| SECOND
QUARTER FINANCIAL RESULTS & STATEMENT
OVERVIEW
The
achievements for the quarter are:
- A
significant reduction in the Group’s operating losses, thanks to the progress
made by Fiat Auto, as it begins to implement its restructuring program
despite a difficult market environment;
-
A bottom line close to breakeven thanks to the gain on the sale of Toro
Assicurazioni;
-
An improved net financial position compared with the beginning of the quarter
due to a positive contribution of about 1.2 billion euros from the sale
of Toro Assicurazioni and lower than expected funding requirements.
The
quarter was also characterized by:
- The
presentation to the financial markets at the end of June of the Group’s
Industrial and Financial Relaunch Plan. The Plan calls for the Group’s
operating income to rise to more than 4% of revenues by 2006 as a result
of cost savings of 3.1 billion euros and higher margins on new products
for 1.6 billion euros, net of additional costs of 1.8 billion euros.
-
An acceleration of the pace of divestitures, with the closing of the sale
of Toro Assicurazioni to the DeAgostini Group (proceeds of about 2.4 billion
euros and gross gain of about 390 million euros) and the final signing
on July 1 of an agreement to sell FiatAvio (proceeds of about 1.5 billion
euros).
The
programs implemented during the quarter were followed by additional developments
in July, including:
- A
1.8-billion-euro Fiat SpA capital increase to support the implementation
of the Relaunch Plan.
-
The issue of about US$750 million in eight-year CNH senior notes. With
this transaction, more than 60% of CNH’s indebtedness will be due in five
or more years.
Overall,
the transactions completed in the first half of 2003 and those slated for
closing later in the year will provide the Group with over 9 billion euros
in fresh liquidity, which it can use for its relaunch and development programs
and to repay maturing indebtedness.
RESULTS
FOR THE QUARTER
The
financial results achieved by the Fiat Group in the second quarter of 2003,
while indicative of a situation that remains challenging, are better than
those for the same period last year and for the first quarter of 2003.
Consolidated
Group revenues totaled 12,460 million euros, down from 14,608 million euros
in the second quarter of 2002, when the figure included the contribution
of divested operations. On a comparable consolidation basis, the decrease
amounts to about 6%, mainly on account of changes in exchange rates.
The
Group’s operating loss narrowed to 25 million euros, compared with operating
losses of 127 million euros in the second quarter of 2002 and 342 million
euros in the first three months of 2003. The quarter-on-quarter improvement
increases to about 150 million euros when the data are restated on a comparable
consolidation basis. The reduction in operating loss is due almost entirely
to the improved results that Fiat Auto was able to achieve despite difficult
market conditions.
The
consolidated net loss amounted to 38 million euros (loss of 27 million
euros after minority interests), compared with net losses of 140 million
euros (loss of 34 million euros after minority interests) in the second
quarter of 2002 and 699 million euros (loss of 681 million euros after
minority interests) in the first quarter of 2003. In addition to the reduction
in operating losses, the decrease in consolidated net loss reflects higher
income from equity investments, a decrease in financial expenses (due mainly
to the reversal of the loss on the total return equity swap on the General
Motors shares) and the net gain of 279 million euros earned on the sale
of Toro Assicurazioni. However, the contribution provided by extraordinary
items was significantly lower in the second quarter of 2003 than in the
same period last year, when it included a 547-million-euro net gain earned
on the sale of a 34% interest in Ferrari.
At
June 30, 2003, the net financial position showed net indebtedness of about
4.8 billion euros, or about 360 million euros less than at March 31, 2003.
This improvement reflects the net contribution (about 1.2 billion euros)
from the sale of Toro Assicurazioni, offset in part by the effects of the
sale of 51% of Fidis Retail Italia (about -440 million euros), changes
in working capital and the net loss for the quarter.
Fiat
Auto
During
the second quarter of 2003, demand for automobiles continued to decrease
compared with the same period last year, falling by 2.8% for all of Western
Europe and a steeper 6.8% in Italy. Over the same period, the market contracted
by a further 14% in Brazil, but the turnaround in Poland is continuing,
with shipments up 15%.
Fiat
Auto had revenues of 5,221 million euros in the three months ended June
30, 2003, compared with 5,777 million euros in the same period a year ago
(-9.6%, but -7.5% on a comparable consolidation basis). The Sector sold
448,000 vehicles worldwide. The decrease of 5.7% compared with the second
quarter of 2002 is due mainly to market weakness in Europe and Brazil and
to delays in buying decisions in anticipation of the introduction of new
models in key market segments for Fiat Auto (the new Fiat Punto, the Lancia
Ypsilon and, in the second half of the year, the new Fiat Panda and Idea).
Compared with 2002, Fiat Auto’s share of the automobile market declined
from 30% to 28% in Italy and from 7.7% to 7% in Europe. Sales of light
commercial vehicles remained strong, despite a rapidly contracting market,
especially in Italy.
Fiat
Auto incurred an operating loss of 234 million euros in the second quarter
of 2003, down from losses of 394 million euros in the same period last
year and 334 million euros in the first three months of 2003. While still
negative, this performance is indicative of the significant progress made
thanks to incisive restructuring and cost-cutting measures and the growing
synergies developed through the industrial alliance with General Motors.
The resulting improvements were able to offset the negative impact of lower
sales and sales incentive programs offered to counter the effect of an
increasingly aggressive competition.
CNH
Global
The
market for agricultural equipment contracted in Europe (-3.9%), recovered
in Latin America (+11.6%) and benefited from an accelerating growth rate
(+22.1%) in North America, particularly in the segment of low-horsepower
tractors. Demand for construction equipment remained under pressure in
Europe (-3.4%) and Latin America (-20.2%), but turned around in North America
(+7.9%).
CNH,
which uses the U.S. dollar as its reporting currency, had revenues of $2,906
million, up from $2,719 million in the second quarter of 2002. Translated
into euros, revenues for the quarter declined to 2,566 million euros, down
from 2,971 million euros in the same period last year, due to the negative
impact of an unfavorable exchange rate.
Unit
sales of agricultural equipment were about the same as in the second quarter
of 2002 in all of the major geographic regions, but overall shipments of
construction equipment were down due to lower demand in Europe and South
America and increased competition in North America.
CNH
reported operating income of $125 million, compared with $118 million in
the same quarter of 2002. When stated in euros, operating income declines
to 113 million euros, down from 131 million euros for the three months
ended June 30, 2002. Better margins on new products launched this year,
higher prices charged for agricultural equipment and the positive impact
of profitability-enhancing programs contributed to the improvement in the
Sector’s operating performance. However, in the comparison with 2002, these
positive factors were offset not only by an unfavorable exchange rate,
but also by a change in the sales mix, the reduction of production volumes
to cut company and dealer inventories, and higher medical benefit and pension
plan funding costs, primarily in the United States.
Iveco
The
weakness experienced by the European market for commercial vehicles (-3.8%)
was caused almost entirely by the sudden drop in demand that occurred in
Italy (-24.4%) once the investment tax credits provided by the government
through the Tremonti Law expired. An analysis by market segment shows a
sharp contraction in medium trucks (-10.6%) and less pronounced declines
in light (-3.5%) and heavy vehicles (-2.2%).
Iveco
had revenues of 2,171 million euros in the second quarter of 2003, compared
with 2,407 million euros in the same period a year ago. In addition to
unfavorable market conditions, which primarily affected sales of light
and medium vehicles, the decrease in revenues chiefly reflects the deconsolidation
of Fraikin (sold at the beginning of the year) and the Naveco joint venture
in China. On a comparable consolidation basis, revenues show a decline
of 3.5%. New models introduced late in the second quarter to broaden and
round out the Sector’s product line (New Eurocargo in the intermediate
segment and Stralis Active Time and Active Day in the heavy-load segment)
are expected to develop their full sales potential in the coming months.
Iveco
reported operating income of 20 million euros, down from 25 million euros
in the second quarter of 2002. On a comparable consolidation basis, operating
income is about the same as in the second quarter of 2002.
Ferrari
Ferrari
posted slightly higher revenues (+1.8%), but operating income fell to 7
million euros (28 million euros in the second quarter of 2002). The main
reason for this decline is a substantial increase in research and product
development outlays, incurred mainly to relaunch the Maserati brand.
Other
Sectors
The
Sectors that produce components and production systems were affected to
different degrees by the difficult conditions facing carmakers and by the
negative impact of an unfavorable dollar-euro exchange rate.
Unfavorable
exchange rates and the divestiture of the Aluminum Division in September
2002 had a particularly strong impact on Teksid revenues and operating
income, which decreased to 4 million euros. Magneti Marelli’s revenues
were about the same as in the second quarter of 2002, but operating income
improved to 13 million euros thanks to production efficiency gains. Comau
posted an increase in revenues, especially in North America thanks to a
healthy order portfolio, and was able to return to profitability with operating
income totaling 19 million euros.
The
revenues booked by Business Solutions in the second quarter of 2003 were
basically unchanged from the comparable period a year ago, but operating
income decreased to 5 million euros due to the combined impact of the sale
of IPI and increased price competition, offset in part by efficiency gains.
Itedi reported operating income of 3 million euros.
RESULTS
FOR THE FIRST SIX MONTHS OF THE YEAR
The
overall results for the first half of 2003 are reviewed below.
- Consolidated
Group revenues totaled 24,774 million euros, compared with 28,755 million
euros in the first six months of 2002. On a comparable consolidation basis,
the revenue decline amounts to about 8% and is largely attributable to
changes in exchange rates.
-
The operating loss totaled 367 million euros, most of which attributable
to the first quarter (-342 million euros), down from the 426 million euro
loss in the first half of 2002. On a comparable consolidation basis, operating
result improves by about 110 million euros.
-
The consolidated net loss amounted to 737 million euros (708 million euros
after minority interests), most of which incurred in the first quarter,
as compared with a net loss of 803 million euros (563 million euros after
minority interests) in the first six months of 2002.
-
At June 30, 2003, the net financial position showed net indebtedness of
4.8 billion euros (net indebtedness of 5.8 billion euros at June 30, 2002).
The increase compared with December 31, 2002 is due to the net loss for
the period, a rise in working capital requirements and a decrease in discounted
receivables (both of which occurred mainly during the first three months
of 2003), offset in part by divestitures.
OUTLOOK
FOR THE BALANCE OF THE YEAR
During
the balance of 2003, the Fiat Group will continue to face difficulties
and challenges due to uncertain market conditions and the resulting increase
in competitive pressures. In this environment, the results achieved thus
far point to a further improvement in the Group’s key operating and financial
performance indicators.
The
pace at which ongoing restructuring and cost-cutting measures are being
implemented is in line with expectations. During the second half of 2003,
and especially in the fourth quarter, the Group will begin to benefit from
the fresh momentum developed thanks to the 2003-2006 Relaunch Plan and,
more specifically, from an acceleration in the launch of new products by
all Sectors, which will be vital in enhancing profitability.
Given
this scenario, it is reasonable to expect for 2003 a further decrease in
the operating loss, which should be significantly lower than in 2002, and
a healthier financial position than at the end of last year.
CAPITAL
INCREASE
After
having been informed of the preliminary results of the capital increase,
the Board of Directors noted with appreciation that at the end of the exercise
period of the option rights, over 98% of the capital increase has been
subscribed.
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