu, built on a platform that development center inaugurated in Sep- a proprietary fiberglass/polypropylene Faurecia already equips for European cars. tember 2003 in Hagenbach, Germany. composite. The division’s manufacturing

PSA PEUGEOT CITROËN Managing Board Report 63 competitiveness is now being backed by largest supplier of integrated exhaust Production continued to be globalized, the ramp-up of a new plant in Legnica, systems, also broadened the portfolio of backed by the company’s worldwide Poland, in line with initial objectives. solutions marketed since 2002 in operations and partnerships, which partnership with Daeki, a South Korean enabled the fulfillment of orders from In exhaust systems, Faurecia is the catalytic converter manufacture. In China, customers in South Africa, Slovenia and preferred supplier to almost all of the the company now consolidates operations Turkey. A new bumper fascia plant came world’s leading carmakers. A large conducted through two joint ventures, on stream in France, while number of new orders helped to renew Shanghai-based SHEESC, which produces in Germany, production of hybrid front the revenue base in Europe, drive strong catalytic converters for Shanghai- fascia was consolidated at Ingolstadt. At growth in the United States and support Volkswagen, and Wuhan-based TEEC, the same time, a new front-end module sustained business in Asia. Major new which primarily supplies integrated production unit was commissioned in contracts were also won from new exhaust lines to Dongfeng Peugeot Neutraubling, Germany to deliver up to customers like Hyundai in South Korea Citroën Automobile. 1,000 modules a day in sequence to the and Chrysler in the United States. As BMW plant in Regensburg. A fully well, the company benefited from To support these developments, and robotized bumper paint shop was install- carmaker interest in particulate filters particularly the start-up of series pro- ed in Bains-sur-Oust to ensure superior and mechanically welded manifolds. duction on major worldwide programs quality production. Faurecia supplied the world’s first in the United States for Ford, General particulate filter using the washcoated Motors and Chrysler, new facilities will be Throughout 2003, Faurecia continued to process, which equips Mercedes Benz brought on stream in the United States strengthen and enhance the capabilities C Class models in Germany. This and Mexico. demanded by its new scope and global technological leadership has enabled reach. These programs were shaped by a the exhaust system division to capture a Faurecia strengthened its positions in the constant concern for supporting employees significant share of these markets, with European market for front-end modules, through the change process, for improving contracts from Hyundai, PSA Peugeot bumper fascia and cooling fan systems, by their safety and for getting them more Citroën, Renault, Volkswagen and other maintaining or increasing market share actively involved in their jobs, so as to drive carmaker. among leading customers. The year saw continuous improvement. After increasing start-up of production of front-end sharply in recent years, the number of To drive expansion of the business in Asia, assemblies for the BMW 3 series and of employees stabilized in 2003, at 59,500 Faurecia acquired the exhaust systems metal-plastic hybrid front fascia for the people. The percentage of employees assets of Chang Heung Precision Co. Ltd BMW X3. This is the first BMW to be fitted based outside Europe rose slightly, in South Korea. The acquisition, which with the new technology, in which Faurecia however, in line with the growth in made Faurecia the country’s second is the European market leader. business in these markets.

PSA PEUGEOT CITROËN 64 Managing Board Report An instrument panel for the Renault VelSatis 2003 also saw the deployment of the Faurecia Excellence System program across the organization. The program is A Faurecia designer designed to: - Improve management of new production start-ups. A particularly large number of new products were launched in 2003, and recent order intake will maintain the fast pace of start-ups in the years ahead. Implementation of the Program Management System reduced start-up costs by 36% in 2003. - Improve production quality to world- class levels. - Increase productivity by continuously improving manufacturing practices and A door panel redeploying the production base. for the Volkswagen Polo - Continue to implement the purchasing plan, focused on reducing the number of suppliers, managing quality, sourcing in low-cost countries and increasing the use of online auctions.

While forecasting slower organic growth in 2004, Faurecia nevertheless expects expansion to pick up towards the end of the year, led by business outside Europe. As a result, it maintains its objective of steadily improving operating margin, one half-year after another.

PSA PEUGEOT CITROËN Managing Board Report 65 OTHER BUSINESSES

PSA PEUGEOT CITROËN 66 Managing Board Report The Peugeot Jet Force scooter

PEUGEOT MOTOCYCLES

The European motorcycle and scooter market contracted for the fourth year in a row in 2003, declining 9.3% to 1,116,000 units from 1,230,000 in 2002, for a cumulative 38% drop since 1999. In Italy and Spain, demand continued the down- ward trend begun that year, while it began to weaken in France, the United Kingdom, An engine production line at PCM Germany, Belgium and the Netherlands— all very important markets for Peugeot Motocycles (PMTC). (38.8% versus 33.3%), Spain (5.7% a supercharger. 18,200 units were sold versus 4.2%) and the United Kingdom during the year. The softer markets held PMTC sales (13.8% versus 12.6%). Market share volumes nearly flat, at 160,000 units held firm in France (28.5%) and the - Presentation of Ludix, an affordable new versus 162,000 the year before. Sales Netherlands (26.3%). scooter offering exceptional value for the rose 2.1% to €271.4 million, however, money, with prices starting at €999. due to a favorable product mix following Weaker demand and a difficult early-year Deliveries are scheduled to begin in early higher sales of premium scooters start-up at the new parts warehouse 2004. requiring registration like the Elystar and caused the company to report an operating the Jet Force. Because unit sales did not loss of €23.2 million. - Completion of the Downstream Project to decline as far as the overall European upgrade assembly lines and install a new, market, PMTC widened its share of the During the year, PMTC pursued its strategic fully-computerized highly reliable parts moped, multi-gear motorbike and scooter focus on developing products and modern- warehouse. segment in the region’s seven leading izing facilities. Highlights included: country markets to nearly 12.2% from PMTC expects demand to edge up 11.7% in 2002. The improvement was - Market launch of the Jet Force, a sports slightly in 2004, when new product significant in Italy (3.2% versus 2.8%), scooter with a fuel-injected engine, ABS- introductions should drive stronger Germany (17.8% versus 16.8%), Belgium assisted braking and, in a world first, growth in unit sales.

PSA PEUGEOT CITROËN Managing Board Report 67 SOCIETE DE CONSTRUCTIONS PROCESS CONCEPTION PEUGEOT CITROËN MOTEURS MECANIQUES PANHARD & INGENIERIE (PCI) (PCM) LEVASSOR (SCMPL) PCI designs and manufactures industrial In a persistently tight market, PCM SCMPL designs and builds wheeled equipment for assembly, stamping, body- continued to grow, increasing sales 28.8% armored vehicles. In 2003, sales declined to in-white and machining processes. Sales to €142 million from €110 million in €61.7 million from €64.7 million the year totaled €362 million in 2003, while order 2002. The number of engines sold rose before, while operating margin amounted to intake declined to €247 million following a 24.7% to 48,833 from 39,150 in 2002. €2.4 million. reduction in capital spending among the The company expects to see further growth company’s major customers. in 2004, led by sustained expansion in During year, the company continued to Japan, China and India. deliver VBL light armored vehicles to the Operating margin amounted to €18 million, French Army and various export customers, while the company maintained its position while pursuing programs to rebuild VBLs as a tier-one supplier to its main customers. and retrofit powertrains on ERC Sagaie armored reconnaissance vehicles for the French Army.

Order intake during the year helped to stabilize backlog at €97 million, as SCMPL maintained its commitment to developing new products to secure its long-term future.

PSA PEUGEOT CITROËN 68 Managing Board Report The Process Conception Ingénierie plant in Rennes (France)

The Peugeot Elystar scooter

The 1.6-liter HDI diesel engine The Ludix line of scooters from Peugeot Motocycles

PSA PEUGEOT CITROËN Managing Board Report 69 PSA PEUGEOT CITROËN 70 Managing Board Report Corporate Policies

Human Resources ...... 72 Environmental Stewardship ...... 88 Corporate Citizenship ...... 100 Research and Development ...... 112

PSA PEUGEOT CITROËN Managing Board Report 71 HUMAN RESOURCES

PSA PEUGEOT CITROËN 72 Managing Board Report PSA Peugeot Citroën’s employee relations and human resources policies are a source of competitive strength in driving the Group’s expansion and sustainable business performance. To combine this performance with continuous improvement in the work-life experience, they also encourage a sense of community built on strong shared values, open dialogue, solidarity and respect for people in all their diversity. Applied in all operations worldwide, the policies are designed to anticipate changes in the Group and its markets, and to implement innovative, forward looking systems and processes capable of supporting the increasing globalization of the business base.

In line with this vision, employee relations processes are organized around four major principles: - An active hiring policy to attract the finest talent. - Responsive organizations adapted to the Group’s challenges and a commitment to improving working conditions. - Compensation linked to Group earnings. - Sustained, constantly renewed dialogue, in every country, with employees and employee representatives.

AN ACTIVE HIRING POLICY TO ATTRACT THE FINEST TALENT

A NEW HIRING DYNAMIC Employees by Business and Region at December 31, 2003

Rest Outside The Group’s strategic focus on growth France of Europe Europe Total and innovation has helped drive a new Automobile 97,050 33,900 4,230 135,180 Banque PSA Finance 900 1,210 40 2,150 hiring dynamic: Gefco 4,930 3,150 270 8,350 - The Group now employs nearly Faurecia 19,650 25,210 7,000 51,860 200,000 people worldwide. Other Businesses 2,180 50 140 2,370 - More than 74,600 people have been Total 124,710 63,520 11,680(1) 199,910 hired under permanent contracts over (1) Not including the 6,480 employees, at December 31, 2003, of the Dongfeng Peugeot Citroën the past five years, including nearly Automobile (DPCA) joint venture in China. 43,000 in France. - More than 15,200 people were hired Net jobs created, 1999-2003 in 2003, increasing headcount by more Net jobs than 1,300 employees worldwide. added (lost) - Nearly half of all employees at through Employees at acquisitions/ Net jobs Employees at December 31, 2003 had been hired Dec. 31, 1998 disposals created Dec. 31, 2003 over the past seven years. France 114,000 (80) 10,790 124,710 Rest of world 43,260 13,470 18,460 75,200

Over the past four years, worldwide headcount has risen by more than Creating jobs around the world Hiring to support expansion in 20%, or more than 34,000 people, of Excluding acquisitions and disposals, a the global marketplace which an aggregate 8,100 in the net 29,250 jobs have been created over The Group’s growth strategy, which has Automobile Division, Banque PSA the past five years, of which 18,020 have driven an increase in unit sales to Finance and the other businesses. At been in the Automobile Division. More 3,286,100 vehicles in 2003 from the same time, human resources have than 10,790 jobs have been created in 2,282,000 in 1998, has required the become more international, with France, of which 9,770 in the Automobile recruitment of more than 74,600 75,200 employees based outside Division. In addition, the operations sold people over the past five years, with France in 2003 compared with 28,400 between 1999 and 2003 have also a clear focus on attracting the finest in 1996. continued to expand and create jobs. talent.

PSA PEUGEOT CITROËN Managing Board Report 73 Hiring across all core Agreement signed As part of the agreement, the Group competencies with France’s National has agreed to use, whenever possible, In a commitment to integrating a variety Employment Agency simulation methods, so that job of educational, cultural, professional and seekers can be evaluated on their international backgrounds, people were On October 22, 2003, PSA Peugeot capabilities and not just on their recruited in a broad range of disciplines, Citroën signed a three-year framework education or experience. including marketing and sales, cooperation agreement with France’s engineering, innovation, design, project National Employment Agency (ANPE). In addition, the Group has agreed development, manufacturing, informa- It is designed to expand local to review applications from people tion technology, management, finance partnerships and harmonize them with widely varying backgrounds, to and human resources. New hires nationwide, in a commitment to participate in events and programs included not only young graduates and successfully recruiting new workers organized by ANPE to promote jobs highly qualified people, but also people and strengthening cooperation in in the automobile industry and, with few job skills or training. In France, support of employment and first-time more broadly, to discuss changes in PSA Peugeot Citroën is one of the access to jobs. skills and jobs with ANPE. leading employers of untrained and unskilled workers. In 2003, 800 young people without diplomas were hired on one of the French production sites, while les Qualifications (CEREQ) for the Promoting diversity in hiring in the Group’s worldwide operations, Group’s European Works Council Hiring policies are designed to recruit nearly 2,700 people without diplomas indicated that young people believe the people from highly diverse backgrounds, were hired, or 27% of the 9,900 Group offers attractive salaries and in terms of professional or international recruitments during the year. working conditions. experience, education, culture and national origin. Attracting the best In 2003, the Group received nearly In the Group’s 37 host countries, A survey conducted in France in 2003 170,000 job applications, including 90% of employees are locals, providing by the TNS Sofrès public opinion firm more than 77,000 via the Internet. a broad, rich palette of cultural view- showed that engineering students once During the year, in a commitment to points and knowledge. Hiring practices again considered PSA Peugeot Citroën further enhancing the diversity of its carefully avoid any form of discrimination as France’s best company to work for. recruitment channels in France, the and promote diversity, which enhances Another survey carried out in the United Group signed a three-year cooperation the skills base, nurtures a sense of Kingdom, Spain and France by the agreement with the country’s National community and drives greater business Centre d’Etudes et de Recherches sur Employment Agency. efficiency.

PSA PEUGEOT CITROËN 74 Managing Board Report France’s first corporation Increasing jobs and equal to sign a major gender opportunities for women diversity agreement As the job market continues to evolve, the continuous improvement in ergono- On November 4, 2003, PSA Peugeot mics and other working conditions Citroën became France’s first is supporting the development of large corporation to sign a gender jobs for women. This is the case at diversity agreement to develop equal employment opportunities for PSA Peugeot Citroën, where women An assembly line accounted for nearly 23% of new hires, women. Signed with the Group’s six at the Caen plant (France) compared with just 18% of Group unions, the agreement represents employees as a whole. In 2003, nearly an important step forward and 22% of engineers and managers hired formalizes the commitment of all the and promotions attributed, on an worldwide were women. In France, the stake-holders. aggregate basis, prorata to percent- proportion of women among new hires age of women in each job category. in the Automobile Division rose to nearly The agreement supports gender Other programs will attract women 23% from 11.7% four years ago. equality in a number of ways. It applicants by improving working encourages the Group to hire, in each conditions, employee benefits and Responsibly managing job category, the same percentage of training opportunities. fixed-term contracts women as the percentage of women The use of fixed-term employment applicants, which in turn reflects the Under the three-year agreement, contracts reflects the nature of the percentage of women graduates in progress toward meeting these automobile industry, which is a labor- a given discipline. Dedicated programs objectives will be tracked at both intensive business serving highly will also seek to recruit women in jobs corporate and unit levels. Employee competitive markets shaped by wide and disciplines that have traditionally representatives are closely involved swings in demand. In France, for been held by men. Equal compen- in implementation, in particular example, the market fell 5.2% in 2002 sation and career advancement will through Gender Equality Commissions and another 6.2% in 2003. be guaranteed, with annual raises in each unit.

PSA Peugeot Citroën hires people under such contracts in response to meet fluctuations in demand, man- taking unexpected leave, and respond temporary surges in business at age new product launches, prepare to industrial events, like the start-up many of its facilities. In this way, capital programs and the related of a new workshop. Increased demand the workforce can be adjusted to productivity gains, replace employees for a given model, for example, can

PSA PEUGEOT CITROËN Managing Board Report 75 A new charter governing before the assignment ends. A variety Number of temporary workers employment conditions of support services will be available, (Automobile Division France) for temporary workers both to orient workers on a new in France assignment and to help them find a job when the assignment ends. On September 12, 2003, a charter was signed with seven temporary The charter provides that temporary employment agencies—Adecco, Adia, employment terms and conditions will Alliance, CRIT Interim, Manpower, be similar to those enjoyed by Group Synergy and Vediorbis—to harmonize personnel, i.e. equal opportunity best practices across the production without discrimination, practical health base and define a number of and safety measures, and access to fundamental guarantees. employee services, training, benefits and insurance. Working hours are to The Group agreed to limit to two the be accounted for in the same manner number of successive assignments, as Group employees. Temporary employees are integrated regardless of the reason, for a total onsite under the same conditions as period not to exceed eleven months, These commitments have been people hired under permanent so as to allow temporary workers at formalized in contractual agreements contracts. In particular, they participate least a month’s vacation. Temporary with local unions, which approved in orientation sessions devoted to workers will be given sufficient notice the charter on December 12, 2003. safety, quality and environmental issues and are offered training corresponding to their duties. In temporarily require an additional years, the Group’s commitment to addition, in 2003, a charter was signed production shift, which represents up reducing the use of temporary workers with seven temporary employment to 1,000 people. A new product launch has led to the hiring of more people agencies to offer temporary workers requires an average of more than 500 under permanent contracts and a employment terms and conditions additional employees over a nine- preference for structural solutions similar to those enjoyed by Group month period. Over the past three whenever possible. personnel.

PSA PEUGEOT CITROËN 76 Managing Board Report A hiring interview Internships and work-study programs to integrate young people A training room at the Poissy Office Complex Every year, the Group hires a large (France) number of interns under agreements with schools and universities in France and abroad. In 2003, 7,600 students, of whom 28% were women, pursued their education as interns at a Group unit. Gefco Argentina, for example, signed a partnership agree-ment with the Universities of Buenos Aires and Cordoba, while Gefco Spain has programs with the University of Madrid, in transportation and logistics, and the University of Seville, for administration A training workshop at the Melun-Sénart plant (France) degrees. In addition, 1,087 young people, of whom 19% were women, were hired in 2003 under work-study or apprenticeship programs. In the main corporate departments and Understanding and developing divisions, multi-disciplinary groups are employee capabilities ENHANCING SKILLS developing a vision of the current and The link between career management, AND NURTURING emerging capabilities required in the training and skills development is HUMAN CAPITAL Group’s businesses. The process is reflected in the annual performance helping to prepare a training plan review, a practice that is being Skills planning and management aligned with the Group’s strategic deployed in every Group unit. In A process has been implemented to plan developments and to improve the the Automobile Division, for example, and manage the skills the Group will management of transfers, promotions 78% of employees were reviewed need in the medium to long term. and career development. in 2003.

PSA PEUGEOT CITROËN Managing Board Report 77 Offering real opportunities As it expands across the globe, worldwide, despite differing local situations. for career development PSA Peugeot Citroën focuses on hiring - Since 2002, profit-sharing incentive and mobility locally. Responsibility for managing both systems have been gradually extended PSA Peugeot Citroën offers employees manufacturing operations and sales to all the international subsidiaries. extensive opportunities for career processes is primarily assigned to local - Defined contribution retirement plans development and social improvement, employees, in a commitment to co-funded by the Group and employ- in particular by posting transfer supporting the sustainable development ees are being extended to fulfill the openings on the corporate intranet. of the Group’s business around the commitment to enabling every retiring Some 30% of managers have risen world. Expatriates are used only when employee to receive a pension equal through the ranks, while around 18% local capabilities are lacking for a given to or exceeding 50% of his or her of employees are promoted or change job. Currently around 720 expatriate salary. In 2003, this type of pension job categories every year. The Group experts or executives are on temporary system was set up in Brazil. is committed to preparing career assignment abroad, particularly in China development for young people and in and Latin America. - In the area of training, the Group is 2003 began discussions with employee constantly forging new partnerships representatives on the issue of career Created in 2002, the global employee with local school systems, as illustrated development for operators. Particular information database was expanded in in 2003 by the partnership agreement attention is also paid to motivating 2003, with around 60 indicators with Tsinghua University in China and older employees, with annual reviews compiling employee relations results the presence of French high school and of the training plan and the policy and accomplishments for every Group university teachers in China (and soon governing individual raises for facility and company worldwide. Each in Slovakia). employees over 50. year, data related to jobs, training, integration, skills management, work Preparing future capabilities Managing skills and human organization, working hours, safety, with sustained training resources internationally occupational healthcare, compensation, Nearly four million hours of training In 2003, nearly 2,900 employees were labor relations and other factors are were provided in 2003, about the same involved in foreign postings or long- analyzed to track employee trends, as in 2002. The training budget term temporary assignments abroad. improve the Group’s understanding and corresponded to almost 4% of total The number of inter-country transfers compare performance unit by unit. worldwide payroll of the Automobile also continued to increase, with 8,700 Division manufacturing companies, with employees carrying out foreign assign- The same human resources management each employee attending an average 26 ments in 2003. principles are applied in all operations hours of training during the year.

PSA PEUGEOT CITROËN 78 Managing Board Report Average hours of training per employee in 2003

Rest Outside Average France of Europe Europe worldwide Average number of hours 26 21 59 26

In 2003, training focused on four after a course, the training department main areas: general management, contacts the employee and his or her project management, quality and manager to assess the skills acquired. critical skills. In addition, all the programs continued to emphasize Detecting high potential workstation proficiency. employees Career development potential is A large part of the annual training plan determined not only on the basis of an is devoted to orientation courses for employee’s motivation and aspirations new employees, which accounted for but also on his or her achievements, more than 10% of training hours in ability to evolve and grow, managerial 2003. To support the extensive hiring skills or unique expertise, and ability of young people, programs have been to adapt, particularly to international developed to facilitate skills transfer. As environments. Since September 2003, part of this process, nearly 3,000 part- the Institut Supérieur du Management time trainers spend one or two days has been conducting high-level, six- conducting courses in their fields of week courses for managers aged expertise. In addition, the Group makes 35-40, in a commitment to training and sure employees over 50 attend courses preparing future Group executives. to maintain their employability.

In late 2003, the Employee Relations and Human Resources Department introduced a regularly audited training quality control process. Six months

PSA PEUGEOT CITROËN Managing Board Report 79 RESPONSIVE ORGANIZATIONS ADAPTED TO THE GROUP’S CHALLENGES AND A COMMITMENT TO IMPROVING WORKING CONDITIONS

NEGOTIATING worked part-time worldwide. The stantly evolving business conditions NEW ORGANIZATIONAL agreements concerning working hours and markets. When this process ARRANGEMENTS negotiated during the year helped to requires the elimination of jobs, the TO MANAGE FLEXIBILITY improve the ability to program working employees involved are offered a hours, as calculated on an annual basis, variety of internal placement and other The introduction of new production and to schedule shifts. support programs. In 2003, these organizations has led to the develop- measures avoided any dismissals in ment of new working practices like MANAGING the Automobile Division. In every three or four rotating shifts, conso- THE LABOR IMPACT country, all of these reorganizations, lidated four-day workweeks, night work OF A CHANGING BUSINESS particularly those involving em- and shorter weekend shifts. New ployee retraining, are the subject vacation schedules adapted to today’s PSA Peugeot Citroën is committed of information and consultation more globalized demand have been to supporting employees throughout procedures with local unions or negotiated with employee represen- the entire process of adapting to con- employee representatives. tatives in France and the rest of Europe, enabling plants to run non- stop through the summer. After being New subsidiary created Vesoul, France. The move has enabled introduced at the Mulhouse facility and to manage maintenance the Group to focus resources on the mechanical component plants in and utilities at plants developing the product plan and the 2001, non-stop operation was applied in Eastern France manufacturing base, while optimizing at the Ryton and Vigo plants in 2002 its service operations. and then at the Sochaux plant in 2003, In 2003, a new subsidiary, Société for the sections in charge of the d’Environnement et de Services The 1,100 transferred employees Peugeot 307. de l’Est (SENSE), was created in have retained their job classifications partnership with Veolia Environ- and benefits. In adjusting working hours, nement, a global environmental In addition, as majority shareholder, P SA Peugeot Citroën engages in services management company, to the Group is carefully tracking the open dialogue with employees and deliver maintenance, utilities mana- labor relations and human resources emphasizes flexible solutions adapted gement and other services to the policies implemented in the new to each person’s needs. In 2003, for plants in Mulhouse, Sochaux and organization. example, more than 4,400 employees

PSA PEUGEOT CITROËN 80 Managing Board Report DEMANDING CONTRACTOR Stricter contractor audits provided, and that contractor emplo- COMPLIANCE WITH LABOR yees comply with PSA Peugeot Citroën AND SAFETY RULES In 2003, human resources and access procedures when arriving purchasing managers on Group onsite. Workplace organization is also sites worldwide were provided with changing as a growing number of a contractor compliance audit kit Auditors make sure the contractors people employed by outsourcing offering a more extensive employee carefully apply site safety rules, and contractors work on Group sites in relations section. that their teams have been allocated such areas as services, technical appropriate resources and are led by a maintenance and civil engineering Group experts are now able to verify manager responsible for successfully projects. For example, there were an service compliance with specifications delivering the service. The contractor average 15,000 full-time contractor and contractor compliance with the must also show that employees have employees working on Group sites employee relations commitments proper medical supervision. worldwide in 2003. During the year, stipulated in the contractual agree- the Employee Relations and Human ments. In particular, the audits verify These audits help to eliminate Resources Department joined with the that the contractor has filed all the contractors unwilling or unable to Purchasing Department to implement necessary pre-startup certificates, comply with the employee relations action plans to ensure that these that the situation of employees is dili- standards required to deliver superior companies comply with the Group’s gently tracked as long as the service is quality services on a Group site. labor and safety rules. These rules are now stipulated in service contracts, while site access procedures and the worldwide. The concerted efforts of The objectives of workplace safety monitoring of contractor performance everyone involved in the safety and risk policies were redefined in 2003. Applied have been strengthened. prevention process helped to drive an in all Group operations worldwide, they improvement in performance in 2003. now focus on: A TOTAL COMMITMENT TO In the Automobile Division, the world- - Designing accident and risk prevention WORKPLACE SAFETY wide accident rate fell to 3.8 from 5.3 into all new projects and facilities. in 2002, compared with 27.9 in the - Getting everyone involved in preventing PSA Peugeot Citroën is totally French metalworking industry in 2001. occupational risks. committed to achieving maximum The objective is to reduce this rate to - Coordinating measures to prevent risks workplace safety in all its host countries 3.4 in 2004 and to 3.0 by 2005. involved in outsourcing.

PSA PEUGEOT CITROËN Managing Board Report 81 - Diligently applying access procedures Training in robot operation at the to contractor employees working onsite. Caen plant (France) - Integrating roadway transportation risks, A stylist selecting fabrics at the Vélizy for production inputs, business travel Design Center (France) and employee travel to and from their homes.

CONSTANTLY IMPROVING WORKING CONDITIONS AND ERGONOMICS

PSA Peugeot Citroën has been engaged in an ambitious process of improving working conditions since March 2001, when an agreement on this issue was signed with five unions in France. Today, this process is underway in Mounting an instrument panel every host country with the same at the Rennes plant (France) objectives, the same methods and the same resources: - The process of improving working - A program is underway to enhance ergonomists is actively implementing conditions and ergonomics is design- equipment usage conditions and the best practices in every host country ed into vehicle and industrial projects workplace environment. Improvement around the world. from the beginning. Supported by drivers have been identified and the METEO work and organization described in every department on The proportion of workstations rated as assessment software, the process is every site. “heavy” has declined to 18% from 35% based on a series of milestones - An appropriate organization has been in 1999. The goal is to reduce this described in car development road- deployed across the Group since number to 14% by 2006 and 8% maps. 1999. A structured team of 55 by 2008.

PSA PEUGEOT CITROËN 82 Managing Board Report OFFERING THE DISABLED under contract, nearly 11% of employees In addition employees across the Group FULFILLING JOB OPPORTUNITIES are classified as handicapped, compared are trained in emergency response and with the legally targeted 6% nationwide. first aid. In France, the agreement on jobs for the handicapped signed with employee AN ACTIVE COMMITMENT In the same way, public health representatives on March 17, 2000 TO HEALTHCARE, A CRITICAL information and prevention programs demonstrated the Group’s commitment DRIVER OF THE GROUP’S have been deployed worldwide. Many to pursue programs underway to HUMAN RESOURCES AND units have introduced sessions to raise integrate and hire disabled people and BUSINESS PERFORMANCE employee awareness of the dangers of to support their career development. tobacco, alcohol and drugs, while all These programs are being implemented The Group’s occupational healthcare employees have been informed about in partnership with AGEFIPH, which policies are based on three principles: AIDS. Flu and hepatitis vaccination manages funds for hiring the - Preventing any adverse impact from campaigns have also been conducted handicapped, and ANACT, the national working conditions on employee health among employees in France and agency for improving working and any diseases capable of affecting abroad. conditions. In addition, partnerships an employee’s ability to work. between the production plants and - In the event of disease, enabling the work-based assistance centers and employee to continue working under sheltered workshops are enabling the the best possible conditions. disabled to find jobs in the automobile - Helping employees maintain their industry. Career development oppor- health over the course of their career. tunities for employees classified as handicapped are discussed during salary These policies are supported by teams negotiations. of physicians and medical caregivers, as well as by inter-company occu- Worldwide, the Group employed more pational medical offices serving certain than 6,500 disabled people in 2003, production facilities, most of the sales as defined under local legislation. companies and the finance division In France, including sheltered workers units.

PSA PEUGEOT CITROËN Managing Board Report 83 COMPENSATION LINKED TO GROUP EARNINGS

COMPENSATION POLICY A manager’s compensation depends on systems to offer employees a broader CONSISTENT WITH individual performance, the ability to carry range of investment possibilities, EMPLOYEE COMMITMENT out his or her respon-sibilities and local depending on their personal timeframe AND GROUP EARNINGS salary levels. In addition, senior executives and risk profile. Employees in France, receive a performance-related bonus, for example, can participate in three The Group’s wage policy led to the which was paid to nearly 2,300 persons corporate savings plans: signing of a large number of agree- in 2003, compared with 800 when the - A plan invested in Company shares. ments in most countries in 2003, which system was introduced in 1999. - A retirement savings plan. ensured that employee purchasing - A diversified savings plan, created power was maintained or, in most cases, ALIGNING EMPLOYEES under an employee savings agreement increased, depending on the unit’s WITH GROUP OBJECTIVES signed on June 17, 2003, which allows growth and earnings performance. AND EARNINGS employees to invest in socially responsible funds. In France, the 2003 wage agreement was To recognize their membership in the signed on January 28 by five of the six corporate community, all employees unions, following similar agreements around the world are paid an incentive signed with the same unions in 2000, bonus based on operating margin. In 2001 and 2002. Special attention was paid 2003, these bonuses amounted to an to the lowest salaries with the creation of aggregate 2.32% of payroll. In all, an annual guaranteed gross compensation. depending on local legislation, €172 In addition, under the November 2003 million will be allocated under both this agreement on gender diversity and equal incentive system and the legally-mandated employment opportunities for women, the French profit-sharing on 2003 income. Group has guaranteed that equally qualified men and women will be paid the EMPLOYEE SAVINGS AND same wage and will be offered the same RETIREMENT PLANS career development paths and possibilities of transfer and promotion. Developing employee savings The Group matches employee funds For the past five years, in response to invested in Company shares and in the In every host country, compensation employee concerns about the amount retirement plan, as well as incentive always exceeds any legal or industry of their pension benefits, the Group has bonuses reinvested in Company shares. minima. been developing new employee savings In 2003, these matching payments

PSA PEUGEOT CITROËN 84 Managing Board Report totaled €14.5 million. To harmonize A new supplemental retirement classification, with a maximum of compensation policies across the Group, plan in Brazil 150% for the investment of 5% of an employee savings plans have been employee’s annual salary. introduced in Spain in 2002 and the As part of the Group’s commitment to United Kingdom and Germany in 2003. harmonizing retirement coverage The plan is based on an insurance around the world and encouraging policy that allows affiliated employees Preparing satisfactory employee loyalty, a defined contri- to chose how their investment is retirement benefits bution retirement plan was introduced managed, while the matching Supplemental defined contribution in Brazil in September 2003. The payments are invested in low risk retirement plans have been set up in a optional plan is being offered to all funds. number of countries since 2001. In employees, who can choose how France, the plan, which came into effect much to invest each year. Company Employees responded favorably to the on July 1, 2002, concerns nearly 44,000 matching payments are capped new system, with 57% opting to employees whose compensation ex- depending on the employee’s job participate. ceeds the social security ceiling on contributions. It is financed two-thirds by the Group and one-third by the employee welfare benefits. Worldwide, employees. In Spain, the United Kingdom €125 million, or more than 2.7% of and Germany, the plans are intended to consolidated payroll, was paid out in supplement State retirement (social employee benefits in 2003, covering security) systems and offset the forecast such areas as housing, transportation, decline in the replacement rate. In food services, medical and social September 2003, a similar plan was services, and supplementary healthcare introduced for Group employees in Brazil. and insurance coverage. In addition, such payments include subsidies paid Employee Benefits to Works Councils in France and to Depending on national and local similar organizations in the rest of conditions, all of the Group’s the world. companies and plants contribute to social and cultural activities and help to improve the quality of work-life, with food services, transportation and

PSA PEUGEOT CITROËN Managing Board Report 85 INTERACTIVE PARTICIPATION BY EMPLOYEES AND EMPLOYEE REPRESENTATIVES WORLDWIDE

SUSTAINED, REVAMPED A union rights agreement was negotiated compensation systems, transfers and SOCIAL DIALOGUE in Spain in 2003. training opportunities.

In France, the Group’s social dialogue In France as in other countries, every By enabling individual employees principles were described in the June employee working in a production plant, or teams to submit comments, 2001 agreement on union rights, signed service facility or major sales organization recommendations and suggestions, by all the unions: is represented by independent unions participatory programs are also directly - The affirmation of the important role or elected representatives. In addition, contributing to an improvement in played by open, independent unions in European employees are represented working conditions in the production preserving social harmony has led to by a European Works Council created plants. In 2003, 1,700 improvement new guidelines concerning the exercise in 1996, whose role, resources and groups were active in the Automobile of union rights. Measures focus on European membership were expanded Division’s plants in France. 180,000 enhancing job enrichment and career in 2003. improvements were suggested and an development for employee represen- aggregate €5 million was awarded to tatives and on defining the terms of their In the Automobile Division alone, employees making suggestions. union duties, with appropriate resources. nearly thirty agreements were signed - The need for unions to be representative worldwide in 2003. In France, seven PROMOTING DIVERSITY partners, close to the front line and agreements were signed during the year, therefore credible in the eyes of both three by five out of six unions and four Ensuring equal opportunity employees and management, is being by all the unions. Group hiring policies guarantee equal supported by measures to help opportunity and reflect the diversity of employees exercise their professional INFORMING EMPLOYEES peoples around the world. Selection responsibilities while serving as union AND ENCOURAGING processes objectively appraise a representatives. THEIR PARTICIPATION candidate’s ability to fill a given position. - All of the organizations signing the For Automobile Division operators, the agreement recognize that discussions Employees receive a wide variety of Group uses a battery of skills tests to or negotiations supporting effective detailed, transparent information. In determine a person’s ability to comply contractual relationships must be based addition to bulletin boards, posters and with assembly instructions and quality on a clear understanding of the Group’s management memos, a number of control procedures, as well as his or her situation. As a result, the agreement corporate newsletters, websites and ability to organize tasks, work in a team, improves information processes and intranet sites deliver extensive news and take initiative, manage workload training for employee representatives. information, particularly concerning fluctuations and act independently.

PSA PEUGEOT CITROËN 86 Managing Board Report Agreement concerning the To support the Group’s international Adopted in 2003, an Ethics Charter has European Works Council development and prepare the been distributed to all employees and is European Works Council for the regularly presented and discussed during The role and powers of the European forthcoming enlargement of the management training programs for Works Council were strengthened European Union, the agreement: engineers and managers. Under its in 2003 with the October 23 signing - Introduces a guideline for assigning terms, any employee having difficulty in of an agreement with the Euro- seats on the Council by country so interpreting the Charter’s standards of pean Metalworkers’ Federation that membership can be adapted to conduct and behavior, or having doubts (representing all the trade unions in the Group’s European presence. The about how they are to be applied in a the Group’s European subsidiaries), guideline is designed to increase the given situation, can contact the Group’s the European Federation of number of countries represented on Ethics Delegate. Managers in the Steel Industry and the Council and the number of non- the Group’s six French unions. The French members. Closing the generation gap agreement calls for the integration - Allows all members to serve as In light of the extensive hiring since the of the French Works Council into the Secretary and Deputy Secretary, two end of the 90s, Group units are paying European body, in order to centralize positions that were formerly open careful attention to the alignment of teams discussions of important issues and only to French members. comprising employees of different the Group’s major objectives in a - Increases the Council’s operating generations. In the production plants, single institution. resources. training programs have been conducted since 2000 with recognized experts to help management improve their understanding and units conduct or participate in the integration of the long-term of the behavior and expectations of programs to help disadvantaged unemployed with training programs younger employees. In addition, the Group people and get them back into the and on-the-job internships. In Novem- has asked France’s National Center for mainstream. These initiatives are part ber 2003, the Caen plant hosted Scientific Research (CNRS) to conduct a of the Group’s social responsibility former employees of Moulinex, a failed study of inter-generational dynamics in the activities. In France, for example, the French appliance manufacturer based Platform, Technical Affairs and Purchasing Aulnay, Melun and Vesoul plants in the region, under an employment Department. conducted job initiation sessions, while support initiative financed by the th Mulhouse plant worked in regional government. In South Africa, Integrating the disadvantaged association with temporary em- the Peugeot sales subsidiary is Every year, as part of their hiring ployment agencies and the National participating in a government sponsor- policies, a number of Group facilities Employment Agency to facilitate ed integration program.

PSA PEUGEOT CITROËN Managing Board Report 87 ENVIRONMENTAL STEWARDSHIP

PSA PEUGEOT CITROËN 88 Managing Board Report PSA Peugeot Citroën’s environmental policy is based on the principles of sustainable development and forms an integral part of its strategic vision. Covering both production facilities and cars, which are designed to seamlessly interact with their environment, the policy is focused on preserving the quality of life of host communities, reducing automotive emissions and contributing to the harmonious development of urban areas.

CARS AND THE ENVIRONMENT

For PSA Peugeot Citroën, the major The second generation of the Group’s environmental challenge is to seam- common-rail, direct-injection HDI diesel lessly integrate vehicles into their reduces CO2 emissions by 20% compar- environment and, in particular, to abate ed with a conventional injection diesel the greenhouse effect. As a carmaker, and by 25% compared with a gasoline the Group believes that it should make engine. In addition to the environmental a proactive commitment to reducing advantages, these powerplants also carbon dioxide emissions, and that deliver exceptional drivability and rank one way of achieving this is to among the most efficient in Europe. develop technologies that reduce In 2003, when 43% of cars sold fuel consumption. It also assertively in Europe were diesel-powered, promotes the use of biofuels, sponsors PSA Peugeot Citroën produced 1.6 million environmental initiatives and invests HDI engines, bringing to four million to make its vehicles as recyclable the number made since 1998. as possible. In addition, the Group is pursuing MEETING THE PERMANENT ts commitment to “downsizing”, so CHALLENGE OF REDUCING that smaller, and therefore more fuel GREENHOUSE GAS EMISSIONS efficient, engines deliver equivalent performance as the preceding larger After successfully reducing pollu- models. Illustrated by the 2002 tant emissions from its cars, introduction of the 1.4-liter HDI, this PSA Peugeot Citroën is now focusing policy has enabled a 10% reduction in on curbing their CO2 emissions. As fuel consumption while maintaining part of this commitment, the Group equivalent torque and power. As of has developed new technologies the end of 2003, the Group had sold for both gasoline and, especially, more than 200,000 vehicles powered diesel engines, which for equivalent by the 1.4-liter HDI, which emits less performance, use less fossil fuel and than 120 grams of CO2 per kilometer. therefore emit less CO2 than gasoline Sales are expected to total 1.7 million engines. units by 2006.

PSA PEUGEOT CITROËN Managing Board Report 89 Stop-and-start hybrids With stop-and-start, the first stage in that supports the deploymentNascuntur of for everyone hybridization, the Group wants to offer stop-and-start technology.fiunt orator Lorem ipsum a rapidly available solution that pro- iunt montes Hybrid vehicles, which combine an vides the best possible cost/benefit Beginning in 2004, vehiclesnascetur equip- ridiculus internal combustion engine with a ratio. Stop-and-start powertrains inte- ped with stop-and-start systems will small electrical device, offer a highly grate a low-power electrical device be gradually introduced in the promising long-term solution for that allows the engine to shut down Group’s product lines, a first in significantly improving automotive automatically when the vehicle is Europe for this emerging technology. environmental performance, parti- standing still or in neutral—at a red Several tens of thousands of Peugeot cularly in city driving. In the short light, for example, or in a traffic jam— and Citroën vehicles are expected to to medium term, however, it would and to start up again instantly and be equipped by the end of 2006. not be economically feasible to noiselessly when reactivated by the Looking to the future, the Group’s mass produce full hybrid vehicles, driver. This system results in a 5 to 8% confidence in the development equipped with two powertrains and reduction in fuel consumption and, potential of this innovation is based capable of running in fully electric consequently, in CO2 emissions. The on the driving pleasure and fuel mode, because they are not yet cost- technology is especially efficient efficiency it offers, especially in competitive with diesel-powered cars when used with downsized engines cities. Substantial growth is there- of equivalent performance. because it further increases fuel fore expected, over the medium savings. Another important environ- term. As in all its technological develop- mental benefit is a very substantial ments, the Group is taking a pragmatic reduction in noise. approach to hybrids, in a commitment to quickly bringing to the wider market Tests conducted in and around Paris technology capable of driving real showed that cars on the road are at progress. a standstill 35% of the time, a figure

PSA PEUGEOT CITROËN 90 Managing Board Report Downtown Gothenburg IMPROVING AIR QUALITY (Sweden)

Colza Over the past 30 years, new vehicle emissions have declined by 95%. The environmental performance of diesel engines has been further enhanced by the particulate filter, the latest develop- ment in emissions control technology. PSA Peugeot Citroën was the first A particulate filter carmaker in the world to offer particulate filter technology, in a clear demonstration of its commitment to improving the quality of air in urban environments. The filter, an after- treatment system that eliminates emissions of particulate matter, is now available on the Peugeot 206, 307, A particulate filter 406, 607 and 807 and the Citroën Picasso, C5 and C8. It will be extended service-free operation. It will equip - The Environment Prize, awarded by to other models in the future. Peugeot and Citroën vehicles beginning Automobile Club, United Kingdom. in 2004. - The Equip’Auto Grand Prize, France. The particulate filter has been highly popular since it was introduced in May The particulate filter has won a number 2000, and is already installed on of awards since launch, including: PROMOTING BIOFUELS 600,000 diesel vehicles. By 2006, the - The Paul Pietsch Prize, presented by Group expects to have sold some 1.7 Auto Motor und Sport magazine, Another way to lower vehicle CO2 million particulate filter-equipped Germany. emissions is through the efficient vehicles. Unveiled in June 2003, the - The Environment Prize, awarded by use of alternative energies and new filter’s third-generation uses an entirely Quattroruote magazine, Italy. propulsion technologies. A pioneer in the new filter medium architecture known - The ARBÖ Award, presented by the field, PSA Peugeot Citroën is strongly as “octosquare” and is designed for Automobile Club, Austria. committed to promoting biofuels

PSA PEUGEOT CITROËN Managing Board Report 91 that can be used in diesel or gasoline Sporty performance engines. Biodiesels, such as the Group’s from a biofuelled concept car trademarked Diester®, consist of vegetable oil methyl esters (VOMEs) Developed from the HDI-engined blended with automotive diesel fuel, Peugeot RC Diamond concept car while ethanol or its derivative ethyl unveiled at the 2002 Geneva Auto tertiary butyl ether (ETBE) is used with Show, the Peugeot RC Cup will be the Peugeot RC Cup gasoline. most exciting newcomer to the European circuit-racing scene in 2004. evidence that style, performance and Derived from cereals, sugar beets More than just a new version, the environmental sensitivity are by no (ethanol and its ETBE derivative), or RC Cup is a truly revolutionary vehicle mean incompatible. oilseeds such as rapeseed or soybeans powered by a particulate filter- (biodiesels), biofuels are exceptionally equipped HDI diesel running on a The 25 cars are now ready for their well suited to combating the greenhouse biofuel mix containing 50% Diester®. drivers to take the wheel for the effect since the plants from which they The monocoque chassis is made from seven-round series (based on select- are made trap atmospheric CO2 through aluminum while power output of ed rounds of FFSA’s Super Series and photosynthesis. Adding them to fossil the 2.2-liter, central-rear located HDI Series weekends), as well as two fuels therefore reduces CO2 emissions. engine is 178bhp. Combined with a non-championship excursions outside The Group estimates that replacing sequential six-speed gearbox and France, in Spa, Belgium as part of the 1,000 liters of diesel fuel with biofuels particulate filter, the weight of the Peugeot Sport Encounters program would reduce CO2 emissions by 2.5 tons. car (empty) is 790 kilograms. Its and in Valencia, Spain for the World development offers compelling Series. Biofuels also curb the emission of other pollutants, such as particulates, which can be reduced by 20 to 30% by adding a blend of 30% VOME and 70% as a carmaker by taking part in discussions a mixture of 30% VOME to diesel fuel. automotive diesel. on the technical, business and political Biofuels can be used in any Peugeot or issues raised by biofuels. In particular, Citroën vehicle without any technical PSA Peugeot Citroën also supports the the Group is a member of the Club des modifications, and the Group strongly development of biofuels by validating Villes Diester, an association of French encourages this option. Its own service potential applications under local energy cities created in 1994 to encourage fleet, for example, is run on Diester® 30, policies. It regularly shares its experience the use of Diester® in three ways:

PSA PEUGEOT CITROËN 92 Managing Board Report Pronovial supports the Pronovial collects, processes and - Marking plastic parts with standardized development of non-food uses publishes high value-added infor- codes, to ensure identification, sorting of renewable biomaterials mation about markets, products and and traceability. producers in these sectors and - Using recycled materials. Pronovial is an association that supports customers in planning and promotes the use of renewal developing their biomaterial projects. The Group applies each of these criteria plant resources in such non-food It provides member companies, and complies with the relevant European applications as cosmetics, auto- institutions and farm associations with Union directives. Since 2002, more than mobiles, lubricants, packaging, information services, based on an 800 suppliers have agreed to provide detergents, solvents and agri- analysis of reliable sources and the compliance certificates for all their materials. PSA Peugeot Citroën is opinions of internationally renowned deliveries or for each part supplied for a founding member, along with experts. In particular, it publishes a forthcoming vehicles. In particular, the ADEME, Sofiprotéol, L’Oréal and monthly intelligence bulletin con- parts are guaranteed to be totally free of Unigrains. cerning renewable raw materials. mercury, cadmium, lead and hexavalent chromium. At least 95% of the average mass of new Peugeot and Citroën - Nurturing a network to exchange of eco-design, using easily recyclable vehicles is reusable and recoverable. information about using Diester® in materials, such as metals and certain higher percentages than the standard polymers, and reducing the variety of 5% (mainly in a 30% blend). materials to facilitate resource recovery - Promoting Diester®’s technical and after shredding. In the case of polymers, environmental benefits to captive fleet for example, materials used to make cars managers. have to meet increasingly stringent criteria: - Acting as a preferred interface with French and European authorities. - Using a single family of plastics per major function, so that an entire sub- ECO-DESIGNING FOR assembly can be recycled without prior DISASSEMBLY AND REUSE disassembly. - Reducing the variety of plastics in a car, PSA Peugeot Citroën designs its cars for to optimize the related recovery pro- recycling. It has embraced the principles cesses and ensure their profitability.

PSA PEUGEOT CITROËN Managing Board Report 93 PRODUCTION PLANTS AND THE ENVIRONMENT

STRONG PRINCIPLES and an environmental engineering office Two new sites, Metz in France and that provides technical support for the Mangualde in Portugal, earned ISO PSA Peugeot Citroën is also engaged in plants, particularly during capital projects. 14001 certificates in 2003, bringing assertive environmental stewardship in In 2003, around 500 people were to 22 the number of certified Group it production facilities, in a commitment involved in managing the Group’s sites. Two others are engaged in the to ensuring that their operations industrial environment. certification process. safeguard the neighboring environment and the quality of life in host AN ACTIVE CERTIFICATION As part of that process, the sites communities. To support and enhance POLICY have developed procedures for pollution abatement programs, the communicating transparently with their Group’s industrial strategy integrates Environmental management systems host communities. Data pertaining to environmental protection as part of have been introduced at all production plant self-monitoring is transmitted to a continuous improvement process, facilities worldwide, with the aim of the public authorities, while requests for based on a disciplined organization, the earning ISO 14001 certification, the information from neighbors are allocation of significant funding and an internationally recognized standard for answered and, where necessary, effective reporting system known as the environmental management and corrective actions are taken, such as Industrial Environment Observatory. organization. It enables a company to soundproofing smokestacks or building Deployed worldwide, this process express an environmental strategy, anti-noise barriers. efficiently manages the most significant describe the procedures used to environmental aspects of the Group’s implement it, guarantee compliance CURBING GREENHOUSE GAS operations. and drive continuous improvement, the EMISSIONS foundation of good environmental The corporate risk prevention and management. Reducing VOC emissions management department includes an In France, automobile plants account for environmental section, which has its own As part of the ISO 14001 process, less than 1% of total volatile organic capital plan and coordinates general every employee receives training in compound (VOC) emissions produced activities in this area. In addition, at each environmental skills or awareness by human activity. The Group is leading plant, an environmental manager is tailored to his or her job and business. a proactive, three-pronged policy in backed by a dedicated organization and This is true as well for interns, this area: correspondents appointed in each temporary employees and employees - Optimizing current paint shops, by workshop and facility. The technical hired under fixed-term contracts, who introducing equipment with higher department also has environmental are familiarized with environmental application efficiency to reduce the use specialists in its different competencies issues during their orientation process. of conventional paints and related

PSA PEUGEOT CITROËN 94 Managing Board Report solvents, selecting low-solvent paints Cleaner technologies drive and recycling used solvents. continue improvement in paint - Deploying clean technologies like shop VOC emissions water-based paints and powder primers in new facilities. PSA Peugeot Citroën has been - Installing air treatment equipment to working to reduce its VOC emissions incinerate VOCs. since 1988. During the first phase,

paint volumes were reduced and The new paintshop These measures have helped reduce cleaning solvents were recovered for at the Mulhouse plant (France) VOC emissions from the French paint disposal or recycling. shops to an average 5.33 kilograms per Installation of these technologies at vehicle in 2003, from a range of 10 to In the second phase, the Group the Mulhouse plant offered an 13 kilograms per vehicle, depending on deployed clean technologies, com- opportunity for further improvement. the site, in 1988. Worldwide, VOC prising water-based primer and Primers are now totally solvent- emissions totalled 5.62 kilograms per enamel lines (cutting solvent content free, making Mulhouse a global vehicle in 2002. from 80% to 15%) and incinerators benchmark, with forecast VOC for VOCs released in the drying oven. emissions of only around three Continued systematic implementation of Installed at the Poissy plant, these kilograms per vehicle. the best, most cost-effective solutions technologies cut VOC emissions from will enable the Group to further improve 3,500 tons in 1988 to 950 tons in Future production facilities, including its performance, dropping below five 2003. Similar technology has been the new plant in Trnava, Slovakia, will kilograms per vehicle in the next few implemented at the Porto Real plant be equipped with these state-of-the- years before ultimately heading towards in Brazil. art technologies. four kilograms.

At any rate, it will meet the limits set for 2007 in the European Union directive on reducing VOC emissions.

PSA PEUGEOT CITROËN Managing Board Report 95 Sorting waste This figure will also continue to decline at the Metz plant (France) in coming years.

LOWERING ENERGY CONSUMPTION All carmaking processes are energy intensive, whether foundry work, the cooling of machine tools, paint drying or heat treatment processes. The Group is committed to developing action plans to reduce energy consumption at all its automobile plants. Among the most remarkable initiatives undertaken in recent years has been the installation of waste-to-energy units at the Rennes, Mulhouse and Sochaux facilities. The wastewater treatment facility at the Sochaux plant (France) REDUCING WATER CONSUMPTION A steady decline in other main source of energy. Worldwide SO2 Conserving water is a key objective at all regulated emissions emissions will continue to decline, plants, in particular through the use of By substituting natural gas—or low or very eventually reaching 600 tons from 1,040 metering systems and the display of low-sulfur fuel oil—for conventional fuel tons in 2003. the least water-intensive operating oil, worldwide sulfur dioxide (SO2) parameters for each workstation. These emissions from the Group’s power plants W orldwide nitrogen oxide (NOx) measures helped to reduce water have been reduced by 68% since 1995. emissions have declined by around consumption per vehicle produced by At the Vigo plant in Spain, for example, 15% since 1995, according to data from 39% between 1995 and 2003. SO2 emissions dropped from 731 tons the Industrial Environment Observatory in 1989 to zero when natural gas set up by the Group to track the envi- Production facilities are either connect- replaced fuel oil (13,500 tons) as the ronmental performance of its facilities. ed to the public wastewater treatment

PSA PEUGEOT CITROËN 96 Managing Board Report Treating and recycling REDUCING AND EFFICIENTLY effluent and wastewater RECOVERING WASTE FROM from the mechanical AUTOMOBILE PLANTS component plants Programs in place for more than ten In building its two new HDI engine years to reduce, reuse, recover and lines, the Tremery plant installed the recycle automotive process waste enabled the production plants to recover latest generation evapo-concentration The physical chemical systems to support the facility’s treatment facility and reuse 76% of their worldwide waste at the Trémery plant (France) existing conventional ultra-filtration in 2003 (excluding metal waste, which units and physical chemical plant. is nearly 100% recycled). Over the past decade, this extensive recovery, recycling Evapo-concentration makes it possible And lastly, the technology currently and reuse have resulted in a steep to recycle effluent from the machines generates two reusable by-products: decline in waste disposed of in landfills used to clean certain metal parts, a distillate that can be reintroduced in France, from around 66% in 1989 to thereby lengthening mean time into the preparation of other fluids and just 15% in 2003. between water changes and reducing a concentrate that can be burned as the volume of effluent to be treated fuel. Nearly all scrap sheet metal, turnings and in the ultra-filtration units or the waste other metal waste is recovered and reused treatment plant. It can also process Evapo-concentration technology is in steelmaking or in the Group’s foundries. laundry effluent and end-of-life cutting also being implemented at the Metz Managing this category of waste, fluids. transmission plant. estimated at around 700,000 tons a year, is therefore not only environmentally network or equipped with their own Between 1989 and 2003, daily beneficial, it also makes business sense. integrated treatment plant. They also releases of suspended solids and COD When this category of waste is taken into systematically track releases using in France were each reduced by 55%. account, Group plants reclaim and recycle indicators, defined on a case-by-case Given the nature of effluent from around 91% of their process waste. basis, to estimate, for example, the the Group’s car plants, the risk of amount of suspended solids and the eutrophication and acidification is In 2003, the Group’s iron foundries chemical oxygen demand (COD). negligible. directly used 100,000 tons of this metal

PSA PEUGEOT CITROËN Managing Board Report 97 waste, while indirectly recycling around Recycling used casting sand 200,000 tons of scrap iron purchased to reduce waste and conserve from outside suppliers. resources

UNDERSTANDING SOILS The Charleville plant has invested TO IMPROVE PROTECTION around €8 million in a very large facility to treat and recycle the some PSA Peugeot Citroën is committed to 100,000 tons of used casting sand identifying any contamination pre- produced by its aluminum casting existing at its sites. In France, at the operations each year. The new facility instigation of public authorities and comprises a series of mechanical pre- A cylinder block mold in in compliance with the procedure treatment processes (iron removal, regenerated casting sand developed by the Geological and Mining crushing, metal removal, sieving, Sept-Fons (France) Research Bureau (BRGM), soil sorting, etc.), followed by a fluidized- contamination was assessed at the bed heat treatment process equipped Sochaux, Mulhouse, Poissy, Caen, with a heat recovery post-combustion Asnières-sur-Seine, Saint-Ouen, Sept- system and a bag dust collector. of used sand, or half the plant’s Fons and Valenciennes sites. Similar output. investigations were carried out at the The treated sand can be reused on Trémery and Metz plants. After in-depth site instead of new sand, or sold to A similarly broad-based program surveys conducted between 1999 and third parties. The fine sand waste was implemented at the Sept-Fons 2002, the experts concluded that only produced by the heat treatment is foundry, with a mechanical treatment self-monitoring was required at the ten sold to construction companies. process that delivered equally facilities. Strict procedures are in place conclusive results. Some 39,000 to prevent soil pollution, in particular The new facility came on stream in metric tons of sand were recycled, through the use of retention basins for 2003, when it processed 50,000 tons equivalent to 60% of the total. liquid storage.

PSA PEUGEOT CITROËN 98 Managing Board Report The 2-liter HDI diesel engine

The Porto Real plant (Brazil)

PSA PEUGEOT CITROËN Managing Board Report 99 CORPORATE CITIZENSHIP

PSA PEUGEOT CITROËN 100 Managing Board Report BUILDING SAFER CARS FOR EVERYONE

PSA Peugeot Citroën’s overriding priority pleasant and more comfortable. To illustrated by the Peugeot 407’s new is to ensure the safety of drivers and enable people to focus on driving at all rear axle. Advanced technology ensures other road users. In 2003, nearly 10% of times, PSA Peugeot Citroën develops perfect positioning of each wheel the Automobile Division’s research and driver support systems such as ESP or whether moving or not, thus guarant- development budget was allocated ASR that actively contribute to the safety eeing the car’s balance under all to safety-related programs. While of both drivers and passengers by circumstances. continuing to assertively develop improving vehicle control. technological solutions that help to The ABS Anti Blocking System is now avoid accidents (active safety) and ACTIVE SAFETY: standard equipment on all models, reduce their impact when they do A CENTER OF EXCELLENCE accounting for 90% of all Peugeots and occur (passive safety), the Group also FOR PSA PEUGEOT CITROËN Citroëns sold in Europe. The electronic addresses road safety by studying stability program (ESP), which helps human factors, which play a decisive Accident avoidance, a critical drivers maintain control even in a skid, role in preventing accidents, and by challenge was further extended across the Peugeot offering efficient driver support systems. Active security is a pivotal focus of and Citroën line-ups in 2003, enhancing The Group also works closely with PSA Peugeot Citroën research because safety on platforms that are already public authorities in charge of road accident avoidance is obviously a extremely stable. infrastructure, proposing a variety of top priority. Studies by the joint innovations that enhance safety. PSA Peugeot Citroën/Renault Laboratory Studies in cognitive ergonomics (i.e. how of Accidentology, Biomechanics and the drivers exchange information with their INTEGRATING DRIVERS Study of Human Behavior show that environment) and postural ergonomics INTO THE SYSTEM nearly 40% of the victims of fatal are designed into new car projects, in a accidents could not have been saved by commitment to delivering exceptional Driver empowerment is fundamental to passive safety systems alone. Leveraging comfort for occupants, regardless of their automotive safety. The behavior of the universally recognized qualities of its age or morphology. This expertise in drivers and their ability to control their cars, the Group is continually improving cognitive research makes certain that vehicles and perceive the environment the comfort/performance tradeoff that information provided by the vehicle is are the key factors that underpin road translates into greater safety. The correctly interpreted by drivers under all safety. Today’s cars offer a multitude of inherent features of Peugeot and Citroën conditions, allowing them to focus on features that make driving easier, more cars are a benchmark in this regard, safe driving.

PSA PEUGEOT CITROËN Managing Board Report 101 A simulated side impact test on a Peugeot 307 PASSIVE SAFETY: STATE-OF-THE-ART PASSENGER PROTECTION SYSTEMS

Platforms and structures designed for protection In situations where accidents cannot be avoided, Peugeot and Citroën vehicles afford protection that is best-in-class The Peugeot 807 interior worldwide. From the initial design of the shared platforms through every phase in a vehicle project, passive safety is a primary determinant of size. This ensures that regardless of the type of collision–frontal, side, rear or even A braking test on multi-grip track rollovers–structural components resist at the Technical Center of Belchamp (France) impact and absorb energy to provide a high degree of protection for vehicle occupants. In this way, the passenger Track tests can simulate winter driving conditions compartment acts as a survival cell, fit- PSA Peugeot Citroën operates two highly during the summer to allow year-long ted with sophisticated restraint devices. sophisticated test centers capable of testing of braking systems under actual reproducing every imaginable type of road conditions. In addition, the Center’s Efficient restraint systems driving conditions and of subjecting cars roadhandling track is used to develop to protect occupants to maximum constraints to ensure electronic stability program (ESP) and Vehicle occupants enjoy maximum extremely high levels of safety—all areas acceleration skid control (ASR) systems. protection, regardless of their age or in which PSA Peugeot Citroën engineers In this way, all types of road conditions where they are seated. Isofix attachment enjoy world-class expertise. The multi- can be recreated to validate ongoing points allow easy and efficient grip track at the Belchamp Test Center vehicle improvements. installation of child seats, seatbelt load

PSA PEUGEOT CITROËN 102 Managing Board Report limiting retractors are calibrated at 450 increase in safety. One highly effective Protecting children DaN, and airbags with dual energy levels system consists of driver reminders that equip some models. Everything is a seatbelt is not fastened. If the driver’s The Group completely upgraded its calculated to guarantee to maximize belt is unfastened, he or she is alerted suite of child restraint solutions in protection for everyone in the vehicle. by a light and audible signal as soon as 2003, with Peugeot and Citroën the vehicle reaches a certain speed, while now offering a new range of car Load limiting retractors on front seatbelts unbuckled front passengers are alerted seats and boosters for children of are now being installed for back seats as as soon as a presence is detected. all ages. These solutions use the well. These systems adjust occupant latest technology to provide opti- restraints while limiting pressure on the Another advance is active footrests, mum protection against all types of chest to reduce the frequency of thoracic which help prevent often seriously impact. and abdominal injuries. In particular, they incapacitating ankle injuries from In addition, all Group vehicles are provide better protection for elderly accidents. Active headrests and seat- equipped with Isofix attachment persons involved in serious accidents. backs also alleviate the effects of rear points to ensure correct installation impacts, preventing whiplash, which of children’s seats in cars. This is Airbags are also being continuously is very difficult to treat. essential since only properly improved with new dual-force deploy- installed seats can improve safety. ment systems that adjust to the The need to protect pedestrians is also severity of the impact. The Peugeot 407 designed into new vehicle projects. is equipped with up to nine airbags, Front-end structures and styling take including a new steering column airbag into account potential collisions with to protect the driver’s knees. pedestrians, while complying with regu- latory preventive measures. Hoods, Data from the accidentology lab show bumpers and lower skirts are tested to that even today, nearly 20% of accident make pedestrian contact as harmless as fatalities involve people who were possible. This imposes considerable not wearing seatbelts. Any means of constraints on front-end design and encouraging people to fasten their automotive styling, which must also seatbelts therefore leads to a real reflect other potential types of collision.

PSA PEUGEOT CITROËN Managing Board Report 103 DRIVER ASSISTANCE SYSTEMS Automotive Safety Facts & Figures

Some PSA Peugeot Citroën cars already Two road test centers in Belchamp 25,000 digital crash simulations include an “emergency call” function. In and La Ferté-Vidame. a year (entire vehicles and subsystems). the event of an accident that triggers airbag deployment, the vehicle can link 18 million kilometers of road tests 175,000 hours of simulation on the driver to a 24/7 highway assistance in 2003 (450 times around the world). a Cray supercomputer (complete service. Thanks to GPS technology and crash simulations). onboard GSM mobile phones, assistance A patented multi-grip track for personnel can remotely locate the scene braking tests. Aggregate computation capacity of the accident, even if the driver of 1,013 gigaflops, up from 160 is unconscious. This feature conside- A roadhandling track for ESP/ASR. gigaflops at end-1999 (1 gigaflop rably enhances the effectiveness of = 1 billion operations per second). emergency response to accidents. A passive safety center with a full- size catapult, reverse catapult, 60 crash test dummies (unit value: pedestrian impact bench, etc. €150,000).

750 complete crash tests and Improving safety accounts for more 500 physical tests on automotive than 10% of the Automobile subsystems in 2003. Division’s R&D budget.

PSA PEUGEOT CITROËN 104 Managing Board Report Don’t drink and drive: support for designated PROMOTING driver program ROAD SAFETY Since 1999, Citroën has supported the Voiture & Co association that organizes PSA Peugeot Citroën recognizes that car pools for young people after parties. today, changing driver behavior is Active since 2000, Voiture & Co finds fundamental to improving road safety. rides with drivers who have first passed That’s why the Group is continuing to a breathalyzer test provided by the invest to deepen understanding of the association. If no drivers are available, role human factors play in accidents and young people are taken home in to develop programs that promote safer Citroën cars. In 2003 Voiture & Co alyzer tests, and sending teams to talk driving habits. participated in nearly 50 events, to young people about the dangers of distributing leaflets and free breath- drinking and driving. PARTNERING TO IMPROVE ROAD SAFETY

Better road safety through which children are exposed if they licenses. The free courses include both education are not properly secured in cars. The on-the-road and classroom sessions, PSA Peugeot Citroën has renewed its document is available on the Internet enabling drivers to better understand partnership with the French Ministry of (www.preventionroutiere.asso.fr) and their own limits and those of their car. Education, with a commitment to from local highway safety authorities implementing programs to teach road across France. More than a million copies In Spain, a new series of “Safe Driving” safety to young people. These programs have been printed. seminars, conducted in partnership are governed by agreements involving with the regional government of local school districts, Group plants, and PURSUING SAFETY Galicia, was attended by 2,700 young the marques’ regional offices. AWARENESS INITIATIVES people. The 2003 program included special sessions for the disabled. In Citroën partnership with the Greater safety for young addition, the Mulhouse plant teamed French highway safety agency drivers up with the Alsace Automobile Club to Citroën and France’s highway safety Gradually deployed at all the French sites organize a “Safety at the Wheel” agency have published a brochure on in 2003, the “Safe Driving” program session, training nearly 500 people, “Children in Cars” to heighten parental offers special courses to both employees including a large number of recently awareness concerning the risks to and young drivers who recently got their hired young people.

PSA PEUGEOT CITROËN Managing Board Report 105 “Drive Right” with Peugeot A safe-driving In 2003, Peugeot continued its course at the Vesoul plant partnership with the driving school run (France) by former Formula 1 driver Jean-Pierre Beltoise. More than 500 people took the free “Peugeot Drive Right” seminar. The A child surveillance mirror on the Citroën C8 day-long class covers a car’s active and passive safety features and includes practical exercises to learn braking skills and to estimate distances. The seminar illustrates Peugeot’s commitment to training its sales teams, so that they can raise awareness among customers of the importance of road safety.

The “Good Driver” contest with Gefco The Peugeot 407 is the marque’s first car Gefco, the Group’s logistics subsidiary, equipped with nine airbags has extended the “Good Driver” contest for its truck drivers. The contest rewards the best performance in obeying European road regulations and preventing accidents. It also improves knowledge of responsible driving practices among employees, so that appropriate remedial training can be applied as necessary.

PSA PEUGEOT CITROËN 106 Managing Board Report HELPING TO ENHANCE THE QUALITY OF MOBILE LIFE

The mobility of people and goods is Liselec initiative in La Rochelle, which Travel diagnostics fundamental to efficient access to jobs, provides self-service access to electric In 2003, the Sochaux plant completed healthcare and culture, and represents a vehicles, and the ELCIDIS (Electric pilot studies for a company travel plan. key driver of economic and social progress Vehicle City Distribution System) project, In cooperation with mobility specialists in less developed countries. While which promotes city center deliveries from the nearby city of Belfort, the indispensable, mobility nevertheless raises using electric vans. plan will be finalized in 2004, with the important issues concerning inalienable goal of rationalizing travel in and rights to access and the free flow of “Sustainable driving” for around the Sochaux facility and automobile traffic. PSA Peugeot Citroën employees reducing the number of accidents contributes to the development of during trips to and from work. effective solutions, supports initiatives Car-pooling at the Vélizy Innovative solutions combining public that expand our understanding of mobility and Poissy plants transportation and car-pooling, along and participates in innovative experiments. PSA Peugeot Citroën is particularly with better information for employees committed to car-pooling. Nearly 10% will be studied ahead of deployment MAKING SUSTAINABLE of the 4,000 employees at the Vélizy starting in 2005. MOBILITY A DAILY REALITY technical center use the car-pooling system introduced in 1998. Situated in a Support for mobility The world’s leading busy Paris suburb, the center is exposed experiments manufacturer of electric to heavy traffic during rush hours, as well In 2003, the Group provided support for vehicles as parking problems, both exacerbated the “Mobility Center” program launched PSA Peugeot Citroën is the world’s by insufficient public transportation. Each by Voiture & Co as part of the broader leading manufacturer of electric vehicles, car carries an average of three people “Urban Mobility for Everyone” project with more than 9,000 vehicles produced who either share travel expenses or take overseen by France’s Ministry of since 1995. Both quiet and emission- turns driving their own car. Drivers who Transportation. The program is designed free, EVs are ideal for carrying people car-pool receive priority parking spaces. to create a service center that allows and delivering goods in city centers. A Now well-established at Vélizy, the people to access different means of growing number of municipalities and system has helped improve traffic travel in the Paris region. The center will state agencies have acquired electric around the center. The Group’s new provide personal “mobility consulting” vehicle fleets. The Group is taking part office complex in Poissy has also created with information on traffic, costs, travel in several groundbreaking experiments special software to help it promote car- time and current conditions. It will also in new ways to use EVs, including the pooling among employees. comprise car-pooling, bicycle rental and

PSA PEUGEOT CITROËN Managing Board Report 107 IVM’s “Architecture on the Move!” exhibition A parking lot reserved for car-poolers at the PSA Peugeot Citroën facility in Velizy (France)

maintenance services, as well as two satellite Mobility offices. Additional services like car sharing and on-demand transportation may also be developed in the future.

IMPROVING URBAN MOBILITY THROUGH BETTER AWARENESS AND INNOVATIVE TRIALS

Institut pour la Ville An electric Citroën Berlingo en Mouvement (IVM) Created in June 2000, PSA Peugeot Citroën’s Institut pour la Ville en Mouvement positive culture of mobility anchored in with public and private sector (IVM) is a non-profit association that awareness and good citizenship. organizations to carry out a program of develops innovative social, organiza- research and experiments aimed at tional and technical programs and The IVM’s Mobility and helping reintegrate the long-term research to improve urban mobility in Integration Program unemployed through better mobility. One France and other countries. Supported example is an on-demand transport by a multi-disciplinary scientific Mobility as an inalienable right program set up with Abeilles Aide & council, IVM serves as a forum where As lifestyles, work and leisure pursuits Entreaide, an association that combats stake-holders in urban mobility – urban become increasingly diverse and the exclusion through employment. During planners, researchers, non-profit asso- boundaries between them more porous, its first full year of operation in 2003, the ciations, government agencies and mobility has emerged as an indispensable program deployed two minivans, with businesses–can interact and work in component of both social and economic service coordinated using special partnership on practical initiatives. It is integration. This was demonstrated by a computer software. The program makes it implementing ten projects focused on nationwide IVM study conducted in 2003 easier for people to travel to jobs, as well three main issues: improving access to in association with the Observatoire Social as appointments at government offices, mobility, increasing the efficiency and de Lyon and Rennes University. Since healthcare providers and training quality of mobility, and developing a January 2002, IVM has worked closely organizations.

PSA PEUGEOT CITROËN 108 Managing Board Report The “Architecture on the Ideas from students Move!” exhibition on how to improve mobility

Increasing the efficiency and Promoting understanding of quality of mobility in modern mobility issues and good cities citizenship As cities spread and become more Cities around the world face similar complex, the quality of mobility issues linked to growing demand for increasingly depends on how space and better mobility. Sharing experience and facilities are organized and interact with ideas is an especially fruitful path to both transit times and different means progress, which is why IVM organizes a of movement. To promote real-world special international competition every improvements implemented in countries two years, inviting students from around around the world, IVM developed the the world to present instructive projects “Architecture on the Move!” exhibition. from their cities. The 2003 prizes went to a project for a mobility service in Inaugurated at the Paris Auto Show in Barcelona and to a study on how to 2002, the exhibition traveled to make it easier to get into central European cities in 2003, serving as the Grenoble from the surrounding suburbs. backdrop for conferences on the theme of mobility in today’s cities. The exhi- bition also represented France at the Rotterdam Architecture Biennial. It will travel around the world in 2004, including stops in China, where an international symposium on urban mobility issues will be held in Beijing in October.

PSA PEUGEOT CITROËN Managing Board Report 109 AN INTEGRATED PART OF LOCAL COMMUNITIES

PSA Peugeot Citroën plays an active role schools and universities participating in Better living and educational in the local communities where the Group the project, which will also train Slovakian conditions for young people operates. teachers. Working with the Porto Real and Confiar Foundations, the Group continues to HELPING TO IMPROVE “Technical Teachers Without support health, education and environ- EDUCATIONAL SYSTEMS Borders” mental initiatives in Brazil, adding Another joint initiative with the French new projects to promote literacy and Automotive maintenance Ministry of Education is a program that computer education. The Porto Real training centers organizes intensive technical training plant also joined the Sul Fluminense In partnership with the French Ministry courses in other countries. Each course Regional Committee for Social of Education, PSA Peugeot Citroën systematically includes two or three Responsibility in the southern part of operates automotive maintenance local technical teachers among the the state of Rio. training centers in countries where dozen students. In 2003 the program there is a shortage of technical skills. delivered 26 weeks of training in In Argentina, PSA Peugeot Citroën Designed to train employees, these Senegal, Cuba, Algeria, Chile, Colombia, renewed its support for primary and centers have also systematically Kuwait and Angola. It will be extended technical schools through significant welcomed local teachers and students to 14 countries in 2004. donations of computer hardware and since they were opened in 1999. In mechanical equipment. The Group 2003, for example, the six centers ADDRESSING THE NEEDS also provided construction material for operating in Mexico, Brazil and China OF LOCAL COMMUNITIES the city of Tres de Febrero to help trained nearly 1,000 people, including renovate one of the city’s poorest 230 local teachers and students. These Responding to emergencies neighborhoods. numbers will rise significantly as 300 In 2003, following the outbreak of technical teachers in the Chinese Severe Acute Respiratory Syndrome Combating exclusion province of Hubei receive training in (SARS) in China, PSA Peugeot Citroën In addition to a partnership to replace automotive production techniques contributed to international efforts to the vehicle fleet operated by the Paris between 2004 and 2006. combat the disease by donating funds emergency social services agency, the to the Wuhan Institute of Virology. The Group supports associations that use In 2004, a campus will be opened in Group also donated funds to Iranian mobility to alleviate social and Slovakia to train employees of the future authorities to rebuild a hospital damaged economic exclusion or to improve the plant in Trnava. The Group will supply in the earthquake that destroyed the city quality of life for the disabled. These the necessary equipment to the high of Bam in December. associations work in a variety of areas,

PSA PEUGEOT CITROËN 110 Managing Board Report A Citroën repair shop (Brazil)

A Citroën Dispatch used by the Paris emergency social services agency

Maintenance training at the Saint-Ouen plant (France)

such as outings for disabled young Personal commitment people, travel assistance for senior by employees citizens, aid for street children, Many employees are personally involved development of an on-demand in local volunteer initiatives. In the U.K., transport service to allow the long-term for example, the Peugeot Citroën Charity unemployed to get to jobs, low-cost Trust provides support for employee vehicle rental for people in social initiatives, more than 50 of which reintegration programs, low-cost driver received funding in 2003. Corporate training for people in need, or transport support was also renewed for Macmillan to allow children to visit parents in Cancer Relief, a British association that prison. helps people in their fight against cancer.

PSA PEUGEOT CITROËN Managing Board Report 111 RESEARCH AND DEVELOPMENT

PSA PEUGEOT CITROËN 112 Managing Board Report PSA Peugeot Citroën’s research and development strategy is driven by four fundamental objectives: reduce CO2 emissions, improve air quality, enhance safety, and develop new automotive concepts. To meet them, the Group is committed to identifying and developing the emerging technologies that deliver the greatest benefits to the greatest number. Its technological innovations are always bold, yet practical and consistent with mass production. It believes that all its customers must be able to enjoy the benefits of technological progress.

The overarching aim of these technologies, whether short or long term, is to reduce CO2 emissions. Positive results have already been achieved in this area through engine developments, in particular with the HDI. But research is continuing in other key technologies, such as electronic transmissions, hybrid vehicles and fuel cells.

The Group takes an active role in public research projects both in France and across Europe, particularly within the scope of the European Union’s 6th PCRD framework R&D program. In addition, it marshals the expertise of laboratories from around the world.

TECHNOLOGY THAT MATTERS

ONGOING IMPROVEMENTS offers a range of models with very low GASOLINE ENGINES TO THE HDI ENGINE CO2 engines (less than or equal to 120g of CO2 per kilometer). To date, it has Work is also continuing on conventional PSA Peugeot Citroën’s reputation as sold more than 200,000 Peugeot 206s gasoline engines, most notably through Europe’s leading manufacturer of diesel- and Citroën C3s with the 1.4-liter HDI the cooperative venture with BMW. powered cars is supported by a steady engine, emitting 113g and 110g of Research programs are designed to stream of innovations not only in the CO2/km, respectively. Between now improve engine performance-in terms engine itself, but also in the associated and 2006, PSA Peugeot Citroën expects of comfort, noise and size-while reducing emissions control technologies. The to produce and sell 1.7 million low-CO2 fuel consumption and therefore CO2 Group has already produced more than vehicles. emissions. The future EP family of four million common rail high-pressure supercharged, direct-injection engines direct injection (HDI) diesels, whose Since 2000, the highly fuel-efficient HDI will offer world-class emissions control. success stems from several factors: technology has been coupled with a - Fuel consumption 20% less than a particulate filter system that completely THE MCP TRANSMISSION prechamber diesel, resulting in a eliminates diesel particulate matter of similar decrease in CO2 emissions. any size, by reducing their emissions to PSA Peugeot Citroën will soon roll out - Ease of driving due to low-speed below the measurement threshold. the innovative MCP compact electronic torque, with sound and vibration levels After making its world premier on the transmission. Based on a manual 6- comparable to a gasoline engine. Peugeot 607, the particulate filter is now speed gearbox and designed for either - Excellent environmental performance fitted on the Peugeot 307, 407 and 807, automatic or manual mode, the unit through precise control of combustion and the Citroën C5 and C8. By the end features a clutch and electronically due to the common rail, along with of 2003, the Group had sold a total controlled gear shifting, using powerful emissions control systems. of 600,000 filter-equipped vehicles. electrohydraulic actuators, to deliver Boosted by the recent introduction of exceptional performance and remark- Research into diesel engines is the new service-free version, sales are able drivability. It should reduce fuel continuing, with the goal of further projected to reach 1.7 million units consumption by 5% under normal reducing CO2 emissions. The Group now by 2006. operating conditions.

PSA PEUGEOT CITROËN Managing Board Report 113 Fighting loss of attention and distraction

In 2003, PSA Peugeot Citroën introduced an innovative driver support system to avoid accidents on expressways and highways when The MCP transmission will be gradually drivers start to lose attention. Infrared deployed on both gas and diesel- sensors embedded in the front powered cars in the Peugeot and Citroën bumper enable a car to continuously Simulated reading ranges. “read the road” and alert drivers of highway barcode markings when they begin to involuntarily drift MCP project development represents a out of the lane, thus considerably stripes applied across the roadway, total investment of €430 million and reducing risks. forming a sort of “highway barcode”. a team of 150 employees. The MCP Based on this technology, Rolling over these barcodes will transmission will be built at a new facility PSA Peugeot Citroën has offered transmit data to the vehicle that is in the Valenciennes plant, which will government authorities a solution then displayed on the dashboard, employ 960 people. Production is that will enable cars to read white reinforcing existing signals. targeted at 400,000 units a year.

HYBRID VEHICLES PSA Peugeot Citroën The partnership's objective is to Hybrid vehicle research is another priority joins Autosar specify and supply a common at PSA Peugeot Citroën, which in 2004 software architecture standard to all will introduce a mild hybrid using stop On December 11, 2003, Autosar members. The domains and start technology. Combining an PSA Peugeot Citroën joined the covered include body, drive train and internal combustion engine with a low- Automotive Open System Architec- suspension electronics, as well as power electric starter-alternator, stop and ture consortium (Autosar), which multimedia, telematic and human- start systems cut the engine whenever was formed by carmakers and machine interface systems. the car stops, at a stoplight for example, automotive equipment manu- or in a traffic jam, and then automatically facturers to develop a standardized PSA Peugeot Citroën’s membership starts it again as soon as the driver international electric/electronic in Autosar reflects its strategic focus touches the accelerator. architecture concept for automobiles. on simplifying and standardizing The other core partners include electronic functions. In addition, BMW, DaimlerChrysler, Ford Motor membership is expected to drive Co., Volkswagen AG, Toyota Motor major gains in development costs and Corp., Bosch, Continental and time, while enhancing the reliability Siemens VDO. and robustness of vehicle electronics.

PSA PEUGEOT CITROËN 114 Managing Board Report TOMORROW’S TECHNOLOGIES

FUEL CELLS tigate the different technologies EFFICIENT-C possible, drawing on the capabilities FOR ULTRA-LOW AUTOMOTIVE F uel cells are an integral part of of its expert networks. For example, the CO2 EMISSIONS PSA Peugeot Citroën’s environmental Group has signed a strategic agreement strategy. This very promising technology with France’s National Center for PSA Peugeot Citroën teamed up with should come into its own in the auto Scientific Research (CNRS) to bring Ricardo UK Ltd. and QinetiQ to submit a industry towards 2015-20. these concepts to maturity, and ano- proposal to the UK Government’s Ultra ther with France’s Atomic Energy Low Carbon Car Challenge. Codenamed Fuel cells offer a number of advantages, Commission (CEA) to deepen Efficient-C, the £3 million project will including lower CO2 emissions, which understanding of the technology develop and demonstrate a parallel contribute to the greenhouse effect, involved in both the fuel cell itself and hybrid powertrain system, for installa- improved quality of life in cities, thanks in hydrogen storage. Findings from tion in a Citroën Berlingo Multispace to silent operation, and elimination these programs enabled the Group to passenger car. of NOx, particles and other pollutants. build two fuel cell demonstrators: the Fuel cell-powered vehicles are considered Taxi PAC and the H2O. In both cases, The Efficient-C vehicle is targeted to zero emission vehicles (ZEV). Despite the fuel cell is used as a range extender achieve CO2 emissions of about 89.5g/km a promising future, however, this or auxiliary power unit. during combined urban and extra-urban technology must still overcome a driving cycles, which equates to a well-to- number of technical and economic Fuel cell-powered cars are well-suited wheels CO2 emissions level of 100g/km, hurdles before it is ready for the market. to city driving, in particular because using pump grade diesel fuel. Legislated In addition to the cost inherent to the electric motors considerably reduce exhaust emissions will be within Euro production of the cell itself, and issues noise. In addition, their range of about IV levels. linked to hydrogen storage, there are a 300 kilometers is enough for city and number of technical problems to be solved. suburban travel. Energy is consumed Vehicle performance targets include only when the vehicle advances, a 0-100 kph acceleration time of less PSA Peugeot Citroën is engaged in a and it is regenerated when the vehicle than 13 seconds and a top speed in rational, deliberate process to inves- brakes. excess of 150 kph.

PSA PEUGEOT CITROËN Managing Board Report 115 R&D OUTREACH

PSA Peugeot Citroën works closely with network of 47 laboratories with a wide program. The partnership covers three public research organizations and a array of expertise that fits closely with the main areas: fuel cells and hydrogen; network of scientific laboratories, either Group’s own capabilities. man-machine interface and virtual through contractual arrangements or as reality; sensors, micro-sensors and part of public programs initiated by the Cross-fertilization of skills is highly associated systems. F rench government or European effective in multidisciplinary, cross- authorities and open to other partners, functional research areas. For example, The largest project with the CEA is including France’s National Center for research into sensorial analysis combines GENEPAC, which concerns the design, Scientific Research (CNRS), Atomic the skills of the Cognitive Psychology construction and bench testing of a Energy Commission (CEA) and labo- laboratory at the University of Paris VIII, medium-power (60 kW) generator ratories in other countries. and the signal processing and data fueled by hydrogen. In another project analysis laboratory at the Compiègne concerning diphase cooling of fuel CNRS Institute of Technology. cells, the CEA is providing scientific PSA Peugeot Citroën is taking a similar supervision for a CIFRE thesis. Contacts A framework agreement signed with approach with a call for proposals from have also been initiated in other areas the CNRS in 2001 has fostered the the CNRS, covering both basic and applied covered by the agreement, with joint development of a variety of joint research research to promote cross-disciplinary reviews of the related scientific advances. activities. In 2003, these activities included solutions for the automotive industry. support for 31 theses funded by the CIFRE LABORATORIES program (an agreement with industry to CEA IN OTHER COUNTRIES promote training through research), two theses co-financed by ADEME (the French Discussions with the CEA in early 2000 The Group also nurtures scientific energy management and environmental led to a framework agreement in 2001, partnerships with laboratories outside agency), two grants for engineering whose signature was announced at the of France. For basic research, it has PhDs, and 32 studies financed by same time as the agreement with the formed partnerships with world-leading PSA Peugeot Citroën. They involved a CNRS, as part of the fuel cell research institutions, such as:

PSA PEUGEOT CITROËN 116 Managing Board Report - TheMassachusetts Institute of The 1.4-liter HDI diesel engine Technology (MIT) in the United States, on engine lubrication and on The Citroën C2’s SensoDrive electronics, especially in the area of gearshift operating reliability. - The Chalmers University of Technology in Sweden, on signal analysis to provide multidimensional mechanical data.

In addition, the Group has developed a network of cooperative endeavors with the world’s leading specialists, most notably in dynamic vehicle control, virtual sensors and sub-assembly energy management.

The Peugeot H2O fuel cell demonstrator

CIFRE contracts: (ANRT), PSA Peugeot Citroën building a bridge between recruits 20 young researchers under Industry and Research CIFRE work-study contracts. Following their three-year contract, Each year, working closely with the researchers submit a thesis on scientific laboratories and France’s a scientific subject applicable to the National Research Association auto industry.

PSA PEUGEOT CITROËN Managing Board Report 117 Management’s Discussion and Analysis

Results ...... 120 Group financing ...... 130 Return on capital employed ...... 138 Management of financial and operational risks ...... 140 Adoption of IAS/IFRS accounting standards ...... 144

PSA PEUGEOT CITROËN 118 Managing Board Report PSA PEUGEOT CITROËN Managing Board Report 119 RESULTS

In a difficult environment shaped by lower at the end of July the Group announced €1,497 million compared with €1,690 demand in Europe, particularly in France, revised operating margin targets of 3.7% million in 2002, representing earnings PSA Peugeot Citroën demonstrated firm for the Automobile Division and 4.7% for per share of €6.14 versus €6.65. The resilience in 2003, holding European the Group as a whole. During the second manufacturing and sales companies market share steady at 15.4% versus half of the year, demand continued to generated free cash flow of €200 million 15.5% in 2002 and driving further growth decline and the euro grew even stronger, and their net financial position held firm in sales outside Western Europe. All told, leading the Group to adjust its targets at at €563 million at December 31, 2003 worldwide sales by the Peugeot and the end of October, to around 3% for the compared with €594 million one Citroën marques totaled 3,286,100 Automobile Division and €2,100 million year earlier. vehicles, compared with 3,267,500 the for the Group as a whole. previous year, representing a global market 1. SALES share of 5.8%. Operating margin ended the year in line with this final forecast, at 2.93% of sales Consolidated sales dipped 0.4% to In February 2003, the Group announced for the Automobile Division, compared €54,238 million from €54,436 million in that it had set as its target for the year an with 5% in 2002, and €2,195 million for 2002. The decline was entirely due to the operating margin of €3,000 million, the Group as a whole, versus €2,912 fall in all the Group’s currencies against the including a 5% operating margin for the million the previous year. These results euro; at constant exchange rates, sales rose Automobile Division. Starting in April, the testify to the Group’s solid financial 1.5% year-on-year. fall in the French market accelerated, while resilience at a time of weak markets in the euro strengthened more rapidly, Europe, and especially France, and in an 1.1. Manufacturing and sales particularly against the British pound and unfavorable exchange rate environment, companies the East European currencies. In light of in which the stronger euro reduced The following table shows the contribution these developments and their impact on consolidated operating margin by €588 of the manufacturing and sales companies results for the first six months of the year, million. Net income for the year came to to consolidated sales:

(in millions of euros) 2003 2002 2001 Automobile Division 43,684 43,951 41,524 Gefco 2,742 2,646 2,643 Faurecia 10,123 9,866 9,611 Other businesses 968 1,003 976 Inter-company eliminations (4,834) (4,560) (4,466) Total PSA Peugeot Citroën 52,683 52,906 50,288

PSA PEUGEOT CITROËN 120 Managing Board Report 1.1.1 Automobile Division sales 1.1.3 Faurecia sales like, excluding catalytic converters and at Automobile Division sales contracted 0.6% Faurecia reported sales of €10,123 million, constant exchange rates and scope of to €43,684 million. The fall in all the an increase of 2.6% over 2002. On a like- consolidation. operating currencies against the euro for-like basis (excluding the effect of reduced revenues by 1.6%. An unfavorable changes in prices of the precious metals Front-end sales totaled €676 million, up sales mix also had a negative impact, offset used in the manufacture of exhaust 13.9% over 2002. by the slight 0.6% increase in Peugeot and systems, exchange rates and the scope of Citroën worldwide volumes and a 1.5% consolidation), the increase was 8.3%. 1.2. Banque PSA Finance revenues average increase in selling prices. Banque PSA Finance’s outstanding loans Car seat sales totaled €4,353 million, an totaled €19,580 million as of December increase of 8% over 2002 and 10.3% 31, 2003, including securitized loans 1.1.2 Gefco revenues excluding the currency effect. In the first which have been removed from the Gefco’s 2003 revenues totaled €2,742 half of the year, volumes were boosted by balance sheet. In June 2001, Credipar, million, up 3.6% on 2002. Excluding the production ramp-ups for a large number of the Bank’s French subsidiary, sold €1,000 currency effect, revenues climbed 4.4% models, as well as by the full-year million worth of automobile loans to a over 2002. Network (part and full-load contribution of the new Vigo plant in Spain, special purpose vehicle which in turn transportation) revenues expanded 2.4% which came on stream during the summer issued asset-backed securities to inter- to €1,407 million, reflecting the develop- of 2002. In the second half, market national institutional investors. After ment of international services, especially in conditions were more difficult and deducting the loans that have matured Eastern Europe and the Mercosur region, European automobile production declined; since June 2001, the asset pool as of which helped to offset the effects of in spite of this, car seat sales expanded December 31, 2003 stood at €721 lackluster economic conditions in France 3.2%, helped by the ramp-up or launch of million. In July 2002, Credipar and the and Germany. Automotive (vehicle new models. Bank’s Spanish branch sold €1,500 preparation and distribution) revenues million worth of automobile loans to the totaled €1,021 million, an increase of Sales of other vehicle interior modules special purpose vehicle. The asset pool 3.5%. Supply (logistics and sea and air came to €3,506 million, up 1.2% over has been kept at this level ever since, freight) revenues grew 8.1% to €295 2002. At constant exchange rates and through the sale of new automobile loans million, powered by steadily rising scope of consolidation, the year-on-year to replace the original loans when they throughput at the logistics platforms, increase was 7.3%. reach maturity. As of December 31, 2003, particularly the Le Havre international automobile loans totaling €2,144 million automobile parts platform and the Exhaust system sales retreated 10.7% on a were securitized under the two Peugeot Motocycles platform. reported basis but inched up 0.4% like-for- transactions described above.

PSA PEUGEOT CITROËN Managing Board Report 121 Including securitized loans, outstanding loans as of December 31, 2003 were 4.8% higher than at end-2002. Growth in retail and lease financing compensated for a decline in wholesale financing to just above the end-2001 level.

(in millions of euros) Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2001 Outstanding loans, including securitized loans - Retail and lease financing 15,068 13,878 12,863 - Wholesale financing 4,512 4,809 4,352 Total Banque PSA Finance 19,580 18,687 17,215

After deducting automobile loans sold under the two securitization programs described above, year-on-year increases were as follows:

(in millions of euros) Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2001 Outstanding loans, excluding securitized loans - Retail and lease financing 12,924 11,378 11,863 - Wholesale financing 4,512 4,809 4,352 Total Banque PSA Finance 17,436 16,187 16,215

On this basis, Banque PSA Finance financing revenues break down as follows:

(in millions of euros) 2003 2002 2001 From third parties 1,555 1,530 1,375 Inter-company 169 170 212 Total Banque PSA Finance 1,724 1,700 1,587

Total revenues climbed 1.4% in 2003 compared with the previous year. Revenues from the sale of maintenance, insurance and other financing-related services increased 10.8% to €123 million.

PSA PEUGEOT CITROËN 122 Managing Board Report 2. OPERATING MARGIN profitability was weakened by the sharp Operating margin rise in the euro and the unfavorable (in millions of euros – as a % of sales) Reported operating margin came to change in the sales mix, caused primarily €2,195 million, down 24.6% on €2,913 by the sharp decline in the French market. million in 2002. The margin rate stood at 4% of consolidated sales, versus 5.4% the previous year. The downswing was entirely attributable to the Automobile Division—all of the other businesses increased their margin contribution. Automobile Division

2.1. Operating margin by business: manufacturing and sales companies

(in millions of euros) 2003 2002 2001 Automobile Division 1,281 2,183 1,992 Gefco 143 134 119 Faurecia 303 251 262 Other businesses 50 26 31 TOTAL 1,777 2,594 2,404

2.1.1 Automobile Division year. The main factors underlying this climbed to 0.692 from 0.629) had a operating margin decline were as follows: negative impact of €308 million, and Automobile Division operating margin its appreciation against the Central came to €1,281 million versus €2,183 - Changes in exchange rates reduced European currencies trimmed million in 2002, representing a fall of operating margin by €567 million. The €79 million from the total. All told, 41.3%. The margin rate retreated to 10% rise in the euro against the British the stronger euro cut the margin rate 2.9% of sales from 5.0% the previous pound (the average exchange rate by 1.3 points.

PSA PEUGEOT CITROËN Managing Board Report 123 - Changes in volumes and the sales mix the result that net production cost savings - Sustained efforts to enhance competi- had an adverse impact of €548 million. were at €554 million. tiveness, by raising prices, bringing down This includes €154 million arising from operating and purchasing costs and changes in the geographic mix—mainly - Increases in employee compensation had improving network efficiency. due to the fall in the French market—and an estimated impact of €154 million. This €311 million attributable to changes in figure takes into account a €71 million The related benefits were partly offset, the product mix, reflecting the impact of reduction in statutory employee profit- however, by higher costs, the effect of the Citroën model replacement cycle and sharing and incentive bonuses, which are passing on price reductions to customers, weakness in the upper midsize segment based on operating margin. In all, €179 exchange losses and increased in the run-up to the Peugeot 406 million were granted to Group employees information system depreciation and replacement. under these programs, including €161 amortization costs. million to Automobile Division employees. - For the second year running, the price effect was positive, adding €36 million - Research and development spending was 2.1.3 Faurecia operating margin to operating margin. Prices were raised increased by €209 million, to support the Faurecia’s operating margin rose to €303 in most markets. The biggest hikes were major program of model and engine million from €256 million in 2002, in certain European markets, as part of range replacements and extensions representing 3% of sales versus 2.6%. the process of driving gradual price scheduled for 2004, 2005 and 2006. In addition to the 8.3% growth in sales, convergence across Europe, as well as the improvement reflected the following in countries whose currencies had factors: depreciated the most against the euro. 2.1.2 Gefco operating margin These adjustments more than offset Gefco’s operating margin grew 6.7% to - The new purchasing plan set up in 2002 increased promotional spending in €143 million from €134 million in 2002. helped to limit the impact of higher raw response to stiffer competition. The margin rate climbed to 5.2% of sales materials and steel costs. from 5.1% the previous year, led by: - Gross production cost savings came to - Productivity increased, thanks to €570 million. However, the effect on - Increased business, reflecting the the restructuring measures decided operating margin was partly offset by the continued commitment to globalization in 2001 and 2002, and to impro- estimated €16 million impact of higher and the development of logistics vements in the small number of raw materials costs (mainly steel), with services. low-margin programs.

PSA PEUGEOT CITROËN 124 Managing Board Report - Rollout of the new PMS (Program 12.8% in 2003 to €1,840 million, to €532 million, or the equivalent of 5.3% of Management System) helped to reduce support the major program of product and sales. After deducting costs billed on to start-up costs for the 2003 programs. engine range replacements and extensions customers, the net spend rose 12.1% in scheduled for 2004, 2005 and 2006. The 2003, to €241 million or 2.4% of sales. - Administrative and selling expenses were Group is standing by its goal of bringing out tightly controlled, remaining flat at the 26 new models in the period 2003-2006. 2.3. Banque PSA Finance equivalent of 2.9% of sales. After slowing in recent years, the product operating margin introduction program will be stepped up in Banque PSA Finance operating margin 2.2. Research and development 2004, when six new models and two new surged to €418 million in 2003 from costs: manufacturing and sales engine families will be unveiled. €319 million the previous year, lifted by companies improved lending margins and a As in prior years, the Group’s total 2003 In 2003, the Division spent the equivalent significant rise in outstanding loans, two research and development costs were of 4.2% of its sales on research and factors that also shaped the Bank’s recorded directly in the income statement. development. Development costs on performance in 2002. Growth in average This accounting policy differs from that existing vehicles, for new versions, new net outstanding loans added €52 million followed by the other leading European engines and restyles, are reported under to operating margin, and improved carmakers, which capitalize part of their “cost of sales” in order to reflect actual lending margins had a positive impact of development costs and amortize them production cost more accurately and €77 million. Credit losses rose by a through the income statement over several provide a better measure of sales margins. modest €16 million in 2003, while the years. Including these costs, aggregate research loss rate inched up to 0.48% of out- and development spend by the standing loans before securitizations, Research and development costs for 2003 Automobile Division came to €2,250 a level above the previous year’s 0.40% totaled €2,098 million, an increase of million, representing the equivalent of but still significantly below the banking 12.5% on the previous year. 5.2% of the Division’s sales. industry average. Changes in exchange rates had a negative impact of €9 million, corresponding mainly to the 2.2.1 Automobile Division research 2.2.2 Faurecia research and conversion into euros of the results of and development expenditure development expenditure operations in the United Kingdom. Automobile Division research and Gross research and development outlays in General operating expenses remained development outlays were increased by the Automotive Equipment business totaled flat, after the currency effect, confirming

PSA PEUGEOT CITROËN Managing Board Report 125 the benefits of the restructuring plan securitized loans is included in the The operating margin rate improved underway since 2000 that will gradually revenues from Banque PSA Finance’s significantly, rising to 2.2% of outstand- lead to the creation of an integrated retained interest on an accruals basis. ing loans from 1.8% in 2002. organization across Europe. Under Group Consequently, the 2001 and 2002 accounting policies related to loan securitizations have no impact on securitizations, the lending margin on operating margin.

2.4. Personnel costs Personnel costs break down as follows:

(in millions of euros) 2003 2002 2001 Automobile Division 5,775 5,569 5,339 Gefco 320 290 276 Faurecia 1,863 1,877 1,745 Other businesses 150 184 178 Total manufacturing and sales companies 8,108 7,920 7,538 Banque PSA Finance 109 115 111 Total PSA Peugeot Citroën 8,217 8,035 7,649

Personnel costs rose 2.3% compared with 2002, reflecting individual pay rises (see 2.1 above) and a small increase in the number of employees:

2003 2002 2001 Automobile Division 134,700 133,300 129,700 Gefco 8,400 8,000 7,700 Faurecia 51,900 52,200 49,700 Other businesses 2,700 2,900 3,300 Total manufacturing and sales companies 197,700 196,400 190,400 Banque PSA Finance 2,200 2,200 2,100 Total PSA Peugeot Citroën 199,900 198,600 192,500

PSA PEUGEOT CITROËN 126 Managing Board Report 3. NET INCOME The plan will remain open until February 3.2. Restructuring costs: 2005 to all front-line workers at the Auto- manufacturing and sales Net income for the year contracted to mobile Division’s Sochaux plant aged companies €1,497 million from €1,690 million in 56 and over, all other front-line workers In 2003, restructuring costs amounted 2002, representing 2.8% of sales versus in the Automobile Division aged 57 and to €42 million. The bulk of this 3.1%. Earnings per share stood at €6.14 over, and all technical and plant amount (€34 million) concerned the versus €6.65 in 2002. There were no supervisory staff aged 58 and over. The restructuring of Faurecia facilities dilutive instruments outstanding. aim of the plan, which was extended to in France and Germany. Faurecia in 2001, is to speed up the pace The average number of shares outstanding of improvement in manufacturing 3.3. Net interest expense: during the year used to compute earnings efficiency, while maintaining jobs in a manufacturing and sales per share was 243,902,478 in 2003 period of steady business growth. There companies versus 254,201,332 in 2002. are no plans to further extend the eligi- Net interest expense for 2003 stood ble population. at €23 million compared with €25 million 3.1. Early-termination plan costs: in 2002. manufacturing and sales As of December 31, 2003, the early- companies termination plan reserves carried in the 3.4. Other income and expense The €19 million charge recorded in the consolidated balance sheet totaled €423 Other income and expense represented 2003 income statement corresponds to million, including €405 million for the net income of €204 million in 2003 the adjustment of the reserves booked in Automobile Division and €13 million for versus income of €19 million the previous prior years in respect of the early- Faurecia. At that date, 12,994 employees year, broken down as follows: termination plan for older employees of were concerned by the plan, including 746 the Automobile Division and Automotive employees at Faurecia. Equipment business in France.

(in millions of euros) 2003 2002 2001 Manufacturing and sales companies 209 22 193 Finance companies (5) (3) (4) Total PSA Peugeot Citroën 204 19 189

The 2003 figure includes €160 million in gains on the sale of marketable securities.

PSA PEUGEOT CITROËN Managing Board Report 127 3.5. Income taxes on income of fully-consolidated companies Income taxes break down as follows:

(in millions of euros) 2003 2002 2001 Manufacturing and sales companies 563 666 750 Finance companies 122 111 85 Total PSA Peugeot Citroën 685 777 835

The €685 million tax charge on income of fully consolidated companies in 2003 represents an effective tax rate of 29.6% based on pre-tax income of €2,315 million. The 2002 tax charge was €777 million and the effective tax rate was roughly the same as in 2003.

3.6. Net earnings of companies The 2003 and 2002 figures also include DPCA’s sales for the 12 months from at equity the contribution of the DPCA joint January to December 2003 totaled CNY Companies accounted for by the equity venture in China, for €32 million and 10,879 million, an increase of 17.6% on method contributed €46 million to Group €10 million respectively. The accounts the previous 12-month period. The income, up from €22 million in 2002. This of DPCA were produced far more quickly company’s operating margin stood at amount corresponds primarily to the in 2003 and its reporting periods now CNY 976 million, representing 9% of Group’s equity in the earnings of entities match those of the Group, whereas in sales. This amount is stated net of a set up to manage cooperation agreements 2002 the joint venture was accounted CNY 326 million impairment charge on between PSA Peugeot Citroën and other for by the equity method based on intangible assets. Net interest expense carmakers. These include the joint ventures accounts closed at September 30. came to CNY 190 million and exchange with Renault, for the manufacture of en- Consequently, the 2003 figure covers losses—mainly on DPCA’s euro- gines and transmissions, and with Fiat, as the fifteen-month period from October denominated debt—represented CNY well as Toyota Peugeot Citroën Automobiles 2002 to December 2003. In addition, 282 million. After deducting income (TPCA), which will manufacture entry-level the Group’s interest in DPCA’s capital taxes of CNY 57 million, the company Toyota, Peugeot and Citroën vehicles based was raised to 31.9% in January 2003 ended the year with net income of on a common platform, starting in 2005. from 26.9% previously. CNY 447 million.

PSA PEUGEOT CITROËN 128 Managing Board Report 3.7. Amortization of goodwill Goodwill amortization amounted to €158 million in 2003 versus €163 million in 2002.

In the Finance Division, goodwill amortization concerns Credipar and amounted to €5 million in 2003. Goodwill amortization in the Automotive Equipment business concerns Bertrand Faure (€42 million), Faurecia Exhaust Systems (€9 million) and the Sommer Allibert automobile business (€69 million). In addition to these routine amortization charges, calculated over 20 years, an impairment charge of €28 million was recorded in respect of the Gefco KN goodwill. Efforts to restore Gefco KN’s margins have been frustrated by the economic slowdown in Germany that has lasted since 2001. The company is expected to return to break-even in 2004.

PSA PEUGEOT CITROËN Managing Board Report 129 GROUP FINANCING

1. FINANCING STRATEGY any difficulties that may come their way. to €2,400 million as of December To this end, the Group raises long-term 31, 2003. Faurecia has additional sources The PSA Peugeot Citroën Group borrowings, whenever this can be done of financing, in the form of €1,545 million comprises both manufacturing and sales on attractive terms, either on the financial worth of confirmed lines of credit, of companies and finance companies, markets or from national or supranational which only €450 million had been drawn whose financial characteristics are very lending institutions dedicated to financing down at end-2003. different. They therefore require the use investments of the type made by the of specific, yet strategically coordinated Group. In September 2003, Peugeot S.A. 1.2. Banque PSA Finance financing strategies. carried out a €600 million 30-year bond Banque PSA Finance’s strategy is also issue placed with a wide range of designed to ensure that the Bank has 1.1. Manufacturing and sales international investors. Strong investor sufficient financial resources to pursue its companies interest enabled the Group to obtain a business in all circumstances, whatever the The financing strategy for the manu- post-swap spread of 93 bps above the conditions on the financial markets. These facturing and sales companies focuses three-month rate, in line with its goal of resources consist primarily of liquidity on consistently generating sufficient cash an average 100 bps spread. reserves representing at all times more flow from operating activities to finance than €2,250 million, to cover the Bank’s the capital expenditure required to support Faurecia also has specific financing, short-term liquidity risk. As of December the development of these businesses obtained primarily to pay for the 31, 2003, these reserves stood at €2,746 and to achieve world class manufacturing acquisitions made in recent years. million. Financing strategies also focus on efficiency. The businesses also need Reflecting this strategy, as of December ensuring that retail loans and the related to generate sufficient free cash flow 31, 2003, the manufacturing and sales financing are matched in terms of matu- to finance dividend growth, steadily companies had cash and cash rities. The Bank maintains, at all times and improve the companies’ net financial equivalents, net of bank overdrafts, across all maturities, financial resources in position and fund the Group’s share of €4,357 million. excess of the assets to be financed, thereby buyback policy. covering its longer-term liquidity risk. Lastly, To top up these cash reserves as needed, it also has undrawn confirmed lines of In addition to a net cash position, the Peugeot S.A. also has unused confirmed credit. In June 2003, the Bank obtained a strategy is designed to provide the lines of credit, which are regularly €2,700 million confirmed line of credit manufacturing and sales companies with renewed and are available for use by all from a syndicate of thirty leading substantial cash reserves to overcome Group companies. These lines amounted international banks and canceled a €1,850

PSA PEUGEOT CITROËN 130 Managing Board Report million confirmed line of credit expiring new €1,500 million securitization which are drafted in such a way as to limit in March 2004. Following this transaction, was launched in February 2004. the potential impact. At Group level, only as of December 31, 2003, Banque the undrawn line of credit obtained by PSA Finance had undrawn confirmed lines Lastly, the Bank’s capital, as determined Peugeot S.A. currently includes an of credit totaling €5,700 million, includ- for capital adequacy purposes, is kept at acceleration clause, which would be ing €3,000 million expiring in July 2005 around 7.5% of total outstanding loans, triggered if the net debt of the Group’s and €2,700 million in June 2008. including securitized loans. This is a high manufacturing and sales companies ratio given the quality of the loan book. were to rise to above one-and-a-half The Bank’s strategy also focuses on As of December 31, 2003, Banque PSA times stockholders’ equity. As of achieving the broadest possible spread of Finance’s capital represented 7.8% of December 31, 2003, these companies’ financing sources, including the interbank, outstanding loans and its European cash and cash equivalents exceeded commercial paper, certificate of deposit, capital adequacy ratio stood at 9.4%. their debt by €563 million. In the case bond and medium-term notes markets. of Banque PSA Finance and Faurecia, Considerable emphasis is also placed on 1.3. Financial covenants additional safeguards are provided by diversifying the investor base. This strate- To safeguard all the sources of financing the absence of any cross-default clauses, gy of diversification shelters operations available to Banque PSA Finance, between the companies in these from the effects of any upsets on a given PSA Peugeot Citroën and Faurecia, divisions and the other divisions of financial market. Since the beginning of including undrawn facilities, the Group the PSA Peugeot Citroën Group. 2001, the Bank has increased the volume imposes strict limits on clauses in loan of financing raised on the European asset- agreements allowing lenders to require 2. RATING backed securities market. This market is payments to be rescheduled or to now highly liquid and spreads are modify the financial terms of the Peugeot S.A. and Banque PSA Finance comparable to those obtained from other agreement. None of its loan agreements have obtained ratings from Standard financing sources. In June 2001 and July contain any rating triggers and the only & Poor’s and Moody’s Investor Service for 2002, pools of automobile loans totaling agreements containing material adverse their short- and long-term debt issuance €1,000 million and €1,500 million re- change clauses are with certain programs and the debt issuance programs spectively were sold to a special purpose supranational lenders that are required of subsidiaries backed by Peugeot S.A. entity which issued asset-backed securities to insist on this type of protection. or Banque PSA Finance guarantees. placed with a broad range of European Acceleration clauses required by lenders On June 25, 2002, Standard & Poor’s investors. In 2003, the Bank prepared a in line with standard market practice confirmed the A- long-term rating and A2

PSA PEUGEOT CITROËN Managing Board Report 131 short-term rating attributed to debt issues 3. FINANCING FOR THE YEAR Working capital provided by operations of by Peugeot S.A., Banque PSA Finance and the manufacturing and sales companies their subsidiaries. Standard & Poor’s also 3.1. Cash flows from operating contracted by 12.6% in 2003 to €3,547 changed the outlook from stable to activities: manufacturing and million. The decline was directly related to positive. The agency stated that assuming sales companies the contraction in the Automobile Division’s the Group’s operating margin remains Net cash provided by operations of the operating margin. Working capital of the above 5% of sales and the net cash manufacturing and sales companies totaled manufacturing and sales companies reserves of the manufacturing and sales €3,323 million in 2003 compared with increased €224 million in 2003, after companies increase to more than €4,389 million the previous year. being reduced by €330 million in 2002. €1 billion, it may decide to upgrade the Working capital provided by ratings in the future, provided that Banque operations and gross capital PSA Finance’s capital adequacy ratio expenditure - manufacturing remains satisfactory. The ratings and and sales companies (in millions of euros) outlooks were confirmed for Peugeot S.A. Working capital provided by operations on October 1, 2003 and for Banque PSA Gross capital expenditure Finance on January 6, 2004.

On May 28, 2002, Moody’s Investor Service upgraded Banque PSA Finance’s long-term rating from A3 to A2 and its short-term rating from P2 to P1. On November 15, 2002, Moody’s Investor Service confirmed the A3 long-term rating and P2 short-term rating attributed to Peugeot S.A. and to its subsidiaries for debt issues guaranteed by Peugeot S.A. It also changed the outlook from stable to positive. The ratings and outlooks were confirmed for Peugeot S.A. on September 5, 2003 and for Banque PSA Finance on February 11, 2004.

PSA PEUGEOT CITROËN 132 Managing Board Report Working capital breaks down as follows by division:

(in millions of euros) 2003 2002 2001 Automobile Division (297) 372 (367) Gefco (23) 27 17 Faurecia (71) 84 (127) Other businesses 167 (153) 55 Total manufacturing and sales companies (224) 330 (422)

Automobile Division working capital inventories of the captive dealer 59,000 units compared with June 30, increased by €297 million after network—rose by 19,000 units compared 2003, in keeping with the goals of the decreasing by €372 million in 2002. with their December 31, 2002 level. inventory reduction program announced New vehicle inventories—including However, the number was down by last July.

(units) Manufacturer Captive Total dealer network December 31, 2001 222,900 49,400 272,300 June 30, 2002 229,000 51,000 280,000 December 31, 2002 216,500 53,000 269,500 June 30, 2003 287,000 60,500 347,500 December 31, 2003 239,600 48,900 288,500

Working capital in the Automotive Equipment Working capital provided by operations— funds designed to guarantee the Bank’s business rose €71 million, after decreasing corresponding more or less to net liquidity, and refinancing, plus the effect €84 million in 2002. income—amounted to €343 million in of changes in other operating receivables 2003 compared with €239 million the and payables. 3.2. Cash flows from operating previous year. Changes in operating activities: Banque PSA Finance assets and liabilities had a negative 3.3. Cash flows from investing Operating activities of the finance impact of €92 million in 2003 and activities companies generated a net cash inflow €282 million in 2002. These figures Gross capital expenditure totaled €3,020 of €251 million in 2003 as opposed to correspond to the combined effect of million in 2003, versus €2,802 million in a net outflow of €43 million in 2002. changes in outstanding loans, invested 2002. These figures are in line with the

PSA PEUGEOT CITROËN Managing Board Report 133 Group’s medium-term target of capping capital budgets at €3,000 million per year. The main programs concern new product launches, expansion of the Group’s geographic footprint and the construction of new production capacity in Eastern Europe. The platform strategy has proved highly effective in containing capital expenditure by allowing dedicated plant and tooling to be reused for all vehicles developed on the same platform.

Capital expenditure breaks down as follows by business:

(in millions of euros) 2003 2002 2001 Automobile Division 2,574 2,357 2,398 Gefco 54 51 85 Faurecia 354 351 436 Other businesses 25 31 19 Total manufacturing and sales companies 3,007 2,790 2,938 Banque PSA Finance 13 12 9 Total PSA Peugeot Citroën 3,020 2,802 2,947

Proceeds from fixed asset disposals also injected a further €118 million in capital 3.4. Cash flows from financing amounted to €148 million in 2003, close in Toyota Peugeot Citroën Automobile activities to the €177 million generated in 2002. (TPCA), to help finance the construction Including the finance companies, financing of the Kolín plant in the Czech Republic. activities generated a net cash outflow of Cash outlays for acquisitions of shares As from 2005, the new plant will manu- €71 million in 2003, compared with a in consolidated and non-consolidated facture three models—one Peugeot, €2,474 million net outflow in 2002. companies represented €257 million in one Citroën and one Toyota—based on Dividend payments by Peugeot S.A. totaled 2003. PSA Peugeot Citroën took up its the platform developed jointly by the €325 million versus €294 million in 2002. share of the Dongfeng Peugeot Citroën two groups. In 2002, cash outlays for A total of €186 million were invested in Automobile (DPCA) share issue, carried acquisitions of shares in consolidated and the buyback of 4,894,675 Peugeot S.A. out to finance the second phase in the non-consolidated companies represented shares (net of shares sold during the year) development of the Group’s Chinese ope- €81 million, corresponding mainly to the at an average price of €38.08 per share. Of rations, and also bought out the interests Group’s contribution to the initial capital the total, €147 million are included in in DPCA held by Chinese financial of TPCA. stock-holders’ equity under “Treasury stock” institutions. These transactions represented and €39 million—corresponding to shares a total investment of €73 million and had acquired for allocation on exercise of stock the effect of raising the Group’s stake in options—are included in assets under DPCA from 26.9% to 31.9%. The Group “Short-term investments”.

PSA PEUGEOT CITROËN 134 Managing Board Report 4. CONSOLIDATED FINANCIAL cash of €563 million, compared with service, salary level and benefit POSITION €594 million as of end-2002. entitlements under the social security system. Others are defined contribution 4.1. Stockholders’ equity Net cash provided by operating activities, in plans entitling employees to fixed benefits Net income for 2003 helped to further the amount of €3,323 million, more than determined by reference to the capital built increase stockholders’ equity, which rose to covered the €3,123 million in net cash up through employee and employer €11,864 million as of December 31, 2003 used by investing activities, leaving free contributions to external funds, including from €10,984 million one year earlier. cash flow of €200 million. The €366 the reinvested yield from the investment Based on the number of shares out- million paid out in dividends and the of these funds on the financial market. standing excluding treasury stock, net €186 million invested in share buybacks assets per share rose 10.2% to €49.64 were offset by the €160 million in gains Group policy emphasizes defined as of December 31, 2003 from €45.03 at realized on the sale of marketable contribution plans, which are more the previous year end. As of December 31, securities, the €126 million in dividends effective in guaranteeing future benefits 2003, net assets per share represented paid by Banque PSA Finance, and the and also avoid exposing the Group to 1.23 times the share price. classification under “Short-term invest- financial risks related to benefit obliga- ments” of €39 million worth of Peugeot tions. In 2002, the Group set up defined 4.2. Net financial position: S.A. shares acquired for allocation on contribution plans in Spain and Brazil. manufacturing and sales exercise of stock options granted in 2003. companies In France, the Group has curtailed its The net financial position of the 5. SUPPLEMENTARY PENSION defined benefit plan. Under the terms of manufacturing and sales companies re- AND OTHER POST-RETIREMENT the curtailment, participating employees presents the best indicator of the Group’s BENEFIT OBLIGATIONS no longer acquire any further benefit financial position with regard to outside entitlements under the plan beyond June sources of financing. For the manufacturing PSA Peugeot Citroën Group employees in 30, 2002 except for those employees who and sales companies, it represents net cash certain countries are entitled to pension or were over 59 years old at that date. The and cash equivalents—corresponding to supplementary pension benefits, payable plan has been replaced by a defined cash and short-term investments less short- annually, or lump sum retirement bonuses contribution plan set up for all employees term financing—and the difference between paid at the time of retirement. Some of whose compensation exceeds the ceiling long-term borrowings and long-term loans. these plans are defined benefit plans, for French social security contributions. The under which benefit payments are new plan is funded by employer and As of December 31, 2003, the manu- determined based on a range of criteria employee contributions set at 4% and 2% facturing and sales companies had net including the employee’s age, years of respectively of the portion of salary in

PSA PEUGEOT CITROËN Managing Board Report 135 excess of the social security ceiling. The type of institution depends on the valuation, and the difference between the Group’s benefit obligations under the applicable legislation in each country actual return on external funds and the former defined benefit plan at June 30, concerned. The level of funding is standard return on long-term investments. 2002, towards employees who were less adjusted at regular intervals to take than 59 years of age at that date, have account of changes in the amount of - Less the standard yield on the external been transferred in full to a leading related benefit obligations, in line with the funds for the year. insurance company, in exchange for a lump Group’s policy of externally funding its sum payment of €384 million. obligation. Reserves have been booked in In 2003, the Group reviewed the the consolidated balance sheet to cover assumptions used to calculate benefit Along with this major change in pension any shortfall in funds. obligations and periodic pension cost, in benefit arrangements in France, the the light of the year’s developments. The defined benefit plans set up by the Group The total benefit obligation is calculated at discount rate applied to future benefit for the employees of its UK subsidiaries the end of each year as explained above. obligations under euroland plans was have been closed to new entrants effective The periodic pension cost, determined after lowered from 5.25% to 4.50% and the from May 2002. Employees recruited after taking into account funds managed by rate for UK plans was reduced from 6% to the plans were closed are covered by a external institutions, corresponds to: 5%. The inflation rate for euroland plans new defined contribution plan whereby the was raised by 0.25 points to 2%. Lastly, the employer adds to contributions paid by - The service cost, representing the expected yield on external funds was each employee. Other employees continue additional rights acquired by employees lowered from 6.50% to 6.00% for French to be covered by the former defined during the year, generally based on their plans and from 7.25% to 7.00% for UK benefit plans, to which they contribute. period of service with the Group. plans.

The present value of the Group’s benefit - Interest cost, corresponding to As of December 31, 2003, the discounted obligations under the remaining defined adjustments to the present value of the present value of future benefit obligations benefit plans is calculated in accordance opening vested rights of employees to stood at €3,194 million versus €2,725 with U.S. Statement of Financial Accounting take account of the fact that the period to million at end-2002. Changes in actuarial Standards (SFAS) 87. the future benefit payment date has been assumptions had the effect of increasing reduced by one year. the projected benefit obligation by €478 The obligations are funded by million. The main changes concerned the contributions to external institutions - Amortization of deferred items resulting economic and financial parameters used to responsible for managing the funds set up from changes in certain assumptions determine the discount rate. In 2003, the to finance future benefit payments. The underlying each three-yearly actuarial total impact of the changes in these

PSA PEUGEOT CITROËN 136 Managing Board Report parameters was €364 million, including funds’ yield, as well as the inclusion of €252 million related to the reduction in €66 million in external funds related to the discount rate applied in the UK and the “Pensionskasse” plan for Peugeot €68 million arising from the lower Deutschland employees. euroland discount rate. The service cost, mainly under UK plans, and discounting Reserves carried on the balance sheet in adjustments had the effect of increasing respect of the portion of benefit obligations the projected benefit obligation by not covered by external funds amounted €220 million, while the inclusion of the to €307 million as of December 31, 2003 “Pensionskasse” plan for Peugeot and €247 million at end-2002. Deutschland employees added €58 million. These increases were partly offset The Group has no obligation to pay by the €124 million in benefits paid additional contributions to external funds, during the year and the €105 million other than in the United Kingdom, apart in translation adjustments. from the obligation to pay benefits when they fall due. In the United Kingdom, based As of December 31, 2003, deferred items on the present value of external funds, amortized over the average remaining the Group may be required by local service lives of employees, amounted to regulations to pay a maximum of €70 €1,242 million, compared with €981 million in additional contributions in each million at end-2002. The increase of the next three years. includes €364 million in actuarial differences arising from the change in The charge recorded in accordance with economic and financial parameters the standards described above amounted discussed above, partly offset by €57 to €165 million in 2003, compared with million in amortization for the year and €130 million in 2002 excluding the effect €46 million in translation adjustments. of the curtailment of the French plan. The estimated charge for 2004 is €210 million. External funds used to finance benefit The increase compared with 2003 mainly payments rose to €1,792 million as of relates to higher amortization charges on December 31, 2003 from €1,668 million deferred items and changes in actuarial at end-2002. The increase reflects the assumptions.

PSA PEUGEOT CITROËN Managing Board Report 137 RETURN ON CAPITAL EMPLOYED

1. DEFINITION AND METHODS Pre-tax ROCE corresponds to the ratio 2. CAPITAL EMPLOYED of income generated by capital employed Return on capital employed (ROCE) has to total capital employed at December 31 Capital employed stood at €16,040 million been selected as the standard indicator of each year. The definition and the as of December 31, 2003, an increase of of the Group’s overall financial calculation of capital employed, income €633 million over the year-earlier figure. The performance. Capital employed includes generated by capital employed and return growth in Automobile Division capital the value of all operating assets and on capital employed are presented in employed stemmed from the modest rise in liabilities used by the Group in its note 43 to the consolidated financial capital expenditure in 2003, and the business operations. Return on capital statements. temporary increases in inventory. The rise in employed is measured on the basis of Banque PSA Finance capital employed is income generated by capital employed, After-tax ROCE is calculated on the basis attributable to the growth in equity capital to which corresponds mainly to operating of a standard income tax rate of 33 1/3%, support the expansion of the loan portfolio. margin plus or minus the other income corresponding to the average tax rate Faurecia’s capital employed contracted due and expense items included in the ROCE applied to the Group’s recurring results of to goodwill amortization, and tight control calculation. operations. over capital expenditure and working capital.

(in millions of euros) Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2001 Automobile Division 10,223 9,687 9,828 Banque PSA Finance 1,786 1,680 1,490 Gefco 448 405 430 Faurecia 3,871 3,943 4,071 Other businesses and consolidation adjustments (288) (307) (165) Total PSA Peugeot Citroën 16,040 15,407 15,654

PSA PEUGEOT CITROËN 138 Managing Board Report 3. RETURN ON CAPITAL EMPLOYED economic and exchange rate environment. (ROCE) Automobile Division after-tax ROCE fell to 9.6% from 16.0%. After-tax ROCE declined to 9.3% in 2003 from 12.4% in 2002. The decrease Nevertheless, ROCE was significantly higher stemmed from the lower operating margin than the cost of capital employed, estimated of the Automobile Division in a very difficult by the Group at around 8% to 8.5%.

Return on capital employed (%) Automobile Division Group

18 16 16.0 14 14.4 12.4 12 11.0 10 9.6

08 9.3 06 2001 2002 2003

PSA PEUGEOT CITROËN Managing Board Report 139 MANAGEMENT OF FINANCIAL AND OPERATIONAL RISKS

1. OPERATIONAL RISKS The main operational risks are risks likely facturing operations and regularly publishes to disrupt or halt the Group’s design, Group-level environmental reports. The Group has created a risk prevention production or distribution activities, or to and management organization charged pose a threat to the Group’s employees The structures dedicated to managing with implementing appropriate measures or its tangible or intangible assets. They environmental risks, at the Automobile to limit the consequences of events include the risk of damage to research Division’s production plants and affecting Group operations and prevent, facilities, data processing centers, elsewhere in the organization, comply to the extent possible, the risk of project production or distribution units, due to with ISO 14001 environmental management failures or organizational severe weather conditions or human management standards. Worldwide, dysfunctions. action, as well as incidents affecting the the 22 main Automobile Division integrity, confidentiality and use of Group production plants were ISO 14001- The corporate Risk Prevention and information systems and computerized certified as of end-2003. Management Department guarantees the data, and damage to the Group’s consistency of operational risk reputation. The ISO certification program is support- management initiatives and their cross- ed by annual capital expenditure budgets functional implementation. It defines risk 1.1. Manufacturing risk for environmental projects. All industrial identification and assessment methods, Systematic prevention programs deal, in projects are reviewed by the design and helps to define and control risk particular, with fire risks, risks concerning department, the plant concerned, technical management plans. It is supported by a the supply of components and the department experts and Group environ- network of correspondents or experts protection of vehicle inventories. The mental specialists in order to identify working in the Group’s various Group invests in data protection and back- the potential risks and devise appro- departments and facilities, who are up programs, data processing center priate responses. responsible for deploying Group risk security programs and training in data prevention policies in their units and control techniques for employees. Special 1.2. Supplier risk monitoring the status of preventive and attention is paid to the environmental Manufacturing processes are dependent on corrective action plans. Risks are assessed impact of manufacturing facilities. bought-in parts and components that in detail using a Group-wide method and The design specifications of plant and represent over 70% of vehicle production annual programs are implemented to equipment include processes and devices cost. Risks related to the quality of suppliers manage them. This means that potential to control pollution and environmental and their financial and commercial viability, vulnerabilities are identified early and that risks. The corporate Risk Management and as well as to the reliability of parts and protective or preventive measures are Prevention Department centrally manages components that they deliver are closely commensurate with the risks involved. environmental risks related to manu- monitored.

PSA PEUGEOT CITROËN 140 Managing Board Report Suppliers are selected according to seven each country as well as by a Group Credit - Damage to property and resulting main criteria: price competitiveness, quality, Committee, based on clearly defined, business interruption, up to a maximum the ability to develop new products and closely monitored credit limits. Retail of €1,500 million, excluding Faurecia, manufacture them in large quantities, financing credit risks, which are spread and €228 million for Faurecia. supply chain efficiency, research and across an even larger number of - Liability claims resulting from personal development capabilities, geographic reach customers, are managed using credit- injury or tangible or intangible losses and long-term viability. Each supplier’s scoring procedures. In addition, significant arising from the use of the Group’s viability is assessed from a financial and individual credit risks are managed using products or otherwise, up to a maximum strategic standpoint, based on: procedures similar to those applied to of €152 million excluding Faurecia, manage wholesale financing credit risks. which has taken out specific cover for - Financial position these risks. - Strategy and growth outlook Reserves are booked for residual risks, on a - Theft or damage to new vehicles held on - Changes in the level of dependence. statistical basis, as soon as the financing is storage lots, up to a maximum of €45 granted. The percentage of the total risk million, and to vehicles and components Procurement strategies are decided by the covered by a reserve is adjusted at regular during transport, up to a maximum of Executive Procurement Committee during intervals based on the Group’s loss €40 million. monthly procurement policy meetings, experience, determined country-by-country. Thanks to its good insurance record and the based on the above criteria. Specific allowances are booked for more favorable conditions in the insurance significant individual risks, as soon as market, the Group has been able to renew 1.3. Risks associated they are identified. the high level of cover provided by its with the activities insurance programs for 2004 at lower of the finance companies 1.4. Insurance policy premium rates than in 2003. The Group finance companies provide Group policy in the area of insurance financing for dealer vehicle and re- focuses on risk prevention. All major risks 2. LEGAL RISKS placement parts inventories and offer a are insured and deductibles are set at wide range of loans and lease financing appropriate levels. All insurance cover is The PSA Peugeot Citroën Group is exposed solutions to customers, together with taken out with leading insurers and re- to legal risks as an employer and in related services. As a result, they are ex- insurers based on the recommendations of connection with the design and distribution posed to credit risks. Wholesale financing top ranking insurance advisors specialized of vehicles, the purchase of components credit risks are spread across a large in major risks. The Group’s global insurance and the supply of services. To manage number of dealers and are managed programs at January 1, 2004 cover the these risks, the Group implements internally by Credit Committees set up in following main risks: preventive policies in the areas of

PSA PEUGEOT CITROËN Managing Board Report 141 workplace hygiene and safety, the Relations with the networks have been described in the section “Financing manufacturing environment, industrial governed by these three types of Strategy”. They include the risk related to and intellectual property. Priority is also contract since October 1, 2003. To acceleration clauses in the Group’s loan given to vehicle safety and the quality of date, claims arising from their agreements and clauses restricting the Group’s products and services. introduction and implementation have access to loan facilities in certain not been material. circumstances. The Automobile Division may become involved in claims and litigation arising from As of December 31, 2003, no Group 3.2 Currency and interest rate its dealings with the dealer network and company was involved in any claims or risk customers. Motor vehicle distribution and litigation that had or were likely to have PSA Peugeot Citroën is exposed to after-sales services in Europe are subject to a material impact on the Group’s accounts. financial risks in connection with its the new European Union Block Exemption automobile business and other manu- Regulation 1400/02 dated July 31, 2002, Following initial verifications performed facturing activities, including the risk of which came into effect on October 1, in 1999 at Automobiles Peugeot and losses due to unfavorable changes in 2003. To comply with the new regulations, Automobiles Citroën, during 2003 the exchange rates affecting the currencies the two marques have each reorganized European Commission conducted further of countries where it manufactures their previous policy of selective distribution investigations at Automobiles Peugeot products—primarily in the euro zone—and through dealers offering both sales and and among its German and Dutch the countries in which these products are after-sales service, chosen according to subsidiaries to ascertain whether they sold. The introduction of the euro at the quantitative criteria. Relations with the were involved in any practices aimed at beginning of 1999 has had the effect of distribution network are now based on restricting cross-border sales in Europe. As reducing these risks, which now primarily three separate contracts: of December 31, 2003, the Commission concern the British pound and, to a lesser had not notified Automobiles Peugeot of extent, the Central European currencies, - A new vehicle sales contract signed with a any complaints. the Argentine peso, the Brazilian real and fixed number of dealers in each country, the Japanese yen. selected on the basis of qualitative and 3. FINANCIAL RISKS quantitative criteria. Currency risks of the Automobile Division 3.1. Liquidity risk are managed primarily by having the - An accredited vehicle repair shop contract Risks arising from the possible manufacturing companies bill the sales and a replacement part sales contract, unavailability of financing and the companies in the sales companies’ local awarded based on qualitative criteria. measures taken to limit these risks are currency, except in those rare cases

PSA PEUGEOT CITROËN 142 Managing Board Report where the sales company’s local currency average strike price is GBP 0.7073 per impact of changes in interest rates and is not convertible. Currency risks on these euro. The Group intends to purchase exchange rates on the finance companies’ inter-company billings are systematically additional British pound put options in operating margin by using appropriate hedged by means of forward contracts early 2004, in order to hedge all of its financial instruments to match interest rates maturing on the invoice settlement date, forecast sales for the year. and currencies between assets and liabilities. which is determined based on the subsidiaries’ operating cycle. The hedges On the basis of 2003 figures, the Group 3.3. Counterparty risk are set up by a specialized subsidiary, PSA estimates that a 1% fluctuation in the euro The Group places significant emphasis on International, or on PSA International’s against all of the Group’s other currencies guaranteeing the security of payments for instructions in the case of non-convertible would have an impact of around €64 the goods and services delivered to currencies. million on consolidated operating margin. customers. Relations with Peugeot and A 1% change in the pound-euro exchange Citroën dealers are managed within the In accordance with these principles, rate would have an impact of around €31 framework of the sales financing system currency risks on future sales are not million on consolidated operating margin. described above. Appropriate hedged, with the result that future These estimated sensitivities do not take mechanisms have been set up to operating margin may vary depending into account the effect of exercising the guarantee the security of payments from on exchange rates. As of December 31, currency options described above. other Group customers. Inter-company 2003, the Automobile Division held settlements are systematically covered Japanese yen and British pound put The exposure of the Group’s against political risks whenever necessary. options to guarantee a minimum ex- manufacturing and sales activities to change rate for its vehicle sales in Japan changes in interest rates is not material. The Group is exposed to counterparty and the United Kingdom. The Japanese risks on transactions carried out on yen put options are on a nominal amount The bulk of the finance companies’ re- financial markets in connection with the of JPY 59.4 billion and hedge all 2004 financing needs are covered by the equity management of currency and interest rate sales in Japan and 80% of sales until capital allocated to these companies, the risks and payment flows. It keeps these September 2005. The options’ average issuance of debt securities and bank risks to a minimum through internal strike price is JPY 117 per euro in 2004 borrowings. The finance companies are control procedures requiring all and JPY 122 per euro in 2005. The British therefore exposed to the risk of mismatches transactions to be carried out solely pound put options are on a nominal between assets and liabilities, in terms of with leading counterparties. amount of GBP 1,602 million and cover maturities, currencies and interest rates. The 80% of 2004 sales in the UK. The Group’s policy consists of neutralizing the

PSA PEUGEOT CITROËN Managing Board Report 143 ADOPTION OF IAS/IFRS ACCOUNTING STANDARDS

In order to prepare the transition to January 1, 2004 will correspond to January 1, 2004 will be recorded International Financial Reporting Standards the cumulative value of qualifying off-balance sheet and amortized over (IFRS), which will be applicable as from development costs incurred in prior future periods. 2005, during 2003 the Group conducted years, net of accumulated amortization. an in-depth review to identify: Stockholders’ equity as of January 1, - Financial assets held for sale will be valued - The main differences between the 2004 will be increased by an equivalent at fair value and the resulting unrealized Group’s current accounting policies and amount. In the statement of income, gain or loss will be held in stockholders’ IFRS, in terms of accounting treatment in periods of rising development equity up until the date of sale. At present, and methods of valuation and expenditure, the change of method will financial assets held for sale are carried in presentation have the effect of increasing conso- the balance sheet under non-current and lidated operating margin, as the current financial assets at historical cost. - The additional accounting disclosures amounts capitalized will exceed the Effective from January 1, 2004, when the required under IFRS amortization charge on expenses assets are sold, the disposal gain or loss capitalized in prior years. will be taken to the income statement and - The required changes to information the revaluation difference will be written systems and circuits - In accordance with IFRS 1, actuarial off from stockholders’ equity. differences existing on projected pension - The historical data to be obtained and benefit obligations as of January 1, 2004 - Recognition of revenues from vehicle analyzed to draw up the January 1, 2004 will be posted to opening stockholders’ sales with a buyback commitment will be opening balance sheet under IFRS. equity at that date, and an equivalent deferred until the used vehicle is sold, amount will be recorded under “Reserves whatever the duration of the buyback The main differences affecting conso- for pensions and other post-retirement commitment and the sales channel. lidated stockholders’ equity as of January 1, benefit obligations”. These actuarial Currently, new vehicle sales with 2004 and/or future results of operations differences are currently recorded off- a buyback commitment expiring within a are as follows: balance sheet and amortized over the maximum of three years are not remaining service lives of the employees recognized at the time of delivery but - Development costs fulfilling the criteria concerned. In the statement of income, accounted for as operating leases. The set out in IAS 38, which are currently these amortization charges will no longer difference between the sale price and the recorded as expenses, will be be included in future periodic pension buyback price is recognized over the capitalized. The amount capitalized as of cost. Actuarial differences arising after leasing period. The profit corresponding

PSA PEUGEOT CITROËN 144 Managing Board Report to the difference between the resale statement of income. For the purpose The Group will publish a full set of IFRS value of the vehicle on the used car of computing earnings per share, accounts for the 2004, in addition to the market and the cost of the new vehicle these shares will be considered as no consolidated financial statements prepared is recognized in the period when the longer being outstanding. This will according to current French GAAP. vehicle is sold. have the effect of increasing earnings per share. Transactions in progress as of January 1, 2004 will be restated and conso- - Depending on the final provisions of the lidated stockholders’ equity at that date new draft standard on business will be reduced by the amount of the combinations, it is probable that goodwill margin realized on vehicles sold prior will no longer be amortized but will to January 1, 2004 with a buyback continue to be subject to an impairment commitment. The vehicles concerned test at each year-end. Goodwill is currently will be recorded under assets and the amortized by the straight-line method corresponding revenue will be recorded over a maximum of 20 years. under deferred income. The effect on the statement of income will be limited The additional information system to the change, from one year-end to developments required to produce IFRS the next, in the volume of vehicles sold accounts mainly concern Banque PSA with a buyback commitment. Finance and have already been launched. The Group has also started collecting and - Peugeot S.A. shares acquired for analyzing the historical data needed to allocation on exercise of stock options draw up the opening IFRS balance sheet, g ranted to the management and including data related to development employees of Peugeot S.A. and related costs and vehicle sales with a buyback companies, which are currently commitment. 2004 will be devoted to recorded as assets under “Short-term completing this work, defining the required inves-tments”, will be deducted from new information channels, auditing open- stockholders’ equity. This change of ing balance sheet data and monitoring method will have no impact on the developments concerning IFRS.

PSA PEUGEOT CITROËN Managing Board Report 145 PSA PEUGEOT CITROËN 146 Managing Board Report Statistics

PSA PEUGEOT CITROËN Managing Board Report 147 STATISTICS

PASSENGER CAR REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 France 2,009,200 2,145,100 2,254,700 Austria 300,100 279,500 293,500 Belgium-Luxemburg 502,400 511,000 531,500 Denmark 96,100 111,600 96,200 Finland 147,200 116,900 109,500 Germany 3,236,900 3,252,900 3,341,700 Greece 257,300 268,500 280,200 Ireland 145,400 156,100 164,700 Italy 2,251,300 2,279,600 2,413,500 Netherlands 489,000 510,700 530,200 Norway 89,900 88,700 92,000 Portugal 189,800 226,100 255,200 Spain 1,383,000 1,331,900 1,425,600 Sweden 261,200 254,600 246,600 Switzerland 270,200 295,000 316,600 United Kingdom 2,579,100 2,563,600 2,458,800 TOTAL WESTERN EUROPE (17 countries) 14,208,100 14,391,800 14,810,500 Source: C.C.F.A.

LIGHT COMMERCIAL VEHICLE REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 France 381,600 404,900 433,900 Austria 25,200 22,400 24,100 Belgium-Luxemburg 55,800 54,000 64,400 Denmark 32,700 32,300 31,500 Finland 15,500 15,400 15,100 Germany 185,900 193,200 206,300 Greece 18,100 18,800 20,600 Ireland 30,900 35,000 38,700 Italy 194,900 272,800 230,700 Netherlands 77,500 81,100 84,200 Norway 27,000 24,800 33,800 Portugal 69,200 79,500 98,900 Spain 296,500 269,100 287,700 Sweden 28,400 28,800 29,200 Switzerland 20,900 22,500 25,400 United Kingdom 309,500 271,600 259,800 TOTAL WESTERN EUROPE (17 countries) 1,769,600 1,826,200 1,884,300 Source: C.C.F.A.

PSA PEUGEOT CITROËN 148 Managing Board Report PASSENGER CAR AND LIGHT COMMERCIAL VEHICLE REGISTRATIONS IN EUROPE BY MANUFACTURER 2003 2002 2001 Units Market Units Market Units Market share (%) share (%) share (%) Peugeot Marque 1,356,100 8.5 1,437,600 8.9 1,443,600 8.7 Citroën Marque 1,103,900 6.9 1,074,500 6.6 1,060,400 6.3 PSA Peugeot Citroën 2,460,000 15.4 2,512,100 15.5 2,504,000 15.0 Volkswagen Group 2,713,200 17.0 2,800,600 17.3 2,965,100 17.8 Renault 1,774,500 11.1 1,830,100 11.3 1,863,100 11.2 Ford Group 1,772,900 11.1 1,828,700 11.3 1,863,400 11.2 General Motors Group 1,517,700 9.5 1,548,600 9.6 1,688,600 10.1 Fiat Group 1,294,700 8.1 1,460,100 9.0 1,686,200 10.1 Daimler-Chrysler 1,072,400 6.7 1,115,200 6.9 1,121,000 6.7 Toyota Group 763,100 4.8 711,000 4.4 635,000 3.8 BMW 631,500 4.0 622,200 3.8 545,000 3.3 Other Japanese marques 1,263,600 7.9 1,151800 7.1 1,137,300 6.8 Korean marques 501,300 3.1 424,100 2.6 449,800 2.7 Other marques 212,800 1.3 213,500 1.3 236,300 1.5

PSA PEUGEOT CITROËN GROUP - PASSENGER CAR REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 Units Market Units Market Units Market share (%) share (%) share (%) France 650,700 32.4 720,200 33.6 761,900 33.8 Austria 28,800 9.6 24,300 8.7 23,300 7.9 Belgium-Luxemburg 112,000 22.3 109,700 21.5 104,400 19.7 Denmark 24,800 25.8 30,400 27.2 24,500 25.4 Finland 17,700 12.0 14,500 12.4 12,200 11.1 Germany 189,100 5.8 174,600 5.4 158,400 4.7 Greece 31,500 12.3 39,600 14.8 36,600 13.0 Ireland 11,700 8.1 13,500 8.6 12,100 7.3 Italy 249,600 11.1 226,100 9.9 195,400 8.1 Netherlands 80,500 16.5 75,100 14.7 69,300 13.1 Norway 10,500 11.7 10,100 11.4 9,200 10.0 Portugal 37,200 19.6 41,500 18.4 42,500 16.7 Spain 303,200 21.9 295,200 22.2 311,900 21.9 Sweden 27,800 10.7 22,500 8.9 16,400 6.7 Switzerland 27,900 10.3 27,000 9.1 26,600 8.4 United Kingdom 302,500 11.7 339,300 13.2 334,800 13.6 TOTAL WESTERN EUROPE (17 countries) 2,105,500 14.8 2,163,600 15.0 2,139,500 14.5

PSA PEUGEOT CITROËN Managing Board Report 149 PSA PEUGEOT CITROËN GROUP - LIGHT COMMERCIAL VEHICLE REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 Units Market Units Market Units Market share (%) share (%) share (%) France 142,900 37.5 144,400 35.7 151,500 34.9 Austria 2,600 10.4 2,000 8.9 2,400 10.1 Belgium-Luxemburg 14,500 25.9 14,100 26.1 16,800 26.1 Denmark 6,400 19.5 6,500 20.0 6,800 21.7 Finland 2,500 15.9 1,900 12.5 1,700 11.3 Germany 11,700 6.3 11,800 6.1 12,900 6.3 Greece 1,400 7.7 1,400 7.4 1,700 8.1 Ireland 4,200 13.5 4,700 13.5 5,500 14.1 Italy 15,800 8.1 18,800 6.9 14,200 6.2 Netherlands 12,000 15.5 12,200 15.0 14,400 17.1 Norway 3,600 13.5 3,400 13.4 5,700 16.8 Portugal 15,800 22.8 15,900 20.0 17,100 17.3 Spain 72,600 24.5 66,100 24.6 70,400 24.5 Sweden 5,300 18.5 4,900 17.0 4,300 14.6 Switzerland 2,400 11.7 2,000 8.8 2,100 8.2 United Kingdom 40,800 13.2 38,500 14.2 37,000 14.3 TOTAL WESTERN EUROPE (17 countries) 354,500 20.0 348,600 19.1 364,500 19.4

PSA PEUGEOT CITROËN GROUP - PASSENGER CAR AND LIGHT COMMERCIAL VEHICLE REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 Units Market Units Market Units Market share (%) share (%) share (%) France 793,700 33.2 864,600 33.9 913,400 34.0 Austria 31,400 9.7 26,300 8.7 25,700 8.1 Belgium-Luxemburg 126,500 22.7 123,800 21.9 121,300 20.4 Denmark 31,200 24.2 36,900 25.6 31,300 24.5 Finland 20,100 12.4 16,400 12.4 13,900 11.2 Germany 200,700 5.9 186,300 5.4 171,300 4.8 Greece 32,900 12.0 41,000 14.3 38,200 12.7 Ireland 15,900 9.0 18,200 9.5 17,600 8.6 Italy 265,400 10.9 244,900 9.6 209,600 7.9 Netherlands 92,500 16.3 87,200 14.7 83,600 13.6 Norway 14,100 12.1 13,400 11.8 14,900 11.8 Portugal 53,000 20.5 57,500 18.8 59,700 16.8 Spain 375,800 22.4 361,400 22.6 382,300 22.3 Sweden 33,100 11.4 27,400 9.7 20,700 7.5 Switzerland 30,300 10.4 28,900 9.1 28,700 8.4 United Kingdom 343,400 11.9 377,900 13.3 371,800 13.7 TOTAL WESTERN EUROPE (17 countries) 2,460,000 15,4 2,512,100 15.5 2,504,000 15.0

PSA PEUGEOT CITROËN 150 Managing Board Report PEUGEOT MARQUE - PASSENGER CAR AND LIGHT COMMERCIAL VEHICLE REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 Units Market Units Market Units Market share (%) share (%) share (%) France 450,700 18.9 507,800 19.9 543,400 20.2 Austria 20,100 6.2 17,600 5.8 17,200 5.4 Belgium-Luxemburg 64,000 11.5 64,300 11.4 62,700 10.5 Denmark 17,700 13.7 21,200 14.8 18,500 14.5 Finland 10,700 6.6 8,500 6.5 7,900 6.3 Germany 128,200 3.7 113,200 3.3 106,200 3.0 Greece 16,600 6.1 22,700 7.9 18,100 6.0 Ireland 9,500 5.4 10,700 5.6 10,400 5.1 Italy 125,900 5.1 143,500 5.6 126,400 4.8 Netherlands 59,100 10.4 55,900 9.4 55,400 9.0 Norway 9,400 8.1 8,700 7.6 10,200 8.1 Portugal 29,900 11.6 31,900 10.4 32,500 9.2 Spain 176,400 10.5 171,900 10.7 182,300 10.6 Sweden 19,800 6.8 17,200 6.1 13,100 4.8 Switzerland 17,100 5.9 18,200 5.7 18,700 5.5 United Kingdom 201,000 7.0 224,300 7.9 220,600 8.1 TOTAL WESTERN EUROPE (17 countries) 1,356,100 8.5 1,437,600 8.9 1,443,600 8,7

CITROËN MARQUE - PASSENGER CAR AND LIGHT COMMERCIAL VEHICLE REGISTRATIONS IN EUROPE BY COUNTRY 2003 2002 2001 Units Market Units Market Units Market share (%) share (%) share (%) France 343,000 14.4 356,800 14.0 370,000 13.8 Austria 11,300 3.5 8,700 2.9 8,500 2.7 Belgium-Luxemburg 62,500 11.2 59,500 10.5 58,500 9.8 Denmark 13,500 10.5 15,600 10.9 12,800 10.0 Finland 9,500 5.8 7,900 6.0 6,000 4.9 Germany 72,500 2.1 73,200 2.1 65,200 1.8 Greece 16,300 5.9 18,200 6.4 20,000 6.7 Ireland 6,400 3.6 7,500 3.9 7,100 3.5 Italy 139,500 5.7 101,400 4.0 83,300 3.2 Netherlands 33,400 5.9 31,300 5.3 28,300 4.6 Norway 4,700 4.0 4,800 4.2 4,700 3.7 Portugal 23,100 8.9 25,500 8.4 27,100 7.7 Spain 199,400 11.9 189,500 11.8 200,100 11.7 Sweden 13,300 4.6 10,300 3.6 7,600 2.8 Switzerland 13,200 4.5 10,700 3.4 9,900 2.9 United Kingdom 142,300 4.9 153,600 5.4 151,300 5.6 TOTAL WESTERN EUROPE (17 countries) 1,103,900 6.9 1,074,500 6.6 1,060,400 6,4

PSA PEUGEOT CITROËN Managing Board Report 151 PSA PEUGEOT CITROËN GROUP - PRODUCTION BY MODEL (passenger cars and light commercial vehicles) 2003 2002 2001

Peugeot Marque 106 35,900 69,500 112,400 206 816,500 843,900 820,100 306 1,200 15,500 124,900 307 573,300 534,500 308,200 405 126,100 124,000 80,000 406 101,000 125,500 192,100 504/Paykan 3,200 3,100 4,900 607 21,500 27,200 37,800 806 - -20,000 807 35,100 14,800 - Expert 28,500 28,600 32,300 Partner 135,700 118,100 130,000 J9 3,200 -- Boxer 40,600 42,500 43, 600 Others 800 -- TOTAL 1,922,600 1,947,200 1,906,300 (of which diesel-powered versions) (911,600) (888,700) (852,000) (of which passenger cars) (1,744,100) (1,764,500) (1,720,100) (of which light commercial vehicles) (178,500) (182,700) (186,200)

Citroën Marque Saxo 59,900 155,600 242,800 C2 71,000 -- C3 383,100 204,300 300 ZX 96,000 79,400 52,900 Xsara 353,800 449,800 459,600 C5 110,700 157,100 157,100 Xantia 3,800 -26,300 Synergie - -17,500 C8 27,700 11,900 - Dispatch 29,800 24,900 26,700 C15 29,200 30,600 34,600 Berlingo 179,400 162,300 170,400 Relay 42,100 39,000 41,800 TOTAL 1,386,500 1,314,900 1,230,000 (of which diesel-powered versions) (740,900) (735,300) (689,300) (of which passenger cars) (1,188,700) (1,129,500) (1,037,600) (of which light commercial vehicles) (197,800) (185,500) (192,400) TOTAL PSA PEUGEOT CITROËN 3,309,100 3,262,100 3,136,300 (of which diesel-powered versions) (1,652,500) (1,624,000) (1,541,300) (of which passenger cars) (2,932,800) (2,894,000) (2,757,700) (of which light commercial vehicles) (376,300) (368,100) (378,600)

PSA PEUGEOT CITROËN 152 Managing Board Report PSA PEUGEOT CITROËN GROUP - WORLDWIDE SALES (passenger cars and light commercial vehicles) 2003 2002 2001

WESTERN EUROPE France: Peugeot 445,100 513,300 550,500 Citroën 343,300 358,000 364,700 PSA Peugeot Citroën 788,400 871,300 915,200 Other Western European countries: Peugeot 907,000 948,500 934,500 Citroën 773,400 737,200 695,800 PSA Peugeot Citroën 1,680,400 1,685,700 1,630,300 TOTAL WESTERN EUROPE: Peugeot 1,352,100 1,461,800 1,485,000 Citroën 1,116,700 1,095,200 1,060,500 PSA Peugeot Citroën 2,468,800 2,557,000 2,545,500

REST OF THE WORLD Central and Eastern Europe and Turkey: Peugeot 142,100 109,100 89,700 Citroën 74,800 59,600 45,400 PSA Peugeot Citroën 216,900 168,700 135,100 Africa: Peugeot 56,700 55,400 53,000 Citroën 19,000 17,300 18,500 PSA Peugeot Citroën 75,700 72,700 71,500 The Americas: Peugeot 89,100 90,700 89,200 Citroën 29,800 30,200 29,800 PSA Peugeot Citroën 118,900 120,900 119,000 Asia-Pacific: Peugeot 246,100 212,800 156,800 Citroën 128,900 105,600 76,500 PSA Peugeot Citroën 375,000 318,400 233,300 Other: Peugeot 27,500 25,600 25,500 Citroën 3,300 4,200 2,900 PSA Peugeot Citroën 30,800 29,800 28,400 TOTAL SALES REST OF THE WORLD Peugeot 561,500 493,600 414,200 Citroën 255,800 216,900 173,100 PSA Peugeot Citroën 817,300 710,500 587,300

TOTAL WORLDWIDE SALES Peugeot 1,913,600 1,955,400 1,899,200 Citroën 1,372,500 1,312,100 1,233,600 PSA Peugeot Citroën 3,286,100 3,267,500 3,132,800

PSA PEUGEOT CITROËN Managing Board Report 153 WORKFORCE 2003 2002 AUTOMOBILE DIVISION 135,200 133,900 Of which: * France 97,100 96,200 * Other countries 38,100 37,700 FAURECIA 51,900 52,200 GEFCO 8,300 8,000 BANQUE PSA FINANCE 2,200 2,200 OTHER BUSINESSES 2,300 2,300 TOTAL PSA PEUGEOT CITROËN 199,900 198,600 Of which: * France 124,700 123,700 * Other countries 75,200 74,900

MANUFACTURING FACILITIES Assembly plant Models produced as of January 1, 2004 2003 Output MANUFACTURING CENTERS Aulnay (France) C2, C3 412,900 Madrid (Spain) C3, C3 Pluriel, Xsara 159,700 Mangualde (Portugal) Citroën Berlingo, Peugeot Partner 52,600 Mulhouse (France) 206, 206 CC, 307 410,800 Palomar (Argentina) 206, Citroën Berlingo, Peugeot Partner 24,600 Poissy (France) 206 329,400 Porto Real (Brazil) 206, C3, Xsara Picasso 44,900 Rennes (France) Xsara, C5, 407 215,100 Ryton (United Kingdom) 206, 206 SW 209,600 Sochaux (France) 307, 307 SW, 406, 607 432,300 Vigo (Spain) Xsara Picasso, C15, Citroën Berlingo, Peugeot Partner 484,900 MECHANICAL COMPONENT PLANTS AND FOUNDRIES Asnières (France) Free-cutting, hydraulic systems - Caen (France) Wheels, axles suspension systems, transmissions - Charleville (France) Aluminium and iron castings - Melun-Sénart (France) Replacement parts - Metz (France) Gear boxes 1,776,000 Saint-Ouen (France) Stamping - Sept-Fons (France) Iron castings - Trémery (France) EW gasoline engines and DV, DW diesel engines 1,594,900 Valenciennes (France) Gear boxes 1,693,300 Vesoul (France) CKD shipments, replacement parts -

PSA PEUGEOT CITROËN 154 Managing Board Report JOINT PLANTS WITH OTHER MANUFACTURERS (as at December 31, 2003) Facility Production Annual output FRANCE Française de Mécanique 50% Peugeot Citroën Automobiles Iron castings 50% Renault Engines: *TU + TUF + TUD 1,170,100 Moteurs: *DV 497,100 Moteurs: *D (Renault) 397,100 Moteurs: *ES 13,200 Sevelnord Peugeot 807 Total output: 50% Peugeot Citroën Automobiles Peugeot Expert 169,200 50% Fiat Citroën C8 Citroën Dispatch Fiat Ulysse Fiat Scudo Lancia Phedra OTHER COUNTRIES Società Europea Veicoli Leggeri - (Italy) Total output: 50% Peugeot Citroën Automobiles Peugeot Boxer 183,200 50% Fiat Citroën Relay Fiat Ducato

PSA PEUGEOT CITROËN Managing Board Report 155 10,000 copies of this report were printed

Department of Communication PSA Peugeot Citroën Photolibrary: PSA Peugeot Citroën - Faurecia - Gefco - Peugeot Motocycles - La Prévention Routière Photos: X - B. Garcin - Gasser Design and production: Publishing: Altavia Prodity PEUGEOT S.A. 2003 Business Review Incorporated in France with issued capital of €243,109,146 Governed by a Managing Board and a Supervisory Board Registered office: 75, avenue de la Grande-Armée - 75116 Paris, France RCS Paris B 552 100 554 - Siret 552 100 554 00021

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