Fiat Announces Board of Directors Decisions
TURIN, Italy--Dec. 10, 2001--The Board of Directors of Fiat S.p.A. met today under the Chairmanship of Paolo Fresco to review the Group's 2002 outlook as well as a program of business and financial initiatives aimed at strengthening the Group.These initiatives include:
| - | A broad industrial restructuring plan, resulting in extraordinary charges of approximately Euro 800 million in 2001 and the consequent negative impact on the year's financial statements; |
| - | The reorganization of Fiat Auto into four Business Units (FIAT/Lancia, Alfa Romeo, International Development, Services), with each unit acting as a full-fledged entity responsible for its individual economic and financial performance, featuring separate product development, production, marketing and commercial organizations. The aim of this reorganization is to maximize brand valuation; |
| - | A redefined program of disposals and divestitures totaling Euro 2 billion in 2002; |
| - | Two securities offerings which are the subject of separate press releases that are also being issued today. |
The global economic crisis, already apparent at the end of the first half of 2001 and which has intensified following the terrorist attacks of September 11, negatively impacted the Group's profitability in 2001, delaying the effects on its financial results of steps already taken to improve operating profitability and reduce debt.
These steps, as already communicated, encompass: further evolution of the Group's portfolio of businesses, notably through the disposal of non-core activities; growth in profitability through development of new products, brands and services; cost containment through manufacturing synergies and process reengineering; and debt reduction in order to improve the Group's financial profile and credit ratings.
However, the deterioration in the worldwide economic conditions has resulted in:
- A significant reduction in the sales volumes recorded by certain
business units and the adoption of increasingly aggressive
pricing policies by major competitors, to offset the expected
sales declines in other sectors;
- A significant slowdown in the planned divestiture of Magneti
Marelli's activities, and the consequent impact on debt-reduction
objectives.
During the course of the year, the Group has proactively responded to this increasingly negative environment.
- The Fiat Stilo, introduced on the major European markets in
October, has achieved significant success: just two months after
its introduction, 80,000 orders have already been received from
European dealers. This result has been achieved without changes
in the planned price positioning of the new model.
- Fiat Auto's strategy of maximizing the valuation of its brands
has already shown significant results on the Fiat brand and, to
an even greater degree, on the Alfa Romeo brand. The Lancia
brand, through the planned launch of the new Thesis in Spring
2002, should also strongly benefit.
- In Brazil, the Fiasa has strengthened its leading position in
terms of sales in the past several months.
- Synergies resulting from the Group's industrial alliance with
General Motors are continuing to grow and exceed expectations
(Euro 230 million in 2001), while synergies from the integration
between New Holland and Case are expected to exceed Euro 150
million in 2001.
- The reduction in dealer inventory compared to 2000 year-end
levels is accelerating. This process, already well underway at
Fiat Auto (the decrease is expected to be around 30% by year end,
representing 100,000 units), is implemented in other Sectors as
well: during the year, CNH, whose dealer inventory levels are
already below industry averages, will reduce inventory levels by
7% for the year.
- Toro Assicurazioni, which is a strategic asset of the Group,
further improved its performance and is achieving positive
operating results.
- The implementation of the Group's new core process reengineering
program ("Next") has been accelerated. This project is expected
to achieve cumulative savings of Euro 1.5 billion over the next
three years, with a significant impact on the Group's 2002
results.
Recent widespread declines in consumer and business confidence, which are likely to have negative consequences for growth in the major economies, as well as experience from previous international economic downturns over the past three decades, are leading the Group to take a conservative view of its outlook for 2002 in all businesses in which it operates.
To meet these challenges, the Group has decided to implement a far-reaching restructuring and industrial reorganization plan, as well as to launch two major securities offerings that are the subject of separate press releases.
Restructuring Plans
In the 2002-2004 period, the Group intends to implement a rationalization program that will comprise restructurings and closures in 18 manufacturing plants, two in Italy and 16 in the rest of the world. Ten of these sites, including the two located in Italy, were already included in the Group's previously announced restructuring program, which is being accelerated. As a result of this acceleration, 15 manufacturing sites will be restructured or closed by the end of 2003.
These actions - which will be conducted in such a way as to minimize their social impact - will lead to a headcount reduction of approximately 6,000 people outside of Italy. In addition, measures to curtail headcount in Italy are continuing and the Group is carrying out these measures with all available tools, from the utilization of temporary unemployment compensation funds to the reduced use of temporary staff.
In particular:
- At Fiat Auto, the plan includes further reductions in
manufacturing presence in Argentina, to a minimum level of
production capacity in order to enable a significant recovery of
operations when the Mercosur area returns to growth. In Europe,
following workforce reductions in Poland in 2001 of around 1,000
people, automobile production operations currently carried out at
the Rivalta factory will be transferred to the Mirafiori plant
during 2002. Additional rationalization measures will be taken in
other plants with the objective of reducing further manufacturing
capacity in order to attain capacity utilization level of 90% by
2003.
- At CNH, the current restructuring program, which has already
resulted in a reduction of manufacturing facilities from 60 to
46, will be accelerated and extended. The program, which
initially called for reducing the number of CNH's plants around
the world to 39, has been expanded to include three additional
production sites (two in the US and one in Europe), for a total
of 36 facilities. Most of this restructuring will be carried out
in 2002.
- Iveco will close several plants outside of Italy, and will
transfer all of its Argentine production to Brazil.
These measures will result in restructuring and other charges to the Group's 2001 financial results in an aggregate amount that will be determined in the course of finalizing the Group's accounts, and that should amount to approximately Euro 800 million. Of this amount, approximately Euro 150 million is expected to have a cash impact.
As a consequence, Fiat expects to post a consolidated net loss for 2001. A portion of these restructuring charges will also impact 2001 operating income, which is expected to be approximately Euro 300 million.
Fiat Auto Reorganization
The Board also approved a plan to reorganize Fiat Auto. This reorganization will be implemented in early 2002.
The main objectives of this reorganization are to enable the Group to more effectively develop and strengthen its brands over time, improve the management of its manufacturing and marketing functions in light of the globalization initiatives that are already underway, and accelerate the development of its financial and mobility services, whose contribution to the profitability of Fiat Auto is expected to grow significantly.
Four business units will be created - Fiat/Lancia, Alfa Romeo, International Development, and Services - each one a full-fledged autonomous entity responsible for its own operating and financial results, and with its individual production, manufacturing and marketing organizations.
This reorganization is intended to streamline decision-making processes, bring responsibility for the business closer to the customer, and lead to increased focus on customer satisfaction, which remains Fiat Auto's primary objective.
Traditional staff functions and responsibility for activities connected with the industrial alliance with General Motors, and other existing industrial collaborations, will be maintained at the central level.
A primary focus of this new organizational structure will be to enhance the value of Fiat Auto's portfolio of brand names. The "Fiat" brand will continue to be aimed at the general public and known for its highly innovative products. Lancia will strengthen its position as an elite and exclusive brand, through the launch of new models such as the Thesis, which from the spring of 2002 will be the flagship car of Fiat Auto, and the future Y (Upsilon), which from 2003 will be positioned at the high end of the subcompact market. The Alfa Romeo brand, which is well known internationally, will be reintroduced to the North American market, and will benefit from significant investments intended to consolidate its place in the top tier of stylish sportscar brands.
Divestiture Program
The Group announced in 2001 a divestiture program for Magneti Marelli. Given the changing international economic environment, this program has only been partially implemented.
While confirming its commitment to debt reduction, the Group in 2002 is aiming to complete disposals and divestitures of at least Euro 2 billion.
To this end, the divestiture program for next year has been expanded and re-defined to encompass the possible disposals of a wider range of sometimes lesser known non-core industrial, financial, real estate and service activities.
Reflecting the larger number and greater diversification of the assets involved in this divestiture program, the Group believes that its execution risk is lower than that associated with the original plan.
Conclusion
The actions approved today represent a vigorous response to the challenges facing the Group in the near future.
These measures will improve the flexibility and competitiveness of the Group's manufacturing infrastructure. In addition, by lowering the Group's break-even point, these measures will enable the Group to face with confidence the difficult market conditions expected during 2002, leaving it posed to capitalize on improving market conditions whenever they occur, while the new organizational structure of Fiat Auto will give new momentum to the development of this sector's activities.
As a result of these initiatives, the Group expects to show improvements in its operating and net income, a significant reduction in net indebtedness, and an improved balance between operating income and financial expenses in 2002.
The Group reconfirms its goal of reestablishing its former Single-A credit rating.