Fiat Announces Net Loss for 2009, Hoping to Return to Profit in 2010

The Fiat Group has announced that its revenues tumbled in 2009, as a result of the economic headwinds that have faced all its business units during the year. For the year ending 31 December 2009, the automaker reported that it had seen sales fall from 59.6 billion euro (US$84.4 billion) to 50.1 billion euro, a decline of 15.9% y/y. Despite this shrinkage, Fiat reported that it had recorded a trading profit of 1.1 billion euro, albeit down by 68.5% y/y, and a operating profit of 359 million euro, a reversal in fortunes of 87.9% compared to 2008. However, last year's pre-tax profit of 2.2 billion euro became a loss of 367 million euro, and net profit of 1.7 billion euro ended the year as a loss of 848 million euro. Fiat added that around 600 million euro of net losses were as a result of unusual charges related to restructuring and write-downs at various parts of its businesses. It also reported that in the most recent quarter it had seen an improvement in sales revenues of around 3.6% y/y to 13.6 billion euro. However profitability had fallen, with trading profit having slipped 26.4% y/y to 488 million euro and operating profit down 75.4% y/y to 63 million euro, and net profit slipping from a profit of 180 million euro to a loss of 283 million euro.

Fiat also revealed that despite the pressures faced during the year, it had reduced its net industrial debt by around 1.5 billion euro to 4.4 billion euro, helped by rigorous working capital management including significant destocking which resulted in production stoppages across its businesses. It also increased its liquid position from 3.9 billion euro to 12.4 billion euro, guaranteeing it adequate resources to cover scheduled maturities beyond 2011.

On a unit basis, Fiat reported that the largest part of the business, Fiat Group Automobiles which includes the Fiat, Lancia, Alfa Romeo and Fiat Professional brands, had seen sales revenues for 2009 fall just 2.4% y/y to 26.3 billion euro. It delivered 2.15 million passenger cars and light commercial vehicles (LCVs), a marginal fall over 2008. Passenger car sales were clawed back to growth of 5.7% y/y and ended the year at 1.84 million units, as demand in Western Europe was lifted by the scrappage schemes and market incentives. Fiat was also helped by its performance in Brazil. However, its LCV sales fell back by 24.8% y/y to 307,300 unit, as sales in Europe were hit by a significant slow down in demand, and a realignment of its dealer inventory. The difficult trading conditions also resulted in the automaker reporting a fall in trading profit of 32% y/y to 470 million euro. However, sales revenues were significantly improved, partly as a result of the lower baseline during the fourth quarter of 2008, increasing 27.1% y/y to 7.2 billion euro, as trading profit jumped from 65 million euro to 190 million euro.

Unsurprisingly, its premium sports car units Ferrari and Maserati came under a great deal of pressure during 2009 as demand in some of their most important markets dried up. Ferrari saw its sales revenues fall 7.4% y/y to 1.8 billion euro, as vehicle sales slipped 4.5% y/y to 6,235 units, as Maserati's sales revenues tumbled by 45.7% y/y to 448 million euro, having sold 48.7% less vehicles than 2008, at 4,489 units. Despite this, both brands still nosed in to a trading profit of 238 million euro (-29.8%) and 11 million euro (-84.7%), respectively. No improvement was seen in the final quarter of 2009.

However, it was Fiat's heavy commercial vehicle (HCV) business Iveco and its agricultural and construction equipment unit Case New Holland (CNH), that were two of the biggest drags on the business. During 2009, Iveco's deliveries tumbled by 45.9% y/y, resulting in a 34.15 y/y decline in sales revenues to 7.2 billion euro due to the unprecedented declines seen in the market place. In spite of this, it remained in trading profit for the year, although the margin for this fell from 7.7% to 1.5%. CNH also remained in trading profit, despite its sales revenues falling by 20.9% y/y to 10.1 billion euro, although its trading margin slipped from 8.8% to 3.3%. However, the component and production unit, which includes Fiat Powertrain Technologies (FPT), Magneti Marelli, Teksid and Comau, witnessed a trading loss during the year of 40 million euro against a profit of 402 million euro, as sales revenues slipped by 25.1% y/y to 10.3 billion euro.

Outlook and Implications

As the first European automaker to report its financial results, Fiat will give a good indication as to how many others have fared during 2009, which has proved to be a difficult year in which many have been dependent on local market incentives and scrapping initiatives to pull through. However, Fiat is likely to have outperformed many of its rivals, thanks to its range of cheap, fuel-efficient models that put it in pole position to take full advantage of European incentives (see Europe: 15 January 2010: European Passenger Car Sales Fall 1.6% Y/Y in 2009 as December Continues Rally). It has also benefited greatly from its position in Brazil, where it took around 25% of the passenger car market in 2009, as sales increased by around 11.0% y/y (see Brazil: 11 January 2010: Brazilian Light-Vehicle Sales Finish 2009 with 51.1% Y/Y Jump in December; Production Skyrockets 164%). The company also benefited from swift restructuring measures and efforts to destock when required. However, chief executive officer (CEO) Sergio Marchionne said during the results briefing that profitability could have been even better in its light vehicle business had it not been for the severe fall in its LCV sales. He estimated that the change in vehicle mix as a result of the 100,000 unit decline had affected profitability by around 300 million euro.

Looking at 2010, the automaker said that improvements will depend on further incentives to drive demand during the year. Marchionne said that in his view "that 2010 is probably the wrong year to abandon the scrappage schemes", adding that he expected it to have "a drastic impact on demand in Western Europe." Fiat would use the year as a time of "transition and stabilisation," with all businesses except the light vehicle unit seeing improvements. It would also continue to implement the cost cutting that it has implemented since the late 2008, although the restrictions on capital expenditure were expected to ease, and rise by between 30% and 35% over 2009. It added that it was currently forecasting sales revenues of between 52 billion euro and 53 billion euro, an increase of between 3% and 6%, with trading profits of around 1.5 billion euro. Net income is expected to become a profit of between 200 million euro and 300 million euro. It added that its net debt levels should be below 5 billion euro. However, the company also stated that if incentives were withdrawn, revenues would be fall by around 2.5 billion euro, with trading profits for the light vehicle and components division falling by between 350 million euro and 400 million euro. It also said that due to shortfall in net profits not being helped by tax relief, its debt levels would rise to over 5 billion euro. Even in these circumstances though, Fiat would still post a trading profit of over 1 billion euro, and would have adequate financial resources to continue the transition in to what is expected to be a typical trading environment in 2011. With there still being some doubt over the continuation of some schemes in 2010, particularly the important Italian one for Fiat, we will no doubt have to wait and see whether Fiat is forced to realign its expectations by the end of the first quarter.