The Fiat Group in 1999 - Report on Operations - Fiat SpA

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ANALYSIS OF THE FINANCIAL POSITION AND
OPERATING RESULTS OF THE FIAT GROUP AND FIAT S.P.A.
FINANCIAL POSITION AND OPERATING RESULTS
OF THE FIAT GROUP
Introduction
Dur<strong>in</strong>g <strong>1999</strong>, <strong>in</strong> cont<strong>in</strong>ued pursuit of a strategy of <strong>in</strong>ternational
expansion, the <strong>Group</strong> carried out important transactions
designed to strengthen its competitive position and focus
the operations of its Sectors. <strong>The</strong> process of redef<strong>in</strong><strong>in</strong>g and
strategically position<strong>in</strong>g the <strong>Group</strong> required the deployment
of massive f<strong>in</strong>ancial resources, as capital <strong>in</strong>vestment reached
the unprecedented total of more than 6,000 million euros.
<strong>The</strong> impact of these developments on the scope of
consolidation should be kept <strong>in</strong> m<strong>in</strong>d when review<strong>in</strong>g the
performance of the <strong>in</strong>dividual Sectors and of the <strong>Group</strong> as
a whole. <strong>The</strong> most important changes are listed below:
❚ In view of the grow<strong>in</strong>g importance of its Indian operations,
<strong>Fiat</strong> Auto consolidated <strong>Fiat</strong> India Automobiles Ltd. and its
subsidiary Ind. Auto Ltd. on a l<strong>in</strong>e-by-l<strong>in</strong>e basis.
❚ Iveco consolidated on a 50% proportional basis the results
of Naveco Ltd., a Ch<strong>in</strong>ese company that manufactures and
sells commercial vehicles, and those of Irisbus, a 50-50 jo<strong>in</strong>t
venture to which Iveco and Renault V.I. transferred their bus
operations.
In December, Iveco acquired a controll<strong>in</strong>g <strong>in</strong>terest <strong>in</strong> Fraik<strong>in</strong>,
a lead<strong>in</strong>g French provider of long-term leas<strong>in</strong>g services for
commercial vehicles. Fraik<strong>in</strong> was consolidated <strong>in</strong> the <strong>Group</strong>’s
f<strong>in</strong>ancial statements for the fourth quarter.
❚ In November, New Holland completed the acquisition of
Case Corporation at a total cost of about 4,600 million
euros. Follow<strong>in</strong>g the acquisition, New Holland changed its
name to CNH Global N.V. (CNH). Because of problems
aris<strong>in</strong>g from the difference between its account<strong>in</strong>g pr<strong>in</strong>ciples
(U.S. GAAP) and those of the <strong>Group</strong>, Case could not be
consolidated <strong>in</strong> <strong>1999</strong>. However, its results will be reflected
<strong>in</strong> the <strong>Group</strong>’s f<strong>in</strong>ancial statements start<strong>in</strong>g with 2000.
CNH consolidated for the full year on a l<strong>in</strong>e-by-l<strong>in</strong>e basis
O&K Orenste<strong>in</strong> & Koppel AG, a German construction
equipment company which it acquired at the end of 1998,
and New Holland Bizon Sp. Zo.o., a Polish producer of
comb<strong>in</strong>e harvesters which it bought <strong>in</strong> July 1998.
❚ Teksid consolidated on a l<strong>in</strong>e-by-l<strong>in</strong>e basis Meridian
Technologies Inc., a producer of magnesium components
which is now controlled by the Sector, and the operations
transferred by Renault <strong>in</strong>to a unit that operates the cast-iron
and alum<strong>in</strong>um production activities of both <strong>Group</strong>s.
<strong>The</strong> Steel Division, which was sold to Neumayer GmbH,
was removed from the scope of consolidation.
❚ Magneti Marelli consolidated on a l<strong>in</strong>e-by-l<strong>in</strong>e basis the
European operations it had purchased from Midas (quick
repair centers). At the same time, it sold to Denso of Japan an
80% <strong>in</strong>terest <strong>in</strong> its Rotary Devices Bus<strong>in</strong>ess Unit, cont<strong>in</strong>ued
to divest the nonstrategic product l<strong>in</strong>es of the Cofap <strong>Group</strong>
<strong>in</strong> Brazil and deconsolidated the Fuel Supply Division, which
is <strong>in</strong> the process of be<strong>in</strong>g sold. In addition, it consolidated on
a proportional basis Viasat, a 50-50 jo<strong>in</strong>t venture established
with Telecom Italia to provide <strong>in</strong>fomobility services.
In December, it announced the sale of its Lubricants Division,
which will be deconsolidated as of 2000, and the purchase
of Seima, a manufacturer of automotive light<strong>in</strong>g fixtures.
❚ <strong>Fiat</strong> S.p.A. acquired the Pico (Progressive Tools & Industries
Co.) <strong>Group</strong>, a lead<strong>in</strong>g U.S. producer of bodywork systems.
Comau is also active <strong>in</strong> this field. Pico’s results were
consolidated by the <strong>Fiat</strong> <strong>Group</strong> as of May <strong>1999</strong>.
<strong>The</strong> new Sector Comau/Pico used the l<strong>in</strong>e-by-l<strong>in</strong>e method
to consolidate Renault Automation, a manufacturer of
systems and equipment used <strong>in</strong> the production of automotive
components <strong>in</strong> which it had acquired a 51% <strong>in</strong>terest, and
the Bodywork Systems activities of Sciaky S.A. <strong>in</strong> France.
❚ In December, Toro Assicurazioni purchased the French
operations of the Guardian <strong>Group</strong> Royal Exchange, which
specializes <strong>in</strong> the areas of life <strong>in</strong>surance and asset management.
❚ Lastly, the tender offers for Toro Assicurazioni S.p.A. (71%
and 80% of the outstand<strong>in</strong>g preference and sav<strong>in</strong>g shares
respectively) and Comau S.p.A. (substantially 100% of the
outstand<strong>in</strong>g shares) were completed successfully at a total
cost of 622 million euros.
In <strong>1999</strong>, the <strong>Group</strong> divested several nonstrategic equity
<strong>in</strong>vestments, <strong>in</strong>clud<strong>in</strong>g those <strong>in</strong> Banco Central Hispano
Americano, Rhône Poulenc, Impregilo and Intesa.
Operat<strong>in</strong>g performance
Steadily ris<strong>in</strong>g unit sales and the significant improvement <strong>in</strong>
operat<strong>in</strong>g marg<strong>in</strong>s recorded <strong>in</strong> the last quarter of the year,
comb<strong>in</strong>ed with the effect of sizable reductions <strong>in</strong> product costs
and overhead, enabled the <strong>Fiat</strong> <strong>Group</strong> to report a moderate
improvement <strong>in</strong> operat<strong>in</strong>g <strong>in</strong>come compared with 1998.
<strong>The</strong> higher f<strong>in</strong>ancial expenses <strong>in</strong>curred as a result of the
acquisitions completed dur<strong>in</strong>g the year and a higher tax
burden had a dampen<strong>in</strong>g effect on the bottom l<strong>in</strong>e.
Nevertheless, net <strong>in</strong>come exceeded 500 million euros <strong>in</strong> <strong>1999</strong>.
In order to provide a better understand<strong>in</strong>g of the <strong>Group</strong>’s
performance, the statement of operations has been reclassified
by dest<strong>in</strong>ation <strong>in</strong> the table below, provid<strong>in</strong>g a breakdown
between <strong>in</strong>dustrial and <strong>in</strong>surance activities.