Fiat GROUP IAS/IFRS First Time Adoption

Transcription

1 Fiat GROUP First Time Adoption March 30, 2005

2 Disclaimer This document was prepared to provide a general overview of the impacts of on the accounts of Fiat Group during the transition from Italian GAAP to As provided for in IFRS 1 First-time adoption of International Financial Reporting Standards the information is prepared in accordance with published as of December 31, 2004 and applicable as of January 1, 2005 Information presented in this document is based on preliminary and unaudited data; as such, this information is subject to change IFRS = International Financial Reporting Standards IAS = International Accounting Standards SIC = IAS Interpretation First time adoption Mar 30, slide 2

3 Agenda General framework applied to Fiat Going forward First time adoption Mar 30, slide 3

4 General framework EU Regulation and Objectives of European Parliament Regulation 1606 of July 19, 2002 requires adoption of IFRS for all EU listed companies starting January 1, 2005 First annual report for fiscal year 2005 with 2004 comparatives Main objective of is to develop a single set of high quality, understandable and enforceable global accounting standards to allow transparent and comparable information in financial reporting First time adoption Mar 30, slide 4

5 General framework key principles Economic substance over legal form Limited use of alternative valuation criteria to historical cost, such as fair value (financial instruments) or present value (reserves) is required Retrospective application of the new standards to opening equity as of January 1, 2004 to properly establish IFRS based data First time adoption Mar 30, slide 5

6 General framework Implementation status at Fiat Fiat will adopt for Consolidated Financial Statements as of January 1, 2005 First reporting period under new standards will be Q with 2004 comparatives Fiat SpA statutory 2005 financial statements will be prepared under Italian GAAP. adoption will become mandatory in 2006 First time adoption Mar 30, slide 6

7 applied to Fiat Main differences Development costs Employee benefits - postemployment & long-term Goodwill Revenue recognition - vehicle sales with buy-back commitment Revenue recognition - other Sold receivables Property, Plant and Equipment Start-up and similar charges Derivatives Scope of Consolidation ITALIAN GAAP Typically expensed when incurred Operating expense Actuarial gains and losses deferred and partially amortized over time ("Corridor Approach") Amortized over a period not exceeding 20 years Revenue recognition at time of initial sale with specific provision for related expected risks Sale recognition based on transfer of legal title Typically off balance sheet Include revaluation allowed or prescribed by law Deferred & amortized Positive fair value adjustments on "non hedging derivatives" not recognized (prudence) Banca Unione di Credito and Fiat Auto stake in spare parts business (SCDR) accounted for under equity method IAS / IFRS Capitalized and amortized over useful life (generally from 5 to 10 years) if specific capitalization requirements are met Related interest cost classified in interest expense All cumulative actuarial gains and losses existing at Jan 1, 2004 recognized against equity Not amortized Accounted for as operating lease until the final sale of used vehicle Sale recognition based on effective transfer of significant risks and rewards associated with ownership Previous gain reversed, assets reinstated in Balance Sheet against financial debt Typically reinstated Historical cost Expensed as incurred; issuance costs charged to equity Positive fair value adjustment on "non hedging" derivatives fully recognized Banca Unione di Credito and Fiat Auto stake in spare parts business (SCDR) consolidated on a line by line basis First time adoption Mar 30, slide 7

8 applied to Fiat First-time adoption: Options adopted Employee Benefits post employment & long term (IAS 19) Business Combinations (IFRS 3) Financial Instruments: - Disclosure & Presentation (IAS 32) - Recognition & Measurement (IAS 39) Cumulative Translation differences (IAS 21) All cumulative actuarial gains and losses existing at Jan 1, 2004 recognized against equity No retrospective application of IFRS 3 to business combinations that occurred prior to Jan 1, 2004 Fully implemented starting Jan 1, 2004 Cumulative translation differences deemed to be zero at Jan 1, 2004 First time adoption Mar 30, slide 8

9 applied to Fiat - Presentation of financial statements Beginning with Q reporting, Fiat financial disclosure will change due to: New financial statements format following adoption of : Reporting items as exceptionals (below operating income) no longer allowed Discontinued operations shown on a net basis Assets held for sale separated in balance sheet Key new metrics: Operating income with separate disclosure of trading profit and unusual items Net debt of industrial operations separated from financial services operations First time adoption Mar 30, slide 9

10 applied to Fiat Key new metrics Italian Gaap Operating Result (before extraordinary income and expenses) Italian Gaap Net Financial Position Net debt less financial receivables First time adoption Mar 30, slide 10 Income statement metrics Debt metrics Trading profit Revenues less COGS, R&D, SG&A, Others (reflects ongoing trading performance) Operating Income Trading profit less unusual items (gains/losses on disposal of investments, restructuring and other unusual items) Net debt measured as gross financial debt less cash, cash equivalent and marketable securities. Fiat will focus discussion of financial condition on net debt of industrial operations

11 applied to Fiat Impact on FY 2004 Net Result and Equity 2004 Dec 31, 2004 bn Net Result Equity ITALIAN GAAP (1.5) 5.8 Adjustments Development costs (Note 1) Employee Benefits (Note 2) ns -1.1 Revenue recognition (Note 3a,b) ns -0.5 PPE and Deferred costs (Note 4a,b) ns -0.6 Scope of consolidation (Note 5) ns -0.4 Goodwill (Note 6) Derivatives (Note 7) -0.5 ns Equity Investments & others (Note 8) Tax effects ns -0.1 TOTAL ADJUSTMENT IAS/ IFRS (1.6) 5.0 First time adoption Mar 30, slide 11 ns = not significant ( < 50 Mn.)

12 2004 P&L 2004 Italian GAAP IT GAAP Recl. Adjust. Revenues Revenues COGS, SG&A, R&D, Others COGS, SG&A, R&D, others Operating Result Trading Profit Non-operating Income (loss) (0.9) +0.3 (0.6) Gains/losses on disposals of investments, restructuring and other unusual items (0.6) Operating Income Investment Income (loss) Investment income (loss) Financial Income (Expenses) (0.7) (1.1) Financial Income (Expenses) Result before Taxes (1.6) -0.1 (1.7) Result before Taxes Income taxes Income Taxes Net result before Minorities (1.5) -0.1 (1.6) Net Result before Minorities First time adoption Mar 30, slide 12

13 P&L Metrics From Italian GAAP Operating Result to Trading Profit 2004 ITALIAN GAAP Operating Result bn - Reclassifications Extraordinary items* Interest compensation to Fin. Services on dealer free period Interest cost on employee benefit plans Adjustments Development costs, net Goodwill amortization Other adjustments Trading Profit - * Excluding: restructuring and supplier base rationalization, gains/losses on disposal of investments First time adoption Mar 30, slide 13

14 P&L Metrics Financial Income / Expense 2004 ITALIAN GAAP Financial Income / Expense bn (0.7) Reclassifications Interest compensation to Fin. Services on dealer free period Interest cost on employee benefit plans Adjustments Reversal in 2004 of adjustment to opening IFRS balance sheet (Equity Swap on GM shares) Other impacts Financial Income / Expense (1.1) First time adoption Mar 30, slide 14

15 Balance Sheet Metrics Net Debt Dec 31, 2004 bn Industrial Financial Consolidated ITALIAN GAAP Net Debt * Adjustments Sale of receivables Accounting for BUC Accounting for SCDR Accounting for sale of 14% stake in ItalenergiaBis Accounting for certain real estate transactions Other Net Debt * * Net of intersegment First time adoption Mar 30, slide 15

16 Going forward Group Income & Cash-flow statements Impact on income statement Positive impact on net income of approximately 200mn on a normalized basis, mainly from discontinuation of goodwill amortization and other minor adjustments Impact of capitalization of development costs expected positive in 2005 (~ 100mn after taxes) but less than in 2004 and declining over time, until substantially neutral Incremental 2005 non-recurring gain of approximately 0.3 bn ( 0.2bn ItalenergiaBis, 0.1bn Real Estate) from reversal of adjustments No impact on cash-flow statement, but New format adopted for presentation purposes with full separation of industrial operations and financial services operations First time adoption Mar 30, slide 16

17 Going forward Balance sheet Mandatory Convertible Net Industrial Debt ( bn) Known transactions Impact on Net Industrial Debt No impact on liquidity; no additional funding required GM settlement, Italenergia and Real Estate to provide significant de-leveraging in 2005 (~ 3.0bn) Mandatory convertible strengthening capital structure Target of 1:1 net industrial debt to Group equity by end of 2006 Net Industrial Debt as of Dec 31, 04 ItalenergiaBis: 1.8bn Real Estate: 0.2bn GM settlement Assumed debt (Powertrain JV) Net Industrial Debt as of Dec 31, 04 adjusted for known transactions First time adoption Mar 30, slide 17

18 2005 financial targets restated Operating margin targets (Under Italian GAAP) Operating margin targets (before unusual items) (Restated to ) Impact Auto (~1.5%) excl. restructuring (up to 320mn) (~1.5%) excl. restructuring (up to 320mn) Substantially unchanged CNH Iveco % after goodwill excl. restructuring (~ 50mn) >4% excl. restructuring (~ 30mn) 6-6.5% excl. restructuring (~ 50mn) >4% excl. restructuring (~ 30mn) +1.5% (mainly goodwill) Substantially unchanged Components ~2.8% ~3% +0.2% Group Net result positive due to exceptionals Net result positive due to exceptionals Cash flow positive after exceptionals Cash flow positive after exceptionals First time adoption Mar 30, slide 18

19 2007 financial targets restated Operating margin target (Under Italian GAAP) Operating margin target (before unusual items) (Restated to ) Peak Trough Peak Trough Impact Auto CNH Iveco Components 2-4% 1% 10% 6% (a) 7.5% 4% 5-7% 2% 2-4% 1% Substantially unchanged 10% 6% Substantially unchanged (excl. goodwill) 7.5% 4% Substantially unchanged 5-7% 2% Substantially unchanged Group Revenue CAGR of 6% Revenue CAGR of 6% Substantially unchanged Group ROS 5/6% Group ROS 5/6% Substantially unchanged Net income of 1.4/1.8bn Net income of 1.6/2.0bn + 200mn EPS of 1.1/1.4 (b) EPS of 1.25/1.55 (b) (a) (b) Excluding goodwill On a fully-diluted basis Financial charges expected approx. 100mn lower due to reclassification to operating expenses of interest compensation to Fin. Services on dealer free period First time adoption Mar 30, slide 19

20 First Time Adoption APPENDIX First time adoption Mar 30, slide 20

21 Note 1 Development costs (IAS 38) Italian Gaap Capitalization of certain research & development costs was optional under Italian GAAP Fiat tipically expenses these costs when incurred IAS 38: development costs that meet specific criteria are required to be capitalized and amortized R&D in Income Statement will include: Research costs Development costs not meeting IAS 38 criteria for capitalization Amortization of capitalized costs Impairment losses Capitalized costs to be tested for impairment on an annual basis Impacts ( bn) Equity as of Dec 31, Net Result +0.4 Net Debt as of Dec 31, First time adoption Mar 30, slide 21

22 Note 2 Employee benefits (IAS 19) Italian Gaap Funded and unfunded defined benefit plans, except for TFR (severance indemnity) accounted for under Italian law rules, were mainly recorded according to IAS 19 adopting the Corridor Approach for which actuarial gains and losses are partially deferred Employee defined benefit programs (included TFR) require actuarial value of estimated obligation upon retirement to be recognized in balance sheet All cumulative actuarial gains and losses that existed at Jan 1, 2004 recognized against equity Corridor approach used for actuarial gains and losses arising after Jan 1, 2004 Interest cost separated from service cost and reclassified from operating costs to financial expenses Impacts ( bn) Equity as of Dec 31, Net Result ns Net Debt as of Dec 31, First time adoption Mar 30, slide 22

23 Note 3a Revenue recognition (IAS 18) Sales with buy-back commitment Italian Gaap Revenue recognition at time of initial sale, with specific provision for related expected risks Revenues are not recognized when risks and rewards of ownership of the goods are not substantially transferred to the buyer Sales with buy-back commitment recorded as operating leases until final sale of used vehicle Margin on sale recognized over the lease period Cost of vehicle recognized in: PP&E (lease term > 1 year) Inventory (lease term < 1 year) until exercise of the buy-back option Impacts ( bn) Equity as of Dec 31, Net result ns Net Debt as of Dec 31, First time adoption Mar 30, slide 23

24 Note 3b Revenue recognition (IAS 18) Other Italian Gaap Recognition of disposal based upon legal and contractual form (transfer of legal title) Impacts ( bn) Equity as of Dec 31, Asset sale is not recognized when risks and rewards are not substantially transferred to the buyer and the seller maintains a continuing involvement in assets transferred Retrospective reversal of certain transactions, in particular: 2002 sale of a 14 % stake in ItalenergiaBis disposal of certain real estate properties Reversal of booked gains Collected amounts at time of transaction reinstated as financial debt 2004 Net result ns Net Debt as of Dec 31, First time adoption Mar 30, slide 24

25 Note 4a Property, Plant & Equipment (IAS 16, 36) Italian Gaap Acquisition costs and revaluations as allowed or prescribed by specific law are included in carrying value Land ancillary to buildings depreciated over the useful life of related buildings Impairment calculated on an undiscounted basis Only acquisitions costs are included in carrying value Depreciation not allowed on land ancillary to buildings Impairment calculated on a discounted basis Impacts ( bn) Equity as of Dec 31, Net result ns Net Debt as of Dec 31, First time adoption Mar 30, slide 25

26 Note 4b Start-up & similar charges (IAS 38) Italian Gaap Start-up and assimilated costs capitalized and amortized over time of estimated benefit Start-up and assimilated costs expensed when incurred. Capital increase related charges debited to equity Impacts ( bn) Equity as of Dec 31, Net result ns Net Debt as of Dec 31, First time adoption Mar 30, slide 26

27 Note 5 Scope of consolidation (IAS 27, SIC 12) Italian Gaap Subsidiaries carrying dissimilar activities are accounted for under the equity method Entities not controlled on legal basis are excluded from consolidation Impacts ( bn) Equity as of Dec 31, Net result ns Net Debt as of Dec 31, No exclusion allowed for entities carrying dissimilar activities: Banca Unione di Credito consolidated line by line SIC 12 requires consolidation of Special Purpose Entities (SPE) when the substance of the relationship between an entity and the SPE indicates that the SPE is controlled by that entity. Consequently Fiat consolidated: Fiat Auto spare parts business, sold in 2001 to a SPE (SCDR) a specific SPE to which some significant properties where sold in 1998 through a real estate securitization First time adoption Mar 30, slide 27

28 Note 6 Goodwill amortization (IFRS 3) Italian Gaap Goodwill amortized on a straight line basis and tested for impairment on an annual basis Fiat elected not to apply IFRS 3 to business combinations carried on before Jan 1, 2004 Starting from 2004 the IFRS income statement no longer includes goodwill amortization charges Goodwill to be tested for impairment on an annual basis Impacts ( bn) Equity as of Dec 31, Net result +0.2 Net Debt as of Dec 31, First time adoption Mar 30, slide 28

29 Note 7 Derivatives (IAS 32, 39) Italian Gaap IAS 39 partially applied (only for designation of derivatives as hedging or non hedging ) and for symmetrical accounting of hedging transactions Cash flow hedge derivatives: change in fair value off balance Non hedging transactions : changes in fair value of derivatives accounted for only when negative IAS 39 impact disclosed in notes to consolidated F/S since 2001 Recognition of positive changes in fair value of derivatives not meeting the conditions for hedge accounting treatment For cash-flow hedging, recognition to equity of the effective portion of the gain or loss on the hedging instruments Equity swap on GM shares adjusted to positive fair value in the opening IFRS balance sheet, for an amount of 440 mn, reversed in 2004 income statement Impacts ( bn) Equity as of Dec 31, 2004 ns 2004 Net Result -0.5 Net Debt as of Dec 31, First time adoption Mar 30, slide 29

30 Note 8 Equity investments and other adjustments Italian Gaap Equity of associates accounted for using the equity method is adjusted to Italian Gaap as adopted by the Group Certain incentives to dealers are accounted at time when they are contractually due Equity of associates has been adjusted to before equity method accounting IAS 37 (Provision, Contingent liabilities and Contingent assets) requires provision both for legal and constructive obligations Other adjustments mainly refer to: Treasury stock, recognized against equity Other minor items Impacts ( bn) Equity as of Dec 31, Net result -0.2 Net Debt as of Dec 31, First time adoption Mar 30, slide 30

31 Note 9 Sale of Receivables (IAS 39 SIC 12) Italian Gaap Receivables sold under securitization programs and factoring transactions are de-recognized Removal from balance sheet of assets and liabilities not permitted to the extent to which the transferor has continuing involvement in an asset or a portion of an asset it has transferred All transactions with recourse, most of those without recourse as well as securitizations, carried out using SPE vehicles don t meet criteria for derecognition of assets Receivables and collected amounts are reinstated on balance sheet Impacts ( bn) Equity as of Dec 31, Net result ns ns Net Debt as of Dec 31, First time adoption Mar 30, slide 31

32 Safe Harbor Statement Certain information included in this document is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially. The Company s businesses include its automotive, automotiverelated and other sectors, and its outlook is predominantly based on its interpretation of what it considers to be the key economic factors affecting these businesses. Forward-looking statements with regard to the Group s businesses involve a number of important factors that are subject to change, including: the many interrelated factors that affect consumer confidence and worldwide demand for automotive and automotive-related products; factors affecting the agricultural business including commodities prices, weather, and governmental farm programs; general economic conditions in each of the Group s markets; legislation, particularly that relating to automotive-related issues, agriculture, the environment, trade and commerce and infrastructure development; actions of competitors in the various industries in which the Group competes; production difficulties, including capacity and supply constraints and excess inventory levels; labor relations; interest rates and currency exchange rates; political and civil unrest; and other risks and uncertainties. First time adoption Mar 30, slide 32

33 Contacts Fiat Investor Relations team Marcello Ledda phone: Vice President Giulio Bonazzola phone: Michele Di Rauso phone: Vincenzo Torrisi phone: Enrica Poma phone: fax: website: First time adoption Mar 30, slide 33