2006 Annual Report - Fiat SpA
2006 Annual Report - Fiat SpA
2006 Annual Report - Fiat SpA
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Significant Events Occurring<br />
since the End of the Fiscal Year<br />
and Business Outlook<br />
Significant Events Occurring since the End<br />
of the Fiscal Year<br />
The most significant transactions completed by the <strong>Fiat</strong> Group<br />
during early 2007 are set out below:<br />
■ On January 26, Fitch Ratings announced that it upgraded<br />
<strong>Fiat</strong>’s rating to “BB” from “BB-“, reaffirming the short-term<br />
rating to “B” and maintaining the outlook “positive”. Standard<br />
& Poor’s Ratings Services revised its outlook on <strong>Fiat</strong> rating to<br />
“positive” from “stable”, affirming the ‘BB’ long-term and ‘B’<br />
short-term corporate credit ratings. On February 12, Moody’s<br />
Investors Service upgraded to Ba2 from Ba3 <strong>Fiat</strong> rating<br />
maintaining the positive outlook. The short term rating remains<br />
unchanged.<br />
■ On February 1, 2007 <strong>Fiat</strong> Auto changed name to “<strong>Fiat</strong> Group<br />
Automobiles S.p.A.”.<br />
Four new companies were formed at the same time, 100%<br />
owned by <strong>Fiat</strong> Group Automobiles S.p.A.: “<strong>Fiat</strong> Automobiles<br />
S.p.A.”, “Alfa Romeo Automobiles S.p.A.”, “Lancia<br />
Automobiles S.p.A.”, and “<strong>Fiat</strong> Light Commercial Vehicles<br />
S.p.A.”.<br />
These changes are consistent with the new corporate culture<br />
at the <strong>Fiat</strong> Group. In particular, they reflect two strategic<br />
decisions as to how to approach the business. On the one<br />
hand, the Group will exist as a unified whole, and on the other<br />
hand, each company will be characterised by the specific<br />
nature of the respective operating sectors and individual<br />
brands.<br />
Over the next few months, all Group activities will highlight<br />
this aspect by pairing the “<strong>Fiat</strong> Group” mark with the sector<br />
or brand trademark.<br />
Inclusion of the word “Group” in the name reflects its<br />
prominent role as a constituent part of the <strong>Fiat</strong> Group,<br />
considering the contribution that <strong>Fiat</strong> Auto makes to Group<br />
results and the realisation of major synergies with other<br />
Group sectors.<br />
The new name also identifies a key area of activity that has<br />
recently undergone profound transformation, featuring<br />
a newly streamlined structure that is more solid and compact<br />
than before.<br />
At the same time, it also indicates the synergies linking<br />
the automotive business, which has already generated major<br />
benefits in terms of operating efficiency, resource<br />
management, and cost cuts.<br />
56 <strong>Report</strong> on Operations Significant Events Occurring since the End of the Fiscal Year and Business Outlook<br />
Finally, the name “<strong>Fiat</strong> Group Automobiles S.p.A.” highlights<br />
the international vocation of this large industrial organisation.<br />
The creation of four companies reflects the attention devoted<br />
by the Group to positioning the brands on the market.<br />
The <strong>Fiat</strong>, Alfa Romeo, Lancia, and <strong>Fiat</strong> Light Commercial<br />
Vehicles brands each have a specific identity with defined,<br />
recognised characteristics, and apply distinct commercial<br />
and market policies.<br />
Formation of these four new companies must be interpreted<br />
in view of the growing distinctiveness of the brands, enhanced<br />
value, and reinforcement of their competitive capacities.<br />
■ On February 14 2007, <strong>Fiat</strong> and Tata Motors signed<br />
an agreement which calls for a Tata license to build a pick-up<br />
vehicle bearing the <strong>Fiat</strong> nameplate at <strong>Fiat</strong> Group Automobiles’<br />
plant in Córdoba, Argentina. The first vehicles will roll off the<br />
Córdoba assembly lines during 2008. <strong>Annual</strong> production is<br />
slated at around 20,000 units. Total planned investment in the<br />
project is around US$80million. With the production of the<br />
pick-up model, the <strong>Fiat</strong> complex in Córdoba will retake the<br />
integral activity of all its productive units, to a great extent<br />
reinitiated with the manufacture of <strong>Fiat</strong> engines and gearboxes<br />
and the recent agreement to produce gearboxes for PSA<br />
Peugeot Citröen. The pick-up, based on the new generation<br />
Tata pick-up truck, will be sold in South and Central America<br />
and selected European markets through <strong>Fiat</strong> Automobiles’<br />
distribution and importer network. This will permit the <strong>Fiat</strong><br />
brand to aggressively enter the medium pick-up sector, thanks<br />
to Tata Motors’ specific know-how.<br />
■ On February 14 2007, Iveco and Tata Motors announced the<br />
signing of a Memorandum of Understanding (MoU) to analyse<br />
the feasibility of cooperation, across markets, in the area of<br />
Commercial Vehicles. The MoU encompasses a number of<br />
potential developments in engineering, manufacturing,<br />
sourcing and distribution of products, aggregates and<br />
components. Shortly after the MoU signature, Iveco and Tata<br />
Motors will set up a joint Steering Committee to determine the<br />
feasibility of cooperation, both in the short and over the long<br />
term. When found feasible, the two companies will enter into<br />
definitive agreements in the course of the coming months.<br />
■ A meeting was held on February 19, 2007 at the Italian Prime<br />
Minister’s Office, with the participation of the Prime Minister,<br />
the Ministers of Labour and Transport, and the Vice Minister<br />
for Economic Development, as well as national labour<br />
federation and industry representatives. The Chief Executive<br />
Officer Sergio Marchionne illustrated the Group’s development<br />
plans for 2007-2010, with special attention being devoted to<br />
the situation in Italy. The meeting concluded with the signing<br />
of a transcript in which the Italian Government affirmed its<br />
willingness to support the Company’s development plans.<br />
In particular, this would involve close assessment of initiatives<br />
taken in support of investments and research, and recognise<br />
the existence of conditions for granting the <strong>Fiat</strong> Group a quota<br />
for “mobilità lunga” (long-term mobility benefit to bridge<br />
the period prior to retirement). This amount was defined<br />
in the December 18, <strong>2006</strong> labour agreement, which envisages<br />
that a maximum of 2,000 Group employees will be laid off.<br />
The meeting transcript also envisages setting up a roundtable<br />
with the participation of local institutions to examine the<br />
measures necessary to overcome logistical and economic<br />
restraints at the Termini Imerese plant in Sicily, so that<br />
production of a model can be allocated to it starting from 2009.<br />
Furthermore, the obligations imposed by the “Personal Data<br />
Protection Code” (Legislative Decree No. 196/2003) were<br />
satisfied in compliance with the provisions of the “Technical<br />
Regulation of Minimum Security Measures” (Appendix B<br />
of the Code). Consequently, the <strong>Fiat</strong> S.p.A. Security Planning<br />
Document was updated by the addition of the Plan for<br />
additional measures reinforcing security levels in order<br />
to combat the evolution of emerging risk factors.<br />
Business Outlook<br />
The Western European automobile market is expected<br />
to remain stable in 2007, while demand in Brazil should<br />
show moderate growth.<br />
In this context, the Group’s Automobile Sector plans<br />
to leverage the introduction of its new models (mainly<br />
<strong>Fiat</strong> Bravo, <strong>Fiat</strong> Linea and <strong>Fiat</strong> 500) to continue to boost<br />
volume and improve mix in the European markets. Meanwhile,<br />
the Sector’s Brazilian operations are expected to deliver<br />
a trading performance in line with <strong>2006</strong>. The Company will<br />
continue to implement its strategy of aggressive cost-cutting<br />
in all non-essential areas and, while streamlining governance<br />
costs, it will continue to invest in marketing and advertising,<br />
in order to support its growth ambitions.<br />
The agricultural tractor industry is expected to continue<br />
running at high levels, while the combine industry should<br />
recover from the recent declines on the back of pricing<br />
recovery in corn and soybeans. The worldwide constructionequipment<br />
industry should remain strong for both heavy and<br />
light equipment, although the North American markets are<br />
expected to soften for a year before resuming upward growth<br />
in 2008. In this context, CNH expects to improve sales volumes<br />
thanks to new products, improved pricing and market share<br />
gains. Higher volumes, manufacturing efficiencies and other<br />
cost reductions will be partially offset by continuing higher<br />
R&D investments.<br />
In Western Europe, the market for light, medium and heavy<br />
commercial vehicles is expected to remain substantially stable.<br />
In this environment, Iveco aims at increasing both profitability<br />
and market share by a substantial commercial repositioning,<br />
with price improvements coming from the introduction of new<br />
Euro 4 and Euro 5 compliant vehicles. For heavy trucks, Iveco<br />
will be leveraging the performances of the New Stralis,<br />
especially in terms of fuel efficiency and the improvement<br />
in the resale value of our vehicles.<br />
In order to achieve set targets, the <strong>Fiat</strong> Group will continue<br />
to push inter-Sector purchasing synergies, increasing and<br />
accelerating development of best-cost-country spending,<br />
strengthening strategic partnerships with suppliers through<br />
long-term contracts, and focusing on the implementation<br />
of the world-class manufacturing initiative.<br />
As a result, the Group confirms its targets for 2007: trading<br />
profit between 2.5 billion euros and 2.7 billion euros (4.5%<br />
to 5.1% trading margin) and net income between 1.6 billion<br />
euros and 1.8 billion euros.<br />
By sector, full-year 2007 trading margin targets (trading profit<br />
as a percentage of revenues) will range as follows:<br />
■ Autos, 2.6% to 3.4%;<br />
■ CNH, 8.9% to 9.7%;<br />
■ Iveco, 7.1% to 7.9%.<br />
While working on the achievement of these objectives, the<br />
<strong>Fiat</strong> Group will continue to implement its strategy of targeted<br />
alliances, in order to reduce capital commitments, and reduce<br />
the related risks.<br />
<strong>Report</strong> on Operations Significant Events Occurring since the End of the Fiscal Year and Business Outlook 57