ANNUAL REPORT / THE YEAR IN PICTURES - Alle jaarverslagen

2005ANNUAL REPORT / THE YEAR IN PICTURES

ContentsPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 24 KEY FIGURES6 CORPORATE GOVERNANCE6/Message from the Chairmen 8/Corporate Governance Structures10 / The Managing Board and Executive Committee 12 / Stockholder Relations14 2005 IN PICTURES54 STRATEGY56 / A Long -Term Vision 58 / Platforms and Cooperation Agreements59 / A Commitment to People 60 / The Technologies of Tomorrow62 BUSINESS REVIEW64 / A Year of Growth and International Expansion66 / Peugeot 68 / Citroën 70 / R&D 72 / Manufacturing Efficiency 74 / CooperationAgreements 76 / Other Businesses78 SOCIAL RESPONSIBILITY80 / A Year of Innovation in Employee Relations Practices82 / The Four Pillars of Our Commitment to Social Responsibility84 SUSTAINABLE MOBILITY86 / Cars and the Environment 88 / Maximum Safety Across the Entire Model Lineup89 / Enhancing the Quality of Mobile Life 90 / Managing the Environmental Impactof our Production Facilities 91 / Supporting Local Development92 FINANCIAL STATEMENTS AND STATISTICS94 / Consolidated Balance Sheets 96 / Consolidated Statements of Income97/ Consolidated Statements of Cash Flows 98 / Production by Model99 / Worldwide Sales 100 / Production Facilities 101 / Mechanical Components Plantsand Foundries - Workforce 102 / Sustainable Development Indicators

3The second-largest carmaker in Europe with a marketshare of 14.3%, PSA Peugeot Citroën draws itscompetitive strength from two broadline marques,Peugeot and Citroën, the skills of its 208,500 employeesand a stable shareholder base.We sold 3,390,000 vehicles in 150 countriesworldwide in 2005, reporting sales and revenueof €56.3 billion for the year. We enjoyed a verygood performance outside Western Europe,where unit sales exceeded one million vehicles.Our growth is also being supported by BanquePSA Finance, a car finance company, Faurecia,an automotive equipment manufacturer, andGefco, a transportation and supply chainmanagement company.A responsible global corporate citizen,PSA Peugeot Citroën will pursue its development,led by the in-depth renewal of its modelline-up. Every day, we will continue to innovatein the fields of environmental protection andsafety while designing Peugeot and Citroëncars that meet customers’ expectations aroundthe world.

Key figuresPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 4Worldwide sales(in units)Sales & revenue(in € millions)Automobile DivisionOther businessesOperating margin(in € millions)Automobile DivisionOther businesses3,375,3003,390,00056,10510,86656,26711,1962,4819781,94045,23945,0711,5031,02491604 0504 0504 05Balance sheet structure(in € millions)Stockholders’ equity, including minority interestsNet financial position of the manufacturingand sales companies13,70314,406Profit attributable to equity holdersof the parent(in € millions)1,646Capital employed(in € millions)Automobile DivisionOther businesses14,1231,02912,4035,9126,2711,3473816,4917,85204 0504050405

5Working capital providedby operations and capitalexpenditure(Manufacturing and sales companies)(in € millions)Working capital provided by operationsCapital expenditureEarnings per shareDividend per share(in €)6.97Earnings per shareDividend per share14.3%market share in Europe,where the Group is the region’ssecond-largest carmaker.4,1712,7933,6892,8621.354.471.353,390,000vehicles sold worldwide.04 050405Workforce(at December 31, 2005)Automobile DivisionOther businesses207,60068,200208,50069,00030.4%The share of vehicle sales outsideWestern Europe has exceeded30% for the first time.139,400 139,5000405

CORPORATE GOVERNANCEMessage from the ChairmenPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 6Thierry PeugeotJean-Martin FolzWith 3,390,000 vehicles sold worldwide,PSA Peugeot Citroën’s performance in 2005was shaped by stable unit sales (up 0.4%) andlower financial results. This was due to thecombination of several factors, including flatEuropean demand, more aggressive competition,sharply higher raw materials prices and thecost of compliance with the new Euro IV environmentalstandards. However, the year also sawa number of major successes, with increasedsales and improved margins outside WesternEurope, a further reduction in production costsand the development of the Peugeot and Citroënmodel lineups. This uneven performance led usto review our strategic choices and our answerwas clear: our strategy is the right one and thebest way to return to profitable growth is torigorously apply our policies and deploy themmore quickly.PSA Peugeot Citroën’s organization, as expressedin our signature, “One Group, Two Marques”,has been strengthened by the latest developmentsin 2005. The difference in Peugeot andCitroën’s growth during the year illustrates thebenefits of having two broadline marques thatcomplement each other, whose coexistencewithin the Group enables us to optimize modellifecycle management.The platform strategy, a core component ofour strategic vision, also made further progressin 2005. Following the introduction of thePeugeot 407 Coupé and the Citroën C6, theRennes plant now produces six different bodystyles on the same platform. Today, the numberof cars built on our three basic platforms isramping up very quickly as a percentage of totaloutput, attesting to the strategy’s success.The cooperation strategy was also activelypursued in 2005, which saw the introduction ofthe Peugeot 107 and Citroën C1 as part of ourcooperation with Toyota, and the signature oftwo new agreements – one with Fiat and Tofasto jointly develop and produce small entry-levelcommercial vehicles and the other withMitsubishi to manufacture new Peugeot andCitroën SUVs. We also presented the manufacturingdetails of our cooperation with BMW toproduce small, high-tech gasoline engines andunveiled the new diesel engine lineups developedwith Ford. These cooperative agreementsare having an increasingly favorable impact, andramp-up is proceeding as scheduled. By 2008,we expect to be producing more than 500,000vehicles and around 2,700,000 engines incooperation with other manufacturers.In 2005, we also reached an important milestonein our expansion outside WesternEurope, where, for the first time, sales toppedone million units, accounting for more than30% of total sales and revenue. Unit sales rose

7sharply in South America and China, driving aclear improvement in financial performance. Thisgrowth dynamic is set to continue, led by theintroduction of a large number of new modelstailored to local demand.The demonstrated effectiveness and expectedfuture benefits of our strategic vision mean thatwe can confirm our two main objectives: toincrease unit sales to four million cars andachieve a consolidated operating margin of 6% ofsales and revenue. Although business conditionshave prevented us from reaching our objectivesfor the time being, we are still committed tomeeting these objectives as quickly as possible,in particular by implementing assertive action plansin several key areas of our automobile business.The first pathway to improvement is to meetstringent quality standards. Significant progresshas already been made following the deploymentof a broad-based improvement plan acrossthe organization, from project development andpurchasing to manufacturing and customerservice. We are committed to being one of thetop European carmakers in terms of quality.The second priority is to improve our competitivenessby substantially reducing our productioncosts, by around €600 million a year. Weexpect to maintain this pace of annual costsavings in the future, thanks to the full impact ofour platform and cooperation strategies, theramp-up of the internal improvement plans designedto create a unified production system and thewider application of new purchasing policies.The third pathway is our innovation strategy,an invaluable source of competitive advantage.It is guided by our commitment to developinguseful technologies that improve safety andenvironmental performance, and can be deployedfor the largest number of customers.That’s why, after introducing cars equipped withStop & Start, a first-stage hybrid system, weare now preparing a development programaimed at bringing a lineup of hybrid diesels tomarket by 2010. The first two demonstratorsof that technology – the Peugeot 307 andCitroën C4 Hybrid HDi – illustrate our vision ofthe car of the future and our dedication to developingclean, fuel-efficient powertrains. Our innovationstrategy is also designed to providecustomers with the very best safety technologythat protects all road users. Eight of ournew models, for example, have earned fivestarratings in EuroNCAP tests.Lastly, the model renewal process is wellunder way, providing the primary driver of ourfuture growth. After peaking at 4.5 years in 2005,the average age of Peugeot and Citroën modellineups is now steadily declining, to a projected3.3 years in 2008.In this renewal process, the first-half introductionsof the Peugeot 207 and Citroën C6 are thebig news for now, but they will be followed byother major launches during the year both in andoutside Western Europe. Together, they willagain demonstrate our ability to innovate anddiversify our model portfolio, which will include38 body styles in 2006 versus 28 in 2001.These new model launches will have a positiveimpact in 2006, but the business environment isexpected to remain unfavorable, with persistentlyaggressive competition and flat demandin Europe. In this environment, we estimate thatoperating margin should be in the neighborhoodof the second-half 2005 figure in first-half 2006,before showing an improvement in the secondsix months of the year.Thierry PeugeotJean-Martin Folz

CORPORATE GOVERNANCECorporate Governance StructuresPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 8Since 1972, Peugeot S.A. has had a two-tier management structure, comprisinga Managing Board, responsible for strategic and operational management,and a Supervisory Board, responsible for oversight and control.The Supervisory BoardThe Supervisory Board appoints the membersof the Managing Board and oversees the ManagingBoard’s management of the company.Thierry Peugeot, ChairmanJean Boillot, Vice ChairmanJean-Philippe Peugeot, Vice ChairmanPierre BanzetJean-Louis DumasMarc FriedelJean-Louis MasurelFrançois MichelinJean-Paul ParayreMarie-Hélène RoncoroniErnest-Antoine SeillièreJoseph F. Toot Jr.Roland Peugeot, AdvisorBertrand Peugeot, AdvisorThe Strategy CommitteeMissions: The Strategy Committee is responsiblefor considering the Group’s long-termgrowth trajectory and strategic direction. Itreviews the Managing Board’s long-term strategicplan and is consulted about proposed majortransactions. It also prepares Supervisory Boarddecisions on strategic projects submitted forthe Board’s approval in accordance with Article9 of the bylaws.Jean-Philippe Peugeot, ChairmanJean BoillotJean-Louis DumasFrançois MichelinJean-Paul ParayreThierry PeugeotErnest-Antoine SeillièreThe Compensationand Appointments CommitteeMissions: The Compensation and AppointmentsCommittee is responsible for preparingSupervisory Board decisions regarding compensationfor members of the Managing Board,the Supervisory Board and the Board committees,as well as stock option grants to membersof the Managing Board. It also prepares SupervisoryBoard decisions concerning the appointmentof new members of the Supervisory Boardand Managing Board, by proposing selectioncriteria, organizing the selection process andrecommending candidates for appointment orre-appointment.Thierry Peugeot, ChairmanFrançois MichelinErnest-Antoine SeillièreThe Finance CommitteeMissions: The Finance Committee is responsiblefor informing the Board of its opinion on theinterim and annual financial statements of thecompany and the Group, and it may also beasked to review any corporate actions and otherprojects requiring prior approval by the Board.To this end, the Committee reviews in detail theinterim and annual financial statements, themost significant financial transactions and themanagement reporting schedules. It also monitorsoff-balance sheet commitments and datato assess the Group’s risk exposure.Marc Friedel, ChairmanJean-Louis MasurelMarie-Hélène Roncoroni

9From left to rightThierry Peugeot,Jean Boillot,Jean-Philippe Peugeot,Pierre Banzet,Jean-Louis Dumas.From left to rightMarc Friedel,Jean-Louis Masurel,François Michelin,Jean-Paul Parayre,Marie-Hélène Roncoroni.From left to rightErnest-Antoine Seillière,Joseph F. Toot Jr,Roland Peugeot,Bertrand Peugeot.As of January 1, 2006

CORPORATE GOVERNANCEThe Managing Boardand Executive CommitteePSA PEUGEOT CITROËN 2005 ANNUAL REPORT 10The Managing BoardJean-Martin Folz, ChairmanFrédéric Saint-GeoursClaude SatinetThe Executive CommitteeJean-Martin Folz, Chief Executive OfficerFrédéric Saint-Geours, Executive Vice President,PeugeotClaude Satinet, Executive Vice President,CitroënYann Delabrière, Finance, Control and PerformanceGilles Michel, Platforms, Technical Affairs,PurchasingJean-Marc Nicolle, Group Strategy and ProductsRobert Peugeot, Innovation and QualityRoland Vardanega, Manufacturing and ComponentsJean-Luc Vergne, Employee Relationsand Human ResourcesSenior ManagementThe Executive Committee and the SeniorManagement Team meet on a weekly basis todiscuss issues concerning the day-to-daymanagement of the Group and the AutomobileDivision. Specific committees have been setup for each of the other businesses, whichmeet once a month to discuss issues relatedto the management of the business concerned.The day-to-day management of the Groupis the responsibility of the Vice PresidentsCommittee made up of senior line executives.At March 1, 2006, the Committee comprised 51senior executives, as well as the membersof the Executive Committee and the SeniorManagement Team. It meets on a monthly basis.Xavier Fels, External RelationsJean-Louis Grégoire, Executive DevelopmentJean-Claude Hanus, Legal AffairsLiliane Lacourt, Communications

11From left to rightJean-Martin Folz,Frédéric Saint-Geours,Claude Satinet,Yann Delabrière,Gilles Michel.From left to rightJean-Marc Nicolle,Robert Peugeot,Roland Vardanega,Jean-Luc Vergne.From left to rightXavier Fels,Jean-Louis Grégoire,Liliane Lacourt,Jean-Claude Hanus.As of January 1, 2006

CORPORATE GOVERNANCEStockholder RelationsPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 12PSA Peugeot Citroën is committedto providing clear, regular informationto all individual and institutionalstockholders, in France and abroad.The Group is constantly improving the effectivenessof the investor relations process, includingthe various sources of stockholder informationand direct investor contacts at meetings andspecial events, in compliance with best practicesand the recommendations issued by stockmarket authorities.All stockholders have access to the followingsources of information:■ The Annual Report, available in French andEnglish, provides essential information aboutPSA Peugeot Citroën and its operations, includingfinancial highlights and key data.■ The Registration Document, prepared inFrench and English and filed with the Autoritédes Marchés Financiers, provides a detailedpresentation and analysis of the consolidatedfinancial statements, the operations of thedifferent divisions, the resolutions approvedby stockholders in Annual Meeting and legalinformation about the Company.■ The Interim Report, also published in Frenchand English, is available as soon as interim resultsare released in late July.■ Press releases and financial notices areposted on the Company website.■ The Stockholders’ Newsletter, published tocoincide with the release of annual results, theAnnual Meeting and the release of interimresults, is sent to registered stockholders, holdersof more than 10 bearer shares registered with aFrench financial institution at December 31 andemployee stockholders. It is also available uponrequest.■ The Stockholders’ Guide answers the mostfrequently asked questions regarding stockholderrights and the management of Peugeot S.A.shares.All these publications are available online atwww.psa-peugeot-citroen.com, which also displaysthe Peugeot S.A. stock price in real time.To nurture effective relations with investors,PSA Peugeot Citroën organizes a growingnumber of events for its stockholders and theentire financial community. Three major meetingsare held for the presentation of interimearnings, the presentation of annual earningsand the Annual Meeting.In addition, the Group regularly interacts withinvestors by inviting them to meetings or plantvisits in Europe, the United States and Asia, andinvites financial analysts to theme meetings tohelp improve their understanding of the Group'sbusiness operations. The Group also participatesin industry presentations by financial institutionsactive in the capital markets. Moreover, theGroup is committed to meeting regularly withindividual stockholders in France through presentationsin cities outside Paris, plant visits and abooth at the Actionaria investor fair.Contact InformationIndividual stockholders may request information fromthe Investor Relations team via e-mail, at:investor.relations@psa.fror by phone, at 33 (1) 40 66 36 71.Stockholders wishing to receive financial informationon a regular basis may register at Company headquarters:Peugeot S.A. - Investor Relations75, avenue de la Grande-Armée - 75116 ParisE-mail: investor.relations@psa.frInvestor CalendarApril 27: First-quarter 2006 salesMay 24: Annual Stockholders' MeetingMay 31: Payment of 2005 dividendJuly 26: First-half 2006 resultsOctober 26: Third-quarter 2006 salesFebruary 7, 2007: 2006 annual resultsStock dataISIN: FR0000121501MarketsEurolist continuous trading –Euronext Paris SA, Compartment AOther markets:■ Europe: Euronext Brussels andSEAQ International – London.■ United States: Traded asAmerican Depositary Receipts(ADRs), with one ADR representingone share of common stock.Listed in the major indexesCAC 40, SBF 120, SBF 250,Euronext 100, DJ Euro Stoxx Auto,Advanced SustainablePerformance Indices (ASPI)and FTSE4Good.Eligible for:Deferred settlement under the SDRsystem and inclusion in French PEAstock savings plans.Par value€1.00Shares outstandingat December 31, 2005€234,618,266Closing priceon December 31, 2005€48.70Market valueat December 31, 2005€11.43 billionWeighting in the CAC 40 indexat December 31, 20050.97 %

13Five-Year Performance of the Peugeot S.A. Share Versus the CAC 40 Index and the DJ Euro StoxxOwnership structure at December 31, 2005 (in %)16014012010080604001/01 04/01 08/01 12/01 04/02 08/02 12/02 04/03 08/03 12/03 04/04 08/04 12/04 04/05 08/05 12/05Peugeot S.A. Share CAC 40 DJ Euro Stoxx Automobile Source: Euronext1 234567 81_Peugeot family: 30.222_Employee mutual fund: 2.533_Caisse des Dépôts: 2.644_Michelin: 1.205_Société Générale: 1.416_BNP Paribas: 1.137_Treasury stock: 2.398_Other: 58.48Five-year Summary of Stock Price Performance(in euros)High 58.27 60.80 43.85 52.70 57.95Low 35.40 32.20 33.53 36.93 45.20At December 31 47.75 38.86 40.40 46.70 48.70Dividends2001 2002 2003 2004 20052001 2002 2003 2004 2005Dividend per share (in euros)Before tax credit 1.15 1.35 1.35 1.35 1.35*Tax credit 0.58 0.675 0.675 - -.**Total revenue 1.73 2.025 2.025 - -.**Payout (in %) 17.6 20.7 21.9 24.2 30.8* Subject to stockholder approval at the May 24, 2006 Annual Meeting.** Beginning with dividends received in 2005, the tax credit has been replaced, under certain conditions, with tax relief.Voting rights structure at December 31, 2005 (in %)1_Peugeot family: 45.062_Employee mutual fund: 1.983_Caisse des Dépôts: 2.074_Michelin: 1.895_Société Générale: 1.316_BNP Paribas: 1.767_Other: 45.931 23456 7The 2005 Registration Document, filed with the Autorité des MarchésFinanciers on April 24, 2006, is available upon request from:Investor Relations –75, avenue de la Grande-Armée – 75116 Paris, Franceor by phone at 33 (1) 40 66 36 71.It can also be found on the Company website:www.psa-peugeot-citroen.com

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 14

152005IN PICTURES

THE PEUGEOT 1007Redefining the City CarInspired by the Sésameconcept car, whose bold,creative design delighted thepublic at the 2002 Paris MotorShow, the Peugeot 1007 reallystands out from the crowd,with compact lines that makeit ideal for driving, and parking,in the city. Styled as a roomymini-MPV 3.37 meters longand 1.62 meters high, the 1007has a high driving position thatoffers exceptional all-roundvisibility and safety.The innovative, remote-controlledsliding doors glide flushto the rear panel, providingunprecedented, totally safeingress/egress as well as theability to park in very narrowspaces while leaving enoughroom for people to get inand out.

EMPLOYEE RELATIONSThe First Companyto Receive France’s“Professional Equality”LabelPSA Peugeot Citroën wasthe first French company to beawarded the “ProfessionalEquality” label for its commitmentto gender parity.A number of women wererecently hired using themethod applied by France’sstate-run employment agencyto identify the suitabilityof jobseekers regardless ofgender and education.The proportion of womenamong new hires in 2005was 22.4% for engineers andmanagers, 32% for supervisorsand 22.1% for operators.PSA Peugeot Citroën employees workingon a virtual engine test bed.

CITROËNThe C-AirPlay,a New World of DrivingPleasureUnveiled at the Bologna MotorShow, Citroën’s new C-AirPlayconcept car has an originaldesign that combines a curvedbody with clean interior linesto maximize driving sensations.Powered by a 110-hp gasolineengine fitted to an automatedSensoDrive gearbox,the C-AirPlay is also equippedwith the environmentallyfriendly Stop & Start technologythat dramatically reduces fuelconsumption and emissionlevels.

INTERNATIONALOPERATIONSA Solid Position in BrazilAfter just five years in business,Peugeot Citroën do Brasil hasfirmly established its identityas a Brazilian carmaker.Inaugurated in 2001, the PortoReal plant now producesfour models: the Peugeot 206Sedan, the Peugeot 206 SW,the Citroën Xsara Picasso andthe Citroën C3. It has also beenmaking 1.6-liter and 1.4-litergasoline engines since 2002.This year, the plant beganproduction of flex-fuel enginesfor the Peugeot 206 andCitroën C3, whose ability torun on any mixture of ethanoland gasoline makes themhighly suitable for the Brazilianmarket.

THE CITROËN C1The Fun, ReliableCompactIntroduced in June 2005, the C1is Citroën’s entry-level model.Just 3.43 meters long, thecompact four-seater combinesa stylish, fun design with thehighest standards in quality,handling and safety. Boththe 3-door and 5-door versionsfeature minimum overhangand a curvy front-end with awraparound bumper that givethe car a friendly look, whilealluding to its sturdinessand safety. The C1 also standsout for its transparent tailgateand rear lights, as well as forthe innovative design of therear doors, which extend rightback to the lamp clusterson the 5-door model.The suspension deliversexcellent handling, makingan effective contributionto primary safety.

ENVIRONMENTParticulate FiltersIncreasingly PopularThe 1,400,000 th vehicleequipped with a particulatefilter rolled off the productionline in 2005. The technologywas invented by PSA PeugeotCitroën, which is today theonly carmaker in the worldto mass-market a particulatefilter, offering it on ten vehiclefamilies: the Peugeot 206, 307,407, 607 and 807 and theCitroën C3, C4, C5, C8 and XsaraPicasso. By sharply curbingpollutant emissions, particulatefilter-equipped HDi diesels arethe world’s cleanest internalcombustion engines. At thesame time, their common-raildirect injection technologydelivers exceptional performancein reducing CO 2 emissions.

QUALITYCommitted to Qualityin Everything We DoThroughout the productionprocess, vehicles are systematicallychecked one by oneto ensure that they meet thehighest standards in terms ofappearance, handling, comfortand noise level. In all, ten hoursare spent controlling qualityon every executive vehicle.Fulfilling customer expectationsis one of the focal pointsof our strategy. Substantialprogress has been madefollowing the deployment ofa broad-based improvementplan across the organization,from project development andmanufacturing to customerservice. The results after threeyears are very encouragingand include a 34% decreasein customer-reported breakdownsand a 20% declinein incidents reported afterthe first year of use.

COOPERATIONAn Efficient Plant forPSA Peugeot Citroënand Toyota CarsAs part of the cooperationwith Toyota, the Peugeot 107,Citroën C1 and Toyota Aygoare now being built at theTPCA plant in Kolín, CzechRepublic, which was inauguratedin May 2005. The planthas an annual productioncapacity of 300,000 vehiclesand employs 3,000 people.

THE PEUGEOT 407 COUPÉCombining Elegancewith PowerA harmonious balance ofperformance and refinement,the new 407 Coupé builds onthe stylistic codes introducedon the 407 lineup. With itsmulti-functional capabilitiesand outstanding drivingexperience, the 407 Coupé isa contemporary expressionof the traditional touring car.Its powerful, state-of-the-artengines and carefully chosensuspension technology deliverprimary safety of the highestorder, as well as convenience,comfort and driving pleasureat all times. The 407 Coupé isthe first model in the 407 rangeto be equipped with the new2.7-liter V6 HDi engine witha particulate filter.

ROAD SAFETYFive Stars for MaximumSafetyThe European New CarAssessment Programme(EuroNCAP) conducts impacttests to assess motor vehiclepassive safety performanceand publishes the results,with ratings expressed in stars.The Citroën C6 and thePeugeot 407 Coupé, our newexecutive models, eachreceived a five-star rating thatranks them among the bestvehicles on the market in termsof passive safety. In the area ofpedestrian protection, the C6is the first vehicle to earn fourstars, the maximum awardedby EuroNCAP.

ENVIRONMENTThe Citroën C3: MovingForward on CNGPSA Peugeot Citroën isconvinced that there is a growingmarket for vehiclespowered by compressed naturalgas (CNG), whose abundantreserves and environmentalqualities make it a highlypromising fuel solution.Anticipating demand, Citroënworked with Gaz de Franceto develop a dual-fuel versionof the C3 that runs on a mixtureof gasoline and CNG.The C3 1.4i CNG is currentlybeing tested in a pilot programat ten different locations inFrance, including Toulouse,where the model was launchedduring the city’s clean energycampaign.

COOPERATIONAn Efficient IndustrialOrganization for theCooperation with BMWIn 2005, PSA Peugeot Citroënand BMW presented themanufacturing details of theircooperation for the productionof a new family of gasolineengines. The major componentswill be machined for bothpartners at the Française deMécanique plant in Douvrin,where the first productionmodule, covering a surfacearea of 60,000 square meters,was completed at year-end.Assembly operations will becarried out by PSA PeugeotCitroën at Douvrin and byBMW at Hams Hall in England,with output eventually risingto one million units a year.Entry-level and mid-rangePeugeot and Citroën cars willbe equipped with the newengines as early as 2006.An engine crankshaft being stamped.

THE PEUGEOT 206Record ProductionIntroduced in September 1998,the Peugeot 206 celebrated theproduction of its five millionthunit – a 1.6-liter HDi CoupéCabriolet with a particulatefilter – at the Mulhouse plantin France. With 1.1 millionregistrations since launch,France is the car’s leadingmarket, followed by the UnitedKingdom (540,000), Italy(465,000), Spain (400,000) andGermany (331,000).

THE GREENHOUSE EFFECTCarbon Sink Trees NowFive Years OldThe Peugeot carbon sinkproject in the Amazon beganin 1998 in partnership withFrance’s national forest serviceONF and Pro-Natura, a Franco-Brazilian NGO. Its aim is tostudy the relationship betweenreforestation and the absorptionof carbon dioxide, theleading greenhouse gas.Carried out in close cooperationwith the international scientificcommunity, reforestationis promoting the biodiversityof plant species and protectinganimal habitats, while gettinglocal communities involvedthrough native species plantingprograms.

THE CITROËN C6The Prestigeof a Grand TourerEquipped with Leading-Edge TechnologyUnveiled in a world premiereat the 2005 Geneva Motor Show,the Citroën C6 has been availablesince late 2005. This caris offered in three versions –the C6, C6 Lignage andC6 Exclusive – and with twoV6 engine options – a 3-litergasoline engine or a 208-hp HDiwith a particulate filter. All ofthe models offer an unprecedentedlevel of comfort andsafety as standard, withdirectional Xenon headlights,a soft-diffusion dual-zone airconditioning system, head-updisplay, nine airbags and aparticulate filter on the V6 diesel.

EMPLOYEE RELATIONSCareer-Long LearningAn agreement has been signedwith unions in France concerningcareer-long training, whichredefines Group guidelines andobjectives to anticipate futureskill needs and fulfill employeeexpectations. Key measuresinclude applying France’s newemployee training law anddeveloping apprenticeshipprograms and tradecertification contracts foryoung recruits and jobseekers.The introduction of such newprograms as PasseportFormation (Training Passport)and skills validation will allowemployees to formalizetheir skills and know-ledgeand obtain a diploma orprofessional certification.

INTERNATIONALOPERATIONSChina Celebratesthe Sale of its 50,000 thPeugeot 307 SedanIn China, the introduction ofthe Peugeot 307 Sedan and asolid sales performance fromCitroën drove a 57% increasein Dongfeng Peugeot CitroënAutomobile’s sales.Illustrating our broadermarketing presence in thecountry, the Peugeot 307Sedan has sold over 50,000units and is already settingthe standard in its segment.DPCA’s Chief Operating Officercelebrated the success byhanding the keys to the50,000 th car to the luckycustomer at the GuangzhouMotor Show. Citroën unit salesrose 34% to 103,000 vehicles,as the Chinese market returnedto strong growth after slowingin second-half 2004.

SUSTAINABLEDEVELOPMENTA Bicycle Tour ofthe Sochaux PlantThe Sochaux, France plantopened its doors to visitorson bicycles during EuropeanMobility Week, which wasorganized by the FrenchMinistry of Ecology andSustainable Development.An eight-kilometer bicyclecircuit offered visitors a chanceto discover the plant, whichproduces 1,915 vehicles a day.Begun in 2004, the plant’stravel plan is beginningto produce results, with300 employees now comingto work by bicycle and makingthe most of the site’s numerousbike paths.

CITROËNCitroën and SébastienLoeb: A Winning TeamAt the 2005 World RallyChampionship, Citroënsecured the Manufacturers’title for the third year in a row,with Sébastien Loeb winningthe driver’s title for the secondtime. He also received accoladesfrom the international motoringmedia for his fine performance,including a “Caschi d’Oro”trophy from the Italianmagazine Autosprint and an“International Rally Driverof the Year” award from theBritish magazine Autosport,as well as being named “Man ofthe Year” by Top Gear and CAR.

PSA Peugeot Citroënis committed to achieving unitsales of four million vehiclesa year and a consolidatedoperating margin of 6 %.PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 54

55Strategy A Long -Term VisionPlatforms and Cooperation AgreementsA Commitment to PeopleThe Technologies of Tomorrow

STRATEGYA Long -Term VisionPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 56PSA Peugeot Citroën is building itsdevelopment on the strength of twomarques, Peugeot and Citroën, whichcoexist harmoniously within the Groupbut compete with each other in the marketplace.This dual identity enables us tooffer customers broad, diverse modelline-ups, while supporting sustainablegrowth in sales and earnings.PSA Peugeot Citroën owes its growth to anorganization based on two broadline marques:Peugeot and Citroën. By designing vehicles tosuit each market and carefully coordinating newmodel launches, each marque is able to offera comprehensive line-up of cars and lightcommercial vehicles that express both uniquestylistic identities and shared, strategicallyrelated concepts. Although the two marquesenjoy the independence needed to lead separateand often competing marketing and salesstrategies, their technological, manufacturing,administrative and financial processes havebeen combined to enhance efficiency andcreate economies of scale.In addition to its core competency of makingautomobiles, PSA Peugeot Citroën is alsoinvolved in three other businesses that arecritical to driving growth:■ Banque PSA Finance provides new vehicleand replacement part financing for dealers andoffers a comprehensive array of financing andrelated services to Peugeot and Citroën carbuyers;■ Faurecia, a majority-owned automotive equipmentmanufacturer that produces such majorcomponent modules as seats, dashboards,door panels, exhaust systems and front-ends.Based on revenues generated with the Groupand other carmakers, Faurecia is the leadingoriginal equipment manufacturer in France,number two in Europe and ninth in the world;■ Gefco, a transportation and logistics specialistwhose businesses include vehicle preparationand transportation, groupage and full/partloadroad transportation, logistics and air/seafreight.Building long-term growth by focusingon customers, offering a comprehensiverange of products and services, demandingthe highest standards of quality,continuously innovating and deliveringnext-generation technologies, enhancingemployee skills and dedication, andefficiently managing costs.PSA Peugeot Citroën is firmly engaged in aprofitable growth dynamic, whose goal is tosell four million vehicles a year and achieve aconsolidated operating margin of 6%.There are significant opportunities for improvement.For one thing, as we meet the challengesof a still difficult business environment, we arecreating powerful competitive advantageby maintaining our medium-term objectives– based on developing our model line-ups,expanding outside Western Europe and reducingour operating costs, in particular by deployingthe platform strategy and increasingproductivity.We have also implemented an aggressivemodel development program that is shorteningtime-to-market for innovative new conceptsthat deliver the styling, performance, comfort,originality and technologies customers expect.These customers are aware of the impact carshave on today‘s society, and want to makeresponsible choices in addressing such criticalissues as safety, the environment, recyclingand urban mobility.Informing every aspect of our strategy is acommitment to sustainable development.In addition to diligently fulfilling the economic,social and environmental responsibilitiesassociated with our operations, our sustainabledevelopment commitment is focusedon three key issues: greenhouse gases, roadsafety and urban mobility. Today, a widearray of practical, innovative technologicalsolutions, deployable to the largest numberof customers, are being implemented toproduce cars that comply with the highestenvironmental and safety standards.Our growth has been built on the code ofconduct defined in our Ethics Charter, whilerelations with stakeholders are based ontrust and respect for ethical practices.

57Our quality strategy issupported by the proficientmanagement of our businessprocesses across theproduct and service lifecycle.We‘re dedicated to doingit right the first time, fromdesign and production tosales and customer service.| Growth in salesUnit sales outside Western Europeexceeded one million for the firsttime in 2005.587,300710,500817,2001,029,500950,60001 02 03 04 0531 new body stylesare scheduled for launchbetween now and 2008.

STRATEGYPlatforms and Cooperation AgreementsPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 58To fulfill market expectations, PSA PeugeotCitroën‘s model line-ups offer a wide choiceof body styles, powertrains and equipment,as well as advanced, premium qualitycomfort and safety features.At the same time, we are committedto controlling capital expenditure andreducing production costs.These challenges are being met in two ways.First, vehicle design and process engineeringare guided by the platform strategy, whichconsists of sharing vehicle base components,such as engines, underbodies, axles and gearboxes,among several different models. Thisenables us to develop, at less cost, a greaternumber of new models with highly distinctivepersonalities, but sharing the same basic technicalcomponents. Common parts account forat least 60% of the production cost of vehiclesbuilt on the same platform. By significantlyshortening development cycles, reducingdevelopment, process engineering and productioncosts, and lowering the price of sourcedequipment and parts, the platform strategy isalso helping to diversify the model portfolio. Theresulting savings are passed on to customersin the form of competitive prices, more extensive,higher quality standard equipment anda richer product offering.Second, PSA Peugeot Citroën is pursuing aninnovative – and growth driving – strategy ofcooperation with other carmakers for the jointdevelopment and manufacture of vehicle basesor components. Providing similar advantagesto the platform strategy, cooperation agreementsenable the partners to share costs,increase production runs and expand theirmodel ranges. This type of agreement, whichrespects each partner‘s independence, representsthe best response to the challenges ofglobalization and fast changing markets. Steppingup this cooperation strategy will providecritical leverage for our future development.3.2 millionvehicles will be built on theGroup‘s three platforms in2008, doubling the 2005 figure.7 agreementsPSA Peugeot Citroën iscooperating with the world‘sleading carmakers to jointlyproduce engines or vehiclebases.A 1.6-liter gasoline engine developedin cooperation with BMW Group.

59A Commitment to PeopleMore than anything else, PSA PeugeotCitroën is a community of men and womenmotivated by a shared commitment tomeeting our growth and profitabilityobjectives. That‘s why human resourcespolicies are an integral part of our strategicvision as we expand across the globalmarketplace.To support this expansion and prepare to meetfuture challenges, programs are being activelyimplemented to internationalize and diversifyour teams and to offer fair, performance-basedcompensation in a competitiveness-drivenworkplace organization focused on safety andcontinuous dialogue with employee representatives.People are being recruited from a varietyof backgrounds, in terms of professional experience,education, culture and nationality, with anemphasis on creating a diversity of jobs, skillsand capabilities. Hiring policies are designedto avoid any form of discrimination and to encouragediversity, which enriches the team experienceand nurtures a spirit of emulation. Reflectingour steadfast commitment to social dialogue,PSA Peugeot Citroën has signed important, ofteninnovative agreements in every host country tobring labor and management together to discussmajor corporate and community issues. All ofthese human resources policies and commitmentsare making a strong contribution to theGroup‘s momentum.208,500people work for PSA PeugeotCitroën worldwide.41,000employees are women in2005, representing nearly 20%of the workforce.42.6 %of employees are non-Frenchnationals.

STRATEGYTechnologies of the FuturePSA PEUGEOT CITROËN 2005 ANNUAL REPORT 60By enabling us to develop, manufactureand market innovative concepts usingefficient technologies that meet the needsof the largest number of customers,our research and development capabilitiesare playing a critical role in addressing thechallenges of an increasingly competitivemarketplace while delivering importantnew benefits to customers.R&D programs are focusing on such majorpriorities as enhancing road safety, reducingCO 2 and other emissions, and improving fuelefficiency. We are aware that our cars will besuccessful only if customers like them and wewant to retain our leadership positions incritical automotive technologies. That‘s whywe are developing cars with strong brandidentities.First priority: design clean, fuel-efficientvehiclesPSA Peugeot Citroën is actively respondingto two major concerns: abating the greenhouseeffect and meeting the expectations ofcustomers sensitive to energy efficiency andfuel prices. Attentive to the desire of carbuyersto be responsible citizens, we believe our roleis to deliver new technologies that not only helpto improve fuel economy, but also reduce emissionsand harmful exhaust gases to limit theenvironmental impact of our cars. A good exampleof this commitment is the clean, fuel-efficientHDi diesel engine with a particulate filter.Second priority: enhancing the safetyof drivers and other road usersMore than 10% of the annual R&D budget isspent on assertively developing technical solutionsthat help to prevent accidents and reducetheir impact when they do occur. We also playan active role in other aspects of road safety,such as improving driver behavior and the roadwayenvironment. The Peugeot and Citroënvehicle design process is structured to meetthe highest standards in three types of safety:■ Primary safety involves preventing accidents,by improving roadholding, braking performanceand visibility, and by ensuring that the driverreceives adequate information to correctlyperceive and interpret road conditions;■ Secondary safety systems protect occupantsand pedestrians in the event of an accident.They include both structural features andrestraint systems, such as seat belts, seatdesign and air bags;■ Tertiary safety refers to the emergencyresponse of rescue crews and medical teamsafter an accident. We are a leader in this area,thanks to our emergency call system, whichhas been deployed across the model line-up inFrance and six other European countries. Todeliver exceptional comfort to customers,research is also being conducted in such diverseareas as sensory analysis and ergonomics.By analyzing and improving the sensory perceptionof sound, appearance, smell and touch ina vehicle interior, these studies demand aconstant dialogue between the social and engineeringsciences.On every new project, we are committed tomeeting these challenges and to demonstratingthe quality of our research by developinguseful, innovative technologies.We are committed todeveloping next-generationinnovations in the areasof safety, the environment,sensory analysis andergonomics.

61GENEPAC, a next-generationfuel cell stack developed byPSA Peugeot Citroën in cooperationwith the French Atomic EnergyCommission (CEA), representsa solution for the future.

3.39 million Peugeotand Citroën vehicles weresold in 2005, includingone million outsideWestern Europe.PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 62

63Business Review A Year of Growthand International ExpansionPeugeot Citroën R&DManufacturing EfficiencyCooperation AgreementsOther Businesses

BUSINESS REVIEWA Year of Growth and International ExpansionPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 64With 3.39 million vehicles sold worldwidein 2005, PSA Peugeot Citroënrecorded a slight 0.4% increase in salesin a market that remained extremelycompetitive.Despite a good performance elsewhere in theworld, sales in Western Europe contracted2.7% in a stable market driven by fiercecompetition among global carmakers. Salesdeclined even more steeply in the finalquarter of the year, when European demandslowed more sharply than expected, causingthe competitive environment to worsen. Inresponse, further adjustments were madeto production programs in the autumn, butvehicle inventory nonetheless remainedabove target levels.The second-largest European carmakerPSA Peugeot Citroën was the secondlargestcarmaker in Western Europe, with2,355,000 cars and light commercial vehiclesregistered in the region during the year.Market share in the 18-country region easedto 14.3% from 14.6% in 2004, reflecting acommitment to favoring margins over volumesin an aggressive marketplace.We strengthened our position as Europe’snumber two in the car segment, with1,984,600 registrations and 13.7% of themarket, while maintaining our leadership inlight commercial vehicles, with 370,400 registrationsand an 18.5% share. Market leadershipwas consolidated in France, Spain,Belgium and Portugal, with share exceeding10% in ten Western European countries.■ In France, where we ranked number one,Peugeot and Citroën registrations rose by 1.7%to 785,000, for a 31.6% share of the market.■ In Spain, we confirmed our market leadership,with 394,400 registrations and a 20.6%share.■ In the United Kingdom, registrations totaled283,300 for a 10.2% share of the market. Asin 2003 and 2004, we continued to pursue amore restrictive marketing strategy in theleast-profitable segments, especially fleets,which account for more than 55% of localsales. As a result, registrations declined by9.4% in 2005.■ In Germany, an upturn in sales drove a 4.7%increase in registrations, which stood at202,100 for a market share of 5.7%.■ While the Italian market contracted by 1.7%,rampant competition in the small and midrangesegments drove Group registrationsdown 11.1% to 240,500, for a 9.9% marketshare.Over one million cars sold outsideWestern EuropeAt 1,029,500 units (738,000 Peugeots and291,500 Citroëns), sales outside WesternEurope exceeded the one million mark for thefirst time in 2005, attesting to our broader anddeeper presence in the global marketplace.Up 8.3% on last year, these sales nowaccount for nearly one third of the worldwidetotal.Strong growth in Argentina and BrazilIn Latin America, resurgent demand, particularlyin Argentina and Brazil, the recentlaunch of the Peugeot 307 and 206 SW andthe introduction of new flex-fuel engineoptions helped drive a 28.3% increase insales to 182,900 units. In Brazil, where themarket expanded by 9.5%, sales were up27% to 81,900 units, resulting in a marketshare of 4.9%, versus 4.3% a year earlier. InArgentina, where the market grew by 35.2%,sales rose 47.5% to 52,800 units and marketshare stood at 13.8%.Market share close to 10% in the sixmain Central European countriesSales totaled 209,700 units in Central andEastern Europe, where demand contractedsharply during the year after reaching a recordhigh in early 2004. In the six main Central Europeancountries (Poland, Hungary, the CzechRepublic, Slovenia, Croatia and Slovakia) plusTurkey, market share stood at 9.5% with150,700 vehicles sold. Sales in Russia rose12.7% to 16,500 units.Stepped-up sales in ChinaPeugeot made its Chinese debut in 2004 withthe market introduction of the 307 Sedan. Thismajor launch, combined with firm demandfor Citroën cars, helped to drive DongfengPeugeot Citroën Automobile sales up 57.2%to 141,000 units in a market estimated to havegrown 25.8% to nearly 3,200,000 vehicles.This momentum should be sustained in 2006by the introduction of the Peugeot 206 andtwo new Citroën models.

65Outlook for 2006In an increasingly competitivemarketplace, demand in Europeis expected to remain at around2005 levels. During the year,PSA Peugeot Citroën expects toreap substantial benefits from anew phase in the model renewalprocess, led by the arrival of thePeugeot 207. When combinedwith the impact of the first fullyear of sales of models introducedin 2005 (the Peugeot 107,1007 and 407 Coupé and theCitroën C1 and C6), the Peugeot207 should enable the Groupto go back on the marketingoffensive and return to unitsales growth in Western Europe.Sales outside Western Europeare expected to continueto increase at the same fast paceas in the past two years, led bythe launch of new Peugeotand Citroën models, in LatinAmerica and China, such asthe Citroën C-Triomphe.

BUSINESS REVIEWPeugeot: International RecognitionPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 66Founded in 1810 as a family-owned steelmill, Peugeot has played a major rolein automobile history. From the firstmotorized tricycles to the latest high-techmodels, the marque rapidly becameone of France’s leading carmakers beforeexpanding across the global marketplace.A strong identity based on four core valuesEmbodied in the marque’s sleek, sportymodels, Peugeot’s unique personality sets itapart from other car brands. It expresses thefour core values of reliability, dynamism, styleand innovation, which inspire the marque’sproduct and services strategy and guideemployees in their workplace practicesand commitment. As the basis of its corporateculture, these values enable Peugeotto move with the times while preserving itsheritage.The marque is present in a wide range ofmarket segments, from passenger cars tolight commercial vehicles, and is constantlyrenewing its lineup with models whose strongpersonalities and robust, reliable performanceset the standard in each segment.Outstanding cars, an ongoing innovationprocess informed by a commitment to environmentalstewardship, constant attention tocustomer concerns and strong ties to theworld of motorsports are just some of thequalities that define the marque.Today, more than ever, these values areexpressed in the marque’s global signature“Peugeot. The Drive of Your Life”.A worldwide sales networkPeugeot’s global network of nearly 10,000dealerships and service centers in morethan 150 countries is supported by fifteenimporter subsidiaries in Western Europe,five in the Mediterranean basin, four in LatinAmerica, three in Africa and one in Japan, aswell as a joint venture in China and some130 importers worldwide.Increasing international expansionWith 37% of total sales now derived outsideWestern Europe, Peugeot has consolidatedits strong position in the global marketplace.In Western Europe, where the market wasshaped by flat demand and fierce competition,Peugeot registrations declined by 4.8%to 1,254,100 units.Faced with sluggish demand across WesternEurope, the marque favored margins overvolumes and tended to avoid the heavy promotionalcampaigns undertaken by mostother carmakers.Outside Western Europe, on the other hand,sales rose a further 5.7% to 738,000 carsand CKD units invoiced over the year.In all, 2005 was a good year for Peugeotfor several reasons.■ Unit sales of the 206 reached 5.4 million,making it the best-selling Peugeot model ever.For the sixth year in a row, the model was themost popular car in its segment in 2005, sellinga total of 676,500 units worldwide.■ Already available in sedan and SW versions,the Peugeot 407 line was expanded by theyear-end launch of the Coupé, which nowranks third in its segment in Europe.■ Sales of the Peugeot 607 rose sharplythanks to the new V6 HDi engine withparticulate filter.■ 2005 also saw the introduction of four newmodels: the Peugeot 1007 in April, the 107and then the “new 307” in June and the 407Coupé in November.■ Lastly, sales of vehicles equipped with aparticulate filter reached one million by end-2005, consolidating Peugeot’s leadershipin the technology.Peugeot in Central EuropeIn the six Central European countries inwhich the marque is present (Poland,Hungary, the Czech Republic, Slovenia,Croatia and Slovakia), Peugeot’s marketshare stood at 6.1% with 53,000 registrations.Peugeot in Latin AmericaIn Argentina, demand rose 35.2% to361,500 registrations, while Peugeot salesclimbed 48.7% to 40,600 units for a marketshare of 10.65%. In Brazil, Peugeot sales rose25.4% to 54,000 units for a market share of3.3%, versus 2.9% in 2004.Peugeot in ChinaThe DPCA joint venture successfullylaunched the 307, now a benchmark in itssegment with nearly 40,600 units sold.Backed by a network of 130 Blue Box dealerships,Peugeot is recognized for the qualityof its products and services.

672005 was a year ofconsolidation for Peugeot,with 1,995,500 cars andlight commercial vehiclessold worldwide.For more information about the marquevisit www.peugeot.comThe Peugeot 1007.

BUSINESS REVIEWCitroën: Expanding in Every Regionof the WorldPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 68Even today, after more than 85 years,Citroën vehicles still embody the pioneeringspirit of the marque’s founder,André Citroën.A strong identityCitroëns are truly works of art, unique andmeaningful. They are inspired cars that looklike no other, a blend of class, styling andquality. And because the quality of its carsand services underpins the image of confidencethat keeps customers coming back tothe marque and its dealers, Citroën hasimplemented a quality certification processthat is driving more intimate understandingof customer expectations and a deepercommitment to meeting them.Every day, Citroën employees are dedicatedto pursuing growth and efficiency through aculture of continuous improvement.Making the environment one of its primaryconcerns, Citroën has deployed across itsnetwork a range of resources and servicesdesigned to address environmental issueswith real-world solutions and, ultimately, toimprove the efficiency of the industry as awhole.A commitment to peopleIn all, 13,900 employees, including 6,045outside France, are helping to drive Citroën’sfinancial performance.The Citroën networkIn France, Citroën’s network includes 346 newcar dealers, 2,310 authorized repair shops,321 official spare parts distributors and789 licensed Eurocasion used car dealers. Inthe rest of Europe, the company is representedby 18 subsidiaries and 8 importersoperating 1,761 dealerships, around 4,269authorized repair shops and 1,159 officialspare parts distributors. In the rest of theworld, the network comprises 67 importers,3 subsidiaries, a joint-venture in China and1,150 dealerships.Sales up in Western EuropeIn Western Europe, registrations of Citroëncars and light commercial vehicles rose1.3% to 1,100,900 units in 2005, for a 6.7%share of a market shaped by flat demand andaggressive competition.Steady growth in Central EuropeDespite lackluster demand in most CentralEuropean countries, Citroën sales rose 11%in the region.Robust expansion in the rest of the world■ Citroën enjoyed strong growth in LatinAmerica in 2005. In Argentina, sales rose43%, outpacing the market and liftingCitroën’s share to 3.2%, while the Septemberintroduction of a 1.6-liter version drove a 30%surge in Xsara Picasso sales. In Brazil, salesgained 30% in a market up 9%, increasingCitroën’s market share to 1.7%. Growth wasled by the introduction of a new version of the1.4-liter C3 and the launch of the flex-fuel C3,which can run on any mixture of gasoline andalcohol.■ In China, unit sales rose 29% to 100,400 vehicles,for a market share of 3.1%, as demandreturned to very strong growth after slowingin second-half 2004.The most comprehensive and diversemodel lineup in Citroën’s history■ One of the highlights of 2005 was the worldpremiere of the C6, Citroën’s new executivemodel that combines elegance and refinementwith leading-edge technology. The modelalso achieved outstanding results in theEuroNCAP impact tests, with a five-star ratingfor adult occupant protection making it one ofthe leading models in the executive segment. Itwas also the first car to earn the maximum fourstars for pedestrian protection.■ Unveiled at the 2005 Geneva Motor Show andon the market since June, the C1 is Citroën’sentry-level model and the smallest of themarque’s compact cars. It combines a fun,stylish design with the highest standards inquality, handling and safety.■ Since its launch in 2004, the C4 has enjoyedgrowing popularity in most countries, with salesin Western Europe exceeding 200,000 units fora market share of 1.3%.■ Encouraged by the success of its compacts,Citroën now offers the C3 with a 1.6-liter,110-hp HDi engine with particulate filter. Themodel’s interior has also been revamped witha new dashboard, the same as on the C2 andC3 Pluriel, as well as new door panels and trim.Citroën also had a very successful year at theWorld Rally Championship (WRC), winning theManufacturer’s title for the third year in a rowand the Driver’s title for the second year in arow thanks to Sébastien Loeb and his co-driverDaniel Elena.

69Fielding its mostcomprehensive lineup ever,Citroën sold 1,394,500vehicles around the worldin 2005.For more information about the marquevisit www.citroen.com The Citroën C1.

BUSINESS REVIEWAn Active R&D CommitmentPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 70With groundbreaking concepts andcompelling technologies, PSA PeugeotCitroën is leveraging its research andinnovation commitment to proactivelyrespond to changes in automotivemarkets and emerging customer needs.Innovative designs that stand outon the streetWhen they combine an original conceptwith a personalized style and innovativetechnologies, cars have the power toenchant and delight.Creating this appeal is what our stylists doat the Automotive Design Network (ADN),as they imagine the silhouettes of futurePeugeot and Citroën models.Cars have to resonate with all sorts ofcustomer expectations, but as attested bythe recently launched Peugeot 107 and1007 and the Citroën C1 and C6, bold newdesigns can articulate needs that are onlyjust beginning to emerge.A research dynamic to develop solutionsfor tomorrowReducing CO 2 emissions is by far theGroup’s largest environmental challenge, butrising oil and fuel prices are also motivatingus to look for alternatives to fossil fuels.These issues are a focal point of our modeldevelopment strategy.Hybrid technologyThe Stop & Start systemBy automatically shutting down the enginewhen a car is stopped or idling and startingit up again when the driver presses onthe accelerator, Stop & Start technologyreduces fuel consumption, and thereforeCO 2 emissions, by 6 to 15% depending ontraffic conditions. It also helps to significantlyreduce traffic-related noise.The system is now offered on the Citroën C2and C3, in combination with another leadingedgetechnology, the SensoDrive electronicallycontrolled manual gearbox.Diesel hybridsDiesel-hybrid technology is currently one ofthe most effective ways to improve fuel efficiencyand reduce CO 2 emissions. Unlikegas-hybrid technology, which offers littlegain compared with HDi diesels, the combinationof an electric-diesel powertrain with aHDi engine delivers truly breakthrough performance,enhancing fuel efficiency and cuttingCO 2 emissions to just 90 grams per kilometeron the European cycle.Anticipating the introduction of this newtechnology, in January 2006 we presentedtwo hybrid HDi demonstrators – a Peugeot307 and a Citroën C4 – with diesel-electricpowertrains and particulate filters.Our Hybrid HDi technology combines theStop & Start system with a 1.6-liter HDidiesel with particulate filter. However, thistechnology will only be economically viable ifits cost can be brought down to a level that isaffordable for midrange carbuyers. We arenow focusing our efforts on achieving thisobjective by 2010.Fuel cellsHydrogen fuel cells represent a promisingalternative to fossil-fuel internal combustionengines. They are destined to play an importantrole in the future of the automobileindustry and have therefore become an integralpart of our environmental strategy.To conduct our own research into this technology,a dedicated fuel cell unit has beencreated at our research center in Carrièressous-Poissy,west of Paris. It is focusedexclusively on studying fuel cells, relatedtechnologies like hydrogen storage andways of integrating the technology into vehicles.Framework agreements have alreadybeen signed for the development and trialof fuel cells.One example is the GENEPAC projectundertaken in partnership with the FrenchAtomic Energy Commission (CEA), whichhas designed and developed a compact,efficient 80kW hydrogen fuel cell perfectlysuited to automotive applications.Innovative technologies for maximumcomfort and safetyPSA Peugeot Citroën is constantly developinguseful, innovative technologies thatimprove driver comfort and enhance safety.The head-up display offered on the CitroënC6, for example, projects key driving information,such as speed and navigation systemprompts, onto the windshield at eye-level.This eliminates the need to look down at theinstrument panel, enhancing safety andshortening reaction times. A set of dedicatedcontrols located on the dashboard next tothe steering wheel enables the driver to turnthe display on and off, adjust the height andbrightness of the image, and select thedesired information (except for speed, whichis always shown when the system is active).The Citroën C6 also features an active hood,developed by PSA Peugeot Citroën, whichautomatically lifts up in the event of a collisioninvolving a pedestrian. Thanks to an impactsensor and a pyrotechnic mechanism, thehood rises 65 millimeters in just a fraction of asecond to cushion the impact and protect thepedestrian. A second mechanism keeps thehood raised despite the force of the impact.Technological innovation plansPrepared as part of a proactive approach toour technological partnerships with certain

71suppliers, technological innovation planshave proven highly effective by enablingteams to work together far upstream in thedevelopment process and by simplifying,clarifying and optimizing relationshipsbetween the partners. We pursued thisapproach in 2005 by signing a partnershipagreement with equipment supplier SiemensVDO Automotive to set up our ninth technologicalinnovation plan.4 % of Automobile Divisionsales and revenueis dedicated to R&D,representing a carefullymanaged budget of€1,816 million in 2005.Bottom: the C3 Citypark parkingdemonstrator.

BUSINESS REVIEWManufacturing EfficiencyPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 72A global manufacturing organizationPSA Peugeot Citroën’s manufacturing organizationemploys nearly 90,000 people in 19 countriesaround the world.Our 32 production sites include 16 assemblyplants and 15 mechanical component plants,as well as one site that manufactures and shipsCKD units.Production methods and processes complywith strict, state-of-the-art standards, appliedby empowered operators committed to continuouslyimproving the reliability of the vehiclesthey make. They know that customers expectPeugeot and Citroën cars to fulfill the higheststandards of quality and that, across the Group,we have embraced quality as a critical driver ofprofitable growth.Convergence: sharing best practicesSince 2001, PSA Peugeot Citroën has beenimplementing the Convergence Plan, a majorprocess undertaken as part of our industrialstrategy to enhance manufacturing efficiencyby instilling best practices across the productionbase. The resulting efficiency gains haveenabled us to meet our target of reducingproduction costs by €600 million a year andto halve the capital cost of maintaining andupgrading our manufacturing facilities.Once a best practice has been adopted, it isdeployed and implemented across the entireproduction base, so that all of the plantseventually converge towards a single, alignedorganization and shared operating procedures.Significant progress has already beenmade. Today, new vehicles are easier toassemble and workstations are organizedmore efficiently, with the result that assemblytime declined by 24% between 2001and 2005.Launched in 2005, the second phase of theplan will step up deployment of the unifiedmanufacturing system with the goal ofachieving optimal production efficiency.Keeping capital expenditure under controlPSA Peugeot Citroën takes a measuredapproach to capital expenditure and is beginningto reap the benefits of rationalizationprograms undertaken in recent years. In2005, a certain portion of capital expenditurewas dedicated to pursuing actions to develop,renovate and upgrade the production base.Although the Group will continue to undertakeambitious industrial projects, capitalexpenditure is expected to be contained atunder €3 billion a year.Expanding and optimizingthe manufacturing baseTwo new sites in the heart of EuropeBuilt in partnership with Toyota and inauguratedin May 2005, the Toyota PeugeotCitroën Automobile (TPCA) production centerin Kolín, Czech Republic, has the capacityto produce 300,000 vehicles a year. It is currentlymanufacturing the Peugeot 107 andCitroën C1 on a new compact car platform.The plant in Trnava, Slovakia, which will startproducing the Peugeot 207 in 2006, hasannual capacity of 300,000 vehicles, in threeshifts. It has also been selected for a new,150,000-unit production facility that willmanufacture a car based on a completelynew concept. Built on the small-car platform,the vehicle will be added to the line-up inaround 2010.Sustained upgrading of the production baseRenovation work on the Poissy assemblyline has been completed and the new cuttingand stamping lines in Mulhouse and Poissyare now on stream.Production stepped upon the three Group platformsThe platform strategy continued to be implementedin 2005, driving further organizationalimprovements and cost reductions. It isstreamlining process engineering by supportinga high percentage of shared parts and subassembliesand the reuse of proven technologicalsolutions. Standardization of sharedcomponents forms the basis of a more rationalmanufacturing organization that is having animpact on purchasing, the supply chain, maintenanceand assembly line capacity utilization.In this way, the platform strategy is helpingto reduce production costs, assembly timesand capital expenditure, while improvingmanufacturing flexibility in response todemand for the models concerned. The numberof vehicles produced on the three mainplatforms is ramping up quickly with everypassing year, helping to considerably broadenthe model portfolio.Vehicle, engine and gearbox productionstart-upsCapital outlays in 2005 were primarily committedto preparing production start-ups ofnew models scheduled for launch in 2006and 2007, such as the Peugeot 207 to beassembled in Poissy, Madrid and Trnava as ofspring 2006. Funds were also allocated to thelaunch of the Peugeot 307 Sedan in theMercosur region and the Peugeot 206, CitroënC-Triomphe and a new Citroën compact inChina.Thanks to the programs undertaken to developand upgrade mechanical subassemblyproduction, we are now equipped withmodern, efficient manufacturing facilities forboth diesel and gasoline engines. Some ofthese funds were also used to adapt ourengines to comply with the new Euro IVenvironmental standards, applicable in 2006.We continued to invest in a new production

73unit at the Douvrin plant as part of our cooperationagreement with BMW. We alsoinvested in process engineering programs forthe DW12 HDi engine, whose output hasbeen raised to 170hp from 136hp, and completeda first phase of investment for thenew electronically controlled mechanicalgearbox at the Valenciennes plant.On average, 14,000 vehicles,16,000 gearboxes and17,000 engines come offthe Group’s productionlines every day.Quality assurance: a total priorityPSA Peugeot Citroën’s quality effectively manage the developmentand manufacture ofpolicies are applied not only atevery stage of the production automotive equipment, whileprocess, but also to all of the improving their deliverablesrelated services.and responsiveness.Manufacturing processes are That’s why we have introducedengineered to produce componentsand subassemblies that quality of supplier inputsa system for managing thefully comply with specifications, based on three principles:and vehicles that offer■ Selective management: Incustomers all the features awarding contracts, a supplier’saligned with our objectives. quality performance throughoutthe product lifecycle isIn addition, technical andfunctional specifications are accorded the same importancedefined so that our vehicles as the price.and their components deliver ■ Collaborative management:the driving experience we Suppliers are involved wellpromise. Because vehicle upstream in the design andquality is directly related to production process to ensurethe quality of our inputs, optimum quality control.which represent more than■ Incentive management:70% of a vehicle’s production The best suppliers arecost, we are committed to rewarded with new contracts.helping our suppliers

BUSINESS REVIEWSeven Cooperation AgreementsPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 74To drive faster growth and reduce costs,PSA Peugeot Citroën is implementingan innovative cooperation strategy basedon the joint development and manufactureof vehicle bases or components withother independent carmakers.This strategy was actively pursued in 2005.A pioneer in cooperationFor more than 30 years, the Group hasdemonstrated the unique ability to forgestrategic cooperative agreements thatrespect each partner’s personality and independence.We have worked with Renault onV6 gasoline engines and mid-range automatictransmissions since 1971, with Fiat onMPVs and light commercial vehicles and,since 1998, with the Ford Motor Companyon a line of diesel engines. In 2001, weannounced an agreement with Toyota for thedevelopment and production of entry-levelcars at a new plant in Kolín, Czech Republic,and in 2002 an agreement with BMW for anew generation of gasoline engines to beused by both partners. Two new cooperationagreements were undertaken in 2005 –thefirst with Mitsubishi for SUVs manufacturedin Japan and scheduled for launch byPeugeot and Citroën in 2007 and the secondwith Fiat and the Turkish group Tofas to jointlydevelop and produce small entry-level commercialvehicles, which will be rolled outstarting in 2008. Other partnerships designedto drive technological innovation have beenformed with certain equipment manufacturers.Important achievements in 2005A state-of-the-art plantfor a new market segmentInaugurated in 2005, the equally-ownedToyota Peugeot Citroën Automobile (TPCA)plant in Kolín resulted from the successfulcooperation that enabled the partners to combinetheir strategically-related skills and capabilities.It is now producing the Citroën C1,Peugeot 107 and Toyota Aygo on a sharedplatform. The cooperation has united our intimateunderstanding of the European smallcar and automotive component markets andToyota’s expertise in the development,process engineering and production phases.Impelled by a strong team spirit, TPCA hassuccessfully implemented each stage of thecooperation, on-time and on-target. In 2006,the plant will produce 200,000 vehicles for theGroup and 100,000 for Toyota.PSA Peugeot Citroën and BMW:an efficient manufacturing organizationIn 2002, PSA Peugeot Citroën and BMWannounced that they were combining theirtechnological know-how and experience in themass production of automotive componentsto jointly develop and manufacture a new familyof high-tech, 1.4 and 1.6-liter gasolineengines, which will equip both partners’ vehiclesbeginning in 2006. Production is expectedto reach around one million units a year. Themain components will be machined for bothpartners at the Douvrin plant in northernFrance, while engine assembly will be dividedamong each partner’s facilities –Douvrinfor PSA Peugeot Citroën and Hams Hall in theUK for BMW Group– to facilitate the logisticsof supplying each manufacturer’s car plants.The cooperation required the deployment of aflexible, efficient organization tailored to twodifferent and geographically distinct engineassembly processes. A highly integrated,independent production module was broughton line in late 2005 at the Française deMécanique plant in Douvrin, and will eventuallyproduce 2,500 engines a day. Our Charlevilleand Mulhouse Metallurgy Division plantswill also be integrated into the industrial planas suppliers of raw castings. The quality ofboth machined and purchased parts ismanaged using criteria common to BMW andPSA Peugeot Citroën, while a coordinatedprocedure has been introduced to supportfull, real-time transparency between the twoengine plants.PSA Peugeot Citroën and Ford: the world’sleading diesel engine manufacturersThe highly successful cooperation betweenFord and PSA Peugeot Citroën has alreadyresulted in the production of several generationsof high-tech diesel engines that are nowbeing deployed across the model range, fromsmall compacts to large sedans and light commercialvehicles.Thanks in particular to their environmentalbenefits, these engines rank among the mostpopular in Europe. In 2005, we manufacturedclose to 1.53 million cars equipped with common-railHDi diesels, bringing total output tonearly eight million units since 1998.During the year, the fourth phase of our cooperationwith Ford was initiated with thepresentation of two new light, clean, energyefficientdiesels to be offered on both partners’light commercial vehicles and executivecars. The first, a highly reliable and robust2.2-liter truck engine, will be produced by Fordat its plant in Dagenham, UK, at an annual rateof 200,000 units.Among other models, it will equip our newPeugeot and Citroën light commercial vehicles.The second, a premium, energyefficientfour-cylinder, 2.2-liter car engine, willbe manufactured at our facility in Trémery,eastern France, which is the world’s largestdiesel engine plant. Intended for both partners’upper mid-range and executive vehicles, itwill be produced at the rate of 200,000 unitsa year.

75Vehicles and enginesproduced under cooperationagreements will eventuallyrepresent 20% ofconsolidated salesand revenue.Top: The paint line at the TPCA plantin Kolín, Czech Republic.Bottom: The engine assembly line atthe Trémery plant in eastern France.

BUSINESS REVIEWOther Businesses Critical to GrowthPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 76Banque PSA Finance, further growthin new lendingOperating in 18 countries around the world,Banque PSA Finance supports the sale ofPeugeot and Citroën vehicles by financingnew vehicle and replacement parts inventoryfor dealers and offering a comprehensivearray of financing and related services tocarbuyers.2005 was another year of growth for theBank, with outstanding loans and new retaillending both increasing by around 6%, liftingthe penetration rate on Peugeot and Citroënsales to 27.1%. The year also saw furtherstrong development of financing-relatedservices, with the number of contractsincreasing 16.3% to 1,113,936 from 975,016in 2004.As part of its close relationship with Peugeotand Citroën dealers, Banque PSA Financecontinued to support their business expansionin 2005. Outstanding wholesale financingamounted to €5,564 million at December 31,2005, up 2.6% on the previous year. Thestrongest gains were recorded in replacementsparts financing, where outstandingsrose 13% after climbing 26.1% in 2004. In all,outstanding loans totaled €22.4 billion in2005. This growth reflected the fact that theBank held onto the strong positions acquiredin its various host countries, while significantlyimproving its performance in the Europeancountries where its position had erodedsomewhat in 2004, as well as in CentralEurope and Latin America. It was alsoachieved without sacrificing high margins,thanks to a favorable refinancing environmentand to the effectiveness of the Bank’smarketing strategy and more particularly thecontinued success of its financing and servicespackages. Operating margin amountedto €607 million compared with €518 millionin 2004, representing an increase of 17.2%.In addition to highly satisfactory businessgrowth and financial results, 2005 also sawongoing international expansion. Operations inMexico were extended to wholesale financingfor Peugeot dealers, while in China, the partnershipwith Bank of China to finance localPeugeot and Citroën sales was finalized.Wholesale and retail financing operationswill start-up in China in 2006, when an initialcommercial presence will be establishedin Turkey.Lastly, the Bank also spent much of 2005preparing for implementation of the Basel IIrevised international capital framework,which will highlight even more than in thepast the quality of its loan book and itssystem of internal control.These positive trends indicate further businessgrowth in 2006, both in the Bank’s traditionalmarketplace, Western Europe, and inregions where its presence is more recent,such as Latin America, Central Europe andnow China. Throughout the year, the Bankwill continue to focus on supporting Peugeotand Citroën marketing strategies.Faurecia, a world leader in automotiveequipmentWith 60,000 employees working at 160 sitesin 28 countries, Faurecia is now a major playerin the global automotive industry and, basedon revenues generated with the Group andother carmakers, the number two originalequipment manufacturer in Europe and ninthin the world. The company specializes inthe design, development, manufacture anddelivery of six major vehicle modules – seats,cockpits, acoustic units, doors, front ends andexhaust systems. Three years ago, as part ofits continuous improvement approach, it introducedthe Faurecia Excellence System, a commonworking method based on company andindustry best practices, which creates valuefor customers, employees and shareholders.In line with its international expansion strategy,Faurecia enjoyed sustained growth outsideEurope in 2005, including 19% in NorthAmerica, 18% in South America and 38%in Asia. This solid performance outsideEurope helped offset a decline in revenue inEuropean markets, caused by a sharp dropin sales to French carmakers.During the year, the company made furtherperformance gains in delivered productquality assurance and met its purchasingobjectives, particularly in best-cost countries.The industrial redeployment plan continued onschedule, with the opening of nine new plants– one in Germany, four in Central Europe, onein the United States and three in China. Withsluggish demand expected in Europe and sustainedgrowth elsewhere, Faurecia will pursueits expansion in 2006 by opening fourteennew plants, including six in the United States,four in Central Europe and one in China.Gefco, a benchmark provider of integratedsupply chain servicesIn recent years, Gefco has been pursuing agrowth strategy based on industrial supplychain integration and international development.Present on every continent, in 80 countriesrepresenting 85% of world trade, Gefcoprovides end-to-end logistics solutions in threeareas: vehicle preparation and distribution(Automotive), groupage and full/part-load roadtransportation (Network) and logistics andair/sea freight (Supply). In 2005, the companyrecorded a 3.7% increase in sales and revenueand pursued its global expansion with newlogistics platforms in Poland, Slovakia, andthe United Kingdom, new automotive centersin Spain (Ciempozuelos) and Russia (Bykovo)and new group-age agencies in China(Shanghai, Wuhan), Brazil (Vitoria), Romania

77(Bucharest), Poland (Lodz) and Austria (Linz).As well, it continued to develop alternatives toroad transport, which now represent 25% oftotal business. For example, it was the firstcustomer to use the new Toulon-Rome seahighway, opened in spring 2005, and of the3.4 million vehicles it carried in 2005, 35%were shipped by short-sea lines aroundEurope. To support the organization by corebusiness, a customer-focused cross-businessstructure was introduced in 2005, leading to thecreation of new units for Outbound AutomotiveLogistics Replacement Parts Logistics andIndustrial Customer Logistics.€22,417 million:Banque PSA Finance’s loanbook at December 31, 2005.€10,978 million:Faurecia’s sales and revenuein 2005.€3,000 million:Gefco’s sales and revenuein 2005.Peugeot MotocyclesPresent in nearly 50 countries and with salesand revenue of €106 million, PeugeotMotocycles ranked as Europe’s third-largestscooter manufacturer in 2005 and numberone in the 50cc market in France and theNetherlands. Two new scooter lines, Satelisand Geopolis, will be launched in 2006.Peugeot Citroën Moteurs (PCM)PCM adapts PSA Peugeot Citroën enginesand components for sale to other carmakersand manufacturers.Process Conception Ingénierie (PCI)PCI is involved in the design, manufactureand installation of industrial equipment.

Employee relations policiesplay a critical role in drivingPSA Peugeot Citroën’sgrowth and businessperformance.PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 78

79Social ResponsibilityA Year of Innovationin Employee Relations PracticesThe Four Pillars of Our Commitmentto Social Responsibility

SOCIAL RESPONSIBILITYA Year of Innovationin Employee Relations PracticesPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 80PSA Peugeot Citroën is committed togrowth founded on socially-responsibleprinciples and practices, consistentlyapplied in every host country andbusiness around the world.In recent years, this commitment has been thesource of innovative employee relations in allour host countries, particularly in the areas offundamental human rights, equal opportunity,diversity, gender parity and the integration ofdisabled people.On April 9, 2003, the Group pledged to upholdand promote the ten principles of the UnitedNations Global Compact, an agreementinspired by the Universal Declaration of HumanRights, the International Labor Organization’sDeclaration on Fundamental Principles andRights at Work, the Rio Declaration onEnvironment and Development and the UnitedNations Convention Against Corruption. Thesecommitments are also inscribed in our EthicsCharter, which was drafted and distributed toall employees in March 2003. The charterprovides a set of fundamental reference pointsthat every executive, manager and employeemust refer to and comply with in all circumstances.In 2005, further progress was madewhen negotiations were opened with unions,the International Metalworkers’ Federation(IMF) and the European Metalworkers’ Federation(EMF) in order to formalize and internationalizethe Group’s commitments to fundamentalhuman rights.Upholding fundamental human rightsPSA Peugeot Citroën respects host countrylaws and regulations in every aspect of itsbusiness. We also uphold every individual’sright to choose a trade, occupation or profession,condemn forced labor and prohibit childlabor.Fostering diversity and embracingdifferenceAt PSA Peugeot Citroën, diversity is definedas getting people to pool their talents andwork together, regardless of their culture,origin, gender, religion, political convictions,personal experience, physical characteristicsand career path. We promote this vision ofdiversity and equal opportunity worldwide. In2004, for example, agreements to fosterdiversity were signed in France, Spain andArgentina, with a focus on three basic principles.First, companies must never excludeparticular categories of people from the jobmarket. Second, a world-class organizationshould hire people from a variety of backgrounds,which reflect its host communitiesand environments, since this is clearly thebest way to understand and satisfy its customers.Third, companies must plan for theretirement of employees of the post-wargeneration, which will lead them to attractand hire people from a broader range ofbackgrounds. More than a year after signingthe agreements, significant progress hasbeen made, particularly in our hiring practices.Of the 1,426 engineers, managers, techniciansand supervisors hired in France in 2005,336 were women, 65 were non-Frenchnationals, 136 were visible minorities and 48came from underprivileged urban areas.Managing skills and resourcesresponsiblyCareer development at PSA Peugeot Citroënis based on skills and performance. In 2005,the emphasis was on developing individualcareer and skills management applications.A new approach to managing skillsand expertiseA career management process based onjob tracks has been introduced in order toidentify, by job track or skills cluster, therequired capabilities and to meet employeeexpectations for more personalized careermanagement. On March 8, 2005, an agreementwas signed in France with five tradeunions concerning the personal growth andcareer development of production line operators.It comprises a variety of career developmentprocesses for production workersthat will increase their opportunities for jobenrichment and personal advancement. Byimproving the objectivity and transparencyof promotion decisions, the agreement hasenhanced equal opportunity across theGroup. Moreover, it paves the way fornegotiations on career development forother categories of skilled professionals,technicians and supervisors.Preparing and developing tomorrow’scapabilities through career-long trainingIn the spring of 2005, management alsosigned an agreement with all the unions concerningcareer-long training opportunities.The agreement redefined training guidelinesand objectives with the aim of proactivelyplanning for required skills and team capabilities,while responding more effectively toemployee aspirations by enhancing theiremployability. In particular, the agreementredefines the individual’s right to trainingwith a view to enabling employees to directlyshape their career itineraries.Work safety: A sharp improvementin results and ambitious targetsAt PSA Peugeot Citroën, the only acceptabletarget is an accident-free work environmentin every country. That’s why we ensure thatefficient, prevention-based workplace healthand safety policies are applied in all our oper-

81ations. Diligent programs undertaken inrecent years have led to a significant reductionin the number of accidents. In the pastthree years, for example, the number of losttimeincidents has been reduced by half in allour host countries.Some 15,700 peoplewere hired in 2005,including 10,200outside France.

SOCIAL RESPONSIBILITYThe Four Pillars of our Commitmentto Social ResponsibilityPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 82Open social dialoguefor lasting innovationOur social dialogue policy is based on relationswith independent labor organizations. In everycountry, employees who work in productionfacilities, service units and major dealershipsare represented by unions or by employeeelectedrepresentatives. Agreements on theexercise of union rights define specific measuresto guarantee the absence of anti-uniondiscrimination and to provide trade unions withthe means to carry out their activities independently.The emphasis on collective bargainingand the involvement of labor organizationsin defining and applying fundamental socialprinciples – particularly concerning equalopportunity – has helped our corporate cultureto evolve.In 2005, 12 agreements in France and morethan 50 outside of France were signed withemployee representatives. Social dialoguebetween employee representatives andmanagement is maintained on a daily basis.A priority focus on safetyand working conditionsThe decrease in workplace accidents in 2005was a landmark achievement, attributableto the active involvement of all the stakeholdersand the use of more preventive thancorrective measures. Workplace safety is atop priority across the organization, whichdemands the extensive, personal involvementof every manager. Policies emphasize thatthe foundations of a common safety cultureare built on each employee’s behavior andpractices.Our safety commitment is also shared withthe temporary employment agencies andsubcontractors that work with the Group.The safety of contractor employees continuedto improve in 2005, when the number oftheir lost-time incidents during the summermaintenance turnaround declined by 20%compared with the year-earlier period.Dynamic hiring policiesto internationalize teams and diversifyemployee skill setsWith business operations in nearly 150countries, PSA Peugeot Citroën currentlyhas 208,500 employees worldwide. Nearly15,700 employees were hired in 2005, whileover the past five years, almost 84,000people have been hired under permanentcontracts. The workforce is becomingincreasingly international, with 82,400 peopleworking outside France in 2005, up nearly 64%from 50,300 in 1999. 42.6% of employeesare non-French, representing some 100nationalities. By the end of 2005, more thanhalf of the workforce had been hired withinthe last six years.A total compensation policy based onperformance and fairnessFor several years now, the Group’s wagepolicy has ensured that employee purchasingpower is maintained or, in most cases,increased depending on our growth andearnings performance. The policy isdesigned to:■ Offer compensation that is competitivewith market practices and consistent withcorporate earnings.■ Acknowledge individual achievement andreward performance.■ Redistribute the gains from growth toemployees.■ Foster employee savings.■ Strengthen health care and benefit coverageand meet employee retirement expectations.The Group is committed to guaranteeing allemployees equal pay for equal work, as wellas equal access to promotions and individualraises.Aligning employees with Group objectivesand earningsAll employees around the world are paid anincentive bonus based on operating margin.Out of 2005 earnings, some €144 millionwas distributed to employees worldwide inthe form of incentive-based bonuses andprofit-shares.Diversified employee savings plansTo provide more effective support for employeesin pursuing their personal projects, a broadrange of new employee savings plans hasbeen developed over the past five years. TheGroup matches employee funds invested voluntarilyin company shares and in the longtermretirement saving plan, as well asincentive bonuses reinvested in companyshares. In 2005, these matching paymentstotaled €14 million.A growing percentage of employeeshareholdersEmployee share ownership has risen steadilyover the last five years, with the percentageof issued capital held by employees increasingfrom 0.75% in 2000 to 2.53% atDecember 31, 2005. In all, more than 51,000employees are shareholders of Peugeot S.A.,including 4,700 in non-French companies.Preparing satisfactory retirement benefitsRetirement plans are gradually being introducedto supplement state retirementsystems.Providing a strong social safety netPersonal protection insurance plans havebeen set up for all employees in every hostcountry to provide at least death and disabilitycover, guided by an in-depth risk analysis.

83| Total lost-time incidentfrequency rateThe lost-time incident frequencyrate stood at 3.11 in 2005. This ratecovers manufacturing, service andR&D operations worldwide, aswell as marketing units in France.The objective in 2006 is a rate of3.70, covering all of the aboveoperations plus marketing unitsoutside France.100,000 new hiresworldwide, of whichmore than 50,000 in Francebetween 2000 and 2005.6.483.114.40Groupobjective3.700205 05 06Consolidated Group includingFrench marketing unitsConsolidated Group includinginternational marketing unitsThe 2005 corporate social report is availableon request and can be viewed online at:www.psa-peugeot-citroen.com

The three major challengesof sustainable mobility inusing cars are greenhousegases, road safety andurban mobility.PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 84

85Sustainable MobilityCars and the EnvironmentMaximum SafetyAcross the Entire Model LineupEnhancing the Quality of Mobile LifeManaging the Environmental Impactof Our Production FacilitiesSupporting Local Development

SUSTAINABLE MOBILITYCars and the EnvironmentPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 86The first challenge to achieving sustainablemobility is to deal effectively withgreenhouse gases. PSA Peugeot Citroënbelieves that automobiles should beharmoniously integrated into theirenvironment, which is why we arecommitted to developing new technologiesthat reduce greenhouse gas emissionsat an affordable price for carbuyers.Reducing fuel consumptionand CO 2 emissionsReducing the amount of CO 2 emitted byPeugeot and Citroën vehicles is a priorityobjective and we are actively engaged indeveloping technological solutions to meetit. Today, we are the leader in the market forfuel-efficient cars, which release less than120 grams of CO 2 per kilometer.Effective solutions with real-worldrelevance■ HDi diesel technology: PSA Peugeot Citroënhas consolidated its technological leadershipin diesel powertrains, which consume muchless fuel to deliver the same performance asgasoline engines. The second generation ofour common-rail, direct-injection HDi dieselengines reduces CO 2 emissions by 20%compared with a conventional injection diesel,and by 30% compared with an equivalentgasoline powerplant. We are also pursuingour commitment to downsizing, to developsmaller, more fuel–efficient engines thatdeliver equivalent performance as the precedinglarger models. This policy has enabled a10% improvement in fuel efficiency whilemaintaining equivalent torque and power.■ The particulate filter: The environmentalperformance of diesel engines has beenfurther enhanced by the particulate filter, anafter-treatment system that eliminatesemissions of particulate matter. Inventedby PSA Peugeot Citroën, particulate filtertechnology is a clear demonstration of ourcommitment to improving the quality of airin urban environments. As a vital link in theemissions-control chain, the system will befitted on all our diesel models over themedium term. We are already marketingthe third generation filter, which had beendeployed across almost the entire modelrange by the end of 2005.■ The Stop & Start system: Offered on theCitroën C3 and C2, the Stop & Start systemuses a low-power electrical device to shutthe engine down automatically when thevehicle is standing still and to start it up againinstantly and noiselessly when reactivated bythe driver. It can reduce fuel consumptionand, consequently, CO 2 emissions by up to15% in heavy traffic.Viable solutions for tomorrow■ Hybrid diesel technology: The recentpresentation of the Citroën C4 and Peugeot307 Hybrid HDi demonstrators illustrates ourexpertise in hybrid technology, as well as ourforesight in combining the HDi diesel enginewith a diesel-electric powertrain to delivertruly breakthrough performance in terms offuel efficiency and CO 2 emissions. Nevertheless,hybrids remain intrinsically moreexpensive than any internal combustionsolution, due to the addition of costly components.We are actively trying to reduce thisextra cost so as to narrow the price gapbetween a hybrid and a conventional dieselto a more affordable level, with the aim oflaunching our first commercial hybrids by2010.■ Fuel cells: A very long-term solution, hydrogenfuel cells offer many benefits, includinga reduction in CO 2 emissions, which helpsattenuate the greenhouse effect, and theelimination of local emissions. To make thedevelopment of automotive fuel cell technologyboth technically and financially feasible,we are working on different cells and prototypesin partnership with other researchers.However, given the challenges involved inbringing the technology to market, we do notintend to integrate fuel cells into our vehiclesbefore 2020.Promoting biofuels and natural gasAnother way to reduce vehicle CO 2 emissionsis to develop the use of alternativeenergies and new propulsion technologies.■ Biofuels: Derived from sugar beets andcereals (ethanol) or from oilseeds (vegetableoil methylesters), biofuels represent a renewablesource of energy with real environmentalbenefits. PSA Peugeot Citroën stronglyencourages the use of biofuels, whose fullpotential is yet to be exploited.■ Compressed Natural Gas (CNG): As anotheralternative fuel solution, we are also exploringthe possibilities offered by CNG, which,in comparison to conventional fuels, is highcalorific, reduces greenhouse gas and otheremissions, and burns very quietly.To demonstrate our commitment to steppingup the development of CNG vehicles,we have signed the third CNG protocolaimed at securing their viability in Franceby 2010.We are also marketing a range of CNG-fuelledlight commercial vehicles and recentlyunveiled the new CNG Citroën C3.Today, our research is focusing on a multipurposeCNG engine particularly adapted tothe requirements of major gas exportingcountries where natural gas is already a viablealternative to oil.

87Eco-designing for disassembly and reusePeugeot and Citroën cars are all designed forrecycling, using eco-design to improve theprocessing and recycling of end-of-lifevehicles by limiting the transfer of waste andsupporting the development of recovery andrecycling facilities. Other recyclability techniquesinclude marking plastic parts and elastomersfor traceability, using easily recyclablematerials, reducing the variety of materials tofacilitate sorting after shredding and usingrecycled materials in new vehicles.Without any technicalmodifications, today’sengines can run on biofuelblends of up to 10%ethanol/gasoline andup to 30% vegetable oilmethylester/diesel fuel.

SUSTAINABLE MOBILITYMaximum Safety Acrossthe Entire Model LineupPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 88The second challenge in achieving sustainablemobility is designing vehicles that areas safe as possible.To meet it, PSA Peugeot Citroën is constantlydeveloping solutions to prevent accidents(primary safety), attenuate their consequences(secondary safety) and improve theresponse of rescue teams (tertiary safety).We actively participate in studies undertakenby France’s Laboratory of Accidentology,Biomechanics and the Study of HumanBehavior (LAB) and conduct research on thecritical factors that lead to accidents. Wealso maintain open and constructive dialoguewith road safety stakeholders, particularlyin Europe, but also in China, Brazil andArgentina.Primary safety:Leveraging our extensive experienceAccident avoidanceCapitalizing on our expertise in chassis systems,we design cars that deliver maximumhandling, safety and reliability. To attenuatethe consequences of certain emergencysituations, we offer such driver assistancetechnologies as anti–blocking systems(ABS), emergency braking assist (EBA), andelectronic stability programs (ESP), whichhelp drivers maintain control even in a skid.On certain models, we also offer innovativetechnologies like dual-function directionalXenon headlights and lane departure warningsystems.Track testsOur two test centers are equipped with facilitiescapable of reproducing every imaginableset of driving conditions and subjecting carsto extreme stress.Secondary safety:Setting the standard worldwidePlatforms and structuresdesigned for protectionWhen an accident cannot be avoided,Peugeot and Citroën cars afford protection thatis best-in-class worldwide. Their structuralcomponents resist impact and absorb energyto provide a high degree of protection foroccupants, while the passenger compartmentacts as a survival cell, fitted with sophisticatedrestraint devices.Restraint systemsfor effective occupant protectionFrom Isofix attachment points, which alloweasy and efficient installation of child seats,to seatbelt load limiting retractors andairbags, everything is calculated to maximizeprotection for everyone in the vehicle.Recent statistics indicate that nearly 20% ofthe victims of fatal accidents were not wearinga seatbelt at the time. An increasing numberof Peugeot and Citroën models are nowfitted with a warning system in which a visualindicator and alarm inform the driver thatsomeone has not buckled their belt.Pedestrian protectionWhile primary safety systems – which helpto avoid hitting a pedestrian – are obviouslythe most effective, each car’s architectureand styling are carefully designed to attenuatethe effects of such an impact.Thanks to its new active hood, which lifts upupon collision to cushion the impact of thepedestrian’s head, the Citroën C6 was thefirst car in Europe to earn a record four starsin pedestrian protection tests conducted byEuroNCAP.Five stars from EuroNCAPIn other crash tests, EuroNCAP has awardedthe maximum five stars to eight Peugeot andCitroën models, placing the Group amongthe world’s best in secondary safety. In2005, the Peugeot 1007 earned the highestpoints score in occupant protection of anycar in any segment. In line with our strategyof making innovations widely available, ourentry-level range also offers excellentoccupant protection, with the Citroën C1 andPeugeot 107 both rating four stars in EuroNCAPcrash tests.Tertiary Safety: Leading the way in EuropeThe emergency call systemDeployment of the emergency call systemhas been stepped up across almost theentire model lineup. In the event of a medicalemergency or other threatening incident,occupants can alert a dedicated assistancecenter at the touch of a button. In the case ofa collision, the same alert is sent automatically.An operator then establishes voicecontact with the car and, if necessary, alertsemergency services. Thanks to the car’sonboard GPS system and GSM mobilephone, assistance personnel can pinpoint itsexact location, shortening response time andconsiderably improving the effectiveness ofrescue operations. By the end of 2005, therewere more than 140,000 Peugeots andCitroëns equipped with this system in sixEuropean countries.

89Enhancing the Quality of Mobile LifeAs a fundamental driver of economicand social development and a prerequisitefor access to jobs, healthcare and culture,the mobility of people and goods is anotherimportant challenge in achievingsustainable mobility. PSA Peugeot Citroëncontributes to the development of sustainablemobility by taking into account suchimportant issues as the inalienable right tomobility, the free flow of automobile trafficand the right balance between differentmodes of transport.Facilitating traffic flows and improvingthe quality of life in citiesWe regularly provide technical support andequipment to encourage the implementationof innovative ways of using cars.■ CNG shuttles between Group sites: Tolimit the number of vehicles on the road andconsequently their environmental impact,a shuttle system using vans powered bycompressed natural gas (CNG) has beenintroduced for employees traveling betweenour offices in Vélizy and La Garenne, in thegreater Paris region.■ Employee car-pooling: Car-pooling amongemployees is encouraged at a number of oursites.■ A company travel plan for the Sochaux plantin France: In addition to the creation ofoffsite parking lots, pedestrian and vehiculartraffic flows at the Sochaux plant were reorganized,as part of the company travel plan, toimprove safety and reduce disamenities fromtruck traffic. The plan also included the creationof on-site bike lanes, the introduction of shuttleservices, wider use of car-pooling, thedevelopment of local convenience services,and the possibility of attending eco-drivingcourses on how to save energy. In 2006, thenumber of cars entering the site will be dividedby 20.The City on the Move Institute (IVM):An Innovation LaboratoryIVM is committed to testing real-world solutionsthat help to provide innovative answersto urban mobility issues, by bringing togetherbusiness people, researchers and academics,as well as people involved in society andthe arts, and members of associations. In2005, the international “Architecture On TheMove!” exhibition traveled to Guangzhou,Stuttgart, São Paulo, Brussels and Grenoble.Relief maps of the Paris metro and a Brailleatlas of the Greater Paris public transit systemwere also unveiled during the year, as part ofthe program to support the mobility of theblind and visually impaired.Road Safety SymposiaIn 2005, PSA Peugeot Citroënorganized three symposia onroad safety in China, Braziland Argentina, as part of oursustainable development policy.Attended by several hundredpeople from a variety of backgrounds,the symposia resultedin the signature of severalagreements.Organized in partnership withthe Beijing Traffic EngineeringAssociation and the ChineseCenter for Disease Control,the Chinese symposium led tothe signing of two agreements,one with the Tongji MedicalCollege in Wuhan concerningseatbelt usage and the otherwith the University of Tsinghuafor the computer modelingof crash tests.In Brazil, an agreement wassigned with DENATRAN, Brazil’snational traffic department,to sponsor a nationwidecommunication campaignto raise parental awarenessof child passenger safety.In Argentina, an agreement wassigned with the La Plata facultyof the National TechnologicalUniversity to investigate andimprove high accident locationsin the Buenos Aires conurbation.Another agreement withthe Argentine Automobile Club(ACA) will lead to the deploymentof a traffic safety educationprogram for the primary schoolchildren of Tres de Febrero,the municipality where ourBuenos Aires plant is located.As part of the program, dedicatedresources will be used torecreate real traffic conditionson a test track.

SUSTAINABLE MOBILITYManaging the Environmental Impactof our Production FacilitiesPSA PEUGEOT CITROËN 2005 ANNUAL REPORT 90Our industrial strategy integrates environmentalprotection as part of a continuousimprovement process, based on adisciplined organization, the allocation ofsignificant funding and an effective reportingsystem. Nearly 500 people are involvedin managing our industrial environment,both at corporate level and in our plants.An active certification policyAll our production facilities around the worldhave introduced an environmental managementsystem based on ISO 14001 certification,the internationally recognized standard forenvironmental management and organization.Sites are also communicating transparentlywith their host communities, self-monitoringdata are transmitted to the public authorities,and requests for information from neighborsare systematically answered and, whennecessary, result in corrective actions.Limiting gaseous releasesReducing VOC emissionsIn France, automobile plants account for lessthan 1% of total volatile organic compound(VOC) emissions produced by human activity.Nevertheless, we are leading a proactive,three-pronged strategy in this area to optimizeexisting paint shops, deploy clean technologiesin new facilities and install air treatmentequipment that incinerates VOCs. Thesemeasures have already driven significantprogress, with VOC emissions from Groupplants worldwide currently totaling 4.93 kilogramsper vehicle, compared with a long-termtarget of 4.0 kilograms.A decline in other regulated emissionsBy gradually substituting low-sulfur fuels forconventional high-sulfur fuel oil, worldwidesulfur dioxide (SO 2 ) emissions from our powerplants have been reduced by more than 80%since 1995, while nitrogen oxide (NOx) emissionshave declined by more than 20% overthe same period.Controlling CO 2 emissionsSince 2005, seven plants in France and onein England, that produce CO 2 from combustioninstallations, rated over 20 MW, havebeen covered by the European Union’s greenhousegas emissions trading system. Twoplants in Spain will join the scheme in 2006.Despite a sharp increase in the number ofvehicles produced at the plants concerned,we have succeeded in effectively containingtotal CO 2 emissions since 1996. For example,boiler emissions at French plants have beenreduced by around 40% over the period.Managing energy and reducing waterconsumption and releasesAll carmaking processes are energy intensive.That’s why we are committed to developingaction plans to manage energy consumptionat all our sites.Conserving water is a key objective in theproduction facilities, in particular through theuse of metering systems, the display of theleast water-intensive operating parametersfor each workstation and the deployment ofrecycling systems. These measures havehelped to reduce water consumption pervehicle produced by 50% over the past tenyears. Every plant is connected to the publicwastewater treatment network or equippedwith their own integrated treatment plant,with releases systematically tracked usingappropriate indicators.Reducing and efficiently recovering wastefrom automobile plantsFor more than ten years, programs havebeen in place to reduce the amount of automotiveprocess waste per vehicle produced,and to promote the recovery, recycle or reuseof any waste that remains. `Between 1995 and 2005, these programshave resulted in:■ A 28% decline in the amount of waste pervehicle produced.■ A reduction in the proportion of landfilledwaste from 31% to 12%.■ An 83% increase in the resource recoveryrate.Understanding soils to improve protectionSoil contamination is systematically selfmonitoredat all the production plants, wherestrict procedures are in place to prevent pollution,in particular through the use of retentionbasins around liquid storage facilities.

91Supporting Local DevelopmentAs part of its commitment to society,PSA Peugeot Citroën actively supportsthe host communities where its plantsand marketing operations are based.Local Sponsorship and SocialResponsibility Action PlansLocal Sponsorship and Social ResponsibilityAction Plans provide a precise framework forour participation in local communities, whichcenters around four main focus areas: theenvironment, road safety, urban mobility andlocal development. In France, we supportregional associations that provide consultingservices to help small and medium-sizedmanufacturers improve their productionprocesses, as well as the Fondation de la 2 eChance, a foundation that helps people overcomeserious difficulties. We also supportlocal initiatives in each of our host countries.The Solidarity AwardsThe Solidarity Awards are a competition thatenables employees to carry out a personal orgroup project to support local or internationalsolidarity. In 2005, 27 awards were given byeight sites, enabling the winners to financetheir projects.Supporting responsible driving initiativesAs well as dedicating a significant part of ourtechnological research efforts to road safety,we also support a variety of initiatives thatencourage more responsible driving.■ Through our plants and the marques’regional offices in France, we are involved ina road safety awareness program in partnershipwith the national Ministry of Education,while in Brazil and Argentina, we are partneringroad safety programs for young people.■ We are also committed to helping youngpeople understand the dangers of drivingunder the influence. In association withFrance’s National Road Safety Council,Citroën is supporting a designated driver programaimed at getting young adults going outfor an evening to choose one of their partywho agrees not to drink alcoholic beveragesand can therefore drive them home safely.Similarly, the Group sponsors Voiture & Co.,a French association that organizes a carpoolingservice for young people using driverswho have passed a blood alcohol test.■ To help reduce the number of road accidentsinvolving employees, particularly whencommuting, safe driving classes are offeredto improve driving skills. They have beenattended by more than 1,700 employees inFrance and other European countries. At theplant in Vigo, Spain, the Group sponsored atraining program that has enabled nearly3,000 people to improve their awareness ofroad safety issues.Supporting education in Franceand internationallyPSA Peugeot Citroën has long fostered aclose partnership with France’s Ministry ofEducation that enables students to discoverthe world of work and broaden their knowledgeof the automobile industry through avariety of national and international programs.Supporting associationsthat combat exclusionIn many countries, we donate vehicles toassociations that use mobility to alleviatesocial and economic exclusion or to improvethe quality of life for the disabled, while inFrance, we support the Paris emergencysocial services agency by donating andmaintaining the organization’s vehicle fleet.As part of a road safety program for young people, visitorstest the lane departure warning system at the FrenchFirefighters Conference.For more information about our sustainabledevelopment commitment:www.sustainability.psa-peugeot-citroen.com

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 92

93Financial statements and statisticsConsolidated Balance SheetsConsolidated Statements of IncomeConsolidated Statements of Cash FlowsProduction by Model Worldwide SalesProduction Facilities WorkforceSustainable Development Indicators

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 94Consolidated Balance Sheets - Assets(in millions of euros)December 31, 2005 December 31, 2004 January 1, 2004Manufacturing Manufacturing Manufacturingand sales Finance and sales Finance and sales Financecompanies companies Eliminations Total companies companies Eliminations Total companies companies Eliminations TotalGoodwill 1,677 75 - 1,752 1,798 75 - 1,873 1,743 75 - 1,818Intangible assets 3,886 78 - 3,964 3,602 62 - 3,664 3,301 42 - 3,343Property, plant and equipment 14,909 48 - 14,957 14,168 50 - 14,218 13,619 51 - 13,670Investments in companies at equity 596 - - 596 614 - - 614 548 - - 548Investments in non-consolidated companies 45 1 - 46 65 1 - 66 63 13 - 76Other non-current financial assets 1,940 46 - 1,986 2,329 49 - 2,378 881 53 - 934Other non-current assets 95 - - 95 96 2 - 98 90 1 - 91Deferred tax assets 579 31 - 610 502 30 - 532 539 34 - 573Total non-current assets 23,727 279 - 24,006 23,174 269 - 23,443 20,784 269 - 21,053Operating assetsLoans and receivables - finance companies - 22,400 (162) 22,238 - 21,243 (199) 21,044 - 19,719 (138) 19,581Short-term investments - finance companies - 2,709 - 2,709 - 2,717 - 2,717 - 2,494 - 2,494Inventories 6,889 - - 6,889 6,546 - - 6,546 6,211 - - 6,211Trade receivables - manufacturing and sales companies 3,097 - (166) 2,931 3,296 - (242) 3,054 3,659 - (205) 3,454Current taxes 180 18 (42) 156 110 35 (17) 128 138 47 (24) 161Other receivables 1,694 642 (60) 2,276 1,756 655 (49) 2,362 2,140 699 (61) 2,77811,860 25,769 (430) 37,199 11,708 24,650 (507) 35,851 12,148 22,959 (428) 34,679Current financial assets 1,214 - - 1,214 712 - - 712 1,310 - - 1,310Cash and cash equivalents 6,351 635 (230) 6,756 5,158 610 (205) 5,563 5,082 804 (205) 5,681Total current assets 19,425 26,404 (660) 45,169 17,578 25,260 (712) 42,126 18,540 23,763 (633) 41,670TOTAL ASSETS 43,152 26,683 (660) 69,175 40,752 25,529 (712) 65,569 39,324 24,032 (633) 62,723

95Consolidated Balance Sheets - Equity and Liabilities(in millions of euros)December 31, 2005 December 31, 2004 January 1, 2004Manufacturing Manufacturing Manufacturingand sales Finance and sales Finance and sales Financecompanies companies Eliminations Total companies companies Eliminations Total companies companies Eliminations TotalEquityShare capital 235 243 243Treasury stock (220) (431) (149)Retained earnings and other accumulated equity,excluding minority interests 13,849 13,306 12,133Minority interests 542 585 599Total equity 14,406 13,703 12,826Non-current financial liabilities 3,826 - - 3,826 3,791 - - 3,791 3,891 - - 3,891Other non-current liabilities 2,352 2 - 2,354 2,279 7 - 2,286 2,236 64 - 2,300Non-current provisions 1,417 17 - 1,434 1,639 19 - 1,658 1,909 19 - 1,928Deferred tax liabilities 2,086 281 - 2,367 1,968 250 - 2,218 1,785 200 - 1,985Total non-current liabilities 9,681 300 - 9,981 9,677 276 - 9,953 9,821 283 - 10,104Operating liabilities - finance companiesFinancing liabilities - 22,987 (230) 22,757 - 22,070 (205) 21,865 - 20,743 (205) 20,538Current provisions 1,692 53 - 1,745 1,454 54 - 1,508 1,434 44 - 1,478Trade payables 10,240 - (30) 10,210 10,773 - (41) 10,732 10,036 - (16) 10,020Current tax payable 100 79 (42) 137 114 39 (17) 136 112 28 (24) 116Other payables 4,155 844 (226) 4,773 4,068 992 (291) 4,769 4,114 1,131 (266) 4,97916,187 23,963 (528) 39,622 16,409 23,155 (554) 39,010 15,696 21,946 (511) 37,131Current financial liabilities 5,298 - (132) 5,166 3,061 - (158) 2,903 2,784 - (122) 2,662Total current liabilities 21,485 23,963 (660) 44,788 19,470 23,155 (712) 41,913 18,480 21,946 (633) 39,793TOTAL EQUITY AND LIABILITIES 69,175 65,569 62,723

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 96Consolidated Statements of Income(in millions of euros)Year ended December 31, 2005 Year ended December 31, 2004ManufacturingManufacturingand sales Finance and sales Financecompanies companies Eliminations Total companies companies Eliminations TotalSales and revenue 54,887 1,656 (276) 56,267 54,745 1,601 (241) 56,105Cost of goods and services sold (43,803) (739) 276 (44,266) (43,374) (784) 241 (43,917)Selling, general and administrative expenses (7,862) (310) - (8,172) (7,606) (299) - (7,905)Research and development costs (1,889) - - (1,889) (1,802) - - (1,802)Operating margin 1,333 607 - 1,940 1,963 518 - 2,481Other income and (expenses), net (352) 1 - (351) 32 (4) - 28Interest income, net 355 - - 355 319 - - 319Finance costs (414) - - (414) (389) - - (389)Income before tax of fully consolidated companies 922 608 - 1,530 1,925 514 - 2,439Current taxes (189) (178) - (367) (347) (120) - (467)Deferred taxes (89) (29) - (118) (241) (64) - (305)Income tax expense (278) (207) - (485) (588) (184) - (772)Share in net earnings of companies at equity (55) - - (55) 13 - - 13CONSOLIDATED PROFIT FOR THE YEAR 589 401 - 990 1,350 330 - 1,680Attributable to equity holders of the parent 631 398 - 1,029 1,320 326 - 1,646Attributable to minority interests (42) 3 - (39) 30 4 - 34(in euros)Basic earnings per €1 par value share 4.47 6.97Diluted earnings per €1 par value share 4.46 6.96

97Consolidated Statements of Cash Flows(in millions of euros)2005 2004ManufacturingManufacturingand sales Finance and sales Financecompanies companies Eliminations Total companies companies Eliminations TotalConsolidated profit for the year 589 401 - 990 1,350 330 - 1,680Adjustments for:- Depreciation and amortization 3,187 12 - 3,199 3,056 12 - 3,068- Non-current provisions (246) 2 - (244) (263) - - (263)- Change in deferred tax 96 30 - 126 251 50 - 301- (Gains) losses on disposals and other 6 (1) - 5 (182) (2) - (184)Share in net earnings of companies at equity,net of dividends received 59 - - 59 (7) - - (7)Revaluation adjustments taken to equityand hedges of debt (2) - - (2) (34) - - (34)Working capital provided by operations 3,689 444 - 4,133 4,171 390 - 4,561Changes in operating assets and liabilities (411) (148) (48) (607) 1,139 (465) 36 710Net cash from (used in) operating activities 3,278 296 (48) 3,526 5,310 (75) 36 5,271Proceeds from disposals of shares in consolidated companies 23 - - 23 28 - - 28Proceeds from disposals of investments in non-consolidated companies 2 - - 2 2 - - 2Acquisitions of shares in consolidated companies (8) - - (8) (166) - - (166)Investments in non-consolidated companies (2) (1) - (3) (11) (1) - (12)Proceeds from disposals of property, plant and equipment 54 9 - 63 37 6 - 43Proceeds from disposals of intangible assets 5 - - 5 3 - - 3Purchases of property, plant and equipment (2,862) (11) - (2,873) (2,793) (11) - (2,804)Purchases of intangible assets (939) (20) - (959) (977) (25) - (1,002)Other (35) - - (35) (41) 6 - (35)Net cash used in investing activities (3,762) (23) - (3,785) (3,918) (25) - (3,943)Dividends paid:- To Peugeot S.A. stockholders (310) - - (310) (321) - - (321)- Intragroup 96 (96) - - 8 (8) - -- To minority stockholders of subsidiaries (19) (5) - (24) (10) (29) - (39)Purchases of treasury stock (198) - - (198) (282) - - (282)Changes in other financial assets and liabilities 2,074 (150) 25 1,949 (714) (53) (36) (803)Other - - - - - (5) - (5)Net cash from (used in) financing activities 1,643 (251) 25 1,417 (1,319) (95) (36) (1,450)Effect of changes in exchange rates 34 3 (2) 35 3 1 - 4Net increase (decrease) in cash and cash equivalents 1,193 25 (25) 1,193 76 (194) - (118)Cash and cash equivalents at beginning of period 5,158 610 (205) 5,563 5,082 804 (205) 5,681CASH AND CASH EQUIVALENTS AT END OF PERIOD 6,351 635 (230) 6,756 5,158 610 (205) 5,563

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 98Production by Model(passenger cars and light commercial vehicles)2005 2004 2003PEUGEOT106 - - 35,900107 34,600 - -1007 73,800 1,100 -206 669,900 795,100 816,500307 515,400 583,700 573,300405 169,700 209,200 126,100406 2,600 25,900 101,000407 259,000 165,000 -504 / Paykan - 1,800 3,200607 18,800 18,100 21,500807 28,100 31,200 35,100Expert 33,200 32,600 28,500Partner 144,800 143,000 135,700J9 1,500 4,200 3,200Boxer 44,100 45,200 40,600Others 900 100 2,000TOTAL 1,996,400 2,056,200 1,922,600of which diesel-powered versions 985,200 965,700 911,600of which passenger cars 1,809,000 1,859,100 1,744,100of which light commercial vehicles 187,400 197,100 178,500CITROËNSaxo - - 59 ,900C1 34,600 - -C2 124,800 149,300 71,000C3 289,300 375,600 383,100ZX 97,600 64,800 96,000C4 244,300 51,700 -Xsara 191,900 293,900 354,100C5 80,900 100,600 110,700Xantia 14,000 11,900 3,800C8 23,000 24,000 27,700Dispatch 32,100 29,700 29,800C15 26,600 24,700 29,200Berlingo 170,100 176,200 179,500Relay 49,100 46,500 42,100Others 800 - -TOTAL 1,379,100 1,348,900 1,386,900of which diesel-powered versions 743,200 778,400 740,900of which passenger cars 1,173,700 1,145,400 1,189,000of which light commercial vehicles 205,400 203,500 197,900TOTAL PSA Peugeot Citroën 3,375,500 3,405,100 3,309,500of which diesel-powered versions 1,728,400 1,744,100 1,652,500of which passenger cars 2,982,700 3,004,500 2,933,100of which light commercial vehicles 392,800 400,600 376,400

99Worldwide Sales(passenger cars and light commercial vehicles)2005 2004 2003WESTERN EUROPEFrancePeugeot 435,000 440,000 445,100Citroën 342,100 332,500 343,300PSA Peugeot Citroën 777,100 772,500 788,400Other Western European countriesPeugeot 822,500 888,700 907,000Citroën 760,900 763,500 773,400PSA Peugeot Citroën 1,583,400 1,652,200 1,680,400TOTAL WESTERN EUROPEPeugeot 1,257,500 1,328,700 1,352,100Citroën 1,103,000 1,096,000 1,116,700PSA Peugeot Citroën 2,360,500 2,424,700 2,468,800REST OF THE WORLDCentral and Eastern Europe and TurkeyPeugeot 130,300 147,100 142,100Citroën 79,400 73,300 74,800PSA Peugeot Citroën 209,700 220,400 216,900AfricaPeugeot 60,100 62,900 56,700Citroën 23,500 27,100 19,000PSA Peugeot Citroën 83,600 90,000 75,700The AmericasPeugeot 143,100 114,000 89,100Citroën 51,400 40,000 29,800PSA Peugeot Citroën 194,500 154,000 118,900Asia-PacificPeugeot 378,500 347,500 246,100Citroën 133,400 107,700 128,900PSA Peugeot Citroën 511,900 455,200 375,000OthersPeugeot 26,000 27,000 27,500Citroën 3,800 4,000 3,300PSA Peugeot Citroën 29,800 31,000 30,800TOTAL SALES, REST OF THE WORLDPeugeot 738,000 698,500 561,500Citroën 291,500 252,100 255,800PSA Peugeot Citroën 1,029,500 950,600 817,300TOTAL WORLDWIDE SALESPeugeot 1,995,500 2,027,200 1,913,600Citroën 1,394,500 1,348,100 1,372,500PSA Peugeot Citroën 3,390,000 3,375,300 3,286,100

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 100Production Facilities WorldwideWUHANwith DongfengMotor GroupFukang 988,Fukang, Élysée,Xsara Picasso,Xsara, 206,307 Sedan,C-Triomphe141,500 unitsPORTO REAL206, 206 SW,C3, XsaraPicasso93,500 unitsSEVELNORD(Hordain) withFiat 807, C8,Expert, Relay116,400 unitsRYTON206, 206 SW,206 RC130,200 unitsMULHOUSEC4, C4 Coupé,206, 206 CC, 307405,000 unitsKOLÍNwith Toyota107, C169,200 unitsBUENOS AIRES206, 307, Partner,Berlingo66,000 unitsMANGUALDEPartner,Berlingo53,400 unitsRENNESC5, C5 Estate407, 407 SW,407 Coupé, C6340,700 unitsPOISSY206, 207, 1007329,200 unitsAULNAYC2, C3283,100 unitsSOCHAUX307, 307 CC,307 SW, 607413,300 unitsTRNAVA207VIGOXsara Picasso,Berlingo, Partner441,400 unitsMADRIDC3, C3 Pluriel,Xsara Estate, 207116,900 unitsSEVEL(Val di Sangro)with FiatBoxer, Dispatch90,500 unitsAutomobile production centersJoint-ventures/cooperative agreementsOutput figures are for 2005.

101Mechanical Components Plantsand FoundriesAsnières (France)Caen (France)Charleville (France)Melun-Sénart (France)Metz (France)Mulhouse (France)Saint-Ouen (France)Sept-Fons (France)Sochaux (France)Trémery (France)Valenciennes (France)Vesoul (France)Douvrin (France)Hérimoncourt (France)Porto Real (Brazil)Jeppener (Argentina)Xiang Fan (China)Free-cutting, hydraulic systemsAxles suspension systems, transmissionsAluminium and iron castingsReplacements partsGearboxesAluminium castings, steel forgings, toolingStampingIron castingsShock absorbers, rear axles, crossrailsEW gasoline engines and DV, DW diesel enginesGearboxesCKD shipments, replacement partsEnginesEngines, gearboxesEnginesEngines, axles suspension systems, front wheel hubs, crossrailsEngines, gearboxes, axles suspension systemsWorkforce 2005 2004 2003AUTOMOBILE DIVISION 139,500 139,400 134,700France 99,000 100,400 98,000Other countries 40,500 38,900 36,700BANQUE PSA FINANCE 2,400 2,400 2,200GEFCO 9,400 8,800 8,400FAURECIA 55,000 54,400 51,900OTHER BUSINESSES AND HOLDING COMPANY 2,200 2,600 2,700TOTAL PSA Peugeot Citroën 208,500 207,600 199,900France 126,100 128,300 124,700Other countries 82,400 79,300 75,200

PSA PEUGEOT CITROËN 2005 ANNUAL REPORT 102Sustainable Development Indicators2005 2004 2003EMPLOYEE RELATIONS INDICATORSNumber of employees 208,500 207,600 199,900Percentage of women employees 19.5% 19.8% 18.2%Number of people hired under permanent contracts 15,670 18,490 15,230Percentage of women among new hires in the Automobile Division 25.6% 25.8% 22.5%Average annual number of temporary employees (excluding Faurecia) 8,975 10,880 12,450Average hours of training per employee (excluding Faurecia) 28.7 25.4 26.1Lost-time incident frequency rate 3.11 4.09 4.97INDUSTRIAL INDICATORS*ISO 14001 certificationNumber of ISO-14001 certified PSA Peugeot Citroën sites 20 19 18Number of ISO-14001 certified cooperative sites 4 4 4Water consumption (city water, surface water, underground water)Water consumption (in cu.m) 20,024,371 21,319,682 23,761,006Water used per vehicle manufactured (in cu.m) 7.6 7.7 8.6Consumption of energy (fuel oil, natural gas, coal, coke, electricity, steam)Consumption of energy (in MWh) 6,153,466 6,490,056 6,347,808Energy used per vehicle manufactured (in MWh ncv) 2.3 2.4 2.3Air emissions from combustion plantsGreenhouse gas emissions (in tonnes) 656,237 684,083 695,834SO 2 emissions (in tonnes) 423.5 545.6 1,041.1NO 2 emissions (in tonnes) 706.3 757.8 784.4Paintshop VOC releasesVOC releases (in tonnes) 12,998 14,782 15,521VOC releases per vehicle manufactured (in kg) 4.93 5.34 5.62Volumes of waste (excluding metallic waste, nearly 100% of which is recycled)Volumes of waste (in tonnes) 401,261 426,705 429,186Waste produced per vehicle manufactured (in kg) 152.2 154.3 157.8*Automobile Division onlySO 2 = sulfur dioxide; NO 2 = nitrogen dioxide; VOC = volatile organic compounds.PRODUCT INDICATORSCars emitting less than 120g CO 2 /km (in % of European market) 30.19 30.62 30.82Cars emitting less than 110g CO 2 /km (in % of European market) 60.53 56.61 51.19Cars equipped with a particulate filter (total at year-end) 1,317,964 969,982 602,183Number of models earning 4 or 5 stars in EuroNCAP safety tests 20 13 11Vehicles equipped with the emergency call system (total at year-end) 141,779 60,553 16,879TECHNOLOGICAL INNOVATIONSR&D expenditure (in € millions) 2,151 2,183 2,098Number of patents filed in France 550 435 349All of the Group’s performance indicators, methodology and targets may be found in the Sustainable Development Report,at www.sustainability.psa-peugeot-citroen.com

The 2005 Registration Document, filed with the Autorité des Marchés Financiers on April 24, 2006, is available upon request from:Investor Relations –75, avenue de la Grande-Armée – 75116 Paris, Francee-mail: investor.relations@psa.fr - Phone: 33 (0) 1 40 66 37 60 or online: www.psa-peugeot-citroen.comCorporate Communications Dept., PSA Peugeot CitroënPhoto credits: PSA Peugeot Citroën, Peugeot Direction de la Communication, Citroën Communication - P. 6/7: Moore - P. 8/9: Moore, Frankenberg - P. 10/11: Dolémieux - The year in pictures: (1) Panconi - (2) Meyer - (3) Dingo - (4) X - (5) Dingo(6) Muratet, Bouffay - (7) Legros - (8) Vlachovsky - (9) Sautelet - (10) Legros, X - (11) Zwickel - (12) Meyer - (13) Zwickel, Muratet - (14) X - (15) Foulon, X - (16) Meyer - (17) X - (18) Reinoso - (19) DPPI - P. 56/57: Legros, Sautelet, Foulon, Muratet - P. 58/59: BMW, Garcin GasserP. 64/65: Sautelet, Zwickel - P. 66/67: Muratet - P. 68/69: Dingo - P. 70/71: Muratet, Curtet - P. 72/73: Zwickel, Muratet - P. 74/75: Spilka, Meyer - P. 80/81: Pizzalla - P. 82/83: Legros - P. 86/87: Legros, Stehlin - P. 88/89: X - P. 90/91: MooreDesign, production: - Publishing: Altavia Prodity.10,000 copies of this report were printed.

PEUGEOT S.A.Incorporated in France with issued capital of €234,618,266Governed by a Managing Board and Supervisory BoardRegistered office75, avenue de la Grande-Armée75116 Paris, FranceR.C.S. Paris B 552 100 554Siret 552 100 554 00021Tel.: 33 (1) 40 66 55 11Fax: 33 (1) 40 66 54 11www.psa-peugeot-citroen.com