FINANCIAL REVIEW FIAT GROUP INTRODUCTION
A) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR (AS REPORTED) 3,683 6,
Cash and cash equivalents included under Assets held for sale - 2
B) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 3,683 6,641
C) CASH FROM/(USED IN) OPERATING ACTIVITIES DURING THE YEAR 4,601 166
D) CASH FROM/(USED IN) INVESTING ACTIVITIES (2,559) (6,092)
E) CASH FROM/(USED IN) FINANCING ACTIVITIES 6,281 3,127
Currency translation differences 220 (159)
F) NET CHANGE IN CASH AND CASH EQUIVALENTS 8,543 (2,958)
G) CASH AND CASH EQUIVALENTS AT END OF THE YEAR 12,226 3,683
of which: Cash and cash equivalents included under Assets held for sale - -
H) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (AS REPORTED) 12,226 3,683
(*) Following adoption of the improvement to IAS 16 in 2009, as described in the Notes to the Consolidated Financial Statements, the amount for “Cash from operating activities” reported in the 2008 Consolidated Financial Statements was reduced by €218 million and “Cash used in investing activities” was reduced by the same amount.
In 2009, €4,601 million in cash was generated from operating activities, consisting of a €2.6 billion decrease in working capital (calculated on a comparable scope of operations and at constant exchange rates) and €2 billion in income-related cash inflows (i.e., net profit plus amortisation and depreciation, dividends, changes in provisions and various items related to sales with buy-back commitments and operating leases, net of “Gains/losses on disposal and Other non-cash items”).
Cash used in investing activities totalled €2,559 million.
Expenditure for tangible and intangible assets (including €1,046 million in capitalised development costs) totalled €3,386 million.
Investments in subsidiaries and associates totalled €105 million and included the recapitalisation of the 50/50 joint venture Fiat India Automobiles Private Limited (€48 million).
For 2009, proceeds from the sale of non-current assets totalled €108 million and related to both tangible and intangible assets.
The €882 million decrease in receivables from financing activities was primarily attributable to the reduction in financing provided by the financial services companies of CNH - Case New Holland as a result of lower business volumes.
Approximately €6.3 billion was generated by financing activities, primarily from bonds issued by Fiat Finance and Trade Ltd SA (€4.2 billion) and Case New Holland Inc. (USD 1 billion, equivalent to approximately €0.7 billion), in addition to net new medium-term financing – including utilisation of a new €1 billion, 3-year syndicated credit facility and a €400 million term loan provided by the European Investment Bank – totalling €1.8 billion. During 2009, approximately €0.5 billion in bonds were repaid at maturity.
REPORT ON
OPERATIONS FINANCIAL REVIEW - FIAT GROUP
64
Consolidated Statement of Financial Position at 31 December 2009
At 31 December 2009, total assets amounted to €67,235 million, increasing €5,463 million from the €61,772 million figure at 31 December 2008. Non-current assets totalled €25,484 million, an increase of €733 million over the figure for 31 December 2008.
The increase in property, plant and equipment (+€430 million), intangible assets (+€151 million) and deferred tax assets (+€194 million), was partially offset by the decrease in leased assets (-€48 million).
Current assets totalled €41,669 million, an increase of €4,685 million principally attributable to the increase in cash and cash equivalents (+€8,543 million), net of decreases for other principal line items (inventory, trade receivables and receivables from financing activities).
Receivables from financing activities totalled €12,695 million at 31 December 2009, a decrease of €441 million over 31 December 2008. Net of currency translation differences and impairment, the decrease was €882 million.
Working capital (net of items related to vehicles sold under buy-back commitments and vehicles no longer subject to lease agreements which are included in inventory) was a negative €1,664 million, a €2,359 million decrease over the beginning of the period.
(€ million) At 31.12.2009 At 31.12.2008 Change
Inventory (a) 7,887 10,453 -2,566 Trade receivables 3,649 4,390 -741 Trade payables (12,295) (13,258) 963 Net Current Taxes Receivable/(Payable) & Other Current Receivables/(Payables) (b) (905) (890) -15
Working capital (1,664) 695 -2,359
(a) Inventory is reported net of the value of vehicles sold under buy-back commitments by Fiat Group Automobiles and, following adoption of the improvement to IAS 16 in 2009, includes vehicles of other Sectors which are no longer subject to buy-back commitments or lease agreements and are held for sale. The value of these ex-lease vehicles at 31 December 2008 (€48 million) was deducted from inventory and, therefore, is reflected in the calculation of working capital.
(b) Other current payables included under the item Net Current Taxes Receivable/(Payable) & Other Current Receivables/(Payables) excludes the buy-back price payable to customers upon expiration of lease contracts and advanced payments from customers for vehicles sold under buy-back commitments, which is equal to the difference, at the contract date, between the initial sale price and the buy-back price. Recognition of such amounts is apportioned over the entire term of the contract.
At 31 December 2009, trade receivables, other receivables and receivables from financing activities falling due after that date and sold without recourse – and, therefore, eliminated from the statement of financial position pursuant to the derecognition requirements of IAS 39 – totalled €4,611 million (€5,825 million at 31 December 2008). This amount includes financial receivables, mostly from the sales network, of €2,530 million (€3,181 million at 31 December 2008) sold to jointly-controlled financial services companies (FGA Capital group) and of €440 million (€752 million at 31 December 2008) sold to associate financial services companies (Iveco Finance Holdings Limited).
Working capital (calculated on a comparable scope of operations and at constant exchange rates) decreased €2,562 million, principally due to the significant reduction of inventories and a decrease in trade receivables, net of the decrease in trade payables resulting from lower production levels.
At 31 December 2009, consolidated net debt totalled €15,898 million, down €2,056 million over the €17,954 million figure at 31 December 2008. Positive cash flow from operating activities and portfolio decreases for the financial services companies during 2009 more than offset capital expenditure and currency translation differences.
(€ million) At 31.12.2009 At 31.12.2008 Financial payables (28,527) (21,379) Asset-backed financing (7,086) (6,663) Other (21,441) (14,716) Current financial receivables from jointly-controlled financial services entities (a) 14 3
Financial payables, net of intersegment balances and current financial receivables
from jointly-controlled financial services entities (28,513) (21,376)
Other financial assets (b) 636 764 Other financial liabilities (b) (464) (1,202) Liquidity 12,443 3,860 Current securities 217 177 Cash and cash equivalents 12,226 3,683
Net (debt)/cash (15,898) (17,954)
Industrial Activities (4,418) (5,949) Financial Services (11,480) (12,005) (a) Includes current financial receivables from FGA Capital.
(b) Includes assets and liabilities arising from the fair value recognition of derivative financial instruments.
For 2009, financial payables increased €7,148 million (approximately €6.4 billion excluding currency translation differences). During the second half, the Group issued bonds for approximately €4.9 billion. In particular:
Bonds were issued by the subsidiary Fiat Finance and Trade Ltd SA under the Global Medium Term Note programme for a total of €4.2 billion. The principal issues were: a €1,250 million bond was issued in July, due in July 2012 (fixed coupon of 9%); a €1,250 million bond was issued in September, due in September 2014 (fixed coupon of 7.625%); a €1,500 million bond was issued in November, due in February 2015 (fixed coupon of 6.875%). In August, CNH, through its subsidiary Case New Holland Inc., completed a $1 billion senior note issue, due in September 2013 (7.75% coupon payable
semi-annually).
In addition to those issues, the Group raised new medium-term financing of €3.2 billion and repaid bonds totalling approximately €0.5 billion and other financial payables totalling €1.4 billion.
At 31 December 2009, liquidity (cash, cash equivalents and current securities) totalled €12,443 million, an €8,583 million increase over the €3,860 million figure at year-end 2008, which enables the Group to cover financial liabilities well beyond 2011 and ensures significant financial flexibility.
At year end, Cash and cash equivalents included Cash with a pre-determined use of €530 million (€473 million at year end 2008), primarily for the Financial Services companies and allocated to servicing securitisation vehicles (included under asset-backed financing).
REPORT ON
OPERATIONS FINANCIAL REVIEW - FIAT GROUP
66
Industrial Activities and Financial Services: results for 2009
The following tables provide a breakdown of the consolidated income statement, statement of financial position and statement of cash flows between “Industrial Activities” and “Financial Services”. The latter includes the retail finance, leasing and rental companies of CNH – Case New Holland, Iveco, Fiat Group Automobiles and Ferrari.
Financial Services activities also include FGA Capital (the joint venture between Fiat Group Automobiles and Crédit Agricole) and Iveco Finance Holdings Limited (the joint venture between Iveco and Barclays), which are accounted for under the equity method.
Basis of analysis
The segmentation between Industrial Activities and Financial Services represents a sub-consolidation prepared on the basis of the core business activities carried out by each Group company.
Investments held by companies belonging to one activity segment in companies included in another segment are accounted for using the equity method. To avoid a misleading presentation of net profit, the results of investments accounted for in this manner are classified in the income statement under Result from intersegment investments.
The holding companies (Fiat S.p.A., FGI – Fiat Group International S.A., Fiat Partecipazioni S.p.A., Fiat Netherlands Holding N.V.) are classified under Industrial Activities.
The sub-consolidation of Industrial Activities also includes companies that perform centralised treasury activities (i.e., raising funding in the market and financing Group companies).These activities do not, however, include offering financing to third parties.
Operating Performance by Activity
2009 2008 (*) Industrial Financial Industrial Financial (€ million) Consolidated Activities Services Consolidated Activities Services Net revenues 50,102 48,917 1,467 59,564 58,435 1,535 Cost of sales 43,261 42,404 1,139 49,612 48,971 1,047 Selling, general and administrative 4,296 4,133 163 5,075 4,899 176 Research and development 1,398 1,398 - 1,497 1,497 - Other income/(expense) (89) (92) 3 (18) (30) 12
TRADING PROFIT/(LOSS) 1,058 890 168 3,362 3,038 324
Gains/(losses) on disposal of investments 4 4 - 20 16 4 Restructuring costs 312 310 2 165 160 5 Other unusual income/(expense) (391) (412) 21 (245) (242) (3)
OPERATING PROFIT/(LOSS) 359 172 187 2,972 2,652 320
Financial income/(expense) (753) (753) - (947) (947) - Result from investments: (**) 27 (6) 33 162 84 78 Share of profit/(loss) of investees accounted for using the equity method 18 (13) 31 133 54 79 Other income/(expense) from investments 9 7 2 29 30 (1)
PROFIT/(LOSS) BEFORE TAXES (367) (587) 220 2,187 1,789 398
Income taxes 481 435 46 466 368 98
PROFIT/(LOSS) (848) (1,022) 174 1,721 1,421 300
Result from intersegment investments - 174 (16) - 300 4
PROFIT/(LOSS) (848) (848) 158 1,721 1,721 304
(*) Following adoption of the improvement to IAS 16 in 2009, as described in the Notes to the Consolidated Financial Statements, previously reported amounts for 2008 were adjusted as follows: a €184 million increase in net revenues (of which €126 million relates to Industrial Activities), a €189 million increase in the cost of sales (of which €131 million relates to Industrial Activities). Other income (net of other expenses) was reduced by €5 million (related entirely to Industrial Activities).
(**) Includes income from investments as well as impairment (losses)/reversals on non-intersegment investments accounted for under the equity method. Industrial Activities
For 2009, net revenues for Industrial Activities were down 16.3% over the prior year: the significant declines in demand experienced by all businesses in the first half of the year (net revenues down 24% over H1 2008) reduced substantially during the second half (down 6.6% over H2 2008). The Automobiles businesses recorded a slight decrease in revenues (-3.6%), with FGA revenues unchanged at constant exchange rates. Significant revenue declines were experienced by CNH – Case New Holland (-22.4%; -26.4% in US dollar terms), reflecting the severe global construction equipment industry decline, and by Iveco (-35.0%), with lower sales volumes attributable to the negative market trend, particularly in Europe. All Sectors comprising the Components & Production Systems business area were impacted by volume declines (25.1% decrease in net revenues). More specifically, FPT Powertrain Technologies (-29.3%) was impacted by lower volumes for the Industrial & Marine product line, whereas Magneti Marelli (-14% on a comparable scope of operations) was particularly influenced by the declines experienced in the first six months of 2009. Teksid (-30.9%) and Comau (-35.2%) also reported lower revenues.
Industrial Activities reported a trading profit of €890 million (€3,038 million for 2008). Despite significantly weaker demand, particularly in the first half, the realignment of production levels and aggressive cost containment measures enabled the Group’s principal business areas to report a positive trading result, with the exception of Components & Production Systems.
Industrial Activities reported operating profit of €172 million, compared with €2,652 million for 2008. The decrease reflects the decline in trading profit (down €2,148 million) and higher net unusual expense (+€332 million).
REPORT ON
OPERATIONS FINANCIAL REVIEW - FIAT GROUP
68
Financial Services
Net revenues for Financial Services totalled €1,467 million, down 4.4% over 2008.
(€ million) 2009 2008 (*) % change Fiat Group Automobiles 168 160 5.0
Ferrari 22 14 57.1
Agricultural and Construction Equipment (CNH - Case New Holland) 1,129 1,227 -8.0
Trucks and Commercial Vehicles (Iveco) 151 137 10.2
Holding and Other Companies, and Eliminations (3) (3) -
Total 1,467 1,535 -4.4
(*) Following adoption of the improvement to IAS 16 in 2009, as described in the Notes to the Consolidated Financial Statements, the amount previously reported for CNH - Case New Holland for 2008 was increased by €58 million.
Financial Services for Fiat Group Automobiles reported revenues of €168 million for year, compared with the €160 million figure for 2008. The 5% increase was primarily attributable to the positive performance of retail activities in Brazil.
Financial Services for the Agricultural and Construction Equipment Sector reported revenues of €1,129 million, down 8% (-12.7% in US dollar terms) over 2008, reflecting a decrease in the portfolio attributable to declines in sales volumes for both the agricultural and construction equipment segments only partially offset by the positive effect of currency translation differences.
Iveco Financial Services had net revenues of €151 million, up 10.2% over the €137 million figure for 2008. The increase was attributable to new sales finance activities for CNH in Eastern Europe (where CNH has no financial services companies), as well as to higher interest income for traditional activities. Trading profit totalled €168 million for the year, down €156 million over 2008 due to declines for CNH and Iveco.
(€ million) 2009 2008 Change Fiat Group Automobiles 35 40 -5
Ferrari 6 2 4
Agricultural and Construction Equipment (CNH - Case New Holland) 153 265 -112
Trucks and Commercial Vehicles (Iveco) (26) 18 -44
Holding and Other Companies, and Eliminations - (1) 1
Total 168 324 -156
Trading profit for the Financial Services businesses of Fiat Group Automobiles totalled €35 million for 2009, down €5 million over the €40 million figure for 2008. The reduction is primarily due to higher provisions and a decrease in market rates of interest.
Trading profit for CNH - Case New Holland’s Financial Services totalled €153 million for the year, compared with €265 million for 2008. This decrease was due to lower net interest margins and higher provisions connected to the downturn in the US and European construction equipment markets, as well as additional provisions for the agricultural equipment portfolio in Brazil. Reductions in sales, general and administrative expense only partially offset the lower net interest margins and increased provisions.
Iveco’s Financial Services businesses reported a trading loss of €26 million (compared with a trading profit of €18 million for 2008), primarily attributable to higher risk provisions on the portfolio (particularly for Eastern Europe).
Statement of Financial Position by Activity
At 31.12.2009 At 31.12.2008 (*) Industrial Financial Industrial Financial (€ million) Consolidated Activities Services Consolidated Activities Services Intangible assets 7,199 7,103 96 7,048 6,950 98 Property, plant and equipment 12,945 12,939 6 12,515 12,509 6 Investment property - - - - - - Investments and other financial assets 2,159 3,968 944 2,177 3,756 987 Leased assets 457 7 450 505 11 494 Defined benefit plan assets 144 140 4 120 116 4 Deferred tax assets 2,580 2,433 147 2,386 2,225 161
Total non-current assets 25,484 26,590 1,647 24,751 25,567 1,750
Inventory 8,748 8,614 134 11,438 11,341 97 Trade receivables 3,649 3,590 121 4,390 4,301 235 Receivables from financing activities 12,695 5,506 13,368 13,136 6,448 13,420 Current taxes receivable 674 650 24 770 761 15 Other current assets 2,778 2,514 296 2,600 2,443 188 Current financial assets 899 827 76 967 908 62 Current investments 46 46 - 26 26 - Other current securities 217 164 53 177 134 43 Other financial assets 636 617 23 764 748 19 Cash and cash equivalents 12,226 10,819 1,407 3,683 2,604 1,079
Total current assets 41,669 32,520 15,426 36,984 28,806 15,096
Assets held for sale 82 79 10 37 30 7
TOTAL ASSETS 67,235 59,189 17,083 61,772 54,403 16,853
Total assets adjusted for asset-backed financing transactions 60,149 58,725 10,428 55,109 53,734 10,839
Equity 11,115 11,115 2,756 11,101 11,101 2,565 Provisions 8,432 8,333 99 8,144 7,989 155 Employee benefits 3,447 3,431 16 3,366 3,351 15 Other provisions 4,985 4,902 83 4,778 4,638 140 Financial payables 28,527 20,898 13,812 21,379 14,522 13,590 Asset-backed financing 7,086 464 6,655 6,663 669 6,014 Other 21,441 20,434 7,157 14,716 13,853 7,576 Other financial liabilities 464 420 48 1,202 1,078 127 Trade payables 12,295 12,253 108 13,258 13,216 189 Current taxes payable 377 347 32 331 276 55 Deferred tax liabilities 152 148 4 170 169 1 Other current liabilities 5,865 5,675 216 6,185 6,052 169 Liabilities held for sale 8 - 8 2 - 2
TOTAL EQUITY AND LIABILITIES 67,235 59,189 17,083 61,772 54,403 16,853
Total equity and liabilities adjusted for asset-backed financing transactions 60,149 58,725 10,428 55,109 53,734 10,839
(*) Following adoption of the improvement to IAS 16 in 2009, as described in the Notes to the Consolidated Financial Statements, the amount originally reported for Property, Plant and Equipment at 31 December 2008 was reduced by €92 million (entirely relating to Industrial Activities) and Inventory was increased by the same amount.
REPORT ON
OPERATIONS FINANCIAL REVIEW - FIAT GROUP
70
Net Debt by Activity
At 31.12.2009 At 31.12.2008 Industrial Financial Industrial Financial (€ million) Consolidated Activities Services Consolidated Activities Services Financial payables (28,527) (20,898) (13,812) (21,379) (14,522) (13,590) Asset-backed financing (7,086) (464) (6,655) (6,663) (669) (6,014) Other (21,441) (20,434) (7,157) (14,716) (13,853) (7,576) Current financial receivables from
jointly-controlled financial services entities (a) 14 14 - 3 3 - Intersegment financial receivables - 5,286 893 - 6,162 570 Intersegment financial receivables
included under Assets held for sale - - 4 - - 1
Financial payables, net of intersegment balances and current financial
receivables from jointly-controlled financial services entities (28,513) (15,598) (12,915) (21,376) (8,357) (13,019)
Other financial assets (b) 636 617 23 764 748 19 Other financial liabilities (b) (464) (420) (48) (1,202) (1,078) (127) Liquidity 12,443 10,983 1,460 3,860 2,738 1,122 Current securities 217 164 53 177 134 43 Cash and cash equivalents 12,226 10,819 1,407 3,683 2,604 1,079
Net (debt)/cash (15,898) (4,418) (11,480) (17,954) (5,949) (12,005)
(a) Includes current financial amounts receivable from FGA Capital by other companies in the Fiat Group. (b) Includes assets and liabilities arising from the fair value recognition of derivative financial instruments.
Financial payables for Industrial Activities consist partially of funding raised by the central treasury to support the activities of the financial services companies (shown under intersegment financial receivables).
Intersegment financial receivables for Financial Services companies, however, represent loans or advances to industrial companies – in relation to receivables sold to financial services companies which do not meet the derecognition requirements of IAS 39 – as well as liquidity temporarily deposited with the central treasury.
At year end, Cash and cash equivalents included Cash with a pre-determined use of €530 million (€473 million at year end 2008), primarily for the Financial Services companies and allocated to servicing securitisation vehicles (included under asset-backed financing).
Net debt for the Financial Services companies at 31 December 2009 reflected a decrease of €525 million over 31 December 2008. Cash from operating activities (€245 million) and a decrease in the lending portfolio (€843 million) were partly offset by dividends paid to industrial companies (€139 million) and currency translation differences (€487 million).
Change in Net Industrial Debt
(€ million) 2009 2008 (*)
Net industrial (debt)/cash at the beginning of the year (5,949) 355
Profit/(loss) (848) 1,721 Amortisation and depreciation (net of vehicles sold under buy-back commitments or leased) 2,667 2,802 Change in provisions for risks and charges and similar 118 (769)
Cash from/(used in) operating activities during the year
before change in working capital 1,937 3,754
Change in working capital 2,564 (3,604)
Cash from/(used in) operating activities during the year 4,501 150
Investments in property, plant and equipment and intangible assets
(net of vehicles sold under buy-back commitments or leased) (3,382) (4,973)
Net cash from/(used in) operating activities, net of capital expenditures 1,119 (4,823)
Change in consolidation scope and other changes 525 (942)
Net industrial cash flow 1,644 (5,765)
Capital increases, (purchase)/disposal of own shares and dividends (20) (770) Currency translation differences (93) 231
Change in net industrial debt 1,531 (6,304)
Net industrial (debt)/cash at the end of the year (4,418) (5,949)
(*) Following adoption of the improvement to IAS 16 in 2009, amounts previously reported for 2008 “Cash used in operating activities” and “Investments in property, plant and equipment and intangible assets (net of vehicles sold under buy-back commitments or leased)” were reduced by €6 million and €7 million, respectively, and “Changes in consolidation scope and other changes” was increased by €1 million.
During 2009, net industrial debt decreased €1,531 million to €4,418 million.
Operating activities generated €4.5 billion in cash for the period, of which approximately €2.6 billion related to the release of working capital primarily through reductions in inventory levels, while “Change in consolidation scope and other changes” was positive (€525 million) and mainly included the impacts from fair value measurement of derivate financial instruments. These positive items more than compensated for the amount absorbed by capital expenditure (€3,382 million), dividend payments and currency translation differences.
REPORT ON
OPERATIONS FINANCIAL REVIEW - FIAT GROUP
72
Statement of Cash Flows by Activity
2009 2008 (*)
Industrial Financial Industrial Financial
(€ million) Consolidated Activities Services Consolidated Activities Services