TURIN -- Italy's Fiat announced plans on Thursday to slash thousands more jobs and raise 1.8 billion euros in fresh capital through a share issue in the latest blueprint aimed at returning it to solid profits in 2006.
Fiat Chairman Umberto Agnelli told journalists the company's board had approved the capital increase to help fund the company's third restructuring plan in two years which would be attempted by its fourth chief executive in a year.
The group will issue 368.5 million new ordinary shares priced at five euros each on a three new shares for every five already held basis and the hike will be launched in the second week of July.
Chief Executive Guiseppe Morchio said Fiat would cut 12,300 jobs by 2006 and close 12 factories this year and next. The brunt of the cuts will be borne outside Italy, as Fiat is under pressure from the government to keep domestic job cuts to a minimum.
"This is the point of departure, not the point of arrival," said Morchio. "This is a realistic and achievable plan."
The plan, which focuses on the group's car, trucks and farm-equipment activities, envisages breakeven for Fiat at an operating level in 2004 and to lift its return on sales, a measure of profitability, to four percent by the end of 2006. representing a 5.5 percentage point gain over the 2002 level.
"It would be a huge improvement to see an operating margin of four percent by 2006, however we need to wait and see how they underline this goal with operating measures besides layoffs outside Italy," said WestLB Panmure analyst Arndt Ellinghorst.
"Fiat has had quite a lot of targets in the past and they failed to achieve them," he added.
Fiat shares, which have halved in value in the last twelve months, were suspended in Milan but short-dated Fiat bonds rose while longer dates were steady.
Meanwhile, the cost of insuring Fiat debt in the default swaps market rose by 100 basis points to 650 basis points.
Morchio's plan comes a year after Fiat launched a back-to-basics revamp that refocused on the under-invested car unit and sold other assets like an aluminium castings unit, part of its stake in energy group Italenergia and its stake in General Motors.
GM owns 20 percent of Fiat and the Italian firm has an option to sell the rest of the car unit to the Americans next year.
Weak sales and writedowns pummeled Fiat to a record net loss of 4.3 billion euros in 2002 and a bleak outlook forced the three main credit ratings agencies to slap a "junk" or non-investment grade on Europe's once-biggest carmaker.
Fiat failed to show much improvement in the first quarter of 2003 and posted worse-than-expected losses, debt and cash burn.
The job cuts penned by Morchio, renowned for winning billion dollar deals for former employer Pirelli, were in addition to about 17,000 axed in the last 18 months.
Morchio also has to appease creditors who kept Fiat afloat with a three billion-euro convertible loan last year. The banks are keen to alter the deal under which they could have to buy Fiat equity next year for much more than current market prices.