Stellantis NV (STLA) 2003 Q1 法說會逐字稿

Please stand by. This is Premier Conferencing. We are about to begin. Welcome to the Fiat conference call to discuss the 2003 first quarter results. This conference call is being recorded. Hosting today's call is Marcello Ledda. Mr. Ledda you may now begin.

Good morning everyone, and good evening to all the people in Europe. My name is Marcello Ledda, head of investor relations. Welcome to Fiat S.p.A 2003 first quarter conference call. You should have all received by email, our press release and copy of this like (ph), we'll be using for this call. The readings as like (ph) is also available on the website at www.fiat.com. Mr. Feluch Lupe (ph), our Chief Financial Officer will review the results of operations of the first quarter. Together with Feluch (ph), there are other company representatives present around the table who will be available to answer all of our question. Before passing the line on to Feluch (ph), let me just remind you that we've been making ...

Forward-looking statements.

I lost the line.

Let me remind you that we'll been making looking-forward statements, during introductory remarks and in our answers to our questions. These are covered by customized safe harbor provisions that you can find in our 20th findings with the U.S. Securities Exchange Commission. Let me just pass the microphone to Mr. Lupe (ph).

Yes, thank you and good afternoon to all of you. First of all I've just three points to remind. Supposedly (ph), Mr. Morchio is still tied (ph) with the AGM (ph); that is taking longer than anticipated. So he will not be able to participate today to discuss. In the middle of June he will convene (ph) that he would present you a complete action plan on the Fiat Group and on our three major businesses. So you will have the time to ask directly to Mr. Morchio, the questions. Second point is that there isn't really as much, as Marcello said, our team is you know with me so I think that it is important for us to participate because I believe in the skill of this team and the Fiat approach to work together in a team. And thirdly, all specific direct questions, we'll be happy to answer also in conference call and some calls that you can give us after this conference call. So let's start with this line number two.

The first quarter of 2003, marked the end of what we can term the financial phase of Fiat's turn around. Started our year good (ph), and the re-launch (ph) of its industrial sites. If I can confirm, let's say 2002 was industrial sites some strategic limbo when we take some decision on financials, but now we are to concentrate again on strategic and industrial approach. The group as a new management team with a clear vision, which will focus on these industrial turn around the coming quarters. We have stepped up the pace of our disposal program, achieving full evaluation for these assets. If we exclude higher gains than really (ph) stayed in the first quarter last year, the group operating performance was slightly unchanged in a far more difficult environment. Though the operating loss was stable, it's deground (ph) was different. The operating loss at Fiat Auto was reduced by nearly 100 million, but this was offset by more difficult conditioning at the sector, underscoring the need to work out to get the group back on track. That is important. We are not yet satisfied today of these level we start with, because the condition outside (ph) our work, so we will work harder and harder. And as we've seen immediate, the operating loss at Fiat Auto reflects significant destoaking (ph) the quarter, which will lead to improved operating performance going forward.

The increase in net loss reflects a number of items. For the most part will be reverse in the future, and should not have any equity impact. Finally, as expected after three consecutive quarters improvement (ph), Fiat net financial position declined at the end of March. This was expected and is explained by seasonal factors primarily at CNH (ph) as well as by dealer restocking by Fiat Auto.

Let's go to slide number three. It is an overview of the Fiat Group. Group revenues were down by maybe 1.8 billion Euro in the quarter. This drop reflects two main factors. The first one; nearly half of the decreasing is due to change in the scope of consolidation and to the carry (ph) reflections (ph) on our revenues. We selling to threat can (ph) and Axel Aminium (ph), which accounted for revenue of about 400 million Euro in the first quarter 2002. And the dollar exchange rate reduced it; CNH (ph) reports revenues in Europe (ph) by nearly 500 million Euro. Second, as we will discuss in the next slide, Fiat Auto revenues were down one billion in the quarter. Despite the sharp drop and excluding real estate gains at Torin Business Solutions (ph), which amounted to 120 Euro in the first quarter last year, and just 60 million Euro this quarter. The group operating loss was stable here in (inaudible). I discount the revolutional (ph) diversity (ph) sector by sector. ABDA (ph) dropped by a greater factor than operating income, reflecting low depreciation and amortization. This is simply due to the like (ph) down carried out at the end of year from lighten (ph) respect and the de-consolidation of freight cam (ph) for around 32 million Euro (ph).

Net financial position (ph) improved by nearly 1.4 billion as compared to March 2002, so we sense a little (ph) impact. We'll go through the main (inaudible) driver a little later. So let's move now to Fiat Auto; slide number four.

Net financials of Fiat Auto were down over 1 billion Euro, or nearly 80 percent only a 19 decline in union sales. There are three elements to this job. One, the planning (ph) of the tambolini (ph) engine plan (ph), then you know which reduced the production by an estimated 30,000 cars. Two, the difficult condition in the European car market you are familiar with. And third and importantly, the acceleration of our inventor reductions which I'll discuss the next slide. Despite these three factors, Fiat Auto operating loss were reduced by nearly 100 million. This is in line with the forceful (ph) debut (ph) at the time of our year-end results.

Slide number five or is about Fiat Auto. We have a graphic illustration of the key driver of the Fiat Auto's (ph) performance this quarter. It is our discussion (ph) actions. In the first quarter of 2002, Fiat Auto was continuing to over produce despite strong signs of a market slow down. This year, the situation reversed. As you see on the right, our Western European registration (ph), that is the sell out dropped by 13 percent or roughly 48,000 Euro. In the meantime, sales in the retail network, that is the selling, were down from more sharply, by nearly 76,000 Euros, or 23 percent. As a result, worldwide new vacant (ph) and inventories are at the lowest level in the year. This is true not just in absolute (ph) numbers, reflecting lower expected margins (ph), but also relative numbers. As you see here new and Ventoria (ph) the dealer and company level add up to just one per for month of sales. User very (inaudible) is virtually unchanged, following this twenty (ph) pitfall in the second half of the last year, and we still expect to reach our year-end target level of 40,000 Euro. With excess inventories out of the dealer network and the lean company inventories, we can produce a level that are more consistent with demand. We can also place importance product launches in the second half of the year with a clean pipeline starting with a new poonto (ph), which will be presented to the press at the beginning of next week; is the price leading (ph) or improved (ph).

Go to slide number six also about Fiat Auto and particularly note the operating income. We have broken down the drivers of the first income performances of Fiat Auto in the first quarter. They show a definite improvement in sector factors, the red color past offered (ph) by the effect of our short-term imitative and the current environment. On the quantity (ph) side, product costs and horad (ph) dropped by nearly 260 million Euro compared to last year. This put us in good position to achieve our target of one billion Euro in nominal (ph) cost savings, and start working on additional measures to deal with the deteriorating market environment. I would like to just insist on that the one billion target is confirmed by the first quarter, but we believe that we're too add something more than that because the market is not as expected before.

On the negative side, a drop of about 80,000 Graco (ph) is bound to have an impact. This explains the underestimated (ph) million increasing operating loss due to the volume and mix. In addition, repays (ph) costs us 53 million than did the first quarter last year, as we made room for the new products in the a and b segments that will be launched later in the year. We are preparing the launch of the year so we are in the middle of phasing Fiat Motors and we have to work with her. In other words, you see here that our work to reduce Fiat Auto break-even point is starting to pay off.

Slide number seven, the last one for Fiat Auto. Before moving to the other sector, just an update on the market performance of Fiat Auto. In Italy as you see in slide seven, Fiat Auto market share has been improving considerably since bottoming out in February. In that field, our market share was 28.8 percent up eight, up eight points from March and within site of our volunteered gizintag (ph). A modest victory at curibit (ph) steele, taking first class in its c-segment (ph) for the first time since the introduction; thanks in part to the sector of the station reconversion (ph) which is meeting our expectations. Fiat Auto's (ph) European market share remains disappointing. We know, but we have not been forecasting improvements until we have new products available in the second half of the year. Like (ph) (inaudible) continued to perform satisfactory particularly in Italy while we consolidated our market led (ph). Market share rose to 48. 43.8 percent to 41.2 last year. In the rest of the world, we made gains in markets outside of Western Europe. Finally, I would like to insist in the fact that our destock (ph) in net profit has not been conducted at the expense of quality or market share, which is an important dimension of our turn around plan.

Let's move to CNH (ph) performance. Slide number eight. CNH (ph) revenues in Europe were down to the depreciation of the Euro. In dollars stands (ph) consolidated revenue were stable. The operating results were entirely due to additional pension and medical costs and a currency impact. Ag revenues in dollar were up for the quarter with retail sales of Ag equipment slightly more than the market. Also in dollar temps (ph) construction keeps the revenues were down slightly in the quarter, as worldwide industry units, they were weaker than expected. CNH (ph) continued to make significant progress in many key areas; achieving the signing planning (ph) of the time that gave measure and pushing the launch of successful new products. However, CNH (ph) medical and pension costs rose again due to the quarter, assets and these benefits. You practically know that it is fortunately something that had happened in many companies working the North American market. In addition, slightly high price in margin Ag were more than offset by the advanced volume in meat (ph) and private (ph) launch costs.

CNH (ph) is expects its Ag equipment business to continue to improve operating results as its introduction of new higher margin quarters gain momentum. Construction at the operation are very managed civially (ph) to cut costs and we've structured the business for sustaining profitability. In (inaudible), CNH (ph) has announced that it expects to return to profitability this year's gap later. That is important.

Let's go to Eveco (ph); slide number nine. Revenues of Eveco (ph) were down 100 million Euro entirely due to the consolidation of freight cam (ph). Units involved were up in most segments, despite the consolidation of volume from the (inaudible), that represent 1300 units. Group (ph) (inaudible) acceptance of daily record (ph) keeping in U.S. one-A engine in Italy has been mitigated effective government enter (inaudible). A medium heavy segment new products to be launched in June and most selected sales to place impacted the overflow. Despite a slash in market, the newente (ph) Europe excluding factor change in scope and currency, operating can be substantially unchanged compared to last year. Again we see that the restructuring action are able to compensate the lower impact of the market conditions.

Let's go to slide number 10; the other businesses. I will not spend much time on this slide as for a large part is related to businesses, which are about to leave the group. The first quarter each year, Ferrari typically costs lower pricing (ph) income due to high R and D expenses. This year the positive impact of volume and mix was offset almost completely by unfavorable currency change. The nearly 30 percent drop in revenues in our components and that of tulmulty (ph) related businesses is due in large part to the consolidation of textile (ph) low (ph) businesses and to currency factors. Despite the reduce in revenue; the operating loss of these businesses was roughly unchanging as the vicious (ph) improved (inaudible) and better results in pico (ph) had to reduce the impact our overall business volume.

On slide 11 we move from the operating to the net income and we have broken down some of the art and below the operating line, leaving to the group share a net loss of nearly 681 million Euro. The net loss was impacted by several items totaling about 200 million Euro that are likely to be reversible. So it's a very temporary situation we think. Fiat share in (inaudible) to market adjustment to the direct (ph) portfolios total, accounted for about 60 million Euros. However commitment to exit these businesses at pre-agreed prices provide as we the protection against these losses. I remember that with the ecology obituary (ph) option a big surprise (ph) and for the total sale we agree with the buyer at fixed price that is not linked to any movement of the values of the financial investor other (ph) companies.

Dianganig (ph) (inaudible) to the net loss in the quarter were the mark to market adjusted the equity swap (ph) attached to the GM shares sold in December 2002. This account did amount for 74 million Euro. These shares represent a gain on paper loss reflecting the longer volume share at the end of March as compared to the sale price that was at the end of December 36 and 11 dollar share. As a matter of fact, these numbers (ph) have been substantially recorded (ph) two days after the closing peel (ph). We are know at current market tied (ph) with GM to correspond to our disposal price at the end of December. So this loss has been completely cancelled.

Other operating expenses include capital gain on disposal (ph) mainly from the sale of Brazilian (ph) financial operation for about 100 million Euro, a net of (inaudible) including costs as to see here we determine engine plan (inaudible) for which we are negotiating in to (inaudible). As to the financial expenses, we finally started to see the benefits of our debt reduction at all. Net financial assets dropped 70 million as compared to the same (inaudible) last year, reflecting lower operating during that in the (inaudible) despite fierce rating dowery (ph).

Cash flow over for the period, in slide number 12. There is a complicated (ph) table for this first quarter. The relevant line item include these at the three operating cash flow, which shows a 500 million Euro negative swing compared to the first quarter of 2002. First let me note that a comparable level of trade and receiver (ph) of factoring, this line will show an improvement. This say the main drivers of swing (ph) in free operating cash flow were greater, was in capital needs. Of the 670 Euro swing (ph) in working capital, about half comes from Fiat Auto and half from CNH (ph). So at Fiat Auto the monetary side is such that it creates levels effect when business volume changed. You know that. At Fiat Auto, collects (ph) factor then pay suppliers. An increase in volume would save the terms of (inaudible) cash flow from change in working capital. A decrease or the opposite is true when the climate (ph) falls.

In the first quarter 2002, production at Fiat Auto was about 40,000 units higher than in the previous quarter, creating a positive cash flow. Conversely in the first quarter 2003, production was down more than 40,000 units from the previous quarter. These more than enough (ph) the working capital reduction accounted for lower inventories. Let me say that these are negative for the quarter but positive for the longer run. Let me just remind that these different swing as also impacted the results of the first quarter and gain (ph) to the operating losses. Reminding you that in the first quarter 2002, the operating loss of Fiat Auto were reduced by 100 million even with these different negative swing.

At CNH (ph) the opposite (ph), the explanation is simple. The first quarter it's traditionally one or the other ventor (ph) buildings has in for the selling season. These (inaudible) or however we also saw an increase in trade if you were due to the lower cycle (ph) activity.

Let's move to the gross debt and liquidity situation; it's slide number 13. It compares our financial assets and liabilities. Despite a reduction in cash and marketable securities, our short-term marks (ph) remain well in excess of our short-term debt. Banks (ph) and capital market debt maturing one year is equal to one third of total debt after (inaudible) in December because of the one billion Euro medium term notes maturing March 2004. Gross debt in March 31st was 28.7 billion Euros, down 900 million Euro in the quarter. A substantial reduction draws that is expected to coming to quarters following the consolidation of the previous red tape of (inaudible) and the (inaudible) of the pipeline of CNH (ph) and the record (ph) in excess of one billion Euro. By the pides (ph) record (ph) dispose come from you that we received today, the Bank of Italy authorization to do it; we will move it the next day in the final closing.

Our liquidity position remains healthy, even before the substantial liquidity injection from disposal expected in the next few months. We estimate total proceeds from this selection (ph) that are about seven billion Euro of cash coming in the company. On the Performa base as of March 31st, gross liquidity entirely admittedly invaluable to the group, will be in the numbers (ph) of 8.5 billion Euro that represent 1.1 time (ph) short and that. The highest levels in years. Total gross that were reduced by approximately 10 billion Euros in a year's time. For national (ph) was offset to drop by approximately seven billion Euro. Even as I'm taking into consideration 3.3 billion Euro gone by choosing in the next four quarter, gross liquidity is now to deal with the deadline for the next two years. That is important to the (inaudible) plan that we'll present in the middle of June.

Let's go to slide number 14; the Brazilian (ph) that is disposal volume. That we accelerated since the beginning of the year. Here is a summary of transaction completed in progress evidence (ph) in our sangton (ph) in our balance sheet and providing results for the industrial turn around program of all our sectors. These transactions show clearly the strategic direction the group is taking. We are committed to streamline our operations, focus our automotive and automotive related business. These transactions will be complete the disposal falla (ph). We don't know forecast any other transactions in the next month. Let me just add that you and these transactions again. Fearing (ph) a (inaudible) anti-trust approval and I'd said before Bank of Italy (ph) approved, and so we forecast to realize a final closing within 60 days.

Petoro (ph), a definite agreement that was signed for Europe (ph) (inaudible) are underway and we do not expect major problems not bidding to buy an insurance. The closing is expected by June and our renewed detoro (ph) offer is binding and will be signed at share (ph) purchase that is binding for the buyer. For fetilia (ph) (inaudible) an interview was signed confirmative real estate is progressing and we'll update you as progress is made.

The thing that closing this conjecture (ph) was things that were down (ph) as I said before, the problem of disposal fall (ph). The (inaudible). So to conclude at slide number 15.

I would like you to see some of the importance of this first quarter. We completed our disposal program as defined the future scope of the Fiat Group and in (inaudible) group focus on elite score (ph) automotive business. We make some proud (ph) decision that have an immediate impact on our operating performance. With a new management team, we'll launch a growth such (inaudible). We will present to you our efficient program next month. The results of the first quarter, already show that the sector (inaudible) Fiat Auto are already in plan (ph). They will have a durable positive impact even in this difficult market environment. We are enthusiastic about the new products in our pipeline, which have been getting several initial reaction at the auto shows where they were presented. Much more needs to be done. That is clear. We have to work harder. We will now return to the blank (ph) at the operating level for the full year. As the other sector of the group still face difficult market conditions. But we expect the group operating loss to show a significant reduction over the 2002 level. When we discuss or visit (ph) plan with you next month, we will be able to give you a more precise estimate of our operating and financial performance for the full year. I'll repeat these action plans will touch about all the Fiat Group and not just about the Fiat Auto, and where you consider the Fiat Group as a whole as (inaudible). I think that we are now ready to take your questions. Thanks.

Thank you sir. Ladies and gentlemen, today's question and answer session will be conducted electronically. If you would like to ask a question, please press the star or asterisk key followed by the digit one on your telephone keypad. We will take questions in the order received and we'll take as many at time permits. Again, ladies and gentlemen please press star-one.

We will take our first question today from Marcy Muvecux (ph) with Intermans (ph). Please go ahead.

Good afternoon to everybody. I have three quick questions. The first one is on the receivables; the changing turn in receivables this time (ph). Is seasonal or it's structure? I mean will it; will you commit to increase discounting when the sales pick up? Or if you have just the right sizing the company? The second question is on minorities. I would expect higher hosting (ph) minorities. Is something missing, is some change in Fiat Auto not close or something like that? And second question is on inventories, so sorry, the third question for inventories, on Fiat Auto. Do you continue, will you continue to stocking (ph) or are you at happy with this kind of level on the stocks?

Well I will leave it to my colleagues just to first to Hanzberg (ph). About receivables, we link it to the reduction sales of the quarter, and but we have always global level six billion receivable outside. I would ask to Luigi Gerbetari (ph) to give you more detail. On the minorities too because it is due to the change of the let's say net equity of the Fiat Auto businesses that was as you see in the anmor (ph) report, negative at the end of the year so in this case the majority shareholders to take 100 percent of losses in their accounts. With the right (ph) issues that we launched last month, this net equity will come back to a positive sign so we start going to reduce our minority share in losses and villantly (ph) on the other side, GM will start again to take a part of this minority loss.

Inventories. I think I will ask the Fiat Auto people here. They are very low at this stage, and we expect then to rise a little in the next month. But from one side I see it is good to start with very low levels to start because we are launching new models and so we are confirming to our dealers (inaudible) that were seriously preparing the launch of this new model. That is very important. So I will estimate you Luigi (ph) just to give you more details on the receivable discount.

Thanks.

.... Please press one.

Hold on one second. We completing the answer. I think you basically asking for what you should assume in terms of trade and tax receivables. That would be discounting over that.

Yes.

I think that the number you might want to assume it's in the region of six billion. As we, this my probably it was 6.3. Now it's going to be around six billion, six billion due in June remains ready below in September because of obviously some other, we pick up somewhat in the same year because of the launch of new models and their likely restocking of dealers by then because as we assume. I think if you assume around six billion you're going to be safe throughout the year with the higher number around the same, better (ph) than lower probably September and June.

OK.

Is that OK?

Yes, thanks for all of your (inaudible) to the new level of sales management.

Exactly.

Correct. Thank you very much.

Thank you.

From Credit Seeds (ph) First Boston, our next question will come from John Luca Petaconi (ph). Please go ahead.

Good afternoon gentlemen. I have two questions. The first one is coming back to your discounted receivables. I've yet to understand which is the rational to reduce them, as I understand that it is probably a cheaper way to finance your networking capital. So if you could please elaborate a little bit more on this subject. The second question is on Fiat Auto capital increase. If we can have any update about what is now your General Motors stake in Fiat Auto. If it was a real a capital increase or in advance of a future capital increase? So if there's any change in the short-term (ph) structure and the last question is on your financial receivable. If you please could quantify the amount of your financial receivable with dealers and suppliers? Thank you.

OK, thank you. Let's say as we have a dream team in financial integrity and Fiat Auto we'll leave it again to Luigi (ph) the answer. I would just answer your question about Fiat Auto recap. As you remember at the end of 2002, we decided to recap of Fiat Auto the Italian company for 2.5 billion, mainly under pressure of the regulations and we started to think about recap also the holding company, the Fiat Auto holding (inaudible) in which GM is shareholder with us. The second right issue has been decided at the end of March, end of February sorry, for a total amount of five billion with an immediate engagement by Fiat to two subscribe three billion; this is the value that is the pipeline the next day and enough shares (ph) in 18 months both for Fiat and GM to subscribe the other to a billions. So we'll, we will start to realize the first stat; at this time the GM shares in Fiat Auto will be moved from 20 percent to a lower level. We're now discussing the technical issues there, as Mr. Morchio say we will meet GM the next day; we speak about that. In any case we decide to move immediately with three billion because we believe in the Fiat Auto all (inaudible) plan, but we also believe that having the time to explain to GM people our restructuring plan they will look with more attention this 18 month option. So 20 percent is still today; GM sharing Fiat Auto (inaudible). They will reduce the next day to the first step let's say renovation of our like (ph) issue and then GM will in these 18 months, we will account for the final position of GM and Fiat, in Fiat Auto. But is not for immediately because the way to work where to this 18 month option exactly decide for this purpose.

Thanks for a very good answer.

Thanks. I leave it to Luigi (ph) who we told you was two questions receivables.

The first question is that whether it's the cheapest way to finance ourselves is through securitization or receivable sales. Well the answer in general is yes, it's a cheap way. However the price it's, we reason on marginal sales. And that's not necessarily true so one of the reason is that we look at what's the stock of receivables and what's the cost. The other aspect is that as we are receiving significant liquidity, because of the asset sales, we'll even feel, we needed to do more sales.

OK.

So the pool was lower and we like to maintain a balance approach about what we keep and what we sell. Second answer that I think you wanted to ask, how much we did in terms of dealer financing?

Yes, that's correct.

And the amount is roughly two billion. Bear in mind that many of the receivables we sell are dealer-financing receivables. So ...

Thank you very much.

And then I think your last question was on suppliers, and that was also one point nine or so.

So dealer suppliers is like (ph) a (inaudible) four billion?

Slightly less than so, yes.

Thank you very much. Very kind.

Next we will turn to ...

OK, thank you .

And I think you were asking also how much as retail and leasing?

No (inaudible). It's not important to me. Thank you.

OK, that's fine.

Next we will turn to Mr. Ozie Pojomas (ph) with Morgan Stanley. Please go ahead.

Thanks and good evening gentlemen. Just three quick questions. First your number of employees went down 700 in the quarter. Can you tell us where the employee reductions were made? And give us; just refresh us on a roadmap of where the employees, when they're going to come back on at the auto division when you know, falling the 8,000 reduction you did last year. Second, your cap-ex (ph) was down 30 percent in the quarter. Is this a greater reduction than we would see in the remainder of the year? Perhaps you can give us guidance where cap-ex (ph) would be going for the full year, because it was only like three percent of sales in the quarter. And then finally, on can you just remind us where you when you do complete the Fitus (ph) transaction, how that will effect the net financial position of the group; how will that effect the 5.3 billion number? Thank you.

OK, so about the employees. Well I'm not exactly all; this is exactly one of the questions that we would like to answer you with a direct number (ph). I think that the 80,000 people you mentioned at last year has been realized. We have a temporary layoff (ph) for part of that and then revolution of these amount of people is really linked to the action plan we'll launch. I can tell you that definitely having a worse market conditions maybe that we have to increase and to work hard on that, so I hope to update this number in the future with the Mr. Morchio's new action plan for the future. So anyway, what we have done is aligned with a forecaster and for the future we're to work partly (ph) before on the product launch and so. The cap-ex (ph) is reducing is probably due, by the way I'll ask for confirmation to my colleagues; to the disposal of some activities. I remind you that the (inaudible) freight cam (ph) activities were generated some cap-ex (ph) for the leasing and the fleet (ph), so this is particularly linked to that. I cannot assure you that actually there is no volume three plan to reduce cap-ex (ph) during the year, and that the R and D end cap is always as expected in line with the total expected amount.

On the Fitus (ph) transaction, I will leave it to (inaudible). You know we have two Fitus (ph) transactions. One already done in Brazil that generated a positive impact on the net financial position and the other one that this Fitus (ph) Europe retail that is not so high on the percent; just 51 percent. So we'll maintain 49. And these on account terms generates a negative impact of financial position because we will move to account for the difference for the equity of the Fitus (ph) as a part of our net financial position as a participation Fitus (ph) at this outside of net financial position. But I can't ask (inaudible) you gross impact, Fitus (ph) Brazil, Fitus (ph) Europe in term of our net financial position. Luigi please.

OK, well if one looks at the aspect the sale of (inaudible) were up, we will have a negative impact on net financial position because of about 400 million. The main reason is that we are going to receive about 800 million from the banks but we're going to invest for 49 percent stay about 400 million. So that's basically the reason why we are consolidating an amount of receivable of about 6.5 billion. So you'll have a gross debt reduction of the six billion and a reinvestment of 400 million outside. Is that clear enough?

Sorry, when you say negative impact, you mean it would reduce the net financial position by that much? Is that what you're referring to?

About 400 million.

So, I just wanted to be clear. When you say a negative impact, it would improve the net financial position by ...

No, ...

... 400 million.

... no. And that impact, this is something that sometime is somewhat difficult to explain. If you bear with me a moment, I'll try again.

In the financial position, we have the positive effect of a portfolio of 6.5 billion. And we have a negative effect after that (ph).

We are going to add to the consolidated, the entire financial receivable portfolio and adjusted debt.

We then receive the difference as the (inaudible) with (ph) equity. But we maintain 49 percent, so we only cash in 51 percent of the equity.

OK. Fair enough. That's clear, then.

Incidentally, you will see that we have divided between industrial financial services and insurance. So you might want to look at that in terms of looking at different impact.

Thank you very much.

From Credit Lyonnais Securities, we will take our next question from Ludwig Father (ph). Please go ahead.

Yes, good evening.

I know you will detail your plan in June, but could you share already with us what are the main drivers that make you so confident in your ability to post lower operating losses than in 2002, in particular, considering that you are filling Fiat's most profitable businesses. And the easier target after constant scope of consolidation.

And I have a second question, if I may. Can you quantify the part of the loss due to the temporary closure of Toro (ph) model (ph) plants, that will be identified by your insurance? And can you tell us when this indemnity will be cash in?

Thank you very much.

Well, for the second question, I have some problems to review (ph) in that here, because I'm not sure that on the phone call, some insurance people that are hearing. So, I prefer not to give you the exact amount. I can give you, let's say, identification that we expect to forecast last part of losses by insurance coverage.

Coming again to the plan, this action plan that we announced at the middle of June, today Mr. Morchio announced the guidelines in the shareholders meeting. There are mainly three.

The first one is R&D and technology and innovation. Mr. Morchio believes that it is essential to the Fiat to invest in that, to improve quality, to improve process for all the technical part. That is very, very important.

And so, he will like to concentrate (ph) RDF (ph) on this R&D and technology.

The second I think will be the cost factor. We believe that the actual cost back to the Fiat group, not only in Fiat OFF (ph), is too high, is unbalanced. Where to move? To a different cost factor and to leave with a lower breakeven, even this lower market conditions.

And the first and the third one will be a lot of action linked to the capital (ph) satisfactions, praying (ph) to analyze the situation, the group, in term of market segments, brands, positioning, pricing and so on. So more attention to this one.

So on this three main line, Mr. Morchio will announce the guidelines for the group. And then, these three main lines will be, let's say, analyzed for each of three main business sectors. And you will have all these data from that. Evidently, all the financial targets linked to them.

Actually, what we can say is that, for 2003, we will reduce the breaking (ph) loss, but we will be still in loss. We will maintain our net debt level except for the bank cuff (ph).

But the real turnaround -- and that Mr. Morchio and us -- will come at the end of this year, beginning of 2004.

That's all, I think. Thanks.

OK. Thank you.

From J.P. Morgan, we will take our next question from Hanna Lillibeau (ph).

Hi, it's S.B. Johnsonhoff (ph). I'd like to ask where do you stand with respect to capacity utilization, and also, how you've gone with respect to warranty costs during first quarter of the year.

I'm sorry. Can you repeat the question?

Sorry. Yes, sure. I'd like to know what the capacity utilization is at Fiat, also, at the moment. And also, how warranty costs have developed during the first quarter of the year.

So, are we asking to the Fiat Auto representative. The capacity utilization of first quarter was, but I think it is always around 65, 70 percent, more or less.

And for the cost cap figure, I think is the second part of the question.

And warranties.

Ah, warranties, sorry. The cost of warranty, I think, is in line with the target to reduce during the year. I think that they are also improved from the target something. So really, when you see the cost saving (ph) the first quarter of 130 million plus all the other core overhead. These also linked to warranty cost.

So, those costs of products and warranties and dealer's cost and all the overhead on the line will be projected one billion saving.

As I remember when we (inaudible) get (ph) announce it, the cost warranty accounted this one billion, around 10 percent, as cost serving (ph).

So, we confirm that.

Thank you.

Thank you.

We will now take a question from Arndt Eddinghorst (ph) of West O.B (ph).

Yes, good evening, gentlemen. I've got a question on your slide 12 in your presentation on the cash flow. And there on the figure, disposals net of acquisitions, 376.

If I then take your proceeds from Fraikin 400 million, EP 120 and some, I guess, 100 million from Fiat Brazil, it appears that you must have bought something in the area of 250 million euro. Is that right? And could you tell us what that was in the first quarter?

In the first quarter, we have disposal and some very little acquisition.

The main disposal and impact on cash was Fidis retail, 105 million. Fraikin, 383 million, and from the real estate, 64 million. The ITI, elite (ph) company.

The we are some minor acquisitions that was a part of the previous decisions for less than 40 million. So, it's very, very low.

So the net difference between disposed acquisition, accounted in the quarter, was around 376 million euro positive, that you see in the (inaudible) ...

And so the difference, roughly 180 million, is what's some different pieces, this and that what you bought.

Yes. Some deconsolidation and some acquisition.

OK. Thank you.

Thanks.

Next we will turn to Martino de Ambrogi (ph) with Euro Mobilare (ph).

Yes, good afternoon to everybody.

First question concerns cap ex. You already answered two questions, but I'd like to know if the 30 percent reduction in cap ex is something that we could assume for the full year. Also considering that you want to invest in technology and R&D and so on. And if it's possible to have a guidance for coming years.

Second one concerns the -- well, in the last, in your last conference call, you gave a guidance on Fiat Auto division. Is it possible also for second quarter 2003?

Good question. Listen, when I, in December -- in February -- said that the operating loss of Fiat Auto first quarter was in the middle within the last quarter 2002, and the first quarter of this year. It's through now.

The guideline for this situation is more difficult, because first of all, with this market changes, there are some difficulties to understand where the market is going to. I remember you that in Italy they represent 200 major markets where these volatility linked to the eco-incentives that have been stopped in the mark (ph), but the government is discussing if and when to start again.

So, let's say, we are working. What -- I'm sure that the cost saving that we realized in the first three months will be confirmed, because they are factoring the second quarter.

But I'm not now able to give you a guess at guidelines, because of the market trends are subject to these volatility, due to the eco-incentives and uncertainty from that.

On the cap ex level, the 30 percent doesn't (ph) represent, evidently, a (inaudible) reduction. The part is linked to the Fraikin disposal, but part is also linked to seasonality.

And so we don't focus renewal (ph) by 30 percent. It's the total cap ex, indeed. But lower than that.

OK?

OK. Thank you.

Thank you.

If I may, one more question. You spoke about cost-cutting plan -- additional cost-cutting plan in Fiat Auto.

I guess you probably will discuss this on your June presentation. But is it possible to have a range of the additional cost-cutting plan?

Listen, first of all, is not just in Fiat Auto operations.

Yes.

Cost-cutting plan that we are doing is everywhere, in all business lines.

If you want, the guidelines will be, and the objective will be linked to the market condition. We want to stress with all the CEO, the businesses, that we want to reach as soon as possible a positive result.

So the actual working side, they were probably to work with new approach. And they worked out fine to push on these upper end.

So, I cannot give you. Really, will be a part of the target that will be announced in the middle of June. We prefer to check before to explain to the financial community our ties (ph).

OK. Thank you.

Thank you.

From Goldman Sachs, we will now turn to Mr. Max Warburton.

Good evening. I've just got three questions, I think, like most of us this evening.

The first one is just on working capital, trying to understand cash reservation goals this year.

This matter of negative working capital was discussed earlier. But can we assume you can actually have positive working capital this year? If we look at the full year, is it conceivable if you'd have positive working capital, given your already long payable period?

Second question is, CNH. Are there any plans in terms of a further restructuring of CNH? Are there any of those businesses in CNH you'd actually consider disposing of, particularly problematic businesses?

And the third question is, on Fiat also, could you split the losses between Europe and emerging market for us, and give us an update on how that's changed year-on-year, please?

Top of the second question, CNH, I will ask to Mr. Maggiora, the CF (ph), to explain to you this restructuring plan updating -- Maggiora?

Good morning, everybody, or good afternoon for those in Europe.

As far as our restructuring programs, we have discussed them in our first quarter conference call a couple of weeks ago. The change, if any, that we're seeing is an acceleration of our actions on infrastructure (ph) and equipment side.

We are adding approximately $60 million to this year plan in order to make sure that construction equipment cuts its losses as fast as possible.

If you remember, we've also sort of announced a target of having the losses last year. CE lost $160 million approximately on an operating level. We should be going down to around 80.

OK. About the Fiat Auto losses (ph), it out Southern Europe, we estimate that between 10 and 15 percent. So, really, we have not bad condition outside Europe.

And about the working capital trend for the next month, as you know, because you saw last year, the real change in working capital is expected at the, in the fourth quarter of the year. So, we have to wait and see for that.

We believe that having these, let's say, pipeline deals (ph) very, very light. And with the new mode (ph), drive (ph) and the end Rio (ph), we can swing dramatically the situation in the last quarter.

But we had to wait and see. We believe that the work capital (ph) absorption on the first quarter is not a significant trend for all the other quarters. You saw last year different trends and situations.

So, at least we hope not to increase the need (ph) of that, to be neutral. But let's wait, the last quarter. It is the most important one for the working capital trend.

I didn't quite catch your answer about Fiat Auto split between emerging markets and Europe.

I repeat, the emerging markets, as between 10 and 15 percent of the total operating losses.

Thank you.

Thank you to you.

Ishi Yadda (ph) with Como Ex Bank (ph) Securities has our next question.

Hi. I have actually two questions. First, looking at your bond maturity for this year, you do have 200 million in June and you have quite a large amount, something close to -- slightly short of one billion maturing in October.

What is your funding strategy, given where your cost of funding is?

And, actually, my second question is, at the total debt level, you do have a dollar denominated debt, which I presume would -- you would benefit concerning the for ex trend. How much of a difference would that be?

Just before leaving to Luigi, the answer -- the basic funding strategy in short term is to use the proceeds of disposal, OK? Then to restore in the operation a good cash flow from operations, and then coming back to the markets. That's our idea, as a general principle.

Now Luigi can give you more details (ph) on that.

Well, I think we have basically -- we have basically three securities maturing this year -- 200 million in June, a billion in late October and then CNH has 300 million maturing at the very end of the year.

As of today, we have cash to repay all of them, although we're looking on interest, we're noticing that our spreads have been tightening a lot.

So, we'll see later on in the year what we intend to do. But as of today, we are likely to reverse that.

Just a follow-up question regarding -- you mentioned about the expected proceeds. Considering that Toro and Fidis and whatever outstanding was not likely to be concluded before Q2. Do you actually expect the cash proceeds to come in before, let's say, Q3?

Like, sometime next week?

OK. And for the year, the for ex impacts on ...

Well, that element, the first part of Fidis, Toro is likely to be around the end of June.

OK.

From ING, we will now turn to Daniel Schwartz (ph). Please go ahead.

Yes, good evening. Two questions.

First, at the dealers, to say, how you -- it's not timed yet. How certain would you say is the closing of the deal? And are there alternative options where have you?

And second question, is there probability of a capital increase by issuing new shares? And is the plant which of the three million euro convertible note into automatic debt -- a test of facility (ph) a possible capital increase? Thank you.

OK. First question about Avio, what we are now negotiating, we are at the final step with one investor. But when we selected this investor, we exceed (ph) our proposal. So, we have always some other alternative.

We prefer and we give priority to close with the actual, let's say, potential buyer. But it was not just the only one at the beginning of the bid and disposal (ph) approach (ph).

About the new share or change in monetary (ph) convertible and all the other financial facilities, well, the basic statement that we are before to understand the industrial action plan. That is a priority.

So to forecast exactly on a monthly basis the cash flow, the investment needs and so on.

Then we will move on this floor ordering (ph) in that connection (ph) plan, and looking if our financial situation is right or not, in line with this industrial plan.

So, in this second step analysis is, we can, we will potentially look at change. But in any case, would be a change justified by the industrial action plan. And of the monetary (ph) rate, pay it. We have no discussion today. We have no negotiation if we will decide to change. Evident, we will protect the interest of this whole, this (inaudible) Fiat group.

Thanks.

OK. Thank you. One question, if I may. Do you expect the Italian government to restart the intensive program?

Listen, I understand, daily discussion with government. I think the government is trying just to put the specific item in more complete package of decisions. And so, maybe this take more time. I hope that. We are insisting on that, evidently.

But no exact positioning today.

OK. Thank you.

Thanks.

From Goldman Sachs, we will now turn to Pierre Luigi Volini (ph). Please go ahead.

.... A couple of questions regarding -- regarding the Fidis transaction, this -- do you expect this transaction to result into additional bank lines being available to you, given that the banks will now be lending to Fidis on a, basically on a standalone basis?

And can you give us an update as to what availability you've had on your bank lines as of the end of the first quarter, and how much of that bank availability is on line, is on credit line, that are available through 2004?

OK. Buena sera, as I give you immediately to, the answer to Luigi Cobitazio (ph), and (inaudible) I can give you that we are selling a part of the proxial (ph) businesses. So I think that we'll give it to bank, is also a good investment perspective, not just a pure helping to the Fiat group. It's a real business investment.

Anyway, Luigi give you all details about the credit lines availability. Thanks.

I think the number of credit lines and the level of utilization, i.e., virtually zero in terms of committed lines. They were substantially unchanged from the yearend.

I think you're basically referring, or maybe you wanted to make reference to a billion syndicated line which matures at the end of July. We are working on renewing that.

So, in terms of available on bank line ...

There's a billion ...

... a billion.

There is a billion dollar line, which was at 96 (ph), 2003 which matures in late summer. I think on July 27, if I recall correctly. And we'll be working on renewing that.

And about the other three billion, do they ...

The rest was substantially unutilized, and they matured. The largest one is a two billion maturing in 2005, on July 31st, 2005. The rest is spread all over maturities, most of them 2004, 2005.

OK. And so you're, in terms of Fidis, I understand it's, of course, it's an economic investment for the bank. But in terms of my question, do you, would you expect the bank to, you know, (inaudible) transaction to free up additional bank lines?

Well, clearly, it frees up a lot of see (ph) at risk ...

Right.

... with many banks around Europe. So, frankly, we have sufficient life of today, if we ever need, to make our life easier.

OK. And in terms of ABS (ph) facilities, you mentioned CNH. When is exactly -- when are the proceeds from this program supposed to come in?

As we speak, CNH is actually launching an ABS (ph) for one billion in this ...

Right.

... which (inaudible) led by J.P. Morgan, ABN AMRO, been launched yesterday. We close tomorrow.

OK. So, proceeds to come in in the second quarter.

No, no. Proceeds will come in a week. Yes, the second quarter.

Yes, second quarter.

We are the second quarter.

We are in the second quarter. And are there other initiatives around the group? I mean, you talked about -- you talked about, you know, securitized receivables, securitized trade receivables that we should expect to remain around six billion.

Are there other initiatives that ...

Well, in financial receivables, we basically expect to have a, let's say, usual activity, as usual in the same that CNH has to deals one this year, one in spring and one in the fall, in the States. Then they do typically a smaller deal once a year in Canada and Australia.

We'll have IVECO securitized, doing their first transaction in June. And, well, the Fidis will do its own under the new ownership.

These are financial receivables, securitization.

Indeed. Repay loans to customers ...

We don't see any specific change in the AGOLF (ph) ...

... financial market ...

... vis-à-vis the peer group actually. We will move as the previous month.

Right. And so, given that there's been a big change in demand of securitized receivables, they went down by a billion during this quarter. Do you expect that number to go back toward 9.3 billion? As exposed at the end of December on a running basis? Or about that? We have the new CNH program?

Again, the December was actually seven billion. No, we, as we mentioned, the biggest question we expect that that would remain more toward the six billion throughout this year.

No, sorry. I'm talking about the financial receivables, not the trade receivables.

I'm sorry. Financial receivable, what obviously, the one that relates to Fiat Auto, which are about half of those, almost -- about four billion -- will follow Fidis.

So, in terms of outstanding, we're not any more linked with those.

Well, if I read your press release from today, it mentions securitized receivable without recourse of 9.3 billion in December, and 8.1 billion at the end of the first quarter.

My question is, where is this going in the last, during the rest of the year? Where do you see that?

You are very, very precise in your questions. But we are trying to ...

It's going to be about a billion lower.

OK. So in line -- a billion lower versus the rest of December? Or a billion lower from now?

No, no. This is December.

OK. So in line with the level as of the end of the first quarter.

Yes.

OK. Thank you.

Maybe slightly lower.

OK. I think we're going to take two more questions.

We will take our next question from Giovanni Bocciari (ph) with Sun Tom Dicks (ph).

Good afternoon. My question is about Fiat Auto's EBIT. I was trying to understand what the level of EBIT of Fiat Auto, excluding the impact on the inventory's action, in order to understand what could be a normal performance, or maybe to be compared with last -- with the last quarter of 2002's performance. Just in order to understand how far from the beginning (ph) we are.

Well, given the fact that we reduced costs, cost-cutting, I think that we should be better than the previous one, also at the EBIT level.

But with this talking, the situation is something that have reduced, evidently, the lower selling comprised to the sell-out, reduced the temporary capacity to generate EBIT. So, the guidance for the future will be, evidently, to increase EBIT of the Fiat Auto.

The cost-cutting size have been achieved. Now we are coming back to the volumes. And volume will come back when we have these, let's say, new models arriving, and it will be in the second part of the year.

Thank you.

Thank you.

We will take our final question today from Ludwig Father (ph) with Credit Lyonnais Securities.

Yes, good evening. I have an additional question. Given that the good (ph) Brazilian (inaudible) Fiat have during the last quarter of last year, a limited supply by the collapse in the first quarter of '03. Was it also a surprise for you? And what would be the impact on the negotiations with Calide (ph)? Thank you.

Well, it's not a collapse. It just link it to the, first of all, it is likely (ph) a (ph) factor. Secondly, a temporary slowdown in the commercial A class Montinos (ph).

But as you probably know, these contracts in Mantinas (ph) are 20, 30 years long time. So is something that is not in real change in the performance of the group.

And secondly, we points (ph) really having in the first quarter, a gap, a negative gap in the aerial, in space activity for the aerian (ph) program with the delay on one operation.

So, I think that doesn't affect the negotiation with the potential investor that you mentioned.

OK.

It's perfectly (ph) understood by the buyer, that. OK?

OK. Thank you.

Thank you.

That will conclude our question-and-answer session today, ladies and gentlemen. I would now like to hand over to management for any further comments.

OK. So I would like us to remind you that we will organize next Monday's meeting. It will be a very important meeting, not only because we meet the marker (ph), we explain to you the action plan, but also because we finally, we'll give you our engagement and commitment to the middle results, middle term results of Fiat.

I repeat, it's not an easy time to do a restructuring. We perfectly understand you are seeing in the first quarter, the first annual (ph) debt (ph).

We add to our ardor (ph), we have the financial resources to do it, with the dispose (ph) (inaudible). And we will manage with -- as maximize what we can, give restructuring result terms.

But the first annual (ph) debt you will see at the end of this year, at the beginning of the next year.

Many thanks to all people and see you in June. Thank you.

That will conclude today's conference call, ladies and gentlemen. Thank you for your participation.