Fiat Group dragged into profit by Chrysler during 2012

Fiat has announced its financial results for 2012, which show that the automaker has benefited greatly from its majority holding in US automaker Chrysler. For the year ending 31 December, sales revenues rose from EUR59,559 million (USD80,140 million) to EUR83,957 million. However, when excluding Chrysler's offering from this equation, Fiat Group alone saw its revenues decline by 4.9% year-on-year (y/y) to EUR35,566 million. Trading profits improved from EUR2,392 million to EUR3,814 million, while Fiat Group offered a profit of just EUR355 million over the same timeframe, a decline of 66.1% y/y. Earnings before interest and taxes (EBIT) improved by 6.1% y/y to EUR3,677 million, although excluding Chrysler it recorded a 91.0% y/y decline to EUR204 million. Net profits for the group have fallen from EUR1,651 million to EUR1,411 million, and removing Chrysler's contribution Fiat has gone from a profit of EUR1,006 million to a loss of EUR1,041 million.

At the end of the year, net industrial debt stood at EUR6.5 billion, having grown from EUR5.5 billion during the past 12 months. The automaker said that Fiat's debt alone had grown from EUR2.4 billion to EUR5 billion due to the negative change in working capital, investment in new products and its overall losses. Chrysler's positive cash flow of EUR1.6 billion has helped to reduce its debt to EUR1.5 billion during the same timeframe. Available liquidity also now stands at EUR20.8 billion, including EUR2.9 billion-worth of undrawn credit lines. Of this, Fiat's liquidity fell from EUR12.3 billion to EUR11.1 billion.

On a regional basis, the Automotive division of the company, including Chrysler, has seen some ups and downs. Some of the greatest success has come via its North American Free Trade Agreement (NAFTA) region, which gets most benefit from the Chrysler brand. Sales revenues here have grown from EUR19,830 million to EUR43,521 million. Even on a pro-forma basis when the benefit from the two automakers' financials only being combined since June 2011 are not taken into account, this is up from EUR33,800 million. This was helped by vehicle shipments having grown from 18.6% y/y to 2.12 million units, with a rise in the US market alone of around 20% y/y on a pro-forma basis to around 1.75 million units. EBIT was EUR2,741 million, a 54.9% y/y improvement on a pro-forma basis, reflecting increased sales volumes and positive net pricing partially which has helped to offset higher industrial and advertising costs.

The Latin American market remained an important contributor to the business, with vehicle shipments standing at 979,000 units, an increase of 7.6% y/y. As a result, sales revenues have grown by 4.7% y/y to EUR11,062 million, although this was flat on a pro-forma basis, as increased volumes offset the impact on currency translation costs. However, its EBIT has dipped by 22.5% y/y to EUR1,032 million, as it was hit by inflationary, vehicle launch and currency translation costs as well as EUR31 million of unusual charges. Revenues in the Asia Pacific (APAC) region jumped from EUR1,513 million to EUR3,128 million primarily driven by the Jeep and Chrysler brands as shipments increased 94.3% y/y to 103,000 units, although these were supported by the new Fiat Viaggio in China. EBIT also jumped from EUR63 million to EUR255 million on the volume growth and favourable exchange rates.

However, over the course of 2012, the majority of the pressure on its automobile manufacturing business comes from its Europe, Middle East and Africa (EMEA) region. It is the second biggest in this recent structure, but the difficult economic situation in many key markets, is having a very negative impact. Net revenues fell by 10.1% y/y to EUR17,800 million during the year, and reflects an around 14% y/y decline in passenger car shipments including Chrysler to 810,000 units, and a 15% y/y fall in light commercial vehicle (LCV) shipments to 202,000 units. However, its EBIT losses fell from EUR941 million to EUR738 million as the negative volumes and pricing effects were only partly offset by the production efficiencies and cost containment, and including unusual charges.

At the other end of the scale, the group's Luxury and Performance brands held their ground. The Ferrari brand posted an 8.1% y/y increase in sales revenues to EUR2,433 million, increasing deliveries to its sales network by 11% y/y to 7,318 units. It also posted a 10.1% y/y increase in its EBIT to EUR350 million, thanks to a favourable product mix and licensing activities. The smaller Maserati brand increased revenues by 7.8% y/y to EUR634 million, as deliveries slightly increased by 2% y/y to 6,288 units. EBIT also increased by 5% y/y to EUR42 million.

As expected, alongside the pressure that its automotive division has been facing, its component supply units have also felt the heat from lower production. Magneti Marelli saw a slip in sales revenues of 0.5% y/y to EUR5,828 million, helped by shipments to Germany and outside Europe. However, EBIT surged from EUR9 million to EUR130 million, including unusual charges. Sales at the Teksid metal-casting business contracted by 15.4% y/y to EUR780 million, while its EBIT increased from EUR1 million to EUR4 million. The Comau production system installation unit business saw sales revenues slip by 5.7% y/y though as a result of its Powertrain Systems operations, as its EBIT jumped from a loss of EUR120 million to EUR33 million as a result of unusual charges the previous year.

Outlook and implications

The results for 2012 show the difficulties that the Italian automaker is facing, particularly the pressure stemming from the European market. It also underlines once again how important Chrysler is proving to the business as it rides on the crest of the rebounding market, its financial performance having been helped by the critical restructuring undertaken during its Chapter 11 bankruptcy in 2009. Although Chrysler is starting to make revisions to its earlier plans and its situation has evolved – noted in news elsewhere today (31 January) – the severity of the issues facing Fiat is the main focus on the increasingly combined businesses. This was partly addressed at the same time as it announced its third-quarter 2012 financial results, when it revealed its plan to revive its operations in EMEA. The main part of this will see its manufacturing operations in Italy refocus on its "historical premium brand heritage", taking advantage of such brands as Alfa Romeo and Maserati to expand its exports, particularly to the NAFTA and APAC regions. Of the 33 new vehicles to be launched between 2013 and 2016, 17 will be built in Italy, and of these 14 will be shipped outside EMEA. After a period of procrastination over when investment in Italy is set to begin, moves in this direction are now starting. Nevertheless, it is keenly watching its liquidity levels to ensure that it is well placed to ride out these problem areas. Indeed, it has taken the decision to not pay a dividend based on 2012's financial results, the board saying that it did not recommend such measures "given the company's desire to maintain a high level of liquidity". This is something that was last done in 2009. In a similar vein, the board has also approved a decision to issue up to EUR5 billion worth of bonds, which may be issued in one or more tranches, by 31 December 2014. It said that the proceeds will be used to manage its debt profile, including future redemptions. However, Marchionne has once again voiced his keenness to acquire the outstanding 41.5% of Chrysler which is held by the United Autoworkers (UAW) Voluntary Employees' Beneficiary Association (VEBA). He stated that ties between the two automakers are now "irreversible" and that the company will have full ownership of Chrysler "as soon as I can afford it". There will be hurdles to get over though as the VEBA is now pushing for an initial public offering (IPO) of its stock to gain the best market value, and which Fiat will have to comply with under the terms of its deal.

On its announcement, Fiat has reiterated its expectations for 2013 which were first announced during in October 2012. This was a significant downgrade on its earlier plan, reflecting not only the pressures it faces in EMEA, but also the more positive conditions faced in NAFTA, LATAM and APAC. It forecasts revenues to be between EUR88 billion and EUR92 billion, and a trading profit of between EUR4.0 billion and EUR4.5 billion. It also sees its net profits standing at between EUR1.2 billion and EUR1.5 billion. It also warned that it expects its net industrial debt to rise again slightly to around EUR7 billion. Previously, it has also said that it expects 2014 to be also worse than initially expected with sales revenues of between EUR94 billion and EUR98 billion and trading profit of EUR4.7 billion and EUR5.2 billion. However, breakeven is finally expected to be achieved by 2016 on the back of the plan for the EMEA, although it is likely to be pushing for this to take place earlier if possible.