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

OVERVIEW
Stockholders,
A year ago, we set for ourselves the goal of report<strong>in</strong>g <strong>1999</strong>
operat<strong>in</strong>g <strong>in</strong>come at least equal to the figure earned a year
earlier, even though we were fully aware that the competitive and
market environment would become <strong>in</strong>creas<strong>in</strong>gly challeng<strong>in</strong>g
for the <strong>Fiat</strong> <strong>Group</strong>. We were able to achieve and even slightly
exceed this objective. <strong>The</strong> improvement recorded dur<strong>in</strong>g the
last quarter was large enough to offset the shortfall of the first
n<strong>in</strong>e months, and we look confidently to a higher level of
profitability <strong>in</strong> the year 2000.
Operat<strong>in</strong>g <strong>in</strong>come totaled 592 million euros <strong>in</strong> the fourth quarter
of <strong>1999</strong> (reflect<strong>in</strong>g an <strong>in</strong>crease compared with the previous
quarters and with an operat<strong>in</strong>g loss of 60 million euros <strong>in</strong> the
same period a year before), reflect<strong>in</strong>g the higher sales made
possible by the <strong>in</strong>troduction of new products and the beneficial
impact of certa<strong>in</strong> positive developments, <strong>in</strong>clud<strong>in</strong>g ga<strong>in</strong>s on
the disposal of real estate assets, booked mostly dur<strong>in</strong>g the
clos<strong>in</strong>g months of the year.
For the fiscal year as a whole, revenues <strong>in</strong>creased by about
5% to more than 48 billion euros. Operat<strong>in</strong>g <strong>in</strong>come was also
up ris<strong>in</strong>g to 788 million euros from 746 million euros <strong>in</strong> 1998.
A significant contribution came from the cost conta<strong>in</strong>ment
<strong>in</strong>itiatives implemented with<strong>in</strong> the scope of a two-year program
launched <strong>in</strong> <strong>1999</strong> to reeng<strong>in</strong>eer the <strong>Group</strong>’s bus<strong>in</strong>ess support
activities. <strong>The</strong> sav<strong>in</strong>gs achieved exceeded the program’s
<strong>in</strong>termediate target of 500 million euros.
ANOTHER CHALLENGING YEAR
However, we are not satisfied with our overall performance.
In particular, operat<strong>in</strong>g <strong>in</strong>come did not rise enough to create
a value at the <strong>Group</strong> level, despite the positive performance
of the majority of our Sectors and a constant effort to conta<strong>in</strong>
<strong>in</strong>vested capital. Consolidated net <strong>in</strong>come amounted to 506
million euros (<strong>in</strong>clud<strong>in</strong>g 353 million euros attributable to the
<strong>Group</strong>), down from 916 million euros <strong>in</strong> 1998 (<strong>in</strong>clud<strong>in</strong>g 621
million euros attributable to the <strong>Group</strong>). Two factors were
ma<strong>in</strong>ly responsible for this decl<strong>in</strong>e: the <strong>in</strong>debtedness <strong>in</strong>curred
primarily as a result of the important acquisitions completed
dur<strong>in</strong>g the year, which generated net borrow<strong>in</strong>gs of 4 billion
euros compared with net f<strong>in</strong>ancial assets of 1.4 billion euros
<strong>in</strong> 1998; and the absence of the nonrecurr<strong>in</strong>g ga<strong>in</strong> recorded
<strong>in</strong> 1998 <strong>in</strong> connection with the implementation of a new
<strong>in</strong>ternational account<strong>in</strong>g pr<strong>in</strong>ciple govern<strong>in</strong>g deferred taxes.
PERFORMANCE OF THE SECTORS
<strong>The</strong>se overall results are the net effect of the different levels
of performance achieved by the <strong>in</strong>dividual Sectors, with
certa<strong>in</strong> <strong>Group</strong> bus<strong>in</strong>esses post<strong>in</strong>g truly remarkable results.
<strong>The</strong> loss reported by <strong>Fiat</strong> Auto <strong>in</strong> <strong>1999</strong> reflects the negative
impact that the renewal of its product l<strong>in</strong>e (with the removal from
production of the exist<strong>in</strong>g Punto models) had on its performance
dur<strong>in</strong>g the first n<strong>in</strong>e months of the year. It also had to absorb a
weak performance by its operations <strong>in</strong> South America, where the
slump <strong>in</strong> demand that started at the end of 1997 showed no sign
of abat<strong>in</strong>g. However, the restructur<strong>in</strong>g programs implemented
<strong>in</strong> 1998 enabled <strong>Fiat</strong> Auto’s Brazilian activities to operate close
to breakeven. In addition, the results achieved <strong>in</strong> recent months
show the beneficial impact of the programs carried out to
improve the Sector’s profitability and competitiveness, and reflect
clearly the efforts made <strong>in</strong> the area of product <strong>in</strong>novation and
the aggressive implementation of cost conta<strong>in</strong>ment measures.
In Europe <strong>in</strong> particular, sales benefited from the <strong>in</strong>troduction
of the new <strong>Fiat</strong> Punto and Lancia Lybra <strong>in</strong> September.
<strong>The</strong> operat<strong>in</strong>g <strong>in</strong>come earned by New Holland (now CNH),
while less than <strong>in</strong> 1998 due to the unfavorable cycle <strong>in</strong> the
North American market <strong>in</strong> the high horsepower tractor segment,
was sufficient to place the Sector among the top performers
<strong>in</strong> its <strong>in</strong>dustry.
<strong>The</strong> other Sectors, which together with New Holland account
for more than half of the <strong>Group</strong>’s total revenues, reported
significant year-on-year improvements. Iveco, Magneti Marelli,
<strong>Fiat</strong>Avio, Teksid and Comau achieved ga<strong>in</strong>s of almost 50%
<strong>in</strong> operat<strong>in</strong>g <strong>in</strong>come compared with 1998. A significant
contribution was also provided by Toro Assicurazioni, which
reported an <strong>in</strong>crease of more than 60% <strong>in</strong> <strong>in</strong>come before taxes.
<strong>Report</strong> on Operations – Overview
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