01-Relazione UK 2004

Transcripción

at December 31, 2003
Annual Report Consolidated and Statutory Financial Statements at December 31, 2003
Annual Report
Consolidated and Statutory Financial Statements
98th Fiscal Year
98th Fiscal Year
Annual Report at December 31, 2003
Stockholders’ Meeting
Agenda
Stockholders are invited to attend the ordinary and extraordinary
meeting of stockholders to be held at the Fiat Historical Center
in Turin, via Chiabrera 20, at 1:00 p.m. on May 8, 2004 on the
first call, on May 10 on the second call for the extraordinary
session only, and on May 11 on the second call for the ordinary
session and on the third call for the extraordinary session,
to resolve on the following
1. Consolidated and Statutory Financial Statements
at December 31, 2003 and Report on Operations;
pertinent and related resolutions.
2. Coverage of Directors’ civil liability in connection with
their office.
3. Motion to amend the Articles of Association and
pertinent resolutions connected to:
❚ the enactment of Legislative Decrees 6/2003 and 37/2004
(reform of corporate law);
❚ reduction of the minimum required equity interest
needed to submit a list of candidates for the Company
Board of Statutory Auditors;
❚ amount of expenses borne by the Company to
safeguard common interests of holders of preference
and savings shares.
Fiat S.p.A.
Head Office: 250 Via Nizza, Turin, Italy
Paid-in capital: 4,918,113,540 euros
Entered in the Turin Company Register
Fiscal Code: 00469580013
Contents
Stockholders’ Meeting
Agenda
Board of Directors and Control Bodies
4
4
7
8
9
10
12
13
15
17
18
20
35
37
41
42
44
45
46
50
53
56
58
59
60
61
62
63
Report on Operations
Overview
The Fiat Group
Highlights of Results
Financial and Operating Highlights by Sector
Stockholders
Fiat Group Relaunch Plan
Products and Services
Innovation and Technology
Environment
Human Resources
Analysis of the Financial Position and Operating Results
of the Fiat Group and Fiat S.p.A.
Process of Transition to International
Accounting Standards (IAS/IFRS)
Corporate Governance
Stock Option Plans
Transactions among Group Companies and
with Related Parties
Significant Events occurring Since the End
of the Fiscal Year and Business Outlook
Operating Performance – Sectors of Activity
Automobiles
Agricultural and Construction Equipment
Commercial Vehicles
Ferrari and Maserati
Components
Production Systems
Metallurgical Products
Services
Publishing and Communications
Motion to Cover the Loss for Fiscal 2003
65
120
Fiat Group – Consolidated Financial Statements
at December 31, 2003
Balance Sheet
Statement of Operations
Notes to the Consolidated Financial Statements
Annex to the Notes to the Consolidated
Financial Statements
The Companies of the Fiat Group
145
146
149
151
Fiat S.p.A. – Financial Statements at December 31, 2003
Balance Sheet
Notes to the Financial Statements
189
Auditors’ Reports
191
Reports of the Board of Statutory Auditors
195
Other Items on the Agenda and Related Reports
and Motions
Coverage of Directors’ Civil Liability
Motion to Amend the Articles of Association
and pertinent Resolutions
66
71
73
119
195
196
This report has been translated into English from the original
version in Italian.
In case of doubt the Italian version prevails.
01-Relazione UK 2004
10-05-2004
15:21
Pagina 3
Board of Directors and Control Bodies
Board of Directors
Chairman
Chief Executive Officer
Directors
Umberto Agnelli (1)
Giuseppe Morchio (1)
Angelo Benessia (2)
Luca Cordero di Montezemolo
Flavio Cotti (1)
John Elkann
Luca Garavoglia (2)
Franzo Grande Stevens (1) (3)
Hermann Josef Lamberti (1)
Sergio Marchionne (2)
Daniel John Winteler
(1) Member of the Nominating and Compensation Committee
(2) Member of the Audit Committee
(3) Secretary of the Board
Board of Statutory Auditors
Statutory Auditors
Cesare Ferrero – Chairman
Giuseppe Camosci
Giorgio Ferrino
Alternate Auditors
Giorgio Giorgi
Natale Ignazio Girolamo
Piero Locatelli
External Auditors
Deloitte & Touche S.p.A.
4
Overview
Dear Stockholders,
The 2003 results were a net loss of 1.9 billion euros,
compared with 4.2 billion euros a year earlier. The progress
we have made underscores that we are on the way to recovery
and confirms the effectiveness of the tools we have chosen.
The 2003 fiscal year can be divided into two distinct
periods: the first nine months, during which the Group’s
performance was penalized by the consequences of the
difficult situation encountered in 2002, but reflected a
significant improvement in cost containment, and the closing
quarter, when all indicators of the operating and financial
performance showed clear signs of a turnaround, as the
Group began to benefit from the introduction of new models.
This improvement enabled us to begin 2004 with strong
momentum, which is reflected in the results for the first
three months of the current year.
The sizable reduction in operating and net loss and the
improvement in the result before taxes and net financial position
at year-end are the first tangible benefits of the actions undertaken
for the industrial and financial relaunch of the Fiat Group.
The gains made are all the more significant considering
that, in 2003, the Fiat Group underwent the most profound
transformation in its history while confronting major external
challenges.
The Company’s financial and industrial crisis was tackled in
an international environment characterized by weak economic
growth, political instability and intensified competition.
The Group, working with determination to overcome these
challenges, adopted a clear strategy focused on relaunching
its automotive businesses. This approach won the full support
of the Group’s lending banks and, more generally, the entire
Italian business establishment.
The painful but necessary choice to dispose of some of the
Group’s operations, coupled with a capital increase and other
financial transactions, generated over 9 billion euros in liquidity.
5
The definition and implementation of the Relaunch Plan
and the early introduction of new products marked the first
concrete steps in the process of streamlining the Group’s
corporate organization and relaunching its businesses.
* * *
In 2004, the Group’s Sectors are continuing the process
of industrial restructuring and rationalization that is already
underway, while working hard to improve their profitability.
The entire Group is committed to the success of this effort.
It is a difficult and challenging job that will require Fiat to find
structural solutions for any open industrial and commercial
issues. The Group’s Sectors and companies will be supported
in their endeavors by two main factors.
Overview
To improve our businesses cost competitiveness, we
will complete our previously announced plans to restructure
our manufacturing organization, while remaining mindful
of the social impact of each of our actions.
The environment in which we expect to operate in
the months ahead continues to be characterized by mixed
prospects. While the global economy is expected to grow
by 4%, driven mainly by growth in the United States and
Southeast Asia, the gains will be significantly smaller in
Europe, and in Italy in particular.
As a result, the automotive markets are expected to
hold relatively steady or undergo little changes, which will
cause carmakers to pursue very aggressive sales strategies.
* * *
The first one is a strong balance sheet, with a liquidity
of approximately 7 billion euros.
The second is the operating tools that are available today
to help all Sectors across the board accelerate the achievement
of improved results. These tools include: the individual Sector
growth plans resulting from the overall Relaunch Plan; a
stronger senior management team; the vast number of new
projects (more than 800) that are being implemented under
the Relaunch Plan; and the powerful lever of technological
innovation, which is benefiting from the new stimulus provided
by increased R&D spending. Suffice it to say that in this area
alone Fiat plans to invest about 8 billion euros in four years.
In 2004, the Group’s operations will also fully benefit
from the introduction of new models and the positive
momentum that they will generate for all of the product lines
of the automotive Sectors — Fiat Auto primarily, but also
CNH and Iveco. Other positive factors include the synergies
generated through industrial cooperation projects, the close
collaborative relationship established with suppliers and the
renewed confidence that the Company is currently enjoying,
especially in Italy.
During the first three months of 2004, demand for
automobiles and commercial vehicles in the markets where
the Group operates showed virtually no change from the
previous year, but shipments of agricultural equipment were
up significantly in North America. Within this framework,
the results for the first quarter confirm that the upward trend
that started late in 2003 is continuing.
Consequently, we can confirm the goals for the current
year as stated in the Relaunch Plan: operating breakeven
for the Group, a further reduction in Fiat Auto’s losses and
better operating results than in 2003 from all other Sectors.
Turin, March 26, 2004
Umberto Agnelli
Chairman
We remain firmly committed to working with unflagging
determination along the guidelines set out in the Relaunch Plan
to achieve its objectives.
We will continue our efforts to renew our product range
and improve our distribution organizations, investing 9 billion
euros in four years. In addition, we will further strengthen our
management organization by pursuing a strategy of bringing
in top level executives from outside the Group as well as
leveraging the competencies available inside.
We believe that people, with their wealth of knowledge and
their personal commitment, are the most important resource to
rely on as we work to build a new Fiat for the twenty-first century.
Giuseppe Morchio
Chief Executive Officer
Fiat Panda Car of Year 2004
Ferrari F2003-GA 2003 World Champion
7
The Fiat Group
The Fiat Group’s automotive manufacturing and service activities
serve customers in more than 190 countries around the globe.
Below is a description of how the Group is currently structured,
after its refocusing on the automotive business carried out in
2003.
Automotive Activities
They account for 77% of total sales (before intercompany
eliminations) and 71% of net invested capital.
They include the following business lines:
– Automobiles
The Group’s automobile operations are managed primarily by
its Automobile Sector, which includes Fiat Auto Holdings B.V.
and its subsidiaries. The Sector markets automobiles under
the Fiat, Lancia and Alfa Romeo brands and light commercial
vehicles under the Fiat brand.
The Automobile Sector provides financing services to its
dealers and suppliers and offers motorists a comprehensive
line of mobility services.
Ferrari and Maserati are also part of the Fiat Group. They
produce luxury sports cars that excel for their exclusive
characteristics, technology and performance.
– Commercial Vehicles
Iveco S.p.A. is the lead company of the Commercial Vehicles
Sector. This Sector designs, produces and sells complete lines
of commercial vehicles (Iveco and Seddon Atkinson brands),
busses (Iveco and Irisbus brands), firefighting vehicles (Camiva,
Iveco and Magirus brands) and diesel engines (Iveco Motors
brand). The Sector provides a full range of financial services.
Other Industrial Sectors
These Sectors include Components, Production Systems and
Metallurgical Products. Their products and areas of business
are listed below:
❚ Automotive modules and components for lighting systems,
exhaust systems, suspensions and shock absorbers, and
engine control units.
❚ Industrial automation systems for the automotive industry in
the areas of product and process engineering, logistics and
management, manufacturing, installation, production startup
and maintenance.
❚ Engine blocks, cylinder heads and other components for cast-iron
engines; cast-iron components for transmissions, gearboxes
and suspensions; and magnesium bodywork components.
Other non Industrial Sectors
– Agricultural and Construction Equipment
This Sector, which is led by CNH Global N.V., is active in the
field of tractors and agricultural equipment through the Case
IH, New Holland and Steyr brands and in the construction
equipment business through the Case, FiatAllis, Fiat Kobelco,
Kobelco, New Holland Construction and O&K brands. The
Sector’s financial services provide support to end customers
and to its dealers.
These Sectors, which include Services and Publishing and
Communications, engage in the following businesses:
❚ Services in the areas of personnel administration, temporary
staffing, facility management, administrative and corporate
finance consulting, information and communication technology,
purchasing, and e-procurement.
❚ Publication of the La Stampa newspaper, and sale of advertising
space for multimedia customers through Publikompass.
8
Highlights of Results
Financial and operating highlights of the Fiat Group
(in millions of euros)
2003
2002
2001
2000
1999
47,271
55,649
58,006
57,555
48,123
(510)
(762)
318
855
788
1,950
(1,341)
3,408
5,125
3,836
(319)
(3,955)
528
2,073
1,482
Result before taxes
(1,298)
(4,817)
(497)
1,050
1,024
Net result before minority interest
(1,948)
(4,263)
(791)
578
506
Group interest in net result
(1,900)
(3,948)
(445)
664
353
Net financial position positive/(negative)
(3,028)
(3,780)
(6,035)
(6,467)
(4,031)
Stockholders’ equity before minority interest
7,494
8,679
13,607
15,209
14,767
Group interest in stockholders’ equity
6,793
7,641
12,170
13,320
12,874
10,522
12,459
19,642
21,676
18,798
1,759
1,852
3,198
3,907
3,142
Consolidated revenues
Operating result
EBITDA
EBIT
Net invested capital
Operating cash flow (Operating result plus depreciation and amortization)
Cash flow (Net result before minority interest plus depreciation and amortization)
321
(1,649)
2,089
3,630
2,860
Investments in fixed assets
2,011
2,771
3,438
3,236
2,712
Research and development
1,747
1,748
1,817
1,725
1,406
Operating result/net revenues (ROS)
(1.1%)
(1.4%)
0.5%
1.5%
1.6%
Operating result/average net invested capital (ROI)
(4.4%)
(4.7%)
1.5%
4.2%
4.8%
Net result before minority interest/net revenues
(4.1%)
(7.7%)
(1.4%)
1.0%
1.1%
(26.3%)
(39.9%)
(3.5%)
5.1%
2.7%
Net result/Group interest in average stockholders’ equity (ROE)
Capital expenditures/depreciation
Number of employees
1.15
1.37
1.50
1.28
1.31
162,237
186,492
198,764
223,953
221,319
Number of
Facilities
Number of
R&D Centers
Statistical data by geographical region
Number of
Companies
Italy
Number of
Employees
199
73,553
56
48
Europe excluding Italy 326
44,870
66
33
North America
103
12,835
30
13
46
21,980
17
8
Other regions
103
8,999
23
7
Total
777
162,237
192
109
Mercosur
9
Financial and Operating Highlights by Sector
Net revenues
Operating result
EBIT
Net result before
minority interest
2003
(in millions
of euros)
2002
(in millions
of euros)
2003
(in millions
of euros)
2002
(in millions
of euros)
2003
(in millions
of euros)
2002
(in millions
of euros)
2003
(in millions
of euros)
2002
(in millions
of euros)
20,010
22,147
(979)
(1,343)
(1,607)
(2,214)
(2,058)
(2,739)
Agricultural and Construction Equipment (CNH)
9,418
10,513
229
163
99
165
(192)
(211)
Commercial Vehicles (Iveco)
8,440
9,136
81
102
(84)
(409)
(258)
(493)
1,261
1,208
32
70
31
44
2
22
Components (Magneti Marelli)
3,206
3,288
32
(16)
(41)
(348)
(90)
(435)
Production Systems (Comau)
Automobiles (Fiat Auto)
2,293
2,320
2
(101)
(122)
(247)
(164)
(302)
Metallurgical Products (Teksid)
844
1,539
12
27
(56)
(137)
(91)
(214)
Aviation (FiatAvio) (*)
625
1,534
53
210
33
183
13
116
Insurance (Toro Assicurazioni) (**)
1,654
4,916
44
147
1
(203)
52
9
Services (Business Solutions)
1,816
1,965
45
67
11
(140)
(20)
(119)
383
360
10
3
9
1
1
(5)
Miscellaneous and Eliminations
(2,679)
(3,277)
(71)
(91)
1,407
(650)
857
108
Total for the Group
47,271
55,649
(510)
(762)
(319)
(3,955)
(1,948)
(4,263)
Publishing and Communications (Itedi)
Cash flow
Capital expenditures
2003
(in millions
of euros)
2002
(in millions
of euros)
2003
(in millions
of euros)
2002
(in millions
of euros)
(1,096)
(1,780)
1,100
1,116
1,806
1,254
44,563
49,544
258
330
217
431
4,148
5,140
26,825
28,528
46
(70)
210
587
1,310
1,582
31,511
38,113
86
99
193
176
229
142
2,968
2,896
83
(245)
148
148
540
524
19,879
20,716
(108)
(238)
18
20
205
163
17,375
18,186
(43)
(121)
56
78
194
250
7,556
7,368
55
185
33
130
–
618
–
5,049
68
56
–
14
–
652
–
3,098
10
(77)
7
14
(31)
478
7,113
7,900
2003
(in millions
of euros)
2002
(in millions
of euros)
Number of employees
2003
2002
8
3
3
3
19
40
874
923
954
209
26
54
2,102
1,616
3,573
4,171
Total for the Group
321
(1,649)
2,011
2,771
10,522
12,459
162,237
186,492
(*) Data for the Aviation Sector are shown until the date of its sale (July 1, 2003).
(**) Data for the Insurance Sector are shown until the date of its sale (May 2, 2003).
10
Stockholders
Financial communications
Average monthly trading volume (in millions of shares)
The Group pursues a policy of open communication with
individual and institutional investors. In the course of the year, its
investor relations program offers presentations, live or through
conference call, after the regular publication of Group results or
other events requiring direct communications with the market. In
addition, the program includes several seminars, which furnish a
more in-depth understanding of the operating performance and
strategies of the principal Group Sectors, and numerous meetings
and roadshows, which permit more direct contact between the
financial community and the Group’ senior management.
400
Ordinary
Preference
350
Savings
300
250
200
For holders of Fiat shares:
Toll-free telephone number in Italy:
800-804027
Website:
www.fiatgroup.com
E-mails:
[email protected]
[email protected]
For holders of ADRs:
150
100
50
Toll-free telephone number in the USA and Canada: 800 900 11 35
Outside the USA and Canada:
781 575 43 28
Website:
www.adr.com
0
01/03 02/03 03/03 04/03 05/03 06/03 07/03 08/03 09/03 10/03 11/03 12/03
Performance of FIAT stock with respect to MIBTEL index and Eurostoxx Auto since January 1, 2003 (1/1/03=100)
140
120
100
80
60
Fiat ordinary shares
MIBTEL
Eurostoxx Auto
40
20
01/2003
02/2003
03/2003
04/2003
05/2003
06/2003
In 2003 the financial markets recovered significantly from their levels in 2002.
During the first quarter of 2003, stock prices fell due to the instability caused
by the conflict in Iraq and the uncertain prospects of economic recovery,
which were more than offset by the general improvement that followed in
the remainder of the year. In this context, the period of difficulty and great
change faced by the Fiat Group affected its stock price, which suffered more
than that of its competitors.
07/2003
08/2003
09/2003
10/2003
11/2003
12/2003
In the first part of 2003, Fiat stock was impacted by the heavy losses
reported for 2002. However, presentation of the Relaunch Plan by the new
management in June 2003 and the successful subscription of the capital
increase generated enough investor confidence as to permit stabilization
of the stock price in the second half of 2003.
11
Minimum and maximum monthly price (in euros)
Stockholders
Stockholder base at December 31, 2003
Fiat ordinary shares
10
9
IFIL
Other stockholders
8
7
Generali
Group
6
5
Italian
institutional
investors
4
3
Libyan Arab
Foreign Inv. Co.
Mediobanca
2
International
institutional investors
1
0
Sanpaolo IMI
Group
01/03 02/03 03/03 04/03 05/03 06/03 07/03 08/03 09/03 10/03 11/03 12/03
Fiat preference shares
Ordinary shares
800,417,598
IFIL
10
30.06%
9
Generali Group
2.76%
8
Libyan Arab Foreign Inv. Co.
2.70%
7
Mediobanca
2.39%
6
Sanpaolo IMI Group
5
International institutional investors
16.26%
4
Italian institutional investors
10.76%
3
Other stockholders
33.00%
2.07%
2
1
0
01/03 02/03 03/03 04/03 05/03 06/03 07/03 08/03 09/03 10/03 11/03 12/03
Fiat savings shares
10
Highlights per share (in euros)
2001
2002
2003
Cash flow per share (**)
3.856
(2.911)
0.407
Earnings per share
(0.841)
(6.660)
(2.412)
Dividend per share (*)
9
ordinary and preference shares
0.310
–
–
8
savings shares
0.465
–
–
Stockholders’ equity
per share at 12/31
22.462
13.489
8.623
Official price per share
7
6
5
4
3
2
1
0
12.28.01
12.30.02
12.30.03
ordinary shares
17.921
7.704
6.142
preference shares
12.267
4.348
3.704
savings shares
11.459
4.183
3.957
(*) Reflects the distribution of earnings attributable to the respective year.
01/03 02/03 03/03 04/03 05/03 06/03 07/03 08/03 09/03 10/03 11/03 12/03
(**) Net result plus depreciation and amortization.
12
Fiat Group Relaunch Plan
In June, the Company presented its Industrial and Financial
Relaunch Plan. This four-year plan, which lays the basis for full
recovery of the Group by focusing the scope of its activity and
industrial mission on the automotive business, enabled the
Company to adopt decisive measures to resolve problems
and accelerate the return to growth.
The Plan, which includes detailed operational plans for each
of the individual Sectors, set forth the following fundamental
Group guidelines:
❚ Improving cash-flow generation and profitability is the top
priority;
❚ A major effort must be made in the areas of product
development, innovation and marketing by launching new
models, investing heavily in technology and strengthening
the distribution networks;
❚ The cost structure must be made highly competitive by
rationalizing the Group’s product design and engineering
operations, streamlining its manufacturing organization,
increasing efficiency and strongly supporting the
development of professional competencies among
the engineering, marketing and distribution staff.
Results for the full year enabled the Company to confirm its
commitment to meeting the objectives of the Relaunch Plan,
which are:
❚ Achieve operating breakeven in 2004 at the Group level.
❚ Achieve a 4% return on sales by 2006 (5.5 percentage points
higher than in 2002).
❚ Generate positive operating cash-flow (operating result
plus depreciation and amortization) in 2005.
The Group has already reached many of its stated objectives
while work in other areas is progressing in line with
expectations:
❚ Cash generation: Over 9 billion euros were generated
from disposals and a capital increase.
❚ Operating breakeven: The positive performance of the
fourth quarter points in the right direction.
❚ Corporate structure: A major effort made to streamline the
Group structure, including the disposals completed during
the year, will reduce the number of Group companies from
over 900 in 2002 to about 600 by the end of 2004.
❚ Structural cost reduction: Eight of the 12 plants slated for
closure have already been shut down or are in the process of
being shut down, and staff levels have decreased as expected.
❚ Margin improvement: New product launches have been
accelerated, and the average age of the product line has
been lowered.
In addition, newly established cross-sector teams have been
active for several months with the aim of increasing Group
synergies and accelerating the achievement of results. These
teams work in the purchasing, productivity, quality, overhead,
and commercial areas. Their purpose is to assist the Company
in focusing on the principal variables of the statement of
operations and ensure the exchange of best practices.
Consequently, the strength of the Group is greater than the
sum of strengths of the individual Sectors.
Thanks to these teams, a vast number of new projects were
launched at the Operating Sectors and Business Units. Over 800
projects were being implemented at the end of 2003 and are
expected to produce concrete improvements in the 2004 results.
The projects promote the dissemination of an entrepreneurial
spirit in the Group, enhance the transparency of expectations,
and, ultimately, maximize the possibilities for success.
The number of projects and people involved in the turnaround
effort has been growing steadily.
13
Fiat Auto
Products. In 2003 Fiat Auto accelerated its efforts to extend and
strengthen its product range, especially in the second half of the
year. It was able to move up the launch of no less than four new
models: the Fiat Panda city car, the Fiat Idea compact MPV, the
high-end compact Lancia Ypsilon and the Alfa GT sport coupé.
These attractive and innovative new cars were accompanied by
face-liftings of the Fiat Punto, the Alfa 156 and the Alfa 166.
Although they differ in conception and use, the new models
all bring technical and stylistic innovation to their respective
categories. This was enthusiastically welcomed by the public,
which ensured the immediate commercial success of the
vehicles, and by the media. The new cars received in fact
numerous awards: from the prestigious “Car of the Year” award
received by Fiat Panda along with another seven titles, to the
prizes won by Lancia Ypsilon (3) and the new Alfa 156 (2).
One of the keys to the strategy for strengthening the Fiat,
Lancia and Alfa Romeo brands is technological innovation.
In 2003 this focus led to the introduction of the 1.3 liter Multijet
16-valve engine, a small, compact turbodiesel that represents
the second generation of common rail engines and extends
the benefits of this technology to the much broader public
of compact car owners.
Services. In keeping with Fiat Auto’s long-time principle of
providing customers with a complete mobility service rather
than just a means of transport, in 2003 the company
strengthened its range of integrated services, especially in the
infomobility sector. It also boosted its rental operations, where
Fiat Auto works through Savarent and Leasys (the latter jointly
owned with ENEL), which are active in long-term rentals, and
Targarent, which operates in the short-term hire segment.
Moreover, in 2003 Savarent expanded its services to include
a less expensive product, Soft Rent, with the aim of reaching
private customers.
comprised the TNF-A series, with which New Holland has
redefined the concept of orchard tractors, and the VM and VL
grape harvesters. The latter are a new generation of highly
flexible machines that can handle a wide variety of terrain and
offer extensive operational scope, as they can be used not only
for harvesting but also for all other vineyard operations.
The same principle of operational flexibility underlies the Case
IH AFX combine harvester, which introduces the single rotor
system for both threshing and separation.
These products brought CNH an extraordinary number of
awards in Europe and America in 2003.
With more than 40 new product launches in the construction
equipment segment, CNH demonstrated that it is one of the
most vibrant and aggressive competitors in the sector. Fiat
Kobelco, the brand created in mid-2002 to strengthen CNH’s
position in the world construction equipment market, presented
a range of excavators with renewed cabins, hydraulics and,
above all, engines.
The Case brand extended its product portfolio with the
introduction of the TX series of telescopic handlers and new
excavators and wheel loaders.
Services. In 2003 CNH developed initiatives aimed at
strengthening customer relationships, working to monitor
customer satisfaction and improve its communication tools.
This led to the introduction of new instruments to measure
product satisfaction and delivery quality with dealers in selected
areas of Europe, and to the development of the “Voice of the
Market” program, which performs a similar function and is
scheduled to begin operating this year.
In line with the CNH Identity Project, last year visitors were for
the first time able to experience a unified CNH environment
created within the stands devoted to individual brands at the
Intermat and Agritechnica trade fairs.
Iveco
In 2003 Ferrari confirmed its position of excellence not only on
the racetrack, where the Formula 1 team won the Drivers’ and
Constructors’ world championships for the fourth and fifth
consecutive years respectively, but also in markets all over the
world. Maserati introduced the Quattroporte, its flagship saloon
with a 400-horsepower V8 engine, which combines the qualities
of a luxury executive automobile with the authentic grand
touring spirit.
CNH Global
Products. In the agricultural equipment segment, the renewal
of the product line led to the introduction of highly innovative
products. These included the mid-horsepower New Holland
TSA tractor, which is equipped with the revolutionary Fast Steer
technology, designed to facilitate turnaround. Other innovations
Products. In the heavy vehicles segment, Iveco introduced the
Stralis Active Day and Active Time, which join the Stralis Active
Space launched in 2002. The new models meet the needs of
customers operating short and medium-distance routes.
The intermediate range was strengthened with the introduction
of the New Eurocargo. The launch began in February and was
completed by the end of 2003. Since 2002 the Eurocargo has
been the European leader in the segment.
Irisbus also introduced a wide variety of new models in 2003,
including the Evadys touring busses and the smaller Midys. In
the intercity bus sector, the company introduced the 10.6 meter
version of the Ares, which is now available in a broad variety
of lengths up to a maximum of 15 meters.
Last year also saw the launch of the Europolis electric bus.
During the year Eurofire introduced three new models of rescue
vehicle: a 37-meter ladder truck, a new articulated ladder truck
14
and an aerial platform with a maximum reach of 27 meters,
both with computer-controlled stabilization systems.
In addition, in 2003 Iveco responded to new demand for
decontamination vehicles, delivering a prototype to the Italian
Fire Department. The company also continued its search for
ever greater performance for airport fire-fighting equipment
with the introduction of an 8x8 version of the Dragon range.
Services. In 2003 Iveco paid special attention to the
development of all of its Customer Service activities. On one
front, the company developed a series of new products (ranging
from guarantee extensions to planned maintenance programs)
that help preserve vehicle values over time. On another, it
reinforced all of its spare part procurement and delivery
systems. These include a single “virtual warehouse” stocking
more than 220,000 parts, the Vehicle Off Road (VOR) delivery
system, which can guarantee delivery of spare parts within
twelve hours anywhere in Europe and the “Vetrina Ricambi”
(Spare Parts Window), an Internet tool that provides an online
view of the entire stock of a particular dealer and optimizes
the transfer of information flows to the RAMSES spare parts
management system, which made it possible to reduce dealer
stocks by 3%.
An important feature of 2003 was the program for dealer
skill enhancement, which qualified dealers to handle the new
technologies now found in vehicles. This was facilitated with
the development of new diagnostic tools, such as the all-new
E.A.S.Y. system.
Another part of this activity was the innovative DEEC project,
in which each dealer will have an “expert diagnostician” in
constant contact with the Iveco technical center.
15
Overall, approximately 13,000 people at 109 centers in Italy
and abroad worked on the Group’s research and development
projects in 2003. Total R&D expenditures came to 1,747 million
euros, or 4% of manufacturing revenues.
accidents resulting from fog and, if they occur, minimize their
consequences. In critical situations, “Safety Cars” equipped
with innovative systems will guide the other vehicles at a safe
speed.
Efforts continued during the year to strengthen and rationalize
the Group companies’ pursuit of innovation. In particular,
cooperation between the Fiat Research Center (FRC) and Elasis
was more intense than ever, ensuring that the two research
facilities can interact more effectively and achieve a greater
degree of synergy. This commitment led to several projects
to which each center contributes its own unique skills.
❚ LED taillamp technology. The Fiat Research Center
demonstrated the feasibility of its patented LED (Light
Emitting Diode) technology by developing a 7 mm thick
taillamp unit that is expected to offer a number of advantages
over conventional components, including minimum thickness,
low cost for both the device and for the system as a whole,
and greater design freedom.
Fiat Research Center
In 2003, the Fiat Research Center and its staff of around 950
employees achieved results which had a significant impact on
product and process innovation, helping improve the Group
companies’ industrial competitiveness.
Thanks to its research, the FRC transferred over 250 deliverables
to clients during the year and earned a number of awards,
including:
❚ The award received at the 32nd Barcelona International Motor
Show for the Center’s highly innovative UNIAIR electronic
valve control technology.
❚ The “Oscar Masi” award for industrial innovation assigned
to the “Gasdriver” vehicle. This vehicle, which combines a
robotized transmission, natural gas-powered engine and
an electric motor/generator, was voted best product in the
“Energy technologies for sustainable development” category.
Scientific output was particularly prolific, as witnessed by the 97
patents filed during the year. With these additions, the number
of active patents held by the Fiat Research Center rose to 891.
The major achievements of 2003 are reviewed below:
❚ 90 HP 1.3-liter 16-valve diesel engine. The Fiat Research
Center contributed to the development of a new version
of the small Multijet diesel powerplant which was specifically
designed to increase maximum torque by 17% and power
output by 28%, all while complying with the future Euro 4
emissions limits. The new engine will be taken into
consideration for future applications on mid-size and small
cars of the Fiat Group.
❚ Fiat Seicento Hydrogen. The second version of the hydrogenpowered Seicento was developed with fundings from the
Italian Ministry of the Environment. Road tests on the vehicle
confirmed the new fuel cell propulsion system’s high
efficiency.
❚ Infonebbia fog warning system. The Fiat Research Center
and ANAS, the Italian national highway administration,
promoted the “Integrated Traffic Safety” project based
on cooperation between smart vehicles and highways. This
project will set up two development test sites equipped
with Intelligent Transportation Systems (ITS) and a mini-fleet
of vehicles. The objective: help the driver, prevent traffic
❚ Diesel particulate filter. Using DPFs, or Diesel Particulate
Filters, brings particulate emissions of diesel engines to levels
similar to those of their spark ignition counterparts. Together
with Fiat-GM Powertrain, the Fiat Research Center has
developed a filter system that, unlike the designs currently
in use, requires no maintentance or additives, and makes full
use of the MultiJet powerplant’s potential.
Elasis
Elasis, with a staff of more than 800 employees, operates in
the field of research on automotive products and processes,
and is provided with sophisticated testing equipment and
computer-aided design tools. It is thus a basic asset for a
Group pursuing a strategy of continuous innovation.
Being able to participate in projects enjoying national or EU
funding (where 16 grant applications representing a total value
of 83 million euros were submitted in 2003) helps Elasis
cooperate with the public research system. It also stimulates
the development of the basic knowledge which is essential
for effective applied research.
In this context, Elasis takes part in the initiatives sponsored and
approved by the Italian Ministry of Education, Universities and
Research. In 2003, Elasis thus joined with the Ministry and the
Campania regional administration in setting up the Naples
Materials Science Center (Distretto Tecnologico sui Materiali).
Exploiting its know-how and ability to integrate design,
experimentation, and technological skills, Elasis is developing
a new concept of highly versatile automobile.
In 2003, Elasis continued to develop methods for extending
its Virtual Product Development (VDP) capabilities. Among
significant achievements, Elasis simulated all of the crash tests
called for by current European regulatory requirements, and
developed a virtual reality facility where researchers can go
through all the motions of disassembling a car.
For its work on vehicles, Elasis is investigating innovative
architectures that will serve as the building blocks for new
products with versatile interior layouts, all-wheel drive systems,
modular chassis frames and highly accessible body shells.
In powerplant design, Elasis continued to expand the know-how
it can bring to bear on small-displacement spark ignition
engines, reducing their fuel consumption and exhaust
emissions. In particular, introducing innovations such as the
16
two-ring piston and a new valve actuation control on several
versions of the FIRE engine significantly reduced on-vehicle fuel
consumption. Significant progress was also made in optimizing
NVH (Noise, Vibration and Harshness) and in developing new
manual and robotized transmissions.
Elasis also continued to hone its skills – and make major
investments – in the electronic control systems that are playing
an increasingly vital role in today’s cars. During the year, Elasis
wrapped up many of these skills in a single package with its
development of a one-of-a-kind simulation bench – a true
“virtual car” – that slashes the time needed to fine-tune control
systems and debug on-board electronics.
The full benefits of engineering research can only be achieved
by leveraging the power of an advanced ICT system. This is why
Elasis has deployed an ICT function capable of supporting
engineering activities and generating research in the area.
During the year, for example, a knowledge management portal
was set up in order to capitalize on the center’s store of
engineering knowledge.
Elasis’s work is by no means restricted to vehicle research, but
also addresses the many mobility and traffic safety issues that
revolve around the automobile. As part of this wider purview,
the center’s research also focuses on experimental materials,
technologies and telematics systems. Similarly, Elasis strives to
broaden its understanding of safety-related problems through
joint research initiatives with public agencies and infrastructure
operators. Major projects of this kind saw Elasis partnered with
the Province of Milan, the Province of Perugia, the Municipality
of Salerno and Southern Italy’s highway concessionaire
Autostrade Meridionali.
17
Environment
In 2003, the Fiat Group Sectors put a range of products on
the market whose environmental impact was lower than ever
before in all three key areas of fuel economy, emissions control
and efficiency. Corresponding improvements were made in
manufacturing processes. For both products and processes,
these achievements stem from the kind of innovation that can
only be made possible by continuing research.
The Group’s research work, so essential to developing effective,
competitive technologies, is spearheaded by the Fiat Research
Center, Elasis, and the Center for the Study of Transportation
Systems.
Major achievements and initiatives in 2003 are detailed in
the Environmental Report, submitted together with the
Fiat Group’s Annual Report for the twelfth year running. A
few of the highlights of the past year are illustrated below:
❚ Traditional Engines. Product engineering work was completed
on the 1.3-liter 16-valve Multijet diesel engine, which already
meets Europe’s future emissions limits. The new powerplant
has been installed on innovative cars such as the Ypsilon, Idea
and Panda.
Iveco started testing of its new V-6, V-12 and V-16 diesel
engines, as well as its new Cursor engine for the US market,
which also complies with the upcoming Euro 4 standards. The
new medium Eurocargo truck was also introduced in 2003.
This unit’s new Tector engine, which boasts low emissions and
fuel consumption, has been developed in 3-, 4- and 6-cylinder
configurations for application on agricultural and construction
equipment, also with the aim of meeting the new standard
requirements of the US market.
❚ Natural Gas-Powered Vehicles. NGVs continued to gain
ground, thanks in no small measure to the Group’s foresight
in providing buyers with the most complete lineup of natural
gas vehicles on the market today. This range was further
extended in 2003 with the introduction of the Punto Natural
Power, while production of the ultra-low emissions 6-cylinder
Tector and Cursor engines designed for busses and
city-dwelling trucks also got under way.
❚ Agricultural and Construction Equipment. New Holland
and Case used common platforms to renew almost half of
the models in the two makers’ ranges of agricultural and
construction equipment. All of the new machines are significantly
more compatible with the environment than their predecessors.
Renewal of both ranges will be completed in 2004.
❚ Electric and Hybrid Propulsion Systems. In 2003, earlier
prototype vehicles were joined by the new Panda
“Hydrogen”. Further advances were also made in public
transit applications, where trials are now being carried out
on two new fuel cell-powered busses in Turin and Madrid.
❚ Production processes. The Fiat Research Center continued to
work with Sectors on dry machining process that will reduce
cutting fluid usage, thus bringing down costs and improving
environmental performance. For its part, the Fiat Research
Center stepped up its testing of alternative fibers which will
make a major contribution to reducing overall vehicle weight.
❚ Ongoing process improvements. Thanks to the extension
of the Group’s environmental management systems and
the continuous improvement programs implemented at its
production processes, 2003 witnessed further increases in our
waste recycling performance, with the percentage of waste
sent to controlled landfills dropping yet again. Volatile organic
compound (VOC) solvent emissions from Fiat Auto, CNH and
Iveco paint shops were also reduced.
Overview of the main environmental achievements of the Fiat
Group’s Italian industrial facilities over more than a decade
1991
2002
2003
Recycled waste
61.0%
77.8%
82.8%
Waste to controlled landfills
37.0%
7.6%
7.4%
Solvent emissions
from paint shops (g/m2)
144.0
77.4
72.4
18
Human Resources
At December 31, 2003, the Group had 162,237 employees,
compared with 186,492 at the end of 2002.
The Group hired approximately 11,500 new employees in
2003 — approximately 3,400 in Italy and approximately 8,100
in other countries.
A total of approximately 22,700 employees (10,200 in Italy
and 12,500 in other countries) left the Company.
Business acquisitions and disposals resulted in a net decrease
of 13,100 employees. The largest reductions stemmed from
the disposals of FiatAvio S.p.A., the Toro Assicurazioni Group,
Fraikin and Fidis Retail Italia.
Organizational and Management Changes
All Sectors continued to work on streamlining their
organizations and making them responsive to changes
in the business environment.
The priority specifically assigned to the deployment of
an effective corporate governance system resulted in the
establishment, at the senior management level, of an Internal
Audit Function by Fiat S.p.A. and the Group’s operating
companies.
The definition and implementation of the Group Relaunch Plan
required the strengthening of the Business Development and
Strategies Department and the establishment of a Corporate
Initiatives Function by Fiat S.p.A. Responsibilities similar to
those entrusted to the Corporate Initiatives Function were also
established at the Sector level.
An important chapter of the Relaunch Plan deals with the
strategic objective of increasing the Group’s competitiveness
by strengthening its management organization. In 2003, Fiat
S.p.A. and the Sector parent companies hired more than 90
management employees from outside the Group, including
seven who were selected to fill senior management positions.
In addition, the Group worked to enhance the value of its
management personnel by advancing to key positions executives
who showed that they possessed the requisite skill sets.
ENHANCING THE VALUE OF HUMAN RESOURCES
The high skill level possessed by the Group’s staff is
demonstrated by the large number of professionals it includes
(25,269 in total, 42% of whom work outside Italy).
Hiring Qualified Resources. In 2003, the Group hired a total of
about 400 recent college graduates. In addition, it was deeply
involved in the Automotive Engineering School at Turin’s
Politecnico University and provided support for its activities.
Students are expected to begin graduating from this specialized
degree program in 2004.
Leadership. The program used to assess and develop
leadership became operational in 2003. About 800 managers
participated in the assessment phase and were provided with
feedback about their leadership style.
Management Review. The development of internal resources is
ensured by the management review process. More than 7,000
employees have gone through this process, which is designed
to provide a quantitative and qualitative analysis of their
management skills.
People Satisfaction. The survey cycle launched in October 2002
was completed in 2003. Improvement programs based on this
survey are being implemented by the Sectors and operating
companies.
Professional Development and Training. In 2003, the Group
invested 95 million euros (2% of its total payroll) in training and
professional development programs designed to support the
operations of its companies around the world. About 71,000
employees received training and development support.
Isvor Fiat, which acts as the corporate university of the Fiat
Group, also offers its services to noncaptive clients. In 2003,
Isvor Fiat provided training, consulting and professional support
programs representing a total of 29,200 classroom days.
An additional 37,800 employees were enrolled in 340 courses
and received a total of 798,000 hours of distance- and openlearning support.
Fiat Grants and Scholarships. The Fiat Grants and Scholarships
Program, which was created in 1996 and is available to the
children of active Group employees both in Italy and abroad,
is continuing with considerable success.
In 2003, Fiat awarded 545 grants, including 183 to students
in Italy and 362 to students in other countries (*), at a total cost
of 978,000 euros.
(*) Brazil, France, Poland, Spain and the United States.
INDUSTRIAL RELATIONS
Most of the activity in the area of industrial relations involved
managing the restructuring programs launched in 2002 and
updated in 2003 to make them consistent with the objectives
of the Fiat Group Relaunch Plan. Staff reductions were carried
out through the social shock-absorber programs available under
existing laws and through social impact plans, most of which
agreed with the unions, that cushion the impact of downsizing
measures on Group employees.
In Italy, Fiat Auto and certain Magneti Marelli and Comau
factories stopped using the “Cassa Integrazione Straordinaria”
(Special Temporary Layoff Benefits Fund) within the authorized
12-month period. A portion of the employees covered by the
Cassa Integrazione Straordinaria returned to work, except for
about 500 employees from the Fiat Auto plant in Arese for
whom the Ministry of Labor granted authorization to use the
Cassa Integrazione Straordinaria until December 31, 2004. The
remaining redundancies left the Companies under mobility
allowance, the so-called “mobilità di accompagnamento alla
pensione”, i.e. long-term unemployment benefit for workers
who are expected to reach retirement age during their mobility
benefit period.
19
Mobility allowances were also used to achieve the downsizing
targets set forth in the staff restructuring plans of the other
Group Sectors. One of the tools that can be used in this area
is long-term mobility allowances. These allowances, which were
made available under a law enacted in April 2003, are provided
over a longer period than regular mobility benefits. A total of
2,400 employees of Fiat Group companies and 181 Teksid
employees were eligible for coverage under this benefit
program.
Outside Italy, staff redundancies were handled primarily through
programs developed with the agreement of local trade unions.
The companies involved were: Irisbus (closure of a plant in
Mataró, near Barcelona, and of the Ikarus factory in Hungary);
CNH (restructuring of the Berlin facility and definition of a social
impact program for the closure of the Crepy factory in 2004);
Magneti Marelli (staff reductions at the Magneti Marelli Lighting
plant in Cannock, UK); and Comau (completion of the
redundancy procedure for Comau Estil).
As required under the applicable EU Directive, restructuring
issues, especially those that have a transnational impact, were
the subject of information and consultation with the members
of the Fiat Group European Works Council at the meeting of
the Restricted Committee in mid-March 2003 and at the annual
meeting on November 6 and 7, 2003. On that occasion, the
Company provided extensive information about its Relaunch
Plan, particularly with regard to its impact on employment levels
and the measures that will be used to handle redundancies.
In Italy, collective bargaining negotiations focused on the
National Collective Labor Agreement for Metalworking
Employees, which expired in December 2002. The new contract,
Human Resources
which was renewed after about four months of negotiations,
was signed by Federmeccanica, an organization representing
metalworking businesses, and all of the unions (FIM-CISL, UILMUIL and FISMIC), except for FIOM CGIL, which refused to sign.
The new contract, which covers about 70,000 Group employees
in Italy, sets wages for two years and work rule provisions for
four years. Under this agreement, employees were granted
monthly wage increases averaging 90 euros before taxes (45
euros on July 1, 2003, 24 euros on February 1, 2004 and 21
euros on December 1, 2004). The incremental compensation
for the first six months of 2003 was set at 220 euros before taxes,
payable in two lump-sum installments (115 euros in June 2003
and 105 euros in January 2004). When fully implemented in
2005, the contract package will have an impact on labor costs
of about 5% (about 2% in 2003 and 2.4% in 2004).
FIOM’s refusal to sign led it to adopt a posture of ongoing
unrest. This resulted in several strikes, but they were joined
by only a limited percentage of workers. The same low
participation occurred when strikes were called to protest
redundancy agreements.
Outside Italy, the main labor agreements included the signing
of annual collective contracts by most Fiat Group companies
operating in France. These contracts provide for annual wage
increases of about 2%. In Poland, where staff compensation did
not change in 2002, the employees of Fiat Auto received a wage
increase of about 3%. In Brazil, Fiat Automoveis SA-FIASA and
the local labor unions reached an agreement in June on the
payment of an annual bonus tied to company results and
negotiated a wage increase that is payable in advance of
the renewal of the industry-wide labor agreement.
20
of the Fiat Group and Fiat S.p.A
INTRODUCTION
The Industrial and Financial Relaunch Plan based on refocusing
the Fiat Group on automotive industrial activities was approved
in June 2003.
Significant measures were taken to restore balance to the
financial structure of the Group, among which are the capital
increase carried out in July 2003 at Fiat S.p.A., subscription of
which generated an influx of new stockholders’ equity of
1,836 million euros, and the sale of activities not considered
strategic.
Consistently with this strategy, the most important transactions
modifying the scope of consolidation are reviewed below:
❚ In the first quarter of 2003, Iveco sold the activities of Fraikin
to Eurazeo. The operations of Fraikin, which specializes in the
long-term vehicle leasing business, were deconsolidated as
of the beginning of 2003.
❚ In the first quarter of 2003, Business Solutions sold
approximately 56% of IPI S.p.A. to the Zunino Group. IPI
S.p.A., which was deconsolidated as of January 1, 2003,
operates in the field of large property improvement,
management, and sales.
❚ Fiat Auto Holdings’ retail financing activities in Brazil were
sold to the Itaù banking group at the end of March 2003
and deconsolidated from that date.
❚ The agreement to sell the Toro Assicurazioni Group to
the DeAgostini Group was signed on May 2, 2003 and the
relevant operations were deconsolidated as of the same date.
❚ On May 27, 2003, as part of the agreement signed by Fiat
and Capitalia, Banca Intesa, Sanpaolo IMI and Unicredito on
March 11, 2003, and following approval by the competent
authorities, the first part of the transaction for the sale by Fiat
to the Banks of a majority interest (51%) of Fidis Retail Italia
was concluded. Fidis Retail Italia is the company that controls
the European activities of Fiat Auto Holdings in the field of
retail consumer financing for automobile purchases.
The sale to Fidis Retail Italia of the equity investments in
the other financial companies covered by the agreement
was finalized in October 2003, with the sole exception of
the company active in the United Kingdom.
❚ In execution of the contract signed on July 1, 2003 and
after having met the conditions precedent, the sale of the
aerospace activities of FiatAvio S.p.A. to Avio Holding S.p.A.,
a company 70% owned by The Carlyle Group and 30% by
Finmeccanica S.p.A., was finalized. Said activities were
deconsolidated effective from the date of the agreement.
Please note that Iveco has valued the activities of Naveco, the
50-50 joint venture with the Yueijin Group, according to the
equity method since January 1, 2003. This investment was
previously consolidated using the proportional method.
To provide clearer information on the Group’s operating
performance, the financial figures are illustrated and
commented in the following chapter, “Financial Position
and Operating Results by Activity Segment” broken
down according to Industrial Activities, Financial Activities,
and Discontinuing Operations.
FINANCIAL POSITION AND OPERATING RESULTS
OF THE FIAT GROUP
Operating Performance
Although it continued to operate in a difficult environment
characterized by market stagnation and appreciation of the
euro, the Group improved its own economic indicators in line
with the targets set in the Relaunch Plan. Losses decreased
significantly, particularly in terms of the performance of
continuing operations – those activities that are destined to
remain within the scope of consolidation. The results achieved
by the Group reflected the major cost savings deriving from the
measures envisaged in the Relaunch Plan and the gains realized
upon disposal of activities, although it had to face the negative
effect of restructuring expenses and writedowns, as well as other
non-operating expenses and provisions.
Highlights of Group operating performance are illustrated
below. For a more detailed analysis, see the section
“Operating Performance – Sectors of Activity”.
Net Revenues
Fiat Group net revenues, including changes in contract work
in progress, totaled 47,271 million euros, reflecting a 15.1%
decrease from the previous year, largely due to the disposal
of activities. If continuing operations alone are considered –
excluding the revenues of businesses sold in 2003 from the
values for both fiscal years – the reduction would have been
7.3%. The negative foreign exchange effect caused by
appreciation of the euro against other currencies and
contraction in the volumes of Fiat Auto were the principal
causes of this change.
Revenues broken down by Sector are illustrated below:
❚ Fiat Auto reported revenues of 20,010 million euros for 2003,
9.6% less than the 22,147 million euros reported in 2002 due
to the contraction in sales volumes and disposal of retail
financing activities (decrease of approximately 8% on a
comparable basis). Fiat Auto sold a total of approximately
1,700,000 automobiles and light commercial vehicles, down
8.8% from 2002.
In Western Europe, where 1,179,000 units were sold, the
decrease was 9.4% with respect to the previous year. The
main causes for this downturn were persistent softness on
its principal markets, growing competitive pressures, and
anticipation leading up to the introduction of new products.
The new models came onto the market only at the end of
2003 and thus the benefits deriving from their sale were
only marginal. On the major Western European markets,
decreases were reported in France (-16.3%) and in Italy
(-11.5%), in contrast with the positive performance of
sales in Great Britain and especially Spain (+14.8%).
21
Outside Western Europe, sales volumes expanded markedly
in Poland (+15.9%), stimulated by the strong surge in
demand. In Brazil, annual sales fell by 11.3% with respect to
2002, largely on account of market softness, although demand
and Sector sales recovered sharply in the last quarter of 2003.
❚ In 2003 CNH posted revenues of 9,418 million euros, -10.4%
compared with the 10,513 million euros reported in the
previous year, in consequence of the negative foreign
exchange effect caused by the weakening of the dollar
against the euro. On a comparable exchange basis, revenues
would have been largely unchanged from the previous year,
insofar as the higher revenues from agricultural equipment
sales were offset by the reduction in revenues from
construction equipment.
Excluding the foreign exchange effect, revenues in the
agricultural equipment segment improved thanks to the sales
of new products. In particular, sales of combine harvesters
were strong on the principal markets, with a positive effect on
market shares compared with the previous year.
On a comparable exchange basis, revenues in the
construction equipment segment have continued to decrease
due to lower sales in Western Europe and Latin America,
partly connected to unfavorable market conditions, and in
North America where the decrease was smaller due to a
recovery in the sales of heavy equipment.
❚ Iveco had revenues of 8,440 million euros in 2003, down by
7.6% from the 9,136 million euros reported in 2002, caused by
the disposal of activities and deconsolidation of Naveco. On
a comparable basis, revenues would have been virtually the
same as in 2002.
Iveco sold approximately 146,000 units, down 9.6% from the
previous year. In Western Europe, unit sales were down sharply
in Italy (-13.6%), caused by the strong contraction in demand
following the end of “Tremonti bis” law tax incentives, in
Great Britain (-14.9%) and in Germany (-6.7%), in contrast with
a slight increase in France, which went against the negative
market trend, and in Spain. The Sector maintained its
leadership in the Western European market for medium range
vehicles thanks to introduction of the New Eurocargo model.
❚ Ferrari and Maserati reported revenues of 1,261 million euros
for the year, up 4.4% from the previous year notwithstanding
the negative foreign exchange effect. The improvement is
attributable to higher sales volumes for Ferrari models, while
Maserati sales suffered from the contraction in demand for
spider models in the United States.
❚ Magneti Marelli ended the year with revenues of 3,206 million
euros; the 2.5% decrease with respect to the previous year
stemmed mainly from the foreign exchange effect. On a
comparable basis, revenues would have been 3.4% higher,
reflecting the positive performance of the Engine Control unit,
mainly as a result of the introduction of the diesel system, and
of the Lighting unit thanks to new products.
❚ Comau posted revenues of 2,293 million euros, almost the
same as in the previous year. In North America, thanks to the
backlog of outstanding orders at the beginning of the year,
the Sector was able to record an increase in work completion
which made it possible to offset most of the negative effect
caused by the weakening of the dollar. Contract work in
Europe and the maintenance activities of Comau Service
confirmed the levels reported for 2002.
2003
Consolidated
Net revenues
47,271
44,498
2,949
55,649
48,026
8,051
Cost of sales
40,830
38,468
2,538
48,619
41,949
7,098
Gross operating result
6,441
6,030
411
7,030
6,077
953
Overhead
4,748
4,509
239
5,782
5,192
590
1,747
1,724
23
1,748
1,694
54
(456)
(511)
55
(262)
(539)
277
Operating result
(510)
(714)
204
(762)
(1,348)
586
Investment income (expenses) (*)
(156)
(79)
(46)
(690)
(261)
(360)
(236)
Other operating income (expenses)
Discontinuing
Operations
2002
Continuing
Operations
Consolidated
Continuing
Operations
Discontinuing
Operations
Non-operating income (expenses) (**)
347
359
(12)
(2,503)
(2,267)
EBIT
(319)
(434)
146
(3,955)
(3,876)
(10)
Financial income (expenses)
(979)
(1,067)
88
(862)
(1,094)
232
(1,298)
(1,501)
234
(4,817)
(4,970)
222
650
541
109
(554)
(699)
145
(1,948)
(2,042)
125
(4,263)
(4,271)
77
–
90
–
–
(14)
(14)
(1,948)
(1,952)
125
(4,263)
(4,285)
63
Group interest in net result
(1,900)
Result before taxes
Income taxes
Net result of normal operations
Result of intersegment equity investments
(3,948)
(*) This item includes investment income (expenses) as well as writedowns and upward adjustments in equity investments valued by the equity method.
(**) The 2003 figure of Continuing Operations includes 1,742 million euros in net gains on the disposal of Discontinuing Operations.
22
❚ Teksid, with revenues of 844 million euros, reported a sharp
decrease with respect to the 1,539 million euros reported in
the previous year, due to the sale on September 30, 2002
of the Aluminum Business Unit. On a comparable
consolidation basis and excluding the negative foreign
exchange effect, revenues would have increased by 3.7%
thanks to higher volumes in the Magnesium Business Unit,
largely in consequence of demand from the SUV segment
particularly in the United States, and in the Cast Iron
Business Unit.
❚ Business Solutions reported revenues of 1,816 million euros,
down 7.6% from the previous year. In addition to the effect
of disposals, this result reflected the slowdown in the services
market and the refocusing of Sector activities on Fiat Group
companies.
❚ Itedi reported revenues of 383 million euros, 6.4% higher
than in fiscal 2002. This improvement derived from higher
advertising revenues, brand-stretching initiatives, and sales
of the weekly “Specchio,” which offset the decrease
stemming from lower daily newspaper sales.
Operating Result
The operating result reflected a reduction in losses, which
decreased from 762 million euros in 2002 to 510 million euros
in 2003. The improvement is even more evident if the
performance of Continuing Operations alone is considered,
which reported a 634 million euros decrease in operating loss
(from a loss of 1,348 million euros in 2002 to a loss of 714 million
euros in 2003). The recovery accelerated over the course of the
year, reflecting the efficiency gains realized through
implementation of the Relaunch Plan.
During 2003, research and development outlays, which are
posted directly to the statement of operations and thus
included in the operating result, totaled 1,747 million euros.
This amount, virtually unchanged from fiscal 2002, reflects the
effects of changes in the scope of consolidation and the negative
effect of changes in currency conversion rates. If these effects
were excluded, the Group would have posted higher R&D
outlays deriving from higher expenses at Fiat Auto, as part of its
strategy to renew its product range, and at Ferrari and Maserati,
which further increased its commitment to innovation.
The operating result broken down by Sector is illustrated below:
❚ Fiat Auto reduced its operating loss from 1,343 million euros
in fiscal 2002 to 979 million euros in 2003. On a comparable
basis – excluding from both years the results of the financial
companies that were sold – the reduction in losses totaled
468 million euros. This improvement is the result of savings
on product costs and overhead deriving from the cost
reduction plan and industrial synergies generated by the
alliance with General Motors; on the other hand, the Sector
suffered from the negative effects of lower volumes and
higher research and development costs.
Finally, the annual result realized only marginal benefits
from the new products that were introduced on the market
in the final months of the year.
❚ CNH posted operating income of 229 million euros in
2003, up from the 163 million euros reported for 2002,
notwithstanding the negative foreign exchange effect
stemming from appreciation of the euro. The Sector result
improved markedly thanks to improved margins on new
products, higher sales prices, and cost savings realized
through the integration plans with Case and the Relaunch
Plan.
These factors more than compensated for the negative
impact of volumes and product mix, the costs associated
with the introduction of new products, and higher social
security and medical costs for its employees.
Revenues
2003
2002
20,010
22,147
(2,137)
9,418
10,513
(1,095)
8,440
9,136
(696)
1,261
1,208
53
3,206
3,288
(82)
2,293
2,320
(27)
844
1,539
(695)
Change
625
1,534
(909)
1,654
4,916
(3,262)
1,816
1,965
(149)
383
360
23
(2,679)
(3,277)
598
Total
47,271
55,649
(8,378)
(*) Revenues for the Aviation Sector are shown until the date of its sale (July 1, 2003).
(**) Revenues for the Insurance Sector are shown until the date of its sale (May 2, 2003).
23
❚ Iveco closed fiscal 2003 with operating income of 81 million
euros, against income of 102 million euros in the previous
year, which included the positive result of sold activities. On
a comparable basis, it would have posted a slight decrease:
the Sector was negatively impacted by a contraction in
volumes connected to the difficult market situation, and
an unfavorable foreign exchange effect. Iveco responded
to these negative factors by significantly reducing
manufacturing costs and overhead.
❚ Ferrari and Maserati reported operating income of 32 million
euros. The Sector did not achieve the level of the previous
year (operating income of 70 million euros) due to high
research and development costs for new products and the
negative foreign exchange effect, which offset the
improvement in mix realized with the Ferrari models.
❚ Magneti Marelli reported a significant improvement in its
operating result, moving from an operating loss of 16 million
euros in 2002 to operating income of 32 million euros in 2003,
benefiting in particular from materials costs and overhead
containment measures.
❚ Comau posted operating income of 2 million euros, realizing
a significant improvement from the operating loss of 101
million euros reported for 2002, which had been caused
mainly by the high costs incurred on several important
contracts in Europe.
❚ Teksid closed fiscal 2003 with operating income of 12 million
euros, compared with operating income of 27 million euros in
2002, which included the operating income of the Aluminum
Business Unit. If this factor were excluded, the Sector would
have realized an improvement of 2 million euros mainly thanks
to cost cutting measures and increases in volumes, which
were partially reduced by the negative impact of product
mix and foreign exchange effects.
❚ Business Solutions reported operating income of 45 million
euros for 2003. The decrease from the 67 million euros in
operating income reported for 2002 is mainly attributable
to changes in the scope of consolidation. On a comparable
basis, operating income would have shown an improvement
of 6 million euros thanks to cost savings.
❚ Itedi had operating income of 10 million euros in 2003, up
sharply from the 3 million euros reported for 2002, thanks
to higher revenues, efficiency measures in all business areas,
and lower paper costs.
EBIT (Earnings Before Interest and Taxes)
Group EBIT was -319 million euros, compared with -3,955 million
euros for 2002. The major reduction in losses, which totaled
3,636 million euros, stemmed from the sharp improvement in
non-operating items, due to lower expenses and higher gains
realized on disposals, and the result of equity investments, in
addition to the reduced operating loss.
The change in EBIT was influenced by the following items:
The result of equity investments was -156 million euros,
compared with a negative balance of 690 million euros for the
previous year, which included the losses incurred by marking
to market equity securities portfolios held by the insurance
companies, which were sold at the beginning of May 2003.
The improvement in continuing operations alone totaled 182
million euros and was realized thanks to better results of certain
companies valued according to the equity method, in particular
Italenergia Bis.
Net non-operating income totaled 347 million euros, reflecting
a significant improvement from the negative balance of 2,503
million euros for 2002, which had been caused by particularly
high restructuring expenses and writedowns, as well as a
Operating Result
2003
2002
Change
(979)
(1,343)
229
163
66
81
102
(21)
32
70
(38)
32
(16)
48
2
(101)
103
364
12
27
(15)
53
210
(157)
44
147
(103)
45
67
(22)
10
3
7
(71)
(91)
20
(510)
(762)
252
Total
(*) Operating Result for the Aviation Sector is shown until the date of its sale (July 1, 2003).
(**) Operating Result for the Insurance Sector is shown until the date of its sale (May 2, 2003).
24
negative balance resulting from disposals. The figure for 2003
is broken down as follows:
❚ Balance of net gains/losses on disposals, totaling a positive
1,747 million euros, composed primarily of the gains from
the disposals of FiatAvio S.p.A. (1,258 million euros net of
transaction costs), the Toro Assicurazioni Group (390 million
euros net of transaction costs), the retail financing activities
of Fiat Auto in Brazil (103 million euros), and the company
IPI (15 million euros). The principal loss is represented by
that incurred upon disposal of Fraikin (-24 million euros),
in addition to the loss of 210 million euros that had been
booked at the end of 2002.
❚ Restructuring expenses of 658 million euros; these expenses
are represented by the costs incurred or determined
according to plans for personnel laid off with long-term
unemployment benefits, severance incentives, and writedown
of property, plant and equipment and intangible fixed assets
according to the Relaunch Plan presented at the end of June
2003. Restructuring expenses include expenses and provisions
that refer mainly to Fiat Auto (259 million euros), CNH (142
million euros), Comau (98 million euros) and Magneti Marelli
(50 million euros).
❚ A total of -215 million euros in other extraordinary writedowns
of activities, stemming from evolution in the market outlook
of certain businesses, particularly in regard to the depreciation
of property, plant, and equipment at Fiat Auto.
❚ A total of -501 million euros in extraordinary provisions to
reserves for future risks and charges, other expenses and
prior period expenses, net of other non-operating income
and prior period income. These include expenses and
provisions connected to the contract for the sale of the
Electronic Systems activities of Magneti Marelli which was
carried out in the past fiscal year, damages stemming from
the flood at the Termoli plant, and residual commitments
connected to investments in the telecommunications field.
❚ Prior-period tax liabilities of 26 million euros.
In 2002, the balance of non-operating income and expenses
included restructuring expenses mainly stemming from the
industrial restructuring plan of Fiat Auto and its effects on other
Group Sectors; writedowns of assets carried out on the basis of
changed market outlooks and consequent new business plans,
and extraordinary provisions to reserves for future risks and
charges. Furthermore, certain disposals had caused losses,
such as the sale of the investment in General Motors at market
prices, disposals of the Teksid Aluminum Business Unit, the
Electronic Systems Business Unit of Magneti Marelli, and
adjustment of the book value of the Iveco Fraikin Business
at its presumable disposal value. These losses were partially
offset by the gains stemming mainly from the sales of 34%
of Ferrari, 14% of Italenergia Bis, the AfterMarket activity
of Magneti Marelli, and the investment in Europ Assistance.
Result for the Fiscal Year
The Group’s loss before taxes was 1,298 million euros,
compared with a loss of 4,817 million euros in fiscal 2002;
this result reflected the previously mentioned net improvement
in EBIT.
Net financial expenses totaled 979 million euros in
2003, compared with 862 million euros in 2002. When
the performance of continuing operations alone is considered,
the balance of net financial expenses in 2003 showed an
improvement of 27 million euros with respect to the same
period in 2002. This is mainly attributable to the lower average
indebtedness for the period and reduction in the level of
interest rates in Europe and the United States, which were
partially offset by the greater impact in 2003 of foreign
exchange losses and an increase in bank commissions.
Fiscal 2002 was also favorably influenced by the positive
effects stemming from hedging of interest rate risks.
Net income taxes for the year totaled 650 million euros,
compared with a credit of 554 million euros in 2002. The
income taxes due for fiscal 2003 include: 125 million euros
(141 million euros in 2002) for IRAP, the regional tax on
production activities in Italy; 31 million euros (192 million euros
in 2002) for other current taxes; and deferred tax liabilities of
494 million euros (887 million euros in deferred tax assets in
2002). The income taxes for 2003 include utilization of tax
prepayments previously set aside in view of the realization of
capital gains on the disposal of the Toro Assicurazioni Group
and FiatAvio S.p.A., which were subsequently realized.
The consolidated net loss before minority interest was 1,948
million euros, down sharply from the loss of 4,263 million euros
in 2002.
The Group’s interest in net loss was 1,900 million euros,
compared with a loss of 3,948 million euros in fiscal 2002.
As a result of the Group’s interest in net loss, there was a
net loss per share of 2.412 euros, compared with a net loss
per share of 6.66 euros in 2002.
25
Balance Sheet
The financial structure shows items on both the assets
and liabilities side, with a breakdown between current
and non-current assets and liabilities. Specifically:
❚ In addition to cash and securities, current assets include
assets held for sale or consumption in the normal course
of business and thus comprise assets generated by financial
services, including assets under financial lease. Current assets
also include amounts which are expected to be received
within twelve months of the year-end.
❚ Current liabilities include those to be settled in the normal
course of business, liabilities held primarily for trading
purposes, and those due within twelve months of the
year-end or which cannot be renegotiated in that period.
The following analysis provides the information necessary
for correlation with the principal items characteristic of
the industrial activities, such as working capital and net
invested capital.
For a more complete analysis of these items, please see
the Notes to the Consolidated Financial Statements.
❚ ASSETS
Intangible fixed assets
Goodwill
Property, plant and equipment
Operating leases
Financial fixed assets
Investments on behalf of life insurance policyholders who bear the risk
Financial receivables held as fixed assets
Deferred tax assets
Total Non-Current Assets
Net inventories (1)
Trade receivables
Other receivables
Financial assets not held as fixed assets
Finance lease contracts receivable
Financial receivables from others
Securities
Cash
Total Current Assets
Trade accruals and deferrals
Financial accruals and deferrals
❚ TOTAL ASSETS
❚ LIABILITIES AND STOCKHOLDERS’ EQUITY
Stockholders’ equity of the Group
Minority interest
Deferred income tax reserves
Reserves for risks and charges
Reserves for employee severance indemnities
Policy liabilities and accruals where the investment risk is borne by policyholders
Long-term financial payables
Total Non-Current Liabilities
Trade payables
Other payables
Short-term financial payables (2)
Total Current Liabilities
❚ TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
❚ NET FINANCIAL POSITION
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
At 12.31.2003
At 12.31.2002
3,724
1,322
2,402
9,675
8,761
914
3,950
–
29
1,879
19,257
6,912
4,553
3,081
120
1,797
10,750
3,789
3,211
34,213
407
386
54,263
5,200
1,600
3,600
12,106
10,521
1,585
6,638
6,930
48
3,499
34,421
7,050
5,784
3,351
6,094
2,947
18,411
1,507
3,489
48,633
579
661
84,294
7,494
6,793
701
211
5,168
1,313
–
15,418
22,110
12,588
3,170
6,616
22,374
1,329
956
54,263
8,679
7,641
1,038
1,236
15,390
1,609
7,000
20,613
45,848
13,267
4,771
8,310
26,348
1,499
1,920
84,294
(3,028)
(3,780)
(1) Net of advances received for contract work in progress (8,448 million euros at December 31, 2003 and 8,227 million euros at December 31, 2002).
(2) The item includes the 1,765-million-euro exchangeable bond payable in 2004.
26
Intangible Fixed Assets
Net Deferred Tax Assets
Intangible fixed assets (start-up and expansion costs, goodwill,
construction in progress and others) amount to 3,724 million
euros, 1,476 million euros less than the 5,200 million euros
reported at the end of 2002. Over half of the decrease is
attributable to the disposals of activities carried out during
2003, as well as to the reduction in value of goodwill due to
changes in foreign exchange rates.
Net deferred tax assets (deferred tax assets net of deferred
tax reserve) totaled 1,668 million euros at December 31, 2003,
compared with 2,263 million euros at the end of 2002. The
decrease with respect to 2002 amounted to 595 million euros,
mainly attributable to the utilization of tax prepayments whose
recovery was primarily connected to the realization of capital
gains on the disposal of equity investments, which occurred
in 2003.
The investments made during the fiscal year, for a total of
527 million euros (603 million euros in 2002), were almost totally
offset by amortization for the period, which totaled 519 million
euros (595 million euros in 2002).
Property, Plant and Equipment
Property, plant and equipment totaled 9,675 million euros
(12,106 million euros at December 31, 2002). The decrease
(-2,431 million euros) largely reflects the changes in the scope
of consolidation (sale of Fraikin, FiatAvio S.p.A., and the Toro
Assicurazioni Group), variations in foreign exchange rates and
writedowns during the year.
Overall investments in fixed assets totaled 2,011 million euros
(2,771 million euros in 2002), including those in long-term leases
which declined by 486 million euros, from 844 million euros in
2002 to 358 million euros in 2003. This reduction is mainly
attributable to the disposal of Fraikin, while investments net
of long term leases were impacted by the deconsolidation of
FiatAvio S.p.A., the Toro Assicurazioni Group, and the Teksid
Aluminum Business Unit.
In 2003 depreciation of property, plant and equipment totaled
1,750 million euros (2,019 million euros in 2002).
At December 31, 2003, accumulated depreciation and
writedowns totaled 17,366 million euros, corresponding to
64% of gross fixed assets, compared with approximately 60%
at the end of 2002.
Financial Fixed Assets
Financial fixed assets totaled 3,950 million euros, compared
with 6,638 million euros at December 31, 2002. The significant
reduction of 2,688 million euros is mainly due to the effect of the
deconsolidation of the Toro Assicurazioni Group, which was only
partially offset by the increase mainly stemming from the equity
investments in Fidis Retail Italia (49% held by the Automobile
Sector following the sale of 51% of the stake) and Naveco (which
was consolidated according to the proportional method until
2002).
Financial Assets not held as Fixed Assets
Financial assets not held as fixed assets totaled 120 million
euros, 5,974 million euros less than the 6,094 million euros at the
end of 2002, following disposal of the Toro Assicurazioni Group
and consequent deconsolidation of its activities.
Working Capital
The Group’s working capital increased by 639 million euros
to a negative 2,134 million euros, up from the negative 2,773
million euros reported at the end of 2002. On a comparable
basis the increase would have been 872 million euros.
The following table illustrates the composition of working
capital in the two fiscal years:
At 12.31.2003
At 12.31.2002
Net inventories
6,912
7,050
(138)
Trade receivables
4,553
5,784
(1,231)
Trade payables
Change
(12,588)
(13,267)
679
Other receivables / (payables)
(1,011)
(2,340)
1,329
Working capital
(2,134)
(2,773)
639
An analysis of the changes affecting the main components
of working capital is provided below.
Net inventories (raw materials, finished products, and work
in progress), net of advances received for contract work in
progress, totaled 6,912 million euros, against 7,050 million euros
at December 31, 2002. The decrease is mainly attributable to
changes in the scope of consolidation during the fiscal year
(principally the sale of FiatAvio S.p.A.). On a comparable basis,
inventories were 389 million euros higher due to the increase in
Fiat Auto stock connected with the introduction of new models.
Trade receivables totaled 4,553 million euros, 1,231 million
euros less than the 5,784 million euros reported at the end of
2002. The change in the scope of consolidation entailed a
reduction of 1,106 million euros.
Trade payables totaled 12,588 million euros compared with the
13,267 million euros at December 31, 2002. The decrease of 679
million euros is entirely attributable to changes in the scope of
consolidation.
The negative balance of other receivables/(payables), which
also includes trade accruals and deferrals, improved from -2,340
million euros at December 31, 2002 to -1,011 million euros. The
lower negative balance by 1,329 million euros includes 715
million euros stemming from changes in the scope of
consolidation.
27
On a comparable consolidation basis, the change of 614 million
euros is mainly attributable to higher receivables from Tax
Authorities and to the payment made in favor of the CAV.TO.MI
Consortium for reimbursement of the cash collateral of 250
million euros that the Consortium had paid to Fiat S.p.A. in 2002
while waiting for the issuance of the contractual suretyships,
which were subsequently issued.
Reserves
Reserves totaled 6,481 million euros, compared with 16,999
million euros at December 31, 2002. The net reduction stems
from the disposals carried out during the year, particularly the
deconsolidation of insurance policy liabilities and accruals (9,508
million euros) and of the reserve for employee severance
indemnities of companies that were sold in 2003. The decrease
of this reserve is also attributable to the utilization connected to
staff reductions resulting from restructuring plans.
At December 31, 2003, the reserves mainly included: income tax
reserves (98 million euros), warranty reserves (791 million euros),
restructuring reserves (471 million euros), reserves for pensions
(1,503 million euros), reserves for employee severance
indemnities (1,313 million euros), and reserves for other risks and
charges (2.216 million euros).
Net Invested Capital
Net invested capital totaled 10,522 million euros, compared
with 12,459 million euros at December 31, 2002. About half of
the 1,937-million-euro decrease was due to the previously
mentioned disposals of lines of business. On a comparable
basis, the reduction is mainly attributable to a decrease in fixed
assets (foreign exchange effect and writedowns) which was
partially offset by the abovementioned increase in working
capital.
The following table illustrates the composition of net invested
capital at the end of 2003 and 2002:
At 12.31.2003
At 12.31.2002
Change
3,724
5,200
(1,476)
9,675
12,106
(2,431)
3,950
6,638
(2,688)
–
6,930
(6,930)
Investments on behalf of life insurance
policyholders who bear the risk
120
6,094
(5,974)
Deferred tax assets
1,879
3,499
(1,620)
Reserves
(6,692)
(18,235)
11,543
7,000
Policy liabilities and accruals where the
investment risk is borne by policyholders
–
(7,000)
Working capital
(2,134)
(2,773)
639
10,522
12,459
(1,937)
Stockholders’ Equity
Consolidated stockholders’ equity totaled 7,494 million euros
(8,679 million euros at December 31, 2002). The reduction
reflects the net loss for the period (1,948 million euros),
distributed dividends (15 million euros), and the decrease
caused by changes in foreign exchange rates (decrease of
862 million euros), which were only partially offset by the capital
increases carried out (1,860 million euros). The remaining
decrease of 220 million euros was mainly due to the sale of
IPI and the Toro Assicurazioni Group corresponding to the
minority interest.
The stockholders’ equity of the Group was 6,793 million euros,
against 7,641 million euros at December 31, 2002.
Net Financial Position
The net financial position, i.e. net indebtedness (financial
payables and related accruals and deferrals, net of cash and
securities) minus financial receivables, totaled -3,028 million
euros at December 31, 2003, reflecting an improvement of 752
million euros compared with the negative net financial position
of 3,780 million euros at December 31, 2002.
During the fiscal year, the net resources generated by disposals
and the capital increase concluded in August more than offset
the financial and operating requirements (loss for the fiscal year
and increase in working capital).
Financial payables
At 12.31.2003
At 12.31.2002
Change
(22,034)
(28,923)
6,889
Accrued financial expenses
(593)
(785)
192
Prepaid financial expenses
85
118
(33)
3,211
3,489
(278)
Cash
Securities
3,789
1,507
2,282
Net Indebtedness
(15,542)
(24,594)
9,052
Financial receivables and lease
contracts receivable
12,576
21,406
(8,830)
Accrued financial income
301
543
(242)
Deferred financial income
(363)
(1,135)
772
(3,028)
(3,780)
752
At December 31, 2003 the financial payables included:
❚ bonds for 9,610 million euros;
❚ the five-year-bond issued at the beginning of 2002 and
exchangeable for 32,053,422 General Motors shares ($2,229
million – equal to 1,765 million euros). It should be noted,
however, that each bondholder has the right to request early
reimbursement, with payment on July 9, 2004, of all or part
of his bonds pursuant to the terms and conditions envisaged
in the issue prospectus.
28
❚ borrowings from banks for a total of 9,384 million euros. This
amount includes, among others, the mandatory convertible
facility (3 billion euros) and the loan by Citigroup (lead
manager of a restricted pool of banks), secured by the
agreements with EDF as part of the Italenergia Bis transaction
(approximately 1,150 million euros).
For a more detailed analysis of the above items, and more
specifically as regards bonds, please see the Notes to the
Consolidated Financial Statements.
Financial receivables and lease contracts receivable at
December 31, 2003 include financial receivables from the
dealer network totaling 2,020 million euros (1,904 million
euros at December 31, 2002).
The receivables illustrated in the preceding table are net of sale
with or without recourse, as follows:
At 12.31.2003
Trade
Financial
receivables receivables
At 12.31.2002
Trade
Financial
Total receivables receivables
Total
With recourse
1,387
–
1,387
1,686
–
1,686
Without recourse
2,598
740
3,338
2,767
306
3,073
* * *
The aggregate total of Group receivables from the dealer
network is illustrated as follows.
At 12.31.2003
At 12.31.2002
Trade receivables
1,208
1,818
Financial receivables
2,020
1,904
Total receivables from the dealer network
3,228
3,722
Receivables from the dealer network are typically generated
by sales of vehicles and are generally managed under dealer
network financing programs as a typical component of
the portfolio of the financial services companies. These
receivables are interest bearing, with the exception of
an initial limited, non-interest bearing installment payment
period. On the consolidated financial statements, the
interest-bearing portion of the receivables is classified as
a financial receivable and thus included in the net financial
position, while the non-interest bearing portion is classified
as a trade receivable (and thus excluded from the net
financial position).
The Group is continuing to operate in compliance with the
targets agreed upon with the lending banks under the
mandatory convertible facility agreement in terms of reducing
its net financial position to 3 billion euros and reducing gross
indebtedness to 23.6 billion euros.
At December 31, 2003, gross indebtedness totaled 22.5 billion
euros, while net financial position (approximately 3,028 million
euros) was substantially in line with the agreed target without
using, as allowed by the agreements with the lending banks,
the previously mentioned Citigroup loan (approximately 1,150
million euros) to reduce the net financial position itself.
At December 31, 2003 the rating assigned to the Fiat Group
by the leading rating agencies was “non investment grade”.
Therefore, if this situation persists, in July 2004 the banks may
proceed in advance with the conversion of the debt into
capital for an amount up to 2 billion euros.
Consolidated Statement of Cash Flows
At December 31, 2003, the Group had 3,211 million euros
in cash and bank deposits, or 278 million euros less than the
3,489 million euros at the end of 2002.
The contractual terms governing the relationships with
the dealer networks vary from Sector to Sector and from
country to country. However, these receivables are collected
in approximately two to four months on average.
Securities that represent temporary investments rose from
1,507 million euros to 3,789 million euros; it therefore resulted
that Group investments immediately disposable rose by
approximately 2,004 million euros to 7,000 million euros.
The receivables from the dealer network illustrated in
the preceding table are net of allowances for doubtful
accounts totaling 313 million euros at December 31, 2003
(333 million euros at December 31, 2002), computed on the
basis of historical statistical analyses and updated according
to evolutions in market trends. During 2003, 27 million euros
were allocated to reserves, and 46 million euros were used.
At December 31, 2003, the Group held guarantees totaling
over 2 billion euros as security for these receivables.
The cash flows used in operating activities in 2003 totaled
1,947 million euros (compared with the cash flows of 1,053
million euros provided in fiscal 2002).
Cash flow during 2003 principally reflected an increase in
working capital that, on a comparable consolidation basis,
absorbed a total of 872 million euros in cash, compared
with a decrease, and consequent generation of cash flows,
of 1,828 million euros in 2002.
29
Investment activities generated positive cash flow of 2,897
million euros in 2003, compared with 2,096 million euros
generated in fiscal 2002.
Investment flows during the year were determined by the
benefits generated by disposals of assets and equity
investments that, net of acquisitions of equity investments,
totaled 3,955 million euros (net of the cash of sold/acquired
companies), compared with a positive balance of 2,668 million
euros in 2002.
The net reduction in financial receivables, which reflected
less financings granted to associated companies as well as a
reduction in the portfolio of activities, generated 1,146 million
euros in available funds, as compared with 2,456 million euros
in available funds generated in 2002.
Other changes, equal to 3,226 million euros in fiscal 2003, mainly
refer to the repayment of the financing disbursed by centralized
cash management to companies that are no longer included in
the scope of consolidation (principally Fidis Retail Italia).
2003
2002
2001
3,489
2,133
1,997
(1,948)
(4,263)
(791)
Amortization and depreciation
2,269
2,614
2,880
A) Cash at January 1
B) Cash flows provided by (used in) operating activities:
Net change in reserve for employee severance indemnities
(136)
(70)
(77)
Change in deferred income taxes
422
(884)
(588)
Gains on disposals
(1,873)
124
(1,749)
Revaluations and writedowns of equity investments
177
525
372
Impairment
424
991
–
Change in current assets and liabilities:
Trade receivables
125
423
583
Net inventories
(389)
1,325
(164)
1,605
Trade payables
6
(104)
Other payables, receivables, accruals and deferrals (1)
(614)
184
609
Reserve for income taxes and other reserves
(287)
545
(413)
Changes in the scope of consolidation and others
Total
(123)
(357)
168
(1,947)
1,053
2,435
C) Total cash flows provided by (used in) investment activities:
Investments in:
Fixed assets
(2,011)
(2,771)
(3,438)
Equity investments
(212)
(563)
(1,524)
Intangible assets and deferred charges
(488)
(518)
(473)
134
90
100
4,167
3,231
2,652
Net change in financial receivables
1,146
2,456
(189)
Change in securities
(3,065)
(175)
(15)
–
430
(97)
Other changes
3,226
(84)
(33)
Total
2,897
2,096
(3,017)
Increase in borrowings
1,989
12,047
8,561
Repayment of borrowings
(6,178)
(9,392)
(6,057)
Net change in short-term borrowings
1,134
(5,358)
(1,140)
Increase in capital stock
1,860
1,215
–
(18)
(77)
(266)
Investment grants
Proceeds from the sale of fixed assets
Change in securities of insurance companies net of policy liabilities and accruals
D) Total cash flows provided by (used in) financing activities:
Purchase of treasury stock
Dividends paid
Total
E) Total change in cash
F) Cash at December 31
(15)
(228)
(380)
(1,228)
(1,793)
718
(278)
1,356
136
3,211
3,489
2,133
(1) In 2002, this item does not include payment of the balance of assets and liabilities contributed by Fiat Auto to the Fiat-GM Powertrain joint venture, which was posted at the item
“Changes in the scope of consolidation and others.”
30
The principal applications of funds during the year consisted of:
❚ 2,011 million euros in fixed assets (2,771 million euros in
2002), including investments in vehicles to be leased on a longterm basis for 358 million euros (844 million euros in 2002). A
significant portion of the decrease is attributable to the sale of
Fraikin (long-term vehicle leasing business) and FiatAvio S.p.A.
The holding companies (Fiat S.p.A., IHF-International Holding
Fiat S.A., Fiat Partecipazioni S.p.A., Fiat Netherlands Holding
N.V.) were classified under Industrial Activities.
❚ 488 million euros in intangible fixed assets (518 million euros
in 2002).
The sub-consolidated financial statements of the Industrial
Activity segment also includes companies that operate
centralized cash management activities, i.e. that raise financial
resources on the market and finance Group companies, without
providing financial services to others.
❚ A total increase of 3,065 million euros in securities subscribed
to as a temporary and immediately disposable investment
for the cash generated by the sale of assets made in 2003.
When the sub-consolidated figures for the various activities
were identified, the relative goodwill was allocated to the
activities themselves.
Financing activities absorbed 1,228 million euros, compared
with 1,793 million euros absorbed in 2002.
The transactions relating to the sale of receivables executed
at market conditions between the industrial and financial
companies of the Group are posted as financial receivables and
payables under Financial Activities. The portion of these items
that, according to the last contractual relationship established
with others, is still of a commercial nature, insofar as it does not
yield interest, was reclassified directly in the sub-consolidated
results of Financial Activities under trade receivables and
payables.
In 2003, the absorption of cash flows was mainly attributable
to the net reimbursement of loans totaling 4,189 million euros –
which also includes reclassification under payables due within
the year of the exchangeable bond of 1,765 million euros
(generation of 2,655 million euros in resources in 2002) – which
was offset by the increase of 1,134 million euros in short-term
payables, although this was due to the previously mentioned
reclassification (absorption of 5,358 million euros in resources in
2002), and the capital increases for a total of 1,860 million euros,
including the capital increase of 1,836 million euros at Fiat S.p.A.
Financial Position and Operating Results by Activity Segment
The following analyses of the statement of operations and
the balance sheet illustrate the contribution made to the
consolidated results by the Group’s continuing operations,
broken down by “Industrial Activities” and “Financial Activities,”
(which include the Fiat Auto, CNH and Iveco companies that
operate retail financing, leasing and rental businesses) and the
activities that were sold or whose sale was pending in 2003
(discontinuing operations).
The figures for discontinuing operations were classified in
accordance with the provisions of Paragraph 3, Article 39 of
Legislative Decree no. 127/91, in view of the significance of
the changes in the composition of the Group that occurred
in 2003 or are pending.
Principles of Analysis
The classification between Industrial and Financial Activities
(for continuing operations only) was realized by defining
specific sub-consolidated financial statements according to
the normal business performed by each Group company.
The equity investments held by companies belonging to an
activity segment in companies included in another segment
were valued according to the equity method.
To avoid skewing the operating result of normal operations
to be represented here, the effect of this valuation on the
statement of operations is illustrated under the item “Result
of intersegment equity investments.”
The discontinuing operations include the activities that were
deconsolidated following the sales concluded during fiscal
2003 (Toro Assicurazioni Group, Fraikin, IPI, FiatAvio S.p.A.,
Fidis Retail Italia, and the Brazilian retail financing activities),
and the remaining financial company which is active in the
United Kingdom and is still to be sold to Fidis Retail Italia.
Operating Performance by Activity Segment
Industrial Activities
The net revenues for Industrial Activities, including changes in
contract work in progress, totaled 43,380 million euros, for a
decrease of 7% with respect to the previous year. This decrease
was caused in particular by the negative foreign exchange
effect, the lower volumes of Fiat Auto, and the reduction in
Teksid revenues, which in 2002 included the revenues of the
Aluminum Business Unit until its disposal in September 2002.
The operating result for Industrial Activities in 2003 was a
loss of 938 million euros, reflecting a significant improvement
from the operating loss of 1,585 million euros reported in the
previous year, thanks to a lower operating loss at Fiat Auto
and improved results at CNH, Magneti Marelli, and Comau.
In 2003 EBIT for Industrial Activities was -476 million euros,
compared with -4,169 million euros in 2002.
The change reflected a better operating result, the improved
results of equity investments and, in particular, the positive
balance of non-operating items due to gains realized on
disposals, which were partially reduced by expenses and
provisions to reserves for restructuring, writedowns and
other non-operating expenses and provisions, compared
with an extremely negative balance in fiscal 2002.
31
Financial Activities
Discontinuing Operations
Financial Activities generated net revenues of 1,870 million
euros in 2003, approximately 19% lower than the 2,305 million
euros generated in 2002.
The reduction in revenues is mainly attributable to lower interest
rates, portfolio selection policies, and the negative effect of the
strengthening of the euro against the dollar. Disposals in the
mobility services segment of the Automobile Sector also had
a negative impact, which was partially offset by consolidation
by the Commercial Vehicles Sector for the entire year of a
company that operates in the field of financing sales outside
Western Europe.
The net revenues of discontinuing operations totaled 2,949
million euros in 2003 and included the first six months of
2003 for FiatAvio S.p.A. (623 million euros, compared with
1,499 million euros in 2002), the first four months of 2003 for
the Toro Assicurazioni Group (1,654 million euros compared
with 4,916 million euros in 2002), the revenues of the companies
sold to Fidis Retail Italia during the year and the one that is still
to be sold (617 million euros compared with 739 million euros
in 2002), and the first quarter of the Brazilian retail financing
activities of Fiat Auto (55 million euros compared with 349
million euros in 2002). Furthermore, fiscal 2002 included
the revenues of IPI (31 million euros) and Fraikin (517 million euros).
The result before taxes of normal Financial Activities (which
does not include the impact of the result of equity investments
owned by the financial companies in industrial companies)
totaled -22 million euros, compared with +180 million euros
in fiscal 2002.
This decrease is mainly attributable to a lower result from
equity investments, in particular the company Leasys, and
higher net non-operating expenses, which amounted to 119
million euros (positive balance of 35 million euros in 2002)
and derive in particular from revision of the operating and
organizational processes of the rental companies of the
Automobile Sector, and the residual loss caused by the
sale of Fraikin.
The operating income of discontinuing operations in 2003
totaled 204 million euros, consisting of: six months of FiatAvio
S.p.A. (54 million euros compared with 218 million euros in
2002), the first four months of 2003 for the Toro Assicurazioni
Group (35 million euros compared with 108 million euros in
2002), the operating income of the companies sold to Fidis
Retail Italia during the year and the one that is still to be sold
(108 million euros compared with 142 million euros in 2002),
and the first quarter of the Brazilian retail financing activities
of Fiat Auto (7 million euros against 77 million euros in 2002).
Furthermore, fiscal 2002 included the operating income of
IPI (21 million euros) and Fraikin (20 million euros).
2003
Consolidated
Consolidated
Industrial
Activities
Net revenues
47,271
43,380
1,870
2,949
55,649
46,624
2,305
8,051
Cost of sales
40,830
37,985
1,235
2,538
48,619
41,230
1,622
7,098
Gross operating result
6,441
5,395
635
411
7,030
5,394
683
953
Overhead
4,748
4,186
323
239
5,782
4,778
414
590
1,747
1,724
–
23
1,748
1,694
–
54
(456)
(423)
(88)
55
(262)
(507)
(32)
277
Operating result
(510)
(938)
224
204
(762)
(1,585)
237
586
Investment income (expenses) (*)
(156)
(16)
(63)
(46)
(690)
(282)
3
(360)
(236)
Other operating income (expenses)
Financial
Activities
Discontinuing
Operations
2002
Industrial
Activities
Financial
Activities
Discontinuing
Operations
Non-operating income (expenses) (**)
347
478
(119)
(12)
(2,503)
(2,302)
35
EBIT
(319)
(476)
42
146
(3,955)
(4,169)
275
(10)
Financial income (expenses)
(979)
(1,003)
(64)
88
(862)
(999)
(95)
232
(1,298)
(1,479)
(22)
234
(4,817)
(5,168)
180
222
650
486
55
109
(554)
(751)
52
145
(1,948)
(1,965)
(77)
125
(4,263)
(4,417)
128
77
Result of intersegment investments
–
13
(326)
–
–
141
(286)
(14)
(1,948)
(1,952)
(403)
125
(4,263)
(4,276)
(158)
63
Result before taxes
Income taxes
Net result of normal operations
(*) This item includes investment income (expenses) as well as writedowns and upward adjustments in non-intersegment equity investments valued using the equity method.
(**) The 2003 figure for Industrial Activities includes 1,766 million euros in net gains on disposals of assets, while the figure for Financial Activities includes a net loss on disposals
of 24 million euros.
32
Balance Sheet by Activity Segment
At 12.31.2003
❚ ASSETS
Goodwill
Operating leases
Investments on behalf of life insurance
policyholders who bear the risk
Financial receivables held as fixed assets
Deferred tax assets
Total Non-Current Assets
Net inventories (1)
Trade receivables
Other receivables
Finance lease contracts receivable
Financial receivables
Financial receivables from others
Intersegment financial receivables
Securities
Cash
Total Current Assets
❚ TOTAL ASSETS
❚ LIABILITIES AND STOCKHOLDERS’ EQUITY
Deferred income tax reserves
Reserves for employee severance indemnities
Policy liabilities and accruals where the
investment risk is borne by policyholders
Long-term financial payables
Financial payables to others
Intersegment financial payables
Total Non-Current
Liabilities
Trade payables
Other payables
Short-term financial payables (2)
Financial payables to others
Total Current Liabilities
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
❚ TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
❚ NET FINANCIAL POSITION
(*)
At 12.31.2002
Consolidated
Industrial
Activities
Financial Discontinuing
Activities
Operations Consolidated
Industrial
Activities
3,724
1,322
2,402
9,675
8,761
914
3,950
3,600
1,293
2,307
8,750
8,742
8
5,119
124
29
95
925
19
906
713
–
–
–
–
–
–
–
5,200
1,600
3,600
12,106
10,521
1,585
6,638
4,242
1,340
2,902
9,450
9,450
–
7,912
157
31
126
1,179
60
1,119
692
801
229
572
1,477
1,011
466
3,053
–
29
1,879
19,257
6,912
4,553
3,081
120
1,797
10,750
10,750
–
3,789
3,211
34,213
407
386
54,263
–
28
1,794
19,291
6,878
4,294
2,801
120
–
10,545
2,086
8,459
3,670
3,121
31,429
347
417
51,484
–
1
81
1,844
34
525
476
–
1,797
8,272
7,917
355
119
77
11,300
40
22
13,206
–
–
4
4
6
–
–
–
752
747
5
–
13
771
24
–
799
6,930
48
3,499
34,421
7,050
5,784
3,351
6,094
2,947
18,411
18,411
–
1,507
3,489
48,633
579
661
84,294
–
46
3,192
24,842
6,423
3,946
2,371
143
–
15,003
2,456
12,547
386
2,746
31,018
402
414
56,676
–
1
187
2,216
37
1,371
663
–
1,462
9,968
9,479
489
338
153
13,992
64
51
16,323
6,930
1
120
12,382
590
1,059
507
5,956
1,485
6,990
6,476
514
783
590
17,960
117
196
30,655
7,494
211
5,168
1,313
7,493
135
4,996
1,304
1,851
76
159
9
32
–
13
–
8,679
1,236
15,390
1,609
8,351
940
5,532
1,437
1,504
148
314
9
3,676
148
9,716
163
–
15,418
15,418
–
–
14,495
14,480
15
–
2,581
634
1,947
–
304
304
–
7,000
20,613
20,613
–
–
17,742
17,378
364
–
4,321
1,216
3,105
7,000
2,019
2,019
–
22,110
12,588
3,170
6,616
6,616
–
22,374
1,329
956
20,930
12,827
3,042
5,495
5,150
345
21,364
1,165
532
2,825
103
235
7,683
1,187
6,496
8,021
141
368
317
10
11
295
279
16
316
25
109
45,848
13,267
4,771
8,310
8,310
–
26,348
1,499
1,920
25,651
12,503
3,546
4,855
4,220
635
20,904
1,145
625
4,792
459
246
8,798
1,954
6,844
9,503
205
319
19,046
883
1,187
4,738
2,136
2,602
6,808
149
976
54,263
51,484
13,206
799
84,294
56,676
16,323
30,655
(3,028)
(2,741)
(344)
57
(3,780)
(4,627)
(1,465)
2,312
(1) Net of advances received for contract work in progress (8,448 million euros at December 31, 2003 and 8,227 million euros at December 31, 2002).
(2) The item includes the 1,765-million-euro exchangeable bond payable in 2004.
Activities
Operations
33
Breakdown of net indebtedness and net financial position by Activity Segment
At 12.31.2003
Financial payables net of intersegment activities
Consolidated
Industrial
Activities
At 12.31.2002
Activities
Industrial
Activities
Activities
Operations
(22,034)
(11,531)
(9,909)
(594)
(28,923)
(10,050)
(12,630)
(6,243)
Accrued financial expenses
(593)
(416)
(171)
(6)
(785)
(555)
(108)
(122)
Prepaid financial expenses
85
68
17
–
118
63
19
36
3,211
3,121
77
13
3,489
2,746
153
590
Cash
Securities
3,789
3,670
119
–
1,507
386
338
783
Net Indebtedness
(15,542)
(5,088)
(9,867)
(587)
(24,594)
(7,410)
(12,228)
(4,956)
Financial receivables and lease contracts receivable
7,962
12,576
2,114
9,715
747
21,406
2,502
10,942
Accrued financial income
301
298
3
–
543
351
32
160
Deferred financial income
(363)
(65)
(195)
(103)
(1,135)
(70)
(211)
(854)
(3,028)
(2,741)
(344)
57
(3,780)
(4,627)
(1,465)
2,312
Cash and cash equivalents collected by the centralized cash
management during its activity have been recorded in the item
Financial payables net of intersegment activities in the Industrial
Activities column. However, funds that were transferred to other
Activities, and in particular Financial Activities, were posted net
of the relative intersegment relationships, as shown in the table
below.
During 2003, the Group strengthened its financial structure
by reducing net indebtedness (financial payables net of
intersegment activities, cash and marketable securities)
from 24,594 million euros to 15,542 million euros.
Cash and marketable securities increased by a total of 2,004
million euros. At December 31, 2002 the balance included
cash and marketable securities of companies that have been
sold (the Toro Assicurazioni Group in particular). If cash
and marketable securities of Industrial Activities alone are
considered (as stated previously, Industrial Activities include
companies that operate centralized cash management activities
for the Group), the increase amounted to 3,659 million euros
(from 3,132 million euros at December 31, 2002 to 6,791
million euros at December 31, 2003).
When the changes in the Group’s financial structure over
the year are analyzed, it must be remembered that:
❚ deconsolidation of the sold companies (Discontinuing
Operations) caused a reduction in net indebtedness of
approximately 4.4 billion euros with respect to December
31, 2002;
❚ Industrial Activities show a net indebtedness of
approximately 5.1 billion euros, down from the 7.4 billion
euros in the previous year in consequence of the proceeds
from disposals and the capital increase at Fiat S.p.A., net
of operating requirements during the period;
❚ Financial Activities show a reduction in the financed portfolio
and corresponding indebtedness. This reduction is partially
due to the effects of conversion of the portfolios denominated
in currencies other than the euro and partially reflects an
actual reduction in the outstanding balance of financing,
in consequence of lower levels of activity.
At 12.31.2003
Consolidated
Industrial
Activities
At 12.31.2002
Activities
Industrial
Activities
Activities
Operations
Short-term financial payables to others
6,616
5,150
1,187
279
8,310
4,220
1,954
2,136
Long-term financial payables to others
15,418
14,480
634
304
20,613
17,378
1,216
2,019
(Intersegment financial receivables)
–
(8,459)
(355)
(5)
–
(12,547)
(489)
(514)
–
360
8,443
16
–
999
9,949
2,602
22,034
11,531
9,909
594
28,923
10,050
12,630
6,243
Financial payables net of
intersegment activities
34
million euros by the net gain realized on the sale of 34% of
Ferrari S.p.A. to Mediobanca S.p.A.
FINANCIAL POSITION AND OPERATING PERFORMANCE
OF FIAT S.P.A.
The net loss of the Parent Company for the fiscal year as resulting
from the Statement of Operations was 2,359 million euros,
compared with a net loss of 2,053 million euros in fiscal 2002.
The following table contains a breakdown of this result:
Investment income
Adjustments
Net financial expenses
Cost of personnel and services, less revenues
Non-operating income (expenses)
Income taxes
Net result
2003
400
(2,379)
(169)
(130)
(20)
(61)
(2,359)
Income taxes totaled 61 million euros, resulting from cancellation
of the net deferred tax assets set aside in previous years, as
there is no reasonable certainty that they will be recovered
in subsequent fiscal years.
For the same reason, tax prepayments on the tax loss for
the fiscal year were not counted.
Income taxes in 2002 were represented by 55 million euros
in prepaid income taxes to be recovered.
2002
278
(2,866)
(26)
(126)
632
55
(2,053)
Net investment income totaled 400 million euros. It consists of
dividends, including the respective tax credits, paid by subsidiaries
and associated companies.
A breakdown of the dividends received in 2003 and 2002 is
provided in the Notes to the Financial Statements of Fiat S.p.A.
Adjustments totaled 2,379 million euros in 2003 and principally
reflect the writedowns in the book value of the subsidiaries Fiat
Partecipazioni S.p.A. (formerly Sicind S.p.A.) due to the negative
performance of the Automobile Sector (1,210 million euros), Fiat
Netherlands Holding N.V. due to losses at the subsidiaries Iveco
and CNH (1,000 million euros), and Magneti Marelli Holding S.p.A.
(144 million euros).
In 2002, the adjustments were mainly accounted for by Fiat
Partecipazioni S.p.A. (1,189 million euros), Fiat Netherlands
Holding N.V. (732 million euros), Comau B.V. (350 million euros),
Sicind S.p.A. (291 million euros), and Iveco N.V. (280 million euros).
Net financial expenses totaled 169 million euros, against 26
million euros in 2002, representing an increase of 143 million
euros, mainly due to the increase in average indebtedness
caused by investments in equity interests.
The cost of personnel and services, less revenues, totaled 130
million euros (126 million euros in 2002). In particular, the cost
of personnel and services totaled 243 million euros, compared
with 221 million euros in 2002. The 22-million-euro increase stems
mainly from higher costs related to personnel who left the
Company. The average number of employees was 167 (including
15 seconded to the principal companies of the Group),
compared with 210 employees in 2002 (including 16 seconded
employees). Revenues totaled 113 million euros, or an increase
of 18 million euros over the previous fiscal year. They included
royalties from the right to use the Fiat trademark, computed as
a percentage of the sales of the individual Group companies,
and fees for services rendered by management personnel.
Net non-operating expenses totaled 20 million euros and
largely comprised commissions paid to Mediobanca for the
postponement of the commitments undertaken by Mediobanca
itself in the framework of the Ferrari contract mentioned in Note
14 of the Financial Statements of Fiat S.p.A. (16 million euros).
In 2002, net non-operating income was represented for 630
Balance Sheet
The following table illustrates highlights of the Balance Sheet
of the Parent Company:
Fixed assets
Working capital
Total net invested capital
At 12/31/2003 At 12/31/2002
7,404
77
7,481
5,415
(2,066)
8,144
(169)
7,975
5,934
(2,041)
Fixed assets consist mainly of investments in the Group’s
principal companies. The total value at December 31, 2003 was
7,282 million euros, for a net decrease of 768 million euros since
December 31, 2002.
The principal increases involved the subscription of capital
increases at Fiat Partecipazioni S.p.A. (formerly Sicind S.p.A.)
(100 million euros), Comau B.V. (100 million euros) and CNH
(“preference shares”) subsequently contributed to Fiat
Netherlands Holding N.V. (1,382 million euros).
The decreases mainly stem from a total of 2,374 million euros
in writedowns of the subsidiaries Fiat Partecipazioni S.p.A., Fiat
Netherlands Holding N.V. and Magneti Marelli Holding S.p.A.
Working capital consists of receivables from and payables to Tax
Authorities, trade receivables and payables, and receivables
from and payables to employees for 49 million euros, and ordinary
treasury stock for 28 million euros (4,384,019 shares). It shows an
increase of 246 million euros with respect to December 31, 2002,
primarily in consequence of reimbursement of the 250 million
euros in cash collateral paid in 2002 by the CAV.TO.MI. consortium
as security for the issuance of contractually agreed suretyships.
Stockholders’ equity totaled 5,415 million euros at December
31, 2003, for a decrease of 519 million euros since the end of
2002. The changes are the net result of the capital increase
resolved by the Board of Directors on June 26, 2003 (1,836
million euros) and the net loss for the year (2,359 million euros).
Net financial position at the end of 2003 was negative by 2,066
million euros, against 2,041 million euros in the previous year.
It includes the Convertible Facility of 3 billion euros granted by
a pool of banks which expires in September 2005, as described
in detail in the specific section of the Notes to the Financial
Statements of Fiat S.p.A. The worsening stems mainly from the
previously described investments in equity holdings, which were
partially offset by the amounts collected for the capital increase.
An analysis of cash flows is provided at the end of the Notes to
the Financial Statements of S.p.A.
35
Process of Transition to International Accounting
Standards (IAS/IFRS)
Following the coming into force of European Regulation No.
1606 dated July 2002, EU companies traded on EU regulated
markets are required to adopt IAS/IFRS in the preparation of
their 2005 consolidated financial statements.
incurred; other research and development costs will continue
to be recorded in the statement of operations, when they are
incurred.
Commencing with the first half of 2003, the Fiat Group set
up an IAS/IFRS implementation program with working groups
which operated first at a parent company level and then at
the level of principal operating companies. Reviews were
conducted of the IAS/IFRS in force and the principal changes
present in the proposals for the revision of those standards,
which to date have not been finalized.
Other intangible fixed assets
As at the end of 2003:
❚ the principal differences between the accounting principles
currently followed by the Fiat Group, in compliance with
the laws relating to financial statements interpreted and
integrated in accordance with Italian accounting principles,
and the applicable provisions of IAS/IFRS were identified;
❚ an action plan was formulated that was aimed at identifying
the steps required to adapt the Group’s corporate processes
and information systems so as to render them capable of
supplying the information necessary for the preparation of the
Group’s 2005 consolidated financial statements in accordance
with IAS/IFRS, and to permit the processing of the information
related to 2004, to be presented for comparative purposes.
Based on the results of the work performed, the principal
differences that will have an effect on consolidated stockholders’
equity as at January 1, 2004, restated in accordance with the
new accounting standards, and on the future economic results
are set out below.
General principles
The adoption of the new body of accounting standards will
involve a reassessment not only of the accounting valuation
criteria, but also of the format of the financial statements and
the contents of the related notes.
As regards the principles of recognition and measurement of
financial statement components, the most significant changes
relate to the following:
❚ replacement of the principle of the transfer of risks and benefits
in respect of the recording and reversal of certain transactions
at the time of transfer of ownership, giving prevalence to the
substance of the transaction over its legal form;
❚ use of alternative valuation criteria to historical cost (where
expressly requested), such as fair value (particularly for financial
instruments) and present value (for medium-long term reserves).
In contrast to current Italian laws, under IAS 38 the majority
of start-up and expansion costs are recorded in the statement
of operations when they are incurred. Start-up and expansion
costs related to increases in capital stock, financing transactions
and similar transactions are recorded as a reduction of either
the related reserves in stockholders’ equity or of the financing
issued.
Changes to the present IAS 38 introduce the concept of
intangible fixed assets with an indefinite useful life which,
accordingly, will no longer be subject to amortization; this
principle also extends to goodwill deriving from business
combinations. These intangible fixed assets should be subject
to annual impairment tests on the smallest group of assets that
generates cash inflows which are largely independent of other
cash inflows (cash generating unit), comparing the carrying
amount to the related market value or “value in use”.
Writedown of assets
If not stated otherwise in individual applicable accounting
standards, IAS/IFRS require assessment of whether assets are
impaired in the presence of indications which lead to the
belief that this problem may exist.
The methods provided for determining recoverability of
the carrying amount are more specific than those currently in
force in Italy, where, however, only the concept of permanent
impairment in value is observed. On the contrary, under IAS the
impairment in value (not necessarily permanent) is determined
by comparing the carrying amount to the higher of the net
selling price and the value in use of the asset (or a group of
assets – or cash generating units).
Revenue recognition
In relation to the new general principles set out above (transfer
of risks and benefits), various examples of contracts which set
out the recognition of revenue were analyzed. The most
significant difference relates to revenues deriving from vehicle
sales with a buyback option, which are currently recognized in
full at the time of formal transfer of ownership of the vehicle.
In accordance with IAS, these sales should be recorded as
operating leases.
Financial instruments
Capitalization of development costs
Development costs which meet the conditions set out in IAS 38
must be capitalized, whereas at present they are for the most
part recognized in the statement of operations when they are
IAS 32 and 39 provide that companies classify financial
instruments, as a function of their destination, in different
categories than that provided by the laws in force in Italy. The
basis of recognition, measurement and valuation of financial
36
instruments will derive from that classification and, accordingly,
in certain cases could be substantially different from the
present basis.
In accordance with these standards, derivative financial
instruments are also financial assets and liabilities which must
be recorded in the balance sheet, in contrast to that set forth
by Italian accounting principles, which provide that they should
be recorded in the memorandum accounts, except in certain
circumstances in which they should be recorded in the balance
sheet.
The overall effect of the adoption of these standards could
vary depending on the way in which they are introduced into
European law and the likelihood of additional changes being
made by the IASB. However, at present it is expected that
potentially significant effects on gross indebtedness may derive
from the different accounting treatment of receivables and bills
discounting transactions, in particular those with recourse and
securitization.
Employee benefits
IAS 19 sets out the method of accounting for employee benefits
and, accordingly, the Group dedicated a specific working group
to the analysis of labor legislation, in Italy and abroad, in order
to identify any differences with current principles. In particular,
with regard to post-employment defined benefit programs,
IAS 19 requires that the obligation accrued to the balance
sheet date be projected into the future, in order to estimate
the amount to be paid upon termination of employment,
and subsequently the present value should be determined
Process of Transition to International Accounting
Standards (IAS/IFRS)
in accordance with a specific actuarial method (“Project Unit
Credit Method”). As a consequence of the adoption of the
above-mentioned accounting standard, the employee severance
indemnity (TFR) recorded in the financial statements of Italian
subsidiaries must be recalculated.
In accordance with IAS 37, reserves for risks and charges are
only recorded when there is a present obligation, as a result
of a past event, which may be legal, contractual or derive from
the company’s declarations or actions which result in valid
expectations by the parties involved (constructive obligations).
Certain reserves which are at present recorded, in accordance
with the Italian laws in force, may not satisfy all of the conditions
provided by IAS for their recognition. Furthermore, in accordance
with IAS 37 accruals are recorded at the value represented by
the best estimate of the amount that the company would pay
to settle the obligation and, where the effect of the time value
of money is material, the estimated cost should be discounted
to present value, a technique not contemplated by current
Italian laws.
Consolidated financial statements
In the first financial statements prepared in accordance with
IAS/IFRS, at the transition date, the principles of consolidation
set forth in IAS 27 will be applied. These principles differ from
those presently set forth by Italian law particularly in respect of
the consolidation of subsidiaries that carry out dissimilar activities.
37
The Fiat Group adopted and abides by the Corporate
Governance Code of Italian listed companies, which is
mentioned as a model in the regulations issued by Borsa
Italiana (Italian Stock Exchange) on corporate governance.
Furthermore, as an issuer of financial instruments listed on
various international markets, including the New York Stock
Exchange, Fiat adopted a system of corporate governance
in line with the principles of international best practice and
in particular United States laws, which were recently updated
by the Sarbanes-Oxley Act.
An Annual Report on Corporate Governance is prepared
in accordance with the Regulations of the Borsa Italiana
and United States laws regulating foreign issuers. This report
is available in the section “Investor Relations” on the website
“www.fiatgroup.com,” although extensive excerpts from it
are reproduced in the paragraphs that follow.
Section III “US Corporate Governance Standards” of said
report specifically deals with the main differences between
the corporate governance model we adopted and the one
that US issuers of listed securities are required to comply with.
Frequent reference will also be made to the current Articles
of Association, to which major revisions are proposed both
in consequence of the recent reform of corporate law and the
most recent trends in corporate governance. When relevant,
the amendments that will be submitted for consideration
by the Stockholders’ Meeting will be illustrated together
with the currently applicable rules envisaged in the Articles
of Association.
Board of Directors
As envisaged in the Articles of Association, the number of
members of the Board of Directors ranges from nine to fifteen.
The Stockholders’ Meeting held on May 13, 2003 set the
number of members of the Board of Directors at eleven for
fiscal years 2003, 2004, and 2005, and they shall remain in office
until the date of the Stockholders’ Meeting that will be called
to approve the 2005 Annual Report.
The current members are comprised by three executive
directors and eight non-executive directors – that is, who do not
hold delegated authority or perform executive functions in the
Company or the Group – five of whom are independent.
The executive directors are the Chairman, the Chief Executive
Officer, and the director Luca Cordero di Montezemolo, who,
although he does not hold specific positions in accordance with
the Articles of Association, is defined as an executive director
insofar as he is the head of the Ferrari-Maserati sector, in which
he holds the most important corporate positions with broad
powers.
The requirements for qualifying as independent directors,
which were recently tightened under both Italian and United
States law, are reviewed annually and based on the absence
of investment in or economic relationships with the Company,
its executive directors, its controlling companies or subsidiaries,
or kinship ties to the executive directors of these companies
such as to compromise their independent judgment.
The Board of Directors recently confirmed that the directors
Angelo Benessia, Flavio Cotti, Luca Garavoglia, Hermann-Josef
Lamberti, and Sergio Marchionne satisfied these requirements
of independence.
The presence of five independent directors amply satisfies
the requirements envisaged in the recommendations of the
Corporate Governance Code.
Some of the current directors also hold positions at other listed
companies or of a significant interest. Excluding the positions
held by executive directors at the Fiat Group, the most
significant are as follows:
❚ Umberto Agnelli: Chairman of Giovanni Agnelli e C. Sapa,
Chairman of IFI S.p.A., Director of Mediobanca S.p.A. and
Worms & Cie
❚ Angelo Benessia: Vice Chairman of RCS Quotidiani S.p.A.
❚ Luca Cordero di Montezemolo: Director of Tod’s S.p.A.,
Merloni Elettrodomestici S.p.A., Unicredit Banca d’Impresa
S.p.A., and Pinault Printemps Redoute
❚ Flavio Cotti: Chairman of the Advisory Board of Credit Suisse
Group
❚ John Elkann: Director of Giovanni Agnelli e C. Sapa,
IFI S.p.A. and Exor Group
❚ Luca Garavoglia: Chairman of Davide Campari Milano S.p.A.
❚ Franzo Grande Stevens: Chairman of P. Ferrero & C. S.p.A.
and Juventus S.p.A., Director of IFI S.p.A., IFIL S.p.A., Davide
Campari Milano S.p.A., IPI S.p.A., Pininfarina S.p.A., RCS
Mediagroup S.p.A, Toro Assicurazioni S.p.A., Banca del
Piemonte, Banca Sella and Exor Group
❚ Hermann-Josef Lamberti: Member of the Managing Board
of Deutsche Bank AG, Director of Eurex Deutschland,
Euroclear Bank S.A. and Schering AG
❚ Sergio Marchionne: Chairman of Lonza Group AG, Chief
Executive Officer of SGS S.A., Director of Serono S.A.
❚ Daniel J. Winteler: Director of IFIL S.p.A., Worms & Cie,
ClubMed and Juventus S.p.A.
The Company’s Articles of Association do not envisage
special rules for the appointment of Directors or nomination
of candidates. Nevertheless, the majority stockholder has
made it a rule to comply with the recommendations set
forth in this respect by the Corporate Governance Code.
Consequently, also on the occasion of the Stockholders’
Meeting of May 13, 2003 which appointed the new Board
of Directors, it deposited the nominations and curricula vitae
of the candidates ten days before the date of the first call
for the Stockholders’ Meeting.
38
Delegation of Powers and Responsibilities in
the Board of Directors
In accordance with the Company’s Articles of Association
(Article 18), the representation of the company is invested,
severally, in those directors who hold corporate offices. As in
the past, the Board of Directors adopted a model for delegation
of broad operating powers to the Chairman and Chief Executive
Officer, severally, authorizing them to perform all ordinary and
extraordinary acts that are consistent with the Company’s
purpose and not reserved by law or otherwise delegated or
reserved to the Board of Directors itself. In practice, the
Chairman coordinates the activities of the Board of Directors
and exercises strategic guidance, while the Chief Executive
Officer is responsible for executive management.
The Board defined the “Guidelines for Significant Transactions
and Transactions with Related Parties,” by which it reserved
the right to examine and approve in advance any transaction
of significance in the balance sheet, economic and financial
figures, including the most significant transactions with related
parties, and decided to subject all transactions with related
parties to special criteria of substantial and procedural fairness.
Therefore, decisions regarding significant transactions are
excluded from the mandate granted to executive directors.
The term “significant transactions” refers to those transactions
that in and of themselves require the company to inform the
market thereof, in accordance with rules established by
regulatory authorities.
When the Company needs to execute significant transactions,
the bodies with delegated powers shall provide the Board of
Directors reasonably in advance with a summary analysis of the
strategic consistency, economic feasibility, and expected return
for the Company.
Decisions regarding the most significant transactions with
related parties are also excluded from the mandate granted
to executive directors, while all transactions with related parties
shall comply with special criteria of substantial and procedural
fairness and the Board of Directors shall be informed thereof.
The principle of group decision making, to be adopted in
significant cases, is also subject to a wide ranging process
of review by the boards of directors of the Group companies
aimed at redefining the structure of authority granted to the
respective executive directors.
The Company’s Articles of Association (Article 15) prescribe that
the Board of Directors must meet at least once quarterly and that
on those occasions the directors with delegated powers report
to the Board of Directors and the Board of Statutory Auditors
on the activities performed in the exercise of their powers, on
the most significant transactions carried out by the company or
its subsidiaries, and on those that represent potential conflicts
of interest. One of the proposed amendments to the Articles
of Association would modify this clause pursuant to the newly
amended provisions of Article 2381 of the Italian Civil Code,
which received the recommendations of the Corporate
Governance Code with which Fiat already complied.
According to the proposed amendment, the directors with
delegated powers report at Board meetings on the general
operating performance and business outlook of the company
and the most significant transactions carried out by the
company or its subsidiaries. Furthermore, the Board examines
the strategic, industrial, and financial plans, assesses the
adequacy of the organizational, administrative, and accounting
structure of the company, and, on the basis of the reports
of the bodies with delegated powers, its general operating
performance. Every director must report to the Board of
Directors and Board of Statutory Auditors all interests that
he might have directly or on behalf of others in a specific
transaction of the company.
In 2003 the Board met thirteen times to examine and vote on
resolutions regarding operating performance in the various
Sectors of activity, quarterly reports, strategic relaunch plan,
capital increase, budget, motions regarding the organizational
structure, significant transactions and transactions with related
parties submitted by the executive directors, appointments
of company officers, the activity of the Audit Committee, and
motions submitted by the Nominating and Compensation
Committee, determining the compensation for executive
directors, upon approval by the statutory auditors. The
documents containing the information useful for discussion
were sent to the directors and statutory auditors in the days
preceding the meetings, with the exception of urgent or
particularly confidential matters.
Committees
The Board established the Nominating and Compensation
Committee and the Audit Committee, while it has not yet found
it necessary to establish a Committee for the nomination of
directors, having previously entrusted the Chairman with the
task of coordinating the submission of proposals and nominees.
Nominating and Compensation Committee
The Board of Directors established an internal Nominating and
Compensation Committee that is comprised of the following
five directors, three of whom are non-executive directors, with
two of these in turn being independent directors: Umberto
Agnelli (Chairman), Flavio Cotti, Franzo Grande Stevens,
Hermann Josef Lamberti, and Giuseppe Morchio. The basic
rules governing the composition, duties, and functioning of
the Committee are envisaged in the Charter of the Nominating
and Compensation Committee.
The Committee expresses its opinions on proposals regarding
the general compensation policies applicable to senior
management and appointment of the executive directors at
the principal subsidiaries. It participates in the definition and
elaboration of stock option plans to be submitted for approval
by the Board of Directors and makes proposals to the Board,
in the absence of the interested parties, on the individual
39
compensation of the Chairman, Chief Executive Officer, and the
other directors with particular duties.
and the Internal Control Compliance Officer shall participate
at Committee meetings.
In 2003, the Nominating and Compensation Committee met
five times to discuss the submission to the Board of Directors
of motions concerning the definition of compensation and
stock option plans for the Group’s senior managers and
new appointments at the Group’s Parent Company and for
corporate posts at the lead companies of the various Sectors.
The directors who hold corporate posts, the external auditors,
the Chief Accounting Officer, and possible other parties shall
participate at Committee meetings on invitation by the
Committee Chairman. The Committee shall meet in the
absence of the directors who hold corporate posts at least
twice each fiscal year.
The compensation of directors, as decided by the Stockholders’
Meeting of May 13, 2003, consists of a fixed fee of 50,000 euros
annually, attendance compensation of 3,000 euros for every
board or committee meeting attended, and the proportional
amount of the premium of the insurance policy covering civil
liability resulting from legal and contractual obligations inherent
in the office of director.
The Committee met seven times in 2003. Its most significant
activities included review of the organizational position of the
Internal Audit function, which now reports directly to the Chief
Executive Officer, with the head of this function now being
vested with the title of Internal Control Compliance Officer
and Compliance Officer pursuant to the Compliance Program
envisaged in Legislative Decree no. 231/2001, and responsibility
for reviewing proposals to renew the contract of the external
auditors, the rules for commissioning work from entities
other than the external auditors and parties related to them
(non-audit services), and the procedures for implementation
of the Disclosures & Controls Procedures in application of
the Sarbanes Oxley Act. During the first quarter of 2004,
the Committee met twice.
The Board of Directors, with the approval of the Board of
Statutory Auditors, granted the Chairman and Chief Executive
Officer a fixed compensation pursuant to Article 2389 of the
Italian Civil Code. Furthermore, as compensation that varies
according to performance, the Chief Executive Officer was
granted stock options whose exercise is partially subject to
satisfaction of predetermined profitability targets by specific dates.
Detailed information on the compensation of directors and
the stock options is provided in the Notes to the Financial
Statements of Fiat S.p.A.
Internal Control System and Audit Committee
In 1993 Fiat published a Code of Ethics, and in May 1999 it
adopted an Internal Control System based on a model derived
from the COSO Report. The Board of Directors then decided to
disseminate an “Internal Control System Policy” and establish
an Audit Committee.
In 2002 a more detailed Charter of the Audit Committee was
drafted and subsequently approved by the Board of Directors.
The “Guidelines for the Internal Control System” were also
drafted to receive the changes made to the Corporate
Governance Code. These guidelines came into effect on
January 1, 2003.
The Audit Committee must be comprised of at least three
independent directors. The mission of the Committee is to
assist the Board of Directors in discharging its own duties by
providing it with advice and proposals concerning: the reliability
of the accounting system and financial information; the Internal
Control System; the choice and supervision of the work of the
external auditors; and supervision of the activities of internal
auditors.
The Committee shall meet on convocation by its Chairman
whenever he deems it appropriate, but at least once every
six months, or whenever the Chairman of the Board of
Statutory Auditors or the Internal Control Compliance Officer
so request. The Chairman of the Board of Statutory Auditors,
or another of its members duly empowered by the Chairman,
This Committee is comprised by three independent Directors:
A. Benessia (Chairman), L. Garavoglia, and S. Marchionne.
The Internal Control Compliance Officer is appointed by the
Board of Directors and is not subject to the jurisdiction of
operating managers but instead reports solely to the Chief
Executive Officer, the Committee, and the Board of Statutory
Auditors.
At present, the Internal Control Compliance Officer is the
head of the Internal Audit function and relies upon the services
performed by Fiat Revi, a highly skilled and capable consortium
company that carries out internal audit within the Group.
An essential part of the Internal Control System, in addition to
the Code of Conduct that replaced the Code of Ethics in 2002,
is the Compliance Program which was adopted following the
Board resolution of February 28, 2003 pursuant to the “Norms
Governing the Administrative Liability of Legal Entities”
envisaged in Legislative Decrees no. 231/2001 and no. 61/2002.
The Compliance Program of the Fiat Group, which was drafted
in conformity with the guidelines prepared by Confindustria
(the Federation of Italian Industries), is comprised of a General
Part and two Special Parts (Offenses Committed in Relations
with Public Agencies, and White Collar Crimes). A Compliance
Officer function was established pursuant to Legislative Decree
no. 231/2001, with the mission of promoting effective and
proper implementation of the Program, including monitoring
of corporate conduct and the right to be constantly informed
about significant activities. Group companies are steadily
adopting compliance programs in conformity with the rules
and general principles envisaged in the compliance program
of the Parent Company after identifying their respective
sensitive processes and the specific procedures to be
implemented at each individual company.
40
Handling of Confidential Information
In 2002, an internal procedure for handling “confidential
information” was adopted. This procedure was disseminated
by means of a special organization announcement by the Chief
Executive Officer. It lists the different types of confidential
information, defines the functions and responsibilities of those
who are charged with handling such information, and explains
the rules that govern the disclosure of price-sensitive news and
the steps that should be followed when handling and publishing
such information. The purpose of this procedure is to prevent
potential leaks of confidential information. It imposes the
penalties that the Code of Conduct provides for employees
who violate confidentiality rules and makes clear that the same
level of compliance with its provisions and the same prudent
behavior is expected of the Directors and Statutory Auditors.
In compliance with the provisions issued by the Italian Stock
Exchange, a code of conduct was also adopted for disclosure
by relevant persons of “internal dealing” transactions. The
envisaged deadlines and quantities, which are lower than those
prescribed in the Italian Stock Exchange provisions, require
prompt reporting by relevant persons – defined in the annex
to the Internal Dealing Regulation – of individual transactions
whose countervalue exceeds 80,000 euros and those whose
aggregate amount exceeds 15,000 euros on a monthly basis.
No internal dealing transactions were reported in the last
twelve months.
Relations with Stockholders and Investors
One of the Company’s principal concerns is to establish
and maintain an ongoing dialogue with its stockholders and
institutional investors. To that end, Fiat created specific entities
that are responsible for managing these relationships.
The Group organizes frequent meetings and conference calls
with institutional investors and analysts and uses its website
(www.fiatgroup.com), which was thoroughly revised in February
2004, to disseminate publicly and in real time the material
discussed on those occasions.
The website is also used to disseminate institutional information,
present periodic operating and financial information and news
of special transactions, the calendar for corporate events,
and all documents pertaining to corporate governance.
During 2003, meetings and conference calls were organized in
order to provide periodic operating and financial information
and illustrate the Relaunch Plan and capital increase.
In addition, a toll-free number (800-804027) and two e-mail
addresses ([email protected] and
[email protected]) are available to
anyone seeking additional information regarding transactions
that affect stockholders.
Regulations were adopted in 2000 to ensure that
Stockholders’ Meetings run in an orderly and efficient fashion.
These Regulations define the rights and obligations of all
parties attending a Stockholders’ Meeting and provide clear
and unambiguous rules, without limiting or in any way
hampering the right of individual stockholders to voice their
opinions and demand explanations about items on the Agenda.
Board of Statutory Auditors
The Board of Statutory Auditors is comprised of three Statutory
Auditors and three Alternates, all of whom, as required by the
Articles of Association (Article 19), must be entered in the
Auditors’ Register and have at least three years’ experience
as chartered accountants. Furthermore, they may not hold
the position of statutory auditor in more than five other listed
companies, with the exception of the controlling companies
and subsidiaries of Fiat S.p.A.
In accordance with the Company’s Articles of Association
and as allowed under the Consolidated Law on Financial
Intermediation, properly organized minority groups may
appoint one Statutory Auditor. According to the Articles of
Association, the minimum equity interest needed to submit
a slate of candidates is 3%. The purpose of this threshold is to
ensure that the candidates being proposed are supported by a
group of minority stockholders that is sufficiently representative
and authoritative. Thus far, the minority stockholders have
not availed themselves of this right. Nevertheless, Fiat believes
that the independence of its control body is ensured by the
requirements of independence and professionalism prescribed
by law and by the Company’s Articles of Association as well as
the unblemished professional reputation that the members of
the Board of Statutory Auditors have always enjoyed.
However, in recognition of the recent greater fragmentation
of share ownership and to facilitate the nomination of
candidates by minority stockholders, among the amendments
to the Articles of Association, a motion is submitted to the
Stockholders’ Meeting to reduce the minimum required equity
interest to 1% for submission of a slate of candidates.
In accordance with the Articles of Association, the slates of
candidates must be deposited at the registered office of the
company at least ten days before the scheduled date of the
Stockholders’ Meeting on its first call and be accompanied by
statements certifying satisfaction of the requirements prescribed
by law and the Articles of Association and that they are not
ineligible or incompatible, on penalty of rejection of those slates.
41
Stock Option Plans
Thus far, the Board has approved Stock Option Plans offered
to about 900 managers of the Group’s Italian and foreign
companies who are qualified as “Direttore” or have been
included in the Management Development Program for
high-potential managers. Plan regulations share these
common features:
❚ Options are granted to individual managers on the basis
of objective parameters that take into account the level
of responsibility assigned to each person and his or her
performance.
❚ If employment is terminated or an employee’s relationship
with the Group is otherwise severed, options that are not
exercisable become null and void. However, vested options
may be exercised within 30 days from the date of termination,
with certain exceptions.
❚ The option exercise price, which is determined based on
the average stock market price for the month preceding
the option grant, can vary as a result of transactions affecting
the Company’s capital stock. It must be paid in cash upon
the purchase of the underlying shares.
❚ The options are normally exercisable starting one year
after they are granted and for the following eight years,
but during the first four years, exercise is limited to annual
tranches, which may be accumulated, of no more than 25%
of the total granted.
A total of 1,045,943 options were granted in 2003, to purchase
a corresponding number of shares within 2010. For the first
three years their exercise is subject to limits, which include
the achievement of predetermined objectives. In consideration
of the options previously granted under the aforesaid plans
and that have since expired upon termination of employment,
a total of 12,697,743 option rights corresponding to the same
number of shares represent treasury stock to be assigned to
the holders of options pursuant to the conditions envisaged
in the specific Regulations.
In addition, the Board of Directors resolved to grant
Mr. Giuseppe Morchio, as the only variable portion of his
compensation as Chief Executive Officer, options for the
purchase of 13,338,076 Fiat ordinary shares at the price of
5.623 euros per share, exercisable from March 27, 2004 to
March 27, 2010. In each of the first five years, he accrues the
right to purchase a maximum of 20% of the total. Two-thirds
of the options that will vest between March 27, 2005 and March
27, 2008 will be exercisable only if certain predetermined
profitability targets are reached during the reference period.
The table below summarizes the information on options granted
to employees outstanding at December 31, 2003:
2003
Options outstanding on 1/1
Number
of shares
Average
exercise price (*)
2002
Market price
Number
of shares
Average
exercise price (*)
Market price
15,791,700
18.8
7.7
12,608,500
24.41
17.92
Options granted during the year
1,045,943
6.69
6.69
6,420,000
11.32
11.32
Expired options
4,139,900
–
–
3,236,800
–
–
Options outstanding on 12/31
12,697,743
16.46
6.14
15,791,700
18.8
7.7
Options exercisable on 12/31
5,537,925
20.45
6.14
3,784,575
25.86
7.7
(*) Following the capital increases in January 2002 and July 2003, the exercise prices were adjusted by applying the factors calculated by Borsa Italiana, in the amount of 0.98543607 and
0.93167321, respectively.
42
Transactions among Group Companies
and with Related Parties
Transactions among Group companies, whether they are
made to support vertical manufacturing integration or to
provide services, are carried out at terms that, considering
the quality of the goods or services involved, are competitive
with those available in the marketplace.
The specific mission of a Group Sector is to provide services
to other members of the Group through companies which,
because of their specialized nature, are able to achieve
continuous improvements in quality and economies of scale.
Within this framework, the main transactions between
the Parent Company, Fiat S.p.A., and its subsidiaries and
associated companies are summarized below:
❚ Licensing of the right to use the Fiat trademark,
for a consideration based on a percentage of sales,
to Fiat Auto S.p.A. (0.5%).
❚ Services provided by Fiat management personnel to Fiat Auto
S.p.A., Iveco S.p.A., Teksid S.p.A., Magneti Marelli Holding
S.p.A., Fiat Engineering S.p.A., Comau S.p.A., and other
Group companies.
❚ Grant of suretyships and guarantees in connection with the
issuance of billets de trésorerie (Fiat France S.A.), bonds
and lines of credit (Fiat Finance and Trade Ltd, Fiat Finance
Luxembourg S.A., Fiat Auto Financial Services Limited,
and New Holland Credit Company LLC); and to secure bank
loans (Fiat Auto S.p.A., Teksid S.p.A., Fiat Partecipazioni S.p.A.
(formerly Sicind S.p.A.), Fiat Automoveis S.A., Banco CNH
Capital S.A., Case LLC, and other Group companies), and
payment obligations under building rental contracts (Ingest
Facility S.p.A., Fiat Auto S.p.A., Isvor Fiat S.c.p.A., Editrice La
Stampa S.p.A., Fiat Automobil Vertriebs GmbH, International
Metropolitan Automotive Promotion (France) S.A., Fiat Motor
Sales Ltd, and other Group companies).
❚ Rental of buildings to Ingest Facility S.p.A. and Fiat I&CS S.r.l.
❚ Loans granted to and received from Fiat Ge.Va. S.p.A.
❚ Purchase of support and consulting services provided by Fiat
Gesco S.p.A. (taxation and administration), Fiat Ge.Va. S.p.A.
(financial services) and Fiat International S.p.A. (international
relations).
❚ Purchase of inspection and internal auditing services from
Fiat Revi S.c.r.l.
❚ Purchase of information technology services provided by
Global Value S.p.A.
❚ Purchase of external relations services provided by Fiat I&CS S.r.l.
❚ Purchase of office space, personal and real property
maintenance services provided by Ingest Facility S.p.A.,
and other general services provided by Fiat Servizi per
l’Industria S.c.p.a.
❚ Purchase of personnel training services provided by
Isvor Fiat S.c.p.A.
❚ Purchase of automobiles from Fiat Auto S.p.A.
Among transactions with related parties that must be
mentioned, legal professional consultancy services rendered
by Franzo Grande Stevens to Fiat S.p.A. for 317 thousand
euros, and to Fiat Partecipazioni S.p.A. for 599 thousand
euros, consultancy services by Luigi Arnaudo to Fiat S.p.A.
for 40 thousand euros, and professional services by the
Benessia-Maccagno law firm, in connection with the equity
investment in Italenergia Bis, for 2.5 million euros.
All the transactions involving intra-Group deliveries of
goods and services that are part of the regular operations
of the companies involved are discussed in other sections
of this Report (Note 21 – Other Information).
Based on the information received from the various Group
companies, there were no atypical or unusual transactions
during the year. Extraordinary transactions among Group
companies or with related parties that occurred during the
year are reviewed in the following page:
Interests held by Directors and Statutory Auditors (Article 79 of Consob Regulations, Resolution No. 11971 of 5/14/1999)
(number of shares)
First name and last name
Description of Investments
Number of
shares held at
12.31.2002
Number of shares
bought in 2003
Number of shares
sold in 2003
Number of
shares held at
12.31.2003
Luca Cordero di Montezemolo
Fiat ordinary
11,984
7,188
John Philip Elkann
Fiat ordinary
300
–
300
–
Cesare Ferrero
Fiat ordinary
1
–
–
1
(1)
19,172
Paolo Fresco
Fiat ordinary
211,452
5,650
–
Gabriele Galateri di Genola
Fiat ordinary
2,750
–
–
Felix George Rohatyn
Fiat ordinary
Fiat preference
(1) shares held at February 28, 2003, date of his appointment.
(2) shares held at February 28, 2003, when he left the office.
(3) indirectly owned through his spouse, shares held at April 12, 2003, when he left the office.
440
–
–
1,000
–
–
(2)
217,102
(3) 2,750
(3)
440
(2) 1,000
43
❚ In April 2003, CNH Global carried out a capital increase
of $2 billion by issuing 8,000,000 Convertible Series A
Preference Shares at the price of $250 per share, which
were fully subscribed by Fiat Group companies through
the conversion into capital of financial payables owed to
them by CNH Global N.V. The shares for the aforesaid
capital increase, which are vested with ordinary voting rights,
benefit from specific dividend rights and are convertible
into 100,000,000 common shares.
If all the shares are converted, the equity investment of
Fiat S.p.A. in CNH Global N.V., through the subsidiary Fiat
Netherlands Holding N.V., will increase from 85.1% to 91.7%.
❚ In April 2003, Fiat Auto Holdings B.V. approved a capital
increase of up to 5 billion euros. An initial quota of 3 billion
euros was subscribed by Fiat Partecipazioni S.p.A., while
stockholders may subscribe to the remaining 2 billion euros
Transactions among Group Companies and with Related Parties
by October 31, 2004. In consequence of this capital increase,
the share owned by Fiat Partecipazioni S.p.A. in Fiat Auto
Holdings B.V. rose to 90%.
The following actions were taken in 2003 as part of the
corporate and legal streamlining programs:
❚ in the Commercial Vehicles Sector, the lead company for
all the companies belonging to the sector is Iveco S.p.A.
after the equity investments previously owned by Iveco N.V.
were transferred to it;
❚ in the Production Systems Sector, the lead company for
all the companies belonging to the sector is Comau S.p.A.
after certain of the equity investments previously owned by
Comau B.V. were transferred to it;
❚ Fiat Netherlands Holding N.V., Iveco N.V., and Comau B.V.
were merged at the same time as the previously described
transactions were carried out.
44
Significant Events Occurring Since the End
of the Fiscal Year and Business Outlook
SIGNIFICANT EVENTS OCCURRING SINCE THE END
OF THE FISCAL YEAR
The most significant transactions completed by the Fiat Group
during early months of 2004 are reviewed below.
❚ In February 100% of the interest held in Fiat Engineering
S.p.A. was sold to Maire Investimenti S.p.A. At the same time
Fiat Partecipazioni S.p.A. subscribed to a capital increase in
Maire Investimenti S.p.A. and now owns 30% of its capital.
On said 30% interest, both parties hold call and put options
that are exercisable within three years at a predetermined
price.
❚ Fiat signed an agreement to sell 65 million ordinary shares
of Edison S.p.A., representing Fiat’s direct stake in Edison.
Fiat retains its 24.6% interest in Italenergia Bis, the controlling
entity of Edison. The transaction does not change any of the
future strategic options of the Fiat Group.
❚ The following new products were introduced during the first
quarter of 2004:
Fiat Auto chose the 74th International Geneva Motor Show
for the worldwide introduction of several Fiat-brand models,
including the on-road and off-road versions of the gasolineand diesel-powered Panda 4X4, the new Fiat Multipla with
updated styling, and the Trepiùno, a small car that serves as
a styling and technological laboratory for the development
of future microcars.
Alfa Romeo staged the worldwide launch of the Alfa
Crosswagon, a sporty and elegant all-wheel-drive car
capable of handling off-road driving conditions.
Lancia presented to buyers worldwide its Musa, a new
compact MPV for motorists who want to enjoy good
taste but are unwilling to give up convenience.
An important development involves work to update the
measures taken to comply with the requirements of the
previous and now repealed privacy law and make them
consistent with the changes contained in Legislative Decree
196/2003. More specifically, the planning paper on safety has
undergone the upgrade process that is inherent in the nature
of this constantly evolving document, which is designed to
ensure the achievement of a steadily rising level of safety.
BUSINESS OUTLOOK
The forecast for 2004 calls for the global economy to grow,
driven by expansion in the United States and Southeast Asia.
However, the growth rates projected for Italy and the rest of
Europe are significantly lower. Consequently, the Group will
be faced with market demand that will expand slightly in the
United States but hold relatively steady in most other countries,
and with aggressive competition from other carmakers.
In this environment, all of the Group’s Sectors will strive to
achieve significant gains in profitability. They will pursue this
goal by following the guidelines set out in the Relaunch Plan,
by restructuring and by streamlining their manufacturing
operations. At the same time, they will be making major
investments in renewing their product range and improving
their distribution networks.
The Group will continue to strengthen its management
organization by pursuing a strategy of bringing in top
professionals from the outside and leveraging the competencies
available inside.
While taking into account the current business outlook,
management aims at achieving the objectives of the Relaunch
Plan: operating break-even at Group level, a further reduction of
Fiat Auto’s losses and better operating results than in 2003 from
all other Sectors.
45
Operating Performance — Sectors of Activity
46
Automobiles — Fiat Auto
Highlights
Net revenues
Operating result
EBIT (*)
Net result before
minority interest
Cash flow (net result +
depreciation and amortization)
Number of employees
2003
2002
2001
20,010
(979)
(1,607)
22,147
(1,343)
(2,214)
24,440
(549)
(1,061)
(2,058)
(2,739)
(1,442)
(1,096)
1,100
939
1,806
44,563
(1,780)
1,115
861
1,254
49,544
(292)
1,331
870
2,340
55,174
(*) It includes non-operating income and expenses
Revenues by geographical
region of destination
Employees by geographical
region
0
50%
Italy
Rest of Europe
100%
Rest of the world
Sales performance
In 2003, the weakness in the overall economy continued to have
an impact on the automobile market.
The Western European market for automobiles contracted by
1.2% compared with 2002, as a gain of 4.3% in Spain was offset
by a 6.4% drop in France. Demand held relatively steady in
Great Britain (+0.5%), Germany (-0.4%) and Italy (-1.2%). Outside
Western Europe, shipments were up sharply in Poland (+16.3%)
but continued to fall in Brazil (-3.2%).
In Western Europe, shipments of light commercial vehicles
(slightly more than 1.7 million units) were down 2.0% from 2002.
Demand was down 17.4% in Italy but showed healthy increases
in Great Britain (+15.3%) and Spain (+8.8%). Outside Western
Europe, the best gain occurred in Poland (+20.5%).
Fiat Auto’s share of the Western European automobile market
declined to 7.4%, or 0.7 percentage points less than in 2002.
The trend was the same in Italy, where market share was 28%,
down 2.2 percentage points compared with 2002. In Brazil and
Poland, market share held at 25.2% and 17.8%, respectively.
Fiat Auto’s share of the Western European market for light
commercial vehicles reflected the same downward trend that
shaped overall demand, falling by 1.4 percentage points to
11.2%, the same level as in 2001.
Fiat Auto sold a total of about 1.7 million vehicles, or 8.8%
less than in 2002.
In Western Europe, unit sales were down 9.4%, due mainly to
the continuing and pervasive weakness that characterized
market demand and the fact that new models (Fiat Panda, Fiat
Idea, Lancia Ypsilon and Alfa GT) were not introduced until
late in 2003 and at the beginning of 2004. These new models
are showing good potential in terms of market penetration
and appeal to customers.
Sales Performance – Automobiles and Light
Commercial Vehicles
(in thousands of units)
France
Germany
Great Britain
Automobile Market
Italy
2003
2002
% change
France
2,003
2,139
(6.4)
Germany
3,174
3,188
(0.4)
Western Europe
Great Britain
2,586
2,572
0.5
Poland
Italy
2,251
2,280
(1.2)
Spain
1,380
1,322
4.3
14,146
14,323
(1.2)
Total units sold
353
303
16.3
Associated companies
1,195
1,235
(3.2)
Grand total
Western Europe
Poland
Brazil
Spain
2003
2002
% change
82.0
98.0
(16.3)
118.8
122.8
(3.3)
92.3
91.0
1.4
671.2
758.7
(11.5)
76.3
66.5
14.8
138.8
165.2
(16.0)
1,179.4
1,302.2
(9.4)
70.3
60.7
15.9
Brazil
317.7
358.0
(11.3)
Rest of the world
128.1
139.2
(8.0)
1,695.5
1,860.1
(8.8)
83.0
49.8
66.5
1,778.5
1,909.9
(6.9)
Rest of Western Europe
47
The overall decrease in the number of cars sold in Western
Europe is the net result of varying performances in the individual
countries. More specifically, unit sales decreased significantly
in France (-16.3% compared with 2002) but showed gains in
Great Britain (+1.4%), a marked improvement over the 2002
trend, and Spain (+14.8%).
The overall trend was down in Italy (-11.5%) and Brazil (-11.3%),
but the Polish operations bucked the trend, posting a gain of
15.9% compared with 2002.
In 2003, Fiat Auto continued to refocus and integrate the
Sector’s international presence, placing special emphasis
on such major markets as Latin America, China and Turkey.
In Brazil, despite a business climate characterized by increasing
competitiveness and a further decrease in demand, Fiat Auto
retained market leadership for the third consecutive year with
a share of 25.3% (cars and light commercial vehicles combined).
During the year, the Sector launched the new Palio, which
received the prestigious Carro do año (Car of the Year) award;
introduced the Adventure version of the Doblò; and entered
into an agreement with GM Mexico to distribute in Mexico
Fiat-brand cars that are manufactured in Brazil.
In Argentina, the deep slump of 2002 was followed by steady
signs of improvement in 2003, with demand up a strong 41%
year-over-year. In this environment, Fiat increased its market
share to a level above 10%.
In China, Fiat Auto’s joint venture with the Yueijin Motor Group
increased the level of sales, which reached 37,200 units
compared with 23,700 units in 2002. During 2003 the product
line, which comprised the Fiat Palio and Albea, was expanded
with the introduction of the Palio Weekend and of models with
automatic transmission.
Fiat Auto
In Turkey, the Tofas associated company strengthened its
position as Turkey’s preeminent carmaker in 2003 and
significantly broadened its product line, introducing a 1.3
Multijet engine for the locally-produced Palio and Albea car
models. Furthermore, the Fiat Stilo and Punto were launched
on the Turkish market.
Product innovation
In 2003, Fiat Auto continued to pursue the strategy launched
in previous years to upgrade its model lineup and increase its
competitiveness.
The success of this approach was demonstrated by the
introduction and market launch of four new models that
should enable Fiat Auto to strengthen its presence in Europe.
These models are the new Fiat Panda, a city car honored
with the prestigious 2004 Car of the Year award; the Fiat
Idea compact MPV; the elegant Lancia Ypsilon; and the Alfa
Romeo GT, a grand tourer five-seat coupé. Other noteworthy
products include the Kamal, an SUV concept car, and the 8C
Competizione, a luxurious high-performance sports car.
Innovations in the area of engines include: introduction of
the 1.3 16V Multijet diesel engine, which complies with the
Euro 4 emission standards, for the Punto and the Ypsilon;
development of diesel powerplants, which are scheduled to go
into production during the first half of 2004, for the Doblò and
Panda; launch of the Punto bi-power; upgrades to make the
engines in the Doblò Panorama, Multipla and Punto passenger
transports compliant with EOBD standards; introduction of a 1.4
16V powerplant for the Ypsilon, Idea and Punto and of 1.9 16V
diesel 140 bhp and 1.4 16V Fire 90 bhp engines for the Stilo,
whose 2004 Model Year was launched in the last quarter of 2003.
48
Major upgrades were also done by Alfa Romeo on its current
product line, particularly on the GTV/Spider (2.0 JTS and
240-bhp 3.2 V6 24-valve gasoline engines), the 156 and 166
(175-bhp 2.4 JTD 20V Multijet engine). A new 100-bhp 1.9 JTD
engine was also introduced on the Alfa 147.
In addition, Alfa Romeo now offers new automatic Sportronic
(166 diesel) and robotized Selespeed (147 and 156 GTA)
transmissions.
Financial and service activities
At the end of March 2003, as part of its streamlining effort, Fiat
Auto sold its Brazilian consumer credit and leasing operation
to the Itaù bank. This transaction was followed, in May 2003,
by the signing of an agreement with several large Italian credit
institutions covering the sale of a 51% interest in Fidis Retail
Italia S.p.A., which holds equity investments in companies that
provide consumer credit and leasing services to customers
in Italy and other European countries.
In 2003, financing support provided to the distribution network
and suppliers totaled more than 20 billion euros, or 14% less
than in 2002. The programs implemented to streamline the
loan portfolio and make it more profitable and focused on
providing support for the Sector’s sales organization, which
produced a contraction of the scope of operations, coupled
with a drop in production and a decrease in orders are the
main reasons for this decline.
The renting operations focused on strengthening their presence
at the local level and improving the profitability of new
contracts, even at the cost of forfeiting volume increases.
Leasys, a joint venture of Fiat Auto and Enel, retained the
Fiat Auto
leadership of the Italian market, with a 23% share. Savarent
achieved a gain in sales volume of about 5% and increased
its penetration of rental companies that use Fiat Auto vehicles
to about 28%.
At the end of 2003, the Sector’s rental fleet numbered 134,000
vehicles, or 9% more than a year earlier.
Fiat Auto’s operations in the area of mobility services
continued to work on streamlining and improving their business
performance, introducing new bConnect Voice products and
an OBN system, and expanding the Clickar website.
Noteworthy transactions completed in 2003 included:
❚ In February, Fidis sold 50.1% of In Action S.r.l. to the Cos
Group;
❚ In October, Fidis bought a 40% interest in its Targa Assistance
S.r.l. subsidiary from Europ Assistance Trade.
The Sector’s financing and service operations generated
revenues of 1,339 million euros in 2003, compared with 2,236
million euros in 2002. The main reasons for this decrease are:
a change in the scope of consolidation resulting from the asset
disposals mentioned above; the sale to ACI of a 50% interest
in Targasys in late December 2002; and a drop in revenues
caused by a contraction in business volume that was influenced
by market trends and a marketing strategy focused on helping
the operations servicing sales networks, suppliers and outside
car buyers improve the quality of their loan portfolios.
Operating income totaled 196 million euros (313 million euros
in 2002). This decrease is attributable almost entirely to changes
in the scope of consolidation, since virtually all of the reduction
in revenues generated by continuing activities was offset by
cost savings.
49
Income before taxes of normal operations declined to 23
million euros (285 million euros in 2002), owing in part to
extraordinary charges due to the operational and
organizational processes revision undertaken by the Sector’s
renting companies.
Results for the year
The loss reported by Fiat Auto at year-end, though still high,
narrowed by 27% with respect to 2002 (operating loss of 979
million euros in 2003 against an operating loss of 1,343 million
euros in 2002). This reduction was achieved despite a 9.6%
contraction in consolidated revenues (20,010 million euros
in 2003), an 8.8% drop in unit sales and a 9% increase in R&D
outlays which amounted to 939 million euros in 2003. This
result was made possible by cost reductions and the positive
effect of new models that were introduced in the last few
months of the year. The net loss for the year shrank to
2,058 million euros from a loss of 2,739 million euros in 2002.
This improvement reflects gains in operating profitability
and lower net non-operating expenses (531 million euros
in 2003, compared with 796 million euros in 2002), which
included about 259 million euros in restructuring charges.
The road to recovery set out in the Relaunch Plan, which was
presented in June to the financial community and comprises
actions to improve the profitability and strengthen the financial
structure of the Company, is still long and calls for the
achievement of operating breakeven in 2005 and bottom-line
breakeven in 2006. Nevertheless, we can confirm that the target
of reversing the negative trend was met in 2003 and our uphill
journey has began.
Fiat Auto
50
Agricultural and Construction Equipment — CNH
Highlights
2003
2002
2001
Net revenues
9,418
Operating result
229
EBIT (*)
99
Net result before minority interest (192)
258
217
229
4,148
Number of employees
26,825
10,513
163
165
(211)
10,777
209
122
(291)
330
431
300
5,140
28,528
262
615
341
6,597
28,127
region
0
50%
Italy
Rest of Europe
100%
Rest of the world
Sales performance
Growth strategies
In the agricultural equipment segment, the market as a whole
expanded by approximately 7% in 2003 as compared to 2002,
thanks to growth in North America (approximately +19%), with
increased demand for tractors in all ranges. These increases
were offset by lower demand for combine harvesters in North
America and in Western Europe.
In 2003 profit improvement initiatives continued with higher
than expected results, thanks in particular to the contribution
of newly introduced products, and lower sales, administrative,
and research and development costs. Streamlining of the
production structure continued: the number of plants was
reduced to 45, thanks in part to reallocation of certain
production units. Further economies of scale were obtained
through streamlining the pool of suppliers, a new logistics
organization, and a reduction in the number of spare parts
warehouses.
Compared with 2002, the Sector posted a significant increase
in sales of combine harvesters in its principal markets, while
also improving its market share in North America and Western
Europe, despite tractor sales remaining below the levels
posted in the previous year, mainly due to the limited
availability of certain new models.
The market for construction equipment (up 9%) expanded
in North America (approximately +9%) and Asia, while it
contracted in Latin America (approximately -19%) and
Western Europe (approximately -2%). In Western Europe,
the contraction can be attributed to lower demand in the
light equipment segment, while the demand for heavy
equipment remained essentially unchanged.
Construction equipment sales were impacted both by lower
demand and efforts to reduce company and dealer inventory
levels. In North America the decrease was smaller, thanks to
the positive performance of heavy equipment, while sales
volumes increased in the rest of the world (+7%).
In Western Europe, the initial problems connected with
integration of the Fiat-Hitachi and Fiat-Kobelco sales networks
also contributed to the contraction, following formation of
Fiat Kobelco Construction Machinery S.p.A. in the second
half of 2002.
Product innovation
Implementation of common platforms for agricultural and
construction equipment continued in 2003 with the introduction
of the new line of Case IH MXU and New Holland TS-A highpowered multifunction tractors. The percentage of agricultural
equipment updated between 2001 and 2003 rose to 80%.
In 2003, 64% of the revenues from agricultural equipment sales
(30% in 2002), and 66% of the revenues in the construction
equipment segment (53% in 2002) were derived from products
developed on common platforms after integration with Case.
During the first half of the year, CNH won nine prizes at the
most important European specialized trade fairs. More awards
were received in the second half of the year, with a total of 25
prizes accumulated, 9 for tractors, 7 for combine harvesters,
and 4 for grape harvesters.
Another 15 prizes were awarded to CNH in North America for
New Holland and Case IH products, including 6 for combine
harvesters and 3 for tractors.
51
Financial activities
During 2003 CNH Capital continued to focus on supporting
the CNH dealer network and its customers. In Europe, CNH
Capital Europe, the company operated in partnership with
BNP Paribas Lease Group (BPLG), continued to grow as
envisaged without causing an increase in the indebtedness
of CNH.
In 2003 CNH financial activities posted revenues of 549 million
euros, compared with 680 million euros in 2002. If expressed
in dollars, the accounting currency of the Sector, the decrease
would have been approximately 3%. The decrease in revenues
was primarily caused by lower average receivables balances
related to the successful completion of asset-backed
securitization transactions, lower yields on some on-book
portfolios due to reduced market interest rates and lower
operating lease revenues.
Income before taxes totaled 116 million euros, compared
with 89 million euros in 2002. The improvement, which
amounted to USD 48 million when expressed in that currency,
is attributable to improved margins on interest and the
improved quality of the portfolio under management,
achieved in part thanks to the continued reduction of the
“non-core,” high-risk portfolio.
In 2003, CNH had revenues of 9,418 million euros (USD 10,654
million), compared with 10,513 million euros (USD 9,928 million)
in 2002. On a comparable exchange rate basis and when
expressed in dollars, the accounting currency of the Sector,
2003 revenues were substantially in line with those recorded
CNH
in the previous fiscal year: higher revenues generated by the
sale of agricultural equipment were offset by lower revenues
reported by the construction equipment segment.
Operating income totaled 229 million euros in 2003 against
163 million euros in 2002 (respectively USD 259 million in 2003
and USD 154 million in 2002). These results benefited from the
effects of measures taken to improve profitability under the
Relaunch Plan and profit contributions from new products,
which were partially offset by higher costs for the introduction
of new products in the agricultural equipment segment
(especially in Europe) and an unfavorable mix on certain
markets for construction equipment.
The Sector formulated a plan to integrate the operations
of the Case and New Holland businesses at the time of the
merger. In 2002 and again in 2003, plans were expanded.
Through year-end 2002, our cumulative merger-related profit
improvements totaled approximately USD 600 million as
compared to the base levels of revenues and costs incurred
in the combined equipment operations for the full year 1999.
We believe that the continuation of these actions through 2006
will result in additional savings of approximately USD 650
million, bringing the total for the period from 2000 to 2006 to
USD 1,250 million. These actions represent improvements as
compared with the base levels of revenues and costs incurred
by CNH for the full year 2002. This estimate is not based on
any assumption of an appreciable increase in industry volumes
from 2002 levels.
In the year ended December 31, 2003, we achieved USD 225
million of the USD 650 million of additional profit improvements
expected by 2006.
52
CNH
Depreciation and amortization for the period totaled 450
million euros (541 million euros in 2002), of which 141 million
euros for the amortization of goodwill connected with the
acquisition of Case.
In 2003 the net loss was 192 million euros, of which 198
million euros were allocated to the Sector, compared with the
net loss of 211 million euros in 2002, of which 220 million euros
were allocated to the Sector.
Cash flow was a positive 258 million euros, compared with
330 million euros in 2002.
53
Commercial Vehicles — Iveco
Highlights
2003
2002
2001
Net revenues
8,440
Operating result
81
EBIT (**)
(84)
46
Capital expenditures (*)
210
212
1,310
Number of employees
31,511
9,136
102
(409)
(493)
8,650
271
46
(123)
(70)
587
239
1,582
38,113
287
718
215
1,979
35,340
(*) Vehicles under long-term rentals
28
331
348
(**) It includes non-operating income and expenses
region
0
50%
Italy
Rest of Europe
100%
Rest of the world
Sales performance
In 2003, Western European demand for commercial vehicles
(GVW ≥ 2.8 tons) decreased to about 952,100 units, or 0.6%
less than in 2002 (about 957,500 units), as sharp drops in Italy
(-15.6%, caused in part by the expiration of the investment
incentives provided by the Tremonti Bis Law) and France (-6.0%)
were offset by widespread gains in other markets.
New registrations of light commercial vehicles (GVW between
2.8 and 6 tons) held relatively steady at 661,600 units. The
decrease of 0.1% from 2002 (about 662,000 units) is the net
result of sizable demand drops in Italy (-17.5%) and France
(-3.6%) and growth in all other main markets, especially Spain
(+12.8%) and Great Britain (+8.5%).
Demand for medium vehicles (GVW between 6.1 and 15.9 tons)
decreased again, falling to 74,300 units (-9.2% compared with
2002). Shipments were down in all European markets.
Commercial Vehicles Market (GVW ≥ 2.8 tons)
France
Germany
Great Britain
Italy
Spain
Western Europe
2003
2002
% change
158.5
211.0
165.6
117.7
94.6
952.1
168.7
207.3
153.6
139.5
86.9
957.5
(6.0)
1.8
7.8
(15.6)
8.9
(0.6)
Heavy
Medium
Light
Western Europe
Iveco’s share of the Western European market for vehicles with
a curb weight of more than 2.8 tons declined to 11.5% (1.3
percentage points less than in 2002), due mainly to weak demand
in Italy, where, however, Iveco was able to hold its penetration at
30.5%. The Sector’s market share decreased by one percentage
point both in the heavy-vehicle segment (from 12.3% to11.3%)
and the light-vehicle segment (from 10.8% to 9.8%), but held at
27.4% in the medium-vehicle segment (-2.7 percentage points
in a market that contracted by 9.2%). In this environment, Iveco
was able to retain the leadership of the Western European
market, owing in part to the launch of the New Eurocargo,
which garnered more than 61% of the Italian market.
The Irisbus Group sold a total of 8,307 vehicles (-1.5%), for
an overall market share in Western Europe of more than 25%.
Commercial Vehicles Market (GVW ≥ 2.8 tons)
Against this general background, new registrations of heavy
vehicles (GVW ≥ 16 tons) grew to 216,200 units, or 1.2% more
than in 2002. The best gains occurred in Great Britain (+11.4%),
Germany (+6.1%) and Spain (+4.4%). Demand was significantly
lower in France (-9.5%) and Italy (-8.0%), but was generally up
in all of the remaining markets.
Iveco sold 146,437 vehicles worldwide (-6.8% on a comparable
basis). The Sector’s licensees shipped approximately 49,600
units (+32.1%). In Western Europe, Iveco sold about 119,300
vehicles, or 7.4% less than in 2002.
Unit sales were down in Italy, Germany and Great Britain,
but increased in France and Spain.
2003
2002
% change
216.2
74.3
661.6
952.1
213.7
81.9
662.0
957.5
1.2
(9.2)
(0.1)
(0.6)
Iveco produced 379,000 diesel engines, or 4.9% more than
in 2002, when production totaled 361,200 units. Shipments
to noncaptive customers and other Fiat Group Sectors
accounted for 61% of total output (+3 percentage points
with respect to 2002).
54
In China, Naveco, a 50-50 joint venture with the Yueijin Group,
produced and sold about 14,700 light vehicles (approximately
+1%) and the C.B.C. joint venture (busses) sold about 4,600 units.
In Turkey, the Otoyol licensee sold about 4,400 units (+6,9%)
and Ashok Leyland, Iveco’s Indian licensee, manufactured
and shipped 45,150 units (+38%).
In 2003, Iveco continued to expand its portfolio of maintenance
and repair services. It had a total of about 40,000 contracts in force
at the end of 2003, or 2.5% more than at December 31, 2002.
Financial and service activities
In 2003, the finance companies of the Iveco Finance Group,
which provide financing and leasing services to support the
sales of Iveco products in Western Europe, signed 22,533
contracts to finance sales of new commercial vehicles (34,000
in 2002) and 7,587 contracts for used commercial vehicles,
busses, trailers and semitrailers, for a total of 30,120 new
transactions. Iveco Finance provided funding for 22% of the
vehicles sold by the Sector (29.4% in 2002). A total of 103,345
financing contracts were outstanding at the end of 2003
(105,700 at December 31, 2002) with a total net value of 2,312
million euros (about 2,600 million euros at the end of 2002).
The pool of rental vehicles operated by the Transolver Services
companies numbered about 4,600 units at the end of 2003,
with 1,530 new contracts signed during the year. The decrease
in business volume and the contraction of the vehicle pool with
respect to the previous year (equal to about 37,000 units) reflect
changes in the Sector’s scope of consolidation following the
sale of Fraikin at the beginning of the year.
The Sector’s operations that provide rental and financing
services to retail customers generated aggregate net revenues
of 655 million euros in 2003 (1,005 million euros in 2002, when
Fraikin was included). Restated on a comparable basis, net
Iveco
revenues show a year-over-year gain of 180 million euros
(+37.8%), 154 million euros of which are attributable to the
consolidation for the full year of net revenues generated by
Iveco International Trade & Finance, a company that offers sales
financing to customers in Eastern Europe and the Middle East.
Operating income fell to about 7 million euros (18 million
euros in 2002 on a comparable basis). The main reason for this
decrease is a shortfall in revenues. This shortfall had a negative
impact on the operating performance of the Transolver Finance
and Iveco Service companies, which, as stated above, signed
fewer new contracts than in 2002.
The loss before taxes of normal operations amounted to
about 43 million euros (loss of 183 million euros in 2002). On
a comparable consolidation basis and excluding the impact
of the loss incurred in connection with the Fraikin disposal
(210 million euros), these operations would have been
profitable by 3 million euros. The result for 2003 was affected
by an increase in non-operating charges, chief among
them the remaining loss on the disposal of Fraikin.
Sales Performance – Units Sold by Country
France
Germany
Great Britain
Italy
Spain
Western Europe
Eastern Europe
Rest of the world (*)
Total units sold (**)
Associated companies
Grand total
2003
2002
% change
17.8
14.0
13.8
38.3
14.8
119.3
9.7
17.5
146.4
49.6
196.0
17.6
15.0
16.2
44.3
14.7
128.8
9.5
23.6
161.9
37.5
199.4
1.1
(6.7)
(14.9)
(13.6)
0.8
(7.4)
1.6
(26.0)
(9.6)
32.1
(1.7)
(*) Naveco (50-50 joint venture) consolidated proportionally in 2002 and by the equity
method in 2003.
(**) On a comparable consolidation basis the change is -6.8%.
55
Product innovation and investments
The salient events in Iveco’s product innovation and
development in 2003 were the commercial launches of new
products in the heavy-vehicle segment (Stralis AT/AD, which,
coming after the introduction of the Stralis AS at the end of
2001, rounded out the Sector’s line of road vehicles) and
medium-vehicle segment (New Eurocargo, which represents
a styling and technical evolution of the Eurocargo, which
was again the market leader in 2003). These new products
accounted for the lion’s share of the revenues generated in
the second half of 2003. Most of the development work dealt
with the design of the new Stralis AC (which will complete
Iveco’s line of heavy vehicles by extending the Stralis concept
to the quarry and construction-site vehicles slated for market
introduction in September 2004); with product-line optimization
projects; and with early studies focused on identifying the
technical solutions that must be adopted to comply with the
upcoming Euro 4 emissions standards. At the beginning of 2003,
Iveco received at its Madrid plant the Truck of the Year 2003
award for the Stralis AS. The Sector also continued to develop
new families of engines configured for different types of
applications (automotive, agriculture, power generation, marine
and railroads). Also in this area, Iveco has virtually completed
its investment program for the NEF line of engines and is
continuing to fund the expansion of production capacity for
2.3-liter F1 engines.
In 2003, Iveco’s net revenues totaled 8,440 million euros.
This figure is 7.6% less than in 2002 in absolute terms,
but represents virtually no change when viewed on a
comparable consolidation basis.
Iveco
Operating income totaled 81 million euros (73 million euros
on a comparable consolidation basis and excluding the
consolidation of European Engine Alliance S.c.r.l.), down from
102 million euros in 2002 (77 million euros on a comparable
basis), for a year-over-year decrease of slightly less than 5%.
This result was achieved in an environment characterized by
fierce competition in Western Europe that caused revenues
to decrease, and by unfavorable foreign exchange rates
(especially for the British pound). Iveco responded to these
negative factors by significantly reducing manufacturing
costs and overhead, which enabled it to hold the decrease
in profitability to the level stated above.
Depreciation and amortization amounted to 304 million euros
(423 million euros in 2002). On a comparable basis, there was
virtually no change from the 2002 figure (296 million euros).
The net loss decreased to 258 million euros (loss of 493 million
euros in 2002). On a comparable consolidation basis, the loss
is 34 million euros less than in 2002, when the figure included
the recognition of a 210-million-euro writedown related to
the sale of Fraikin.
Sales Performance – Units Sold by Product Segment
2003
2002
Heavy
32.9
31.6
% change
4.2
Medium
19.3
24.6
(21.5)
Light
(11.0)
81.5
91.6
Busses (*)
8.6
8.8
(2.1)
Divisions (**)
4.0
5.3
(23.8)
146.4
161.9
(9.6)
Total units sold
(*) Irisbus + Iveco’s Bus Division.
(**) Astra, Defense and Firefighting Vehicles.
56
Highlights
2003
2002
2001
Net revenues
1,261
Operating result
32
EBIT (*)
31
2
86
193
130
229
Number of employees
2,968
1,208
70
44
22
1,058
62
62
47
99
176
94
142
2,896
123
125
81
122
2,566
Ferrari S.p.A. – Car sales
by geographical region
Maserati S.p.A. – Car sales
by geographical region
0
50%
Italy
Rest of Europe
United States
Rest of the world
100%
Operating performance
In 2003 Ferrari’s Formula 1 successes were accompanied by
an increase in revenues notwithstanding the weakness of the
dollar.
Racing operations once again saw excellent performances in
F1, where the team won the Constructors’ and Drivers’ world
championships for the fifth and fourth consecutive years
respectively.
As regards industrial operations, 2003 saw the presentation
of the 360 Challenge Stradale model, a new sports version
of the F360 Coupé for which the order book was full by the
end of 2003. At the beginning of 2004 the Ferrari 612 Scaglietti,
which will replace the 456 in the Grand Tourer segment, made
its debut at the Detroit Motor Show.
Last year saw Maserati’s return to the race track with the
Vodafone-Maserati single marque trophy. The return to
competition will be completed with the racing version of
the MC12 Stradale, which derives from the MC12 Stradale
project developed in the course of 2003. This racing version
will begin competing in the FIA-GT Grand Tourer
championship in 2004.
Sales to end customers totaled 7,077 units (6% down on
the 2002 figure of 7,536). Of these, Ferrari accounted for 4,238
(in line with 2002) and Maserati 2,839 (against 3,300 in 2002,
a decline of 14%).
Sales of Maserati models were affected mainly by the
contraction in the Spider segment, especially in the US market.
Sales to the Ferrari network, which amounted to 4,440 units,
confirmed the United States as the principal market, with 1,400
units (+16%). A total of 2,401 units were sold in Europe, where
Germany once again confirmed its position as the largest
European market (second in absolute terms for worldwide sales)
with 661 units, a fall of 3%. Italian customers purchased 520
units, in line with 2002.
The Quattroporte model met with considerable success at
the Frankfurt International Motor Show in September and
during road-shows organized in major European cities. The
Quattroporte was also presented in the USA and Japan,
where it met with similar success.
Sales to the Maserati network totaled 2,900 units in 2003,
compared with 3,567 in 2002, a drop of 19%.
The most important markets were the United States (876 units,
-25%), Germany (467 units, -21%), Great Britain (300 units, -30%)
and Italy (361 units, -10%).
57
At the consolidated Ferrari/Maserati level
revenues amounted to 1,261 million euros,
compared with 1,208 million euros in 2002
(an increase of 4.4%).
At 32 million euros, operating income was
lower than the 2002 figure of 70 million
euros as a result of high expenditure on
research and development and the negative
impact of exchange rate movements, which
offset the improved mix on Ferrari models.
Capital expenditures amounted to 193
million euros and research and
development outlays totaled 130 million
euros, compared with 176 million euros and
94 million euros respectively in 2002. These
figures provided further confirmation of the
Sector’s commitment to development and
innovation.
58
Components — Magneti Marelli
Highlights
2003
2002
2001
Net revenues
3,206
Operating result
32
EBIT (*)
(41)
83
148
158
540
Number of employees
19,879
3,288
(16)
(348)
(435)
4,073
(74)
208
82
(245)
148
162
524
20,716
289
240
227
1,073
24,228
the brand and leveraging the market position of products,
while at the same time re-affirming the company’s fundamental
unity.
Against this background, it is important to note that all the
business units booked a significant number of orders in 2003,
testifying to customers’ renewed confidence in Magneti
Marelli’s capacity for technological innovation.
Orders for direct injection systems, which are the new
frontier in engine control units, were particularly significant.
The most noteworthy new product lines include the AFS
lighting system, at its first application ever, and Flex Fuel
(a combined petrol and alcohol combustion system), again
developed in-house for the Fiat Auto, Ford and VW customers.
In 2003 Magneti Marelli posted consolidated net revenues
of 3,206 million euros; on a comparable consolidation and
exchange rate basis this represents an increase of 3.4% on the
previous year. This improvement, which was achieved despite
weak market conditions, is attributable to an increase in orders
booked by certain businesses, in particular the engine control
unit with the introduction of the diesel system, and the lighting
area thanks to new applications.
In 2003 the production of cars and light commercial vehicles
increased by 1.2% over the previous year at the global level,
with production volumes reaching 57.8 million units.
Performance varied across countries and geographical areas.
Operating income of 32 million euros (compared with an
operating loss of 16 million euros in 2002) reflects the cost
structure improvement measures implemented by the Sector
in all areas of activity.
The increase was mainly concentrated in the Asian countries
and Eastern Europe, with China and Turkey in particular
exceeding 2002 output levels by 30%. Output in the rest of
the world was adversely affected by the general fall-off in sales.
Significant cost-cutting measures were adopted in the materials
and structures area. This made it possible, against a background
of weak volumes, to restore operating profitability.
The Western European markets for cars and light commercial
vehicles registered an overall contraction of 1.4% (with 16.2
million vehicles manufactured). Most of the major European
countries saw their production levels decline, including Italy,
which registered a fall of 9.4%. The sole exception was Spain,
where output increased by 4.6%.
Last year saw a recovery in the activities of Magneti Marelli,
which, having completed the portfolio selection process it has
been conducting over the last few years, embarked on a new
phase of consolidation and business growth.
The priority guidelines include a strong customer focus in all
activities of the Sector and a firm emphasis on strengthening
The net loss of 90 million euros (compared with a loss of 435
million euros in 2002 as a result of signification depreciation
and amortization of tangible and intangible assets) was in part
determined by provisions connected with restructuring plans
that have been launched.
region
0
50%
Italy
Rest of Europe
100%
Rest of the world
Depreciation and amortization of 173 million euros (compared
with 190 million euros in 2002) and research and development
expenditures of 158 million euros (162 million euros in 2002)
amounted to 10% of revenues.
Cash flow, which amounted to 83 million euros (-245 million
euros in 2002) continued to be affected by restructuring
charges.
59
Production Systems — Comau
Highlights
2003
2002
2001
Net revenues
2,293
Operating result
2
EBIT (*)
(122)
(108)
18
17
205
Number of employees
17,375
2,320
(101)
(247)
(302)
2,218
60
30
(36)
(238)
20
17
163
18,186
27
38
22
378
17,243
region
0
50%
Italy
Rest of Europe
100%
Rest of the world
area (down about 43% as a result of lower volumes and the
strengthening of the euro against the dollar) and the decrease
in new orders on the European market, which was only partly
offset by those booked on new markets.
Overall, 66% of the orders for contract work were acquired in
Europe and 26% in the NAFTA area, with the remaining 8%
coming from Brazil and new markets (South Africa and China).
Orders for contract work can be broken down as follows: 19%
from Fiat Group companies (17% in 2002) and 81% from other
automotive manufacturers (83% in 2002).
At December 31, 2003, the order book for contract work
amounted to 1,038 million euros, a decline of about 14% on
the previous year (the figure for December 31, 2002 was 1,210
million euros). This can be attributed mainly to the fall-off in
contract business in the NAFTA area, which was penalized by
the depreciation of the dollar against the euro and the fact
that progress on contracts outpaced new orders.
In 2003, maintenance services operations (Comau Service),
were substantially in line with the previous year, with revenues
of about 630 million euros, 54% of which from companies
in the Fiat Group and 46% from non-captive customers
(an increase with respect to 2002).
In 2003 the Sector’s reference market continued to be adversely
affected by a climate of uncertainty and by the financial
difficulties experienced by most automotive manufacturers, both
of which curbed capital investment. New investments focused
on the rationalization of existing plants with a view to increasing
reutilization, flexibility and capacity utilization. Automotive
manufacturers reduced capital spending in absolute terms
and increased the competitive pressure on suppliers.
In Europe the situation remained stable, with all automotive
manufacturers applying strong pressure on prices.
In the United States, the overall downward trend in capital
spending continued for most of 2003.
The strengthening of the euro against the dollar gave
Japanese and Korean suppliers an advantage over their
European counterparts. The contraction in demand and
the financial situation of the major automotive manufacturers
also gave rise to a downward pressure on prices, which
is expected to continue in the near future.
In South America, where a number of countries are still in the
grip of economic crises, the slowdown in new investment was
accentuated. Finally, in the emerging markets, Russia and, to
an even greater degree, China both showed significant signs
of economic recovery that should confirm the investment
growth projections for 2004 and subsequent years.
In 2003 new orders for contract work came to about 1.4 billion
euros, a decrease of about 22% on the previous year as a result
of the decline in the value of new orders in the NAFTA
Overall, the consolidated income statement for 2003 shows
revenues of 2,293 million euros, broadly in line with those of
the previous year (2,320 million euros). Revenues for contract
work were again in line with those of the previous year, both
in Europe and in the NAFTA area, where the faster progress
on contracts (up 12.5%) made it possible to offset almost all of
the negative impact of the depreciation of the dollar (-18.5%).
Revenues from maintenance services were also unchanged
with respect to 2002.
Operations broadly broke even on a consolidated basis (income
of 2 million euros, about 0.1% of revenues), an improvement
on the negative result of the previous year (a loss of 101 million
euros, or -4.4% of revenues), which was affected by heavy losses
resulting from cost overruns on important contracts in Europe.
The net result for 2003 showed a loss of 164 million euros,
a marked improvement on the previous fiscal year which
recorded a loss of 302 million euros. The result for 2003 was
affected by net extraordinary charges of 124 million euros
incurred during the year, mainly as a result of significant
restructuring and redundancy programs in a number of
countries (“lay-off with long-term unemployment benefits”
agreements in Italy, the “plan social” in France, and
reorganization in the UK). Extraordinary provisions for
transactions still in progress at the end of the year for
the disposal of certain operations were another
contributory factor.
60
Metallurgical Products — Teksid
Highlights
2003
2002
2001
Net revenues
844
Operating result
12
EBIT (*)
(56)
(43)
56
7
194
Number of employees
7,556
1,539
27
(137)
(214)
1,752
15
(67)
(125)
(121)
78
21
250
7,368
(16)
151
27
788
13,827
region
0
50%
Italy
Rest of Europe
100%
Rest of the world
The recovery experienced to varying degrees in the world
economy in 2003 was not fully reflected in the automotive
markets where the Sector operates.
The light vehicles market owes its slight growth (+1.2%,
compared with +4.1% in 2002) entirely to the emerging
markets (especially Asia), which more than offset the decline
in Western Europe, the NAFTA area and South America.
After excellent performance in 2002 (when growth came to 9%),
the market for heavy commercial vehicles expanded by just 1.7%
in 2003 as a result of limited growth in the Asian markets (which
had boosted the levels for 2002), the virtual stability of the
Western European markets and the sharp contraction in the
NAFTA area. Teksid responded to the problems associated
with the limited growth in volumes and unfavorable exchange
rate developments by continuing its aggressive restructuring
plan. The plan, which was launched in 2002, involves both the
Cast Iron Business Unit and the Magnesium Business Unit
and is aimed at bringing production structures and income
generating capacity back into line in all production plants,
even under current market conditions.
The situation for the individual Business Units was as follows:
❚ Although production volumes increased by 2.2% over the
previous year, the Cast Iron Business Unit saw a reduction
of 4.4% in revenues as a result of exchange rate movements.
Teksid nevertheless maintained a significant sales effort
in order to guarantee high levels of activity in its plants,
acquiring contracts for Japanese and Korean manufacturers
in China, for General Motors in Brazil and for Caterpillar in
Mexico and consolidating its relations with Renault and PSA
in Europe and Italy.
As part of the restructuring plan, the Crescentino plant
(Italy) reviewed its production strategy and by the end
of 2004 will increase its focus on the manufacture of
components for light vehicles. Other significant restructuring
measures were introduced at the SBFM and Funfrap plants
in France and Portugal respectively.
❚ For the Magnesium Business Unit (Meridian), the marked
predominance of the North American market, which in
2003 accounted for 81% of revenues (compared with 83.2%
in 2002), was confirmed, as was the focus on serving
customers outside the Fiat Group, with the Group accounting
for just 6.4% of the total in 2003 (6.1% in 2002).
In spite of the increased volumes (up 8.1%), revenues were
penalized by exchange rate movements and decreased
by 4.1%.
Of particular significance in 2003 were the launch of
production at the UK plant (a branch of Meridian
Technologies Inc.) with the aim of serving all local customers’
needs, and the creation of SMMC, a joint venture in China
focusing on production for local manufacturers and, in the
medium term, on exports to the United States.
In 2003 the Sector posted revenues totaling 844 million
euros, a decline of 3.6% on 2002 on a comparable basis (i.e.
disregarding the Aluminum Business Unit, which was sold
in September 2002). With adjustments to offset the adverse
effects of the changes in the exchange rate scenario, revenues
would have increased by 3.7% on 2002. The portion (87%)
of revenues generated by “non-captive” customers showed
no change on the previous year.
The Sector posted operating income of 12 million euros for
the year. On a comparable basis the enhanced profitability
(up 2 million euros) can be attributed to the positive impact
of the higher volumes and the efficiency gains resulting from
the rationalization of staff structures and production units,
which more than offset the adverse effects of exchange rate
movements and the product mix. The restructuring plan and
prudential provisions against the potential impairment of some
assets generated net non-operating expenses of 62 million
euros (compared with 156 million euros in 2002). These are
the principal component of the net loss for the year of 91
million euros (compared with a loss of 214 million euros in 2002).
61
Services — Business Solutions
Highlights
2003
2002
2001
Net revenues
1,816
Operating result
45
EBIT (*)
11
10
7
(31)
Number of employees
7,113
1,965
67
(140)
(119)
1,805
73
608
497
(77)
14
478
7,900
567
32
648
7,171
Revenues by business unit
34%
Human Resources
4%
Engineering &
Facility Management
Administration
and Procurement
I.C.T. - Information and
Communication Technology
Diversified Services
17%
12%
33%
In 2003 the business services market experienced a significant
slowdown, in line with market, economic and financial difficulties
that had a widespread impact on all the main fields of activity.
Uncertainty over the future prospects for the economy
prompted companies to reduce investment in IT, in which
overall spending fell for the first time in years. Outsourcing of
company activities also decelerated markedly, while projects
to outsource a number of government functions failed to reach
the operational stage. Even more traditional services, such as
training and temporary employment services, recorded only
modest growth rates, considerably lower than in previous years.
In this market context, and consistently with the Fiat Group’s
policy of focusing on its core businesses, the Sector engaged
in a strategic repositioning that favored service-sharing activity
within the Group and was supported by effectiveness and
efficiency gains achieved through the Relaunch Plan.
The Sector’s operating performance, by business unit, is set
out below.
❚ Human Resources: this unit provides payroll and human
resource management (H.R. Services S.p.A.), training
(Isvor Knowledge System S.p.A.) and temporary employment
(WorkNet S.p.A.) services. Aggregate revenues totaled 231
million euros, of which 73% were from “non-captive”
customers, especially for training and temporary employment
services. With regard to temporary employment services,
the restructuring process continued at WorkNet.
❚ Engineering and Facility Management: this unit experienced
the greatest degree of business portfolio restructuring,
with the disposal of IPI S.p.A. and Fiat Engineering S.p.A.,
the latter in February 2004. Facility Management activity
in civil and industrial sites is also worthy of note, as is the
extraordinary maintenance activity carried out by Ingest
Facility S.p.A. Turnover amounted to 624 million euros
(73% non-captive) and still includes the revenues of Fiat
Engineering.
❚ Administration and Procurement: with Fiat Gesco S.p.A.,
this unit provides management and back office services
within the Group, creating important synergies. The services
provided include the activities of SADI S.p.A. (customs), Fast
Buyer S.p.A. (traditional and online purchasing) and Risk
Management S.p.A. (management of insurable Group risks).
Revenues for 2003 totaled 333 million euros, 73% of which
from “captive” customers.
❚ I.C.T. – Information and Communication Technology: the
main activity in this unit is Global Value, a joint venture with
IBM that provides technology infrastructure management
and software application development services for the Group
and the external market. During the year some Sectors of
the Group made significant investments, especially in SAP,
in which Global Value’s operational structures were involved.
eSPIN S.p.A., a competence center active in a number of
specific areas of innovation, most notably in the online
application and management of business processes, is also
part of this unit.
The unit posted revenues of about 600 million euros in 2003,
with Fiat Group companies accounting for 62% of them.
❚ The operation of ski lift and cable car facilities at Sestrieres
generated revenues of 21 million euros.
Revenues for the Sector totaled 1,816 million euros in 2003,
a decline of 7.6% compared with the previous year, mainly as
a result of changes in the scope of consolidation in 2003 (sale
of IPI and real estate operations). Other factors influencing
the fall in revenues were the overall contraction in the services
market and the refocusing of Sector companies on activities
within the Group.
Operating income amounted to 45 million euros, compared
with 67 million euros the previous year. On a comparable basis,
however, the result represents an improvement of 6 million
euros. Results from equity investments and, most notably, net
non-operating expenses of 29 million euros resulting in part
from restructuring, generated a net loss of 20 million euros.
This was a marked improvement on the loss of 119 million
euros reported in 2002, which reflected extraordinary provisions
for the writedown of the UMTS licence.
62
Publishing and Communications — Itedi
Highlights
Net revenues
Operating result
EBIT (*)
Number of employees
2003
2002
2001
383
10
9
1
360
3
1
(5)
347
(2)
(4)
(6)
8
3
19
874
3
3
40
923
1
6
49
934
September: graced with a new graphic layout, an innovative
format and covering a wider range of events and trends,
the magazine is now retailed together with the paper at
30 eurocents over the newsstand price.
Revenues from the sale of newspapers and other publishing
products totaled some 76 million euros in 2003. This was an
increase of 1 million euros over 2002, as sales of Specchio
and successful brand stretching efforts offset the dropoff
in sales volumes.
Advertising revenues amounted to 92 million euros, roughly
5.7% less than in 2002, and now account for 57% of Editrice
La Stampa’s total revenues (copies and advertising).
Publikompass S.p.A. booked advertising billings in excess
of 307 million euros, an increase of 7.4% over 2002 that was
partly due to new licensing agreements.
Revenues by business unit
0
50%
Newspaper publishing
100%
Advertising
In 2003, sales of Italian newspapers averaged over 5.8 million
copies a day, a figure that was substantially unchanged since
the previous year.
By the year-end, the Italian advertising market had grown by
3.3%. Demand for print advertising improved by a marginal
0.2% after two difficult years that saw volumes shrink by 2.9%
in 2001 and 7.1% in 2002. Performance by the various media
was far from uniform, with newspapers losing another 0.5%
(or 1.3%, if the free press is left out of the picture), while
periodicals upped their advertising by 1.5%.
Editrice La Stampa S.p.A. reported an average daily circulation
of 358,000 copies in 2003, down from 384,000 copies in 2002.
This decrease reflected lower newsstand sales, a reduction in
subscriptions and the fact that several joint marketing
arrangements with other papers were discontinued during the
year. From the promotional standpoint, La Stampa sharpened
its strategic focus on brand stretching measures designed to
increase newsstand sales of high-quality products leveraging
the paper’s brand name. Thus, popular works of history,
geography and literature, music CDs and sports DVDs all
appeared alongside the La Stampa masthead on Italy’s
newsstands. Efforts to boost the newspaper readership base
also continued (distribution to students).
In May 2003, the Sogno d’Estate [summer dream] competition
was launched. The supplement Specchio was redesigned in
Trends in advertising sales varied according to the business
segments where the Company operates. Sales of advertising
space with Publikompass’s newspaper clientele rose by 3.7%,
an increase fueled by billings from new additions to the
customer base. Without the latter, the year’s performance
would have been similar to 2002, with a rise of only 0.1%.
Even this figure, however, was better than the market average.
Periodicals posted a gain of around 5%, substantially in line
with 2002 on a comparable basis. Billings from radio and
television advertising rose by approximately 40%, thanks
to an influx of business from new broadcasters in 2003.
Itedi posted net revenues of around 383 million euros in 2003,
an increase over the previous years’ 360 million euros achieved
thanks to additions in the pool of newspapers whose advertising
space is managed by the Sector, sales of Specchio, and the
year’s brand stretching initiatives.
Operating income was 10 million euros, as against 3 million
euros in 2002. This significant improvement stemmed from
the Sector’s across-the-board efforts to increase efficiency
and rationalize costs, the better margins achieved with
the new newspaper clients, and the lower paper costs.
Depreciation and amortization totaled 7 million euros,
down from 8 million euros in 2002.
After two years in the red, Itedi posted a net income of
1 million euros (5 million euro loss in 2002) and this despite
a heavy tax burden (IRAP, the regional tax on production
activities, in particular).
Cash flow amounted to 8 million euros, a 5-million-euro
increase over 2002.
63
Motion to Cover the Loss for Fiscal 2003
Dear Stockholders,
The Statutory Financial Statements at December 31, 2003
show a loss of 2,358,789,924 euros. We propose that this loss
be fully covered through recourse to the following items of
stockholders’ equity.
Retained earnings
763,109,624
Additional paid-in capital
278,962,232
Other reserves
1,103,939,820
- Extraordinary reserve
112,253,587
- Reserve for purchase of treasury shares
971,955,430
- Out-of-period income reserve under
Art. 55 of Presidential Decree No. 917
of December 22, 1986 (Art. 18 of Law
No. 675 of August 12, 1977)
- Reserve for capital grants under
Art. 102 of Presidential Decree
No.1523 of June 30, 1967
- Reserve for capital grants
under Regional Law 19/84
Legal reserve
Total
1,914,925
17,693,098
122,780
212,778,248
2,358,789,924
After said utilization the legal reserve amounts to 446,561,763,
and the allocation of 1 billion euros to the reserve for purchase
of treasury shares, approved by the Stockholders’ Meeting of
May 13, 2003, is reduced to 28,044,570 euros, equal to the
Treasury stock valuation reserve.
Turin, March 26, 2004
The Board of Directors
By:
Umberto Agnelli
Chairman

01-Relazione UK 2004

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