Peugeot Citroen CEO Carlos Tavares poses with two of his products after presenting the 2014 First-Half results in Paris. PSA reported a surprise surge in first-half cash flow. Picture: Benoit Tessier.

Paris - Peugeot Citroen's financial results for the first half of 2014 show a sharp acceleration on the road to recovery, largely boosted by a new tie-up with Chinese group Dongfeng.

The PSA group, which has been in severe financial difficulties for the last two years, launched a strategic plan called "Back in the race", in April, and on Wednesday announced a "very strong" turnaround.

The group reduced a net loss in the first half to 114 million euros (R1.62 billion) from 471 million euros.

And it turned in a current operating profit, of 477 million euros, for the first time since 2010, reversing a loss of 100 million euros last time.

But sales slipped by 0.45 percent to 27.6 billion euros, mainly because of unfavourable exchange rates. Sales by the vehicle division were steady at 18.6 billion euros.

The company's cash position improved sharply. This free cash flow measure, a key figure in the motor industry, and particularly for the PSA Peugeot Citroen group which had been consuming cash at a rapid rate, was positive to the extent of 1.7 billion euros. A year ago it was 203 million euros.

"We can announce a very strong recovery of the group," finance director Jean-Baptiste de Chatillon told a telephone press conference.

At the worst point of its recent difficulties, the PSA Peugeot Citroen group was in effect rescued by the French state by way of huge guarantees for its finance arm.

Under a major restructuring earlier this year, Dongfeng and the French state each became shareholders, ending the Peugeot family's controlling interest.

The strategic plan, based heavily on ramping up sales in China as well as on other non-European markets, was presented by the new chief executive Carlos Taveres, formerly number two at the other big French car group Renault.

Chatillon said that the recovery was particularly strong in the vehicle division which had turned in an operating profit of 7.0 million euros from a loss of 538 million euros in the first half of last year.

Sales were growing in China, and the group was reducing losses in Latin America and in Russia, he said.

Under the strategic plan, the group has launched a new brand, the DS, to target the top end of the market, and intends to reduce the overall number of models.