Fiat First-Half Profit Falls

The Turin-based group, who's activities include car, truck and tractor manufacturing as well as interests in insurance, train making and vehicle components said its underlying profits for 1996 would not match those seen in 1995.

The group profits suffered in the first half of 1996 from heavy investment spent on new models especially in cars and tractors, an ever-depressed Italian car market which showed no sign of improvement, and a recovery of the lira. Group sources said that the appreciation of the lira caused a reduction of 450 billion lire in the pretax figure.

Fiat said that there would be extraordinary gains in the second half which analysts said could relate to its planned flotation of 40 per cent of its New Holland tractor and farm machinery business or the sale of non-core businesses.

 

The numbers are middle of the road and reflect the exceptionally tough trading conditions that Fiat has faced since the beginning of the year, said Nick Potter at Italian broker Credito Italiano.

Fiat's operating profit margin slipped to 3.7 per cent in the first half from 5.2 per cent, and although the margin showed a rising trend from the first quarter low of 2.5 per cent, Potter said he did not expect 3.7 per cent could be held for 1996. He said Fiat will continue to suffer from a poor domestic car market, a sluggish European truck market, while its heavy investments in Brazil will bear fruit only next year. Potter trimmed his 1996 net profit forecast to 1.6 trillion lire from 1.7 trillion after 1995's 2.147 trillion lire net profit, and he saw a 1996 operating margin of 3.5 per cent.

Fiat said the fall in its first half pretax 1996 figure reflected lower operating profits and the lack of extraodinary gains which had boosted first-half pretax 1995 profits, such as the sale of its C.E.AC French battery operation. The group said its lower operating profits were due to a small contribution from Brazil, the rise in the lira, the difficulty in raising new vehicle prices, and the costs of launching new models at Fiat Auto and New Holland.

Fiat said its car sales rose 6.4 per cent to 1.226 million helped by the launch of its Bravo/Brava range late last year. Its European market share rose to 11.9 per cent from 11.5 per cent, but it added that the performance of two important market, Poland and Brazil, were consolidating. For the second half, Fiat has its new Marea car range launched this month in most of Europe and increased production of its new world car the Palio which was launched in Brazil in April, with Palio production reaching 40,000 in four months.

The group's Iveco trucks unit saw sales fall one per cent, but its share of the European truck market rose to 20.2 per cent from 18.2 per cent in the first half of 1995.