Pininfarina announced its three quarter results which, despite an 11.9 pct increase in turnover to 513.6 million euros, saw its financial position deteriorate as it now works on a new industrial plan.

The Board of Directors of Pininfarina S.p.A. met this week under the chairmanship of Andrea Pininfarina and approved the report on operations of the Group in the first nine months of 2007. The Board of Directors also reviewed and approved the guidelines of the Industrial Plan, which the Company recently began to finalise with the support of Rothschild and Roland Berger.

The main developments that affected the Group’s performance in the first nine months of 2007 differently than in the same period last year are listed below: An increase in activity by the manufacturing operations (albeit with still negative margins) that, while consistent with the product life cycle, was below expectations; A value of production by the service operations (design and engineering) slightly lower than in the same period last year, but with margins back in the black; A positive performance in terms of EBITDA, made possible by the reestablishment of a positive cash flow; A positive contribution by the foreign service companies, which reported improved operating results; The positive contribution provided by the Pininfarina Sverige AB joint venture to the Group’s bottom line; The deterioration of net financial position, compared both with December 31, 2006 and June 30, 2007; EBIT still negative, owing in part to a doubling of depreciation and amortisation expense; A larger net loss attributable in part to different amounts of deferred-tax assets and liabilities reported in the two periods under comparison; And confirmation that, while full-year 2007 EBITDA will be positive, EBIT are expected to be negative.

The data for the first nine months of 2007 show that consolidated value of production totalled 513.6 million euros at September 30, 2007, or 11.9% more than the 459.1 million euros reported in the first nine months of 2006. This increase reflects the contribution provided by the Ford Focus Coupè Cabriolet order, which is the last car to go into production in a series of five models that the Company launched in just over one year.

EBITDA were positive by 7.3 million euros (negative EBITDA of 6.9 million euros in the first nine months of 2006) showing a significant improvement in the Group’s ability to generate operating positive cash flow, which increased by 14.2 million euros compared with a year ago. Depreciation and amortization expense more than doubled compared with September 30, 2006, reflecting the portion of depreciation expense attributable to each vehicle produced, in accordance with IAS 17. As a result, EBIT (equal to the profit or loss from operations) were negative by 23.2 million euros (negative by 22.5 million euros in the first nine months of 2006).

In assessing the data at September 30, 2007, it is important to keep in mind that the Group’s performance was adversely affected by a production shutdown of the Bairo Canavese factory for more than two weeks, caused by a tornado that hit that facility, and by the resulting losses incurred to resume production in July. These two factors had a negative impact on value of production, reduced operating efficiency and slashed profit margins. Another development skewing the data comparison is the amount of gains on the sale of non-current assets, which at September 30, 2007 was 9.1 million euros lower than a year earlier. Net of this item, EBIT would actually show an improvement of 8.4 million euros compared with September 30, 2006.

The contribution provided to consolidated EBIT by the service operations reflect the steady improvement of these businesses, which reported a positive performance at the operating level, as against a loss at September 30, 2006. On the other hand, the manufacturing operations were unprofitable at the operating level for the reasons explained above.

The increase in net financial expense, which amounted to 7.2 million euros (net financial income of 2.6 million euros at September 30, 2006), is due to the negative change in the net financial position, which, in turn, was affected by changes in working capital requirements and the repayment of instalments of loans received to fund capital investments. The profit contribution provided to the Group by the Pininfarina Sverige AB joint venture totalled 1.9 million euros, marking a sharp improvement over the loss of 0.5 million euros reported at September 30, 2006.

At September 30, 2007, the loss before taxes amounted to 28.5 million euros (loss of 20.4 million euros in 2006). The net loss for the first nine months of 2007 totaled 39.1 million euros, compared with a loss of 16.3 million euros in the same period last year. A higher tax burden accounts for a significant portion (14.6 million euros) of the 22.8 million euros by which the loss at September 30, 2007 exceeded the amount reported a year earlier. A breakdown of the tax computation for the two periods into current taxes and deferred-tax assets and liabilities shows that, while local taxes (IRAP) decreased, due to legislative changes, both the deferred-tax asset and liability accounts had negative balances (both positive at September 30, 2006).

Deferred-tax assets changed due to the cancellation of temporary differences stemming from lease payments and the loss carry forward, while the change in deferred-tax liabilities reflects primarily a reduction in taxes attributable to non-deductible accelerated depreciation (recognized upon the removal from the financial statements of items recognized exclusively for tax purposes) and the recognition during the period of the tax liability on the curtailment of the provision for termination indemnities.

The net financial position was negative by 145.7 million euros. The deterioration from the negative balance of 120.9 million euros at December 31, 2006 (negative balance of 88.3 million euros at June 30, 2007) is due to the concurrent impact of several factors, including the occurrence of an unusually high level of debt repayment and an unfavourable change in working capital requirements caused by the production stoppage in June and the resulting decrease in billings in July, which were compounded by the effect of the traditional seasonal August shutdown of manufacturing facilities.

A review of the data by business segment shows that the value of production of the manufacturing operations totalled 414.7 million euros in the first nine months of 2007 (355.4 million euros in 2006, +16.7%), accounting for 80.7% of total consolidated value of production (77.4% in the first nine months of 2006). A total of 22,230 cars were invoiced in the first nine months of 2007, compared with 16,658 cars in the same period last year.

In addition, Pininfarina Sverige AB invoiced 14,553 Volvo C70s this year, up from 9,863 cars at September 30, 2006 (+47.6%), demonstrating its ability to achieve full operating efficiency, as it benefits from the commercial success of the Volvo C70 in Europe and the United States.

The service operations, which include the design, industrial design and engineering operations, reported a value of production totalling 98.9 million euros (103.7 million euros at September 30, 2006, -4.6%). The contribution provided to total consolidated value of production was 19.3%, compared with 22.6% at September 30, 2006. The performance of these businesses in the third quarter of 2007 shows that the sharp improvement in profitability that started at the beginning of the year is continuing. EBIT amounted to 3.5 million euros, as against a loss of 0.9 million euros at September 30, 2006. All foreign Group companies improved their performance compared with the first nine months of 2006.

Outlook for the Balance of 2007 and Significant Events Occurring After September 30, 2007

The projections for the full year remain the same as those provided when approving the Semiannual Report: consolidated value of production of about 680 million euros, with positive EBITDA but negative EBIT. The net financial position is expected to worsen compared with the data at September 30, 2007, due to changes in working capital requirements, which tend to increase during the second half of the year, and to repayments of borrowings that were used to fund the Group’s capital investments.

The operational and commercial developments that were the root causes for the losses reported in 2006 and are causing those that the Group is facing this year have made it necessary to redefine the Group’s overall strategies with regard to its position in the marketplace, the organisation of its manufacturing and administrative processes and its financial equilibrium. Consequently, working with the support of Roland Berger and Rothschild, the Company has begun the process of defining an industrial and financial plan. The guidelines for developing the industrial plan, which were approved today by the Board of Directors, are outlined below:

1) Maintain and develop the manufacturing operations with the adoption of a lean manufacturing model designed to provide customers with the world’s best quality in automobile manufacturing and, by entering into partnership agreements similar to the successful arrangement with Pininfarina Sverige, offer shareholders a reduction in risk exposure, compared with the level entailed by the current contract vehicle manufacturing system.
2) Foster further growth and development of the activities that provide services to the automotive industry with the goal of maintaining the Company’s position as the creativity and innovation leader in the field of design and increase its share of the product and process engineering market.
3) Extract the brand’s value, which was identified in market surveys that underpin the new industrial plan as the Company’s most important asset. Pursue this goal by exploiting the visibility and notoriety of the brand and by leveraging a history of successful quality and innovation products to generate additional value, given also the extraordinary range of complementary competencies that exist in the Groups’ operations in Italy, France, Germany, Sweden, Morocco, the United States and China.

The industrial and financial plan should be finalised by the time the Board of Directors meets in February 2008 to review the 2007 preliminary year-end data.