28.02.2004 FIAT POST A FINAL QUARTER OPERATING PROFIT AS THE RESTRUCTING PLAN START TO TAKE GRIP

- In 2003, the Group cut its full year operating loss by 252 million euros to 510 million euros, compared with a 762 million euro operating loss in 2002. On a comparable basis (continuing operations), the Group’s operating loss was halved, resulting in an improvement of more than 600 million euros.
- In the fourth quarter of the year, the Group posted operating income of 142 million euros. Based on continuing operations, operating income improved by 281 million euros from the comparable period in 2002, underscoring the strong positive initial impact of the Group’s Relaunch Plan.
- The Group’s pre-tax loss improved by 3.5 billion euros, from 4.8 billion euros in 2002 to 1.3 billion euros in 2003. The loss reduction of more than 70% reflects the turnaround in operating performance, lower non-operating charges and higher gains on asset disposals.
- The Group’s consolidated net loss (1.9 billion euros) was 2.3 billion euros less than in 2002, after the payment of about 650 million euros in income taxes, which, however, had no impact on the Group’s financial position.
- Net financial position improved by about 800 million euros (from -3.8 billion euros at the beginning of the year to about -3.0 billion euros at the end of December). With positive net cash flow of about 2 billion euros, the Group had liquid assets of 7 billion euros at year-end.
- Implementation of the Fiat Group Relaunch Plan is proceeding in line with expectations, both in financial terms (cash generation) and operating terms (lower overhead, better margins due to the introduction of new products, technological revitalization and progress toward achievement of operating breakeven at the Group level in 2004).
- The organization has been strengthened by the arrival of top executives from outside the Group and the optimization of competencies and professional skills available internally. In 2003, new managers were appointed to 12 of the Group’s 19 senior management positions.
- The Group launched four new car models (Lancia Ypsilon, Fiat Panda, Fiat Idea and Alfa GT), overhauled three existing models (Fiat Punto, Alfa 156 and Alfa 166) and introduced a host of new Iveco and CNH products.

The Group has already reached many of its stated objectives and work in other areas is progressing in line with expectations:

- Cash generation: Over 9 billion euros were generated from disposals and a capital increase.
- Operating breakeven: The positive performance of the fourth quarter points in the right direction.
- Corporate structure: A major effort made to streamline the Group structure, including the disposals completed during the year, will reduce the number of Group companies from 944 to about 610 by the end of 2004.
- Structural cost reduction: Eight of the 12 foreign plants slated for closure have been shut down, and staff levels have decreased as expected.
- Margin improvement: New product launches have been accelerated, and the average age of the product line has been lowered.
- Increasing Group synergies: Newly established cross-sector teams are accelerating the achievement of results. Thanks to these teams, a vast number of new projects were launched at the Operating Sectors and Business Units. Over 800 projects were being implemented at the end of 2003 and are expected to produce concrete improvements in the 2004 results. The number of projects and people involved in the turnaround effort has been growing steadily.

The consolidated revenues of the Fiat Group totaled 47.3 billion euros in 2003, or 15% less than in the previous year (-7.3% on a comparable basis). The 2003 revenue figure also reflects the negative impact of the weakening of the U.S. dollar against the euro, which accounted for about half of the decrease on a comparable basis, and the effect of unfavorable market conditions o certain Group Sectors.

In the fourth quarter, revenues totaled 12.7 billion euros, down from 14.9 billion euros in the last three months of 2002 (-15.1%). On a comparable basis, revenues show a decrease of 2.1%.

The 2003 operating loss amounted to 510 million euros, a 252 million euro improvement compared to 2002. Based solely on continuing operations, the operating loss was nearly halved, representing an improvement of more than 600 million euros.

In the fourth quarter of 2003, the Group earned operating income of 142 million euros (compared to breakeven in the closing quarter of 2002). Based solely on continuing operations, operating income totaled 132 million euros in the last three months of 2003, versus an operating loss of 149 million euros in the same period a year earlier.

The Group’s pre-tax loss totaled 1.3 billion euros in 2003, compared with a loss of 4.8 billion euros in the previous year. This improvement, which reflects the decrease in the operating loss, was also made possible by:

- Better results from equity investments (positive change of 534 million euros), which in 2002 had been burdened by losses incurred to mark to market the portfolios of equity securities held by Fiat’s insurance companies, which were divested in May 2003.
- A decrease in non-operating charges, due mainly to a reduction in restructuring provisions and costs, and lower extraordinary asset write-downs.
- Higher gains earned on asset disposals compared with 2002. These gains included 1,258 million euros, net of transaction costs, on the sale of FiatAvio; 390 million euros, net of transaction costs, on the disposal of Toro Assicurazioni; 103 million euros on the disposal of Fiat Auto’s Brazilian retail financing operations; and 15 million euros on the sale of IPI. Nonoperating income earned in 2002 included, among other items, the gains generated by the disposals of a 34% interest in Ferrari and a 14% interest in Italenergia Bis.

The Group’s consolidated net loss amounted to 1.9 billion euros, as compared to a net loss of 4.3 billion euros in 2002, after about 650 million euros in income taxes. Most of this amount represents the utilization of tax assets, which had virtually no impact on the Group’s cash position.

Thanks to the net cash flow for the year, which was positive by 2 billion euros, the Group’s liquid assets (cash and marketable securities) rose from 5 billion euros to 7 billion euros. At the same time, gross borrowings decreased from 29.6 billion euros at the end of 2002 to 22.5 billion euros at the end of 2003. The net indebtedness of the Group’s industrial operations (borrowings less cash and marketable securities) fell to 5.1 billion euros, versus 7.4 billion euros at the end of 2002.

Net financial position improved by about 800 million euros, from a negative balance of 3.8 billion euros at the end of 2002 to a negative balance of about 3.0 billion euros at December 31, 2003. During the course of the year, the net resources generated by disposals and the capital increase completed in August more than offset operating liquidity needs, i.e., the loss for the period, an increase in working capital and funding requirements.

Automobile Sector

In 2003, Fiat Auto worked hard to launch new products, upgrade its existing models and improve the performance of its industrial operations. This effort gained fresh momentum during the second half of the year with the start of specific programs implemented under the Relaunch Plan. Special focus was placed on increasing the competitiveness of Fiat Auto’s cost structure, revitalizing its technological innovation capabilities and requalifying its distribution networks. Most importantly, Fiat Auto significantly stepped up the renewal of its product line, launching four new models (Lancia Ypsilon, Fiat Panda, Fiat Idea, Alfa GT) and overhauling three existing models (Fiat Punto, Alfa 156 and Alfa 166). These new products were immediately welcomed by the motoring public and received prestigious international awards. Most notably, the Fiat Panda was named 2004 Car of the Year.

In this environment, Fiat Auto sold just under 1.7 million vehicles in 2003, or 8.8% less than in 2002. This drop in unit sales and an increase in competitive pressure caused revenues to fall by 9.6% to 20,010 million euros (approximately -8% on a comparable basis).

At 5,706 million euros, fourth quarter revenues were essentially unchanged from the last three months of 2002. The reduction in annual unit sales was caused by continuing weakness in the Sector’s principal markets, the elimination of environmental incentives and the limited range of Fiat Auto products available during most of the year. New models were launched only during the second half of 2003 and, consequently, had only a marginally positive impact on the results for the year. These negative factors, coupled with challenges associated with the transition from old to new models, caused Fiat Auto’s total sales in Western Europe to decrease by 9.4%, as drops in France (-16.3%) and Italy (-11.5%) were offset in part by gains in Spain (+14.8%) and Great Britain (+1.4%). Outside Western Europe, shipments were up a strong 15.9% in Poland, but fell by 11.3% in Brazil where, however, the sales trend was reversed in the fourth quarter of the year (+8.5%). The Sector’s market share decreased to 7.4% in Western Europe as a whole (-0.7 percentage points compared with 2002) and 28% in Italy (-2.2 percentage points compared with 2002), but held steady in Poland (17.8%) and Brazil (25.2%). At 11.2%, Fiat Auto’s penetration of the European market for light commercial vehicles was 1.4 percentage points less than in 2002, even though total market demand contracted by 2.0% during the same period. In Italy, the Sector’s share of this market segment was down slightly (-2.6 percentage points), but Fiat still accounted for almost 44% of all light commercial vehicles sold.

The Sector reported an operating loss of 979 million euros in 2003, compared with a loss of 1,343 million euros in 2002. This substantial improvement, achieved despite a decrease in unit sales and the disposal of the retail financing operations, reflects the savings made possible by the implementation of a cost-cutting plan and the industrial synergies realized during the year. The operating loss incurred in the fourth quarter (-97 million euros) is significantly lower than those reported in previous quarters, confirming the positive momentum enjoyed at the end of 2003.

Agricultural and Construction Equipment Sector

In 2003, the global market for agricultural equipment expanded by 7% compared with 2002, due to a positive performance in North America (+18.9%), where demand was up in all tractor segments, but decreased slightly for combine harvesters. In Western Europe, however, shipments were down across the board, with an especially sharp decrease for combines. Compared with 2002, the Sector posted significant increases in sales of combine harvesters in its principal markets, improving its market share in North America and Western Europe. However, shipments of tractors lagged last year’s pace.

The market for construction equipment grew by 9.3% compared with 2002, thanks to gains in North America (+9% compared with 2002) and Asia, which more than offset contractions in Western Europe (-1.6%) and Latin America (-18.7%). However, the Sector’s total unit sales of construction equipment were down compared with 2002.

CNH had revenues of $10,654 million in 2003 (equal to 9,418 million euros), compared with $9,928 million (equal to 10,513 million euros) in 2002. The increase shown by revenues reported in U.S. dollars, the Sector’s reporting currency, is mainly due to foreign exchange fluctuations.

CNH reported operating income of $259 million, compared with $154 million in 2002 (229 million euros and 163 million euros, respectively). This gratifying performance reflects the positive impact of the programs implemented under the Relaunch Plan to increase profitability as well as improved margins from new products. Similar reasons explain the gains achieved in the fourth quarter of 2003, when operating income increased to $115 million (equal to 99 million euros), up from $60 million (61 million euros) in the closing quarter of 2002.

In 2003, Iveco had revenues of 8,440 million euros, down from 9,136 million euros in the previous year. Changes in the scope of consolidation are the main reason for this decrease. On a comparable basis, revenues were roughly unchanged from the 2002 level. Revenues for the fourth quarter totaled 2,455 million euros, up from 2,438 million euros in the last three months of 2002.

Iveco earned operating income of 81 million euros in 2003 (102 million euros in 2002). This decrease was caused mainly by changes in the scope of consolidation, since the negative impact of lower unit sales and unfavorable foreign exchange rates was nearly entirely offset by efficiency gains, which reduced product costs and overhead.

Operating income for the fourth quarter totaled 61 million euros, up from 39 million euros in the final quarter of 2002. In 2003, Iveco continued to work tirelessly on product innovation. The most recent fruits of these efforts include the Stralis equipped with the innovative Active Day and Active Time cabs, which was honored with the 2003 Truck of the Year award, and the recent launch of the new Eurocargo, which represents a further enhancement of the Sector’s line of intermediate vehicles.

In 2003, Ferrari matched its successes in Formula 1 racing with gains in revenues, which it was able to achieve despite the weakness of the U.S. dollar. This improvement reflects higher unit sales of Ferrari automobiles, which offset the decrease in shipments of Maserati models caused by weak demand, particularly in the convertible segment in the U.S. market. Operating income was lower than in 2002 due to the high level of R&D spending on new products and unfavorable foreign exchange rates, which offset the positive impact of higher unit sales and product-mix improvements for Ferrari models.

In 2003, Maserati introduced the Quattroporte, its luxury car flagship, and Ferrari used the Detroit Motor Show to unveil the Ferrari 612 Scaglietti, which will replace the 456 in the Grand Touring market segment.

When the negative impact of foreign exchange rates is excluded, Magneti Marelli shows a slight increase in revenues. Operating income was up sharply compared with the previous year, thanks to the beneficial impact of programs to cut materials costs and overhead.

Comau’s 2003 revenues were little changed from the previous year, despite the impact of unfavorable exchange rates. The Sector’s ability to achieve operating breakeven represents a marked improvement over the previous year’s performance.

Itedi increased its revenues in 2003, thanks to higher advertising billings and the success of promotional programs launched to boost sales of the daily newspaper La Stampa. Operating income was up sharply, reflecting revenue gains, efficiency gains and lower newsprint costs.

The most important transactions affecting the scope of consolidation in fiscal 2003, as compared with the previous year, are reviewed below:

- In the first quarter of 2003, Iveco sold the activities of Fraikin to Eurazeo. The operations of Fraikin, which specializes in the long-term vehicle leasing business, were deconsolidated as of the beginning of 2003.
- In the first quarter of 2003, Business Solutions sold approximately 56% of IPI S.p.A. to the Zunino Group. IPI S.p.A., which was deconsolidated as of January 1, 2003, operates in the field of large property improvement, management, and sales.
- Fiat Auto Holdings’ retail financing activities in Brazil were sold to the Itaù banking group at the end of March 2003 and deconsolidated from that date.
- The agreement to sell Toro Assicurazioni to the DeAgostini Group was signed on May 2, 2003 and the Sector’s operations were therefore deconsolidated as of the same date. The sale proceeds were received on July 30, 2003, concurrently with the official endorsement of the Toro Assicurazioni shares.
- On May 27, 2003, as part of the agreement signed by Fiat and Capitalia, Banca Intesa, San Paolo-IMI and Unicredito on March 11, 2003, and following approval by the competent authorities, the first part of the transaction for the sale by Fiat to the Banks of a majority interest (51%) of Fidis Retail Italia was concluded. Fidis Retail Italia is the company that controls the European activities of Fiat Auto Holdings in the field of retail consumer financing for automobile purchases. The sale to Fidis Retail Italia of the investments in the other financial companies covered by the agreements was finalized in October 2003, with the sole exception of the company active in Great Britain for which clearance from competent authorities is pending.
- In execution of the contract signed on July 1, 2003 and after having met the conditions precedent, the sale of the aerospace activities of FiatAvio to Avio Holding S.p.A., a company 70% owned by The Carlyle Group and 30% by Finmeccanica S.p.A., was finalized. Said activities were therefore deconsolidated effective from the date of the agreement (July 2003).

As Fiat retains its 24.6% interest in Italenergia Bis, Edison’s parent company, this transaction will not affect the Group’s future strategic options.